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Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the JD Health International Inc. 2025 Annual Results Conference Call. [Operator Instructions]. I will now turn it over to [indiscernible], Head of Investor Relations. Unknown Executive: Thank you, operator. Good day, ladies and gentlemen. Welcome to the JD Health 2025 Annual Results Conference Call. Joining us today are JD Health's Executive Director and CEO, Mr. Dong Cao; and CFO, Ms. Deng Hui. Before we start, we'd like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement. In this discussion, the company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. For a definition of non-IFRS financial measures and the reconciliation of IFRS to non-IFRS financial results, please refer to the annual results announcement for the year ended December 31, 2025, issued today. For today's call, management will read the prepared remarks in Chinese and will only be accepting questions in Chinese during the question-and-answer session. A third-party interpreter will provide simultaneous interpretation in English on a separate line for the duration of the call. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management's statements in the original language will prevail. I would like to turn the call over to Mr. Dong Cao. Please go ahead, sir. Dong Cao: Hello, everyone. I'm Cao Dong, CEO of JD Health. It is a pleasure to share with you our 2025 full year results. In 2025, China's economy maintained a steady and resilient momentum in industrial foundation for company's continued development. The government actively promoted development of new quality productive forces in the health consumption sector and encourage the standard adoption of AI across the health care sector, charting a clear path for long-term sustained growth. 2025 marked the return of JD Health's return and profit to a trajectory of rapid growth, further reinforcing our positioning as a market leader. As industry-leading health care service provider, we continue to deepen our presence across key health care segments through our omnichannel, super pharmaceutical supply chain infrastructure, comprehensive AI-powered online health care service capacities and the full life cycle health care management ecosystem. We remain committed to delivering accessible, convenient, high-quality and affordable health care products as well as our solutions. In 2025, we continued to capitalize our super pharmaceutical supply chain advantages and industrial direct sales capacity building AI-enabled full-scenario healthcare services ecosystem that supported sustainable high-quality growth. In fourth quarter, revenue reached RMB 21 billion, representing year-over-year increase of 27.4%. Non-IFRS reached RMB 1.1 billion, up 13.5% year-over-year with margin of 5%. For 2025, our revenue reached RMB 73.4 billion, representing year-over-year about 26.3%. Non-IFRS profit totaled RMB 6.5 billion, up 36.3% year-over-year with our non-IFRS profit margin 8.9%. Notably, we delivered revenue growth of more than 20% year-over-year for 4 consecutive quarters, while our full-year non-IFRS profit margin reached its highest level ever since IPO in the pharmaceutical sector. Leveraging our supply chain strength, we continue to gain from partnership with pharmaceutical companies as the first online marketplace for new and specialty drug launches. We introduced more than 100 new drugs during the year, a significant growth from 30 in 2024. Taking the DAYVIGO as an example, this flagship collaboration between Eisai and JD Health exceeded 20,000 orders in launch month alone. At the same time, by working closely with pharmaceutical companies to promote innovative integrated consultation, pharmaceutical and service closed-loop model, we are strengthening those partnerships and establishing a novel health care ecosystem that supports comprehensive collaborative relationship. For instance, we established strategic collaboration with Novo Nordisk, drawing on omnichannel expertise in chronic disease management and treatment solutions together with JD Health [indiscernible] in healthcare service. We jointly established a dedicated public health hub on obesity. This initiative supports a one-stop diagnosis and treatment and medical solution for diabetes and drug [indiscernible]. We also formed a strategic partnership with Eli Lilly to promote the innovative digital health solutions for patients in China who are living with obesity and type 2 diabetes or alopecia areata. Those solutions integrate patient education, live consultation, medical supply and long-term disease management. In health supplement, we fully harnessed our direct sales capacity, actively engaging in product co-development, supply chain structuring, professional service enhancement and industry standard setting to reinforce our platform central role across our value chain. By focusing on the senior nutrition, child development, beauty supplements and ready-to-consume nutrition products, we have helped the brand partners to achieve sustainable long-term growth. For instance, while the standard deep-sea fish oil market strategy matured, we identified the growing consumer demand for high-purity, high adoption products with significant untapped potential. Based on this insight, we worked with [indiscernible] to develop a premium fish oil product tailored to market needs to tap the high-end segment, featuring 97% of high-quality EPA. The product garnered over 15 billion impressions on its launch date on JD Health's platform. In medical device, we fully integrated our supply chain strength to build a seamless online-to-offline service loop, driving industry-wide upgrades through the ongoing technological innovation, for instance, in collaboration with Yuwell Medical, we launched the JD brand continuous glucose monitoring on our platform, which can be connected directly to JD Health's app via Bluetooth to deliver integrated blood glucose management experience, covering monitoring, analysis, intervention and tracking. For users who require device setup or configuration systems, we offer in-home support with health care professionals providing hands-on guidance through the process. In response to national initiatives to foster new quality productive forces in the health, we provide the capacities and medical AI solutions to a wide range of ecosystems. We aim to enable high quality and sustained development such as the Dr. Da Wei and a suite of multi-role intelligent service agents, AI doctor digital twins, and AI health chatbot, Kang Kang. At the end of 2025, Dr. Da Wei has completed hundreds of millions of interactions. The JOY DOC 2.0 version comprehensive management solution spanning 3 key areas: clinical nutrition, pharmaceutical services and weight management. This product provides health care institutions with standardized traceable and highly efficient digital intelligent support. We work together with the First Affiliated Hospital of Wenzhou Medical University and Union Hospital of Tongji Medical College to cover 5 million patients in 2025. Our on-demand retail business also achieved breakthrough through the year. We continued to expand the online medical insurance payment services as well. We have been expanding coverage to 29 key cities. By 2025, we have established more than 300 self-operated pharmacies nationwide. By integrating those stores with our on-demand retail business, we have further differentiated our product offerings and enhanced the overall user experience. Additionally, we continued to strengthen our integrated online and offline medical services. JDH's at-home rapid testing service maintained strong growth momentum with full year order volume increasing by 81.9%. Our at-home rapid testing service pioneered a hospital-grade home testing service during the year, extending the professional practice of hospital laboratories into the home setting, processing for cities including Beijing and Shanghai. This service exemplifies the deep integration we have achieved across our supply chain and digital platform strength and the professional medical expertise of the public hospitals during the peak respiratory seasons. It effectively eases hospital congestion, shortens patient visit time and lowers the risk of cross infection caused by JD Health service basket and digital coordination system. The process from sample collection to delivery takes an average of 3 hours and can be completed seamlessly with the app. Looking ahead, we will continue to strengthen our super pharmaceutical supply chain advantages centering on user experience, cost and efficiencies. By capitalizing our direct sales capacities and deepening collaboration with brand and ecosystem partners, we further cement our leadership in the health care retail market and reinforce user awareness of JD Health as a go-to platform for online health product services. At the same time, we will continue to advance technological innovation in AI applications, empowering our integrated consultation, examination, diagnosis, pharmaceutical service, closed-loop through an AI plus supply chain strategy and supporting the high-quality growth and sustained development of the broader health care sector. By steadily expanding our health care ecosystem service scope and consistently enhancing our integrated online and offline medical services, we will share better experiences to the business. Now please welcome CFO, Ms. Deng Hui, to share details of financial performance. Deng Hui: Good to see you. Thank you for attending and joining the JD Health earnings conference call. This is Deng Hui. It is my pleasure to provide you update on our fourth quarter full year 2025 financial performance. In 2025, China's macroeconomic landscape continued to show a cost recovery trend, showing new development opportunities. For AI-driven health industry, JD Health actively responded to a policy directive of fostering new quality productive forces in the health consumption sector. Achieving sustained and high-quality growth in 2025, the revenue reached RMB 73.4 billion, representing a year-over-year increase of 26.3%. Non-IFRS profit amounted to RMB 6.5 billion, up 36.3% year-over-year with a profit margin of 8.9%. It's worth noting that our revenue growth rate has maintained above 20% for the consecutive quarters, while our non-IFRS profit margin reached its highest level since its listing. In the fourth quarter of 2025, revenue totaled RMB 21 billion, up 27.4% year-over-year. Non-IFRS profit for the quarter reached RMB 1.1 billion, increased by 13.5% year-over-year with a profit margin of 5%. As of December 31, 2025, our annual active user accounts for the past 12 months stood at approximately 220 million with a net addition of 34 million compared to December 31, 2024. Among other revenues, direct sales revenue reached RMB 60.9 billion in 2025, representing year-over-year increase of 24.8% and accounted for 82.9% of total revenue. This growth was primarily driven by increased sales of chronic disease related drugs and expanded first launch partnership for innovative drugs as well as health supplements, where we focused on strengthening our direct sales capacities and cultivating growth in high-quality segments and sales of new created medical devices. Meanwhile, service revenue reached RMB 12.6 billion for the full year of 2025, up 34.1% year-over-year and accounting for 17.1% of our total revenue, an increase of 1 percentage point year-over-year with platform commissions and advertising services maintaining strong growth momentum. During the year, we prioritized the onboarding of emerging brands, significantly increased resource allocation to merchant support, and expanded the merchants access to our omnichannel infrastructure and resources, fostering growth for both the platform and our merchant partners. We continue to advance our on-demand retail business in 2025 to be more efficient and accessible on-demand services to our users by continuously strengthening synergies among supply fulfillment, payment and expertise experiences. In health care services, we further deepened our Internet plus health care service ecosystem through AI empowerment this year, achieving scaled deployment of AI technologies across consultation, examination, diagnosis, pharmaceutical scenarios. We launched a series of AI-based solutions tailored for users, doctors, hospitals, primary health care institutions, including AI Jingyi and JOY DOC, establishing the industry's most comprehensive AI enhanced health service matrix. Our AI agent, Dr. Da Wei, has completed hundreds of millions of user interactions with a 98% satisfaction rate. Meanwhile, JOY DOC has served over 5 million patients across several hospitals, including the First Affiliated Hospital of Wenzhou Medical University and Union Hospital of Tongji Medical College. From the profitability level, JD Health's gross margin was 24.8% in 2025, up 1.9 percentage points year-over-year. The improvement highlights the core strength of our supply chain as well as the ongoing enhancement of our direct sales capacity. Our direct sales mode effectively drove gross margin expansion through economies of scale, while empowering our professional procurement and sales teams to identify industrial trends and capitalize high potential subsegments, boosting overall operational efficiency. At the same time, we encourage a greater resource investment from merchants fulfilling growth in higher-margin business such as advertising services on a non-IFRS basis. Our fulfillment expense ratio was 10.4% in 2025, up 0.2 percentage points. Our selling and marketing expense ratio maintained largely flat at 5.2% in 2025 compared with last year with [indiscernible] hitting the road this year, promoting awareness of our quality standards for nutrition products while helping drive sales growth in the health supplement segment, although selling and marketing expenses rose by 26.9% year-over-year. Our R&D expense ratio was 2.2% in 2025, up (sic) [ down ] slightly by 0.1 percentage point year-over-year as a result of our ongoing investment in AI technologies. As of the end of December, we had over 880 R&D personnel, increased compared with the previous year. As revenue continued to grow, the proportion of fixed R&D expenses will decline accordingly, while the productivity of our R&D team will also improve. We remain committed to investing in health AI technologies and have launched a suite of AI-powered products, serving users, hospitals and primary health institutions across multiple health care scenarios. Moving ahead, we will continue to deepen our efforts in these areas. The G&A expense ratio was 0.8% for the full year of 2025, flat with 2024. Our back-end staff and operational management efficiency levels continue to lead the industry. Finance income was RMB 1.5 billion in 2025, attributable to increased cash balance. Other income and gains, net was approximately RMB 1.6 billion (sic) [ RMB 0.77 billion ] in 2025, mainly reflecting fair value changes in wealth management products. Excluding share incentive, our non-IFRS profit for 2025 increased by 36.3% year-over-year to RMB 6.5 billion with a margin of 8.9%, up 0.7 percentage points from last year, reaching its highest level ever since our IPO. Our cash flow from operating activities reached RMB 10.2 billion for the full year of 2025. As of the end of December, cash and cash equivalents, restricted cash, term deposits and wealth management products measured at fair value through profit or loss at amortized cost totaled RMB 96.5 billion (sic) [ RMB 69.5 billion ], a net increase of RMB 10.1 billion compared to December 31, 2025 (sic) [ 2024 ]. In summary, JD Health delivered high-quality growth in 2025, underpinned by continuously optimized operational capacities and steady profitability growth. Our strong performance highlights our persistence, enhancing user experience, while improving cost and efficiency by developing and refining AI-powered health service scenarios. We broadened our business scope, further validating the distinctive value propositions of our dual-engine business model. That concludes our prepared remarks. We are now open for questions. Operator: [Operator Instructions] Now we are going to welcome Miranda Zhuang from American Bank. Xiaomeng Zhuang: In 2025, you achieved a faster growth, and you had very good growth momentum with better profit margin. That is great news. I have a question to you. Can you share with us the near term and the 3-year middle-term prospects, what will be the main growing points? And what will be your strategies? Dong Cao: Thank you for the question. You're my old friend, Miranda. I want to share with you the general directions about the track for the future growth. We know that pharmaceutical sector, health products and medical devices are belonging to one community. The market size is around RMB 3 trillion to RMB 4 trillion. This is the size of the total market share, and we have to check different proportions. So you could fully understand, in the entire year, the revenue is RMB 17 billion (sic) [ RMB 73.4 billion ]. Compared to the potential of the market, we are still having a big room to grow, which means that we have a lot of opportunities to grab. Currently, we could achieve more than one digit growth potential. I believe that this is a huge market. Despite the fact that JD Health is a huge pillar, we could also go faster and we could go deeper. That is our inspiration, and that is our commitment to go deeper and go faster built on our existing advancements and results. The next point is from the perspective of the users. Currently, around 220 million users were out there and the total number is still growing, and we have a lot of active users, but not as big as the total user base of the JD Group. Because we are JD Health, we could still have a big room to grow. So I'm just sharing with you the size of the sector as well as the users of JD Health. I believe that from both fronts, we could do a lot of things to grow our potential. To be more specific, for the next 1 to 3 years, what will be happening and what will be the key drivers. To start off, I want to go back to the product portfolio and what will be the growing momentum. I'm going to speak about the pharmaceutical products. For the long run, we are in the leading position and we are growing very fast. We continue to improve our performance in 2025. The new drugs are taking 15%, and we are growing very fast compared to the velocity of 2024. You could feel the change and you could feel the transformation. Built on the mindset of JD Health, more brands, more pharmaceutical companies and more manufacturers will come to us. They will finally realize JD Health is a huge platform. We could help them, we could empower them. We could bring to them additional value. The new products, the special drugs could have very good sales at our platform, driving us to embrace a larger number of new drugs on their first sales. This is a very positive trend and I am very happy to share with you. I believe that in terms of the pharmaceutical companies, we will continue to grow. I believe that this market will grow, of course. We have the in-hospital and off-hospital market and off-hospital market will be moved to the online setting at even faster manner. Those are the trends we could observe on the market. That's why I'm so confident in sharing with you our growing potential and growing [indiscernible]. In terms of the health supplements, I know that you've followed us for long-term. When we are discussing the pharmaceutical companies and health supplements, you can know we are offering the best quality products. We could offer you very good user experience as well. We go very fast and we are highly efficient in delivering our services and offerings. We are doing more than selling. We are also providing the evidence-based solutions. It's like we are collaborating with GNC. We are jointly releasing the white paper, providing better service and educational resources to the users. We are also providing a premium fish oil, improving the user experiences in the overall manner. We want to add to user experiences, and we want to add user value. We are not selling products in an efficient manner. We're also helping the users to select the best ever products. And we are also an online platform having huge integrated logistics chain advantages, which means that we are having this pillar and we will grow this as well. The next topic is about medical devices. I want to give you a case. We're collaborating with Yuwell to offer customized products. The monitoring of the glucose device. It is well set. And for the next step, we have more plans. In terms of the sales, we will provide software, hardware as well as integrated chronic disease management plan. If you tried our products, you can know how well it is. It is very unique and it's very special. If you try the Yuwell glucose monitoring device, you can know how good it is, you could know which food is good for you and what are the foods bad for your health. I believe that is the best collaboration model. You could manage your food, you could manage your diet, and you could complete all those processes for our product. And we are now promoting AI-empowered health management device. This will be the new ecosystem. AI is keyword, very popular. In 2025, we launched the AI doctor, Dr. Da Wei, completed hundreds of millions of interactions with online users with a high level of satisfaction ratio. The AI matrix includes the 2B, 2C and 2H front with very good performance separately. Those performances are not yet fully matured. They are not translating directly into sales revenues. However, we can safely say that they will be the future drivers, helping JD Health to garner potential profits. In the long run, they will be our long-term drivers. I'm just sharing with you those highlights for reference. Thank you, Miranda. Thank you for the rest of investors. Now please start your second question. Operator: The next question comes from UBS, Henry Liu. Henry Liu: Thank you for the prepared remarks, the management, and thank you for having my questions. Can you say a few words about the competition landscape of the company. For instance, we have the e-commerce platform, we have the brick-and-mortar physical stores. How you can stay competitive among all those competitors? Dong Cao: For the long term, I'm confident in standing out of all those competitors and market players. If you are watching and following us for the long run, you know we are a company with a lot of pragmatic mindset and behaviors. You know how we check and observe this market landscape, you know how we view our competitors. From the perspective of JD and JD Health, we are good at managing the supply chains. We are good at managing our own brand products, because we want to manage the quality of the products, we want to ensure the best efficiency on this market. In terms of health care market, those elements are maturing. We want to manage the health of the users, and we have a strong mindset. That is why we are standing out compared to other competitors. That is in our DNA, that is in our blood veins, and we are maximizing our DNA. In the company, the revenue is growing very fast, of course. And our market penetration rate is not as good as we expected. In the future, the market will be highly fierce, of course. But this market is not yet fully competitive. It's not receiving full competition. Every company could have their own proportion and share. You could manage your supply chain, you could play up your strengths and you could do somethings with a lot of pragmatic behaviors and you could improve the health. So we could extend our strength in the long run, and we could further extend our market scale. That is my general impression, and that is my short answer for your question. Next question, please. Operator: The next question comes from Haitong International, Meng Kehan. Kehan Meng: I'm from Haitong International. Congratulations. Thank you for sharing with us the great results in 2025. I have some questions to you. For the next few years, what will be your plan to start the brick-and-mortar stores? And what will be the impact for the online practices? And for the ILC, what will be your future plan? Would there be any change? Would there be any large M&A plans? Dong Cao: I want to take those questions with more elaboration. I believe a lot of investors are very interested in those points. First of all, we don't have the plan to have a large-scale M&A. But it doesn't mean that we don't care about the offline practices and offline maneuvers. The efficiency, the cost of running the brick-and-mortar stores is one of our key strengths, of course. I talked about the medical insurance policy. This is very key in managing the brick-and-mortar store, the pharmacy. 35% of the gross margin will be the bench line. It's not that high, of course. And we have a lot of good chances. We are not relying 100% on the medical insurance, and we could ensure the security of the business. Of course, the gross margin was not as high as we expected when we are running it online, but still very satisfactory, but still satisfied with those results. When we are running the offline stores, we prioritize. We also care about their practices, because around RMB 2 trillion -- in terms of the market share, RMB 2 trillion belong to the offline practices, and some of them belong to the in-hospital market, around 7% to 8%. It matters. I don't think the online business can 100% replace the offline business. Still, we have to watch closely to the development of the offline business, but how we are going to maximize our strength. There are 2 sets of practices. The offline pharmacies for one thing. We are running 300 offline pharmacies up to now, 300. Those pharmacies are serving their neighbors. We are consistent in promoting the offline pharmacies. Those offline pharmacies are good at delivering immediate service requirements and demand. In terms of the data, they are accounting for 10% in terms of market share. Some patients want to have immediate medical products. The size of the pharmacy is not big. Our priority is on B2C business to customer. But this is a very important scenario for us to manage the customer relationship, and we would do a good calculation, how we are going to manage the stores, how are we going to manage the operator or the users. And this is a platform with a lot of openness, and we are collaborating with the chain pharmacies as well. Those are our business patterns and business scenarios to better serve the users, bring them the premium experiences. So I don't think we're going to have a large-scale M&A to cover the offline pharmacies. I don't think so. We may maintain the structure, the size. And offline pharmacies in terms of number is too many. Altogether, 700,000 in totality. I believe that we can do more to improve their overall efficiency. The next is about the checkup centers. I believe that checkup centers are providing us a new area to grow our business range. We can do a better job improving the quality, and that will be the new entry to collect different dots. I believe that the offline checkup centers will be the entry point to manage the health. Now we have several checkup centers in operation. We're not in a hurry to duplicate the model. We want to maximize the JD DNA, be pragmatic. We'll be patient, we'll be accepting the market changes. We will never go too fast. We are having a long-term vision to be the guardian of the people's health in China, and we want to do a good job. That is our practices for the offline business. We will never do it overnight. We'll not complete all the business over the short term. We will be stable and we'll be cautious. It's a step-by-step manner. All in all, the business here will be extended and there will be no obvious shock to our core business. So we believe that whatever we are doing, the AI-empowered practices, the offline pharmacies, we will go very steadily, step-by-step, improving the users experiences. Before each step we are marching on, we'll find out what will be the long-term mission, what will be our purposes before we are taking up this step. Now we are using a lot of AI technologies. We are improving the general efficiencies very positively. The AI nutritionist is also a good practice. The conversion rate is even higher than the real person nutrition practitioner. I believe that the offline pharmacies will also be greater scenario, faster use and to administer the AI practitioners. So don't worry about large M&A from JD Health. We will do everything step-by-step with very good reason. Operator: Next question from Goldman Sachs, Lincoln. Lincoln Kong: Congratulations for you to have the 2025 outcome. I have a question on the progress of AI+. Please share your opinions about the supply chain, about your practices for the future. Dong Cao: Again, I want to give you our overall planning. There are several directions ahead of us. The first is the 2C, to customer direction. You could check what happens in JD application. On JD Health application, we have the doctor, Kang Kang. We have the JOY DOC. For the 2C side, you have the Jingyi. They are doctors, Dr. Da Wei. We have the pharmacists, we have the nurses. They are AI bots, they are AI twins. A lot of consultation services are out there, the shopping services, the before and after sales services are out there. The conversion rate, the satisfaction rate, the user experiences are very positive. The online consultation is booming, empowered by the AI technologies. Those are the good outcomes from the 2C front. However, it's not right time for us to commercialize all those practices and assets, but still we're in a good position, we're in a good direction to have the commercialization. Now we have the Jingyi. We have the 2H to hospital front. In the future, I hope that we could get connected to the hospitals. We are speaking about 70% of the resources of the 2 trillion market size will be in different hospitals. We want to expand our market share, rely upon the partnership with different hospitals. The hospitals will help us to manage the patients. For instance, we could do the pre-consultation, helping the patients to check in the right departments. Those are some things we could down before the hospital entry. For the post-operation diet and nutrition, we could also have the AI to help those patients, and we can collaborate with the hospitals. In the future, we could manage this business with incremental growing momentum. And for the 2B side, the 2B side is operated for the doctors totally free of charge. However, how we are going to set up a good business model, how we're going to have the final commercialization, we are still in the process of pondering on. In China, it's very special for the doctors to pay. Still, I believe that as long as the products and the services are excellent, we could have sort of some method to charge. Still, it's a very complicated value chain in the medical sector. There will be the right payer. That is the question we have to keep thinking. And we have to avoid the homogeneous competition. No matter what, those are the directions we are embarking on, and we are seeing a much more clear directions and light at the end of the tunnel. In the near future, I believe that we could see more frequent AI application with positive outcome. If there's any feedback, I will let you know, and we will keep a close eye on this market. But please keep it in mind. JD Health has very good AI innovation practices, and we go very steady by collaborating with the stakeholders, and we will continue to promote innovative drugs. When we are checking the market, it looks very dynamic, it looks very popular, but we will be the one who speak deeper to this market, and we will give you good solutions, because all in all, we want to serve the patients, we want to serve the users with good experiences. We are more than observer, we are a practitioner. Thank you. Operator: For time's sake, we are going to close the Q&A session. Now I'm going to welcome you give us the closing remarks. Dong Cao: Thank you once again for joining us today. If you have further questions, please contact the IR team directly. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to Automotive Property (sic) [ Properties ] REIT's 2025 Fourth Quarter and Year-end Results Conference Call and Webcast. [Operator Instructions] Please be aware that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the REIT's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking information. For more information on the risks, uncertainties and assumptions relating to forward-looking information, please refer to the REIT's latest MD&A and annual information form, which are available on SEDAR+. Management may also refer to certain non-IFRS financial measures. Although the REIT believes these measures provide useful supplemental information about financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on March 5, 2026. I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb. Milton Lamb: Thank you, Morgan, and good morning, everyone. Thank you for joining us. With me today on the call is Andrew Kalra, our Chief Financial Officer. 2025 was an instrumental year for Automotive Properties REIT. We acquired 13 automotive properties, including our first 3 properties in the United States for an aggregate purchase price of approximately $200 million. These acquisitions contributed to our significant growth in rental revenue, cash NOI, AFFO per unit in 2025, which supported our distribution increase effective August of 2025. Compared to 2024, our property rental revenue increased by 8.5%. Cash NOI was up 8.4% and AFFO per unit diluted increased to $0.998 from $0.932. As the majority of our acquisitions were completed in the second half of the year, our Q4 results show even greater growth with property rental revenue up 19.3% compared to Q4 a year ago. Cash NOI grew 18.6% and AFFO per unit diluted increased to $0.251 from $0.232. Our $57.1 million equity offering in the quarter, which helped finance our acquisitions impacted our Q4 AFFO per unit but we still generated nearly $0.02 increase to AFFO per unit. Supported by our contractual fixed or CPI adjusted rents -- annual rent increases, our same-property cash NOI increased by 1.9% and 2.1% for Q4 2025 and the full year, respectively. During Q4, we deployed approximately $57.3 million for the acquisition of 4 dealership properties in Greater Montreal, including a portfolio of 3 properties located in Dorval consisting of a full-service Subaru, Honda and VW dealership properties tenanted by affiliates of Dilawri, and a full-service Honda dealership in Ile-Perrot tenanted by an affiliate of Group Auto Force, which adds to the sixth property portfolio we previously acquired in Q3, which is also tenanted by affiliates of Group Auto Force. We expect to benefit from the full impact of our 2025 acquisitions in 2026. Subsequent to year-end, on January 1, we completed the acquisition of a full-service 40,000-foot Hyundai dealership situated on 6 acres of land in Quebec City for a purchase price of $13.25 million. And yesterday, we announced that we've waived conditions for the purchase of the real estate underlying automotive and service property located at 3280 Corporate View in Vista, California from a third party for a purchase price of USD 16 million. Vista is located in Northern San Diego County. The Vista property is tenanted by Rivian under a midterm net lease that includes contractual fixed annual rent increases with renewal options. The Vista property consists of a 60,000-foot Rivian delivery and service facility that is situated on approximately 3.7 acres of land. The acquisition is expected to close during the first half of 2026, and we expect to fund the purchase price by drawing on our revolving credit facilities. We expect these property acquisitions to drive continued growth in our AFFO per unit, and we are entering 2026 with solid growth momentum. I'd now like to turn it over to Andrew Kalra to review our Q4 financial results and position in more detail. Andrew? Andrew Kalra: Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $27.9 million from $23.4 million in Q4 a year ago, reflecting growth from the properties we acquired during and subsequent to Q4 last year and contractual annual rent increases partially offset by the reduction of rent from the sale of our Kennedy Lands property in October 2024. Total cash NOI, same-property cash NOI for the quarter totaled $23.2 million, $19.6 million, respectively, representing increases of 18.6% and 1.9% compared to Q4 a year ago. Interest expense and other financing charges for the quarter were $7.5 million, a $1.9 million increase from Q4 last year, reflecting additional debt incurred to acquire properties during and subsequent to Q4 2024 and increased interest rates. Our G&A expenses were $1.8 million for the quarter, a decrease of $0.4 million from Q4 last year, in line with our expectations. Net income and other comprehensive income was $13.9 million compared to $12 million in Q4 last year. The increase was primarily due to higher NOI and a change in noncash fair value adjustments for interest rate swaps, partially offset by higher interest costs and changes in noncash fair value adjustments for investment properties and for Class B LP units and unit-based compensation, partially offset by a foreign exchange loss of $1 million. FFO and AFFO increased by 20.4% and 18.4%, respectively, compared to Q4 last year, reflecting higher rental revenue from acquisitions, contractual rent increases, partially offset from the reduction of rent from the sale of the Kennedy Lands. On a per unit basis, FFO increased to $0.259 diluted in the quarter, up from $0.236 in Q4 last year, and AFFO per unit increased to $0.251, up from $0.232. We paid unitholders distributions of $11.32 million or $0.206 per unit, representing an AFFO payout ratio of 82.1% compared with 86.6% in Q4 last year reflecting the positive impact of the properties acquired during and subsequent to Q4 last year and contractual rent increases, partially offset by the reduction of rent from the sale of the Kennedy Lands and the increase in our monthly cash distributions effective August 2025. The cap rate applicable to our portfolio was 6.75% at year-end, which is essentially flat quarter-over-quarter. The $6.8 million fair value adjustment for the year was primarily related to write-off of closing costs, including land transfer taxes associated with the new acquisitions. We continue to be proactive with our debt strategy to limit our exposure to interest rate fluctuations, enhance our financial flexibility. During the quarter, we renewed or entered into $25 million of floating to fixed interest rate swaps for a term of 5 to 6 years at a rate or under 4.5%. We increased the amount of the non-revolving portion of Facility 3 by $40 million and extended the maturity to March 2028 at the same credit spread. At year-end, we had a debt-to-GBV ratio of 49.9%, providing further acquisition capacity. Subsequent to year-end, we entered into floating to fixed interest rate swaps within Facility 3 in the amount of $45 million for terms ranging from 5 to 7 years with interest rates between 4.45% and 4.59%. And we increased the amount of the revolving portion of Facility 1 by $25 million and extended the maturity from June 2027 to June 2029. As at the date of this MD&A, on a trailing 12-month basis, the borrowing capacity under our 3 credit facilities increased by an aggregate $140 million, and we extended maturities. We have a well-balanced level of annual maturities with less than $40 million of swaps maturing over the next 12 months. We have a weighted average interest rate term and mortgage remaining of 4.1 years at year-end. As at March 4, 87% of our debt was fixed through interest rate swaps and mortgages, and we had approximately $102.3 million of undrawn capacity under our revolving credit facilities and 10 unencumbered properties with an aggregate value of approximately $130.2 million. I'd like to turn the call back to Milton for closing remarks. Thank you very much. Milton Lamb: Great. Thanks, Andrew. 2025 marks our 10th anniversary since the creation of the REIT. And over that period, we've established ourselves as an important partner to major automotive dealership groups and OEMs in Canada and now in the United States. As a result, we've successfully diversified our tenant base, market presence and brand representation while more than tripling the value of our investment properties. We further built upon this progress in 2025 and strengthened our position for growth through the acquisitions of 13 properties for an aggregate purchase price of approximately $200 million. Our entry in the U.S., combined with our entry into a heavy equipment dealership vertical late last year has broadened both our revenue base and our potential acquisition pipeline. We are successfully executing on our key objectives, including driving AFFO per unit to build value for unitholders. We're pleased to have implemented a 2.2% increase to unitholder distributions this past year. And looking ahead, you can expect us to continue to build on these positive factors to drive unitholder value supported by a growing property portfolio, featuring essential retail and service properties with 100% rent collection since our IPO over 10 years ago, prime metropolitan markets anchored by GDP and population growth, high-quality tenants with resilient business models, attractive single-tenant net lease structures and embedded fixed or CPI-adjusted rental growth. We look forward to benefiting from a full year of the financial impact of our 2025 acquisitions in 2026. That concludes our remarks. Now I'd like to open it up for questions. Morgan, please go ahead. Operator: [Operator Instructions] Your first question comes from Sairam Srinivas with ATB Cormark Capital Markets. Sairam Srinivas: Congratulations on a good 2025. Obviously, 2025 has been very active for the acquisitions pipeline and it looks like 2026 is pretty active as well. So can you comment on the outlook ahead and what you're seeing developing in your markets? Milton Lamb: Yes. I mean we experienced during COVID and just after a bit of euphoria where some of the pricing on these properties went to a level that we were not comfortable proceeding at. That's now normalized to what we've traditionally seen where we can buy properties in that, call it, 6.5 to low 7s and put financing in place in the mid-5s -- sorry, in the mid-4s. That allows us to be at a number of opportunities that are appealing to us. We're still being selective. And as you can tell, looking at Florida and California plus Montreal, these are markets that are very healthy for real estate and the economy overall. Sairam Srinivas: That's definitely the case. And maybe just a follow-up there. Looking at the U.S., you essentially been focusing on Rivian and Tesla tenanted dealerships there. Is that part of your broader strategy as well in terms of the U.S. market? Milton Lamb: As a broad strategy, we certainly believe. We watched Tesla for a while before we did our first. And then currently, we have 7. We're excited about what Rivian is doing with the R2 that will launch shortly. So there tends to be some merchant developers in the states that are providing long-term leases with Rivian and Tesla in major markets that when we underwrite the real estate, both for the existing tenet and for the actual dirt building an area that we're excited about. It is not our sole strategy. We still believe that we will look for and be able to complete some automotive traditional dealership properties as well. It's early days, but we still think there will be a diversified portfolio that we end up building out. Operator: Your next question comes from Jonathan Kelcher with TD Cowen. Jonathan Kelcher: I guess just continuing on that last line of questioning. Pro forma, when this close -- when this deal closes, what percent of your net rents will come from Rivian? Milton Lamb: We don't give forward-looking exact, but it's going to be under 5%. I mean it may be 3 properties but these are not very large properties. And again, we certainly underwrite it for the dirt underneath. We like the assets, and we like the tenant. Jonathan Kelcher: Okay. Helpful. And then just, I guess -- well, second follow-up/second question. Just on the balance sheet, you talked about pushing $45.9 million post quarter into fixed rate. Like what -- Q4, you were 20% floating. What would you be pro forma right now? Andrew Kalra: In terms of our swaps coming due over the next 24 months, we've got about $40 million. We're going to push -- we're going to -- with the acquisitions, we use our revolving balance, so our revolver will go up. And then with respect to as at the date of the MD&A, our overall non-revolving is 87% fixed. Okay. We're in a comfortable zone, and we ended up doing swaps in an opportune time in the beginning of February and got some good rates as well. Operator: [Operator Instructions] Your next question comes from Jimmy Shan with RBC Capital Markets. Khing Shan: So just in terms of the acquisition pace this year, do you expect it to be as active as last year? Milton Lamb: I think we're building some momentum both in Canada and the U.S. and the -- we went through some of the math a few moments ago. So that works. I think we have to be selective, and we continue to be selective. So for us, it's a cost of capital balancing with the opportunities that we see. So it will be -- we expect to see some opportunities and it will be an interesting year. But we still believe that our multiple reflects a bit of a hangover of USMCA affecting auto, and they don't finish that sentence that says auto manufacturing. So I think we're caught in the word scramble of a title of 6 words versus 7 words, making a big difference in how we're viewed. So once that dissipates, I think our cost of capital will come back in line, and we're pretty excited on what our pipeline can and should be. Khing Shan: Okay. As you build out the U.S. portfolio, so how are you thinking about the markets you want to be in? Do you want to build a critical mass first? Or are you now just looking at the credit and you're kind of market agnostic? Milton Lamb: Yes. No, we're not -- we've never been market agnostic. So I guess I'd answer that in 2 ways. One is the underlying kind of philosophy of the REIT has always been metropolitan with population growth and GDP growth. Certainly, there's more markets in the U.S. than in Canada, just by the sheer size that fit that category. The good news is on a net lease business, we don't have those operating need for capabilities, risk management. It tends to be a bit more of an asset manager as opposed to a property manager leasing level. But we still do like, call it, that Southeast market. And then as you kind of move over into the Arizona, Texas and California. We like to see the dirt and the underlying economy and population supporting the real estate that we buy. It helps our tenants and it helps the dirt. Khing Shan: Okay. Sorry, just one last. Do you have any update on the Pfaff, the Audi space there in Vaughan, what you plan to do there? Milton Lamb: It's early days. It's a bit of a balancing act. I mean it's a great property. I keep on saying dirt but it's also got a great building on it. So the combination is the demand now for leasing income versus there is higher and better use, good density there. But in today's market, you're not getting paid for the density. So it's a balancing act of how long do we want to commit on that property versus how long until we get access to potentially the underlying value. And that's what we're going through right now and looking at different opportunities and different structures. It's early days but it's a high-quality property. Operator: Your next question comes from Giuliano Thornhill with National Bank. Giuliano Thornhill: Just a question. How do the cap rates compare for the Rivian deals compared to just regular kind of dealerships in their areas? Are they on similar like same ballpark? Or are they different? Milton Lamb: It really depends on the market. But I would think the Rivians, it's -- they haven't been around as long as some of the other dealerships or Tesla. So that's reflected a bit. But again, it's the -- what I find interesting is that they're at market rates or at numbers that we are -- I shouldn't say it overall. The ones that we've been doing are at market rates that we're very comfortable with. We've seen a number across our desk at a high number per square foot that makes us extremely uncomfortable. So it is a bit of a balancing act between the actual real estate and the tenant in place. But I would say, Rivian, with their upcoming R2, we could expect to see some cap rate compression going forward, assuming that, that launch goes as well as people anticipate. Giuliano Thornhill: And do you think of the EV transition more of like a risk or an opportunity for your kind of your existing tenant base? Milton Lamb: I think it's opening up more demand for the real estate that is zoned for automotive in Canada, whether that's including potential new Chinese entrants or just overall. I think for the existing, call it, traditional dealership base, a lot of them are going to have to have the service capabilities and the delivery capabilities for both -- well, for 3 for ICE, hybrid and for EV. So I think that broadens out their needs. But it's really going to be consumer preference, and there's going to be some investment that has to occur. But I don't see this being a hard pivot. I think it's going to be gradual over the next 15 to 25 years. And they're going to have to continue to service ICE vehicles and at the same time, move up the chain through hybrid and ICE -- sorry, hybrid and EV. Operator: This concludes the Q&A session. I would like to turn the call back over to management for any further remarks. Milton Lamb: We appreciate everyone's time, and we look forward to talking to you shortly. Have a good day, everyone. Operator: This concludes today's call. Thank you so much for attending, and have a wonderful rest of your day.
Operator: Ladies and gentlemen, welcome to the publication of the consolidated Annual Report 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Herbert Juranek, CEO. Please go ahead, sir. Herbert Juranek: Good afternoon, ladies and gentlemen. Let me welcome you to the presentation of the results of the business year '25 of Addiko Bank on behalf of my colleagues, Ganesh, Tadej, Edgar and Stefan. We have prepared the following agenda for you. I will start with the key highlights and the related achievements of '25. After that, I will pass on to Ganesh, who will update you on our results on the business side. In the second chapter, Edgar will share insights into our financial performance, while Tadej will outline the progress made in the risk area. At the end, I will present to you the cornerstones of our new midterm specialization program and our updated guidance 2026. After that, we will move on to Q&A. So let's begin with the highlights. I'm confident to inform you that despite negative influences coming from the legislative changes in several countries, we were able to close '25 with a net profit of EUR 44 million. These results includes a net profit for the fourth quarter of '25 of EUR 8.7 million, which is EUR 1 million higher than the result of EUR 7.7 million in the fourth quarter of 2024. Our earnings per share for '25 amount to EUR 2.28 and our return on average tangible equity comes in at 2.5 -- sorry, 5.2%, also influenced by the increased equity base. Overall, 2025 was a challenging year for Addiko because of reasons we will come back later on. Nevertheless, we were successful to achieve a 20% growth rate on new business in consumer lending and finally, to return to a positive trend in SME with an 11% growth rate on new business. Net interest income was with 1.8%, slightly lower year-on-year, driven by the impact of the lower interest environment on our back book and on our national bank deposits. A key positive is that thanks to our strong sales performance and the strategic cooperation agreement in our insurance business, we were able to increase our net commission income by 7.6% year-on-year. Altogether, we managed to slightly improve our net banking income by 30 basis points despite a significantly lower rate environment. Ganesh will give you more insights into the business development during his presentation. Because of our strict cost management, we accomplished to limit the increase of our administrative costs below inflation to only 1.6%. Nonetheless, due to the factors mentioned before, our operating result ended up at EUR 109.8 million compared to EUR 112.3 million in '24. Let's briefly comment on our positive risk performance. We successfully reduced NPE volume further to EUR 125.5 million compared with EUR 144.7 million at the end of 2024. Consequently, our NPE ratio also improved to 2.5%, down from 2.9% in the previous year. On top of that, our coverage ratio continued to improve to 81.7% from 80% at the end of last year. Ultimately, the cost of risk on net loans ended up at 0.96% or EUR 35.2 million compared to EUR 36 million last year. Tadej will give you more details on the risk development later. Our funding situation remained quite solid with EUR 5.3 billion deposits and a loan-to-deposit ratio of 70%. Our liquidity coverage ratio is currently comfortable above 300% at group level. And finally, our capital position gets even a bit stronger with 22.4% total capital ratio, all in CET1 based on Basel IV regulations compared to 22% based on Basel III in the previous year. Next page, please. As mentioned earlier, Addiko faced interventions from regulators and governments that negatively impacted the bank's performance in several of our markets. Croatia introduced a 40% debt-to-income cap for nonhousing loans effective 1st of July '25 and required banks to provide essential banking services free of charge since January '26. Serbia, Republika Srpska and Montenegro introduced interest rate caps, fee restrictions and debt caps. Overall, these measures are having a significant negative impact on our core revenues. Consequently, we have introduced initiatives to counterbalance the income reductions and to develop new income sources. Going forward, all regulatory effects, as known of today, are already reflected in our updated guidance. As reported in our earnings calls last year, we entered the Romanian market via our Slovenian bank through EU passporting, offering a fully automated digital lending solution for consumers. In the second half of '25, we launched several marketing campaigns to build awareness and strengthen our brand positioning. Although we achieved our recognition and recall targets, the conversion rates were below our expectations. Consequently, we refined our marketing approach. The new marketing campaign supported by an Addiko Song with life-size Oskar combined with targeted brand-building initiatives was launched in mid-February. We will keep you updated on the progress and will conduct a results-driven review in the second half of this year. Now with regards to our ESG program, I can confirm that all initiatives remain on schedule and are advancing in line with plan. Additional information is set out in the appendix of this presentation. Let me briefly touch on our regulatory sustainability disclosures. As part of the updated EU taxonomy framework, the commission has introduced a temporary opt-out for financial institution. In our case, this is fully aligned with our business model. Addiko made use of its opt-out as we do not engage in taxonomy-relevant lending activities. This approach avoids unnecessary administrative burden while maintaining full transparency in our ESG reporting. Next page, please. Let me briefly comment on our share performance and the scheduled changes to our listing. Addiko's share price increased noticeably during 2025, closing the year at EUR 22.5 and continued to rise further in 2026 to EUR 27.4 as of yesterday evening. At the same time, trading volumes and overall liquidity has remained persistently very low, making professional market making difficult and not economically viable for providers. As a consequence and in line with the Vienna Stock Exchange rules, our shares will be reclassified from the Prime Market to the Standard Market with effect of 1st of April 2026. This reclassification has no impact on our strategy or operations, but better reflects the liquidity profile of the stock. Let me now address the regulatory concerns regarding our shareholder structure. Following the sanction imposed by the European Central Bank in 2024 for exceeding the 10% ownership threshold without prior approval, certain regulatory uncertainties continue to persist. Although the voting restrictions applicable to a specific shareholder group were lifted in early February 2025, the supervisory authorities continued to identify residual uncertainties concerning the bank's shareholder structure. The bank remains fully committed to maintaining a transparent, cooperative and constructive relationship with all relevant regulatory bodies and we continue to engage actively with them to address the outstanding supervisory considerations. In this context, I need to mention that the current shareholder situation continues to create significant additional efforts and a severe distraction for the bank. Nevertheless, we will carry on to do our best to fulfill the increasing related demands put upon us by our regulators. In line with supervisory expectations and regulatory requirements, the dividend distribution for the financial year 2025 remains suspended, taking into account regulatory considerations related to the shareholder structure. From the perspective of the bank's long-term stability and in the best interest of all stakeholders, the Management Board maintains its position that dividend payments will not be resumed until the share -- until the ownership structure has been conclusively clarified and the related concerns raised by the supervisory authorities have been fully resolved. Now let me briefly outline how we performed against our '25 guidance. The positive message is that despite headwinds, we delivered on our '25 guidance. In income and business, our loan book grew by 7% year-on-year, supported by strong consumer demand and the renewed pickup in SME in the fourth quarter. Our NIM ended up at 3.7% and net banking income held stable. Costs were managed well with OpEx at EUR 195.4 million, coming in below guidance. In risk and liquidity, performance remained fully in line with expectation. We kept the cost of risk below 1%, achieved an NPE reduction to a level of 2.5% and closed the year with a loan-to-deposit ratio of 70%. In profitability, we reached a return on average tangible equity of 2.5% (sic) [ 5.2% ]. Overall, these results reflect our disciplined approach in a demanding environment. Now let me hand over to Ganesh for further insights into the business development. GaneshKumar Krishnamoorthi: Thank you, Herbert, and good afternoon, everyone. Moving to Page 7. As Herbert mentioned, 2025 has been a challenging operating environment. Credit demand remained resilient across our markets. However, interest rates declined rapidly during the year. This intensified competition and created significant pricing pressure. As a result, loan book retention also became more challenging as customers increasingly refinance their loans at the lower rates. At the same time, unexpected regulatory interventions also affected market dynamics. The most notable example is Croatia, where a 40% debt-to-income cap was introduced on July 1. In Serbia, authorities mandated lending rate caps, which led to interest rate reduction. These measures tightened our lending conditions and also affected our pricing in both the markets. Nevertheless, despite these headwinds, our continued focus on digital-savvy customers, the micro SME segment and point-of-sale financing combined our strategy of offering lower-ticket, high-margin loans with speed and convenience while maintaining prudent risk discipline enabled us to deliver strong growth. Consumer new business strongly increased by 20% year-over-year, resulting in 10% growth of our consumer loan book with an attractive new business yield of around 7%. In the SME segment, the new business grew 11% year-over-year with a yield of around 5%. Overall, our focused loan book expanded by 7% year-over-year with a blended yield of 6.4%. As a result, the focus book now represent 92% of our total portfolio, demonstrating the resilience of our specialized strategy, even in a more competitive and regulated environment. Please turn to Page 8 for a more detailed outlook. Looking more closely to our Consumer segment, the strong double-digit growth we delivered was driven by several key factors. First, we benefited with solid market demand across our core geographies. Second, we successfully launched full digital end-to-end lending with zero human interventions in 3 of our core markets, clearly differentiating our offerings from competitors and significantly improving speed and customer convenience. Third, our point-of-sale proposition continues to perform well, delivering 14% year-over-year growth, further supported by the launch in Bosnia and Herzegovina. Fourth, we identified a sweet spot between growth and pricing, allowing us to proactively retain customers and protect the loan book through disciplined repricing actions. In addition, we launched newly redesigned mobile app with the introduction of new card features, including Google Pay and Apple Pay integrations, which contributed to a 12% year-over-year increase in net commission income. Finally, in response to evolving regulatory environment, we are already implementing mitigating measures, including downselling, introducing co-debtor structures and focusing on high-quality customer segments with larger ticket size. We are confident that these initiatives will not only offset regulatory headwinds, but also strengthen the foundation for sustainable quality growth going forward in 2026. Let's turn into SME segment. Our core business model remains unchanged, to be the fastest provider of unsecured lower-ticket loans to underserved micro and small enterprises through our digital agents platform. As mentioned earlier, the market environment remained challenging due to aggressive pricing, which has created some pressure on our loan book retention. However, with improving market demand, we implemented several targeted initiatives to reignite the growth. First, our turnaround plan in Serbia supported by new leadership team delivered strong momentum with 43% year-over-year growth in new business. Second, we placed a strong emphasis on retaining quality clients and protecting the loan book through more targeting pricing, loan prolongations and enhanced service delivery. Third, while maintaining our core focus on unsecured lending, we broadened our product offering by placing also greater focus on slighter larger tickets and secured lending, supported by experienced and high-quality teams to ensure continued risk discipline. This resulted in double-digit year-over-year growth in investment loan volumes. Finally, we launched a new digital SME tool designed to process high ticket loans, faster and with greater simplicity, providing a clear competitive advantage. Overall, we believe these initiatives will position us well to return to sustainable growth in the SME segment going into 2026. Lastly, let me briefly touch on our progress in AI adoption last year. We are actively investing in AI technologies to enhance both operational efficiency and customer experience across the organization. The 2 AI applications are already live, one supporting employees by handling HR-related inquiries and others assisting our call center by analyzing customer inquiries and generating response recommendation. In addition, we are currently exploring further AI use cases across IT, risk and marketing with the aim of strengthening operational efficiency and enabling core data-driven decision-making across the bank. To summarize, while 2025 presented a challenging operating environment, it also pushed us to further refine our specialist business model and adapt our pricing approach. Most importantly, we launched several new propositions that enhance speed, convenience and value for our customers across Consumer and SME segment, positioning us well for continued growth going forward. Looking ahead to 2026, we will continue to focus on profitable growth while implementing measures to mitigate the impact of the recent regulatory restrictions, in particular, we aim to accelerate growth in Romania through a refreshed marketing approach and strengthened broker partnerships, and we will launch our point-of-sale lending business in Croatia. At the same time, we will further enhance our end-to-end digital value proposition and refine our dynamic pricing capabilities to better balance growth and profitability. In parallel, we are developing a new specialized program focused on new lending products aimed at deepening customer engagement and further expanding our fee-driven income streams. Herbert will provide you more details on this later. Please let me hand over to Edgar. Edgar Flaggl: Thank you, Ganesh, and good day, everybody. Let's turn to Page 10 for an overview of our performance for the full year 2025. Despite a challenging interest rate environment and cost pressures, we delivered stable results, supported by a resilient consumer lending, strong fee income and a robust capital position. Now let's take this one by one. Our net interest income came in at EUR 238.4 million, a slight year-on-year decrease of 1.8%. This reflects the lower rate environment, which weighed on income from our variable back book, so circa 13%, 1-3%, of our book and the income on National Bank deposits. At the same time, balanced treasury and liquidity management activities as well as lower funding costs acted as a stabilizer. As a reminder, the rate backdrop shifted materially throughout the year with 4 rate cuts totaling 100 basis points during 2025, which also pressured pricing on new loans and elevated early repayments of higher-priced parts of the back book. On the business side, as Ganesh pointed out already, momentum in our Consumer segment remained quite strong, with interest income up 6.3%, driven by the 10% growth in the Consumer loan book. Overall, the focus book grew 7% year-on-year, showing also a slight improvement during the last quarter of 2025. On the fee side, we delivered solid growth. Net fee and commission income rose 7.6% to EUR 73 million, driven by bancassurance, accounts and packages and card business, which altogether grew 13%, 1-3%, year-on-year, with bancassurance as a key contributor. Looking into the year 2026, those new regulations in Croatia limiting fees on banking products already have an impact on fee generation today and we'll keep having an impact going forward. Putting it together for 2025, net banking income came in at EUR 316.9 million and was broadly stable year-on-year despite a challenging environment. Our general administrative expenses, in short OpEx, increased slightly to EUR 195.4 million, up 1.6% year-on-year, mainly due to wage adjustments, targeted operational investments and general indexation increases. When excluding the EUR 3 million in extraordinary advisory costs related to the takeover offers in the year 2024, operational costs were up just 3.2% year-over-year. Our cost-income ratio came in at 61.7%, which is a tad higher than last year. The operating results landed at EUR 109.8 million, down 2.3% year-on-year. The other result, which includes costs for legal claims as well as for operational banking risks remained manageable for the full year. We have allocated some additional provisions for new legal claims in Slovenia and made a rather small top-up in Croatia as part of the year-end closing also to reflect increased lawyer costs. The main point in Slovenia remains what the higher courts will rule upon regarding the applicable statute of limitation and if that will be in line with the currently dominant legal opinions. When it comes to risk costs, our expected credit loss expenses were EUR 35.2 million, which translates into a cost of risk of just south of 1% on net loans for the full year. Tadej will provide more insights in just about a moment. All in all, we delivered a net profit after tax of EUR 44 million, which translates into a return on average tangible equity of 5.2%. So while operating in a lower rate environment and managing cost pressures and new regulatory constraints, our focus business remained resilient with solid momentum in consumer lending and continued support from fee-generating activities last year, while also SME lending started to pick up again during the fourth quarter last year, specifically also in Serbia. Turning to Page 11 and our capital position which remains a real strength. Our CET1 ratio came in at a very robust 22.4% at year-end 2025. For context, that's slightly up from the 22% at year-end 2024, which, however, was based on Basel III. While as we all know, for 2025, the new Basel IV or call it CRR3 rules apply. This CET1 ratio now includes the audited profit for the year with no dividends being deducted in line with supervisory expectations and taking into account regulatory considerations related to the current shareholder structure. You will also notice that our risk-weighted assets increased and that's mainly driven by changes in risk weighting under Basel IV as well as the new interpretation of EBA guidelines on structural FX, which we discussed in previous earnings calls. Looking ahead, we have already reported on the final SREP for 2026, which includes a small increase of our Pillar 2 requirement, so up by 25 basis points to 3.5%, while the Pillar 2 guidance remains unchanged at 3%. So in short, our capital is strong and our buffers are ample, supporting controlled growth while we navigate the evolving and not often straightforward regulatory landscape. With that, I will hand over to Tadej for more on risk management. Tadej Krašovec: Thank you, Edgar, and good afternoon, everyone. Let me provide an overview of our credit risk performance for the year 2025. As indicated on the chart to the left, one of our key risk management initiatives was reducing of NPE volumes. We achieved this through proactive portfolio management, portfolio and forward flow sales, write-offs, targeted restructuring and collections. The result is clearly visible. We achieved a significant EUR 19 million reduction in NPE volume compared to the end of the previous year. Out of that, as illustrated on the right-hand side of the slide, the NPE portfolio decreased by EUR 14.5 million in the last quarter alone, driven by high NPE outflow and a well contained inflow. Consequently, we concluded 2025 with an NPE volume of EUR 126 million and attained a record low NPE ratio of 2.5%. Throughout the year, we placed significant emphasis on developing statistically driven credit risk steering approaches and enhanced monitoring tools. This allowed us to promptly identify subsegment and channel developments that did not align with our expectations, enabling swift implementation of risk restructures or also relaxations to positively influence the bank's portfolio quality. Particularly in declining interest rate environment, rigorous oversight of our risk profile and optimization of risk return balance remain essential to operate within our risk appetite, mitigate adverse selection and ensure the resilience of the bank's balance sheet. However, not all regions performed entirely in line with our forecasts. The micro segment posted ongoing challenges in Croatia, Serbia and Slovenia. And furthermore, the SME sector in Slovenia exhibited variances from our 2025 outlook, necessitating additional controls within the credit process. We are confident that the refined risk criteria and enhanced controls introduced will help mitigate further adverse selection. Moving to Slide 13. Loan loss provisions totaled at EUR 35.2 million in 2025, resulting in a cost of risk of minus 0.96% on net loans, both figures notably better than anticipated. This positive outcome was largely attributable to exceptional late collections, an area we have improved as part of our acceleration program during '24, which exceeded even our ambitious targets. The segment's breakdown for '25 is as follows: the Consumer segment recorded a negative 0.79% cost of risk; SME segment, minus 1.9%; while the nonfocus segments contributed to provision releases with a positive cost of risk of 1.88%. In the final quarter, that means Consumer provisions were EUR 1.7 million; SME segment, we generated EUR 8.6 million; and in nonfocus segment, we saw a release of provisions in the amount of EUR 1.4 million. The SME segment figures were impacted by a single large case in Slovenia, I elaborated on in previous earnings calls already. The post-model adjustment was slightly reduced from EUR 1.4 million to EUR 1.2 million. To summarize, Addiko's portfolio position remains robust and resilient, supported by strong collection performance and active portfolio management. Our focus remains on decision models, intelligent risk rules, advanced and automated statistical monitoring and rapid response when every critical risk indicators or the risk return balance require attention. Thank you. And with that, I'll go back to Herbert. Herbert Juranek: Thank you, Tadej. Now I would like to present the highlights of our new specialization program to you. The new specialization program has just been launched and is designed as a 3-year program running from 2026 to 2028. It supports the execution of our specialist banking vision and aims to unlock additional value through a focused performance and transformation agenda. The first pillar is business expansion. Here, we will broaden our product stack and strengthen our ecosystem, meaning we will enhance our core offering, add relevant adjacent products and create a more connected experience for our customers. In addition, we will explore selective new market opportunities in a measured and disciplined way, focusing on areas where our digital lending capabilities can be applied effectively, where fee-based revenues can be expanded and where we see sound risk-adjusted potential. The second pillar focuses on our engine and platform. We will upgrade our platforms and decisioning capabilities with AI-enabled tools to further strengthen analytics, risk processes and service excellence, supporting greater efficiency and competitiveness. The third pillar is competencies and people. We'll continue to invest in skills, training and development while ensuring the right capacity and efficiency across our teams to support the next phase of our strategy. We consider this an important investment in order to enable the successful implementation of our ambition on Pillar 1 and Pillar 2. Overall, our approach is to expand our offering, grow fee-based revenues, strengthen customer engagement and continue optimizing costs through automation and AI-assisted processes. This program sets the foundation for scaling our specialist model and supporting sustainable growth in the year ahead. We will present more details of the program in our presentation of our Q1 results on the 13th of May. Now let's move on to the final page. Before I walk you through our updated guidance, let me briefly outline the context behind our assumptions. Despite the fact that the global economic environment has become increasingly unpredictable, our CSEE markets continue to show comparatively resilient performance. We expect our region to deliver higher growth rates over the next 2 years than the European Union average. Nevertheless, the combination of regulatory fee and rate restrictions, aggressive pricing behavior by several competitors and cost pressure driven by governmental-related factors such as increases in minimum wages requires us to further strengthen our operating model. This is precisely why our specialization program will play a key role. It is designed to enhance efficiency, strengthen competitiveness and improve risk-adjusted performance in the coming years. Now let me walk you through our operating guidance, starting with loan growth. We expect our loan book to continue expanding at a healthy pace with a CAGR of more than 6% over the period from '25 to '27. This reflects the momentum in our core segments and the continued scaling of our specialist model. Looking ahead, looking at our interest margin, for the coming years, we anticipate the NIM to remain above 3.6%, taking into account the regulatory environment, interest rate caps and a more moderate rate trajectory. Based on impacts resulting from the latest regulatory-driven measures, we expect NBI to remain broadly flat in 2026, before returning to growth above 5% in 2027 as our business mix evolves and the effects of our specialization program begin to materialize. Operating expenses. Our focus on efficiency continues. We keep our OpEx below EUR 205 million in both '26 and '27, while still investing selectively to support our transformation agenda and competitiveness. Cost of risk and risk -- and asset quality. We expect a cost of risk of around 1.3% going forward, reflecting prudent underwriting and disciplined risk-adjusted growth. At the same time, we aim to keep the NPE ratio below 3%, which remains our guiding principle for portfolio quality. Capital and liquidity. We expect the total capital ratio to remain above 18.8%, subject to the yearly SREP outcome. Our capital strength provides a solid foundation for controlled growth. Accordingly, we plan to gradually increase the loan-to-deposit ratio towards 80%, supporting loan expansion while maintaining a conservative liquidity profile. Based on this assumption and the higher capital base, we expect the return on average tangible equity to be around 4.5% in 2026, rising towards 6% in 2027, supported by growth, efficiency measures and the contribution from the specialization program. Regarding the dividend, I addressed the situation earlier. However, in this context, I would like to stress again that the current shareholder situation continues to create significant additional efforts for the bank, which is a severe distraction. Nevertheless, we will carry on to do our best to cooperate and to fulfill the increasing related requests put upon us by our regulators. The management of the bank is fully focused on protecting the bank and acting in the best interest of all stakeholders. In this spirit, we will continue working with full energy to make Addiko the leading specialist bank in Southeast Europe, creating value for both our clients and our shareholders. With that, I would like to conclude the presentation. Our next events are the Annual General Meeting on the 20th of April 2026 in Vienna and the presentation of our Q1 results on the 13th of May. Thank you very much for your attention. We are now ready for your questions. Operator, back to you. Operator: [Operator Instructions] The first question comes from the line of Dodig, Mladen from Erste Bank. Mladen Dodig: It's not Madlain, it's Mladen. Congratulations on the results, and I particularly congratulate on the revamped growth and movements finally in SME, that where my first question comes. If I look at the guidance and the last year update for '25, '26, it appear a little bit conservative, if I remember correctly. Actually, I'm looking at it, it was more than 7% CAGR, and now it's more than 6%. I mean it's a small tweak, but would you consider that a little bit conservative considering the effect that you have started -- finally started to catch up with the market and competitors? And just for the moment, I will forget now about the whole situation right now, we have geopolitically. Herbert Juranek: So first of all, thank you very much, Mladen. Before I hand over to Ganesh, I would say we looked at it. And I mean, you call it conservative, but we also need to see the restriction put upon us coming from the regulatory front in several markets, which are also influencing the overall growth potential. But Ganesh, you want to comment this? GaneshKumar Krishnamoorthi: Yes. Mladen, so I think we believe the 6% CAGR is a reasonable growth, considering all the restrictions what we have. We do have some challenges also in SME in some other countries, which we need to work on. So yes, I mean, considering all these facts, that's why we revised from 7% to 6% CAGR. Mladen Dodig: And a little tweak on return on average tangible equity, I would say that also comes from the fact that your equity now keeps growing without chance to moderate it, right? Herbert Juranek: That's right. That's right. So I mean, as long as -- as I said, as long as the shareholder situation does not change and the regulatory fuel to that, we will not pay out the dividend. And consequently, the equity base will increase. Mladen Dodig: Of course, yes. And second question or third, 0.96 basis points risk versus 1.3 guidance, do you think that this might still go lower below this 1.3 in '26? GaneshKumar Krishnamoorthi: I think today speaking here, I think, yes, I think it will be below 1.3. This is our expectations also, also driven by coming back to the limitations in each individual country, right? They protect us to play in the subsegments that are a bit more risky, but where we achieve higher interest rate. But of course, cost of risk at the end will also be lower due to that. It will be below 1.3% is expectations, I can estimate, yes. Mladen Dodig: Just looking also on net banking income last year, the guidance, '26, you just molded to '27, the growth more than 5%. And for '26, you expect flattish development. Of course, I would say, as you mentioned in the call, aggressive pricing from the competitors too. But do you expect that there might be some more decreasing interest rate environment, although now it's very difficult to make such a statement as we already these days are seeing the inflationary pressures coming from the Middle East conflict? I mean probably I would like to see in outlook '26 some percentage for the net banking income growth, but as you stated flat, perhaps this is kind of a global explanation, right? Edgar Flaggl: Mladen or Modlin whatever you prefer. This is Edgar speaking. So a straight answer, our rate assumptions are flat. So as you rightfully say, who knows what the reality will be what's going on in the Middle East. But we assume a flat environment, so deposit facility rate 2% throughout our guidance. When you compare also movements in terms of net banking income, please don't forget that all these regulatory and legal restrictions that have been put in place either last year or starting this year, for example, the Croatian topic on free accounts, et cetera, et cetera, this has a full year 2026 impact of EUR 10.5 million on the top line alone. So you will... Mladen Dodig: EUR 10.5 million only in Croatia? Edgar Flaggl: No, no, not only Croatia. Mladen Dodig: No, fee and income, okay. Edgar Flaggl: Yes. Croatia would be roughly 70% if you take the NCI and the DTI restriction. I think we disclosed that in the Q3 earnings call. So you will probably find this in the script as well. Mladen Dodig: Okay. And a final question from my side, again, of course, about dividend. So let's assume that some situation gets resolved and you get a nod from the regulator to pay out something, what do you think how that might look like? And what would be your -- where will you be leaning to paying a lot immediately or some gradual payments, of course, provided that a regulator would agree to that, too? Herbert Juranek: Well, so first of all, we will decide it when this situation is here. I mean our clear ambition as a general comment as a management is to pay a dividend. I mean that's the whole purpose of the thing. And we had this -- our guidance was around about 50% before this was introduced. So I think this is an area we are aiming for. You also know that if you want to pay out a dividend, which is above the yearly profit, you need -- so out of equity, you need the approval of the regulator for that. So what we would do is when the situation is solved, we will look at it. We will look at the state of the bank, what is healthy and what we can do and then we will judge and decide on that. But for the time being, we don't want to comment it. We feel also obliged vis-a-vis our supervisors, and we share with them the view that currently, we will not pay out something. Operator: There are no more questions on the phone at this time. Herbert Juranek: Okay. Do we have any other questions? Edgar Flaggl: We also have no questions on the webcast. Herbert Juranek: Okay. So as there are no further questions, we thank you for your attention and wish you all the best. Thank you for dialing in. Goodbye.
Operator: Ladies and gentlemen, welcome to the publication of the consolidated Annual Report 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Herbert Juranek, CEO. Please go ahead, sir. Herbert Juranek: Good afternoon, ladies and gentlemen. Let me welcome you to the presentation of the results of the business year '25 of Addiko Bank on behalf of my colleagues, Ganesh, Tadej, Edgar and Stefan. We have prepared the following agenda for you. I will start with the key highlights and the related achievements of '25. After that, I will pass on to Ganesh, who will update you on our results on the business side. In the second chapter, Edgar will share insights into our financial performance, while Tadej will outline the progress made in the risk area. At the end, I will present to you the cornerstones of our new midterm specialization program and our updated guidance 2026. After that, we will move on to Q&A. So let's begin with the highlights. I'm confident to inform you that despite negative influences coming from the legislative changes in several countries, we were able to close '25 with a net profit of EUR 44 million. These results includes a net profit for the fourth quarter of '25 of EUR 8.7 million, which is EUR 1 million higher than the result of EUR 7.7 million in the fourth quarter of 2024. Our earnings per share for '25 amount to EUR 2.28 and our return on average tangible equity comes in at 2.5 -- sorry, 5.2%, also influenced by the increased equity base. Overall, 2025 was a challenging year for Addiko because of reasons we will come back later on. Nevertheless, we were successful to achieve a 20% growth rate on new business in consumer lending and finally, to return to a positive trend in SME with an 11% growth rate on new business. Net interest income was with 1.8%, slightly lower year-on-year, driven by the impact of the lower interest environment on our back book and on our national bank deposits. A key positive is that thanks to our strong sales performance and the strategic cooperation agreement in our insurance business, we were able to increase our net commission income by 7.6% year-on-year. Altogether, we managed to slightly improve our net banking income by 30 basis points despite a significantly lower rate environment. Ganesh will give you more insights into the business development during his presentation. Because of our strict cost management, we accomplished to limit the increase of our administrative costs below inflation to only 1.6%. Nonetheless, due to the factors mentioned before, our operating result ended up at EUR 109.8 million compared to EUR 112.3 million in '24. Let's briefly comment on our positive risk performance. We successfully reduced NPE volume further to EUR 125.5 million compared with EUR 144.7 million at the end of 2024. Consequently, our NPE ratio also improved to 2.5%, down from 2.9% in the previous year. On top of that, our coverage ratio continued to improve to 81.7% from 80% at the end of last year. Ultimately, the cost of risk on net loans ended up at 0.96% or EUR 35.2 million compared to EUR 36 million last year. Tadej will give you more details on the risk development later. Our funding situation remained quite solid with EUR 5.3 billion deposits and a loan-to-deposit ratio of 70%. Our liquidity coverage ratio is currently comfortable above 300% at group level. And finally, our capital position gets even a bit stronger with 22.4% total capital ratio, all in CET1 based on Basel IV regulations compared to 22% based on Basel III in the previous year. Next page, please. As mentioned earlier, Addiko faced interventions from regulators and governments that negatively impacted the bank's performance in several of our markets. Croatia introduced a 40% debt-to-income cap for nonhousing loans effective 1st of July '25 and required banks to provide essential banking services free of charge since January '26. Serbia, Republika Srpska and Montenegro introduced interest rate caps, fee restrictions and debt caps. Overall, these measures are having a significant negative impact on our core revenues. Consequently, we have introduced initiatives to counterbalance the income reductions and to develop new income sources. Going forward, all regulatory effects, as known of today, are already reflected in our updated guidance. As reported in our earnings calls last year, we entered the Romanian market via our Slovenian bank through EU passporting, offering a fully automated digital lending solution for consumers. In the second half of '25, we launched several marketing campaigns to build awareness and strengthen our brand positioning. Although we achieved our recognition and recall targets, the conversion rates were below our expectations. Consequently, we refined our marketing approach. The new marketing campaign supported by an Addiko Song with life-size Oskar combined with targeted brand-building initiatives was launched in mid-February. We will keep you updated on the progress and will conduct a results-driven review in the second half of this year. Now with regards to our ESG program, I can confirm that all initiatives remain on schedule and are advancing in line with plan. Additional information is set out in the appendix of this presentation. Let me briefly touch on our regulatory sustainability disclosures. As part of the updated EU taxonomy framework, the commission has introduced a temporary opt-out for financial institution. In our case, this is fully aligned with our business model. Addiko made use of its opt-out as we do not engage in taxonomy-relevant lending activities. This approach avoids unnecessary administrative burden while maintaining full transparency in our ESG reporting. Next page, please. Let me briefly comment on our share performance and the scheduled changes to our listing. Addiko's share price increased noticeably during 2025, closing the year at EUR 22.5 and continued to rise further in 2026 to EUR 27.4 as of yesterday evening. At the same time, trading volumes and overall liquidity has remained persistently very low, making professional market making difficult and not economically viable for providers. As a consequence and in line with the Vienna Stock Exchange rules, our shares will be reclassified from the Prime Market to the Standard Market with effect of 1st of April 2026. This reclassification has no impact on our strategy or operations, but better reflects the liquidity profile of the stock. Let me now address the regulatory concerns regarding our shareholder structure. Following the sanction imposed by the European Central Bank in 2024 for exceeding the 10% ownership threshold without prior approval, certain regulatory uncertainties continue to persist. Although the voting restrictions applicable to a specific shareholder group were lifted in early February 2025, the supervisory authorities continued to identify residual uncertainties concerning the bank's shareholder structure. The bank remains fully committed to maintaining a transparent, cooperative and constructive relationship with all relevant regulatory bodies and we continue to engage actively with them to address the outstanding supervisory considerations. In this context, I need to mention that the current shareholder situation continues to create significant additional efforts and a severe distraction for the bank. Nevertheless, we will carry on to do our best to fulfill the increasing related demands put upon us by our regulators. In line with supervisory expectations and regulatory requirements, the dividend distribution for the financial year 2025 remains suspended, taking into account regulatory considerations related to the shareholder structure. From the perspective of the bank's long-term stability and in the best interest of all stakeholders, the Management Board maintains its position that dividend payments will not be resumed until the share -- until the ownership structure has been conclusively clarified and the related concerns raised by the supervisory authorities have been fully resolved. Now let me briefly outline how we performed against our '25 guidance. The positive message is that despite headwinds, we delivered on our '25 guidance. In income and business, our loan book grew by 7% year-on-year, supported by strong consumer demand and the renewed pickup in SME in the fourth quarter. Our NIM ended up at 3.7% and net banking income held stable. Costs were managed well with OpEx at EUR 195.4 million, coming in below guidance. In risk and liquidity, performance remained fully in line with expectation. We kept the cost of risk below 1%, achieved an NPE reduction to a level of 2.5% and closed the year with a loan-to-deposit ratio of 70%. In profitability, we reached a return on average tangible equity of 2.5% (sic) [ 5.2% ]. Overall, these results reflect our disciplined approach in a demanding environment. Now let me hand over to Ganesh for further insights into the business development. GaneshKumar Krishnamoorthi: Thank you, Herbert, and good afternoon, everyone. Moving to Page 7. As Herbert mentioned, 2025 has been a challenging operating environment. Credit demand remained resilient across our markets. However, interest rates declined rapidly during the year. This intensified competition and created significant pricing pressure. As a result, loan book retention also became more challenging as customers increasingly refinance their loans at the lower rates. At the same time, unexpected regulatory interventions also affected market dynamics. The most notable example is Croatia, where a 40% debt-to-income cap was introduced on July 1. In Serbia, authorities mandated lending rate caps, which led to interest rate reduction. These measures tightened our lending conditions and also affected our pricing in both the markets. Nevertheless, despite these headwinds, our continued focus on digital-savvy customers, the micro SME segment and point-of-sale financing combined our strategy of offering lower-ticket, high-margin loans with speed and convenience while maintaining prudent risk discipline enabled us to deliver strong growth. Consumer new business strongly increased by 20% year-over-year, resulting in 10% growth of our consumer loan book with an attractive new business yield of around 7%. In the SME segment, the new business grew 11% year-over-year with a yield of around 5%. Overall, our focused loan book expanded by 7% year-over-year with a blended yield of 6.4%. As a result, the focus book now represent 92% of our total portfolio, demonstrating the resilience of our specialized strategy, even in a more competitive and regulated environment. Please turn to Page 8 for a more detailed outlook. Looking more closely to our Consumer segment, the strong double-digit growth we delivered was driven by several key factors. First, we benefited with solid market demand across our core geographies. Second, we successfully launched full digital end-to-end lending with zero human interventions in 3 of our core markets, clearly differentiating our offerings from competitors and significantly improving speed and customer convenience. Third, our point-of-sale proposition continues to perform well, delivering 14% year-over-year growth, further supported by the launch in Bosnia and Herzegovina. Fourth, we identified a sweet spot between growth and pricing, allowing us to proactively retain customers and protect the loan book through disciplined repricing actions. In addition, we launched newly redesigned mobile app with the introduction of new card features, including Google Pay and Apple Pay integrations, which contributed to a 12% year-over-year increase in net commission income. Finally, in response to evolving regulatory environment, we are already implementing mitigating measures, including downselling, introducing co-debtor structures and focusing on high-quality customer segments with larger ticket size. We are confident that these initiatives will not only offset regulatory headwinds, but also strengthen the foundation for sustainable quality growth going forward in 2026. Let's turn into SME segment. Our core business model remains unchanged, to be the fastest provider of unsecured lower-ticket loans to underserved micro and small enterprises through our digital agents platform. As mentioned earlier, the market environment remained challenging due to aggressive pricing, which has created some pressure on our loan book retention. However, with improving market demand, we implemented several targeted initiatives to reignite the growth. First, our turnaround plan in Serbia supported by new leadership team delivered strong momentum with 43% year-over-year growth in new business. Second, we placed a strong emphasis on retaining quality clients and protecting the loan book through more targeting pricing, loan prolongations and enhanced service delivery. Third, while maintaining our core focus on unsecured lending, we broadened our product offering by placing also greater focus on slighter larger tickets and secured lending, supported by experienced and high-quality teams to ensure continued risk discipline. This resulted in double-digit year-over-year growth in investment loan volumes. Finally, we launched a new digital SME tool designed to process high ticket loans, faster and with greater simplicity, providing a clear competitive advantage. Overall, we believe these initiatives will position us well to return to sustainable growth in the SME segment going into 2026. Lastly, let me briefly touch on our progress in AI adoption last year. We are actively investing in AI technologies to enhance both operational efficiency and customer experience across the organization. The 2 AI applications are already live, one supporting employees by handling HR-related inquiries and others assisting our call center by analyzing customer inquiries and generating response recommendation. In addition, we are currently exploring further AI use cases across IT, risk and marketing with the aim of strengthening operational efficiency and enabling core data-driven decision-making across the bank. To summarize, while 2025 presented a challenging operating environment, it also pushed us to further refine our specialist business model and adapt our pricing approach. Most importantly, we launched several new propositions that enhance speed, convenience and value for our customers across Consumer and SME segment, positioning us well for continued growth going forward. Looking ahead to 2026, we will continue to focus on profitable growth while implementing measures to mitigate the impact of the recent regulatory restrictions, in particular, we aim to accelerate growth in Romania through a refreshed marketing approach and strengthened broker partnerships, and we will launch our point-of-sale lending business in Croatia. At the same time, we will further enhance our end-to-end digital value proposition and refine our dynamic pricing capabilities to better balance growth and profitability. In parallel, we are developing a new specialized program focused on new lending products aimed at deepening customer engagement and further expanding our fee-driven income streams. Herbert will provide you more details on this later. Please let me hand over to Edgar. Edgar Flaggl: Thank you, Ganesh, and good day, everybody. Let's turn to Page 10 for an overview of our performance for the full year 2025. Despite a challenging interest rate environment and cost pressures, we delivered stable results, supported by a resilient consumer lending, strong fee income and a robust capital position. Now let's take this one by one. Our net interest income came in at EUR 238.4 million, a slight year-on-year decrease of 1.8%. This reflects the lower rate environment, which weighed on income from our variable back book, so circa 13%, 1-3%, of our book and the income on National Bank deposits. At the same time, balanced treasury and liquidity management activities as well as lower funding costs acted as a stabilizer. As a reminder, the rate backdrop shifted materially throughout the year with 4 rate cuts totaling 100 basis points during 2025, which also pressured pricing on new loans and elevated early repayments of higher-priced parts of the back book. On the business side, as Ganesh pointed out already, momentum in our Consumer segment remained quite strong, with interest income up 6.3%, driven by the 10% growth in the Consumer loan book. Overall, the focus book grew 7% year-on-year, showing also a slight improvement during the last quarter of 2025. On the fee side, we delivered solid growth. Net fee and commission income rose 7.6% to EUR 73 million, driven by bancassurance, accounts and packages and card business, which altogether grew 13%, 1-3%, year-on-year, with bancassurance as a key contributor. Looking into the year 2026, those new regulations in Croatia limiting fees on banking products already have an impact on fee generation today and we'll keep having an impact going forward. Putting it together for 2025, net banking income came in at EUR 316.9 million and was broadly stable year-on-year despite a challenging environment. Our general administrative expenses, in short OpEx, increased slightly to EUR 195.4 million, up 1.6% year-on-year, mainly due to wage adjustments, targeted operational investments and general indexation increases. When excluding the EUR 3 million in extraordinary advisory costs related to the takeover offers in the year 2024, operational costs were up just 3.2% year-over-year. Our cost-income ratio came in at 61.7%, which is a tad higher than last year. The operating results landed at EUR 109.8 million, down 2.3% year-on-year. The other result, which includes costs for legal claims as well as for operational banking risks remained manageable for the full year. We have allocated some additional provisions for new legal claims in Slovenia and made a rather small top-up in Croatia as part of the year-end closing also to reflect increased lawyer costs. The main point in Slovenia remains what the higher courts will rule upon regarding the applicable statute of limitation and if that will be in line with the currently dominant legal opinions. When it comes to risk costs, our expected credit loss expenses were EUR 35.2 million, which translates into a cost of risk of just south of 1% on net loans for the full year. Tadej will provide more insights in just about a moment. All in all, we delivered a net profit after tax of EUR 44 million, which translates into a return on average tangible equity of 5.2%. So while operating in a lower rate environment and managing cost pressures and new regulatory constraints, our focus business remained resilient with solid momentum in consumer lending and continued support from fee-generating activities last year, while also SME lending started to pick up again during the fourth quarter last year, specifically also in Serbia. Turning to Page 11 and our capital position which remains a real strength. Our CET1 ratio came in at a very robust 22.4% at year-end 2025. For context, that's slightly up from the 22% at year-end 2024, which, however, was based on Basel III. While as we all know, for 2025, the new Basel IV or call it CRR3 rules apply. This CET1 ratio now includes the audited profit for the year with no dividends being deducted in line with supervisory expectations and taking into account regulatory considerations related to the current shareholder structure. You will also notice that our risk-weighted assets increased and that's mainly driven by changes in risk weighting under Basel IV as well as the new interpretation of EBA guidelines on structural FX, which we discussed in previous earnings calls. Looking ahead, we have already reported on the final SREP for 2026, which includes a small increase of our Pillar 2 requirement, so up by 25 basis points to 3.5%, while the Pillar 2 guidance remains unchanged at 3%. So in short, our capital is strong and our buffers are ample, supporting controlled growth while we navigate the evolving and not often straightforward regulatory landscape. With that, I will hand over to Tadej for more on risk management. Tadej Krašovec: Thank you, Edgar, and good afternoon, everyone. Let me provide an overview of our credit risk performance for the year 2025. As indicated on the chart to the left, one of our key risk management initiatives was reducing of NPE volumes. We achieved this through proactive portfolio management, portfolio and forward flow sales, write-offs, targeted restructuring and collections. The result is clearly visible. We achieved a significant EUR 19 million reduction in NPE volume compared to the end of the previous year. Out of that, as illustrated on the right-hand side of the slide, the NPE portfolio decreased by EUR 14.5 million in the last quarter alone, driven by high NPE outflow and a well contained inflow. Consequently, we concluded 2025 with an NPE volume of EUR 126 million and attained a record low NPE ratio of 2.5%. Throughout the year, we placed significant emphasis on developing statistically driven credit risk steering approaches and enhanced monitoring tools. This allowed us to promptly identify subsegment and channel developments that did not align with our expectations, enabling swift implementation of risk restructures or also relaxations to positively influence the bank's portfolio quality. Particularly in declining interest rate environment, rigorous oversight of our risk profile and optimization of risk return balance remain essential to operate within our risk appetite, mitigate adverse selection and ensure the resilience of the bank's balance sheet. However, not all regions performed entirely in line with our forecasts. The micro segment posted ongoing challenges in Croatia, Serbia and Slovenia. And furthermore, the SME sector in Slovenia exhibited variances from our 2025 outlook, necessitating additional controls within the credit process. We are confident that the refined risk criteria and enhanced controls introduced will help mitigate further adverse selection. Moving to Slide 13. Loan loss provisions totaled at EUR 35.2 million in 2025, resulting in a cost of risk of minus 0.96% on net loans, both figures notably better than anticipated. This positive outcome was largely attributable to exceptional late collections, an area we have improved as part of our acceleration program during '24, which exceeded even our ambitious targets. The segment's breakdown for '25 is as follows: the Consumer segment recorded a negative 0.79% cost of risk; SME segment, minus 1.9%; while the nonfocus segments contributed to provision releases with a positive cost of risk of 1.88%. In the final quarter, that means Consumer provisions were EUR 1.7 million; SME segment, we generated EUR 8.6 million; and in nonfocus segment, we saw a release of provisions in the amount of EUR 1.4 million. The SME segment figures were impacted by a single large case in Slovenia, I elaborated on in previous earnings calls already. The post-model adjustment was slightly reduced from EUR 1.4 million to EUR 1.2 million. To summarize, Addiko's portfolio position remains robust and resilient, supported by strong collection performance and active portfolio management. Our focus remains on decision models, intelligent risk rules, advanced and automated statistical monitoring and rapid response when every critical risk indicators or the risk return balance require attention. Thank you. And with that, I'll go back to Herbert. Herbert Juranek: Thank you, Tadej. Now I would like to present the highlights of our new specialization program to you. The new specialization program has just been launched and is designed as a 3-year program running from 2026 to 2028. It supports the execution of our specialist banking vision and aims to unlock additional value through a focused performance and transformation agenda. The first pillar is business expansion. Here, we will broaden our product stack and strengthen our ecosystem, meaning we will enhance our core offering, add relevant adjacent products and create a more connected experience for our customers. In addition, we will explore selective new market opportunities in a measured and disciplined way, focusing on areas where our digital lending capabilities can be applied effectively, where fee-based revenues can be expanded and where we see sound risk-adjusted potential. The second pillar focuses on our engine and platform. We will upgrade our platforms and decisioning capabilities with AI-enabled tools to further strengthen analytics, risk processes and service excellence, supporting greater efficiency and competitiveness. The third pillar is competencies and people. We'll continue to invest in skills, training and development while ensuring the right capacity and efficiency across our teams to support the next phase of our strategy. We consider this an important investment in order to enable the successful implementation of our ambition on Pillar 1 and Pillar 2. Overall, our approach is to expand our offering, grow fee-based revenues, strengthen customer engagement and continue optimizing costs through automation and AI-assisted processes. This program sets the foundation for scaling our specialist model and supporting sustainable growth in the year ahead. We will present more details of the program in our presentation of our Q1 results on the 13th of May. Now let's move on to the final page. Before I walk you through our updated guidance, let me briefly outline the context behind our assumptions. Despite the fact that the global economic environment has become increasingly unpredictable, our CSEE markets continue to show comparatively resilient performance. We expect our region to deliver higher growth rates over the next 2 years than the European Union average. Nevertheless, the combination of regulatory fee and rate restrictions, aggressive pricing behavior by several competitors and cost pressure driven by governmental-related factors such as increases in minimum wages requires us to further strengthen our operating model. This is precisely why our specialization program will play a key role. It is designed to enhance efficiency, strengthen competitiveness and improve risk-adjusted performance in the coming years. Now let me walk you through our operating guidance, starting with loan growth. We expect our loan book to continue expanding at a healthy pace with a CAGR of more than 6% over the period from '25 to '27. This reflects the momentum in our core segments and the continued scaling of our specialist model. Looking ahead, looking at our interest margin, for the coming years, we anticipate the NIM to remain above 3.6%, taking into account the regulatory environment, interest rate caps and a more moderate rate trajectory. Based on impacts resulting from the latest regulatory-driven measures, we expect NBI to remain broadly flat in 2026, before returning to growth above 5% in 2027 as our business mix evolves and the effects of our specialization program begin to materialize. Operating expenses. Our focus on efficiency continues. We keep our OpEx below EUR 205 million in both '26 and '27, while still investing selectively to support our transformation agenda and competitiveness. Cost of risk and risk -- and asset quality. We expect a cost of risk of around 1.3% going forward, reflecting prudent underwriting and disciplined risk-adjusted growth. At the same time, we aim to keep the NPE ratio below 3%, which remains our guiding principle for portfolio quality. Capital and liquidity. We expect the total capital ratio to remain above 18.8%, subject to the yearly SREP outcome. Our capital strength provides a solid foundation for controlled growth. Accordingly, we plan to gradually increase the loan-to-deposit ratio towards 80%, supporting loan expansion while maintaining a conservative liquidity profile. Based on this assumption and the higher capital base, we expect the return on average tangible equity to be around 4.5% in 2026, rising towards 6% in 2027, supported by growth, efficiency measures and the contribution from the specialization program. Regarding the dividend, I addressed the situation earlier. However, in this context, I would like to stress again that the current shareholder situation continues to create significant additional efforts for the bank, which is a severe distraction. Nevertheless, we will carry on to do our best to cooperate and to fulfill the increasing related requests put upon us by our regulators. The management of the bank is fully focused on protecting the bank and acting in the best interest of all stakeholders. In this spirit, we will continue working with full energy to make Addiko the leading specialist bank in Southeast Europe, creating value for both our clients and our shareholders. With that, I would like to conclude the presentation. Our next events are the Annual General Meeting on the 20th of April 2026 in Vienna and the presentation of our Q1 results on the 13th of May. Thank you very much for your attention. We are now ready for your questions. Operator, back to you. Operator: [Operator Instructions] The first question comes from the line of Dodig, Mladen from Erste Bank. Mladen Dodig: It's not Madlain, it's Mladen. Congratulations on the results, and I particularly congratulate on the revamped growth and movements finally in SME, that where my first question comes. If I look at the guidance and the last year update for '25, '26, it appear a little bit conservative, if I remember correctly. Actually, I'm looking at it, it was more than 7% CAGR, and now it's more than 6%. I mean it's a small tweak, but would you consider that a little bit conservative considering the effect that you have started -- finally started to catch up with the market and competitors? And just for the moment, I will forget now about the whole situation right now, we have geopolitically. Herbert Juranek: So first of all, thank you very much, Mladen. Before I hand over to Ganesh, I would say we looked at it. And I mean, you call it conservative, but we also need to see the restriction put upon us coming from the regulatory front in several markets, which are also influencing the overall growth potential. But Ganesh, you want to comment this? GaneshKumar Krishnamoorthi: Yes. Mladen, so I think we believe the 6% CAGR is a reasonable growth, considering all the restrictions what we have. We do have some challenges also in SME in some other countries, which we need to work on. So yes, I mean, considering all these facts, that's why we revised from 7% to 6% CAGR. Mladen Dodig: And a little tweak on return on average tangible equity, I would say that also comes from the fact that your equity now keeps growing without chance to moderate it, right? Herbert Juranek: That's right. That's right. So I mean, as long as -- as I said, as long as the shareholder situation does not change and the regulatory fuel to that, we will not pay out the dividend. And consequently, the equity base will increase. Mladen Dodig: Of course, yes. And second question or third, 0.96 basis points risk versus 1.3 guidance, do you think that this might still go lower below this 1.3 in '26? GaneshKumar Krishnamoorthi: I think today speaking here, I think, yes, I think it will be below 1.3. This is our expectations also, also driven by coming back to the limitations in each individual country, right? They protect us to play in the subsegments that are a bit more risky, but where we achieve higher interest rate. But of course, cost of risk at the end will also be lower due to that. It will be below 1.3% is expectations, I can estimate, yes. Mladen Dodig: Just looking also on net banking income last year, the guidance, '26, you just molded to '27, the growth more than 5%. And for '26, you expect flattish development. Of course, I would say, as you mentioned in the call, aggressive pricing from the competitors too. But do you expect that there might be some more decreasing interest rate environment, although now it's very difficult to make such a statement as we already these days are seeing the inflationary pressures coming from the Middle East conflict? I mean probably I would like to see in outlook '26 some percentage for the net banking income growth, but as you stated flat, perhaps this is kind of a global explanation, right? Edgar Flaggl: Mladen or Modlin whatever you prefer. This is Edgar speaking. So a straight answer, our rate assumptions are flat. So as you rightfully say, who knows what the reality will be what's going on in the Middle East. But we assume a flat environment, so deposit facility rate 2% throughout our guidance. When you compare also movements in terms of net banking income, please don't forget that all these regulatory and legal restrictions that have been put in place either last year or starting this year, for example, the Croatian topic on free accounts, et cetera, et cetera, this has a full year 2026 impact of EUR 10.5 million on the top line alone. So you will... Mladen Dodig: EUR 10.5 million only in Croatia? Edgar Flaggl: No, no, not only Croatia. Mladen Dodig: No, fee and income, okay. Edgar Flaggl: Yes. Croatia would be roughly 70% if you take the NCI and the DTI restriction. I think we disclosed that in the Q3 earnings call. So you will probably find this in the script as well. Mladen Dodig: Okay. And a final question from my side, again, of course, about dividend. So let's assume that some situation gets resolved and you get a nod from the regulator to pay out something, what do you think how that might look like? And what would be your -- where will you be leaning to paying a lot immediately or some gradual payments, of course, provided that a regulator would agree to that, too? Herbert Juranek: Well, so first of all, we will decide it when this situation is here. I mean our clear ambition as a general comment as a management is to pay a dividend. I mean that's the whole purpose of the thing. And we had this -- our guidance was around about 50% before this was introduced. So I think this is an area we are aiming for. You also know that if you want to pay out a dividend, which is above the yearly profit, you need -- so out of equity, you need the approval of the regulator for that. So what we would do is when the situation is solved, we will look at it. We will look at the state of the bank, what is healthy and what we can do and then we will judge and decide on that. But for the time being, we don't want to comment it. We feel also obliged vis-a-vis our supervisors, and we share with them the view that currently, we will not pay out something. Operator: There are no more questions on the phone at this time. Herbert Juranek: Okay. Do we have any other questions? Edgar Flaggl: We also have no questions on the webcast. Herbert Juranek: Okay. So as there are no further questions, we thank you for your attention and wish you all the best. Thank you for dialing in. Goodbye.
Operator: Hello, ladies and gentlemen, and welcome to the Deutsche Pfandbriefbank Analyst Call Regarding the Publication of the Preliminary Annual Results for 2025. [Operator Instructions] Let me now turn the floor over to your host, Kay Wolf, CEO of Deutsche Pfandbriefbank. Kay Wolf: Thank you very much. And ladies and gentlemen, a warm welcome from my side, from our side, Marcus, our CFO, here as well. And thanks very much for taking the time joining our first analyst call in 2026. Before Marcus and I will take you through the preliminary effects and figures for 2025 and also a prolonged view on the outlook for 2026 to 2028. As usual, we are doing that based on IFRS figures for the Group. I would like to take the opportunity to inform you that we are going to slightly amend this call going forward. And we have decided we're starting into a New Year to develop a bit further in the setting here. And going forward, not only our equity analysts, but also sell-side credit analysts who are covering pbb on a regular basis are invited to ask questions. This is clearly aiming for even further broadening the communication and the dialogue with the community that is covering us in great detail. And I'm really looking forward together with Marcus to your questions that are coming from both of you, from our equity analysts as well as our debt analysts, both from the sell side. And as always, there will be sufficient time left on our side for questions and answers at the end of the session. Ladies and gentlemen, 2025 was a landmark year for pbb. We made far-reaching decisions that go well beyond what we presented to you on our Capital Markets Day back in 2024. The transformation of pbb is more intense and therefore, more time-consuming than originally anticipated. In addition, the market recovery remains sluggish, providing us with less momentum in the new business than expected and in some countries with additional regulatory headwinds. This makes it more difficult to achieve our strategic goals and limits our flexibility and also latitude for action. However, we remain fully convinced that we are on the right track. We are working hard to make the bank more resilient, profitable and diversified. We are not losing sight of our strategic goals. Despite difficult conditions, we have already made good progress. As a result, we succeeded in significantly reducing the bank's risk profile in 2025. Repayments totaling EUR 1.4 billion and the EUR 1.7 billion significant risk transfer transaction at the end of last year enabled us to substantially reduce our risk exposure in the U.S. This represents a major step forward in our withdrawal from the U.S. market. We were also able to reduce the risks associated with the existing nonperforming loans in our development portfolio. With that, we deem the shielding and risk coverage of the U.S. and the development books as in general completed. At the same time, we are encouraged by the significant increase in new business to EUR 6.3 billion, including prolongation larger than 1 year. In a challenging market environment, we were able to increase new business volume by 23% compared to the previous year. In doing so, we are consistently tapping into new asset classes in order to diversify our portfolio. Nevertheless, in 2025, we remain below our original goal of between EUR 6.5 billion to EUR 7.5 billion. However, our key indicator of profitability, return on tangible equity was around 8% for the new business, which is already in line with our strategic ambition level. We have also made progress in diversifying our income streams. The acquisition of Deutsche Investment will broaden our business model. In 2026, Deutsche Investment will make its first notable low-capital binding contribution to pbb's overall results with its commission income. However, despite our efforts, we have not succeeded yet in placing our first own investment product in what is a difficult real estate investment market. But we continue to see the great market potential and remain committed and confident to make progress in the future. The decisions we made last year to put the bank on a more sustainable foundation for the long-term had a significant negative impact on our 2025 annual results. With costs of around EUR 366 million the decision to exit the U.S. market and the derisking of the nonperforming development loan contributed significantly to the negative pretax result of EUR 250 million. Due to this significant negative pretax result, the bank will not pay a dividend for the financial year 2025. With regard to AT1, the conditions for servicing instruments are currently well met. However, as you know, for regulatory reasons, we are not allowed to comment at this time on whether we will pay the AT1 coupon in April as we always -- we have always done in the past. With the CET1 ratio of 14.9% at the end of 2025, the bank remains solidly capitalized. The SRT transaction resulted in a significant RWA reduction of EUR 1.1 billion. However, this was offset by necessary regulatory loss given default adjustments to capital requirements in our foundation IRBA regime. These adjustments are linked to country-specific and backward-looking loss developments in the respective commercial real estate markets. They are completely independent of the performance of our portfolio or individual pbb loans. In addition, the embedded threshold and trigger mechanism increases the volatility and procyclicality of the F-IRBA capital regime for commercial real estate in the current market environment. In Q4 2025, the effects are primarily caused by the loss rate development in the countries of Poland and Finland. And we will discuss these effects in more detail later. For 2026, we expect pretax earnings to be in the range of EUR 30 million to EUR 40 million. The U.S. exit, in particular, will continue to have a significant negative impact with SRT costs of around EUR 44 million. Additionally, sluggish market recovery will not offer significant support. The most important KPI for us remains the improvement of the return on tangible equity to 8%. For the whole bank, we expect to achieve this profitability target in 2028, 1 year later than originally planned. Ladies and gentlemen, we are not satisfied with our 2025 results or the outlook for 2026. The transformation of pbb is more intense and therefore, more time consumed. Even more in the current market environment, it requires more resources than we had originally anticipated. Still, it remains the right thing to do, and it is necessary on this scale. Let us now take a brief look at market developments on Page 5. We can all observe the high level of volatility at the macroeconomic and in particular the geopolitical level on a daily basis. And just last weekend, a new armed conflict broke out in engulfing the entire region, the Middle East. This volatility as well as the associated uncertainty and unpredictability are likely to remain with us for the foreseeable future. At the same time, unstable economic outlooks and volatile tariff policies continue. We, therefore, expect growth in Europe to remain at the low level. Inflation is stable at around 2% within the ECB's target range. So interest rates in the Eurozone are not likely to fall in 2026. In economic and interest rate terms, therefore, no or only minor stimulus are to be expected. The European real estate market remains in the phase of growth. We do not expect further continuous -- we do expect further continuous improvement, albeit at a rather modest level. In line with the consensus among many market experts and their forecast, we do not anticipate a breakthrough in 2026. Sentiment remains subdued and investors remain cautious. However, we intend to leverage our good momentum in the new business of the fourth quarter of last year and continue to grow this year as well. However, attractive financing opportunities that meet our risk return profile remain rather underrepresented and are therefore highly competitive. This is clearly evident in the transaction volumes in commercial real estate financing in Europe, as you can see on Page 6. In line with the significant rise in interest rates, the volume of transactions slumped by almost half. Since then, the markets have been recovering steadily but hesitantly. We expect transaction volumes in Europe in 2026 to remain notably below the 2022 level. Although the ECB's key rate has normalized, it remains well above the level seen during the historically low interest rate phase. Everything, therefore, points to a continued sluggish market recovery in an unstable environment from which pbb can itself not completely decouple. Let me now turn to our business segments, starting with Real Estate Finance Solutions, our core business pillar on Page 7. As already mentioned, we significantly increased our new business volume by 23% to EUR 6.3 billion. We had a stronger-than-expected fourth quarter with a high proportion of January new business commitments, which grew to 63%. The return on tangible equity in new business remains at around 8%, thus meeting our profitability requirements. We are also making progress in diversifying our book. Our growth asset classes with hotels, data centers, student and senior housing now accounts for around 7% of our new business with a stable pipeline of just under 20%. Before I move on to Real Estate Investment Solutions, I would like to give you a deeper insight into the progress of our withdrawal from the U.S. market, all on the next 3 pages. As you can see on Page 8, we have made strong progress in reducing the U.S. portfolio in 2025. Within the last 12 months, we were able to reduce our performing book by 1/3 from EUR 3.3 billion to EUR 2.2 billion. Of the remaining EUR 2.2 billion, the SRT covers a portfolio of EUR 1.7 billion. This leaves an economic risk position of only EUR 500 million in our performing portfolio. You can see the rundown of our book in the top right corner of the slide. We aim to have almost completely wound down of our U.S. exposure by the end of 2029. Let me give you on Page 9, some more detailed information regarding the SRT transaction in our U.S. business, which is of strategic importance for us. It is certainly a unique transaction for this market, both in terms of our strategic decision to exit the U.S. market and in terms of the transaction parameters. The transaction covers a performing U.S. portfolio with a volume of around EUR 1.7 billion. It comprises only 26 loans and has, therefore, a significant higher risk concentration compared to other transactions in the market. In addition, 92% of the portfolio is concentrated in office loans. pbb retains the First Loss Piece of around EUR 51 million and is fully protected -- this is fully protected by existing Stage 1 and Stage 2 risk provisioning. The Mezzanine tranche of EUR 247 million was taken over by Oaktree, protecting pbb against future losses to this extent. The SRT portfolio is expected to gradually reduce until 2029, aligned with expected maturities of the loan portfolio, reducing interest income over time. At the same time, the cost for the Mezzanine tranche will also decrease. The SRT transaction provided for an RWA relief in the amount of EUR 1.1 billion and a positive CET1 effect of 120 basis points. Finally, on the U.S. book on Page 10, some remarks regarding our NPL portfolio. At the end of 2025, our NPL book in the U.S. stands at EUR 900 million. In the fourth quarter, we were able to reduce NPLs by around EUR 100 million and have built some momentum. Currently, 5 further loans totaling EUR 300 million are already in advanced exit process for the first quarter of 2026. We are able to exit these loans within our existing valuation. Hence, no further material risk provisions were required. This makes us confident that we will be able to further reduce the NPL portfolio in 2026. The coverage ratio for the U.S. NPL book has increased significantly from 20% to 36%, a solid protection. Let me now, on Page 11, give you an update from our Real Estate Investment Solutions division, which will become pbb's second business pillar from 2026 onwards. The integration of Deutsche Investment with assets under management of around EUR 3 billion is well advanced. Following the first-time consolidation, we expect commission income of around EUR 40 million in 2026. Together, we want to continue to grow in the investment management area, both with equity products and with debt capital markets -- debt capital solutions in the form of funds or mandates for institutional investors. In our Originate & Cooperate business, we are currently finalizing our rollout. We have an established partner network. The sales and origination teams at our locations in London, Paris and Munich are in place. The focus in 2025 was on developing the business model. We are now well-positioned to tap into this completely new business area for pbb. Ladies and gentlemen, let's go to Page 12. The transformation of our business model requires a transformation of the bank organization itself. We are making good progress here. And with that, we continue to reduce our operating cost base. We have been able to reduce management positions by around 20%, thereby streamlining our organization. The new target operating model lays the foundation for a more efficient and profitable setup of the bank. We are also focusing on new technologies aligned with market and customer requirements. At the same time, the expansion of our new production hub in Madrid is also making good progress. We successfully hired 27 colleagues, and we want to continue to grow these to around 85 by 2028. In everything we do, we will continue to keep a close eye on our costs. By 2028, administrative expenses in our business area Real Estate Finance Solutions are expected to fall by a further 7%. At the same time, we are investing in the expansion of our new businesses in Real Estate Investment Solutions. And at this point, I would like to hand over to my colleague and our CFO, Marcus, who will now guide you through the most important developments and key figures for the Group. Marcus Schulte: Thanks, Kay, and good morning, and welcome also from my side. As usual, I will now guide you through more detail on 2025 results, portfolio developments, capital and funding. Let me start with the operating and financial highlights. The operating overview on Slide 14 illustrates the ongoing portfolio transition quite well. Kay has already discussed the pleasing profitability contribution from the REF new business. The key good news is that the overall strategic approach works as designed. Maturing business in the back book is continuously replaced by more profitable RoTE accretive new business in the front book, thus step-by-step increasing profitability towards the target of 8% for the portfolio as a whole. However, even though new business volume has been up by 23% in '25 year-over-year, the slower-than-expected market recovery still weighs on volume. New business is not yet enough to compensate for pre and repayments and the significant derisking of the U.S. and development exposures. Hence, the REF portfolio declined by EUR 1.7 billion in '25 to now EUR 27.3 billion. We expect this to stabilize from here as new business is expected to further improve gradually over time from here. At the same time and as intended, the noncore portfolio has come down by EUR 1.2 billion to EUR 8.5 billion year-over-year, including against some opportunistic asset sales and liability buybacks also in Q4. This brings me to the financials overview on Slide 15. The key P&L figures reflect both the financial impact of our strategic transition and the significant derisking of the U.S. and development book. With this said, operating income is down by EUR 122 million year-over-year, EUR 57 million lower NII and EUR 65 million lower realization and other income. NII is down due to the reduced portfolio value as well as our funding cost position and capital optimization. As you remember, among others, we optimized our capital structure with a successful EUR 300 million Tier 2 issuance in June last year, which, of course, came at a cost. Also, realization and other income was significantly down due to meaningful one-off effects. First, operating income 2025 was negatively impacted by minus EUR 32 million one-off fair value risk charges due to our strategic U.S. exit decision. Second, realization income was down EUR 57 million year-over-year as '24 has benefited particularly strongly from significant noncore asset sales and liability buybacks. As already mentioned before, we expect realization income to remain at such lower levels, now supported mostly by ordinary REF prepayment income. As expected, general and administrative expenses are down year-over-year by EUR 9 million, while investments into our strategic transformation are ongoing. This demonstrates our ongoing strict cost discipline. But above everything else, 2025 was burdened by the sharp increase of loan loss provisions to minus EUR 410 million. This unusually high LLP were dominated by minus EUR 334 million that were set aside for the derisking of the legacy U.S. and development exposures. To be precise, minus EUR 235 million for the U.S. exits in the second quarter and minus EUR 99 million for German legacy development NPLs, which were meaningfully derisked further in the fourth quarter. Rather moderate loan loss provisions of EUR 68 million or 30 basis points were put aside for the European investment loan portfolio, reflective of a solid asset quality in our strategic core portfolio. All-in-all, this resulted in a highly unsatisfactory pretax loss of minus EUR 250 million, which is, however, within our latest adjusted guidance of minus EUR 210 million to minus EUR 265 million and which has to be seen in the context of our substantial derisking. After total risk costs for the U.S. and derisking of the legacy portfolio, these were at minus EUR 366 million across all income lines. This would then bring me to the quarterly deep dive. And first, I'm now on operating income on Slide 16. If looking at the quarterly development of operating income, also here, the impact of the portfolio and funding transition become clear. However, in the fourth quarter, NII and NCI stabilized at EUR 99 million as further increased portfolio profitability almost compensated for the slightly lower portfolio volume. Funding in turn, now provided for a moderate tailwind as previous funding access normalized in Q4 and costly funding vintages get substituted by gradually cheaper funding. Realization and other income is in sum slightly down by EUR 4 million quarter-over-quarter as other income in the previous quarter had benefited from a significant positive one-off. All-in-all, operating income thus has come down moderately by EUR 4 million quarter-over-quarter to EUR 106 million. On the back of EUR 4 million higher total expenses, pre-provision profit, therefore, declined by a total of EUR 8 million quarter-over-quarter to EUR 39 million. And that brings me to the next deep dive on operating expenses, and I'm here on Slide 17. Operating expenses, including depreciation, remain well managed, being down year-over-year by EUR 9 million or 3% in 2025 from EUR 266 million to EUR 257 million, while investments into our strategic transformation are ongoing. Actually, expenses for the running bank operations in '25 have been reduced by EUR 17 million or 7%. That said, operating expense in the fourth quarter increased very moderately as envisaged. Due to EUR 5 million higher one-off costs, especially in connection with the implementation of the target operating model, while again, expenses for the running bank operations were down by EUR 1 million. Although the cost base has been well managed, the cost/income ratio for '25 appears somewhat elevated at 61%. This is, however, more a reflection of the operating income transition, including the minus EUR 32 million one-off fair value risk charges for the U.S. exit, which has, as you know, to be shown in operating income. And now to our deep dive on the risk provisioning, I'm on Slide 18 here. Risk provisioning of minus EUR 54 million in the fourth quarter is especially driven by a further derisking of our German legacy development NPL. With that said, net additions of minus EUR 86 million in Stage 3 result from minus EUR 55 million for derisking measures for idiosyncratic legacy development NPL and minus EUR 29 million for European investment NPL. Only marginal minus EUR 2 million had to be booked for U.S. Stage 3 in Q4 as the substantial one-off U.S. derisking measures in Q2 again proved to remain adequate. This was partly offset by EUR 31 million net releases in Stage 1 and 2. EUR 50 million release of U.S. management overlay due to the SRT and ordinary repayment, Kay has explained that, was partly counteracted by EUR 19 million additions, mainly from market-wide macroeconomic scenario and parameter updates. I will mostly skip Slide 19 as the development of the stock of loan loss allowance is more or less just a reflection of the risk provisioning I just explained and usage, of course, from existing stock. Just one brief comment. The REF NPL coverage ratio overall remained stable quarter-over-quarter at around 30%, up from around 22% as per year-end 2024. This brings me then to the portfolio. As the U.S. portfolio is on exit and was already covered extensively by Kay at the beginning, I will focus on our strategic core portfolio, the European portfolio. I'm starting with the European performing portfolio on Slide 21. With the significant derisking and [indiscernible] markets gradually but slowly recovering, the quality of the performing European portfolio further stabilized with an ongoing improvement of risk KPIs for the performing investment loans since end of '24. The average LTVs have stabilized at 55%, a solid level in view of the property price correction seen in the last 2 years. The 12-month rolling valuation adjustments have gradually improved and continued to do so in Q4. And also when looking at the exposure at risk or layered LTVs, we see a decline by 16% in '25 and 4% alone in the fourth quarter. With that said, I will leave the further details on the performing European REF portfolio, which you can find on Slide 22 for your own reading. And I will therefore continue with Slide 23, where we discuss the European NPL portfolio. The European NPL portfolio predominantly consists of German development loans, which account for almost half of the NPL. The remaining 20% in Germany and 11% in France are mainly driven by some selective office properties of 2 new office loans with a total volume of EUR 239 million in the fourth quarter. 15% come from the U.K. and consists of legacy shopping centers known. The European NPL portfolio is solidly covered by 31%, up from 29% as of third quarter end and 27% as of year-end 2024. This brings me to our deep dive on the development portfolio on Slide 24. The development portfolio has been significantly derisked in 2025 and in particular, also in Q4. The total portfolio has been reduced by EUR 400 million or 16% to EUR 1.8 billion, while NPL has been kept largely flat with no new NPL rising in 2025. However, legacy NPL have required focused attention with dedicated derisking and support measures of the exit strategies through the entire year. In Q4, we decided to receive particularly demanding legacy developments in the final finishing phase and put aside EUR 55 million Stage 3 loan loss provisions for those. This brings the coverage ratio for development NPLs further up to solid 29%. All-in-all, the portfolio is now substantially derisked, and we feel comfortable with the existing coverage. And with that, I move to capital on Slide 26. With the CET1 ratio of 14.9% as per year-end, our capitalization remains solid. This is slightly down from 15.4% as of fourth quarter end. Let me explain the various effects in regulatory capital in particular RWA. RWA stayed flat at 17.5% -- EUR 17.5 billion, sorry, reflecting 2 opposing effects. While the SRT transaction provided for a leaf of EUR 1.1 billion RWA as per year-end, a change of applicable regulatory LGD levels in F-IRBA resulted in an offsetting effect of the same amount. I will come to this on the next slide in quite some detail At the same time, in the numerator, there was a slight reduction of regulatory capital by circa EUR 100 million in Q4 due to increased prudential backstop such as the expected loss shortfall and the NPL backstop as well as the fourth quarter loss and the preemptive AT1 coupon reduction from regulatory capital. All-in-all, our CET1 ratio of 14.9% stays solid. SREP requirements remain well exceeded with more than 500 basis points buffer over the CET1 ratio requirement and more than 400 basis points over the own fund ratio requirement as per year-end 2025. I would also like to take this opportunity to provide some further context. When looking at capital ratios, it is worthwhile to note that our F-IRBA RWA are procyclically elevated so that the F-IRBA CET1 ratio of 14.9% at year-end now stands below the pro forma standardized credit risk standard approach CET1 ratio of 15.3%, which by many is seen as a regulatory floor. Also, when looking at our capital on a simplified nominal level, we observed a steady increase of our leverage ratio, now close to a healthy 8%. This is, of course, down to robust capital and consistent ongoing deleveraging. Taking into account our substantial deleveraging and derisking and our future focus on core European markets only, we now define our long-term minimum CET1 ratio at 13% through-the-cycle, still providing ample of buffer to MDA. At this point, let me also reiterate that the conditions for the AT1 coupon payment are clearly met, as Kay said, with a buffer of MDA of more than 500 basis points and available distributable items of around EUR 2 billion. I also want to be very clear here that we continue to see debt capital and its investor base as a key cornerstone of our wholesale-led funding strategy. This then brings me to Slide 27, where I would like to explain the aforementioned change of applicable LGD levels for commercial real estate for certain countries in F-IRBA. In the F-IRBA regime, the LGD is dependent on the country-specific eligibility for preferential collateralized treatment. How does this work? The European Banking Supervisory Authorities of each country collect and publish the average CRE market loss rate from their national supervised banks on a regular basis. If the commercial real estate market loss rate in a respective country exceeds 0.5%, trade transactions no longer qualify for preferential collateralized LGD levels in the computation of F-IRBA RWA. In the fourth quarter, consideration of new loss rates for Poland, Finland and Austria meant loss of the preferential collateralized LGD treatment in these countries, even though some of these countries only very marginally exceeded the loss hurdle rate of 0.5%. Given the somewhat meaningful overall pbb footprint in these countries, the underlying RWA increased by EUR 1.1 billion. In effect, this means that the RWA relief from the SRT has been entirely consumed by the loss of the preferential collateralized LGD treatment for the aforementioned countries. In this context, I would like to make a few things clear. Number one, this development is not about pbb's own economic portfolio quality having deteriorated, but rather down to overall market-induced impact amplified by the digital nature of the F-IRBA LGD regime that I explained. Given that Poland and Finland have only marginally exceeded the hurdle rate, a digital reversal is possible when the banking authorities in the respective countries publish updated data. With regards to portfolio volume, 3/4 of the countries pbb operates and remain eligible for preferential collateralized LGD treatment and loss rates remain far below the 0.5% hurdle rate, as you can see in the last column of the table on Page 27. However, there has been another more recent development. On February 27, 2026, the EBA communicated its position that U.S. loss data published by the U.S. Federal Reserve is not viewed equivalent even the U.S. themselves are deemed an equivalent regime under the CRR. If applicable, preferential LGD treatment of real estate located in the U.S. would no longer apply in principle when calculating current RWA for these countries going forward. pbb will carefully review this assessment, but if applied, this would result in a pro forma reduction of our CET1 ratio of circa 135 basis points for our entire U.S. portfolio. When also taking the envisaged first-time consolidation effect from the acquisition of Deutsche Investment into account, which is minus 26 basis points and becomes effective in Q1 2026, the pro forma CET1 ratio as of year-end 2025 would be 13.3%. Even at this harsh pro forma level, the buffer to MDA would still be comfortable at around 340 basis points. And finally, a few remarks on the funding and liquidity side. I'm now on Slide 28. All-in-all, we maintained a resilient and balanced funding mix with ongoing focus on efficiency and cost optimization. With EUR 2.1 billion Pfandbrief issued, a successful EUR 750 million senior and our successful EUR 300 million Tier 2 issuance, we completed our funding agenda '25 already in summer and provided for comfortable funding access. With an LCR of 379% and EUR 5 billion liquidity at year-end, we maintain a solid liquidity in line with our reduced balance sheet needs. But most important, issuance costs have come down on all instruments, slightly on Pfandbrief, more strongly on senior preferred as well as deposits. All-in-all, we expect this, in combination with moderate funding needs to provide some ongoing tailwind on funding costs going forward. This is, of course, looking through current noise as we have no current need to issue anything. In 2026, we plan for a moderate EUR 1.75 billion in Pfandbrief issuance, of which more than 40% have already been done on further reduced costs. In addition, we plan for a maximum [indiscernible] preferred issuance of EUR 500 million. The retail deposit volume is planned to stay largely stable at around EUR 7 billion, in line with our reduced balance sheet needs, catering for a 50-50 split in unsecured funding, 50 for each wholesale and deposit funding. With that, Kay, I hand over back to you. Kay Wolf: Thank you, Marcus. Ladies and gentlemen, let me now on Page 30, turn to the future. We have a challenging year 2026 ahead of us. And the overall situation hasn't gotten any easier with the recent developments since last weekend. Our full focus is on increasing operating income in our 2 core business areas: Real Estate Finance Solutions and Real Estate Investment Solutions. However, operating income in Real Estate Finance Solutions will be affected by the cost of the SRT. Furthermore, we have to cater for lower positive one-off effects in 2026 compared to last year. We continue to exercise strong cost discipline. We continue to make our core business, real estate finance solutions more cost efficient. The initial consolidation of Deutsche Investment and the further development of our business activities account for higher operating expenses in Real Estate Investment Solutions. In fact, we are reinvesting cost savings into our new business activities. Nevertheless, the cost/income ratio will temporarily increase to between 70% and 75%, mainly due to the development in the operating income. We expect a normalization in risk provisioning. With the U.S. and development book largely shielded last year, we anticipate in 2026 risk costs of 25 basis points to 30 basis points in our core markets in Europe. What does that mean specifically for 2026? Let's go and move to Page 31. We want to keep our growth momentum in the new business and achieve a volume of between EUR 7.5 billion and EUR 8.5 billion in real estate financing. We expect the portfolio volume between EUR 27 billion and EUR 28 billion. In Real Estate Investment Solutions, we expect to grow assets under management to be between EUR 3.3 billion and EUR 3.7 billion. Operating income is targeted to be in the range of EUR 357 million to EUR 425 million. Cost/income ratio between 70% and 75%. The share of fee income is expected to rise to more than 10% in 2027. As announced, pretax profit is expected to be between EUR 30 million to EUR 40 million. Moving to Page 32 and looking further ahead, we remain committed to our strategic goals and key performance indicators. Return on tangible equity is our main KPI. We are already at around 8% in new business. We want to achieve this for the whole bank by 2028. Operating income shall amount to around EUR 600 million towards 2028. In Real Estate Finance Solutions, 3 key levers should increase the return on tangible equity. First, SRT costs will decline with the reduction of the U.S. portfolio. Second, more profitable new business will substitute less profitable existing portfolio. And third, a more cost-efficient liability and equity side will improve refinancing costs. In Real Estate Finance Solutions, we target to grow assets under management to EUR 7 billion to EUR 8 billion. The share of operating income is expected to grow well above 10% in 2028. We have already significantly reduced the risk profile of our portfolio. In 2028, risk costs are expected to normalize to around 15 basis points to 25 basis points. We remain focused on an efficient cost base and we continue to execute our cost measures in a disciplined manner. Cost savings in our Real Estate Finance Solutions business will be reinvested in the development of real estate investment solutions. Overall, broadly stable operating expenses help to bring the cost/income ratio back to target level of 45% to 50% by 2028. And that brings me to our last page that summarizes our targeted key developments until 2028. Ladies and gentlemen, pbb is in the middle of its transformation to a more resilient, profitable and diversified European commercial real estate bank. We have to acknowledge that we will not be able to achieve our ambitious goals we set in 2024 within the planned timeframe. Also, the market environment economically and geopolitically has not developed as we had expected. But we are making progress. In challenging times, we are acting decisively as our exit from the U.S. market underpins and we sustainably reduced risks in our books. We have the momentum to grow our new business volume even in a currently sluggish CRE market, and we are doing so profitably. And in 2026, we start to see notable first capital accretive contributions from our new businesses. We are on the right track with this fundamental transformation even if it will take more time. Thank you very much for your attention. Marcus and I are now looking forward to your questions. Operator: [Operator Instructions] The first question is from Tobias Lukesch from Kepler Cheuvreux. Can you hear us, Mr. Lukesch? Tobias Lukesch: Yes. Can you hear me? Yes. It takes 10 seconds until I'm in talk mode. Sorry for that. On the capital, the first question regarding the EBA communication of the U.S. LGD equivalents and may we see or will we see the 135 basis points negative core Tier 1 ratio impact? And if we will see it, what is the timeline for that? Then secondly, on dividends, what is the projection for the future? I mean, yes, there were moving parts. Yes, you're cleaning up the business. You say you're on the right track for '28, but you haven't touched on dividend projections. So I was wondering what this means for capital distribution going forward, especially since you lowered the through-the-cycle threshold to 15%, even so you highlighted we might get closer to that level if we see the U.S. LGD impact. And then on the U.S. NPL portfolio, this was now reduced to EUR 0.4 billion. What is the projected development here over the next 3 years? And maybe could you please quantify the impact on risk provisioning -- on the risk provisioning guidance you have provided, which will be lower for this year and then further lowered for the years to come? Marcus Schulte: Hello Mr. Lukesch, good to hear you. Thanks for your clarifying question on the very new statement that came out by the EBA just a few days ago, actually Friday last week. So I think the Q&A are quite clear in that they say that the EBA sees in principle that the computations as done by the Fed don't mean that the computations are eligible for the European regime, even though, again, as I said, the U.S. fundamental principle are, of course, an equivalent regime. It's very new. So we are carefully assessing this. But at this point in time, I would expect clearly that it will happen. And I cannot rule out that this will be a Q1 effect already. And let me again say this would be 120 basis points for the commercial real estate and another 10 basis points roughly for the residential so stated that 135 basis points that you see. And that is something we expect to happen, but we have to carefully assess it, and we will update you then on Q1, but I would expect it to be reflected in Q1. Kay Wolf: Yes, Mr. Lukesch, then I take the other 2 questions. On dividend, thanks for the clarifying question. We are sticking to our distribution guidelines that we have put out with our strategy on 2024. And thanks for raising that question. So we want to distribute 50% of our profits, and we want to use the tool of dividends on the one hand side, but also share buybacks on the other side. And to your last question on the U.S. NPL, yes, you see we have quite a good momentum built also based, of course, on the provisioning that we did and the shielding to reduce the book. We will more than half reduce it in 2026. And we see over the next 2 to 3 years, a full exit on that book. However, as we speak, we continuously watch and see whether we can value preserving exit those NPLs earlier. But current projection with regard to your question should be then towards '28 and '29 in line with the rundown also of the performing book. Operator: Mr. Lukesch, does that answer your question? Do you have a follow-up? We can hear you. Then we are moving on to the next question. The next question is from Miriam Killian of Deutsche Bank. Miriam Killian: I hope you can hear me all right. So my question would be surrounding the tax expenses that we saw in the fourth quarter that were quite a bit higher than we anticipated. If you could maybe just provide some color surrounding this. That would be my only question for now. Marcus Schulte: Yes. So as you say, for the full year result pretax minus EUR 250 million post-tax, minus EUR 284 million. Essentially, this is DTA reversals, which you have to mostly see in the context of risk provisioning, but also more importantly, in the context of the lower business projections that we have for future years, which basically mean that we have this impact from DTAs that cater for the EUR 34 million in addition to the EUR 250 million pretax loss. Operator: The next question is from Domenico Maggio from Jefferies. Unknown Analyst: I have 4. On the expected capital erosion from Deutsche Investment acquisition, is that going to be 26 bps or 30 bps in the next quarter? Second one will be, what do you mean exactly with pro forma credit risk standardized approach? Is this pro forma for some adjustment or is this a normal standardized approach? And if the standardized model results in higher capital, then why did you transition in the foundation model? Third question would be, are you able to switch your capital model again in the future? I assume the ECB would need to approve that. I'm asking this clearly given the unfavorable capital development and your previous transition to different capital models. And the last one, what would be the impact to RWA if all countries were to lose their preferential LGD level? Marcus Schulte: Okay. So good to hear you, Domenico. So to your first question, we've been indicating previously on the signing of the transaction in the summer that the capital effect could be around minus 30 basis points. That's the number you have in your memory. And the precise figure that I gave you is minus 26 basis points now. So it's a clarification of an estimate that you've been hearing with Q2 results. The second point is that you were asking about the nature of the pro forma numbers we were giving. So these numbers are basically under the assumption that the bank will apply credit standardized approach in its entirety instead of the F-IRBA model computation with PDs out of the model and LGDs out of a matrix. So it's a substitution of the entire book pro forma into standardized KSA in German, CRSA in English. And it is, of course, a pure exercise to illustrate the very high RWA density that we now have and the capital compression that we face because obviously, a lot of people who are looking at the capital ratios see the standardized capital ratios as a floor to where it would be. And the point we are trying to illustrate that at this point, and this is the last answer to your question, at this point, at the bottom of the cycle, it happens to be that with what is happening in these digital LGD hurdle rates that I mentioned for these countries that even the standardized approach is better than the F-IRBA in this part of the cycle. But of course, you would choose capital models through-the-cycle and it was a very conscious decision to move to F-IRBA because essentially the old IRBA, advanced IRBA, as you remember, is essentially not suited for low default portfolio. And that's, I think, why we and others moved from an IRBA approach in our case to an F-IRBA approach. And we have to look at that on a through-the-cycle basis, on a through-the-cycle basis, the F-IRBA from our point of view is advantageous. Right now, at this part in the cycle with the few digital events that we have seen, it is not. But as I said, Domenico, what we always have to bear in mind, the pro forma numbers that I gave, right, adding everything together, U.S. CRE, U.S. residential, the acquisition that will happen, of course, no modificating effect including, as I mentioned, that, of course, digital event, one can also flip into the other side, for example, for these countries. And lastly, what would be the RWA effect? You see that on this table that we provided on Page 27. At the end of the day, from my point of view, the very key message of that slide is that for the vast part of the portfolio, 75% portfolio that we have in the F-IRBA, the green dots that you see, the actual losses are far, very far below the hurdle rates. What we try to illustrate there that currently, we don't foresee at all that these countries that you see would move into such a digital situation that we've experienced, for example, in the fourth quarter with Poland, Finland and Austria, you can see how far they are away from the 0.5%. Unknown Analyst: Yes. Helpful. I was asking that just to assess the worst-case scenario. And just a quick follow-up. You mentioned that the banking supervisory authority of respective countries collect the data and then they updated during the year. Is that an annual exercise or does it occur more frequently? Just I mean. Marcus Schulte: Typical annually. Unknown Analyst: Annually. Operator: The next question comes from Jochen Schmitt from Metzler. Mr. Schmitt, can you hear us? Jochen Schmitt: It took some time until I got unmuted. I have 2 questions, please. Firstly, again, on the CET1 ratio, your new target of above 13%. How much of this change versus previously was driven by SRT and how much by the possible changes in regulatory treatment, which you mentioned on Page 27 or to ask the question in a slightly different way. If the pro forma CET1 ratio, which you mentioned were to realize, would you possibly again review your CET1 ratio minimum target again? And secondly, very briefly on the EUR 40 million fee assumption for Deutsche Investment in '26, what is the pretax earnings contribution, which you expect from that? Kay Wolf: Mr. Schmitt, good to hear you. Thanks for having you around. Let me take the 2 questions. And let me start with your question on CET1. The strategic adjustments around the minimum level is not driven by the capital regime under which we are reporting. It's driven by the risk profile of the firm. I think we have outlined that always in the calls and have said originally, we set it at 14%. Now we are moving it to 13%, and that is purely driven by the risk profile of the portfolio. When we were at 14% we had still a much higher position on the U.S. portfolio, which we now have completely derisked from our perspective or nearly completely derisked economically. And we have also shielded our development portfolio next to our strategic position to focus on the European core markets, most of which you see on Page 27, where we have allocated, and we are focusing on those markets. So overall, strategically, the steering of the capital levels for the firm for us, is not driven by the capital regime, but it's driven by the risk profile of the portfolio and how that portfolio behaves through-the-cycle. I remember -- I would like to reiterate what Marcus said, it's a 13% through-the-cycle. And we all know here that commercial real estate markets are volatile. And that's a reflection on the 13%. With regard to your second question on the Deutsche Investment Group, we would provide, of course, way more detail when we communicate on our quarter 1 figures because there is where we first time will provide way more detail on it. But for 2026, it's a profit before tax of around EUR 4 million. And you will have to deduct then, but we will provide more details on that, the PPA, the purchase price adjustment as well so that you should look around EUR 3 million for the Deutsche Investment Group for 2026. Operator: Next question is from Corinne Cunningham, Autonomous. Corinne Cunningham: Thanks very much for letting fixed income people speak on the call. Just a couple of quick clarifications and a few questions from me, please. When you said the 13.3% assumes the whole book moves to standardized, the calculations seem to suggest that that would include the U.S. moving to standardized and the acquisition of DIG, but not all of your core European lines of business. Can I just? Marcus Schulte: What I said was the whole U.S. book, meaning the commercial real estate book, which is in detail described on Page 27, but also the very limited residential exposure that we have that is also subject to a similar but slightly different regime and the same principle. And with that in principle decision or wording of the EBA, we assume that we will lose the preferential treatment for LGDs for both the commercial real estate and the residential portfolio in the U.S., so the total U.S. portfolio. Corinne Cunningham: That's clear. And then just you mentioned on the dividend policy, 50% distribution policy. Is that expected to apply to 2026 or not until you get to the end of your planning period? Kay Wolf: Corinne, thanks very much, and thanks for having you. Good to hear you. It applies for the year 2026 and the coming years. So that's the dividend policy that we have set. So it's for the future years that we want to deploy and have this policy in place. Corinne Cunningham: Then the other question was about the way the SRT is working in the U.S. And can you explain why it doesn't help you with the change from F-IRB to standardized given that you've now got a fairly chunky first loss cover, why are you not protected against that change out of F-IRB in the U.S. portfolio? Kay Wolf: I can answer that in 2 ways. First of all, our -- not our entire U.S. portfolio is covered under the SRT. So there are remaining pieces and as well the 5% size of the SRT portfolio is not covered, yes. So you will see that effect. The second point, Corinne, I would make is that the SRT does provide protection for the change in the regime. However, the loss of the preferential treatment, of course, reduces the positive effect that we mentioned of EUR 1.1 billion. It doesn't remove it completely because the other offsetting elements that you see when you look at the quota of EUR 135 million, you need to bear in mind the portfolio components that are not yet in the -- that are not covered by the SRT. I hope I was clear. Corinne Cunningham: The is not covered, totally get that. So the rest is it just the senior layer that's being hit or basically the SRT is giving you less protection than you budgeted when you set it up? Kay Wolf: I think the overall structure, the way it works from a capital regime perspective, Corinne, on the SRT, you cannot separate the senior and the math. You need to look at the entire capital structure and the entire capital structure defines the capital that needs to be put aside under the respective regimes, be it F-IRBA or standardized. So it's not simple saying it is to be deployed on the unprotected side. It needs to be deployed on the entirety of the portfolio and the amount of capital that you have to put aside depends on the structure at the point in time. As you know, that this structure, when it starts winding down, is also starting to shift and change, and that has always an impact on the respective capital that you need to put aside. Unfortunately, not a very straightforward mechanism, but the mechanism of how to deploy it, I think there is clearly defined rules of how the structures need to be taken into consideration when calculating under the respective rules. Corinne Cunningham: Okay. And then maybe a more fundamental question about the revenues. So your revenues, you're targeting to basically increase them by 1/3. What are the main building blocks of that? I know you talk about, obviously, the cost of the SRT should fade away, but that's still a very significant revenue build with a flat loan book. Is it based on increasing interest rates? Just very keen to hear how you would expect to build to that EUR 600 million revenue number. Kay Wolf: Yes. I would, Corinne -- I would start with that, and I would kindly ask Marcus to chip in as well if I might not touch on all the aspects. I would probably, Corinne, draw your attention for that on Page 30, where we have the walks on the operating income side for the respective business units through 2026. But those walks give a good indication in the direction of travel that we are going for the year 2028. First of all, on the Real Estate Finance Solutions business, you see already in 2026 positive impacts from the rebuild of the book, putting more profitable new business on, substituting less profitable business. You see that here with EUR 15 million-plus EUR 35 million in the range, take that as a consistent rebuild of the book because our back book of EUR 27 billion still has something like EUR 20 billion in there, which will come due over that period and will be replaced by more profitable business. So that is one driver. The second driver to it, and you referred to a flattish book is that of course, we want to also substitute and reduce our nonperforming loans. Look at the U.S. at the moment, the entire U.S. book [ 28 ] is more or less going to disappear, including the nonperforming loan side, but also on the rest that gets substituted with more profitable and interest income producing operating income on that part of the book. So a lower NPL book is supporting this trajectory as well. And the third layer on the real estate finance side is definitely a more efficient liability and equity side. So there is funding support coming in. Marcus has outlined on the funding page in which direction the funding costs are going, and this gives us tailwind there as well. So those are the key levers. Next to that, if you drill further down in REFS, I could also mention, of course, we are diversifying in our portfolio. So we are taking more managed properties, hotels, student housing, those asset classes on our books. They provide for a better risk return profile compared to other asset classes, most notably the office portfolio, which will more decline over time. So there are multiple levers that all play into improving the operating income in the real estate finance side. Paying attention to real estate investment solutions, the growth here clearly to EUR 7 billion to EUR 8 billion of assets under management is literally coming from the EUR 3 billion to EUR 3.5 billion that we have when you look into real estate investment solutions for 2026 is substantially adding revenues there as well. And we are building out our Originate & Cooperate business. So there is clear anticipation of fee income growth for real estate Investment Solutions. And in the combination of both of those elements next to the fact that the negative impact from others that you see on Page 30 is going to disappear because it's a lot of one-offs that we had in 2025 that are not coming back, that gives a consistent growth of operating income towards the mentioned EUR 600 million in 2028. Corinne Cunningham: Okay. And just on the rate assumptions behind that, do you just assume current rate supply? Marcus Schulte: Correct. Yes, it's more or less current rate supply. We assume a moderate bias for rates to come down on the short end, but rather assume that rates in the middle and longer part of the curve would stay or slightly rise given funding agendas of governments, et cetera. And that's basically the assumption. So a reasonably steep curve, but no major impulse for the income as such. However, of course, as Kay mentioned, if you, for example, look at the equity side, et cetera, interest rates going stable in medium-term and term means, of course, that investments that you make are positive yielding and not anymore 0% yielding if vintages from the low interest rate phase basically gradually wash out of the system, right? So that's essentially the effect. Operator: The next question is from Sharada Patel of Citi. Unknown Analyst: So I've got 2 questions. So if the numbers are reviewed annually, do you know when the next review for Poland and Finland will be? And then the second one will be just some more explanation around the EBA's position on the U.S. because it seems like the market loss rate is below the 0.5% kind of threshold. So if it's not equivalent, is there kind of a different benchmark number that they're comparing it to or is there a different data source that they can refer to and do find equivalent? Is this? Kay Wolf: We were just wondering whether there are more questions, right? So we wait. Unknown Analyst: Yes, sorry. And just finally, so if there's -- I just wanted to know, you're expecting that this U.S. change will come in, in the first quarter, but are there any changes kind of later down in the year if they can find an equivalent data source that could mean that, that is reversed? Kay Wolf: Thanks, Sharada, and thanks for your questions. Let me take your first question on the technicality. The national competent authorities would have to, by law, communicate latest by the 30th of June of the following year, the loss rate that triggers the treatment. That's the law. The reality is that we are continuously monitoring publications. And they can also publish in between. So that is -- there is on the one hand side, the way it should be and there is on the other hand side, the way it happens. By a matter of fact, we are monitoring regularly because as a foundation of our bank, we need to, the respective published levels and would then respectively apply them once they are published. And on the U.S. data, look, the U.S. is not -- does not have the same type of heart test and equivalent LGD regime, as we all know. So therefore, by a matter of fact, they do not publish exactly the same data to comply with a European rule set out in the CRR. For that purpose, equivalents should be and can be applied. But by a matter of fact, looking into that, the conclusion of the EBA, if you read that is that there is no such data that would exactly cover the requirement of the CRR. And therefore, stating -- and also stating that what is published and could be applied to is from their perspective, limited able to apply. And hence, their conclusion that for the U.S., despite the U.S. being a regulatory regime that is deemed by the European Commission as an equivalent regime, the level of data and information that is being published is viewed by the EBA is not sufficient for applying the respective calculation that we have been applying in the past. There is a hell of a lot of data published in the United States, as we all know. It's the country with most of the statistical data. But of course, they do not publish 100% according to European rule regulation. Unknown Analyst: Okay. And why is this change only happening now? Because obviously you've been using F-IRBA since January '25? Marcus Schulte: And look, I mean, perhaps 2 things and just to your earlier question, Sharada. And for that reason that Kay and I explained, the 26 basis points that we compute do not matter because at the end of the day, the decision is in principle and irrespective of computation. But this is, of course, not meant to pbb. It's a clarification that the EBA has published to the market in principle, it's public. And it has come out now on the back of a question that was raised and now they've been clarifying that point to the market in general. Kay Wolf: So it's completely irrespective of pbb per se, right? This is a clarification to a standard. Operator: Sharada, do you find your question answered? Then the next question is from Daniel Crowe, Goldman Sachs. Daniel Crowe: These are kind of just follow-ons from what has already been asked. So just Domenico answered, and I'm not sure if you gave a full answer to this. But just given the volatility that you're seeing in your RWA measures of capital at the moment, if you wanted to move to standardize, could you actually do it? Because we've seen quite a lot of movement in your CET1 over the last couple of years, which is obviously the moves are understandable. But if you wanted to move to standardize, could you? And then just following on from Corinne's question around the SRT and its impact on the potential impact from the U.S. If this SRT was not in place, what would have been the capital impact there because I think there's going to be a decent bit of confusion around why that doesn't protect you a little bit more? And then just finally, just on Deutsche Invest, I know you say EUR 40 million of revenues. Could I just get the cost number for -- that's coming with Deutsche Invest as well? Kay Wolf: Yes. Daniel, thanks and as well to you, welcome. Thanks for your question here in this round. To your first question, moving to another capital regime is, first of all, regulated under the respective rules that have to be applied for banks. And in general, it is a process that needs to be approved by ECB. So it's not on us to jump around. And again, repeating and reiterating or making the focus of what Marcus said, what we have been seeing, and you said that over the last years in terms of volatility, that is, by a matter of fact, a reflection of the foundation approach. We called it the procyclical nature of it. And to a degree, the digital effect of being above or below a threshold for an entire portfolio without reflecting on the individual performance of the bank is one of the reasons. And when you consider where the market has been moving and we are talking that real estate markets now on low levels being stabilized, what you see literally by a matter of fact, we are moving in the cycle through really a low point and a hard point. And considering the capital regime, you always need to look through that and we need to look through-the-cycle as a whole. But the short answer, I gave it a little bit longer because of the consideration that I expect behind your question. The short answer is we are not free here to jump around on capital regimes. And don't view as a sloppy Marcus smiling at me, don't view it as a sloppy answer, but I want to be clear given that, that question was asked twice, Daniel. Daniel Crowe: Yes. No. And I understand like the capital itself is moving your leverage ratio is obviously in a good place. I was just wondering. Kay Wolf: And that is a bit the situation that we also on the respective page on the capital side, wanted to give a reflection. You see the derisking of the bank, the deleveraging of the bank also reflected, I think, well in the leverage ratio and how the leverage ratio has developed. And then? Daniel Crowe: Just had the SRT not been in place, the impact of the U.S. portfolio of 135 bps, what would that have been? Kay Wolf: I don't have the number around, Daniel. But what I can say it would be, of course, higher because there is a mitigating effect by the SRT. So the effect would be even higher. So we do here benefit from the derisking process, of course. Overall, by the way, we also benefit from the repayments that we got on our performing book as well as a reduction in our NPLs. The entire exit of the U.S. in itself mitigates, of course, the impact, but the SRT standalone, of course, has a mitigating effect as well. Daniel Crowe: And the final one was just on costs in Deutsche Invest. I know you said EUR 40 million of revenues. I just -- I know you said costs stable across the bank, but I just wanted to check what the costs were for Deutsche Invest. Kay Wolf: The cost for Deutsche Invest, I think when we said around EUR 40 million for 2026, we also said around EUR 4 million of profit before tax before the PPA effect. So the delta of it roughly is the cost range that you have. So you are around EUR 35 million of costs that you have in that business. Daniel Crowe: And also thank you for taking calls from the credit side. Much appreciated. Operator: The next question is from Paul Noller, Commerzbank. Paul Noller: I would like to quickly go to the most recent events. You mentioned that you are guiding for loan loss provisions in '26 of between 25 basis points and 30 basis points. I don't assume that takes into account the recent rise in energy prices. So I would be curious to see your view on if we are now looking in Europe at a protracted increase in energy prices, how that might impact the debt service coverage ratios, specifically in your European [ Rev ] portfolio. I'm thinking here about hotels, logistics and what effect you think that might have down the road on risk cost in 2026? Kay Wolf: Yes, Paul, thanks for your question. I mean, first of all, let me clearly state that we have no active business whatsoever in the Middle East. I think that is one thing that should be said. So the impact and you're alerting to that is more an indirect impact rather than a direct impact that we will have to consider. And whilst energy prices is the one precise one, overall, I think one could sum up, it will be inflation and inflation on the cost side and in particular, on the service properties will have an impact. The experience that we have when you consider going back to the Ukraine war and the energy price rise that we have had, although it's awful to compare wars with each other, that to clearly state that. But take that as an example, we have the experience of those cost developments. Of course, one could say there have been mitigants and one could read now as well if it gets completely out of normalatality rises, then there will probably be additional support coming. Of course, there is a higher pressure on the cash flows that are coming. But from the experience that we have been seeing that is within the range in our portfolio of what we guided for in terms of the cost also stressing the fact that the hotel portfolio, take this as an example, is only 2% of our portfolio. So we are not that heavily involved. We are just going into and expanding into it. So we can take those considerations, of course, when taking new loans on our balance sheet. Operator: At the moment, there are no further questions in our queue. [Operator Instructions] So with that, thank you very much, and I'm handing the floor back over to the host. Kay Wolf: Yes. Thank you very much. Thanks for the exchange. Thanks for the questions, in particular, Corinne, Domenico, Sharada, Daniel, thanks for your questions and looking forward to have you around in our next call. If there should be more questions arising, which would not be unusual, you know our Investor Relations team, Michael Heuber, Axel Leupold, they are available. So please reach out. And otherwise, I wish you all a good day. And again, big thank you also in the name of Marcus for having joined our call. Thank you very much. Marcus Schulte: Thank you.
Operator: Hello, ladies and gentlemen, and welcome to the Deutsche Pfandbriefbank Analyst Call Regarding the Publication of the Preliminary Annual Results for 2025. [Operator Instructions] Let me now turn the floor over to your host, Kay Wolf, CEO of Deutsche Pfandbriefbank. Kay Wolf: Thank you very much. And ladies and gentlemen, a warm welcome from my side, from our side, Marcus, our CFO, here as well. And thanks very much for taking the time joining our first analyst call in 2026. Before Marcus and I will take you through the preliminary effects and figures for 2025 and also a prolonged view on the outlook for 2026 to 2028. As usual, we are doing that based on IFRS figures for the Group. I would like to take the opportunity to inform you that we are going to slightly amend this call going forward. And we have decided we're starting into a New Year to develop a bit further in the setting here. And going forward, not only our equity analysts, but also sell-side credit analysts who are covering pbb on a regular basis are invited to ask questions. This is clearly aiming for even further broadening the communication and the dialogue with the community that is covering us in great detail. And I'm really looking forward together with Marcus to your questions that are coming from both of you, from our equity analysts as well as our debt analysts, both from the sell side. And as always, there will be sufficient time left on our side for questions and answers at the end of the session. Ladies and gentlemen, 2025 was a landmark year for pbb. We made far-reaching decisions that go well beyond what we presented to you on our Capital Markets Day back in 2024. The transformation of pbb is more intense and therefore, more time-consuming than originally anticipated. In addition, the market recovery remains sluggish, providing us with less momentum in the new business than expected and in some countries with additional regulatory headwinds. This makes it more difficult to achieve our strategic goals and limits our flexibility and also latitude for action. However, we remain fully convinced that we are on the right track. We are working hard to make the bank more resilient, profitable and diversified. We are not losing sight of our strategic goals. Despite difficult conditions, we have already made good progress. As a result, we succeeded in significantly reducing the bank's risk profile in 2025. Repayments totaling EUR 1.4 billion and the EUR 1.7 billion significant risk transfer transaction at the end of last year enabled us to substantially reduce our risk exposure in the U.S. This represents a major step forward in our withdrawal from the U.S. market. We were also able to reduce the risks associated with the existing nonperforming loans in our development portfolio. With that, we deem the shielding and risk coverage of the U.S. and the development books as in general completed. At the same time, we are encouraged by the significant increase in new business to EUR 6.3 billion, including prolongation larger than 1 year. In a challenging market environment, we were able to increase new business volume by 23% compared to the previous year. In doing so, we are consistently tapping into new asset classes in order to diversify our portfolio. Nevertheless, in 2025, we remain below our original goal of between EUR 6.5 billion to EUR 7.5 billion. However, our key indicator of profitability, return on tangible equity was around 8% for the new business, which is already in line with our strategic ambition level. We have also made progress in diversifying our income streams. The acquisition of Deutsche Investment will broaden our business model. In 2026, Deutsche Investment will make its first notable low-capital binding contribution to pbb's overall results with its commission income. However, despite our efforts, we have not succeeded yet in placing our first own investment product in what is a difficult real estate investment market. But we continue to see the great market potential and remain committed and confident to make progress in the future. The decisions we made last year to put the bank on a more sustainable foundation for the long-term had a significant negative impact on our 2025 annual results. With costs of around EUR 366 million the decision to exit the U.S. market and the derisking of the nonperforming development loan contributed significantly to the negative pretax result of EUR 250 million. Due to this significant negative pretax result, the bank will not pay a dividend for the financial year 2025. With regard to AT1, the conditions for servicing instruments are currently well met. However, as you know, for regulatory reasons, we are not allowed to comment at this time on whether we will pay the AT1 coupon in April as we always -- we have always done in the past. With the CET1 ratio of 14.9% at the end of 2025, the bank remains solidly capitalized. The SRT transaction resulted in a significant RWA reduction of EUR 1.1 billion. However, this was offset by necessary regulatory loss given default adjustments to capital requirements in our foundation IRBA regime. These adjustments are linked to country-specific and backward-looking loss developments in the respective commercial real estate markets. They are completely independent of the performance of our portfolio or individual pbb loans. In addition, the embedded threshold and trigger mechanism increases the volatility and procyclicality of the F-IRBA capital regime for commercial real estate in the current market environment. In Q4 2025, the effects are primarily caused by the loss rate development in the countries of Poland and Finland. And we will discuss these effects in more detail later. For 2026, we expect pretax earnings to be in the range of EUR 30 million to EUR 40 million. The U.S. exit, in particular, will continue to have a significant negative impact with SRT costs of around EUR 44 million. Additionally, sluggish market recovery will not offer significant support. The most important KPI for us remains the improvement of the return on tangible equity to 8%. For the whole bank, we expect to achieve this profitability target in 2028, 1 year later than originally planned. Ladies and gentlemen, we are not satisfied with our 2025 results or the outlook for 2026. The transformation of pbb is more intense and therefore, more time consumed. Even more in the current market environment, it requires more resources than we had originally anticipated. Still, it remains the right thing to do, and it is necessary on this scale. Let us now take a brief look at market developments on Page 5. We can all observe the high level of volatility at the macroeconomic and in particular the geopolitical level on a daily basis. And just last weekend, a new armed conflict broke out in engulfing the entire region, the Middle East. This volatility as well as the associated uncertainty and unpredictability are likely to remain with us for the foreseeable future. At the same time, unstable economic outlooks and volatile tariff policies continue. We, therefore, expect growth in Europe to remain at the low level. Inflation is stable at around 2% within the ECB's target range. So interest rates in the Eurozone are not likely to fall in 2026. In economic and interest rate terms, therefore, no or only minor stimulus are to be expected. The European real estate market remains in the phase of growth. We do not expect further continuous -- we do expect further continuous improvement, albeit at a rather modest level. In line with the consensus among many market experts and their forecast, we do not anticipate a breakthrough in 2026. Sentiment remains subdued and investors remain cautious. However, we intend to leverage our good momentum in the new business of the fourth quarter of last year and continue to grow this year as well. However, attractive financing opportunities that meet our risk return profile remain rather underrepresented and are therefore highly competitive. This is clearly evident in the transaction volumes in commercial real estate financing in Europe, as you can see on Page 6. In line with the significant rise in interest rates, the volume of transactions slumped by almost half. Since then, the markets have been recovering steadily but hesitantly. We expect transaction volumes in Europe in 2026 to remain notably below the 2022 level. Although the ECB's key rate has normalized, it remains well above the level seen during the historically low interest rate phase. Everything, therefore, points to a continued sluggish market recovery in an unstable environment from which pbb can itself not completely decouple. Let me now turn to our business segments, starting with Real Estate Finance Solutions, our core business pillar on Page 7. As already mentioned, we significantly increased our new business volume by 23% to EUR 6.3 billion. We had a stronger-than-expected fourth quarter with a high proportion of January new business commitments, which grew to 63%. The return on tangible equity in new business remains at around 8%, thus meeting our profitability requirements. We are also making progress in diversifying our book. Our growth asset classes with hotels, data centers, student and senior housing now accounts for around 7% of our new business with a stable pipeline of just under 20%. Before I move on to Real Estate Investment Solutions, I would like to give you a deeper insight into the progress of our withdrawal from the U.S. market, all on the next 3 pages. As you can see on Page 8, we have made strong progress in reducing the U.S. portfolio in 2025. Within the last 12 months, we were able to reduce our performing book by 1/3 from EUR 3.3 billion to EUR 2.2 billion. Of the remaining EUR 2.2 billion, the SRT covers a portfolio of EUR 1.7 billion. This leaves an economic risk position of only EUR 500 million in our performing portfolio. You can see the rundown of our book in the top right corner of the slide. We aim to have almost completely wound down of our U.S. exposure by the end of 2029. Let me give you on Page 9, some more detailed information regarding the SRT transaction in our U.S. business, which is of strategic importance for us. It is certainly a unique transaction for this market, both in terms of our strategic decision to exit the U.S. market and in terms of the transaction parameters. The transaction covers a performing U.S. portfolio with a volume of around EUR 1.7 billion. It comprises only 26 loans and has, therefore, a significant higher risk concentration compared to other transactions in the market. In addition, 92% of the portfolio is concentrated in office loans. pbb retains the First Loss Piece of around EUR 51 million and is fully protected -- this is fully protected by existing Stage 1 and Stage 2 risk provisioning. The Mezzanine tranche of EUR 247 million was taken over by Oaktree, protecting pbb against future losses to this extent. The SRT portfolio is expected to gradually reduce until 2029, aligned with expected maturities of the loan portfolio, reducing interest income over time. At the same time, the cost for the Mezzanine tranche will also decrease. The SRT transaction provided for an RWA relief in the amount of EUR 1.1 billion and a positive CET1 effect of 120 basis points. Finally, on the U.S. book on Page 10, some remarks regarding our NPL portfolio. At the end of 2025, our NPL book in the U.S. stands at EUR 900 million. In the fourth quarter, we were able to reduce NPLs by around EUR 100 million and have built some momentum. Currently, 5 further loans totaling EUR 300 million are already in advanced exit process for the first quarter of 2026. We are able to exit these loans within our existing valuation. Hence, no further material risk provisions were required. This makes us confident that we will be able to further reduce the NPL portfolio in 2026. The coverage ratio for the U.S. NPL book has increased significantly from 20% to 36%, a solid protection. Let me now, on Page 11, give you an update from our Real Estate Investment Solutions division, which will become pbb's second business pillar from 2026 onwards. The integration of Deutsche Investment with assets under management of around EUR 3 billion is well advanced. Following the first-time consolidation, we expect commission income of around EUR 40 million in 2026. Together, we want to continue to grow in the investment management area, both with equity products and with debt capital markets -- debt capital solutions in the form of funds or mandates for institutional investors. In our Originate & Cooperate business, we are currently finalizing our rollout. We have an established partner network. The sales and origination teams at our locations in London, Paris and Munich are in place. The focus in 2025 was on developing the business model. We are now well-positioned to tap into this completely new business area for pbb. Ladies and gentlemen, let's go to Page 12. The transformation of our business model requires a transformation of the bank organization itself. We are making good progress here. And with that, we continue to reduce our operating cost base. We have been able to reduce management positions by around 20%, thereby streamlining our organization. The new target operating model lays the foundation for a more efficient and profitable setup of the bank. We are also focusing on new technologies aligned with market and customer requirements. At the same time, the expansion of our new production hub in Madrid is also making good progress. We successfully hired 27 colleagues, and we want to continue to grow these to around 85 by 2028. In everything we do, we will continue to keep a close eye on our costs. By 2028, administrative expenses in our business area Real Estate Finance Solutions are expected to fall by a further 7%. At the same time, we are investing in the expansion of our new businesses in Real Estate Investment Solutions. And at this point, I would like to hand over to my colleague and our CFO, Marcus, who will now guide you through the most important developments and key figures for the Group. Marcus Schulte: Thanks, Kay, and good morning, and welcome also from my side. As usual, I will now guide you through more detail on 2025 results, portfolio developments, capital and funding. Let me start with the operating and financial highlights. The operating overview on Slide 14 illustrates the ongoing portfolio transition quite well. Kay has already discussed the pleasing profitability contribution from the REF new business. The key good news is that the overall strategic approach works as designed. Maturing business in the back book is continuously replaced by more profitable RoTE accretive new business in the front book, thus step-by-step increasing profitability towards the target of 8% for the portfolio as a whole. However, even though new business volume has been up by 23% in '25 year-over-year, the slower-than-expected market recovery still weighs on volume. New business is not yet enough to compensate for pre and repayments and the significant derisking of the U.S. and development exposures. Hence, the REF portfolio declined by EUR 1.7 billion in '25 to now EUR 27.3 billion. We expect this to stabilize from here as new business is expected to further improve gradually over time from here. At the same time and as intended, the noncore portfolio has come down by EUR 1.2 billion to EUR 8.5 billion year-over-year, including against some opportunistic asset sales and liability buybacks also in Q4. This brings me to the financials overview on Slide 15. The key P&L figures reflect both the financial impact of our strategic transition and the significant derisking of the U.S. and development book. With this said, operating income is down by EUR 122 million year-over-year, EUR 57 million lower NII and EUR 65 million lower realization and other income. NII is down due to the reduced portfolio value as well as our funding cost position and capital optimization. As you remember, among others, we optimized our capital structure with a successful EUR 300 million Tier 2 issuance in June last year, which, of course, came at a cost. Also, realization and other income was significantly down due to meaningful one-off effects. First, operating income 2025 was negatively impacted by minus EUR 32 million one-off fair value risk charges due to our strategic U.S. exit decision. Second, realization income was down EUR 57 million year-over-year as '24 has benefited particularly strongly from significant noncore asset sales and liability buybacks. As already mentioned before, we expect realization income to remain at such lower levels, now supported mostly by ordinary REF prepayment income. As expected, general and administrative expenses are down year-over-year by EUR 9 million, while investments into our strategic transformation are ongoing. This demonstrates our ongoing strict cost discipline. But above everything else, 2025 was burdened by the sharp increase of loan loss provisions to minus EUR 410 million. This unusually high LLP were dominated by minus EUR 334 million that were set aside for the derisking of the legacy U.S. and development exposures. To be precise, minus EUR 235 million for the U.S. exits in the second quarter and minus EUR 99 million for German legacy development NPLs, which were meaningfully derisked further in the fourth quarter. Rather moderate loan loss provisions of EUR 68 million or 30 basis points were put aside for the European investment loan portfolio, reflective of a solid asset quality in our strategic core portfolio. All-in-all, this resulted in a highly unsatisfactory pretax loss of minus EUR 250 million, which is, however, within our latest adjusted guidance of minus EUR 210 million to minus EUR 265 million and which has to be seen in the context of our substantial derisking. After total risk costs for the U.S. and derisking of the legacy portfolio, these were at minus EUR 366 million across all income lines. This would then bring me to the quarterly deep dive. And first, I'm now on operating income on Slide 16. If looking at the quarterly development of operating income, also here, the impact of the portfolio and funding transition become clear. However, in the fourth quarter, NII and NCI stabilized at EUR 99 million as further increased portfolio profitability almost compensated for the slightly lower portfolio volume. Funding in turn, now provided for a moderate tailwind as previous funding access normalized in Q4 and costly funding vintages get substituted by gradually cheaper funding. Realization and other income is in sum slightly down by EUR 4 million quarter-over-quarter as other income in the previous quarter had benefited from a significant positive one-off. All-in-all, operating income thus has come down moderately by EUR 4 million quarter-over-quarter to EUR 106 million. On the back of EUR 4 million higher total expenses, pre-provision profit, therefore, declined by a total of EUR 8 million quarter-over-quarter to EUR 39 million. And that brings me to the next deep dive on operating expenses, and I'm here on Slide 17. Operating expenses, including depreciation, remain well managed, being down year-over-year by EUR 9 million or 3% in 2025 from EUR 266 million to EUR 257 million, while investments into our strategic transformation are ongoing. Actually, expenses for the running bank operations in '25 have been reduced by EUR 17 million or 7%. That said, operating expense in the fourth quarter increased very moderately as envisaged. Due to EUR 5 million higher one-off costs, especially in connection with the implementation of the target operating model, while again, expenses for the running bank operations were down by EUR 1 million. Although the cost base has been well managed, the cost/income ratio for '25 appears somewhat elevated at 61%. This is, however, more a reflection of the operating income transition, including the minus EUR 32 million one-off fair value risk charges for the U.S. exit, which has, as you know, to be shown in operating income. And now to our deep dive on the risk provisioning, I'm on Slide 18 here. Risk provisioning of minus EUR 54 million in the fourth quarter is especially driven by a further derisking of our German legacy development NPL. With that said, net additions of minus EUR 86 million in Stage 3 result from minus EUR 55 million for derisking measures for idiosyncratic legacy development NPL and minus EUR 29 million for European investment NPL. Only marginal minus EUR 2 million had to be booked for U.S. Stage 3 in Q4 as the substantial one-off U.S. derisking measures in Q2 again proved to remain adequate. This was partly offset by EUR 31 million net releases in Stage 1 and 2. EUR 50 million release of U.S. management overlay due to the SRT and ordinary repayment, Kay has explained that, was partly counteracted by EUR 19 million additions, mainly from market-wide macroeconomic scenario and parameter updates. I will mostly skip Slide 19 as the development of the stock of loan loss allowance is more or less just a reflection of the risk provisioning I just explained and usage, of course, from existing stock. Just one brief comment. The REF NPL coverage ratio overall remained stable quarter-over-quarter at around 30%, up from around 22% as per year-end 2024. This brings me then to the portfolio. As the U.S. portfolio is on exit and was already covered extensively by Kay at the beginning, I will focus on our strategic core portfolio, the European portfolio. I'm starting with the European performing portfolio on Slide 21. With the significant derisking and [indiscernible] markets gradually but slowly recovering, the quality of the performing European portfolio further stabilized with an ongoing improvement of risk KPIs for the performing investment loans since end of '24. The average LTVs have stabilized at 55%, a solid level in view of the property price correction seen in the last 2 years. The 12-month rolling valuation adjustments have gradually improved and continued to do so in Q4. And also when looking at the exposure at risk or layered LTVs, we see a decline by 16% in '25 and 4% alone in the fourth quarter. With that said, I will leave the further details on the performing European REF portfolio, which you can find on Slide 22 for your own reading. And I will therefore continue with Slide 23, where we discuss the European NPL portfolio. The European NPL portfolio predominantly consists of German development loans, which account for almost half of the NPL. The remaining 20% in Germany and 11% in France are mainly driven by some selective office properties of 2 new office loans with a total volume of EUR 239 million in the fourth quarter. 15% come from the U.K. and consists of legacy shopping centers known. The European NPL portfolio is solidly covered by 31%, up from 29% as of third quarter end and 27% as of year-end 2024. This brings me to our deep dive on the development portfolio on Slide 24. The development portfolio has been significantly derisked in 2025 and in particular, also in Q4. The total portfolio has been reduced by EUR 400 million or 16% to EUR 1.8 billion, while NPL has been kept largely flat with no new NPL rising in 2025. However, legacy NPL have required focused attention with dedicated derisking and support measures of the exit strategies through the entire year. In Q4, we decided to receive particularly demanding legacy developments in the final finishing phase and put aside EUR 55 million Stage 3 loan loss provisions for those. This brings the coverage ratio for development NPLs further up to solid 29%. All-in-all, the portfolio is now substantially derisked, and we feel comfortable with the existing coverage. And with that, I move to capital on Slide 26. With the CET1 ratio of 14.9% as per year-end, our capitalization remains solid. This is slightly down from 15.4% as of fourth quarter end. Let me explain the various effects in regulatory capital in particular RWA. RWA stayed flat at 17.5% -- EUR 17.5 billion, sorry, reflecting 2 opposing effects. While the SRT transaction provided for a leaf of EUR 1.1 billion RWA as per year-end, a change of applicable regulatory LGD levels in F-IRBA resulted in an offsetting effect of the same amount. I will come to this on the next slide in quite some detail At the same time, in the numerator, there was a slight reduction of regulatory capital by circa EUR 100 million in Q4 due to increased prudential backstop such as the expected loss shortfall and the NPL backstop as well as the fourth quarter loss and the preemptive AT1 coupon reduction from regulatory capital. All-in-all, our CET1 ratio of 14.9% stays solid. SREP requirements remain well exceeded with more than 500 basis points buffer over the CET1 ratio requirement and more than 400 basis points over the own fund ratio requirement as per year-end 2025. I would also like to take this opportunity to provide some further context. When looking at capital ratios, it is worthwhile to note that our F-IRBA RWA are procyclically elevated so that the F-IRBA CET1 ratio of 14.9% at year-end now stands below the pro forma standardized credit risk standard approach CET1 ratio of 15.3%, which by many is seen as a regulatory floor. Also, when looking at our capital on a simplified nominal level, we observed a steady increase of our leverage ratio, now close to a healthy 8%. This is, of course, down to robust capital and consistent ongoing deleveraging. Taking into account our substantial deleveraging and derisking and our future focus on core European markets only, we now define our long-term minimum CET1 ratio at 13% through-the-cycle, still providing ample of buffer to MDA. At this point, let me also reiterate that the conditions for the AT1 coupon payment are clearly met, as Kay said, with a buffer of MDA of more than 500 basis points and available distributable items of around EUR 2 billion. I also want to be very clear here that we continue to see debt capital and its investor base as a key cornerstone of our wholesale-led funding strategy. This then brings me to Slide 27, where I would like to explain the aforementioned change of applicable LGD levels for commercial real estate for certain countries in F-IRBA. In the F-IRBA regime, the LGD is dependent on the country-specific eligibility for preferential collateralized treatment. How does this work? The European Banking Supervisory Authorities of each country collect and publish the average CRE market loss rate from their national supervised banks on a regular basis. If the commercial real estate market loss rate in a respective country exceeds 0.5%, trade transactions no longer qualify for preferential collateralized LGD levels in the computation of F-IRBA RWA. In the fourth quarter, consideration of new loss rates for Poland, Finland and Austria meant loss of the preferential collateralized LGD treatment in these countries, even though some of these countries only very marginally exceeded the loss hurdle rate of 0.5%. Given the somewhat meaningful overall pbb footprint in these countries, the underlying RWA increased by EUR 1.1 billion. In effect, this means that the RWA relief from the SRT has been entirely consumed by the loss of the preferential collateralized LGD treatment for the aforementioned countries. In this context, I would like to make a few things clear. Number one, this development is not about pbb's own economic portfolio quality having deteriorated, but rather down to overall market-induced impact amplified by the digital nature of the F-IRBA LGD regime that I explained. Given that Poland and Finland have only marginally exceeded the hurdle rate, a digital reversal is possible when the banking authorities in the respective countries publish updated data. With regards to portfolio volume, 3/4 of the countries pbb operates and remain eligible for preferential collateralized LGD treatment and loss rates remain far below the 0.5% hurdle rate, as you can see in the last column of the table on Page 27. However, there has been another more recent development. On February 27, 2026, the EBA communicated its position that U.S. loss data published by the U.S. Federal Reserve is not viewed equivalent even the U.S. themselves are deemed an equivalent regime under the CRR. If applicable, preferential LGD treatment of real estate located in the U.S. would no longer apply in principle when calculating current RWA for these countries going forward. pbb will carefully review this assessment, but if applied, this would result in a pro forma reduction of our CET1 ratio of circa 135 basis points for our entire U.S. portfolio. When also taking the envisaged first-time consolidation effect from the acquisition of Deutsche Investment into account, which is minus 26 basis points and becomes effective in Q1 2026, the pro forma CET1 ratio as of year-end 2025 would be 13.3%. Even at this harsh pro forma level, the buffer to MDA would still be comfortable at around 340 basis points. And finally, a few remarks on the funding and liquidity side. I'm now on Slide 28. All-in-all, we maintained a resilient and balanced funding mix with ongoing focus on efficiency and cost optimization. With EUR 2.1 billion Pfandbrief issued, a successful EUR 750 million senior and our successful EUR 300 million Tier 2 issuance, we completed our funding agenda '25 already in summer and provided for comfortable funding access. With an LCR of 379% and EUR 5 billion liquidity at year-end, we maintain a solid liquidity in line with our reduced balance sheet needs. But most important, issuance costs have come down on all instruments, slightly on Pfandbrief, more strongly on senior preferred as well as deposits. All-in-all, we expect this, in combination with moderate funding needs to provide some ongoing tailwind on funding costs going forward. This is, of course, looking through current noise as we have no current need to issue anything. In 2026, we plan for a moderate EUR 1.75 billion in Pfandbrief issuance, of which more than 40% have already been done on further reduced costs. In addition, we plan for a maximum [indiscernible] preferred issuance of EUR 500 million. The retail deposit volume is planned to stay largely stable at around EUR 7 billion, in line with our reduced balance sheet needs, catering for a 50-50 split in unsecured funding, 50 for each wholesale and deposit funding. With that, Kay, I hand over back to you. Kay Wolf: Thank you, Marcus. Ladies and gentlemen, let me now on Page 30, turn to the future. We have a challenging year 2026 ahead of us. And the overall situation hasn't gotten any easier with the recent developments since last weekend. Our full focus is on increasing operating income in our 2 core business areas: Real Estate Finance Solutions and Real Estate Investment Solutions. However, operating income in Real Estate Finance Solutions will be affected by the cost of the SRT. Furthermore, we have to cater for lower positive one-off effects in 2026 compared to last year. We continue to exercise strong cost discipline. We continue to make our core business, real estate finance solutions more cost efficient. The initial consolidation of Deutsche Investment and the further development of our business activities account for higher operating expenses in Real Estate Investment Solutions. In fact, we are reinvesting cost savings into our new business activities. Nevertheless, the cost/income ratio will temporarily increase to between 70% and 75%, mainly due to the development in the operating income. We expect a normalization in risk provisioning. With the U.S. and development book largely shielded last year, we anticipate in 2026 risk costs of 25 basis points to 30 basis points in our core markets in Europe. What does that mean specifically for 2026? Let's go and move to Page 31. We want to keep our growth momentum in the new business and achieve a volume of between EUR 7.5 billion and EUR 8.5 billion in real estate financing. We expect the portfolio volume between EUR 27 billion and EUR 28 billion. In Real Estate Investment Solutions, we expect to grow assets under management to be between EUR 3.3 billion and EUR 3.7 billion. Operating income is targeted to be in the range of EUR 357 million to EUR 425 million. Cost/income ratio between 70% and 75%. The share of fee income is expected to rise to more than 10% in 2027. As announced, pretax profit is expected to be between EUR 30 million to EUR 40 million. Moving to Page 32 and looking further ahead, we remain committed to our strategic goals and key performance indicators. Return on tangible equity is our main KPI. We are already at around 8% in new business. We want to achieve this for the whole bank by 2028. Operating income shall amount to around EUR 600 million towards 2028. In Real Estate Finance Solutions, 3 key levers should increase the return on tangible equity. First, SRT costs will decline with the reduction of the U.S. portfolio. Second, more profitable new business will substitute less profitable existing portfolio. And third, a more cost-efficient liability and equity side will improve refinancing costs. In Real Estate Finance Solutions, we target to grow assets under management to EUR 7 billion to EUR 8 billion. The share of operating income is expected to grow well above 10% in 2028. We have already significantly reduced the risk profile of our portfolio. In 2028, risk costs are expected to normalize to around 15 basis points to 25 basis points. We remain focused on an efficient cost base and we continue to execute our cost measures in a disciplined manner. Cost savings in our Real Estate Finance Solutions business will be reinvested in the development of real estate investment solutions. Overall, broadly stable operating expenses help to bring the cost/income ratio back to target level of 45% to 50% by 2028. And that brings me to our last page that summarizes our targeted key developments until 2028. Ladies and gentlemen, pbb is in the middle of its transformation to a more resilient, profitable and diversified European commercial real estate bank. We have to acknowledge that we will not be able to achieve our ambitious goals we set in 2024 within the planned timeframe. Also, the market environment economically and geopolitically has not developed as we had expected. But we are making progress. In challenging times, we are acting decisively as our exit from the U.S. market underpins and we sustainably reduced risks in our books. We have the momentum to grow our new business volume even in a currently sluggish CRE market, and we are doing so profitably. And in 2026, we start to see notable first capital accretive contributions from our new businesses. We are on the right track with this fundamental transformation even if it will take more time. Thank you very much for your attention. Marcus and I are now looking forward to your questions. Operator: [Operator Instructions] The first question is from Tobias Lukesch from Kepler Cheuvreux. Can you hear us, Mr. Lukesch? Tobias Lukesch: Yes. Can you hear me? Yes. It takes 10 seconds until I'm in talk mode. Sorry for that. On the capital, the first question regarding the EBA communication of the U.S. LGD equivalents and may we see or will we see the 135 basis points negative core Tier 1 ratio impact? And if we will see it, what is the timeline for that? Then secondly, on dividends, what is the projection for the future? I mean, yes, there were moving parts. Yes, you're cleaning up the business. You say you're on the right track for '28, but you haven't touched on dividend projections. So I was wondering what this means for capital distribution going forward, especially since you lowered the through-the-cycle threshold to 15%, even so you highlighted we might get closer to that level if we see the U.S. LGD impact. And then on the U.S. NPL portfolio, this was now reduced to EUR 0.4 billion. What is the projected development here over the next 3 years? And maybe could you please quantify the impact on risk provisioning -- on the risk provisioning guidance you have provided, which will be lower for this year and then further lowered for the years to come? Marcus Schulte: Hello Mr. Lukesch, good to hear you. Thanks for your clarifying question on the very new statement that came out by the EBA just a few days ago, actually Friday last week. So I think the Q&A are quite clear in that they say that the EBA sees in principle that the computations as done by the Fed don't mean that the computations are eligible for the European regime, even though, again, as I said, the U.S. fundamental principle are, of course, an equivalent regime. It's very new. So we are carefully assessing this. But at this point in time, I would expect clearly that it will happen. And I cannot rule out that this will be a Q1 effect already. And let me again say this would be 120 basis points for the commercial real estate and another 10 basis points roughly for the residential so stated that 135 basis points that you see. And that is something we expect to happen, but we have to carefully assess it, and we will update you then on Q1, but I would expect it to be reflected in Q1. Kay Wolf: Yes, Mr. Lukesch, then I take the other 2 questions. On dividend, thanks for the clarifying question. We are sticking to our distribution guidelines that we have put out with our strategy on 2024. And thanks for raising that question. So we want to distribute 50% of our profits, and we want to use the tool of dividends on the one hand side, but also share buybacks on the other side. And to your last question on the U.S. NPL, yes, you see we have quite a good momentum built also based, of course, on the provisioning that we did and the shielding to reduce the book. We will more than half reduce it in 2026. And we see over the next 2 to 3 years, a full exit on that book. However, as we speak, we continuously watch and see whether we can value preserving exit those NPLs earlier. But current projection with regard to your question should be then towards '28 and '29 in line with the rundown also of the performing book. Operator: Mr. Lukesch, does that answer your question? Do you have a follow-up? We can hear you. Then we are moving on to the next question. The next question is from Miriam Killian of Deutsche Bank. Miriam Killian: I hope you can hear me all right. So my question would be surrounding the tax expenses that we saw in the fourth quarter that were quite a bit higher than we anticipated. If you could maybe just provide some color surrounding this. That would be my only question for now. Marcus Schulte: Yes. So as you say, for the full year result pretax minus EUR 250 million post-tax, minus EUR 284 million. Essentially, this is DTA reversals, which you have to mostly see in the context of risk provisioning, but also more importantly, in the context of the lower business projections that we have for future years, which basically mean that we have this impact from DTAs that cater for the EUR 34 million in addition to the EUR 250 million pretax loss. Operator: The next question is from Domenico Maggio from Jefferies. Unknown Analyst: I have 4. On the expected capital erosion from Deutsche Investment acquisition, is that going to be 26 bps or 30 bps in the next quarter? Second one will be, what do you mean exactly with pro forma credit risk standardized approach? Is this pro forma for some adjustment or is this a normal standardized approach? And if the standardized model results in higher capital, then why did you transition in the foundation model? Third question would be, are you able to switch your capital model again in the future? I assume the ECB would need to approve that. I'm asking this clearly given the unfavorable capital development and your previous transition to different capital models. And the last one, what would be the impact to RWA if all countries were to lose their preferential LGD level? Marcus Schulte: Okay. So good to hear you, Domenico. So to your first question, we've been indicating previously on the signing of the transaction in the summer that the capital effect could be around minus 30 basis points. That's the number you have in your memory. And the precise figure that I gave you is minus 26 basis points now. So it's a clarification of an estimate that you've been hearing with Q2 results. The second point is that you were asking about the nature of the pro forma numbers we were giving. So these numbers are basically under the assumption that the bank will apply credit standardized approach in its entirety instead of the F-IRBA model computation with PDs out of the model and LGDs out of a matrix. So it's a substitution of the entire book pro forma into standardized KSA in German, CRSA in English. And it is, of course, a pure exercise to illustrate the very high RWA density that we now have and the capital compression that we face because obviously, a lot of people who are looking at the capital ratios see the standardized capital ratios as a floor to where it would be. And the point we are trying to illustrate that at this point, and this is the last answer to your question, at this point, at the bottom of the cycle, it happens to be that with what is happening in these digital LGD hurdle rates that I mentioned for these countries that even the standardized approach is better than the F-IRBA in this part of the cycle. But of course, you would choose capital models through-the-cycle and it was a very conscious decision to move to F-IRBA because essentially the old IRBA, advanced IRBA, as you remember, is essentially not suited for low default portfolio. And that's, I think, why we and others moved from an IRBA approach in our case to an F-IRBA approach. And we have to look at that on a through-the-cycle basis, on a through-the-cycle basis, the F-IRBA from our point of view is advantageous. Right now, at this part in the cycle with the few digital events that we have seen, it is not. But as I said, Domenico, what we always have to bear in mind, the pro forma numbers that I gave, right, adding everything together, U.S. CRE, U.S. residential, the acquisition that will happen, of course, no modificating effect including, as I mentioned, that, of course, digital event, one can also flip into the other side, for example, for these countries. And lastly, what would be the RWA effect? You see that on this table that we provided on Page 27. At the end of the day, from my point of view, the very key message of that slide is that for the vast part of the portfolio, 75% portfolio that we have in the F-IRBA, the green dots that you see, the actual losses are far, very far below the hurdle rates. What we try to illustrate there that currently, we don't foresee at all that these countries that you see would move into such a digital situation that we've experienced, for example, in the fourth quarter with Poland, Finland and Austria, you can see how far they are away from the 0.5%. Unknown Analyst: Yes. Helpful. I was asking that just to assess the worst-case scenario. And just a quick follow-up. You mentioned that the banking supervisory authority of respective countries collect the data and then they updated during the year. Is that an annual exercise or does it occur more frequently? Just I mean. Marcus Schulte: Typical annually. Unknown Analyst: Annually. Operator: The next question comes from Jochen Schmitt from Metzler. Mr. Schmitt, can you hear us? Jochen Schmitt: It took some time until I got unmuted. I have 2 questions, please. Firstly, again, on the CET1 ratio, your new target of above 13%. How much of this change versus previously was driven by SRT and how much by the possible changes in regulatory treatment, which you mentioned on Page 27 or to ask the question in a slightly different way. If the pro forma CET1 ratio, which you mentioned were to realize, would you possibly again review your CET1 ratio minimum target again? And secondly, very briefly on the EUR 40 million fee assumption for Deutsche Investment in '26, what is the pretax earnings contribution, which you expect from that? Kay Wolf: Mr. Schmitt, good to hear you. Thanks for having you around. Let me take the 2 questions. And let me start with your question on CET1. The strategic adjustments around the minimum level is not driven by the capital regime under which we are reporting. It's driven by the risk profile of the firm. I think we have outlined that always in the calls and have said originally, we set it at 14%. Now we are moving it to 13%, and that is purely driven by the risk profile of the portfolio. When we were at 14% we had still a much higher position on the U.S. portfolio, which we now have completely derisked from our perspective or nearly completely derisked economically. And we have also shielded our development portfolio next to our strategic position to focus on the European core markets, most of which you see on Page 27, where we have allocated, and we are focusing on those markets. So overall, strategically, the steering of the capital levels for the firm for us, is not driven by the capital regime, but it's driven by the risk profile of the portfolio and how that portfolio behaves through-the-cycle. I remember -- I would like to reiterate what Marcus said, it's a 13% through-the-cycle. And we all know here that commercial real estate markets are volatile. And that's a reflection on the 13%. With regard to your second question on the Deutsche Investment Group, we would provide, of course, way more detail when we communicate on our quarter 1 figures because there is where we first time will provide way more detail on it. But for 2026, it's a profit before tax of around EUR 4 million. And you will have to deduct then, but we will provide more details on that, the PPA, the purchase price adjustment as well so that you should look around EUR 3 million for the Deutsche Investment Group for 2026. Operator: Next question is from Corinne Cunningham, Autonomous. Corinne Cunningham: Thanks very much for letting fixed income people speak on the call. Just a couple of quick clarifications and a few questions from me, please. When you said the 13.3% assumes the whole book moves to standardized, the calculations seem to suggest that that would include the U.S. moving to standardized and the acquisition of DIG, but not all of your core European lines of business. Can I just? Marcus Schulte: What I said was the whole U.S. book, meaning the commercial real estate book, which is in detail described on Page 27, but also the very limited residential exposure that we have that is also subject to a similar but slightly different regime and the same principle. And with that in principle decision or wording of the EBA, we assume that we will lose the preferential treatment for LGDs for both the commercial real estate and the residential portfolio in the U.S., so the total U.S. portfolio. Corinne Cunningham: That's clear. And then just you mentioned on the dividend policy, 50% distribution policy. Is that expected to apply to 2026 or not until you get to the end of your planning period? Kay Wolf: Corinne, thanks very much, and thanks for having you. Good to hear you. It applies for the year 2026 and the coming years. So that's the dividend policy that we have set. So it's for the future years that we want to deploy and have this policy in place. Corinne Cunningham: Then the other question was about the way the SRT is working in the U.S. And can you explain why it doesn't help you with the change from F-IRB to standardized given that you've now got a fairly chunky first loss cover, why are you not protected against that change out of F-IRB in the U.S. portfolio? Kay Wolf: I can answer that in 2 ways. First of all, our -- not our entire U.S. portfolio is covered under the SRT. So there are remaining pieces and as well the 5% size of the SRT portfolio is not covered, yes. So you will see that effect. The second point, Corinne, I would make is that the SRT does provide protection for the change in the regime. However, the loss of the preferential treatment, of course, reduces the positive effect that we mentioned of EUR 1.1 billion. It doesn't remove it completely because the other offsetting elements that you see when you look at the quota of EUR 135 million, you need to bear in mind the portfolio components that are not yet in the -- that are not covered by the SRT. I hope I was clear. Corinne Cunningham: The is not covered, totally get that. So the rest is it just the senior layer that's being hit or basically the SRT is giving you less protection than you budgeted when you set it up? Kay Wolf: I think the overall structure, the way it works from a capital regime perspective, Corinne, on the SRT, you cannot separate the senior and the math. You need to look at the entire capital structure and the entire capital structure defines the capital that needs to be put aside under the respective regimes, be it F-IRBA or standardized. So it's not simple saying it is to be deployed on the unprotected side. It needs to be deployed on the entirety of the portfolio and the amount of capital that you have to put aside depends on the structure at the point in time. As you know, that this structure, when it starts winding down, is also starting to shift and change, and that has always an impact on the respective capital that you need to put aside. Unfortunately, not a very straightforward mechanism, but the mechanism of how to deploy it, I think there is clearly defined rules of how the structures need to be taken into consideration when calculating under the respective rules. Corinne Cunningham: Okay. And then maybe a more fundamental question about the revenues. So your revenues, you're targeting to basically increase them by 1/3. What are the main building blocks of that? I know you talk about, obviously, the cost of the SRT should fade away, but that's still a very significant revenue build with a flat loan book. Is it based on increasing interest rates? Just very keen to hear how you would expect to build to that EUR 600 million revenue number. Kay Wolf: Yes. I would, Corinne -- I would start with that, and I would kindly ask Marcus to chip in as well if I might not touch on all the aspects. I would probably, Corinne, draw your attention for that on Page 30, where we have the walks on the operating income side for the respective business units through 2026. But those walks give a good indication in the direction of travel that we are going for the year 2028. First of all, on the Real Estate Finance Solutions business, you see already in 2026 positive impacts from the rebuild of the book, putting more profitable new business on, substituting less profitable business. You see that here with EUR 15 million-plus EUR 35 million in the range, take that as a consistent rebuild of the book because our back book of EUR 27 billion still has something like EUR 20 billion in there, which will come due over that period and will be replaced by more profitable business. So that is one driver. The second driver to it, and you referred to a flattish book is that of course, we want to also substitute and reduce our nonperforming loans. Look at the U.S. at the moment, the entire U.S. book [ 28 ] is more or less going to disappear, including the nonperforming loan side, but also on the rest that gets substituted with more profitable and interest income producing operating income on that part of the book. So a lower NPL book is supporting this trajectory as well. And the third layer on the real estate finance side is definitely a more efficient liability and equity side. So there is funding support coming in. Marcus has outlined on the funding page in which direction the funding costs are going, and this gives us tailwind there as well. So those are the key levers. Next to that, if you drill further down in REFS, I could also mention, of course, we are diversifying in our portfolio. So we are taking more managed properties, hotels, student housing, those asset classes on our books. They provide for a better risk return profile compared to other asset classes, most notably the office portfolio, which will more decline over time. So there are multiple levers that all play into improving the operating income in the real estate finance side. Paying attention to real estate investment solutions, the growth here clearly to EUR 7 billion to EUR 8 billion of assets under management is literally coming from the EUR 3 billion to EUR 3.5 billion that we have when you look into real estate investment solutions for 2026 is substantially adding revenues there as well. And we are building out our Originate & Cooperate business. So there is clear anticipation of fee income growth for real estate Investment Solutions. And in the combination of both of those elements next to the fact that the negative impact from others that you see on Page 30 is going to disappear because it's a lot of one-offs that we had in 2025 that are not coming back, that gives a consistent growth of operating income towards the mentioned EUR 600 million in 2028. Corinne Cunningham: Okay. And just on the rate assumptions behind that, do you just assume current rate supply? Marcus Schulte: Correct. Yes, it's more or less current rate supply. We assume a moderate bias for rates to come down on the short end, but rather assume that rates in the middle and longer part of the curve would stay or slightly rise given funding agendas of governments, et cetera. And that's basically the assumption. So a reasonably steep curve, but no major impulse for the income as such. However, of course, as Kay mentioned, if you, for example, look at the equity side, et cetera, interest rates going stable in medium-term and term means, of course, that investments that you make are positive yielding and not anymore 0% yielding if vintages from the low interest rate phase basically gradually wash out of the system, right? So that's essentially the effect. Operator: The next question is from Sharada Patel of Citi. Unknown Analyst: So I've got 2 questions. So if the numbers are reviewed annually, do you know when the next review for Poland and Finland will be? And then the second one will be just some more explanation around the EBA's position on the U.S. because it seems like the market loss rate is below the 0.5% kind of threshold. So if it's not equivalent, is there kind of a different benchmark number that they're comparing it to or is there a different data source that they can refer to and do find equivalent? Is this? Kay Wolf: We were just wondering whether there are more questions, right? So we wait. Unknown Analyst: Yes, sorry. And just finally, so if there's -- I just wanted to know, you're expecting that this U.S. change will come in, in the first quarter, but are there any changes kind of later down in the year if they can find an equivalent data source that could mean that, that is reversed? Kay Wolf: Thanks, Sharada, and thanks for your questions. Let me take your first question on the technicality. The national competent authorities would have to, by law, communicate latest by the 30th of June of the following year, the loss rate that triggers the treatment. That's the law. The reality is that we are continuously monitoring publications. And they can also publish in between. So that is -- there is on the one hand side, the way it should be and there is on the other hand side, the way it happens. By a matter of fact, we are monitoring regularly because as a foundation of our bank, we need to, the respective published levels and would then respectively apply them once they are published. And on the U.S. data, look, the U.S. is not -- does not have the same type of heart test and equivalent LGD regime, as we all know. So therefore, by a matter of fact, they do not publish exactly the same data to comply with a European rule set out in the CRR. For that purpose, equivalents should be and can be applied. But by a matter of fact, looking into that, the conclusion of the EBA, if you read that is that there is no such data that would exactly cover the requirement of the CRR. And therefore, stating -- and also stating that what is published and could be applied to is from their perspective, limited able to apply. And hence, their conclusion that for the U.S., despite the U.S. being a regulatory regime that is deemed by the European Commission as an equivalent regime, the level of data and information that is being published is viewed by the EBA is not sufficient for applying the respective calculation that we have been applying in the past. There is a hell of a lot of data published in the United States, as we all know. It's the country with most of the statistical data. But of course, they do not publish 100% according to European rule regulation. Unknown Analyst: Okay. And why is this change only happening now? Because obviously you've been using F-IRBA since January '25? Marcus Schulte: And look, I mean, perhaps 2 things and just to your earlier question, Sharada. And for that reason that Kay and I explained, the 26 basis points that we compute do not matter because at the end of the day, the decision is in principle and irrespective of computation. But this is, of course, not meant to pbb. It's a clarification that the EBA has published to the market in principle, it's public. And it has come out now on the back of a question that was raised and now they've been clarifying that point to the market in general. Kay Wolf: So it's completely irrespective of pbb per se, right? This is a clarification to a standard. Operator: Sharada, do you find your question answered? Then the next question is from Daniel Crowe, Goldman Sachs. Daniel Crowe: These are kind of just follow-ons from what has already been asked. So just Domenico answered, and I'm not sure if you gave a full answer to this. But just given the volatility that you're seeing in your RWA measures of capital at the moment, if you wanted to move to standardize, could you actually do it? Because we've seen quite a lot of movement in your CET1 over the last couple of years, which is obviously the moves are understandable. But if you wanted to move to standardize, could you? And then just following on from Corinne's question around the SRT and its impact on the potential impact from the U.S. If this SRT was not in place, what would have been the capital impact there because I think there's going to be a decent bit of confusion around why that doesn't protect you a little bit more? And then just finally, just on Deutsche Invest, I know you say EUR 40 million of revenues. Could I just get the cost number for -- that's coming with Deutsche Invest as well? Kay Wolf: Yes. Daniel, thanks and as well to you, welcome. Thanks for your question here in this round. To your first question, moving to another capital regime is, first of all, regulated under the respective rules that have to be applied for banks. And in general, it is a process that needs to be approved by ECB. So it's not on us to jump around. And again, repeating and reiterating or making the focus of what Marcus said, what we have been seeing, and you said that over the last years in terms of volatility, that is, by a matter of fact, a reflection of the foundation approach. We called it the procyclical nature of it. And to a degree, the digital effect of being above or below a threshold for an entire portfolio without reflecting on the individual performance of the bank is one of the reasons. And when you consider where the market has been moving and we are talking that real estate markets now on low levels being stabilized, what you see literally by a matter of fact, we are moving in the cycle through really a low point and a hard point. And considering the capital regime, you always need to look through that and we need to look through-the-cycle as a whole. But the short answer, I gave it a little bit longer because of the consideration that I expect behind your question. The short answer is we are not free here to jump around on capital regimes. And don't view as a sloppy Marcus smiling at me, don't view it as a sloppy answer, but I want to be clear given that, that question was asked twice, Daniel. Daniel Crowe: Yes. No. And I understand like the capital itself is moving your leverage ratio is obviously in a good place. I was just wondering. Kay Wolf: And that is a bit the situation that we also on the respective page on the capital side, wanted to give a reflection. You see the derisking of the bank, the deleveraging of the bank also reflected, I think, well in the leverage ratio and how the leverage ratio has developed. And then? Daniel Crowe: Just had the SRT not been in place, the impact of the U.S. portfolio of 135 bps, what would that have been? Kay Wolf: I don't have the number around, Daniel. But what I can say it would be, of course, higher because there is a mitigating effect by the SRT. So the effect would be even higher. So we do here benefit from the derisking process, of course. Overall, by the way, we also benefit from the repayments that we got on our performing book as well as a reduction in our NPLs. The entire exit of the U.S. in itself mitigates, of course, the impact, but the SRT standalone, of course, has a mitigating effect as well. Daniel Crowe: And the final one was just on costs in Deutsche Invest. I know you said EUR 40 million of revenues. I just -- I know you said costs stable across the bank, but I just wanted to check what the costs were for Deutsche Invest. Kay Wolf: The cost for Deutsche Invest, I think when we said around EUR 40 million for 2026, we also said around EUR 4 million of profit before tax before the PPA effect. So the delta of it roughly is the cost range that you have. So you are around EUR 35 million of costs that you have in that business. Daniel Crowe: And also thank you for taking calls from the credit side. Much appreciated. Operator: The next question is from Paul Noller, Commerzbank. Paul Noller: I would like to quickly go to the most recent events. You mentioned that you are guiding for loan loss provisions in '26 of between 25 basis points and 30 basis points. I don't assume that takes into account the recent rise in energy prices. So I would be curious to see your view on if we are now looking in Europe at a protracted increase in energy prices, how that might impact the debt service coverage ratios, specifically in your European [ Rev ] portfolio. I'm thinking here about hotels, logistics and what effect you think that might have down the road on risk cost in 2026? Kay Wolf: Yes, Paul, thanks for your question. I mean, first of all, let me clearly state that we have no active business whatsoever in the Middle East. I think that is one thing that should be said. So the impact and you're alerting to that is more an indirect impact rather than a direct impact that we will have to consider. And whilst energy prices is the one precise one, overall, I think one could sum up, it will be inflation and inflation on the cost side and in particular, on the service properties will have an impact. The experience that we have when you consider going back to the Ukraine war and the energy price rise that we have had, although it's awful to compare wars with each other, that to clearly state that. But take that as an example, we have the experience of those cost developments. Of course, one could say there have been mitigants and one could read now as well if it gets completely out of normalatality rises, then there will probably be additional support coming. Of course, there is a higher pressure on the cash flows that are coming. But from the experience that we have been seeing that is within the range in our portfolio of what we guided for in terms of the cost also stressing the fact that the hotel portfolio, take this as an example, is only 2% of our portfolio. So we are not that heavily involved. We are just going into and expanding into it. So we can take those considerations, of course, when taking new loans on our balance sheet. Operator: At the moment, there are no further questions in our queue. [Operator Instructions] So with that, thank you very much, and I'm handing the floor back over to the host. Kay Wolf: Yes. Thank you very much. Thanks for the exchange. Thanks for the questions, in particular, Corinne, Domenico, Sharada, Daniel, thanks for your questions and looking forward to have you around in our next call. If there should be more questions arising, which would not be unusual, you know our Investor Relations team, Michael Heuber, Axel Leupold, they are available. So please reach out. And otherwise, I wish you all a good day. And again, big thank you also in the name of Marcus for having joined our call. Thank you very much. Marcus Schulte: Thank you.
Anthony Kirby: Good morning, everyone, and thank you for joining us for the Presentation of Serco's 2025 Full Year Results. I'm Anthony Kirby. I'm the Group Chief Executive, and I'm extremely proud to lead what I believe is one of the best companies in the world. My more than 50,000 great colleagues deliver mission-critical services in some of the most demanding environments globally. And their commitment, skill and resilience continues to inspire us every day. Nigel Crossley, our Group CFO, and I are delighted to be able to present the strong set of results on their behalf. But before we begin, it would be remiss of me not to recognize Nigel's outstanding contribution to Serco at this stage, more than 11 years of dedicated service as well as 5 as the Group Chief Financial Officer. And on behalf of the Board, the Executive Committee and all of his colleagues across Serco, I want to offer my sincere thanks and wish you, Nigel and Lorraine a very happy, long and safe retirement. I'd also like to take this opportunity to introduce Mark Reid, who is with us in the room this morning, who will succeed Nigel as the Group CFO, joining the Board in the coming days. But before we go on, I must refer you to the disclaimer, which is in the presentation pack. As ever, the running order will start with me giving you an overview of our 2025 performance, the key themes that shape the year, the highlights and the progress that we've made and the momentum that we're carrying into 2026. I'll then hand over to Nigel, who will take you through the financials in more detail. And after that, I'll return to talk about how we're sharpening Serco's strategic focus and strengthening our platform for future delivery. We'll then open up for Q&A. So let me begin with an overview of what has been a strong year for Serco. 2025 was a year that was defined by disciplined execution, strong operational delivery and continued strategic progress. Across the organization, be that in Defence, Justice & Immigration or Citizen Services, we delivered with professionalism, pride and purpose. Our full year performance in 2025 has been strong and positions us well for '26. We delivered robust revenue and profit performance. And critically, we've done so while maintaining our focus on competitiveness, operational excellence and growth. You've heard me speak previously about our focus on safe, sustainable, profitable growth. That focus remains absolute and is clearly reflected in our results. Our deliberate multiyear investment in Defence expansion has proven effective. We've deepened our strategic intent, and it's a sector where our momentum is unmistakable. Alongside Defence, we have sharpened our attention on Justice & Immigration and Citizen Services, and I'll come back to talk about more in detail on those 3 sectors following Nigel. But turning to the headlines for a moment. Revenue for the year was GBP 4.9 billion, up 3% at constant currency. Underlying operating profit was GBP 272 million, delivering a margin of 5.6%. Cash conversion was again exceptional, reflecting disciplined working capital management. And our order intake was GBP 5.5 billion, representing a book-to-bill of 114%, with more than 2/3 coming from our Defence business. This performance demonstrates the trust our customers place in us and reinforces the momentum that we carry into 2026. We continue to drive progress across our 3 strategic mutually reinforcing pillars: growth; competitiveness; and operational excellence. Starting with growth, our new business win rate for the year was over 30%, reflecting disciplined bidding and a strong competitive position in our core markets. In particular, we secured around GBP 3.5 billion of defense contracts, underlining both the strength of our Defence platform and our ability to deliver complex mission-critical services. We also ended the year with a GBP 12.1 billion pipeline, the highest we've seen in a decade and which again reinforces the strength of the opportunities that we see ahead. Turning to competitiveness. We've strengthened our delivery quality and our efficiency. Margin progression reflects that discipline as do the partnerships that we've secured such as with Mubadala in the Middle East. In Asia Pacific, our portfolio optimization and productivity performance, along with the disposal of our Hong Kong business has made the region sharper and more competitive, helping to grow margins year-on-year despite the end of the Australian immigration contract. Under operational excellence, the rapid integration of MT&S has been a major achievement in 6 months. We've transferred almost 1,000 new colleagues into the organization, aligned systems, embedded common ways of working and begun to win new work together. MT&S has strengthened our Defence platform with deep simulation, mission training and satellite ground and network capability. Across the wider portfolio, our contract retention rate remains high at over 90%. At the same time, we're building a safer, more engaged organization with safety incidents reduced by 22% year-on-year. Colleague engagement sustained at 70 points for the third consecutive year as well as continued colleague engagement. And these results reinforce the quality and dedication of our people. Supporting them, investing in their safety and well-being and ensuring that they have what they need to succeed remains a core business imperative. It's central to how we deliver for our customers and how we will retain more business. This focus on our people, our culture and how we operate is also being recognized externally. During the year, our performance has been acknowledged by a range of independent organizations, but the standout for me was being named as Britain's Most Admired Companies. That recognition reflects, not just what we deliver, but how we deliver it, the strength of our leadership teams, our culture and the trust we build with our customers and the communities in which we work. Ultimately, it reinforces that we are building a business. Our colleagues are proud to work for, our customers are proud to partner with and our investors can have confidence in, grounded in strong performance and responsible delivery and doing the right thing always because it's always the right thing to do. Our performance in '25 demonstrates consistent progress across key financial metrics. Over the last 5 years, we've delivered revenue CAGR of around 5% and profit CAGR of around 11%. Over the period, we've doubled earnings per share to 16.93p. And over the same 5-year period, we've also demonstrated disciplined capital allocation. Of the GBP 1 billion of cash generated, we've invested in targeted M&A and returned surplus cash to shareholders, again, as demonstrated this morning with the announcement of a further GBP 75 million share buyback. Not only does this reflect our approach to good capital allocation, but it also showcases the sustained progress that we've made over the last 5 years. As a business, we are more increasingly predictable, more competitive and well positioned to convert opportunities into sustainable long-term growth over the years ahead. And with that overview, I'll now hand over to Nigel. Nigel Crossley: Thank you, Anthony, and good morning to everybody. Let me take you through the financial -- sorry, let me take you through the performance for 2025, a year in which the group has demonstrated strong momentum despite a number of anticipated headwinds. Revenue increased to GBP 4.9 billion, up 3% on a constant currency basis, reflecting good underlying performance and the benefit of the MT&S acquisition. Organic revenue growth was up 1%, in line with where we guided the market. And it's been led by double-digit organic growth in Defence, partially offset by a reduction in U.K. and Europe and Australia immigration revenues. Underlying operating profit was GBP 272 million, which is up 1% on a constant currency basis. The margin of 5.6% remains in the middle of our target range of 5% to 6% and reflects execution discipline and productivity improvements, offsetting the Australian immigration contract exit and higher national insurance costs in the U.K. And return on invested capital continues to be strong at 26%. It's worth remembering that the significant part of invested capital relates to goodwill and acquisition intangibles. And we run the business using just GBP 0.1 billion of operational invested capital, which emphasizes the capital-light nature of our business model. And I'll now move on and provide more color on the operational performance for each of the regions. So starting with North America, who delivered another strong performance and continues to be an important contributor to the group's growth targets. Revenue increased by 10% to GBP 1.46 billion, driven by 4% organic growth and a 9% contribution from the MT&S acquisition, partially offset by a 3% adverse currency movement. Organic growth was led by defense, where significant order intake achieved in 2024 is flowing through to this year's revenue. We saw higher activity across defense personnel services, mission training and increased demand for IT network and infrastructure services for the U.S. Navy. Underlying operating profit increased 5% to GBP 144 million, including a 3% negative impact from the weaker dollar. The margin stayed around 10% despite the impact of mobilization of new defense contracts and the one-off MT&S transaction integration costs of GBP 6 million. These costs were anticipated and as the contracts mature, margins will recover, supported by increased efficiency and portfolio mix. Order intake was GBP 1.4 billion, of which 90% was from defense, which is a robust outcome after the exceptional order intake in the second half of 2024 and the temporary delay in contract awards caused by DOGE and the U.S. government shutdown. Win rates remained healthy, 37% of new business, reflecting our customer relationships and competitive positioning. Our rebid win rate was a bit lower than normal due to the loss of a low-margin air traffic control contract. The pipeline in North America has more than doubled to GBP 5 billion. And once again, defense continues to represent the majority of the pipeline of new business opportunities. Integration of MT&S has been successful and is delivering early benefits. In the first 7 months of ownership, it contributed GBP 9 million of operating profit after absorbing transaction integration costs. The strategic fit is proving to be exactly as expected, expanding our defense footprint by deepening customer access and enhancing our mission training and satellite communication capabilities. So moving on to U.K. and Europe, our largest division, which delivered another strong performance. Revenue increased 6% to GBP 2.58 billion, driven by 5% organic growth and a further 1% contribution from the acquisition of EHC, our German immigration services business. Organic growth was supported by the mobilization and ramp-up of several major Defence and Citizen Services contracts, including Armed Forces Recruitment, marine services for the Royal Navy, continued progress on electronic monitoring and some complex case management contracts. As expected, we have seen lower revenues in our Immigration business from harder borders in Europe and the ongoing shift in accommodation mix in the U.K. although revenues in the U.K. have not reduced the rate we expected at the start of 2025. Underlying operating profit was GBP 149 million, flat on last year, and margins remained healthy at 5.8%. While there were anticipated headwinds from Immigration and higher U.K. national insurance costs, these were offset by improved contract performance elsewhere in the division, including stronger contributions from Citizen Services and Defence. Order intake was excellent at GBP 3.7 billion, delivering a book-to-bill ratio of 145%. Win rates were also very strong, winning 60% of new business bids and 97% of rebids. The wins included several strategically important long-term awards, particularly in Defence, which accounted for 60% of the order intake. Finally, the U.K. have done a good job of not just winning new business, but also rebuilding the pipeline back to similar levels to what we saw at the end of the year at GBP 5.8 billion -- end of last year, sorry, at GBP 5.8 billion. The pipeline includes a broad range of opportunities across Defence, Justice & Immigration and Citizen Services. So turning to Asia Pacific, where the division delivered a resilient performance with good cost control, improving contract performance and some early progress on growth. This resulted in an improved margin despite the expected reduction in revenue following last year's Australian immigration contract exit. Revenue for the year was GBP 655 million, down 18%, recognizing the 12% organic decline associated primarily with immigration contract exit and the disposal of our Hong Kong business and some adverse currency movements of 5%. Underlying operating profit was GBP 24 million, up 3% on a constant currency basis. The margin increased to 3.7%, up about 60 basis points. And the improvement demonstrates the effectiveness of disciplined cost control to rightsize the organization and improved operational performance. We also delivered some important new business wins across the region. Notably, we secured a 6-year contract for Justice Transport Services in Victoria. Rebid win rates were strong at 91% and Defence performed particularly well with key extensions, including the Royal Australian Navy's warfare training contract. There were also some important rebid and extension wins in Citizen Services. And looking ahead to 2026, we have a good pipeline of both new business opportunities and rebids and extensions of existing work across Defence, Justice and Citizen Services. There's still work to do during 2026 to further build the APAC pipeline, but we're encouraged by the progress made in 2025. And turning now to the Middle East, where we have restructured the business in Abu Dhabi by entering into a strategic partnership with the sovereign wealth fund, Mubadala. This involves transitioning facilities management contracts into the new joint venture and combine Serco's capability and Mubadala's network in the Middle East to expand access to large, high-quality opportunities across the UAE. Whilst it's still early, we are encouraged by the breadth and scale of opportunities we are seeing. Revenue for the year was GBP 177 million, a reduction of 18%, driven by 12% organic decline, a 4% drop from accounting impact of Mubadala partnership and a 2% adverse currency. The organic revenue reduction primarily resulted from the conclusion in 2024 of our low-margin air navigation services contract in Dubai and lower variable project work compared with the prior year. Underlying operating profit decreased to GBP 13 million from reduced organic revenue with margin decline to 7.1%. We continue to focus on operational efficiencies, disciplined bidding and improving the commercial resilience of the region. During the year, order intake was GBP 150 million, and we've rebuilt a GBP 0.5 billion pipeline of new business opportunities. So now let me move on to cash and cash generation in 2025 was again strong with cash flow of GBP 219 million, representing trading cash conversion of 112%. And this maintains our track record since 2019 of averaging over 100% of profit converting into cash. And the result reflects the disciplined approach we take to timely and accurately billing to our customers, enabling them to pay us promptly. Our 2025 cash flows also benefit from a higher-than-usual level of mobilization activity and the associated deferred revenue. Adjusted net debt increased to GBP 206 million from the GBP 100 million at the end of last year. This increase reflects the GBP 245 million acquisition of MT&S, along with capital we've allocated to buybacks and dividends, partially offsetting the strong cash flow. The group continues to maintain a very strong financial position with year-end leverage of 0.7x EBITDA, below our target range of 1 to 2x. So on that, let me turn to capital allocation, which is in the context of strong cash generation, capital-light business model and the maintenance of a strong financial position. Our #1 priority continues to be to invest in organic growth. We further strengthened our business development capabilities and our operational delivery platform and mobilized major new contracts across Defence, Citizen Services and Justice & Immigration. These investments contributed to our record GBP 12.1 billion pipeline and strong order intake for the year. Reflecting our confidence in the group's financial position and outlook, today, we are recommending a full year dividend of 4.5p per share, an 8% increase on last year. And our third priority is M&A. This year, we saw the successful completion and integration of the MT&S acquisition, and we continue to assess additional strategic bolt-on M&A opportunities where they enhance our capability, expand our customer access and strengthen our competitive position. And finally, where we have surplus capital, we commit to return this to shareholders promptly. We completed a GBP 50 million share buyback in the second half of 2025 and today announced a GBP 75 million buyback to be executed in the first half of 2026. Inclusive of this newly announced buyback, Serco will have returned in total around GBP 650 million to shareholders through buybacks and dividends since 2021, demonstrating our commitment to disciplined capital returns when our balance sheet strength allows. So let me finish off with our updated guidance for 2026, which is largely unchanged from our pre-close statement. We expect revenue to be around GBP 5 billion for 2026, resulting in organic growth of 3%. The increase in revenue reflects a full year contribution from MT&S, ramp-ups of major contracts and the impacts of new businesses won in late 2024 and throughout 2025. These upsides offset the expected reductions in the immigration activity in both U.K. and Australia, which we expect to account for around a 3% organic headwind. We expect underlying operating profit of around GBP 300 million, over 10% higher than this year. This includes the continued positive impact of MT&S, productivity improvements across the group and the full year effect of multiple contract ramp-ups transitioning into steady-state operations. This result in a margin of around 6%, placing us at the top end of our medium-term target range. And net finance costs are expected to increase to around GBP 52 million, reflecting the annualized impact of interest on the new debt issued to fund the MT&S acquisition and the cost of the new GBP 75 million share buyback. We expect free cash flow of around GBP 160 million, which is unchanged from our pre-close statement and remains consistent with our medium-term ambition to convert at least 80% of our profit into cash. And finally, adjusted net debt is expected to finish 2026 at GBP 165 million, which is slightly different to the initial pre-close guidance of GBP 150 million and reflects the new GBP 75 million buyback, offset by the better-than-expected closing net debt position at the end of 2025. And with that, I'll hand back to Anthony. Anthony Kirby: Nigel, thank you. Let me now turn back to the strategic and operational progress that we've made during the year and the opportunities that we see ahead. As you know, '25 has been a year where we've taken a much more deliberate approach to the areas where we see the greatest opportunity. We've refined our strategic direction to prioritize the geographies and sectors where Serco can deliver the most value, achieve the best growth and where our capabilities are strongest. The underlying demand for the essential services that we deliver remains remarkably robust at a time where external environments can often feel volatile. Across all of our geographies, we continue to see strong structural drivers that reinforce the need for trusted partners like Serco. In North America, budget in the sectors in which we operate continue to grow. We've remained resilient but not complacent through the changes in administration priorities, including the impact of the U.S. shutdowns. However, some short-term slowness in the system could persist into the first half of '26. But to remind you, we have more than doubled our pipeline in the U.S. to more than GBP 5 billion this year. In the U.K. and Europe, financial pressures remain acute, but demand drivers will endure, including rising Defence spending and sustained pressure on the asylum and migration systems, which reinforce our view of the long-term demand drivers. In the Middle East, modernization plans are creating new opportunities as well as likely increases in defense capability and security protections. And in Asia Pacific, encompassing the Indo-Pacific region, defense and infrastructure needs remain significant, albeit balanced against tighter budget conditions. But these dynamics point to an addressable market of over GBP 900 billion. Whatever the precise figure is, it is a large and growing market with clear opportunity for us to increase our share over the years ahead. In Defence, investment pledges remain substantial. The U.S. has proposed a defense budget of over $1 trillion. The U.K. has committed to 3.5% of GDP and European nations continue long-term multiyear rearmament and capability improvement programs. In Immigration, volumes may fluctuate, as Nigel has just alluded to, but long-term global pressures, conflicts, geopolitical uncertainty, climate-related displacement and economic instability continue to drive underlying demand. And in Citizen Services, technology is driving efficiency, yet the services that we deliver still depend on people, which means our exposure to displacement from automation is limited more than you might expect. Instead of eradicating our work, technology gives us an opportunity to enhance our offering further, making our services more efficient and improving the services to the citizens who depend and rely on them. And finally, to labor the point in this context, our role is to deliver critical mission public services. It helps shield us from sudden political policy reversals. Even during dynamic shifts in government policy or legislation changes, our operational roles remain essential for the delivery of critical services. So while the headlines may suggest rapid change, the reality is demand for what we do is anchored in long-term structural demand. So when you look across our international platform, the picture is clear. I said that we needed to become more focused on the areas with the greatest opportunities, being more selective and deliberate about the capabilities that we're developing and clearer about the geographies and sectors where those capabilities can best be deployed. North America, the U.K. and Europe remain our most addressable and scalable markets. The U.S. federal government is the largest buyer of goods and services in the markets in which we operate in the world. In the U.K. and Europe, governments face sustained financial pressure and are looking for partners who can deliver better outcomes more efficiently. And whilst those markets do offer us the greatest growth potential, that does not mean that we don't value our presence in Asia Pacific or the Middle East. We absolutely do, and we expect both of those regions to grow over the coming years. But we will be disciplined about where we deploy our capital and focus our growth attention. Across the group, we're therefore doubling down on the sectors where structural demand is the greatest and where our capabilities, track record and recent progress positions us well for sustainable growth. Our enhanced Defence platform, our deep operational expertise in Justice & Immigration and our breadth of services across the Citizen Services portfolio gives us a greater level of differentiation. Over the past year, we focused the organization on removing some inefficiencies, reducing complexity where we can and sharpening our ways of working. This has laid the foundations to make us more agile, more focused and more competitive for the years ahead. I also said we needed to make more progress in systemizing the sharing of best practice across the group, enabling us to leverage capability, learning and execution at scale, and I'll touch on some of the examples of those shortly. But at its core, Serco delivers mission-critical services where outcomes matter most, deploying people, technology and partners to perform at scale. So I'm now just going to touch on 3 of those growth sectors. So turning to Defence, the area where we see our greatest long-term opportunity. Defence now accounts for around 40% of the group's total revenue, inclusive of our joint venture operations. We're deeply embedded in the armed forces of the U.K., the U.S. and Australia. And we deliver critical services in the Middle East for the Australian Defence Force and provide essential training in New Zealand and Canada. We also deliver naval capability in Europe, including the maintenance of the minehunter vessels in Belgium. We bring over 60 years of proven delivery supported by increasing technological capability to Defence. In fact, that journey began at RAF Fylingdales where today, we operate and maintain the U.K. early warning radar, a critical part of both the U.K. and U.S. missile detection system. Our teams provide 24/7 uninterrupted support to this national security asset, demonstrating the depth and experience of Serco's expertise and long-standing credibility. And we're also working in Greenland, modernizing and maintaining assets for the U.S. Space Force. And we're active across all Five Eyes nations and throughout several NATO countries where Defence spending continues to rise with 24 members of NATO now exceeding or meeting the 2% of GDP spend targets. So whether it's training, personnel readiness, platform modernization or future-focused autonomous capabilities such as our USX-1 Defiant vessel, Serco is a critical partner to governments as they deliver on their national security ambitions. So a core differentiator for Serco is our ability to support the full life cycle of personnel services for the military from recruitment, to health, fitness and readiness to training, housing and family support through to veterans transitions. In the U.K., we're the prime contractor for the Armed Forces Recruitment program. The program brings together a set of best-in-class partners under a single Serco delivery model, and it's a flagship example of where our capability in program management, governance, stakeholder engagement and operational delivery truly differentiates us. In the United States, we continue to deliver the Army's Holistic Health and Fitness program, H2F. Mobilize last year is the largest human optimization and soldier readiness program ever fielded at scale. In Australia, we train the ADF Maritime Officers in a simulated environment at HMAS Watson's Bay, leveraging our MT&S capability alongside the established expertise of our broader defense teams. And through our joint venture, VIVO, we maintain 27,000 military family homes and more than 20,000 defense buildings across the U.K., a vital part of the personnel experience and family ecosystems of the military. All of this reflects, I believe, the strength of our personnel services platform that we've built, a platform that is increasingly cross geography, increasingly tech-enabled and increasingly central to the defense strategies of our customers around the world. And this platform of capability allows us to take our end-to-end offering to customers internationally. Turning now to Justice & Immigration, a sector where Serco brings deep operational expertise and a scale of delivery that is critical to government in the U.K., Europe, Australia and New Zealand. Across the countries where we do operate our Immigration business, we support and accommodate over 100,000 asylum seekers and refugees, reflecting the breadth of complexity of demand in which we help governments manage. That demand is driven by long-term global pressures, sustained migration flows, rising complexity in case management and the need for safe, high-quality and efficiently run detention facilities. While policy decisions can cause short-term fluctuations in migration volumes, the underlying demand signals remain strong. Border crossings remain a challenge and governments need agile, experienced operators as they seek innovation across both immigration and justice services. Our position across the criminal justice system is equally strong. Our unique role gives us a comprehensive understanding of the current and future likely challenges. This year, we operationalized additional prison capacity in the U.K., helping to alleviate pressures across the custodial estate. We also now monitor 28,000 individuals in the community on behalf of the Ministry of Justice in the U.K., which is a scheme that has proven to reduce reoffending by around 20%. So in a sector where trust and safety and performance matter profoundly, our operational track record positions us well. One of Serco's real strengths is our ability to operate an international platform of best practice, taking what works well in one part of the world and applying it elsewhere to lift performance, efficiency and outcomes across our global operations. A good example of our -- a good example of this is our prisoner escorting contract by moving expertise from the U.K. to help our colleagues in AsPac win the Justice Transport Services contract in Victoria, Australia, demonstrating how our capabilities can be deployed internationally. More broadly, our end-to-end role across justice from courts and secure transport to custody and prison management to electronic monitoring in the community gives us a system-wide insight that a few other providers can match. That perspective enables us to transfer proven operating models across geographies with confidence. The same platform approach applies in Immigration. Across Europe and the U.K., our teams have built deep capability in complex case management, safeguarding vulnerable people and running high-performing detention facilities. These learnings now shape how we design and deliver services globally, creating the consistency that customers expect across borders. The platform approach combines people, processes and technology developed in one geography, strengthened with lessons from another and deployed wherever needed, giving us the scale and assurance our government customers rely on to evolve their systems of management. Moving on to Citizen Services. Demand is often driven by budget pressures, the need to modernize infrastructure, digital integration and rising public expectations. Delivering services directly to the citizens remains an important part of our strategy. Its breadth gives us the agility to respond to shifting government investment priorities and to direct our capability towards the areas of greatest demand. Across this sector, we deliver directly services that touch millions of people's lives every day. We support people navigating complex welfare and employment systems, helping long-term unemployed individuals back into work. We also run high assurance citizen operations, including helping people access much needed health insurance in the United States, delivering essential services with speed, accuracy and compassion. So while Citizen Services can be considered to be broad by nature, I consider that, that breadth and diversity is a strength. It enables us to adapt quickly, respond to evolving customer needs and bring our capabilities to the areas where we can add the greatest value. As we look across the Citizen Services portfolio, the defining strength of our ability is to blend delivered impact with technology-enabled efficiency. In North America, our work for the Centers for Medicaid and Medicare Services shows what this looks like at scale. For more than a decade, we've operated that business, and we've now deployed advanced automation and digital tooling to improve the quality and speed of the essential services, managing around 10 million customer notices a year, embedding AI technologies and completing complex case management 3x faster with compound efficiency of more than 500%. And in the U.K., we're applying the same innovation and those services that we depend on to help people through the Restart program. That employment program, we've piloted our technology to equip job coaches with new AI-enabled case management tools. It's reduced administration time by around 75%, improved case note quality by nearly 20% and most importantly, allowed our people to provide human-centered support to help the people back into sustainable employment. That combination of people who deliver with care, expertise, which is coupled with technology that accelerates important and impactful outcomes is what makes our model distinctive. It's how we help governments deliver better outcomes at lower cost and how we will continue to transform essential public services that millions of citizens depend on. So bringing that together, the market dynamics across our sectors remain compelling. Structural demand is intensifying, driven by geopolitics and Defence postures, fiscal pressures and the need for innovation, and those forces show no sign of easing. Against that backdrop, Serco's platform is well aligned to our customers' priorities. On the whole, we operate at scale in mission-critical services that governments rely on, which provides resilience and underpins long-term opportunity. We've sharpened our focus on the geographies and sectors where demand is strongest and where our capabilities are most differentiated. And that gives me confidence that Serco is well positioned to capture the growth opportunities in the years ahead. So to conclude, let me just reiterate my key messages. Our 2025 performance was strong and leaves us well positioned to deliver against our '26 guidance. We're advancing the organization to achieve our goals and doing so with the same rigor that has underpinned our success over the past 5 years. That discipline across growth, competitiveness and operational excellence is what will continue to drive our performance in '26 and beyond. We're prioritizing our investment in key growth markets and doubling down on the sectors where our differentiated capabilities and technical depth align with the strong structural drivers. So we're advancing the systems and leadership needed to scale our business for success, building a stronger executive team and aligning our leaders around a growth and performance culture. This gives me confidence in our ability to maintain well-governed momentum, confidence that we are well placed as ever to seize on the opportunities ahead and confident that Serco will deliver as an agile, well-governed business able to course correct when needed and to deploy the best talent to drive better outcomes for our customers, our colleagues and our shareholders. And I think we'll now move to Q&A. Arthur, do you want to go first? Arthur Truslove: Arthur Truslove from Citi. So 3 for me, if I may. So the first one, are you able to just talk about the notable contract implementation costs? So what were the sort of big ones in '25 versus '24? And then what are you expecting in '26 to just sort of get a feel for what the impact of that will be going forward and indeed last year? Second question on competition. So I just wondered sort of how the competitive landscape, particularly in the U.K. is evolving, especially in the context of better margins? And if you could sort of comment on how that's evolved in the last few years as well, that would also be interesting. And then finally, on U.K. migration, I guess, migration more broadly. I guess my question really is, we've all seen these sort of large centers being suggested. What do you -- how do you think the model potentially evolves? I know it's a difficult question in terms of what happens with migration and kind of what are the sort of best and worst case scenarios for you? Anthony Kirby: Arthur, thanks for the message. Nigel, do you want to take the cost of mobilization? Nigel Crossley: Yes. Anthony Kirby: Shall I start with the competitive landscape? Nigel Crossley: Yes. Anthony Kirby: Yes. So in the U.K., we haven't really seen that much of a change in the competitive landscape, probably over a number of years actually. I think the competitive landscape has remained pretty stagnant. I think we've -- typically, when we're -- depending upon what it is, we are bidding in the sector we're bidding in, we typically bid between 5 and 6 competitors dependent upon what the services are that are being procured. So we've not really seen any significant change in that space. In terms of migration, let me take the conversation more broadly first, which is, migration flow is likely to continue to exacerbate. I've run through the reasons why we think those structural drivers will endure. In terms of your specific point on the U.K., look, we stand really clear side-by-side with the customer. When they ask us to provide good quality, innovative solutions, we -- it's our job to provide those solutions to them. So medium and large sites, we're working with the customer. It's the customer that decides where those medium and large sites are. Our job is to make sure that we can stand those facilities up once the customer has procured them. But I will just make the point again that we've made previously. There is a priority to come out of hotels where our hotels were 50 -- just over 50% less now than where they were 12 to 18 months ago. So this is a program that we have been working with the customer on to achieve their priority. Nigel Crossley: And then on the contract mobilization costs, we've obviously had a busy year because we've had some big wins. Most of those costs are probably in the U.K. And we've seen probably a protracted mobilization on the electronic monitoring for various reasons. We know that we've got the Armed Forces Recruitment contract that we started earlier this year. So those are the kind of things that are probably higher than we'd ordinarily expect to see, maybe to the tune of about GBP 20 million in the year. Anthony Kirby: I think what we'll do is, we'll start with David and then we'll go right across that row where all of the questions. David Brockton: It's David Brockton from Deutsche Bank. Can I just ask 2 just around pipeline, 1 contract pipeline and 2 acquisition pipeline. Within that contract pipeline, are there any opportunities we should be aware of that are capped in terms of size? So any bigger ones in there? And if you could just talk about how you see that evolving over the course of the year as well? And then secondly, in respect to the acquisition pipeline, can you just give us an update on how that looks given that you've -- I guess, you've only committed to a buyback for H1, so clearly keeping some powder dry there. Anthony Kirby: Yes. Shall I do acquisitions, Nigel, you do the pipeline? So in terms of acquisitions, we're in a really strong position where we have the optionality that when we look at opportunities that present themselves or we go looking for. We're in a strong financial position from a balance sheet perspective to be able to execute and pull that key part of our capital allocation policy. I'm obviously not going to go into detail in terms of things that we're looking at, at the moment. But it is a liquid market, particularly in the growth sectors that we are looking to grow and in the regions that we're looking to expand our businesses in. And I think we've said previously, the U.S., Europe and the U.K. remain at the top of that list. But that doesn't mean that we preclude anything in other parts of the world as well. So there are some things in the pipeline that we're looking at. It's clear that we've said in the stock exchange announcement that we'll review the capital allocation policy at the half year again. But I think our track record of returning surplus cash to shareholders if we've got no M&A in the pipeline -- in the foreseeable pipeline is something that we will continue to do as we move forward. Nigel Crossley: Yes. And then on the pipeline, look, we've got a good mix of new opportunities across our pipeline. And we've got a couple that are at the top end of our range of up to GBP 1 billion where we cap them. One is a training contract in North America, actually in Canada. And the other one is a logistics contract for the U.K. MOD, which we are potentially looking at. Those are both not going to start until -- for some time yet. They're a bit further out. And then there's a big -- over half of our contract -- over half the pipeline is on contracts that are less than GBP 300 million. So there's a good spread of cover across all the sectors and of various sizes. Christopher Bamberry: Chris Bamberry, Peel Hunt. Three questions, if I may. You're obviously sharpening the focus on Defence, Justice & Immigration and Citizen Services. What does that mean for health and transport? Secondly, can you talk a little bit more now you're 9 months into MT&S, the positives and the negatives against your original expectations? In particular, can you give us any concrete examples on synergies on the pipeline? And the final one, when you talked about -- Nigel, about the margin in North America, I mean, parking integration being absent this year, you said that the margin would improve as contracts mature. I guess given the profile of your stuff you're winning, is that more kind of -- is there going to be see much of that in '26 or is it more kind of '27 or further out? So if you keep winning stuff, is it -- is that kind of portfolio effect kind of dilutes that benefit? Anthony Kirby: Do you want to do the last one first? Nigel Crossley: Well, I'll do the first. So on margin in North America, yes, you're right, there's GBP 6 million of integration costs. So that's not 40, 50 basis points of the margin. So that gets you back over 10%. When we look at what we're bidding, there's a range of what we're bidding actually. So there's some stuff that's cost plus that tends to be slightly lower margin. There's some stuff at the higher end, which is fixed price and above our average. So I think over time, we'll see broadly -- our profile broadly stays similar. I think we'll get more economies of scale as we continue to grow. And certainly, when we bring -- we brought MT&S on, we've got economies of scale in our fixed costs there as well. So we're leveraging our fixed costs well. I think all those things will contribute to at least keep that margin at 10%. Anthony Kirby: Thanks, Nigel. So if I just pick up, Chris, your point on Health and Transport. So Health and Transport fall under Citizen Services, particularly because we're delivering services directly to the citizen. We're not actively growing in our Transport business in the majority of the world. We will retain and rebid our contracts that we currently operate in Transport. We think we operate some really good transport businesses, be that our joint venture with Merseyrail or NorthLink Ferries up in the Highlands and the Islands and also some transport businesses in the Middle East and the U.S., but they're quite small. And then in health, our health FM, which is a soft and hard FM business in -- predominantly in the U.K., we're looking at FM across our horizontals where we deliver FM services. So if an opportunity presents itself for us to go and bid, we will, but we're not actively deploying our growth capital into those lower margin area businesses. In terms of MT&S, I think we said at the outset, we wanted them to concentrate on the business that they had in their current pipeline that they brought across with them at the time of the acquisition. And then we looked at the second area of the pipeline, which is where can we bring MT&S' capability and our North America capability together in order to go and win and retain contracts with the benefits of both organizations combined. And then we talked about what we call our Horizon 3 pipeline, which is the international opportunities that MT&S and the wider Serco organization can bid collectively on. In the U.S., we've started to win some new business that was in the pipeline in MT&S, some small deals. The team are just rescrubbing the pipeline for the North America business, and we'll look to move internationally as we get further down the line this year. Alex Smith: So Alex Smith from Berenberg. Just 2 from me. Just one more -- first on the U.S. market following kind of the slowdown or pause late last year and kind of how you're seeing activity kind of restart? Or kind of is there a lag effect of starting again following that kind of like pause or slowdown in activity? And then second is just on the APAC business. You kind of mentioned some potential cost savings, but also some new contracts coming through. I guess it's still early days post Australian immigration contract, but any update here on outlook for that business would be helpful. Anthony Kirby: Shall I do the U.S. and you do Asia Pacific? Nigel Crossley: Yes. Anthony Kirby: Okay. So in the U.S. again, drawing attention to, we've doubled the size of our pipeline. We had some significant wins towards the end of 2024. Our win rate at the end of the second half of '24 was very good in the U.S. So we had to replenish the pipeline. We've done that. It's now twice the size it was. In the U.S., in terms of the shutdown, there's been limited impact. We haven't actually seen too much of an impact in the second half of '25 other than some decisions are slightly slower to be made. There's no degradation in what's coming to market. There's no degradation around the timing at which opportunities are being presented to the market. What is slowing slightly in the system, which all of our U.S. peers have said as well, is the decision -- the amount of people making the decisions is less now because of what -- because of the impact of DOGE and the reduction in the federal government employee numbers. So fundamentally, there are just fewer people making the same amount of decisions, but we're not seeing the number of decisions being reduced. And we probably expect that to continue for a little bit into '26, just as people get back to work and feet under the table. Nigel Crossley: And then in Asia Pacific, I mean, I largely said this in my presentation, but we set an objective to rightsize the infrastructure of the organization. We've made really good progress on that over the last 2 years. And I think that is under review, but is largely done, but ongoing under review. There's some contracts that were underperforming. We have made progress on those. I think there's still a bit further to go. But the big one is really growth. And we know that the lead time in this business between finding an opportunity, bidding it, winning it, mobilizing it and making it profitable is long, and we have to hold our patience on that. But we do feel encouraged by some of the progress we've made this year. Our rebid win rate has been strong this year. We've won some stuff. And we feel quite good about some stuff that's coming up in the first half of this year. So there's early signs, but not yet done. I think there's more work to be done. And I think it's really getting that business back to the scale that we need it to be and the margin needs to be -- needs a little bit of patience to win those new pieces of business, but an encouraging start, I would say. Michael Donnelly: It's Michael Donnelly from Investec. Just one for me, Anthony. We've spoken in the past about the revenue profile of the U.S. naval contracts and that there are some, I think, transactional revenues in there that are dependent on the fleet being in harbor or base ported. If the U.S. fleet is in for a potentially very extended period of operational deployment, can you, first of all, tell us how much of the $1 billion of North American defense revenues would conform to that revenue profile? And then what, if any, offsetting revenue items there might be as a result of such an extended deployment? Anthony Kirby: Okay. Can I just take the strategic part of your question and Nigel might be able to give you the detail on the specifics. We do generally operate in one part of our Defence business in ship modernization, maintenance, asset engineering, refitting of navigation systems, radars, et cetera. That is generally done in port in the U.S. However, we also operate on behalf of the U.S. military in other parts of the world where their ships are in port, where we see that they have agreements with other countries where asset and engineering activity can take place outside of the U.S. And we also have a number of cleared individuals that can undertake that work in different parts of the world, which run into the hundreds of employees, not into the tens. So if there is a requirement for us to undertake more work outside of the U.S. ports, then we've got experience of doing that, and we're currently doing that at the moment. And if we need to we will continue to grow that. Nigel Crossley: Ironically, 2025 was one of our best years for that kind of transactional task order work is what we call it around ship modernization. So we've seen good momentum there. We continue to have stuff that we're bidding and is live and we're waiting for decisions on. So I think it's too early for us to call. Where does it sit in our portfolio? It is of a reasonable size, but it's less than GBP 100 million. And it is cost-plus short-term, cost-plus work, so it's margin tends to be at the lower end. So from a delivering financial targets, I'm probably less worried about that. And it's always something that we've had a little bit of variability in as you look over each of the years. Jane? Jane Sparrow: Jane Sparrow from JPMorgan. Just a couple of follow-ups on the electronic monitoring and Armed Forces Recruitment contracts in the U.K. On the first one, you said you'd have the extended mobilization period. Can you talk about if that contract is now where you want it to be following that extended period, where it is relative to your original expectations? And on Armed Forces Recruitment, how that is ramping up, if there's sort of been any either pleasant or unpleasant surprises as you've started to mobilize it? Anthony Kirby: Okay. Well, thanks very much for the question. Shall I lead off and then Nigel can help with any of the finances on electronic monitoring? So electronic monitoring operationally is in a very strong place. Our KPIs for a number of consecutive periods now have been above where our expectations were and where our customers' expectations were in terms of the performance of that contract. We now have -- it's around 1,000 people working on electronic monitoring. They do a superb job every day of the week, making sure that we can work with the customer to monitor the 28,000 people that I said we've currently got in trade. You will have seen the changes in sentence and legislation may mean that more people will be monitored in the community, which the government have previously communicated. We stand ready to be able to stand up to meet those changes in volumes. There's no issues there as we look through the pipeline for the rest of this year. But I'm exceptionally proud of the position that electronic monitoring is now in operationally and strategically. In terms of AFR, Armed Forces Recruitment, interestingly, I was down at Army headquarters only 2 weeks ago to have a full day review of the program. So your question, Jane, is quite timely. But look, the Armed Forces Recruitment is probably one of the most complex procurements the MOD have ever procured. It's the first time since the Second World War that the tri-services will be recruited across all branches of the U.K. military. So that is a privilege that we hold dear that we've been entrusted to deliver this through the support of the 8 subcontractors that we've got going. Everything is going according to plan at the moment. Of course, we were going through each of the milestones, there are hundreds of milestones. There's always going to be 1 or 2 that are moving to the left or to the right. But I came away from that conversation with confidence that the authority and team Serco are working collectively and collaboratively to make sure that we can achieve the mobilization, which is important to note is not until 2027, so we don't become responsible until 2026. On EMS, anything on the numbers? Nigel Crossley: Look, we're very clear on what the operational metrics are that we have to improve on, and we track them really closely, and we're making really good progress. And I'd say we are where we expect to be. There's a bit further to go, but I think we've made a lot of the progress that we wanted to make, and we will see a material improvement in 2026 versus what we saw in 2025. Andy? Andrew Brooke: It's Andy Brooke from RBC. Nigel, you've gone out on a high again on the free cash generation. I think GBP 50 million better than you guided to in December. What sort of drove that? I know we had this very conversation, I think, 12 months ago, but is there any more structural improvement to come, especially on the debtor side? Nigel Crossley: Yes. So we're improving our free cash flow. We've been 100% focused on our debtors. We've done nothing on our creditors. In fact, if anything, we pay our creditors even more promptly now than we did previously. And over the last 5 years, we've knocked 20 days off our DSO. So that's been worth GBP 250 million of improvement in working capital over 5 years. And we've done that, as I said in the presentation, by just getting more disciplined at getting sales invoices out quickly, accurately, so our customers can sign them off quickly. And once they've done that, that pay us really promptly. So that's good. So we've made progress there. I have to say I'm handing over to Mark a barrel that's pretty empty on opportunity there. I think we've done a good job, and I'm not sure how much more there is to go. As far as the year-end is concerned, look, we have some big invoices that are coming at the end of the year. They're going to pay us the last week of December, the first week of Jan. We don't know. We're probably a little bit cautious with that guidance, and we consistently do a bit better than that. So that's the difference between December and what we're saying today. Andrew Brooke: And while I've got the mic, could I just say on behalf of everyone in the analyst community, a massive thanks. You've been a pleasure to deal with over the last number of years. You've done a phenomenal job helping to turn the company around. Huge congrats on what you've achieved and all the best for the future. And I hope your golf handicap comes down a bit more. Nigel Crossley: You and me, too. Anthony Kirby: Any questions on the line? Operator: [Operator Instructions] Our first question comes from the line of Joe Brent with Panmure Liberum. Joe Brent: Just 2 questions from me, please. Firstly, in the outlook statement, you referenced elevated geopolitical tension is likely to remain a feature of the market. Could you just elaborate on how you expect that to impact your business, recognizing it's a fluid situation? And secondly, I think you talked about Defence revenues being around 40% of the business, which I presume includes MT&S on a sort of pro forma basis. Can you give us the same number from a profit perspective? I expect it to be quite a lot higher than that. Anthony Kirby: Do you want to do the second one? Nigel Crossley: Why don't I do the second -- Joe, we're not going to give a specific profit number. I think what we would say is that, the average margin across Defence is above our average margin across the group, and we expect that to continue to improve. Anthony Kirby: Thanks, Nigel. That's quite a heavy hand you've got on your keyboard there, Joe. But just coming back to your second -- your first question, sorry, in terms of the outlook for geopolitical instability to continue. Look, the world in terms of geopolitics is probably likely to endure in its current form for some time to come. We don't know how long that will be. One thing I think we can be sure of is, through recent events and through events that have been happening for the last 5 to 6 years, you can see that countries around the world are suggesting increasing in defense spending and increases in spending on critical national infrastructure to secure their borders. One of the outcomes of geopolitical uncertainty and instability is greater defense spending. And the second structural driver are around migration flows. So typically, you would see following instability and geo instability, the migration flows continue to change, move and diversify around the world. So that is the point that we were making in terms of as those structural drivers continue to endure, we stand ready to support our customers in those 3 major sectors that we've spoken about. Joe Brent: So it's meant to be sort of positive for your business, not a negative? Nigel Crossley: Yes. Anthony Kirby: I think, Joe, the summary answer to that is yes. I think whenever we've seen an increase in geopolitical instability, you see greater defense spending, you see greater spending in immigration and migration services, et cetera. So the answer to that question is yes. Operator: There are no further questions on the conference line. I will now hand over to the management for closing remarks. Anthony Kirby: Fantastic. Well, look, just to thank everybody for your time. I know it's been a very busy day of announcement. So thank you all very much for making the effort to come and see us. Reiterate Andy's comments to Nigel. Nigel will be with us for a bit of the road show, and then we will close it there, I think. Nigel Crossley: Very good. Anthony Kirby: Thank you all very much. Nigel Crossley: Thank you. Anthony Kirby: Have a good and safe day.
Anthony Kirby: Good morning, everyone, and thank you for joining us for the Presentation of Serco's 2025 Full Year Results. I'm Anthony Kirby. I'm the Group Chief Executive, and I'm extremely proud to lead what I believe is one of the best companies in the world. My more than 50,000 great colleagues deliver mission-critical services in some of the most demanding environments globally. And their commitment, skill and resilience continues to inspire us every day. Nigel Crossley, our Group CFO, and I are delighted to be able to present the strong set of results on their behalf. But before we begin, it would be remiss of me not to recognize Nigel's outstanding contribution to Serco at this stage, more than 11 years of dedicated service as well as 5 as the Group Chief Financial Officer. And on behalf of the Board, the Executive Committee and all of his colleagues across Serco, I want to offer my sincere thanks and wish you, Nigel and Lorraine a very happy, long and safe retirement. I'd also like to take this opportunity to introduce Mark Reid, who is with us in the room this morning, who will succeed Nigel as the Group CFO, joining the Board in the coming days. But before we go on, I must refer you to the disclaimer, which is in the presentation pack. As ever, the running order will start with me giving you an overview of our 2025 performance, the key themes that shape the year, the highlights and the progress that we've made and the momentum that we're carrying into 2026. I'll then hand over to Nigel, who will take you through the financials in more detail. And after that, I'll return to talk about how we're sharpening Serco's strategic focus and strengthening our platform for future delivery. We'll then open up for Q&A. So let me begin with an overview of what has been a strong year for Serco. 2025 was a year that was defined by disciplined execution, strong operational delivery and continued strategic progress. Across the organization, be that in Defence, Justice & Immigration or Citizen Services, we delivered with professionalism, pride and purpose. Our full year performance in 2025 has been strong and positions us well for '26. We delivered robust revenue and profit performance. And critically, we've done so while maintaining our focus on competitiveness, operational excellence and growth. You've heard me speak previously about our focus on safe, sustainable, profitable growth. That focus remains absolute and is clearly reflected in our results. Our deliberate multiyear investment in Defence expansion has proven effective. We've deepened our strategic intent, and it's a sector where our momentum is unmistakable. Alongside Defence, we have sharpened our attention on Justice & Immigration and Citizen Services, and I'll come back to talk about more in detail on those 3 sectors following Nigel. But turning to the headlines for a moment. Revenue for the year was GBP 4.9 billion, up 3% at constant currency. Underlying operating profit was GBP 272 million, delivering a margin of 5.6%. Cash conversion was again exceptional, reflecting disciplined working capital management. And our order intake was GBP 5.5 billion, representing a book-to-bill of 114%, with more than 2/3 coming from our Defence business. This performance demonstrates the trust our customers place in us and reinforces the momentum that we carry into 2026. We continue to drive progress across our 3 strategic mutually reinforcing pillars: growth; competitiveness; and operational excellence. Starting with growth, our new business win rate for the year was over 30%, reflecting disciplined bidding and a strong competitive position in our core markets. In particular, we secured around GBP 3.5 billion of defense contracts, underlining both the strength of our Defence platform and our ability to deliver complex mission-critical services. We also ended the year with a GBP 12.1 billion pipeline, the highest we've seen in a decade and which again reinforces the strength of the opportunities that we see ahead. Turning to competitiveness. We've strengthened our delivery quality and our efficiency. Margin progression reflects that discipline as do the partnerships that we've secured such as with Mubadala in the Middle East. In Asia Pacific, our portfolio optimization and productivity performance, along with the disposal of our Hong Kong business has made the region sharper and more competitive, helping to grow margins year-on-year despite the end of the Australian immigration contract. Under operational excellence, the rapid integration of MT&S has been a major achievement in 6 months. We've transferred almost 1,000 new colleagues into the organization, aligned systems, embedded common ways of working and begun to win new work together. MT&S has strengthened our Defence platform with deep simulation, mission training and satellite ground and network capability. Across the wider portfolio, our contract retention rate remains high at over 90%. At the same time, we're building a safer, more engaged organization with safety incidents reduced by 22% year-on-year. Colleague engagement sustained at 70 points for the third consecutive year as well as continued colleague engagement. And these results reinforce the quality and dedication of our people. Supporting them, investing in their safety and well-being and ensuring that they have what they need to succeed remains a core business imperative. It's central to how we deliver for our customers and how we will retain more business. This focus on our people, our culture and how we operate is also being recognized externally. During the year, our performance has been acknowledged by a range of independent organizations, but the standout for me was being named as Britain's Most Admired Companies. That recognition reflects, not just what we deliver, but how we deliver it, the strength of our leadership teams, our culture and the trust we build with our customers and the communities in which we work. Ultimately, it reinforces that we are building a business. Our colleagues are proud to work for, our customers are proud to partner with and our investors can have confidence in, grounded in strong performance and responsible delivery and doing the right thing always because it's always the right thing to do. Our performance in '25 demonstrates consistent progress across key financial metrics. Over the last 5 years, we've delivered revenue CAGR of around 5% and profit CAGR of around 11%. Over the period, we've doubled earnings per share to 16.93p. And over the same 5-year period, we've also demonstrated disciplined capital allocation. Of the GBP 1 billion of cash generated, we've invested in targeted M&A and returned surplus cash to shareholders, again, as demonstrated this morning with the announcement of a further GBP 75 million share buyback. Not only does this reflect our approach to good capital allocation, but it also showcases the sustained progress that we've made over the last 5 years. As a business, we are more increasingly predictable, more competitive and well positioned to convert opportunities into sustainable long-term growth over the years ahead. And with that overview, I'll now hand over to Nigel. Nigel Crossley: Thank you, Anthony, and good morning to everybody. Let me take you through the financial -- sorry, let me take you through the performance for 2025, a year in which the group has demonstrated strong momentum despite a number of anticipated headwinds. Revenue increased to GBP 4.9 billion, up 3% on a constant currency basis, reflecting good underlying performance and the benefit of the MT&S acquisition. Organic revenue growth was up 1%, in line with where we guided the market. And it's been led by double-digit organic growth in Defence, partially offset by a reduction in U.K. and Europe and Australia immigration revenues. Underlying operating profit was GBP 272 million, which is up 1% on a constant currency basis. The margin of 5.6% remains in the middle of our target range of 5% to 6% and reflects execution discipline and productivity improvements, offsetting the Australian immigration contract exit and higher national insurance costs in the U.K. And return on invested capital continues to be strong at 26%. It's worth remembering that the significant part of invested capital relates to goodwill and acquisition intangibles. And we run the business using just GBP 0.1 billion of operational invested capital, which emphasizes the capital-light nature of our business model. And I'll now move on and provide more color on the operational performance for each of the regions. So starting with North America, who delivered another strong performance and continues to be an important contributor to the group's growth targets. Revenue increased by 10% to GBP 1.46 billion, driven by 4% organic growth and a 9% contribution from the MT&S acquisition, partially offset by a 3% adverse currency movement. Organic growth was led by defense, where significant order intake achieved in 2024 is flowing through to this year's revenue. We saw higher activity across defense personnel services, mission training and increased demand for IT network and infrastructure services for the U.S. Navy. Underlying operating profit increased 5% to GBP 144 million, including a 3% negative impact from the weaker dollar. The margin stayed around 10% despite the impact of mobilization of new defense contracts and the one-off MT&S transaction integration costs of GBP 6 million. These costs were anticipated and as the contracts mature, margins will recover, supported by increased efficiency and portfolio mix. Order intake was GBP 1.4 billion, of which 90% was from defense, which is a robust outcome after the exceptional order intake in the second half of 2024 and the temporary delay in contract awards caused by DOGE and the U.S. government shutdown. Win rates remained healthy, 37% of new business, reflecting our customer relationships and competitive positioning. Our rebid win rate was a bit lower than normal due to the loss of a low-margin air traffic control contract. The pipeline in North America has more than doubled to GBP 5 billion. And once again, defense continues to represent the majority of the pipeline of new business opportunities. Integration of MT&S has been successful and is delivering early benefits. In the first 7 months of ownership, it contributed GBP 9 million of operating profit after absorbing transaction integration costs. The strategic fit is proving to be exactly as expected, expanding our defense footprint by deepening customer access and enhancing our mission training and satellite communication capabilities. So moving on to U.K. and Europe, our largest division, which delivered another strong performance. Revenue increased 6% to GBP 2.58 billion, driven by 5% organic growth and a further 1% contribution from the acquisition of EHC, our German immigration services business. Organic growth was supported by the mobilization and ramp-up of several major Defence and Citizen Services contracts, including Armed Forces Recruitment, marine services for the Royal Navy, continued progress on electronic monitoring and some complex case management contracts. As expected, we have seen lower revenues in our Immigration business from harder borders in Europe and the ongoing shift in accommodation mix in the U.K. although revenues in the U.K. have not reduced the rate we expected at the start of 2025. Underlying operating profit was GBP 149 million, flat on last year, and margins remained healthy at 5.8%. While there were anticipated headwinds from Immigration and higher U.K. national insurance costs, these were offset by improved contract performance elsewhere in the division, including stronger contributions from Citizen Services and Defence. Order intake was excellent at GBP 3.7 billion, delivering a book-to-bill ratio of 145%. Win rates were also very strong, winning 60% of new business bids and 97% of rebids. The wins included several strategically important long-term awards, particularly in Defence, which accounted for 60% of the order intake. Finally, the U.K. have done a good job of not just winning new business, but also rebuilding the pipeline back to similar levels to what we saw at the end of the year at GBP 5.8 billion -- end of last year, sorry, at GBP 5.8 billion. The pipeline includes a broad range of opportunities across Defence, Justice & Immigration and Citizen Services. So turning to Asia Pacific, where the division delivered a resilient performance with good cost control, improving contract performance and some early progress on growth. This resulted in an improved margin despite the expected reduction in revenue following last year's Australian immigration contract exit. Revenue for the year was GBP 655 million, down 18%, recognizing the 12% organic decline associated primarily with immigration contract exit and the disposal of our Hong Kong business and some adverse currency movements of 5%. Underlying operating profit was GBP 24 million, up 3% on a constant currency basis. The margin increased to 3.7%, up about 60 basis points. And the improvement demonstrates the effectiveness of disciplined cost control to rightsize the organization and improved operational performance. We also delivered some important new business wins across the region. Notably, we secured a 6-year contract for Justice Transport Services in Victoria. Rebid win rates were strong at 91% and Defence performed particularly well with key extensions, including the Royal Australian Navy's warfare training contract. There were also some important rebid and extension wins in Citizen Services. And looking ahead to 2026, we have a good pipeline of both new business opportunities and rebids and extensions of existing work across Defence, Justice and Citizen Services. There's still work to do during 2026 to further build the APAC pipeline, but we're encouraged by the progress made in 2025. And turning now to the Middle East, where we have restructured the business in Abu Dhabi by entering into a strategic partnership with the sovereign wealth fund, Mubadala. This involves transitioning facilities management contracts into the new joint venture and combine Serco's capability and Mubadala's network in the Middle East to expand access to large, high-quality opportunities across the UAE. Whilst it's still early, we are encouraged by the breadth and scale of opportunities we are seeing. Revenue for the year was GBP 177 million, a reduction of 18%, driven by 12% organic decline, a 4% drop from accounting impact of Mubadala partnership and a 2% adverse currency. The organic revenue reduction primarily resulted from the conclusion in 2024 of our low-margin air navigation services contract in Dubai and lower variable project work compared with the prior year. Underlying operating profit decreased to GBP 13 million from reduced organic revenue with margin decline to 7.1%. We continue to focus on operational efficiencies, disciplined bidding and improving the commercial resilience of the region. During the year, order intake was GBP 150 million, and we've rebuilt a GBP 0.5 billion pipeline of new business opportunities. So now let me move on to cash and cash generation in 2025 was again strong with cash flow of GBP 219 million, representing trading cash conversion of 112%. And this maintains our track record since 2019 of averaging over 100% of profit converting into cash. And the result reflects the disciplined approach we take to timely and accurately billing to our customers, enabling them to pay us promptly. Our 2025 cash flows also benefit from a higher-than-usual level of mobilization activity and the associated deferred revenue. Adjusted net debt increased to GBP 206 million from the GBP 100 million at the end of last year. This increase reflects the GBP 245 million acquisition of MT&S, along with capital we've allocated to buybacks and dividends, partially offsetting the strong cash flow. The group continues to maintain a very strong financial position with year-end leverage of 0.7x EBITDA, below our target range of 1 to 2x. So on that, let me turn to capital allocation, which is in the context of strong cash generation, capital-light business model and the maintenance of a strong financial position. Our #1 priority continues to be to invest in organic growth. We further strengthened our business development capabilities and our operational delivery platform and mobilized major new contracts across Defence, Citizen Services and Justice & Immigration. These investments contributed to our record GBP 12.1 billion pipeline and strong order intake for the year. Reflecting our confidence in the group's financial position and outlook, today, we are recommending a full year dividend of 4.5p per share, an 8% increase on last year. And our third priority is M&A. This year, we saw the successful completion and integration of the MT&S acquisition, and we continue to assess additional strategic bolt-on M&A opportunities where they enhance our capability, expand our customer access and strengthen our competitive position. And finally, where we have surplus capital, we commit to return this to shareholders promptly. We completed a GBP 50 million share buyback in the second half of 2025 and today announced a GBP 75 million buyback to be executed in the first half of 2026. Inclusive of this newly announced buyback, Serco will have returned in total around GBP 650 million to shareholders through buybacks and dividends since 2021, demonstrating our commitment to disciplined capital returns when our balance sheet strength allows. So let me finish off with our updated guidance for 2026, which is largely unchanged from our pre-close statement. We expect revenue to be around GBP 5 billion for 2026, resulting in organic growth of 3%. The increase in revenue reflects a full year contribution from MT&S, ramp-ups of major contracts and the impacts of new businesses won in late 2024 and throughout 2025. These upsides offset the expected reductions in the immigration activity in both U.K. and Australia, which we expect to account for around a 3% organic headwind. We expect underlying operating profit of around GBP 300 million, over 10% higher than this year. This includes the continued positive impact of MT&S, productivity improvements across the group and the full year effect of multiple contract ramp-ups transitioning into steady-state operations. This result in a margin of around 6%, placing us at the top end of our medium-term target range. And net finance costs are expected to increase to around GBP 52 million, reflecting the annualized impact of interest on the new debt issued to fund the MT&S acquisition and the cost of the new GBP 75 million share buyback. We expect free cash flow of around GBP 160 million, which is unchanged from our pre-close statement and remains consistent with our medium-term ambition to convert at least 80% of our profit into cash. And finally, adjusted net debt is expected to finish 2026 at GBP 165 million, which is slightly different to the initial pre-close guidance of GBP 150 million and reflects the new GBP 75 million buyback, offset by the better-than-expected closing net debt position at the end of 2025. And with that, I'll hand back to Anthony. Anthony Kirby: Nigel, thank you. Let me now turn back to the strategic and operational progress that we've made during the year and the opportunities that we see ahead. As you know, '25 has been a year where we've taken a much more deliberate approach to the areas where we see the greatest opportunity. We've refined our strategic direction to prioritize the geographies and sectors where Serco can deliver the most value, achieve the best growth and where our capabilities are strongest. The underlying demand for the essential services that we deliver remains remarkably robust at a time where external environments can often feel volatile. Across all of our geographies, we continue to see strong structural drivers that reinforce the need for trusted partners like Serco. In North America, budget in the sectors in which we operate continue to grow. We've remained resilient but not complacent through the changes in administration priorities, including the impact of the U.S. shutdowns. However, some short-term slowness in the system could persist into the first half of '26. But to remind you, we have more than doubled our pipeline in the U.S. to more than GBP 5 billion this year. In the U.K. and Europe, financial pressures remain acute, but demand drivers will endure, including rising Defence spending and sustained pressure on the asylum and migration systems, which reinforce our view of the long-term demand drivers. In the Middle East, modernization plans are creating new opportunities as well as likely increases in defense capability and security protections. And in Asia Pacific, encompassing the Indo-Pacific region, defense and infrastructure needs remain significant, albeit balanced against tighter budget conditions. But these dynamics point to an addressable market of over GBP 900 billion. Whatever the precise figure is, it is a large and growing market with clear opportunity for us to increase our share over the years ahead. In Defence, investment pledges remain substantial. The U.S. has proposed a defense budget of over $1 trillion. The U.K. has committed to 3.5% of GDP and European nations continue long-term multiyear rearmament and capability improvement programs. In Immigration, volumes may fluctuate, as Nigel has just alluded to, but long-term global pressures, conflicts, geopolitical uncertainty, climate-related displacement and economic instability continue to drive underlying demand. And in Citizen Services, technology is driving efficiency, yet the services that we deliver still depend on people, which means our exposure to displacement from automation is limited more than you might expect. Instead of eradicating our work, technology gives us an opportunity to enhance our offering further, making our services more efficient and improving the services to the citizens who depend and rely on them. And finally, to labor the point in this context, our role is to deliver critical mission public services. It helps shield us from sudden political policy reversals. Even during dynamic shifts in government policy or legislation changes, our operational roles remain essential for the delivery of critical services. So while the headlines may suggest rapid change, the reality is demand for what we do is anchored in long-term structural demand. So when you look across our international platform, the picture is clear. I said that we needed to become more focused on the areas with the greatest opportunities, being more selective and deliberate about the capabilities that we're developing and clearer about the geographies and sectors where those capabilities can best be deployed. North America, the U.K. and Europe remain our most addressable and scalable markets. The U.S. federal government is the largest buyer of goods and services in the markets in which we operate in the world. In the U.K. and Europe, governments face sustained financial pressure and are looking for partners who can deliver better outcomes more efficiently. And whilst those markets do offer us the greatest growth potential, that does not mean that we don't value our presence in Asia Pacific or the Middle East. We absolutely do, and we expect both of those regions to grow over the coming years. But we will be disciplined about where we deploy our capital and focus our growth attention. Across the group, we're therefore doubling down on the sectors where structural demand is the greatest and where our capabilities, track record and recent progress positions us well for sustainable growth. Our enhanced Defence platform, our deep operational expertise in Justice & Immigration and our breadth of services across the Citizen Services portfolio gives us a greater level of differentiation. Over the past year, we focused the organization on removing some inefficiencies, reducing complexity where we can and sharpening our ways of working. This has laid the foundations to make us more agile, more focused and more competitive for the years ahead. I also said we needed to make more progress in systemizing the sharing of best practice across the group, enabling us to leverage capability, learning and execution at scale, and I'll touch on some of the examples of those shortly. But at its core, Serco delivers mission-critical services where outcomes matter most, deploying people, technology and partners to perform at scale. So I'm now just going to touch on 3 of those growth sectors. So turning to Defence, the area where we see our greatest long-term opportunity. Defence now accounts for around 40% of the group's total revenue, inclusive of our joint venture operations. We're deeply embedded in the armed forces of the U.K., the U.S. and Australia. And we deliver critical services in the Middle East for the Australian Defence Force and provide essential training in New Zealand and Canada. We also deliver naval capability in Europe, including the maintenance of the minehunter vessels in Belgium. We bring over 60 years of proven delivery supported by increasing technological capability to Defence. In fact, that journey began at RAF Fylingdales where today, we operate and maintain the U.K. early warning radar, a critical part of both the U.K. and U.S. missile detection system. Our teams provide 24/7 uninterrupted support to this national security asset, demonstrating the depth and experience of Serco's expertise and long-standing credibility. And we're also working in Greenland, modernizing and maintaining assets for the U.S. Space Force. And we're active across all Five Eyes nations and throughout several NATO countries where Defence spending continues to rise with 24 members of NATO now exceeding or meeting the 2% of GDP spend targets. So whether it's training, personnel readiness, platform modernization or future-focused autonomous capabilities such as our USX-1 Defiant vessel, Serco is a critical partner to governments as they deliver on their national security ambitions. So a core differentiator for Serco is our ability to support the full life cycle of personnel services for the military from recruitment, to health, fitness and readiness to training, housing and family support through to veterans transitions. In the U.K., we're the prime contractor for the Armed Forces Recruitment program. The program brings together a set of best-in-class partners under a single Serco delivery model, and it's a flagship example of where our capability in program management, governance, stakeholder engagement and operational delivery truly differentiates us. In the United States, we continue to deliver the Army's Holistic Health and Fitness program, H2F. Mobilize last year is the largest human optimization and soldier readiness program ever fielded at scale. In Australia, we train the ADF Maritime Officers in a simulated environment at HMAS Watson's Bay, leveraging our MT&S capability alongside the established expertise of our broader defense teams. And through our joint venture, VIVO, we maintain 27,000 military family homes and more than 20,000 defense buildings across the U.K., a vital part of the personnel experience and family ecosystems of the military. All of this reflects, I believe, the strength of our personnel services platform that we've built, a platform that is increasingly cross geography, increasingly tech-enabled and increasingly central to the defense strategies of our customers around the world. And this platform of capability allows us to take our end-to-end offering to customers internationally. Turning now to Justice & Immigration, a sector where Serco brings deep operational expertise and a scale of delivery that is critical to government in the U.K., Europe, Australia and New Zealand. Across the countries where we do operate our Immigration business, we support and accommodate over 100,000 asylum seekers and refugees, reflecting the breadth of complexity of demand in which we help governments manage. That demand is driven by long-term global pressures, sustained migration flows, rising complexity in case management and the need for safe, high-quality and efficiently run detention facilities. While policy decisions can cause short-term fluctuations in migration volumes, the underlying demand signals remain strong. Border crossings remain a challenge and governments need agile, experienced operators as they seek innovation across both immigration and justice services. Our position across the criminal justice system is equally strong. Our unique role gives us a comprehensive understanding of the current and future likely challenges. This year, we operationalized additional prison capacity in the U.K., helping to alleviate pressures across the custodial estate. We also now monitor 28,000 individuals in the community on behalf of the Ministry of Justice in the U.K., which is a scheme that has proven to reduce reoffending by around 20%. So in a sector where trust and safety and performance matter profoundly, our operational track record positions us well. One of Serco's real strengths is our ability to operate an international platform of best practice, taking what works well in one part of the world and applying it elsewhere to lift performance, efficiency and outcomes across our global operations. A good example of our -- a good example of this is our prisoner escorting contract by moving expertise from the U.K. to help our colleagues in AsPac win the Justice Transport Services contract in Victoria, Australia, demonstrating how our capabilities can be deployed internationally. More broadly, our end-to-end role across justice from courts and secure transport to custody and prison management to electronic monitoring in the community gives us a system-wide insight that a few other providers can match. That perspective enables us to transfer proven operating models across geographies with confidence. The same platform approach applies in Immigration. Across Europe and the U.K., our teams have built deep capability in complex case management, safeguarding vulnerable people and running high-performing detention facilities. These learnings now shape how we design and deliver services globally, creating the consistency that customers expect across borders. The platform approach combines people, processes and technology developed in one geography, strengthened with lessons from another and deployed wherever needed, giving us the scale and assurance our government customers rely on to evolve their systems of management. Moving on to Citizen Services. Demand is often driven by budget pressures, the need to modernize infrastructure, digital integration and rising public expectations. Delivering services directly to the citizens remains an important part of our strategy. Its breadth gives us the agility to respond to shifting government investment priorities and to direct our capability towards the areas of greatest demand. Across this sector, we deliver directly services that touch millions of people's lives every day. We support people navigating complex welfare and employment systems, helping long-term unemployed individuals back into work. We also run high assurance citizen operations, including helping people access much needed health insurance in the United States, delivering essential services with speed, accuracy and compassion. So while Citizen Services can be considered to be broad by nature, I consider that, that breadth and diversity is a strength. It enables us to adapt quickly, respond to evolving customer needs and bring our capabilities to the areas where we can add the greatest value. As we look across the Citizen Services portfolio, the defining strength of our ability is to blend delivered impact with technology-enabled efficiency. In North America, our work for the Centers for Medicaid and Medicare Services shows what this looks like at scale. For more than a decade, we've operated that business, and we've now deployed advanced automation and digital tooling to improve the quality and speed of the essential services, managing around 10 million customer notices a year, embedding AI technologies and completing complex case management 3x faster with compound efficiency of more than 500%. And in the U.K., we're applying the same innovation and those services that we depend on to help people through the Restart program. That employment program, we've piloted our technology to equip job coaches with new AI-enabled case management tools. It's reduced administration time by around 75%, improved case note quality by nearly 20% and most importantly, allowed our people to provide human-centered support to help the people back into sustainable employment. That combination of people who deliver with care, expertise, which is coupled with technology that accelerates important and impactful outcomes is what makes our model distinctive. It's how we help governments deliver better outcomes at lower cost and how we will continue to transform essential public services that millions of citizens depend on. So bringing that together, the market dynamics across our sectors remain compelling. Structural demand is intensifying, driven by geopolitics and Defence postures, fiscal pressures and the need for innovation, and those forces show no sign of easing. Against that backdrop, Serco's platform is well aligned to our customers' priorities. On the whole, we operate at scale in mission-critical services that governments rely on, which provides resilience and underpins long-term opportunity. We've sharpened our focus on the geographies and sectors where demand is strongest and where our capabilities are most differentiated. And that gives me confidence that Serco is well positioned to capture the growth opportunities in the years ahead. So to conclude, let me just reiterate my key messages. Our 2025 performance was strong and leaves us well positioned to deliver against our '26 guidance. We're advancing the organization to achieve our goals and doing so with the same rigor that has underpinned our success over the past 5 years. That discipline across growth, competitiveness and operational excellence is what will continue to drive our performance in '26 and beyond. We're prioritizing our investment in key growth markets and doubling down on the sectors where our differentiated capabilities and technical depth align with the strong structural drivers. So we're advancing the systems and leadership needed to scale our business for success, building a stronger executive team and aligning our leaders around a growth and performance culture. This gives me confidence in our ability to maintain well-governed momentum, confidence that we are well placed as ever to seize on the opportunities ahead and confident that Serco will deliver as an agile, well-governed business able to course correct when needed and to deploy the best talent to drive better outcomes for our customers, our colleagues and our shareholders. And I think we'll now move to Q&A. Arthur, do you want to go first? Arthur Truslove: Arthur Truslove from Citi. So 3 for me, if I may. So the first one, are you able to just talk about the notable contract implementation costs? So what were the sort of big ones in '25 versus '24? And then what are you expecting in '26 to just sort of get a feel for what the impact of that will be going forward and indeed last year? Second question on competition. So I just wondered sort of how the competitive landscape, particularly in the U.K. is evolving, especially in the context of better margins? And if you could sort of comment on how that's evolved in the last few years as well, that would also be interesting. And then finally, on U.K. migration, I guess, migration more broadly. I guess my question really is, we've all seen these sort of large centers being suggested. What do you -- how do you think the model potentially evolves? I know it's a difficult question in terms of what happens with migration and kind of what are the sort of best and worst case scenarios for you? Anthony Kirby: Arthur, thanks for the message. Nigel, do you want to take the cost of mobilization? Nigel Crossley: Yes. Anthony Kirby: Shall I start with the competitive landscape? Nigel Crossley: Yes. Anthony Kirby: Yes. So in the U.K., we haven't really seen that much of a change in the competitive landscape, probably over a number of years actually. I think the competitive landscape has remained pretty stagnant. I think we've -- typically, when we're -- depending upon what it is, we are bidding in the sector we're bidding in, we typically bid between 5 and 6 competitors dependent upon what the services are that are being procured. So we've not really seen any significant change in that space. In terms of migration, let me take the conversation more broadly first, which is, migration flow is likely to continue to exacerbate. I've run through the reasons why we think those structural drivers will endure. In terms of your specific point on the U.K., look, we stand really clear side-by-side with the customer. When they ask us to provide good quality, innovative solutions, we -- it's our job to provide those solutions to them. So medium and large sites, we're working with the customer. It's the customer that decides where those medium and large sites are. Our job is to make sure that we can stand those facilities up once the customer has procured them. But I will just make the point again that we've made previously. There is a priority to come out of hotels where our hotels were 50 -- just over 50% less now than where they were 12 to 18 months ago. So this is a program that we have been working with the customer on to achieve their priority. Nigel Crossley: And then on the contract mobilization costs, we've obviously had a busy year because we've had some big wins. Most of those costs are probably in the U.K. And we've seen probably a protracted mobilization on the electronic monitoring for various reasons. We know that we've got the Armed Forces Recruitment contract that we started earlier this year. So those are the kind of things that are probably higher than we'd ordinarily expect to see, maybe to the tune of about GBP 20 million in the year. Anthony Kirby: I think what we'll do is, we'll start with David and then we'll go right across that row where all of the questions. David Brockton: It's David Brockton from Deutsche Bank. Can I just ask 2 just around pipeline, 1 contract pipeline and 2 acquisition pipeline. Within that contract pipeline, are there any opportunities we should be aware of that are capped in terms of size? So any bigger ones in there? And if you could just talk about how you see that evolving over the course of the year as well? And then secondly, in respect to the acquisition pipeline, can you just give us an update on how that looks given that you've -- I guess, you've only committed to a buyback for H1, so clearly keeping some powder dry there. Anthony Kirby: Yes. Shall I do acquisitions, Nigel, you do the pipeline? So in terms of acquisitions, we're in a really strong position where we have the optionality that when we look at opportunities that present themselves or we go looking for. We're in a strong financial position from a balance sheet perspective to be able to execute and pull that key part of our capital allocation policy. I'm obviously not going to go into detail in terms of things that we're looking at, at the moment. But it is a liquid market, particularly in the growth sectors that we are looking to grow and in the regions that we're looking to expand our businesses in. And I think we've said previously, the U.S., Europe and the U.K. remain at the top of that list. But that doesn't mean that we preclude anything in other parts of the world as well. So there are some things in the pipeline that we're looking at. It's clear that we've said in the stock exchange announcement that we'll review the capital allocation policy at the half year again. But I think our track record of returning surplus cash to shareholders if we've got no M&A in the pipeline -- in the foreseeable pipeline is something that we will continue to do as we move forward. Nigel Crossley: Yes. And then on the pipeline, look, we've got a good mix of new opportunities across our pipeline. And we've got a couple that are at the top end of our range of up to GBP 1 billion where we cap them. One is a training contract in North America, actually in Canada. And the other one is a logistics contract for the U.K. MOD, which we are potentially looking at. Those are both not going to start until -- for some time yet. They're a bit further out. And then there's a big -- over half of our contract -- over half the pipeline is on contracts that are less than GBP 300 million. So there's a good spread of cover across all the sectors and of various sizes. Christopher Bamberry: Chris Bamberry, Peel Hunt. Three questions, if I may. You're obviously sharpening the focus on Defence, Justice & Immigration and Citizen Services. What does that mean for health and transport? Secondly, can you talk a little bit more now you're 9 months into MT&S, the positives and the negatives against your original expectations? In particular, can you give us any concrete examples on synergies on the pipeline? And the final one, when you talked about -- Nigel, about the margin in North America, I mean, parking integration being absent this year, you said that the margin would improve as contracts mature. I guess given the profile of your stuff you're winning, is that more kind of -- is there going to be see much of that in '26 or is it more kind of '27 or further out? So if you keep winning stuff, is it -- is that kind of portfolio effect kind of dilutes that benefit? Anthony Kirby: Do you want to do the last one first? Nigel Crossley: Well, I'll do the first. So on margin in North America, yes, you're right, there's GBP 6 million of integration costs. So that's not 40, 50 basis points of the margin. So that gets you back over 10%. When we look at what we're bidding, there's a range of what we're bidding actually. So there's some stuff that's cost plus that tends to be slightly lower margin. There's some stuff at the higher end, which is fixed price and above our average. So I think over time, we'll see broadly -- our profile broadly stays similar. I think we'll get more economies of scale as we continue to grow. And certainly, when we bring -- we brought MT&S on, we've got economies of scale in our fixed costs there as well. So we're leveraging our fixed costs well. I think all those things will contribute to at least keep that margin at 10%. Anthony Kirby: Thanks, Nigel. So if I just pick up, Chris, your point on Health and Transport. So Health and Transport fall under Citizen Services, particularly because we're delivering services directly to the citizen. We're not actively growing in our Transport business in the majority of the world. We will retain and rebid our contracts that we currently operate in Transport. We think we operate some really good transport businesses, be that our joint venture with Merseyrail or NorthLink Ferries up in the Highlands and the Islands and also some transport businesses in the Middle East and the U.S., but they're quite small. And then in health, our health FM, which is a soft and hard FM business in -- predominantly in the U.K., we're looking at FM across our horizontals where we deliver FM services. So if an opportunity presents itself for us to go and bid, we will, but we're not actively deploying our growth capital into those lower margin area businesses. In terms of MT&S, I think we said at the outset, we wanted them to concentrate on the business that they had in their current pipeline that they brought across with them at the time of the acquisition. And then we looked at the second area of the pipeline, which is where can we bring MT&S' capability and our North America capability together in order to go and win and retain contracts with the benefits of both organizations combined. And then we talked about what we call our Horizon 3 pipeline, which is the international opportunities that MT&S and the wider Serco organization can bid collectively on. In the U.S., we've started to win some new business that was in the pipeline in MT&S, some small deals. The team are just rescrubbing the pipeline for the North America business, and we'll look to move internationally as we get further down the line this year. Alex Smith: So Alex Smith from Berenberg. Just 2 from me. Just one more -- first on the U.S. market following kind of the slowdown or pause late last year and kind of how you're seeing activity kind of restart? Or kind of is there a lag effect of starting again following that kind of like pause or slowdown in activity? And then second is just on the APAC business. You kind of mentioned some potential cost savings, but also some new contracts coming through. I guess it's still early days post Australian immigration contract, but any update here on outlook for that business would be helpful. Anthony Kirby: Shall I do the U.S. and you do Asia Pacific? Nigel Crossley: Yes. Anthony Kirby: Okay. So in the U.S. again, drawing attention to, we've doubled the size of our pipeline. We had some significant wins towards the end of 2024. Our win rate at the end of the second half of '24 was very good in the U.S. So we had to replenish the pipeline. We've done that. It's now twice the size it was. In the U.S., in terms of the shutdown, there's been limited impact. We haven't actually seen too much of an impact in the second half of '25 other than some decisions are slightly slower to be made. There's no degradation in what's coming to market. There's no degradation around the timing at which opportunities are being presented to the market. What is slowing slightly in the system, which all of our U.S. peers have said as well, is the decision -- the amount of people making the decisions is less now because of what -- because of the impact of DOGE and the reduction in the federal government employee numbers. So fundamentally, there are just fewer people making the same amount of decisions, but we're not seeing the number of decisions being reduced. And we probably expect that to continue for a little bit into '26, just as people get back to work and feet under the table. Nigel Crossley: And then in Asia Pacific, I mean, I largely said this in my presentation, but we set an objective to rightsize the infrastructure of the organization. We've made really good progress on that over the last 2 years. And I think that is under review, but is largely done, but ongoing under review. There's some contracts that were underperforming. We have made progress on those. I think there's still a bit further to go. But the big one is really growth. And we know that the lead time in this business between finding an opportunity, bidding it, winning it, mobilizing it and making it profitable is long, and we have to hold our patience on that. But we do feel encouraged by some of the progress we've made this year. Our rebid win rate has been strong this year. We've won some stuff. And we feel quite good about some stuff that's coming up in the first half of this year. So there's early signs, but not yet done. I think there's more work to be done. And I think it's really getting that business back to the scale that we need it to be and the margin needs to be -- needs a little bit of patience to win those new pieces of business, but an encouraging start, I would say. Michael Donnelly: It's Michael Donnelly from Investec. Just one for me, Anthony. We've spoken in the past about the revenue profile of the U.S. naval contracts and that there are some, I think, transactional revenues in there that are dependent on the fleet being in harbor or base ported. If the U.S. fleet is in for a potentially very extended period of operational deployment, can you, first of all, tell us how much of the $1 billion of North American defense revenues would conform to that revenue profile? And then what, if any, offsetting revenue items there might be as a result of such an extended deployment? Anthony Kirby: Okay. Can I just take the strategic part of your question and Nigel might be able to give you the detail on the specifics. We do generally operate in one part of our Defence business in ship modernization, maintenance, asset engineering, refitting of navigation systems, radars, et cetera. That is generally done in port in the U.S. However, we also operate on behalf of the U.S. military in other parts of the world where their ships are in port, where we see that they have agreements with other countries where asset and engineering activity can take place outside of the U.S. And we also have a number of cleared individuals that can undertake that work in different parts of the world, which run into the hundreds of employees, not into the tens. So if there is a requirement for us to undertake more work outside of the U.S. ports, then we've got experience of doing that, and we're currently doing that at the moment. And if we need to we will continue to grow that. Nigel Crossley: Ironically, 2025 was one of our best years for that kind of transactional task order work is what we call it around ship modernization. So we've seen good momentum there. We continue to have stuff that we're bidding and is live and we're waiting for decisions on. So I think it's too early for us to call. Where does it sit in our portfolio? It is of a reasonable size, but it's less than GBP 100 million. And it is cost-plus short-term, cost-plus work, so it's margin tends to be at the lower end. So from a delivering financial targets, I'm probably less worried about that. And it's always something that we've had a little bit of variability in as you look over each of the years. Jane? Jane Sparrow: Jane Sparrow from JPMorgan. Just a couple of follow-ups on the electronic monitoring and Armed Forces Recruitment contracts in the U.K. On the first one, you said you'd have the extended mobilization period. Can you talk about if that contract is now where you want it to be following that extended period, where it is relative to your original expectations? And on Armed Forces Recruitment, how that is ramping up, if there's sort of been any either pleasant or unpleasant surprises as you've started to mobilize it? Anthony Kirby: Okay. Well, thanks very much for the question. Shall I lead off and then Nigel can help with any of the finances on electronic monitoring? So electronic monitoring operationally is in a very strong place. Our KPIs for a number of consecutive periods now have been above where our expectations were and where our customers' expectations were in terms of the performance of that contract. We now have -- it's around 1,000 people working on electronic monitoring. They do a superb job every day of the week, making sure that we can work with the customer to monitor the 28,000 people that I said we've currently got in trade. You will have seen the changes in sentence and legislation may mean that more people will be monitored in the community, which the government have previously communicated. We stand ready to be able to stand up to meet those changes in volumes. There's no issues there as we look through the pipeline for the rest of this year. But I'm exceptionally proud of the position that electronic monitoring is now in operationally and strategically. In terms of AFR, Armed Forces Recruitment, interestingly, I was down at Army headquarters only 2 weeks ago to have a full day review of the program. So your question, Jane, is quite timely. But look, the Armed Forces Recruitment is probably one of the most complex procurements the MOD have ever procured. It's the first time since the Second World War that the tri-services will be recruited across all branches of the U.K. military. So that is a privilege that we hold dear that we've been entrusted to deliver this through the support of the 8 subcontractors that we've got going. Everything is going according to plan at the moment. Of course, we were going through each of the milestones, there are hundreds of milestones. There's always going to be 1 or 2 that are moving to the left or to the right. But I came away from that conversation with confidence that the authority and team Serco are working collectively and collaboratively to make sure that we can achieve the mobilization, which is important to note is not until 2027, so we don't become responsible until 2026. On EMS, anything on the numbers? Nigel Crossley: Look, we're very clear on what the operational metrics are that we have to improve on, and we track them really closely, and we're making really good progress. And I'd say we are where we expect to be. There's a bit further to go, but I think we've made a lot of the progress that we wanted to make, and we will see a material improvement in 2026 versus what we saw in 2025. Andy? Andrew Brooke: It's Andy Brooke from RBC. Nigel, you've gone out on a high again on the free cash generation. I think GBP 50 million better than you guided to in December. What sort of drove that? I know we had this very conversation, I think, 12 months ago, but is there any more structural improvement to come, especially on the debtor side? Nigel Crossley: Yes. So we're improving our free cash flow. We've been 100% focused on our debtors. We've done nothing on our creditors. In fact, if anything, we pay our creditors even more promptly now than we did previously. And over the last 5 years, we've knocked 20 days off our DSO. So that's been worth GBP 250 million of improvement in working capital over 5 years. And we've done that, as I said in the presentation, by just getting more disciplined at getting sales invoices out quickly, accurately, so our customers can sign them off quickly. And once they've done that, that pay us really promptly. So that's good. So we've made progress there. I have to say I'm handing over to Mark a barrel that's pretty empty on opportunity there. I think we've done a good job, and I'm not sure how much more there is to go. As far as the year-end is concerned, look, we have some big invoices that are coming at the end of the year. They're going to pay us the last week of December, the first week of Jan. We don't know. We're probably a little bit cautious with that guidance, and we consistently do a bit better than that. So that's the difference between December and what we're saying today. Andrew Brooke: And while I've got the mic, could I just say on behalf of everyone in the analyst community, a massive thanks. You've been a pleasure to deal with over the last number of years. You've done a phenomenal job helping to turn the company around. Huge congrats on what you've achieved and all the best for the future. And I hope your golf handicap comes down a bit more. Nigel Crossley: You and me, too. Anthony Kirby: Any questions on the line? Operator: [Operator Instructions] Our first question comes from the line of Joe Brent with Panmure Liberum. Joe Brent: Just 2 questions from me, please. Firstly, in the outlook statement, you referenced elevated geopolitical tension is likely to remain a feature of the market. Could you just elaborate on how you expect that to impact your business, recognizing it's a fluid situation? And secondly, I think you talked about Defence revenues being around 40% of the business, which I presume includes MT&S on a sort of pro forma basis. Can you give us the same number from a profit perspective? I expect it to be quite a lot higher than that. Anthony Kirby: Do you want to do the second one? Nigel Crossley: Why don't I do the second -- Joe, we're not going to give a specific profit number. I think what we would say is that, the average margin across Defence is above our average margin across the group, and we expect that to continue to improve. Anthony Kirby: Thanks, Nigel. That's quite a heavy hand you've got on your keyboard there, Joe. But just coming back to your second -- your first question, sorry, in terms of the outlook for geopolitical instability to continue. Look, the world in terms of geopolitics is probably likely to endure in its current form for some time to come. We don't know how long that will be. One thing I think we can be sure of is, through recent events and through events that have been happening for the last 5 to 6 years, you can see that countries around the world are suggesting increasing in defense spending and increases in spending on critical national infrastructure to secure their borders. One of the outcomes of geopolitical uncertainty and instability is greater defense spending. And the second structural driver are around migration flows. So typically, you would see following instability and geo instability, the migration flows continue to change, move and diversify around the world. So that is the point that we were making in terms of as those structural drivers continue to endure, we stand ready to support our customers in those 3 major sectors that we've spoken about. Joe Brent: So it's meant to be sort of positive for your business, not a negative? Nigel Crossley: Yes. Anthony Kirby: I think, Joe, the summary answer to that is yes. I think whenever we've seen an increase in geopolitical instability, you see greater defense spending, you see greater spending in immigration and migration services, et cetera. So the answer to that question is yes. Operator: There are no further questions on the conference line. I will now hand over to the management for closing remarks. Anthony Kirby: Fantastic. Well, look, just to thank everybody for your time. I know it's been a very busy day of announcement. So thank you all very much for making the effort to come and see us. Reiterate Andy's comments to Nigel. Nigel will be with us for a bit of the road show, and then we will close it there, I think. Nigel Crossley: Very good. Anthony Kirby: Thank you all very much. Nigel Crossley: Thank you. Anthony Kirby: Have a good and safe day.
Operator: Good day, and welcome to Bilibili Fourth Quarter and Fiscal Year 2025 Financial Results and Business Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Juliet Yang, Executive Director of Investor Relations. Please go ahead. Juliet Yang: Thank you, operator. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially from those mentioned in today's news release and in this discussion due to a number of risks and uncertainties including those mentioned in our most recent filing with SEC and Hong Kong Stock Exchange. The non-GAAP financial measure we provide are for comparison purpose only. The definition of this measure and the reconciliation table are available in the news release we issued earlier today. As a reminder, this conference is being recorded. In addition, an investor presentation and a webcast replay of this conference call will be available on the Bilibili IR website at ir.bilibili.com. Joining us today from Bilibili senior management are Mr. Rui Chen, Chairman of the Board and Chief Executive Officer; Ms. Carly Li, Vice Chairwoman of the Board and Chief Operating Officer; and Mr. Sam Fan, Chief Financial Officer. I will now turn the call to Mr. Chen. Rui Chen: Thank you, Juliet, and thank you to everyone for joining us today. 2025 was a marquee year for Bilibili. We delivered standout results across both our community growth and financial performance. Throughout the year, our user growth regained its momentum while engagement and stickiness consistently hit new record highs. We also made incredible strides on the commercial front and achieved our first ever full year of GAAP profitability. Looking at our community, momentum really picked up speed toward year-end. DAU growth accelerated every single quarter year-over-year, up 4% in Q1, 7% in Q2, 9% in Q3 and 10% in Q4, hitting 113 million users. Q4 MAUs also grew by 8% year-over-year to 366 million. While much of the Internet is still flooded with fast food content, more and more people are gravitating toward depth and quality. They're spending more time on high-quality PUGV content and the authentic community interactions that Bilibili is known for. In Q4, average daily time spend continued to rise, up 8% to 107 minutes. This strong momentum reinforces our conviction that users are elevating their content consumption, and we believe the shift gives us a massive long-term runway ahead. As our users dive deeper into the content they love, their willingness to spend continues to rise. This is reflected in our MPUs, which surged 21% year-over-year to a record 36 million. Users growing spending power is also extending beyond direct payments. Bilibili has become a trusted destination for consumption decisions where users don't just watch but actively research and embrace new products. AI is a prime example. A growing number of AI advertisers now view Bilibili as the go-to platform to reach curious young minds. By leveraging our interactive community, they can turn exposure into real user conversion and lasting influence. These strengths combined with our refined ad infrastructure, drove a 27% year-over-year increase in advertising revenue in Q4, once again exceeding expectations. The power of our community and commercialization engine and its potential is also showing up in our financial results. 2025 marked a major milestone as we reached our first full year of GAAP profitability alongside solid revenue growth. For the year, total revenues grew to RMB 30.3 billion, up 13% year-over-year and we reported a GAAP net profit of RMB 1.2 billion. In Q4, total revenues increased by 8% year-over-year to RMB 8.3 billion, gross profit grew 11% and gross profit margin rose to 37.0%, marking our 14th consecutive quarter of margin expansion. With disciplined cost management and stronger operating leverage, our adjusted net profit nearly doubled to RMB 878 million, and our adjusted net profit margin expanded to 10.6%. By the start of 2026, the average age of our users reached 26.5. They are moving into higher income brackets with greater spending power and more diverse needs. As they move into new stages of life, we are growing with them, expanding our commercial opportunities and unlocking more value across every touch point in our ecosystem. To better serve our evolving community, we are integrating AI into every corner of Bilibili. To us, AI isn't just a buzzword. It's a practical tool that expands human creativity, increases connection and boosts distribution efficiency. By leveraging from tier LLMs, we've made our content discovery and ad targeting sharper than ever. We are also providing AIGC tools that help creators and advertisers get started more easily while AI translation is helping our best content to reach a global audience. The more we invest in these capabilities the more confident we are that AI will take our ecosystem and our business to the next level. With that, let me walk you through our core pillars of content, community and commercialization. Starting with content and community. The biggest takeaway from our 2025 story is that, in a world full of short and disposable content, demand for high-quality content and authentic community connection is only getting stronger. We've leaned into this trend by deliberately allocating more resources to promoting high-quality content and fostering welcoming interest-driven communities. The results are clear. In Q4, average daily time spent reached 107 minutes, up 8% year-over-year, while watch time for videos longer than 5 minutes grew by more than 20%. Our commitment to quality content across categories is driving higher user engagement and time spent. In Q4, watch time of lifestyle content grew by more than 30%, while Chinese anime and game-related content increased by 56% and 24% year-over-year, respectively. Notably, in July 2025, we officially launched video podcast initiative and quickly established an early lead in this impactful format. Our highly engaged community played a key role in driving its rapid adoption, sparking more meaningful discussions among users. In the second half of 2025, total watch time for video podcast exceeded 8 billion minutes. In 2025, AI became a powerful amplifier of our content ecosystem, driving engagement, unlocking creativity and accelerating the discovery of high-quality content. Total watch time for AI-related topics surged 53% year-over-year in Q4, cementing Bilibili's position as the go-to platform for AI learning. Beyond consumption, AI is streamlining the creative process and even reshaping how content is made. A great example is AI music. Creators are now turning simple ideas into professional great music videos with ease. In the fourth quarter, the number of AI music videos reaching the million view milestone, grew over fivefold year-over-year. At the same time, AI-driven distribution helps high-quality work find its audience much faster. This is especially beneficial for emerging creators. In Q4, the number of creators with over 1,000 followers increased by more than 30% year-over-year. As creators build larger audiences and stronger connections, that engagement is increasingly turning into monetization on Bilibili. In 2025, nearly 3 million creators earned income on our platform across advertising in VAS channels. And with improved commercialization efficiency, average income per creator grew 21% year-over-year. Just as importantly, users are demonstrating more and more willingness to pay for content they genuinely enjoy and creators they truly value. Last year, more than 10 million users supported high-quality PUGV content and creators through fan charging. Turning to our core community metrics. In Q4, each active user followed over 90 creators on average, up from 81 a year ago, reflecting strengthening network effects within our community. By the end of 2025, we had over 284 million official members and their 12-month retention rate remained stable at around 80%. Our creator ecosystem also balances longevity with fresh energy. This is evident in the 2025 up 100 list, where creators have been active on Bilibili for 7 years on average, while nearly 40% were first-time honorees compared with the last year. Beyond daily activity, Bilibili continues to reinforce its role as a cultural home for young generation. Our Signature New Year's Eve Gala delivered its best commercial performance to date and has grown into an annual ritual for young audiences. During the recent Chinese New Year, we once again partnered with CCTV as the exclusive bullet chat platform, enabling young viewers to celebrate the festival together online. On the day of the broadcast, more than 133 million bullet chats were shared and DAUs reached a record high, up 16% compared with last year. Now let's talk about our commercial businesses and their progress. First, we were very encouraged to see our advertising business deliver better-than-expected results in Q4. Advertising revenues accelerated to RMB 3.0 billion, up 27% year-over-year and full year advertising revenues increased by 23% to RMB 10.1 billion. This industry-leading growth reflects both the rising value of our user base and our continued progress in improving ad efficiency. As users spend more on the platform, Bilibili is becoming an even more compelling destination for advertisers. In Q4, the top 5 ad verticals were games, digital products and home appliances, Internet services, e-commerce and automotive. Home decoration was a standout with ad spend jumping over 80% year-over-year, another strong signal that our users are maturing and seeking more lifestyle-focused upgrades. AI advertisers also ramped up with AI-related ad budgets climbing nearly 180% year-over-year in Q4, and that momentum has carried into 2026. In 2025, we pushed AI even deeper into our commercial algorithms, boosting traffic value without compromising the user experience. The precision paid off. Ad spend aimed at deeper conversions grew by more than 40% year-over-year and negative user feedback was cut by over 50%. We also made the performance advertising faster and easier. Our smart ad delivery system and AI-powered creative tools, now streamlined campaign setups lifting cold start success rates by nearly 300% from last year. On top of these efficiency gains, we broadened our ad inventory across the ecosystem, new openings in search. PC and OTT drove ad revenue in these scenarios, up by over 60% year-over-year. This rapid growth shows untapped potential we have across our multiscreen multi-scenario ecosystem and we still have plenty of runway to expand further. Looking ahead to 2026, we are confident in the outlook for our advertising business. That confidence comes from rising user value and plenty of room to drive more efficiency, especially as we continue applying AI to strengthen monetization capabilities. At the same time, demand from gaming and AI advertisers remain strong, with both sectors eager to reach Bilibili's young high-value user base with stronger tools and the supportive market backdrop, we are set to capture even more of the opportunities ahead. Turning to our game business. Game revenues were down 14% year-over-year to RMB 1.5 billion in Q4, reflecting the high base set by San Mou, San Gou: Mou Ding Tian Xia, in the same period of last year. Even so full year game revenues still grew 14% to RMB 6.4 billion. In Q4, Season 11 of San Mou held steady, and we're focused on extending the title's life cycle by elevating the user experience and maintaining balanced monetization. On the global front, we launched the traditional Chinese version in January and plan to roll out the game across more Asian markets later this year. Meanwhile, our Evergreen titles, FGO and Azur Lane, remain stable and continue to generate reliable revenues. Our biggest surprise of 2025 was Escape from Duckov [Foreign Language]. This self-developed title was a real dark course. It sold over 3 million copies in the first 3 weeks of its October debut and went on to become the best-selling domestic single-player game of the year and now ranks among the top 3 of all time. This success is a clear example of how we spot unmet demand and turn it into breakout hits. As AI continues to reshape the digital landscape, strong IP is becoming even more valuable. It can migrate across platforms and spawn new experiences. That is why Duckov is now moving to consoles and mobile, widening its reach and deepening its growth runway. Looking ahead, our pipeline is strong, including our exclusive casual card game NCard, San Gou [Foreign Language] and our self-developed simulation game, Lumi Master [Foreign Language]. Our pipeline of jointly operated games for 2026 is also shaping up well, giving us a broad and diversified slate. Our strategy is straightforward, build and scale high quality genre-defining games that have lasting appeal for the gamers of tomorrow. As for our VAS business, users are showing a stronger willingness to pay directly for the content and services they care about. That demand drove revenues up 6% year-over-year to RMB 3.3 billion in 4Q and up 8% to RMB 11.9 billion for the full year. In 2025, our live broadcasting business maintained steady growth and gross margin continued to expand. Premium memberships reached 25.3 million by year-end, up 12% year-over-year supported by a strong performance from our Chinese anime slate led by our hit production, Mortal's Journey to Immortality, [Foreign Language], annual subscriptions and auto renewals remained around 80%, highlighting the loyalty and long-term commitment of our core community. Other VAS products delivered strong momentum in 2025. Revenues from our fan charging program was particularly strong, doubling for the full year with more than 10 million users directly supporting creators and high-quality content throughout the year. In closing, our progress this year underscores the strength of our content and community. Our flywheel is working. High-quality PUGV attracts and retains young users. Deeper engagement creates more value for creators and that energy is translating to a healthier and more sustainable commercialization. AI is also reshaping our industry, and we see it as a powerful accelerator of this cycle. We will continue investing in AI to reinforce our position as the platform of choice for China's most engaged young audience. With profitability achieved and momentum building, we will stay focused on what defines Bilibili, great content, a strong community and disciplined execution that creates lasting value. With that, I will turn the call over to Sam to share more financial details. Sam, please go ahead. Xin Fan: Thank you, Mr. Chen. Hello, everyone. This is Sam. In the interest of time on today's call, I will review our fourth quarter highlights. As Mr. Chen's remarks have already covered our full year results at a high level. We encourage you to refer to our press release issued earlier today for a closer look at our full year results. In the fourth quarter, we continued to deliver solid top line growth while expanding margins and strengthening our profitability profile with gross margin improving for the 14th consecutive quarter and operating leverage continuing to build across the business. We entered 2026 with much greater financial resilience to build on. Total revenues for the fourth quarter were RMB 8.3 billion, up 8% year-over-year. Our total revenues breakdown by revenue stream was approximately 39% VAS, 37% advertising, 18% mobile games and 6% from our IP derivatives and other businesses. Our cost of revenues increased by 6% year-over-year to RMB 5.2 billion in the fourth quarter while our gross profit rose 11% year-over-year to RMB 3.1 billion, our gross profit margin reached 37.0% in Q4, up from 36.1% in the same period last year, showing the strength of our business model as we continue to scale. Our total operating expenses were down 3% year-over-year to RMB 2.6 billion in the fourth quarter. Sales and marketing expenses decreased by 9% year-over-year to RMB 1.1 billion, mainly due to decreased marketing expenses for our games. G&A expenses increased 4% to RMB 528 million, and R&D expenses were flat at RMB 921 million. Our operating profit was RMB 504 million, up 299% year-over-year. Our adjusted operating profit was RMB 838 million and our adjusted operating profit margin reached 10.1%, improving from 6.0% in the same period a year ago. Net profit was RMB 514 million versus RMB 89 million in Q4 2024. Our adjusted net profit was RMB 878 million, and our adjusted net profit margin expanded to 10.6% from 5.8% in the same period last year. Cash flow-wise, we generated about RMB 1.8 billion in operating cash flow in the fourth quarter and RMB 7.1 billion for the full year. As of the 31st of December 2025, we had cash and cash equivalents, time deposits and short-term investments of RMB 24.2 billion or USD 3.5 billion. Under our USD 200 million share repurchase program approved by the Board in November 2024, we had repurchased a total of 0.6 million shares in Q4 for a total cost of USD 14.7 million. As of the 31st of December 2025, we have repurchased a total of 7.0 million shares at a total cost of USD 131.2 million, leaving about USD 68.8 million available for future buybacks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead. Operator: [Operator Instructions] And now we'll take our first question from the line of Lincoln Kong of Goldman Sachs. Lincoln Kong: [Foreign Language] And congrats on the very strong finish. My question is about the community. In 2025, we have seen accelerating growth of our user and time spent. Do the management elaborate [indiscernible] and how should we think about the future user and time spent growth potential? And when we're thinking about -- among all the competition, how would Bilibili to maintain our creators and users? What's our strategies behind it? Rui Chen: [Interpreted] The core driver behind Bilibili growth is the continued increase in supply those high-quality content on our platform. I've mentioned this before, in the content industry, the end game of competition is about quality. That's to say, platform come -- that can consistently deliver great content will be the ultimate winner. This is especially true today where there is a clear oversupply of industrialized fast full content. In this environment, true high-quality content become even more precious and more powerful in shaping users' mind share. The reason why Bilibili has the ability to unlock the supply of high-quality content is because we have both the soil and the seeds to grow the high-quality content. First, our community is that very fertile soil. Bilibili has a large base of user who knows how to appreciate, recognize and spread great content. They are the group of people who have the ability to identify high-quality content at their early stage and spread it across our community. And that group of user not just watch content, they actively provide feedback that defines a good content. And our content creator relies on their input, their feedback to create even better content. That's why content creators on Bilibili can create content not only for Bilibili's user to appreciate, come to the whole society, those are still the top quality content. Well, this type of community is essentially important to content creator. You might argue that for a very top content creator, their experience across multiple platforms may be similar. But for the much larger group of middle or emerging creators, they really truly relies on the community's feedback, telling them what is a good content. What direction they should be aiming for. And this is very, very important for creator community. That's why you've seen that on Bilibili, there's continuous supply of new content creators that has grown and thrive on our platform. Every year when we publish our top hundred top content creators, about 1/3 of the content creator are the newly emerged content creator that was never nominated before. That is the power of our community. Soil -- the fertile soil that can cultivate and grow a very large number of new talented content creators. And what we have done in the past is staying focused for the past 17 years cultivating and building this kind of community and this relies on every single real users contribution and feedback. And this is very -- we need patience, we need time to build this very tight community and this is our biggest moat of this defensive mechanism of having this community [indiscernible] in our business. And when it comes to industrialized pure traffic-driven model, it's very hard for this type of model to build a community. And the creator are the seeds on the soil. At its core, we believe the high-quality content is the result of creators uniqueness. They're one of a kind soul combined with their strong production capabilities is because we have this unique creators and they entrust our platform, and they entrust us to witness their growth and unleash their creativity. That's why we have a very unique ecosystem. We are very confident about our future user growth. As we mentioned in the past, we've witnessed that there was a clear content consumption upgrade trend that is happening and this type of consumption upgrade is just a one way straight. Once people start to experience truly great content, it's very hard for them to go back. And we've seen that oversupply of short content as people start to consume more and more content, and it's just very natural for them to start to appreciate this high-quality content that Bilibili has to offer. We also have that user mind share. So we are seeing that our high-quality content is attracting more and more users onto our platform. And then on top of that, our average age of our user ages come to 26 and 27, as they move into their next stage of life, their content will continue -- content consumption will continue to evolve, and their purchasing power will grow as well. For us, that represents a long-term structural opportunity for growth. When it comes to competition, we'll focus on 2 things. First, we'll stay very clear about our positioning around high-quality content and make sure the platform continues to be the place for deeper expression and interest-based high-quality content community. And secondly is that we'll be focusing on our creators, make sure this is a platform for their long-term creation as well as improved monetization potentials. In terms of their creation period, we are quite happy with the results what we have seen now. We have a large number of content creator who's been creating content on our platform for 5 to 10 years, and they continue to gain followers in creating lasting values on the platform. On the monetization-wise, we continue to cultivate more avenues for content creator to make more money and in the last year in 2025, there are about 3 million of content creator received income on our platform, and their average income also grew by 21% year-over-year. And on top of that, the number of content creators with 10,000 follower, 100,000 followers, 1 million followers, they all grew over 20% year-over-year. And those 2 factors combined will position us very well in this competitive landscape and continue to thrive. Operator: We will now take our next question from Xueqing Zhang from CICC. Xueqing Zhang: [Foreign Language] And congratulations on the strong advertising growth in the first quarter. My question is also about advertising. Could the management share which industries and products were the main drivers behind the strong performance in Q4? We have also noticed that many AI applications have been ramping up their marketing spending recently. How does management see this trend benefiting your advertising business. And could management also provide some color on the advertising growth outlook for the first quarter and the full year of 2026? Unknown Executive: [Interpreted] The performance of our advertising business in fourth quarter and for the full year 2025 was in line with our internal expectations. Growth actually accelerated quarter-by-quarter throughout the year from 20% year-on-year growth in the first quarter to 27% year-on-year growth in the fourth quarter. And we continue to gain larger share of overall ad budgets. The results reflect both rising value of our user base as well as the continuous improvement in our monetization efficiency. Look at the drivers behind our stronger than market expectation performance in Q4. First, we credit that to the on-top ad inventory. Within our multiscreen and multi-consumption products, we continue to release more ad inventories on top of the feed scenarios. Areas such as search, PC and OTT, they all grew more than 60% year-over-year. And for some certain scenarios, they even grow over 200% year-over-year in terms of ad consumption. Secondly is that we continue to improve our ad efficiency. This was mainly driven by the integration of AIGC tool with ad creative campaign, deeper conversion penetration and our AI-backed smart delivery ad delivery system. And all combined together is helping us to improve the overall ad efficiency and recommendation efficiency. Thirdly, looking at the industry contribution in addition to our strong verticals like Internet services, digital products and home appliances and e-commerce. We are benefiting from the AI application competition as well as the rapid growth of instant retail in the fourth quarter. And at the same time, we are also seeing strong growth from education sector, automotive sector and the home and furnishing sector, they all delivered a double-digit growth. Whenever an industry goes through a boom or sees a intensified competition, it usually leads to a search and advertising budget in the short term and AI sector is no exception. But what we see different here is over long term, we also see opportunities when the industry go through reshuffling and real allocation of budgets, but they're still very long way ahead in both short term and long term in terms of the budget gains for us in the AI industry. Let's just focus on the short-term impact for the AI sector now. Well, for sure, the AI sector is bringing incremental ad budget to Bilibili. Companies in area like AI applications, large language models and AI tools are all significantly increasing their budget spending, and this is becoming a clear growth driver for advertising platforms, including Bilibili and other platform. But at the same time, Bilibili is a very natural fit for AI advertiser. This goes to our young and highly tax savvy young user base with a strong openness to embrace new AI applications, new AI knowledges and the platform itself is because it's an interest-based community centered around high-quality content. The advertising on Bilibili is more likely to translate from the spending into real user mind share. And also when it comes to the branding and performance outcome is much strong -- delivers much stronger results compared to pure traffic play. When it comes to the Q1 and to 2026 outlook, what we have witnessed is that the overall market environment is still very much about competing for the existing market shares. And the advertisers are becoming more demanding when it comes to performance and efficiency. But at the same time, what we're seeing is that advertisers are paying more attention to the quality of conversion after the delivery, not just the scale of the number of exposures, that's where availability can deliver real value for our clients. And our users are on average around 26 to 27 years. So which is the stage, both of their purchasing power and the decision-making influence is rising rapidly. So this is the exact kind of consumer bracket that all advertisers are eager to reach. As our CEO mentioned, Bilibili is our community built around high-quality video content. And as AI technology continues to evolve, the line between good content and good advertisement will blurt. That is to say, good ads can feel like a good content and good content can also function very well as effective ads. We believe this model can scale up very quickly on Bilibili. And over the past 2 to 3 years, our advertising products and algorithm capabilities has already reached a very solid mid- to high-upper level compared to the overall industry, and we still see quite significant room for further improvement going forward. As for the growth outlook for Q1 and full year of 2026, we remain confident about continuous growth and further expansion in terms of market share. Operator: Next question comes from Alex Liu of Bank of America. Alex Liu: [Foreign Language] I will translate myself. So the company's key game title San Mou has been operating steadily for 1.5 years. And we saw last year the self-developed game Escape from Duckov has got a lot of traction among users -- gamers last year. So can the management share some high-level strategic game business into 2026? And what will be the operational focus for San Mou and any recent colors on the -- any color on the recent growing trend for that game. And for game pipelines, can you share a little bit more about thoughts and expectations for, for example, 3 Kingdoms and Cars and Lumi Master. Rui Chen: [Interpreted] For San Mou, our goal and strategy is very clear. We're focusing on its long life cycle of this game. And secondly, as to make this game continue to be the top among the strategy game genre. Naturally strategy game is very suitable for a long-term operation and that we have planned for this year for this game as to focus on the iteration of different game seasons and focus on the gameplay and different storylines of different seasons to make sure that our user, our gamers have brand new and interesting gaming experience when they are playing this game. At the same time, we'll organize a more structural brand and community activities around the key moments to encourage players' participation and the discussion to further strengthen the user mind share of a community sense by playing this game. And while maintaining a robust Chinese fan base, we will continue to expand this IP's influence on a global scale. In January, we already launched this game in the Hong Kong, Macau, Taiwan region and we do plan to further push this IP into Korea and Japan market and other Asian markets to further expand influence and the power of the IP. As for Escape from Duckov, we are very encouraged by the results they deliver on the PC front, and we are already on the process of converting this game on a console version. And at the same time, we're exploring more possibility of this IP on the mobile devices. And we believe this IP has the potential to become a very influential game overall in the China's gamer market. And in terms of the pipeline, NCard is designed to be a lightweight strategy competitive game. And it's very fun, it's very light. It's a 3 minutes per round type of poker game designed very well to bid into the short fragmented play session. And the game as a result of our strategy of rate inventing gains for young generation. We have created this one-of-a-kind gameplay that combines casual poker with unique card hero system. And this fits this generation's game preferences and their demand for casual, but different game experience. As a result of our beta testing, we also have discovered this game has been widely accepted and welcomed by the young generation. Because this is a very innovative game, our team has spent a lot of time in focusing on polished game to its best quality. We've already conducted 2 rounds of beta testing. We plan to conduct another round of paid beta testing in March this year, and we do plan to roll -- officially roll out this game around mid this year. Our goal is to through long-term operation, make this game as large DAU as possible. And at the same time, we'll be very patient about the process. Lumi Master is a self-development game. The game is very casual cozy style with semination game element and the PAT, nurturing and catching element of game. This is another product of our game strategy of reinventing games for the new generation of gamers. So this game combines essential gameplay of both pet nurturing and as well as simulation. It's also very one of a kind and a unique gameplay. And for this game, we were already obtained approval end of last year, and we do plan to launch our paid beta testing in the second quarter and to officially launch this game globally within this year. And as we look into 2026, there are 2 areas we'll be focusing on. One is long-term operation. As I mentioned before, this is a competition within the existing market. And the long-term operation will provide a solid foundation for our game business. Currently, we have about 70% of the game revenue comes from our long-term operating games, including San Mou, FGL and Azur Lane. And this provides a very stable income inflow for the game business. And on the other hand, we will continue to explore new projects with a genre-defining potential and we are a principal as whether to be -- either to be #1 in this genre or be the first of its kind in this genre and this will be our incremental game revenue contribution source. And this is guiding the projects such as NCard, Lumi and many other games in our pipeline. And we are quite confident about this strategy will guide us to an even brighter future. And the biggest advantage of Bilibili and game business is that we are the platform that is staying the closest to the young gamers in China. As at the same time, the company has the commitment and the gene and focusing around high-quality content. We have the consensus and have the patience. Those 2 factors combined will eventually help us to find and develop the best games that we can offer. That concludes this question. Operator: We will now take our next question from Felix Liu of UBS. Felix Liu: [Foreign Language] And congratulations on the strong Q4 result. My question is on AI. We noticed that we -- there is a continued development in Video Gen AI, which has made creating video content more and more easy. How do management see your opportunities and challenges from the recent developments in Video Gen AI? And what are looking ahead into 2026, what are your key investment priorities around AI? Rui Chen: [Interpreted] The essence of AI creation tools is about improving the productivity of high-quality content compared with short-form vertical content which is already oversupply. The benefit of creating even more short content is limited. But on the contrary, where Bilibili is standing for as the long-form high-quality content, where AI is essentially helping a small number of high-quality talented content creator to create high-quality content at a much faster pace that essentially is increasing the supply of what is known for scarce of the quality content. So fundamentally benefiting our platform in terms of empowering talented content creator to create more high-quality content. And we are already starting to see early signs of how AI creation tool is helping us to improve the supply of high-quality content. AI music is a perfect example, with the help of AI music tools, even music lover without formal training can turn good their good ideas into professional quality music works and the same thing goes with categories such as auto-tune remix. In the past, it's very hard to produce a good auto-tune remix video. But now with a good sense of humor and creativity, this is helping our creators to produce high-quality content at a much faster pace. We've seen this on the video views and video watch time growth within the help of AI or content creation tools, those contents, watch time and video views is growing multiple folds year-over-year in the fourth quarter. And I'll talk about a few points that will enhance our investment on the AI, how AI is helping our community. First of all, is leveraging the large language model to enhance our ability to understand the content and user intent especially for platforms like Bilibili that offers a very long-form high-quality content. In the past, it's very difficult to truly comprehend the full meaning of that content and match it with the right users. But now we're leveraging the AI capability. We can truly understand the meaning to comprehend the high-quality content and better understand our user at the same time. This is also helping us to identify high-quality content at a much earlier stage and push it to more people. And if you look at the Q3 and Q4 user matrix, the AI comprehension of context is truly helping us to drive the user engagement, drive the user growth, that's the area we'll be focusing on. That's one. And as Carly mentioned earlier, AI is also helping us to better match the advertisement with the right user. This has been done through the content comprehension at the same time, understand our users' needs and their desire and need on the platform to better match the right advertisement with the right users. Secondly is on AIGC tools that help content creators to create content more efficiently. We have already launched a few products, but this year, we'll be upgrading that AIGC tools to really enhance the productivity of creating videos, leveraging these tools. And we believe this will be a big efficiency stepping up for our content supply and for the overall content creation process. And that AIGC tool also includes the translation function. It's not just pure soft title translation. It's a very native translation of the context of the meaning as well as lip thinking and also the creator's voice. We believe we already master the ability to translate Bilibili content into all the mainstream languages across the world. This will help our content creators to bring their high-quality content to a global stage. And based on what we have done and observed, we will be focusing on those 2 areas. One is improving the productivity of our content creator. And number 2 is improve the recommendation efficiency to better understanding our content and our users' needs. And our investment focus will be strictly aligned into those 2 areas that we believe in the longer term, generating much larger value for our overall ecosystem. That concludes this question. Operator: Next question comes from the line of Yiwen Zhang of China Renaissance. Yiwen Zhang: [Foreign Language] First, congrats on your whole year GAAP profitability. The question is regarding financials. We noted 4Q last year, adjusted operating margin has reached 10.1%, a step closer to our near-term guidance of 15% to 20%. So how should we think about revenue and profitability outlook in 2026? Additionally, do we have any update on the medium to long-term target? Xin Fan: Thank you. I will take this question. Looking ahead to 2026, we remain confident in the continued growth of our community. At the same time, we will keep improving our monetization efficiency and more effectively translate this growth in high-quality user to the commercial value. Among our business, advertising is where we see the clearest growth opportunity. Our operating leverage will also continue to come through. We expect gross profit will improve slightly quarter-over-quarter in the first quarter and our adjusted operating margin should continue to improve year-over-year in Q1. We are steadily progressing to our mid- to long-term target that 40% to 45% of gross profit margin and 15% to 20% of adjusted operating margin. At the same time, in 2026, as mentioned by Chen Rui, we will modestly increase our investment in AI and reinvest partial of our incremental profit into AI applications that are closely aligned with our core business. This investment will help us further improve the supply of high-quality content, drive the user growth and enhance monetization efficiency, ultimately, we're delivering strong returns over the long term. Thank you for your question. Juliet Yang: Operator, that concludes all the Q&A session. Operator: Thank you. And that concludes the question-and-answer session. Thank you once again for joining Bilibili's Fourth Quarter and Fiscal Year 2025 Financial Results and Business Update Conference Call today. If you have any further questions, please contact Juliet Yang, Bilibili's Executive IR Director of Piacente Financial Communications. Contact information for IR in both China and the U.S. can be found on today's press release. Well, thank you, and have a great day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the JD Health International Inc. 2025 Annual Results Conference Call. [Operator Instructions]. I will now turn it over to [indiscernible], Head of Investor Relations. Unknown Executive: Thank you, operator. Good day, ladies and gentlemen. Welcome to the JD Health 2025 Annual Results Conference Call. Joining us today are JD Health's Executive Director and CEO, Mr. Dong Cao; and CFO, Ms. Deng Hui. Before we start, we'd like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement. In this discussion, the company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. For a definition of non-IFRS financial measures and the reconciliation of IFRS to non-IFRS financial results, please refer to the annual results announcement for the year ended December 31, 2025, issued today. For today's call, management will read the prepared remarks in Chinese and will only be accepting questions in Chinese during the question-and-answer session. A third-party interpreter will provide simultaneous interpretation in English on a separate line for the duration of the call. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management's statements in the original language will prevail. I would like to turn the call over to Mr. Dong Cao. Please go ahead, sir. Dong Cao: Hello, everyone. I'm Cao Dong, CEO of JD Health. It is a pleasure to share with you our 2025 full year results. In 2025, China's economy maintained a steady and resilient momentum in industrial foundation for company's continued development. The government actively promoted development of new quality productive forces in the health consumption sector and encourage the standard adoption of AI across the health care sector, charting a clear path for long-term sustained growth. 2025 marked the return of JD Health's return and profit to a trajectory of rapid growth, further reinforcing our positioning as a market leader. As industry-leading health care service provider, we continue to deepen our presence across key health care segments through our omnichannel, super pharmaceutical supply chain infrastructure, comprehensive AI-powered online health care service capacities and the full life cycle health care management ecosystem. We remain committed to delivering accessible, convenient, high-quality and affordable health care products as well as our solutions. In 2025, we continued to capitalize our super pharmaceutical supply chain advantages and industrial direct sales capacity building AI-enabled full-scenario healthcare services ecosystem that supported sustainable high-quality growth. In fourth quarter, revenue reached RMB 21 billion, representing year-over-year increase of 27.4%. Non-IFRS reached RMB 1.1 billion, up 13.5% year-over-year with margin of 5%. For 2025, our revenue reached RMB 73.4 billion, representing year-over-year about 26.3%. Non-IFRS profit totaled RMB 6.5 billion, up 36.3% year-over-year with our non-IFRS profit margin 8.9%. Notably, we delivered revenue growth of more than 20% year-over-year for 4 consecutive quarters, while our full-year non-IFRS profit margin reached its highest level ever since IPO in the pharmaceutical sector. Leveraging our supply chain strength, we continue to gain from partnership with pharmaceutical companies as the first online marketplace for new and specialty drug launches. We introduced more than 100 new drugs during the year, a significant growth from 30 in 2024. Taking the DAYVIGO as an example, this flagship collaboration between Eisai and JD Health exceeded 20,000 orders in launch month alone. At the same time, by working closely with pharmaceutical companies to promote innovative integrated consultation, pharmaceutical and service closed-loop model, we are strengthening those partnerships and establishing a novel health care ecosystem that supports comprehensive collaborative relationship. For instance, we established strategic collaboration with Novo Nordisk, drawing on omnichannel expertise in chronic disease management and treatment solutions together with JD Health [indiscernible] in healthcare service. We jointly established a dedicated public health hub on obesity. This initiative supports a one-stop diagnosis and treatment and medical solution for diabetes and drug [indiscernible]. We also formed a strategic partnership with Eli Lilly to promote the innovative digital health solutions for patients in China who are living with obesity and type 2 diabetes or alopecia areata. Those solutions integrate patient education, live consultation, medical supply and long-term disease management. In health supplement, we fully harnessed our direct sales capacity, actively engaging in product co-development, supply chain structuring, professional service enhancement and industry standard setting to reinforce our platform central role across our value chain. By focusing on the senior nutrition, child development, beauty supplements and ready-to-consume nutrition products, we have helped the brand partners to achieve sustainable long-term growth. For instance, while the standard deep-sea fish oil market strategy matured, we identified the growing consumer demand for high-purity, high adoption products with significant untapped potential. Based on this insight, we worked with [indiscernible] to develop a premium fish oil product tailored to market needs to tap the high-end segment, featuring 97% of high-quality EPA. The product garnered over 15 billion impressions on its launch date on JD Health's platform. In medical device, we fully integrated our supply chain strength to build a seamless online-to-offline service loop, driving industry-wide upgrades through the ongoing technological innovation, for instance, in collaboration with Yuwell Medical, we launched the JD brand continuous glucose monitoring on our platform, which can be connected directly to JD Health's app via Bluetooth to deliver integrated blood glucose management experience, covering monitoring, analysis, intervention and tracking. For users who require device setup or configuration systems, we offer in-home support with health care professionals providing hands-on guidance through the process. In response to national initiatives to foster new quality productive forces in the health, we provide the capacities and medical AI solutions to a wide range of ecosystems. We aim to enable high quality and sustained development such as the Dr. Da Wei and a suite of multi-role intelligent service agents, AI doctor digital twins, and AI health chatbot, Kang Kang. At the end of 2025, Dr. Da Wei has completed hundreds of millions of interactions. The JOY DOC 2.0 version comprehensive management solution spanning 3 key areas: clinical nutrition, pharmaceutical services and weight management. This product provides health care institutions with standardized traceable and highly efficient digital intelligent support. We work together with the First Affiliated Hospital of Wenzhou Medical University and Union Hospital of Tongji Medical College to cover 5 million patients in 2025. Our on-demand retail business also achieved breakthrough through the year. We continued to expand the online medical insurance payment services as well. We have been expanding coverage to 29 key cities. By 2025, we have established more than 300 self-operated pharmacies nationwide. By integrating those stores with our on-demand retail business, we have further differentiated our product offerings and enhanced the overall user experience. Additionally, we continued to strengthen our integrated online and offline medical services. JDH's at-home rapid testing service maintained strong growth momentum with full year order volume increasing by 81.9%. Our at-home rapid testing service pioneered a hospital-grade home testing service during the year, extending the professional practice of hospital laboratories into the home setting, processing for cities including Beijing and Shanghai. This service exemplifies the deep integration we have achieved across our supply chain and digital platform strength and the professional medical expertise of the public hospitals during the peak respiratory seasons. It effectively eases hospital congestion, shortens patient visit time and lowers the risk of cross infection caused by JD Health service basket and digital coordination system. The process from sample collection to delivery takes an average of 3 hours and can be completed seamlessly with the app. Looking ahead, we will continue to strengthen our super pharmaceutical supply chain advantages centering on user experience, cost and efficiencies. By capitalizing our direct sales capacities and deepening collaboration with brand and ecosystem partners, we further cement our leadership in the health care retail market and reinforce user awareness of JD Health as a go-to platform for online health product services. At the same time, we will continue to advance technological innovation in AI applications, empowering our integrated consultation, examination, diagnosis, pharmaceutical service, closed-loop through an AI plus supply chain strategy and supporting the high-quality growth and sustained development of the broader health care sector. By steadily expanding our health care ecosystem service scope and consistently enhancing our integrated online and offline medical services, we will share better experiences to the business. Now please welcome CFO, Ms. Deng Hui, to share details of financial performance. Deng Hui: Good to see you. Thank you for attending and joining the JD Health earnings conference call. This is Deng Hui. It is my pleasure to provide you update on our fourth quarter full year 2025 financial performance. In 2025, China's macroeconomic landscape continued to show a cost recovery trend, showing new development opportunities. For AI-driven health industry, JD Health actively responded to a policy directive of fostering new quality productive forces in the health consumption sector. Achieving sustained and high-quality growth in 2025, the revenue reached RMB 73.4 billion, representing a year-over-year increase of 26.3%. Non-IFRS profit amounted to RMB 6.5 billion, up 36.3% year-over-year with a profit margin of 8.9%. It's worth noting that our revenue growth rate has maintained above 20% for the consecutive quarters, while our non-IFRS profit margin reached its highest level since its listing. In the fourth quarter of 2025, revenue totaled RMB 21 billion, up 27.4% year-over-year. Non-IFRS profit for the quarter reached RMB 1.1 billion, increased by 13.5% year-over-year with a profit margin of 5%. As of December 31, 2025, our annual active user accounts for the past 12 months stood at approximately 220 million with a net addition of 34 million compared to December 31, 2024. Among other revenues, direct sales revenue reached RMB 60.9 billion in 2025, representing year-over-year increase of 24.8% and accounted for 82.9% of total revenue. This growth was primarily driven by increased sales of chronic disease related drugs and expanded first launch partnership for innovative drugs as well as health supplements, where we focused on strengthening our direct sales capacities and cultivating growth in high-quality segments and sales of new created medical devices. Meanwhile, service revenue reached RMB 12.6 billion for the full year of 2025, up 34.1% year-over-year and accounting for 17.1% of our total revenue, an increase of 1 percentage point year-over-year with platform commissions and advertising services maintaining strong growth momentum. During the year, we prioritized the onboarding of emerging brands, significantly increased resource allocation to merchant support, and expanded the merchants access to our omnichannel infrastructure and resources, fostering growth for both the platform and our merchant partners. We continue to advance our on-demand retail business in 2025 to be more efficient and accessible on-demand services to our users by continuously strengthening synergies among supply fulfillment, payment and expertise experiences. In health care services, we further deepened our Internet plus health care service ecosystem through AI empowerment this year, achieving scaled deployment of AI technologies across consultation, examination, diagnosis, pharmaceutical scenarios. We launched a series of AI-based solutions tailored for users, doctors, hospitals, primary health care institutions, including AI Jingyi and JOY DOC, establishing the industry's most comprehensive AI enhanced health service matrix. Our AI agent, Dr. Da Wei, has completed hundreds of millions of user interactions with a 98% satisfaction rate. Meanwhile, JOY DOC has served over 5 million patients across several hospitals, including the First Affiliated Hospital of Wenzhou Medical University and Union Hospital of Tongji Medical College. From the profitability level, JD Health's gross margin was 24.8% in 2025, up 1.9 percentage points year-over-year. The improvement highlights the core strength of our supply chain as well as the ongoing enhancement of our direct sales capacity. Our direct sales mode effectively drove gross margin expansion through economies of scale, while empowering our professional procurement and sales teams to identify industrial trends and capitalize high potential subsegments, boosting overall operational efficiency. At the same time, we encourage a greater resource investment from merchants fulfilling growth in higher-margin business such as advertising services on a non-IFRS basis. Our fulfillment expense ratio was 10.4% in 2025, up 0.2 percentage points. Our selling and marketing expense ratio maintained largely flat at 5.2% in 2025 compared with last year with [indiscernible] hitting the road this year, promoting awareness of our quality standards for nutrition products while helping drive sales growth in the health supplement segment, although selling and marketing expenses rose by 26.9% year-over-year. Our R&D expense ratio was 2.2% in 2025, up (sic) [ down ] slightly by 0.1 percentage point year-over-year as a result of our ongoing investment in AI technologies. As of the end of December, we had over 880 R&D personnel, increased compared with the previous year. As revenue continued to grow, the proportion of fixed R&D expenses will decline accordingly, while the productivity of our R&D team will also improve. We remain committed to investing in health AI technologies and have launched a suite of AI-powered products, serving users, hospitals and primary health institutions across multiple health care scenarios. Moving ahead, we will continue to deepen our efforts in these areas. The G&A expense ratio was 0.8% for the full year of 2025, flat with 2024. Our back-end staff and operational management efficiency levels continue to lead the industry. Finance income was RMB 1.5 billion in 2025, attributable to increased cash balance. Other income and gains, net was approximately RMB 1.6 billion (sic) [ RMB 0.77 billion ] in 2025, mainly reflecting fair value changes in wealth management products. Excluding share incentive, our non-IFRS profit for 2025 increased by 36.3% year-over-year to RMB 6.5 billion with a margin of 8.9%, up 0.7 percentage points from last year, reaching its highest level ever since our IPO. Our cash flow from operating activities reached RMB 10.2 billion for the full year of 2025. As of the end of December, cash and cash equivalents, restricted cash, term deposits and wealth management products measured at fair value through profit or loss at amortized cost totaled RMB 96.5 billion (sic) [ RMB 69.5 billion ], a net increase of RMB 10.1 billion compared to December 31, 2025 (sic) [ 2024 ]. In summary, JD Health delivered high-quality growth in 2025, underpinned by continuously optimized operational capacities and steady profitability growth. Our strong performance highlights our persistence, enhancing user experience, while improving cost and efficiency by developing and refining AI-powered health service scenarios. We broadened our business scope, further validating the distinctive value propositions of our dual-engine business model. That concludes our prepared remarks. We are now open for questions. Operator: [Operator Instructions] Now we are going to welcome Miranda Zhuang from American Bank. Xiaomeng Zhuang: In 2025, you achieved a faster growth, and you had very good growth momentum with better profit margin. That is great news. I have a question to you. Can you share with us the near term and the 3-year middle-term prospects, what will be the main growing points? And what will be your strategies? Dong Cao: Thank you for the question. You're my old friend, Miranda. I want to share with you the general directions about the track for the future growth. We know that pharmaceutical sector, health products and medical devices are belonging to one community. The market size is around RMB 3 trillion to RMB 4 trillion. This is the size of the total market share, and we have to check different proportions. So you could fully understand, in the entire year, the revenue is RMB 17 billion (sic) [ RMB 73.4 billion ]. Compared to the potential of the market, we are still having a big room to grow, which means that we have a lot of opportunities to grab. Currently, we could achieve more than one digit growth potential. I believe that this is a huge market. Despite the fact that JD Health is a huge pillar, we could also go faster and we could go deeper. That is our inspiration, and that is our commitment to go deeper and go faster built on our existing advancements and results. The next point is from the perspective of the users. Currently, around 220 million users were out there and the total number is still growing, and we have a lot of active users, but not as big as the total user base of the JD Group. Because we are JD Health, we could still have a big room to grow. So I'm just sharing with you the size of the sector as well as the users of JD Health. I believe that from both fronts, we could do a lot of things to grow our potential. To be more specific, for the next 1 to 3 years, what will be happening and what will be the key drivers. To start off, I want to go back to the product portfolio and what will be the growing momentum. I'm going to speak about the pharmaceutical products. For the long run, we are in the leading position and we are growing very fast. We continue to improve our performance in 2025. The new drugs are taking 15%, and we are growing very fast compared to the velocity of 2024. You could feel the change and you could feel the transformation. Built on the mindset of JD Health, more brands, more pharmaceutical companies and more manufacturers will come to us. They will finally realize JD Health is a huge platform. We could help them, we could empower them. We could bring to them additional value. The new products, the special drugs could have very good sales at our platform, driving us to embrace a larger number of new drugs on their first sales. This is a very positive trend and I am very happy to share with you. I believe that in terms of the pharmaceutical companies, we will continue to grow. I believe that this market will grow, of course. We have the in-hospital and off-hospital market and off-hospital market will be moved to the online setting at even faster manner. Those are the trends we could observe on the market. That's why I'm so confident in sharing with you our growing potential and growing [indiscernible]. In terms of the health supplements, I know that you've followed us for long-term. When we are discussing the pharmaceutical companies and health supplements, you can know we are offering the best quality products. We could offer you very good user experience as well. We go very fast and we are highly efficient in delivering our services and offerings. We are doing more than selling. We are also providing the evidence-based solutions. It's like we are collaborating with GNC. We are jointly releasing the white paper, providing better service and educational resources to the users. We are also providing a premium fish oil, improving the user experiences in the overall manner. We want to add to user experiences, and we want to add user value. We are not selling products in an efficient manner. We're also helping the users to select the best ever products. And we are also an online platform having huge integrated logistics chain advantages, which means that we are having this pillar and we will grow this as well. The next topic is about medical devices. I want to give you a case. We're collaborating with Yuwell to offer customized products. The monitoring of the glucose device. It is well set. And for the next step, we have more plans. In terms of the sales, we will provide software, hardware as well as integrated chronic disease management plan. If you tried our products, you can know how well it is. It is very unique and it's very special. If you try the Yuwell glucose monitoring device, you can know how good it is, you could know which food is good for you and what are the foods bad for your health. I believe that is the best collaboration model. You could manage your food, you could manage your diet, and you could complete all those processes for our product. And we are now promoting AI-empowered health management device. This will be the new ecosystem. AI is keyword, very popular. In 2025, we launched the AI doctor, Dr. Da Wei, completed hundreds of millions of interactions with online users with a high level of satisfaction ratio. The AI matrix includes the 2B, 2C and 2H front with very good performance separately. Those performances are not yet fully matured. They are not translating directly into sales revenues. However, we can safely say that they will be the future drivers, helping JD Health to garner potential profits. In the long run, they will be our long-term drivers. I'm just sharing with you those highlights for reference. Thank you, Miranda. Thank you for the rest of investors. Now please start your second question. Operator: The next question comes from UBS, Henry Liu. Henry Liu: Thank you for the prepared remarks, the management, and thank you for having my questions. Can you say a few words about the competition landscape of the company. For instance, we have the e-commerce platform, we have the brick-and-mortar physical stores. How you can stay competitive among all those competitors? Dong Cao: For the long term, I'm confident in standing out of all those competitors and market players. If you are watching and following us for the long run, you know we are a company with a lot of pragmatic mindset and behaviors. You know how we check and observe this market landscape, you know how we view our competitors. From the perspective of JD and JD Health, we are good at managing the supply chains. We are good at managing our own brand products, because we want to manage the quality of the products, we want to ensure the best efficiency on this market. In terms of health care market, those elements are maturing. We want to manage the health of the users, and we have a strong mindset. That is why we are standing out compared to other competitors. That is in our DNA, that is in our blood veins, and we are maximizing our DNA. In the company, the revenue is growing very fast, of course. And our market penetration rate is not as good as we expected. In the future, the market will be highly fierce, of course. But this market is not yet fully competitive. It's not receiving full competition. Every company could have their own proportion and share. You could manage your supply chain, you could play up your strengths and you could do somethings with a lot of pragmatic behaviors and you could improve the health. So we could extend our strength in the long run, and we could further extend our market scale. That is my general impression, and that is my short answer for your question. Next question, please. Operator: The next question comes from Haitong International, Meng Kehan. Kehan Meng: I'm from Haitong International. Congratulations. Thank you for sharing with us the great results in 2025. I have some questions to you. For the next few years, what will be your plan to start the brick-and-mortar stores? And what will be the impact for the online practices? And for the ILC, what will be your future plan? Would there be any change? Would there be any large M&A plans? Dong Cao: I want to take those questions with more elaboration. I believe a lot of investors are very interested in those points. First of all, we don't have the plan to have a large-scale M&A. But it doesn't mean that we don't care about the offline practices and offline maneuvers. The efficiency, the cost of running the brick-and-mortar stores is one of our key strengths, of course. I talked about the medical insurance policy. This is very key in managing the brick-and-mortar store, the pharmacy. 35% of the gross margin will be the bench line. It's not that high, of course. And we have a lot of good chances. We are not relying 100% on the medical insurance, and we could ensure the security of the business. Of course, the gross margin was not as high as we expected when we are running it online, but still very satisfactory, but still satisfied with those results. When we are running the offline stores, we prioritize. We also care about their practices, because around RMB 2 trillion -- in terms of the market share, RMB 2 trillion belong to the offline practices, and some of them belong to the in-hospital market, around 7% to 8%. It matters. I don't think the online business can 100% replace the offline business. Still, we have to watch closely to the development of the offline business, but how we are going to maximize our strength. There are 2 sets of practices. The offline pharmacies for one thing. We are running 300 offline pharmacies up to now, 300. Those pharmacies are serving their neighbors. We are consistent in promoting the offline pharmacies. Those offline pharmacies are good at delivering immediate service requirements and demand. In terms of the data, they are accounting for 10% in terms of market share. Some patients want to have immediate medical products. The size of the pharmacy is not big. Our priority is on B2C business to customer. But this is a very important scenario for us to manage the customer relationship, and we would do a good calculation, how we are going to manage the stores, how are we going to manage the operator or the users. And this is a platform with a lot of openness, and we are collaborating with the chain pharmacies as well. Those are our business patterns and business scenarios to better serve the users, bring them the premium experiences. So I don't think we're going to have a large-scale M&A to cover the offline pharmacies. I don't think so. We may maintain the structure, the size. And offline pharmacies in terms of number is too many. Altogether, 700,000 in totality. I believe that we can do more to improve their overall efficiency. The next is about the checkup centers. I believe that checkup centers are providing us a new area to grow our business range. We can do a better job improving the quality, and that will be the new entry to collect different dots. I believe that the offline checkup centers will be the entry point to manage the health. Now we have several checkup centers in operation. We're not in a hurry to duplicate the model. We want to maximize the JD DNA, be pragmatic. We'll be patient, we'll be accepting the market changes. We will never go too fast. We are having a long-term vision to be the guardian of the people's health in China, and we want to do a good job. That is our practices for the offline business. We will never do it overnight. We'll not complete all the business over the short term. We will be stable and we'll be cautious. It's a step-by-step manner. All in all, the business here will be extended and there will be no obvious shock to our core business. So we believe that whatever we are doing, the AI-empowered practices, the offline pharmacies, we will go very steadily, step-by-step, improving the users experiences. Before each step we are marching on, we'll find out what will be the long-term mission, what will be our purposes before we are taking up this step. Now we are using a lot of AI technologies. We are improving the general efficiencies very positively. The AI nutritionist is also a good practice. The conversion rate is even higher than the real person nutrition practitioner. I believe that the offline pharmacies will also be greater scenario, faster use and to administer the AI practitioners. So don't worry about large M&A from JD Health. We will do everything step-by-step with very good reason. Operator: Next question from Goldman Sachs, Lincoln. Lincoln Kong: Congratulations for you to have the 2025 outcome. I have a question on the progress of AI+. Please share your opinions about the supply chain, about your practices for the future. Dong Cao: Again, I want to give you our overall planning. There are several directions ahead of us. The first is the 2C, to customer direction. You could check what happens in JD application. On JD Health application, we have the doctor, Kang Kang. We have the JOY DOC. For the 2C side, you have the Jingyi. They are doctors, Dr. Da Wei. We have the pharmacists, we have the nurses. They are AI bots, they are AI twins. A lot of consultation services are out there, the shopping services, the before and after sales services are out there. The conversion rate, the satisfaction rate, the user experiences are very positive. The online consultation is booming, empowered by the AI technologies. Those are the good outcomes from the 2C front. However, it's not right time for us to commercialize all those practices and assets, but still we're in a good position, we're in a good direction to have the commercialization. Now we have the Jingyi. We have the 2H to hospital front. In the future, I hope that we could get connected to the hospitals. We are speaking about 70% of the resources of the 2 trillion market size will be in different hospitals. We want to expand our market share, rely upon the partnership with different hospitals. The hospitals will help us to manage the patients. For instance, we could do the pre-consultation, helping the patients to check in the right departments. Those are some things we could down before the hospital entry. For the post-operation diet and nutrition, we could also have the AI to help those patients, and we can collaborate with the hospitals. In the future, we could manage this business with incremental growing momentum. And for the 2B side, the 2B side is operated for the doctors totally free of charge. However, how we are going to set up a good business model, how we're going to have the final commercialization, we are still in the process of pondering on. In China, it's very special for the doctors to pay. Still, I believe that as long as the products and the services are excellent, we could have sort of some method to charge. Still, it's a very complicated value chain in the medical sector. There will be the right payer. That is the question we have to keep thinking. And we have to avoid the homogeneous competition. No matter what, those are the directions we are embarking on, and we are seeing a much more clear directions and light at the end of the tunnel. In the near future, I believe that we could see more frequent AI application with positive outcome. If there's any feedback, I will let you know, and we will keep a close eye on this market. But please keep it in mind. JD Health has very good AI innovation practices, and we go very steady by collaborating with the stakeholders, and we will continue to promote innovative drugs. When we are checking the market, it looks very dynamic, it looks very popular, but we will be the one who speak deeper to this market, and we will give you good solutions, because all in all, we want to serve the patients, we want to serve the users with good experiences. We are more than observer, we are a practitioner. Thank you. Operator: For time's sake, we are going to close the Q&A session. Now I'm going to welcome you give us the closing remarks. Dong Cao: Thank you once again for joining us today. If you have further questions, please contact the IR team directly. Thank you.
Operator: Good day, ladies and gentlemen, and welcome to The Toro Company's first quarter earnings conference call. My name is Daniel, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today's call, Heather Lilly, Vice President, Corporate Affairs and Investor Relations. Please proceed, Ms. Lilly. Heather Lilly: Good morning, everyone, and thank you for joining us for The Toro Company's first quarter 2026 earnings conference call. I am Heather Lilly, Head of Investor Relations. On the line with me today are Rick Olson, Chairman and Chief Executive Officer; Edric Funk, President and Chief Operating Officer; and Angie Drake, Vice President and Chief Financial Officer. Rick, Edric, and Angie will provide an overview of our first quarter results, which were released earlier this morning, and discuss our priorities and outlook for the remainder of fiscal 2026. Following their remarks, we will open the phone lines for a question-and-answer session. As a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, including those described in today's earnings release, investor presentation, and most recent SEC filings, and may cause actual results to differ materially from those contemplated by these statements. Also, in our remarks, we will refer to certain non-GAAP financial measures, which we believe are important in evaluating the company's performance. Reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this morning's press release, along with the first quarter presentation containing supplemental information that is posted in the Investor Information section of our corporate site. With that, I will now turn the call over to Rick. Rick Olson: Thanks, Heather, and good morning, everyone. Throughout 2026, our teams remained diligently focused on executing our strategic priorities. We capitalized on market opportunities and customer demand, drove operational excellence, and leveraged our portfolio of leading brands for profitable growth and competitive advantage. At the same time, we invested in value-creating technology and innovation. As a result, we beat expectations in both segments and increased consolidated net sales by more than 4% to $1.04 billion. Our outperformance was driven by strong execution in both our Professional and Residential segments, which allowed us to capitalize on incremental demand for snow and ice products and continued growth in underground and specialty construction. We reported better-than-expected adjusted earnings per share of $0.74, up from $0.65 a year ago, due to higher earnings in our Professional segment, which represents about 80% of our portfolio. We expanded our hydrovac excavation solutions through our acquisition of Tornado Infrastructure Equipment, further strengthening our capabilities. We continue to implement our multiyear AMP program, which is fueling sustainable productivity improvements and has contributed $95 million in cost savings toward our aggregate goal of $125 million. We generated free cash flow of $14.6 million, resulting in an impressive free cash flow conversion rate of 22% in a quarter where our seasonal preparations typically result in a net use of cash, and we repurchased approximately $95 million of common stock, reflecting our commitment to return value to shareholders. In summary, through strong execution of our strategic priorities throughout the first quarter, we drove favorable sales and earnings growth and further strengthened our financial position. During the first quarter, our teams were prepared to deliver snow and ice products and capitalize on incremental demand as a series of winter storms hit major population areas. This operational agility and strong execution not only contributed to excellent Q1 top-line growth but also positions us well for robust performance in these categories in the back half of this year. Adding to this optimism is our fresh line of BOSS plows with new Cold Front Technology, or CFT, which has been well received by customers. The innovative CFT system integrates plow and spreader functionality and is engineered for effortless connections, smart performance, and maximum efficiency. We also continue to invest in underground and specialty construction, reflecting our expectations of multiyear growth in these businesses. Our efforts underscore our focus on broadening our offering to drive both near- and long-term results. During the first quarter, horizontal directional drills like the innovative JT21, which launched last year, contributed to our sales upside. We expect customer demand to remain strong. We were very excited to welcome Tornado to The Toro Company during the quarter. As a natural adjacency to our existing businesses, its complementary offering enables us to expand our growth opportunities in this market. And this spring, we look forward to showcasing the recently launched Ditch Witch SK 1,000, a compact stand-on skid steer with increased lifting capacity and reduced maintenance, making it ideal for utility work as well as landscaping. To preserve our profit margins and remain price competitive, we continue to pursue deliberate strategies through our AMP program to drive sustainable productivity improvements, cost savings, and net price realization. Through the AMP improvements, we are working to moderate the effect of higher material and manufacturing costs and fully offset the effect of tariffs. We are also carefully managing inventory at all stages of production, as evidenced by our healthy net inventory position at the end of the first quarter. This was a key driver of working capital improvement. While external factors like the economy, geopolitical environment, and weather are ongoing considerations, we are committed to maintaining our discipline and aligning our inventories with expected demand as the year unfolds. These actions are strengthening our operations and driving improved financial results, and our teams and channel partners are highly motivated to build on this momentum. I want to thank them for their ongoing commitment to advancing our product and technology innovations, as well as our cost savings and productivity initiatives. Now Angie will share additional insights on our first quarter results and provide our outlook for the year. Angie Drake: Thank you, Rick, and good morning, everyone. Before getting into the details of our results, I will highlight three key takeaways from our first quarter performance. First, we delivered better-than-expected top-line growth in both our Professional and Residential segments through disciplined execution that enabled us to capitalize on seasonal demand opportunities. Second, we delivered adjusted EPS above expectations and prior year through deliberate productivity improvement initiatives that drove favorable operating leverage. And third, our positive free cash flow and strong balance sheet position underscore our commitment to financial discipline and returning cash to shareholders. In short, our consolidated first quarter results demonstrate the strength of our portfolio and market-leading innovation, our commitment to operational excellence, and our thoughtful strategic and financial stewardship. Now let's dig into some of the details. Consolidated net sales for the first quarter were $1.04 billion, up 4.2% from prior year and better than expected, as sales in both the Professional and Residential segments exceeded our guidance. Professional segment net sales in the first quarter were $824 million, while Residential segment net sales were $216 million. Both segments benefited from higher shipments of snow and ice products and net price realization. Strength in underground construction, including the successful integration of Tornado, and growth in our landscape business also contributed to top-line growth in the Professional segment. We delivered a 9.8% consolidated adjusted operating earnings margin in the first quarter, up from 9.4% a year ago. Both Professional segment earnings of $137.6 million and Residential segment earnings of $13.2 million exceeded our expectations. Year-over-year results in both segments reflect net price realization and the favorable impact of our ongoing productivity improvement and cost savings measures. This was partially offset by higher material and manufacturing costs. Finally, our first quarter adjusted EPS was $0.74, which exceeded both our prior year adjusted EPS of $0.65 and our previous outlook for this period. Now turning to our balance sheet and cash flow results. Our balance sheet continues to afford us meaningful strategic optionality, enabling us to focus our capital investments on initiatives that generate profitable growth. Our current leverage ratio of 1.5 times remains healthy and well within our stated target range. Our free cash flow for the quarter was $14.6 million, a year-over-year increase of more than $80 million, resulting in a free cash flow conversion rate of 22%. We achieved this performance through meaningful inventory improvement driven by our integrated business planning process and seasonal demand for snow products. As a result, our inventory turnover improved to 2.8 times in the quarter. Additionally, we returned $133 million to shareholders in the quarter through dividends and share repurchases, demonstrating continued confidence in our ability to generate cash. Looking ahead, we remain focused on capitalizing on top-line growth opportunities, thoughtfully managing our balance sheet and cash flow, and integrating AMP operating efficiency benefits that support our $125 million run-rate target by 2026. We are raising our sales and earnings outlook for fiscal 2026 based on our strong execution and the strength of our first quarter performance. We are increasing our expectation for total company net sales growth to 3% to 6.5%. This reflects, first, Professional segment net sales that are expected to grow mid-single digits and, second, Residential segment net sales that are expected to be flat to down 3%. This is an increase from our prior Residential segment net sales guidance, reflecting strong Q1 results and an improved outlook for the balance of the year. We are also raising our full-year 2026 adjusted earnings per share guidance to be in the range of $4.40 to $4.60. This outlook assumes a higher total year adjusted gross margin rate, consistent with our prior guidance and underscoring our ability to navigate cost pressure while investing in innovation; higher adjusted operating earnings margin, which reflects annual Professional segment earnings margin between 18.5% and 19.5% and an improved outlook for the Residential segment earnings margin between 6.5% and 8.5%; interest expense of approximately $60 million; an adjusted effective tax rate of about 21%; and capital expenditures of $90 million to $100 million. Furthermore, we now expect an improved free cash flow conversion rate of at least 120%. For the second quarter of 2026, we expect total company net sales to increase mid-single digits from the same period in 2025, with mid-single-digit net sales growth expected in both segments. Professional segment earnings margin in the second quarter is expected to be similar to a year ago, while Residential segment earnings margin is expected to approach double digits. For the total company, we are expecting mid-single-digit adjusted earnings per share growth in Q2. As a reminder, our second quarter is typically the largest of the year. As evidenced by our strong first quarter performance, we are managing our business to take advantage of our strengths as well as market opportunities, while mitigating external pressures. With our team's continued commitment to providing innovative solutions that create value for our customers and drive operational excellence across our business portfolio, I am confident in our ability to deliver sustainable, profitable growth for the long term. With that, I will turn the call over to Edric. Edric Funk: Thank you, Angie, and good morning, everyone. Our results in the first quarter demonstrate our competitive positioning and business resilience, our market-leading innovation, and our team's skillful execution of key initiatives. Together, these factors provide a solid foundation for future success. With our strong balance sheet and free cash flow, we continue to invest in technological innovations and growth markets that provide significant value for customers and The Toro Company. Let me share a few examples. We are actively pursuing opportunities to capitalize on the growing global demand for underground construction equipment, which is being fueled by aging infrastructure, new data centers, and a rise in energy and telecommunications projects. CONEXPO, which is North America's largest construction trade show, is taking place this week. At the show, we are exhibiting our broadest offering ever of underground and specialty construction solutions. With our recent acquisition of Tornado, which is a natural complement to our existing products, we are poised to extend our reach and impact within this category and beyond. In Golf, Grounds, and Irrigation, we are building a pipeline of innovations that help customers maximize workforce productivity and reduce costs. Last November, we introduced our AI-enabled Spatial Adjust software, which is proven to be, in the words of our customers, an absolute game changer. This water management system is simultaneously helping to preserve one of our most precious resources, delivering more consistent playing conditions, and bolstering subscription service offerings that provide incremental recurring revenue for The Toro Company. This spring, we are further expanding our water management suite with the launch of our new RXC irrigation controller. This reliable and contractor-friendly irrigation solution provides modular expandability, advanced flow monitoring, and smart features such as predictive weather-based scheduling, seasonal adjustments, and intuitive programming. Innovations like this enable our customers to better manage costs, conserve water, and maintain the condition of the ground in their care. And finally, by coupling targeted acquisitions and strategic partnerships with years of our own internal development, we are incredibly excited that we now offer the market's broadest range of autonomous turf maintenance solutions. We have accomplished this by leveraging multiple localization and navigation technologies across an array of high-energy and low-energy product platforms. While most of these innovations are still early in their growth life cycle, we are very optimistic about their future potential. At the same time, we are also excited about the near-term opportunities within our core businesses. For example, following the strong performance of our snow categories during Q1, given the current health of the channel, we are confident about the prospects for those product lines in the second half of this year. Finally, the team's commitment to operational excellence and optimization of our global supply chain will continue to help us mitigate increases in materials and manufacturing costs, streamline our supply chain operations, and manage our inventory with exceptional success. Through the steadfast engagement of our team, we are building strong momentum for future growth. I will now turn the call over to Rick for closing remarks. Rick Olson: Thank you, Edric. In closing, I want to underscore our confidence in The Toro Company's strategy and continued profitable growth. Our actions are enhancing our customers' performance, strengthening our competitive advantage, and increasing our operational efficiency. Through our disciplined approach to capital allocation and balance sheet flexibility, as well as our commitment to strong free cash flow, we are well positioned to deliver significant value to all our stakeholders for many years to come. We will now open for questions. Operator: We will now open for questions. Our first question comes from Samuel Darkatsh with Raymond James. Your line is open. Samuel Darkatsh: Good morning, Rick, Angie, Edric. How are you? Rick Olson: Good morning, Sam. How are you? Samuel Darkatsh: I am well, thank you. A few quick questions if I could. First off, Pro sales were up 7% in the quarter. Can you give us a sense of what that was organically, excluding the Tornado effects? Angie Drake: We also saw improved underground and Pro contractor shipments. And then, of course, you said Tornado. Excluding Tornado, it would be snow and then underground construction and Pro contractor. Samuel Darkatsh: So figure maybe 5% or so is organic and a point or two would be Tornado. Would that be fair? Angie Drake: That is probably close. What I failed to mention, though, is that we did see some of that offset by some softness that we saw in international. But overall, I think 1% to 2% is probably fair. What we had mentioned in Q4 is that Tornado would contribute about 2% growth for sales, so for inorganic growth will be about 2%, and their sales were we were expecting to be about $100 million for the year. So pretty well in line with what our expectations were for Q1. Samuel Darkatsh: Gotcha. And then on an all-in basis, what was snow and ice? I understand it is a relatively attractive margin category in both segments for you. Can you help us contextualize how much snow and ice was up in the quarter? Rick Olson: We did, as Angie said, have strength across our businesses. If you look at the two reporting segments, it was the largest portion of each of those segments. On the Residential portion, it would be the largest, but also offset by some shipments of spring products that will be a little bit later, rolling into the second quarter. So there was some offset there, but it was the largest portion of the increase there. Interestingly, on the Residential side, as we talked about, there was field inventory in place, so retail was even stronger than the shipments that we saw. Shipments, if you look at a ten-year average, were about on average on the Residential side. On the Professional side, a little different story. The shipments were well above the ten-year average, and in both cases, it just puts us in a very positive field inventory position as we go into the second half of the year. That gives us confidence in the preseason fills both for the Professional and the Residential side as we go into the third and the fourth quarter. So the largest portion of each of the segments was snow, but really strength across the businesses, and in the case of Residential, kind of back to a more normal snow shipment year for us. Samuel Darkatsh: Gotcha. Then my last question has to do with the annual guide. The 6.5% high end of your range, I am trying to first off, I am trying to get there with the Professional and Residential guide. Professional up mid-single, high end of the Residential is flat. Obviously, that does not get you to 6.5%. So in order to get to 6.5%, would Pro be closer to high single-digit growth, or would Resi turn positive? I am just trying to get a sense of how to think about the high end of the range, Angie. Angie Drake: Sam, I think what we can talk to are the pieces of that. As we think about the full year, expect to get a little bit more than our average 1% to 2% on net realized price, and then the balance of that will be driven by organic growth, and that will be largely in the Professional segment and in the categories that we talked about earlier: underground, Professional contractor, Golf and Grounds, and a strong second-half snow sell-in. Samuel Darkatsh: Okay. I will ask that offline. It is fine. Thank you all. Appreciate it. Very good stuff. Rick Olson: Thank you. Operator: Our next question comes from Tim Wojs with Baird. Your line is open. Tim Wojs: Nice job. Maybe just to kind of piggyback off Sam's question. I guess, you raised the Residential guide, but you did not raise the Professional guide. Is that just going from one end of the range to the other end of the range, or is there something in Pro that is offsetting some of the upside that you saw in the quarter in Q1? Angie Drake: I would say that for Pro, we probably saw a little more softness in international than we expected, so we are having to offset some of that. But the rest of it is really largely as we expected in the Professional segment for the year. We raised Resi because we did see some upside in snow that was a little higher than we expected in Q1 based on some of the snow events that we saw across the country. Tim Wojs: Great. And then I guess one question: when you look at your snow contractor base and your lawn-and-garden contractor base, do you have any sort of sense as to what the overlap between the two is, and if strong snow does help the Professional landscape business and vice versa? Rick Olson: There is a lot of overlap. I think what you are getting at is if you come into the spring season with contractors that do both snow and summer work, they are going to come in in a healthy position, and we would anticipate that that would be the case for the contractors. One thing to keep in mind is contractors have really been strong throughout the cycle. Where we had some softness was with the homeowners that were buying products. They have been pretty solid throughout. The current strength is also being bolstered by the new products that we are introducing. For example, in the Exmark area, the Lazer that was introduced two years ago and the Radius are both selling very strongly. So that puts those factors together, and it is a very positive position for landscape contractor on the pure Pro side. Tim Wojs: Gotcha. Tim Wojs: That is helpful. And then the last one I had, just as we did our Golf checks this quarter, we got back kind of an abnormally high response rate around autonomous adoption. Could you just review for us where you are in autonomous in Golf, and if there are any KPIs around how big autonomous is, how it is growing, the products that golf courses are adopting? I think that would be really helpful. Thanks. Rick Olson: Great question, Tim. The response you got is not surprising. There is a lot of interest, and that would not surprise any of us knowing that labor represents such a significant portion of golf course budgets, and that for a lot of golf courses, they are finding it difficult to find and attract the labor. That is clearly the driver and has been for some time. We have seen it is kind of difficult to find a golf course that has not at least experimented with some autonomous solutions. I think they are still looking for how that ultimately fits into their business. Some of what we are excited about—we have been investing in this category because of those drivers for a long time. As I mentioned in the prepared remarks, we are pretty excited now that we cover all the bases. So if somebody is looking for that traditional robot style, whether that is for around the clubhouse or smaller areas of the rough, we have that. If they are looking for still low energy but a more productive piece, we now offer that product as well. If they are looking to, rather than mow, collect balls on the range, we have a version of that platform that does that piece. Then we are also now offering products up in the higher-energy range. If they are thinking about mowing that longer turf that, again, you might find in the rough, but they are looking for an even more productive machine and one with the traditional mowing technology, we have a platform for that, and then all the way now to the fairway mower. We are pretty excited there. As we said, it is still early days on people being all-in across the board, but we only expect additional interest and growth in that area. Tim Wojs: Awesome. Thank you. Thanks for the detail, and good luck, guys. Angie Drake: Thank you. Operator: Our next question comes from David MacGregor with Longbow Research. Your line is open. Joe Nolan: Hey, good morning. This is Joe Nolan on for David. I was just wondering, with the bottlenecking investments and other investments you have made in the Ditch Witch business, can you talk about how much improvement you are seeing on margins today in that business and how much more improvement we could see in 2026? Rick Olson: We continue to see, really from the time of the acquisition in 2019, steady growth in our profitability in that business. It is from a number of factors, obviously leveraging across the scale of The Toro Company, but also the continued improvement by that business. We are back soundly in the range of the Professional profitability at this point, and the investments that you mentioned, like the new paint system and others within the facility, are helping us to continue to fuel the growth that we see across a lot of drivers within that business. The business continues to be healthy, we have continued to make solid profit improvements, and we are very optimistic about the outlook for that business going forward with the long runway. Joe Nolan: Got it. That is encouraging. And then on the international business, you mentioned some weakness there. Could you expand on what markets that is in and how that is factoring into your guidance? Rick Olson: Broadly across our businesses, that is the one area that is a little bit behind where we would expect them to be at this point in the year, just through the first quarter. I just looked at that detail this morning, and it is kind of broadly across a number of areas, both in Europe and in Asia across multiple categories. It is more just kind of a general economic environment sort of situation. Our team is still optimistic that they will be on track for the year, but we just see some softness there so far this year that we wanted to pass on as commentary. Joe Nolan: Got it. And then just one last one for me quickly. On M&A, can you talk about what you are seeing in terms of valuations and also update us within the existing where you see the greatest opportunity to build within organic growth? Rick Olson: Our approach to M&A has remained pretty consistent through the years. The activity has always taken place, building opportunities for M&A. We stay pretty focused in areas where we know we can compete and win, so it is close to our existing businesses. If you pick those out, it is going to be likely on the Professional side, and we see opportunities within, as evidenced by the Tornado acquisition, the underground and specialty construction particularly, but also opportunities for technology investments and adjacencies that might be there as well. The key point is the process continues on an ongoing basis. Valuations have been high, but there are some signs of moderating a little bit—just recent data points. Nothing necessarily statistically valid there, but valuations may be moderating a little bit. Joe Nolan: Great. Thank you for answering my questions. I will pass it on. Rick Olson: Thank you. Operator: Our next question comes from Eric Bosshard with Cleveland Research Co. Your line is open. Eric Bosshard: Thanks. A couple of things, if I could. First of all, with leverage at 1.5, I am curious how you are thinking about the next 12 to 18 months, as there have been a handful of tuck-in acquisitions and some bigger ones. As we move forward, what is the strategy with the leverage opportunity? Is it buying more stock, or more acquisitions? If you could just start on that, it would be helpful. Rick Olson: Thanks for the question. Our capital allocation strategy remains the same. We first invest in research and our new products and innovations. We invest in opportunities for productivity improvement and technology within our facilities. We obviously look for opportunities with M&A, and then, of course, we fund our dividends and typically would buy back stock at the end of that list. With regards to M&A, we have the capacity and we have the interest in M&A of all sizes. It is really, for us, the process that we go through and the discipline that we maintain in that process. We are always open to M&A, but it is really the process and the opportunities and the timing for potential sellers that is the gauging factor. Did that answer your question? Eric Bosshard: Yes, that helps. The second question is from a field inventory perspective on both the Pro and Residential side. Curious what that looks like presently and also the appetite for loading in both the Pro and the Residential side from your partners? Rick Olson: We are actually in a very healthy position from a field standpoint. Even in a normal situation, there will be differences by businesses, so some a little high, some a little low, and those businesses are working to adjust those with the normal flow. I would say we are pretty normalized at this point, and with regard to your question about channel, it really, as we mentioned earlier, helps us and gives us confidence in the second half of the year with the snow. In particular, the Professional products would be going into the preseason in the third quarter and the Residential products in the fourth quarter. So it does give us confidence in the second half to derisk some of those factors in the second half. Eric Bosshard: Okay. Thank you. Rick Olson: Thank you. Operator: Our next question comes from Mike Shlisky with D.A. Davidson & Co. Your line is open. Mike Shlisky: Hi, good morning. Thanks for taking my questions. I am not sure if people on your staff track this, but does the heavy snowfall that we saw most of this winter lead to a potential greener spring, assuming temperatures are somewhat normal? Rick Olson: It does, Mike. Snowfall leads to early spring moisture that gets the growth started early in the spring, so it is typically a positive. We have seen solid snowfall in the U.S. Interestingly, on average, a little bit below, just because of the extremes. The West had little snow, if you think about some of the ski locations. The Midwest was kind of mixed relative to normal, and then you experienced on the East Coast a really exceptional winter. That would also influence the effect that you talked about, so less snow in the West would be less positive going into the spring. Mike Shlisky: Got it. Thanks for that. Turning to CONEXPO, I really enjoyed—I checked out the booth the other day at CONEXPO, the Ditch Witch booth. I was curious about something I saw there called the Orange Intel system, which looks like an interesting fleet management, telematics-type system. The other brands that you have have similar systems like the Horizon 360, for example. I was curious how you feel about your offerings compared to the competition—both those and other offerings on shared infrastructure that maybe other people cannot really replicate. Are there any other digital offerings on the way, like getting Tornado added to it or other digital offerings that might have good subscription tailwind here? Rick Olson: Great observation, Mike, and thanks for the question on that as well. We get more excited every day with the progress of those things. In addition to the ones you referenced, Intelli360 would be another one that we are using on the Golf and Grounds side of the business. Some of those grew up in different places. Orange Intel is something that has existed with the Ditch Witch brand and the Charles Machine Works company even prior to the acquisition by The Toro Company. But now all of those teams are working together. We execute something within the company that we call our Technology Forum that brings all of our technology practitioners together to share and continue to co-develop. Going forward, what you hinted at is absolutely likely—that you will see more and more commonality and ability for customers who work across different segments of our product lines to be able to use some common infrastructure. Lots of good stuff going on now and excitement for the future there. Mike Shlisky: Great. Maybe one last one for me on the Golf business. I think last quarter, you said that Grounds would be a little bit more of a growth area than Golf, just with Golf having such tough comps. The Grounds has been a little bit of a—it was harder to meet that demand when Golf was so strong. A quarter later, do you still feel that way? Are golf courses—is Grounds still going to be a bigger driver than it was before? I would also be curious about the outlook for international golf courses versus domestic. Rick Olson: Another good question. I would say we are probably feeling a bit more optimistic on both fronts in Golf and Grounds. Our efforts in Grounds are showing benefits. Remember that was something that we were intending to put more energy toward. On the Golf side, we have done some recent research that is showing actually continued growth in equipment purchase expectations and the budgets to support that. We were prepared for some softening off the incredible growth trajectory that we have been on, seeing that normalize more, and it has. But the incoming orders have been a bit more brisk than we probably anticipated. So I would say we are probably more optimistic than we were three months ago in that regard. Mike Shlisky: I guess just your thoughts on global Golf as opposed to domestic. Any differences there? Rick Olson: Connecting back to my earlier comment, things have not been as strong internationally. Participation internationally has been really good, just as it has been in the U.S. There is still money going into the industry, but we have seen a bit more softness there. Development remains pretty strong. Some of the geopolitical things that are going on in the world—we were prepared that that may slow and defer some of the projects in certain regions. Generally, we think things are just connected back to the macroeconomic environment not being quite as strong and maybe a bit less investment internationally than we are seeing in the U.S. Nothing that we are alarmed about, but something that we are watching closely. Mike Shlisky: Thanks for that. I appreciate it. I will pass it along. Operator: This concludes the question-and-answer session. Ms. Lilly, please proceed to closing remarks. Heather Lilly: Thank you, everyone, for your questions and interest in The Toro Company. We look forward to talking with you again in June to discuss our second quarter 2026 results. Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
Operator: Good day, and welcome to the Ring Energy, Inc.'s fourth quarter 2025 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Al Petrie, Investor Relations Coordinator. Please go ahead, sir. Al Petrie: Thank you, Operator, and good morning, everyone. We appreciate your interest in Ring Energy, Inc. We will begin our call with comments from Paul D. McKinney, Chairman of the Board and CEO, who will provide an overview of key matters for the full year. We will then turn the call over to Rocky Kwon, Ring Energy, Inc.'s VP and Chief Accounting Officer, who will review the details of our fourth quarter 2025 and full year financial results. Paul will then return to discuss our 2026 guidance and outlook with closing comments before we open up the call for questions. Joining us on the call today are Sanu Joel, who recently joined Ring Energy, Inc. as its Executive Vice President, Chief Financial Officer, and Treasurer; Alexander Dyes, Executive Vice President and Chief Operations Officer; James Parr, Executive Vice President and Chief Exploration Officer; and Shawn D. Young, Senior Vice President of Operations. During the Q&A session, we ask you to limit your questions to one and a follow-up. You are welcome to reenter the queue later with additional questions. I would also note that we have posted an updated corporate presentation on our site. During the course of this conference call, the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Ring Energy, Inc. disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and in our filings with the Securities and Exchange Commission. These documents can be found in the Investors section of our website located at https://www.ringenergy.com. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in yesterday's earnings release. Finally, as a reminder, this conference call is being recorded. I will now turn the call over to Paul D. McKinney, our Chairman and CEO. Paul D. McKinney: Thanks, Al, and good morning, everyone. We appreciate you joining us today. Before we begin our discussion, I would like to introduce Executive Vice President, Chief Financial Officer, and Treasurer, Sanu Joel, who joined our senior management team last Friday. Sanu brings more than 20 years of experience across upstream oil and gas investment banking, corporate finance, and strategic advisory roles with deep expertise in mergers and acquisitions, capital markets, valuations, and financial strategy. For the last six years, Sanu was Managing Director and Co-Head of Energy Investment Banking at Raymond James & Associates, Inc., where he advised public and private E&P companies doing business in the Permian Basin as well as other major U.S. onshore basins. We are very pleased to welcome Sanu, who we got to know well while he was at Raymond James. Sanu, welcome aboard. Sanu Joel: Thank you, Paul. I am excited to be here. I want to start by thanking you, the Board, and the entire leadership team for entrusting me with this important role as we begin what I truly believe is an exciting next chapter for Ring Energy, Inc. and for our stockholders. As a banker, I have known the company and many of you in the investment community for quite some time, and I am genuinely thrilled to now be on the inside working alongside you, Paul, and the rest of this leadership team. We have a very exciting future at Ring Energy, Inc. I look forward to contributing as we continue to execute our strategy and create long-term value for our stockholders. Paul D. McKinney: You are welcome, Sanu, and we are equally excited for you to be a member of our executive team. Like I said earlier, welcome aboard. Regarding the task at hand, what a difference a week can make, right? Up until the Iranian crisis began to unfold last weekend, our focus was on raising the floors of our oil hedges to help ensure our future realized prices would be adequate to fund our 2026 capital program. Things certainly look different today. We will talk more about 2026 and the future later in this call, but for now, Rocky and I are going to reflect on what happened last year, the conditions we faced in 2025, and our fourth quarter and full year results. 2025 was a year that demonstrated the strength and resilience of Ring Energy, Inc.'s value-focused, proven strategy. When combining the flexibility afforded by our strategy and the discipline demonstrated by the management team to quickly adjust capital spending in the face of post Liberation Day oil prices, Ring Energy, Inc. delivered strong performance throughout the year 2025 and in the fourth quarter. Perhaps one of the more important successes was that we increased adjusted free cash flow by 15% year-over-year, setting a new company record despite 18% lower realized commodity prices, and we delivered our 25th consecutive quarter of adjusted free cash flow, a track record we are very proud of. We also increased sales volumes by 3% year-over-year, our total proved reserves by 14%, our proved undeveloped inventory by 17%, which pushed our identified total locations to 500 or more, representing over 10 years of drilling inventory. This is significant because we have demonstrated for the third year in a row our ability to organically grow our reserves beyond merely replacing our production. We decreased capital spending by 35% year-over-year, reducing our reinvestment rate by 18% to 53% of our 2025 EBITDA. We improved our drilling capital efficiency by 19% since 2023 and 3% year-over-year to $500 per lateral foot, keeping our capital costs under control. We also reduced our year-over-year per BOE all-in cash cost by 4% and our lease operating expense during the last six months by 18% or $1,400,000 per month over the pro forma run-rate prior to closing the Lime Rock asset acquisition. This is significant because our lease operating cost run-rate per month is less today than it was before the Lime Rock acquisition despite the fact that we are operating more wells and more production. And finally, we reduced our debt by $40,000,000 since the closing of the Lime Rock asset acquisition in addition to making the $10,000,000 deferred payment in December. The $40,000,000 debt reduction represents almost 60% of the debt incurred at closing of the Lime Rock acquisition in only three quarters, and all of that done in a low price environment. Although 2025 will be remembered by Liberation Day and challenging oil prices that followed, Ring Energy, Inc. stepped up to the challenge and delivered strong operational and financial performance. Now, with that, I have completed my intro. I am going to turn it over to Rocky to go over the numbers and the details of the fourth quarter and the full year, and then Sanu, me, and the rest of the team will follow up afterwards to review our outlook and guidance for 2026 and discuss rapidly changing conditions affecting our industry and what they may mean for our stockholders. Rocky? Rocky Kwon: Thanks, Paul. Good morning, everyone. We are pleased with our outcome for the fourth quarter. In addition to the results that met our overall guidance, the fourth quarter capped off another successful full year for Ring Energy, Inc. Similar to past calls, I will take a few minutes to cover some additional color detailing the most significant sequential quarterly results. Starting with production, in the fourth quarter we sold 20,508 BOE per day, down from 20,789 BOE per day in the third quarter, a slight decrease of 1%. A portion of the decrease was attributable to a third-party gas plant being shut in due to a fire, which affected our sales volumes. Our fourth quarter total sales volumes were above the midpoint of our guidance range and contributed to a record full year 2025 sales volume of 20,253 BOE per day. The year benefited from nine months of production from our Lime Rock acquisition, which closed in March 2025. As Paul discussed, another successful drilling campaign across our asset base with a continued focus on our highest rate-of-return inventory also materially contributed to our record full year 2025 sales volumes. Turning to the fourth quarter 2025 pricing, our overall realized price declined 14% to $35.45 per BOE from $41.10 per BOE in the third quarter. The overall sequential decline was driven by 11% lower realized pricing for oil in the fourth quarter 2025. Our fourth quarter average crude oil differential from NYMEX WTI futures pricing was a negative $1.66 per barrel versus a negative $0.61 per barrel for the third quarter. This was mostly due to the Argus WTI-WTS that decreased negative $0.14 per barrel offset by the Argus CMA roll that decreased a negative $0.92 per barrel on average from the third quarter. Our average natural gas price differential from NYMEX futures pricing for the fourth quarter was a negative $6.04 to $7.00 per Mcf compared to a negative $4.22 per Mcf for the third quarter. Our realized NGL price for the fourth quarter averaged 9% of WTI compared to 8% in the third quarter. Oil revenue decreased by $9,500,000 due to a negative $8,300,000 price variance and a negative $1,200,000 reduction. Gas and NGL revenues, on the other hand, increased by $2,200,000 quarter-to-quarter, for a combined total of $2,500,000 in the fourth quarter compared to $300,000 in the third. This resulted in fourth quarter revenue of $66,900,000 compared to $78,600,000 for the third quarter, a 15% decrease. Fourth quarter LOE of $18,900,000 was 8% below third quarter. On a unit basis, fourth quarter LOE was $10.02 per BOE, which was 7% below the low end of our guidance range. Third quarter LOE was $10.73 per BOE. Cash G&A, which excludes share-based compensation and transaction-related costs, was $3.46 per BOE for the fourth quarter versus $3.41 per BOE for the third quarter. Our fourth quarter 2025 results included a gain on derivative contracts of $17,500,000, up from $400,000 for the third quarter, primarily due to lower relative pricing at the end of the fourth quarter. Finally, for Q4, we reported a net loss of $12,800,000, or $0.06 per diluted share, which includes $35,900,000 of non-cash ceiling test impairment charges. Excluding the estimated after-tax impact of pre-tax items, including share-based compensation expense, non-cash ceiling test impairment and non-cash unrealized gains/losses on hedges, our fourth quarter adjusted net income was $3,600,000, or $0.02 per diluted share. This is compared to a third quarter 2025 net loss of $51,600,000, or $0.25 per diluted share, and adjusted net income of $13,100,000, or $0.06 per diluted share. We incurred $24,300,000 in CapEx in the fourth quarter, in line with the midpoint of guidance. We maintained D&C CapEx at $14,000,000 in the fourth quarter compared to the third quarter. We incurred costs of approximately $500,000 for facility upgrades, which contributed to our year-over-year reduction in emissions. Also included in our fourth quarter CapEx was over $400,000 in leasing cost, approximately 23% of our full year leasing, which added to our reserve replacement and organic inventory growth. In 2025, we generated $5,700,000 of adjusted free cash flow and paid down $8,000,000 in debt, resulting in debt reduction of $40,000,000 since completing the Lime Rock acquisition in March 2025. In addition to the paydown, we made a $10,000,000 deferred payment in December 2025 related to the Lime Rock acquisition. For full year 2025, we paid down $35,000,000 of debt and generated $50,100,000 in adjusted free cash flow. We will continue to utilize our free cash flow to improve our long-term financial profile through further debt repayment, which we expect will be fueled primarily by growth in cash flow driven by the successful execution of our targeted 2026 development program. Our primary focus remains the same: utilizing our substantial free cash flow to primarily reduce debt and better position ourselves to ultimately provide a meaningful return of capital to shareholders. At year-end 2025, we had $420,000,000 drawn on our credit facility. With the borrowing base of $585,000,000 that was reaffirmed in December, we had $165,000,000 available net of letters of credit. Combined with cash, we had liquidity of $166,000,000 and a leverage ratio of 2.2 times. Moving to our hedge position, for 2026, we currently have approximately 2,300,000 barrels of oil hedged, or approximately 48% of our estimated oil sales based on the midpoint guidance. We also have 4.7 Bcf of natural gas hedged, or approximately 66% of our estimated natural gas sales based on the midpoint. For a quarterly breakout of our 2026 hedge positions, please see our earnings release and presentation, which includes the average price for each contract type. I will now turn it back to Paul to review the outlook and guidance for 2026. Paul? Paul D. McKinney: Thank you, Rocky. Before turning to our outlook and guidance for 2026, we want to take a moment to directly compliment our field personnel. Once again, a January winter storm brought extremely cold temperatures and icy conditions to our operations. To our pumpers, maintenance crews, contractors, and our field supervisors, your dedication kept our people safe and our assets protected. We know what it takes to operate in those temperatures, and the executive team and board are incredibly grateful for your grit and hard work. Now, looking ahead to 2026, we intend to follow a similar disciplined approach as we have in the past. Our strategy is to invest enough capital to maintain or slightly grow our production and allocate the remaining portion of our cash from operations to reduce debt. Our budget and plans this year are based on $60 per barrel WTI and $3.50 per Mcf Henry Hub. We expect our average annual sales to range between 19,500 to 20,800 barrels of oil equivalent per day, for a midpoint of 20,150 barrels of oil equivalent per day. We expect our average annual oil sales to range between 12,500 and 13,400 barrels of oil per day, with a midpoint of 12,950 barrels of oil per day. Both ranges are essentially flat with 2025 sales volumes after taking into account the recent divestiture of approximately 200 barrels of oil equivalent per day of non-operated production and the impact of the January winter storm that temporarily reduced production by 500 to 540 barrels of oil equivalent per day. Supporting our production estimates, we expect full year capital spending of $100,000,000 to $130,000,000, with a midpoint of $115,000,000. We anticipate drilling, completing, and bringing online approximately 23 to 32 wells during the year. First quarter spending is projected to be between $28,000,000 and $34,000,000, with a midpoint of $31,000,000. This capital program provides optionality and the potential to add new benches to our drilling inventory, offering a compelling avenue to expand our development, deepen our opportunity set, and further demonstrate the strength and longevity of our asset base. Our ongoing advancements in capital efficiency through longer laterals, optimized completions, and continued constant improvements are already generating tangible benefits and are expected to serve as a strong foundation for sustainable free cash flow generation. With our continued focus on capital efficiency, our full year LOE is currently expected to range between $10.15 and $11.50 per BOE, for a midpoint of $10.65 per BOE. I believe it is important to point out that we are projecting an LOE midpoint below what we achieved in 2025, which emphasizes our continued commitment to further cost reductions. This is important because it contributes directly to the bottom line by increasing margins and creates further optionality for the company. In summary, our 2026 program follows the same proven playbook: disciplined capital allocation, relentless focus on reducing our LOE and cash costs, increasing the capital efficiency of our drilling program, which collectively maximizes free cash flow generation and furthers our ability to reduce debt. As mentioned earlier, our 2026 budget and plans assume WTI oil prices of approximately $60 per barrel and Henry Hub natural gas prices of approximately $3.50 per Mcf. Now with that, we have covered the 2026 guidance. I believe we, as a team, should spend a little more time talking about the Iranian crisis, Ring Energy, Inc.'s strategic advantage, our recent stock price performance since last fall, and what all this can mean for our stockholders. Additionally, people want to get to know you, Sanu, and understand why you chose to leave the investment banking world to join Ring Energy, Inc. Sanu? Sanu Joel: Paul, as you know, I spent nearly two decades as a banker advising E&P companies, and what became increasingly obvious to me over that time is that the U.S. shale model is maturing. Core inventory across the industry is being drilled up, decline rates remain steep, and the market today is far more selective about which companies deserve long-term capital. Against that backdrop, Ring Energy, Inc. stands out. What initially caught my attention was the durability of the asset base. Ring Energy, Inc. operates conventional assets with shallow declines, long-life reserves, and high margins, characteristics that are unique to Ring Energy, Inc. and increasingly rare in today's E&P landscape. A 20-plus year R/P ratio and more than 10 years of identified drilling inventory is something I do not think many other companies can say, especially in the small- to mid-cap space. What also truly differentiated Ring Energy, Inc. for me was its consistency of execution. Ring Energy, Inc. has generated resilient free cash flow for 25 consecutive quarters through multiple commodity cycles. Over the last three years, Ring Energy, Inc. has organically grown reserves, not just replaced production. The company has also been active at M&A, successfully integrating multiple accretive acquisitions, all while simultaneously improving capital efficiency, lowering costs, and reducing debt. From a capital allocation standpoint, Ring Energy, Inc. is doing exactly what the public markets are asking for today: living within cash flow, reinvesting prudently, strengthening the company, building towards sustainable returns of capital, and maintaining optionality for growth. There are very few companies, especially at this scale, that can demonstrate this level of discipline and repeatability. Looking ahead, I am excited to be part of the team. My focus as CFO will be straightforward: protect the balance sheet, enhance free cash flow durability, strategically position us for growth, and help position Ring Energy, Inc. to ultimately return capital to stockholders from a position of strength. With our asset quality, inventory depth, and proven operating and financial discipline, I believe Ring Energy, Inc. is exceptionally well positioned for the next phase of this industry. Paul, I hope this gives investors a better sense of why I am so excited to be working at Ring Energy, Inc. Paul D. McKinney: Thank you, Sanu. Yes, I believe it does, and reinforces why we are so excited to have you. Now turning to James. How about you? What do you believe are some of the more important issues our stockholders should know about Ring Energy, Inc. and in light of the current events? James Parr: I am glad you brought that up, Paul. The value of being a Permian-focused company has never been greater given the potential for international supply disruption. Our over 96,000 net acres footprint in the heart of the Permian has been primarily focused on the San Andres, however, we have proven through our vertical drilling program that we have a robust inventory of additional attractive targets, which have been and continue to be de-risked by us and others in our industry horizontally. Ring Energy, Inc.'s exploration mindset has led to organic growth over the last three years. We do not see any reason why we cannot continue this performance in 2026 and beyond. We began testing previous vertical targets last year horizontally with excellent results. We will continue to test these intervals to determine repeatability and are confident that successful outcomes will result in increased inventory, capital efficiency gains, and future organic growth. More to come. Paul D. McKinney: James, that was great. Alex, what do you believe are some of the important issues our stockholders should know about our company, our operations, and also in light of the current events? Alexander Dyes: Thanks, Paul. Let me walk through how our strategy has delivered real, measurable value for our shareholders and set us up for future value creation. First, we have built a clear track record of executing acquisitions that are not only immediately accretive but strategically complementary. These deals added scale to our business, provided operational synergies, and most importantly, expanded our future drilling inventory. What truly differentiates us is our execution after close. In our two most recent acquisitions, Founders and Lime Rock, we have exceeded expectations in the first year across key metrics, including increased production, lowering lift costs, lowering drilling capital per well, and increasing proved reserves. That performance is tangible proof of value creation, as shown in our 2025 performance. Beyond near-term results, these acquisitions, along with the Stronghold in 2022, have meaningfully deepened our inventory across the Central Basin Platform. Second, increased scale and operational control have enabled a more durable cost structure. Over the past three years, we have consistently improved capital efficiency and reduced operating costs, driving approximately a 10% improvement in finding and development costs to $10.40 per BOE since 2023. That improvement is not cyclical; it is structural. They are driven by disciplined capital allocation, technical optimization, and a strong cost control culture, as demonstrated in our three-year track record of improvements. Our LOE reductions are long-term in nature and further enhance the value of our already long-life, low-decline reserves. Our culture is one built to last, not one for just short-term gains. Finally, looking ahead, we are focused on extending this momentum into 2026, investing in infrastructure that supports the next phase of development as we transition from verticals and predominantly one-mile laterals to multi-bench, longer laterals, meaning laterals longer than 1.5 miles, and co-development opportunities where applicable. Proving our shift to horizontals in 2026, our drilling program midpoint increased the horizontal mix to 85%, or 23 horizontals, versus 67% in 2025. By drilling longer laterals, proving up multi-bench inventory and advancing co-development across stacked pay zones, we are unlocking more capital-efficient inventory and positioning the company for a stronger, more durable free cash flow profile over the long term. Paul, I will turn it back to you. Paul D. McKinney: Thanks, these are all great points. Another point worth discussing, though, is that since the exit of our former largest stockholder in August of last year, our stock price has nearly doubled. If you recall, their exit put additional selling pressure on our stock, causing our stock to trade below $1 and disqualifying our Russell 3000. We believe these two events were instrumental in driving our stock price down to $0.72 a share and our trading multiples at the lower end of our peer group. Another point I want to make is associated with our pursuit of growth through acquisitions. Given our current debt and leverage ratio, we are not in the best position to pursue a sizable acquisition. Having said that, though, we are always looking for the next great deal. And this is where it is good to have more ways to win, so to speak, or more growth tools in the toolbox. We do not only depend on M&A for our future growth because we have demonstrated that we can grow organically as well. Having said all that, this brings us to the end of our prepared remarks, so I will sum things up by saying we scaled the business, expanded high-quality inventory, lowered our cost structure, and are investing today to drive sustainable returns and long-term value creation. We are excited about the opportunities ahead in 2026 and believe we can deliver meaningful long-term stock price appreciation now that our overhang on our stock is behind us. Since the new year, our share price has increased 62%, reflecting renewed investor confidence, our stronger operational execution, and a clear alignment between our stock price performance and our valuation. With that, we will turn this call over to the Operator for questions. Operator? Operator: Thank you. We will now begin the question-and-answer session. To ask a question, please follow the instructions provided. If you would like to withdraw your question, please follow the prompts. And the first question will come from Jeffrey Woolf Robertson with Water Tower Research. Please go ahead. Jeffrey Woolf Robertson: Thanks. Good morning. Paul, you talked about the organic growth in inventory set through the 2026 drilling program. Are you testing any new zones in the 2026 program, or is expanding the inventory related to high-grading zones that you may think are, with additional drilling data points, you determine those could be economic targets? Paul D. McKinney: Good morning, Jeff. Yes, it is a good question. Very much so. And so with respect to new zones, you have to remember that we have been drilling what we call inexpensive verticals and completing the stacked pays in Crane County and also in Ector County for quite some time. North of that, we focused on the San Andres. But all these zones have been producing in many of our wells for a long time. What is new is that we have taken a serious look at our inventory across our entire acreage position. We have identified the zones that we believe are commercial or can be commercial horizontally, and we began last year testing a few of those. And so we are not yet ready to come out with which zones that we are specifically targeting and where. But we are very encouraged by the results. And this year's program is designed to test the repeatability of that, and with that, we will come out with a lot more information about which of these zones that we are targeting, how meaningful it will be for our stockholders in terms of the number of sticks that we are adding into our inventory. And so we are really excited for 2026. I think the point that you are driving to right here is the key reason why we are so excited, because we do believe that our capital program this year, even though a modest one, is going to generate a lot more information about the sustainability of our current asset set in terms of developing future horizontal wells, going from verticals to horizontals. And with that, James, is there anything more you would like to add to that? James Parr: Yes. No. Those are all good points. And Jeff, we paused our original budget at the beginning of the year. What it changed this past week has been, but we are going to stay disciplined towards paying down debt and feathering in these additional tests for these other horizons so we can still meet our financial objectives of paying down debt and remaining disciplined, and then get some data behind us. But we view our previous acquisitions setting us up perfectly with a great inventory of deeper potential that we are in the process of testing. So more to come on this, but as Alex mentioned, we are investing a little in infrastructure to be able to capitalize on converting the program into horizontal wells. And the neighbors surrounding us have been testing some of the zones very successfully too. So we are going to have a disciplined approach to doing this, but we are very excited by the potential we have ahead of us. So thanks for asking. Paul D. McKinney: Yes, and like I said a little earlier, Jeff, although we are not planning to grow our production appreciably this year, it is my belief anyway that the results of the work program that the geoscience and engineering teams are pursuing will inventory more horizontal sticks, and we should emerge from 2026 with an inventory that we can actually develop and lead to significant organic growth without the need to pursue M&A. And, of course, you know that we love M&A, and we like pursuing the acquisitions, but we have more than one way to win, so to speak. And this program, although not designed to develop production growth, it is designed to develop, potentially, additional inventory for drilling locations and also reserve growth. Jeffrey Woolf Robertson: To your point on horizontal wells, Paul, do you have a lot of land work to do to get those leases positioned to accommodate the length of lateral that you think will be most efficient as you look at these zones? Paul D. McKinney: Yes. We began those efforts actually as much as two years ago, positioning our land so that we can drill the longer laterals. So this year, we will be drilling our first two-mile well. And we are focused on, just like the rest of the industry, organizing our leases, preparing things so that we could take advantage of the benefits of additional capital efficiency. We have learned now that going to longer laterals, we have also learned that employing some of these newer latest and greatest completion techniques and the evolution of our completion designs, is just leading to more reserves per dollar spent, more production per dollar spent, more capital efficiency. And so this is also another part of what we are doing. Yes, it takes a little bit of capital to invest in some of the infrastructure, like the ability to store enough water so you can complete these longer wells. But these investments are going to pay off in the long term. We will incur some of those costs this year, but they will have benefits in the years to come as we fully develop our acreage down there in Crane County and Ector County and all that kind of stuff. Thank you. Operator: And our next question will come from Charles Kennedy Fratt with Alliance Global Partners. Please go ahead. Charles Kennedy Fratt: Hey, great presentation. Just a quick one. I noticed that you sold some non-op properties, I think earlier this year, after the end of the year. Can you quantify what you are going to bring in there? I am not sure I heard that. And then secondly, are there other opportunities to sell assets or non-core production? Paul D. McKinney: Yes. Good morning, Poe. Yes, that is a very good question. We did close—we began a disposition process last year of some non-operated assets in Yoakum County. And yes, we closed on that in January. It represented about 200 BOE per day net of our non-op production, and that is what we subtracted out of our forecast for this year. And there are a few more details that we can share with that. I mean, Alex, I think maybe you ought to cover all of that for us. Alexander Dyes: Yes. Thank you, Paul. So, Poe, yes, we sold 200 BOE per day, and we sold it at $4.5 million, so about 4.5 times next 12 months cash flow using a December strip price. So that is actually what we sold. Charles Kennedy Fratt: Great. Thank you. Paul D. McKinney: And with respect to the rest of our inventory, we are always looking for ways to accelerate value to help us pay down debt. But as you know, we have been pretty, over the last five years, selling the assets in the portfolio that really do not meet our criteria. And so if the undeveloped opportunities are not competitive with our current portfolio, it is kind of hard to justify keeping those. You can sell those to someone else who is willing to invest in those types of opportunities and bring that value forward, and we have been paying down debt, or primarily allocating those funds to paying down debt. So we will continue to do that in the future. I will say, though, that the cupboard is kind of bare. We probably need to do another acquisition or two because every time you make an acquisition, you will end up picking up assets that do not fit our criteria to stay within our portfolio, and so we tend to monetize those when that occurs. And so right now, I am not sure that we really have an inventory that is meaningful that would be coming to market from us anyway because we have basically already cleaned out the cupboards. Did that answer your question, Poe? Charles Kennedy Fratt: It did. Thank you, Paul. Operator: As there are no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Paul D. McKinney for any closing remarks. Please go ahead. Paul D. McKinney: Thank you, Chuck. On behalf of the management team and the Board of Directors, I want to once again thank you for your interest in joining today's call. We appreciate your continued support of the company, and we look forward to keeping everyone updated on our progress in the future. This ends the conversation. Thank you. Operator: Have a great day. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp. fourth quarter 2025 financial and operational operating results conference call. As a reminder, after the presentation, there will be an opportunity for analysts to ask questions. You may also submit questions in writing at any time using the form in the lower section of the webcast frame. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Brian Ector, Senior Vice President, Capital Markets and Investor Relations. Please go ahead. Brian Ector: Thank you, Ashiya. Good morning. Welcome to Baytex Energy Corp.'s fourth quarter and full year 2025 results conference call. Joining me today are Eric Greager, our CEO, Chad Lundberg, our President and COO, and Chad Kalmakoff, our CFO. Before we begin, please note that our discussion today contains forward-looking statements within the meaning of applicable securities laws. I refer you to the advisories regarding forward-looking statements, oil and gas information, and non-GAAP financial and capital management measures in yesterday's press release. On the call today, we will also be discussing the evaluation of our reserves at year-end 2025. These evaluations have been prepared in accordance with Canadian disclosure standards, which are not comparable in all respects to the United States or other disclosure standards. Our remarks regarding reserves are also forward-looking statements. All dollar amounts referenced in our remarks are in Canadian dollars unless otherwise specified. After our prepared remarks, we will open the call for questions from analysts. Webcast participants can also submit questions online. So, with that, let me turn the call over to Eric. Eric Thomas Greager: Thanks, Brian. Good morning, everyone. 2025 was a defining year for Baytex Energy Corp. With the closing of the Eagle Ford sale in December, we successfully completed the repositioning of this company into a focused, high-return Canadian oil producer. This is our first call since that milestone, and it marks a significant upshift in our trajectory. Baytex Energy Corp. is a technically driven organization with an industry-leading balance sheet. By exiting the year in a net cash position, we have established a premier platform built for disciplined, long-term value creation. We are entering 2026 with a clear strategy and the financial flexibility to navigate any market environment. With this strategic pivot now complete, it is the right time to formalize our leadership transition. As we announced yesterday, Chad Lundberg will succeed me as CEO following our AGM in May. Chad has been a valuable partner to me and to this organization, and his promotion is the result of a deliberate, structured succession process to help ensure our positive momentum remains uninterrupted. I have complete confidence in Chad's leadership and ability to drive our next chapter. I am proud of the foundation we have built together. Baytex Energy Corp. is in excellent shape, and I look forward to its continued success under Chad's leadership. I will now turn the call over to Chad Lundberg for his remarks and a detailed operational overview. Chad E. Lundberg: Thank you, Eric. I appreciate the Board's confidence, and I am excited to lead Baytex Energy Corp. and our team into the next chapter. My focus as we move forward is simple. We remain committed to technical leadership and disciplined capital allocation to create value. We will continue to build our business by prioritizing our heavy oil and Duvernay assets with an enhanced focus on exploration and new play development, all of which is underpinned by a balance sheet that is in great shape. And we will prioritize a competitive return through a combination of organic growth, share buybacks, and dividends. Let's turn to our operational performance. In 2025, our Canadian portfolio delivered annual production of 65,500 BOE per day, which, excluding dispositions, represented 6% organic growth year over year. We invested $548 million in Canada in a highly efficient capital program and delivered solid reserves growth, low F&D costs, and healthy recycle ratios across all reserve categories. Pembina Duvernay and heavy oil development contributed significantly to this performance and continued a strong track record of value creation. This demonstrates the long-term resiliency and sustainability of our business. Importantly, we have significant running room across our portfolio and are excited about our business going forward. First, let's talk about the Duvernay. We have assembled 91,500 net acres and identified approximately 210 drilling locations. 2025 was a breakthrough year. We validated the resource potential, reduced well costs on a per-foot basis, and improved our characterization of the play. We grew production to 10,600 BOE per day in the fourth quarter, a 46% increase over Q4 2024. We are now transitioning to full commercialization with plans to bring 12 wells onstream this year, a 50% increase over 2025. We currently have one rig drilling a four-well pad on our southern acreage. Completion operations are scheduled for the second quarter, with the wells expected to be onstream by midyear and the remaining two pads in the third and fourth quarters. Shifting to heavy oil, we continue to see strong, predictable performance across the portfolio. Our heavy oil assets comprise 750,000 net acres and 1,100 drilling locations, supporting twelve years of drilling at our current pace of development. In total, we expect to bring 91 heavy oil wells onstream in 2026. We are pleased with the expansion of our Northeast Alberta acreage where we are currently targeting seven discrete horizons in the Mannville stack. Recent success includes two multilateral wells in the Sparky and a five-well pad in the Upper Waseca. Our 2026 program will also see increased exploration activity, including stratigraphic tests, step-out wells, and 3D seismic to expand our development inventory and test new play concepts across our extensive heavy oil fairway. In addition, we are advancing two waterflood pilots at Peavine, blending the attractive capital efficiencies of multilateral primary development with the potential for enhanced recovery and moderated decline rates. Thank you to our teams for executing safely through 2025 and into 2026. And with that, I will turn the call over to Chad Kamilcoff to discuss our financial results. Chad L. Kalmakoff: Thank you, Chad, and good morning, everyone. Our 2025 financial results demonstrate the cash-generating power of our Canadian assets and the transformative impact of the Eagle Ford divestiture. For the full year, we generated $1.5 billion in adjusted funds flow and $270 million in free cash flow. In the fourth quarter, we delivered $262 million of adjusted funds flow and $76 million in free cash flow, which included $35 million of nonrecurring expenses related to the Eagle Ford disposition. This was achieved despite a softer commodity backdrop with WTI averaging US $9 per barrel during the quarter. The 2025 net loss of $604 million reflects the nonrecurring loss on the Eagle Ford disposition, a deferred tax expense related to the restructuring from the sale, and a $148 million impairment on our Viking assets. These non-cash adjustments have no impact on our cash flow generation outlook for 2026. Turning to the balance sheet, we exited 2025 with the strongest financial position in Baytex Energy Corp.'s history. We eliminated our net debt and ended the year with $857 million in cash less bonds and our $750 million credit facility fully undrawn. We remain committed to returning a significant portion of the Eagle Ford proceeds to our shareholders and believe the NCIB program is the most efficient approach. Since reinitiating our buyback program in late December, we have repurchased 30 million shares, nearly 4% of the company, for over $141 million. Our current NCIB remains active through June, and we intend to launch a renewed NCIB in July. As we monitor the broader macro environment, we continue to assess the pace and mechanism of our buybacks to ensure we are maximizing long-term value for our shareholders. We have considered an SIB, or substantial issuer bid, but at this time, we believe we can meet our shareholder commitments through our NCIBs in 2026 while maintaining our annual dividend of $0.09 per share. I will now turn the call back to Eric for closing remarks. Eric Thomas Greager: Thanks, Chad. To build on those points, this focused, high-return Canadian company is the next chapter for Baytex Energy Corp. For 2026, our operations are on track, and our annual guidance of 67,000-69,000 BOE per day remains unchanged from December, with the high end of that range representing 5% organic growth year over year. We have significant inventory depth and optionality across our portfolio to support our current plan and potentially accelerate growth beyond these levels. I am proud of the trajectory we have established. We are now positioned to demonstrate the true potential of this Canadian portfolio. Operator, let's open the call for questions. Thank you. Operator: We will now begin the analyst question-and-answer session. You will hear a tone acknowledging your request. To submit your question in writing, please use the form in the lower right section of the webcast frame. If you are using a speakerphone, please pick up your handset before pressing any keys. The first question comes from Menno Hulshof with TD Cowen. Please go ahead. Menno Hulshof: Good morning, everyone, and congrats to the both of you on the transition. I will start with a question on the growth outlook. You are currently guiding 3% to 5% for 2026, but if we assume that oil prices remain elevated for longer than expected, is there a scenario where growth exceeds the top end of the current range? And then has your overall thought process in terms of high-level deliverables for 2027 changed at all within the last several weeks? Chad E. Lundberg: Thanks, Menno. It is Chad. I will take a crack at answering your question. So, on growth, yes, I mean, we have guided to a capital program of $550 million to $625 million delivering 67,000 to 69,000 barrels a day, which represents 3% to 5% production growth. We are actively monitoring the macro picture and situation right now, and we would expect to make any decisions on increased growth at the breakup timeframe. We certainly have the optionality within the portfolio depth and quality to go a little bit harder this year and, to your point, into 2027. As I said, that will come, you know, we will look at it through breakup and make the decisions accordingly. Maybe just a little bit of an example of where we could look to expand the program. So, you know, potentially another pad in the Duvernay that may look like a drill that gets DUCed into next year and completed. Or continued expansion in that Northeast Alberta fairway where we utilize the two drill rigs that are drilling there today and potentially continue with that second rig. We could also pivot, though, just again, an example of the depth of the inventory, pivot up into Peace River where we have some of the exploration work happening and elect to allocate capital up into that region as well. So, lots of optionality currently on our radar. We are not moving it too fast, but those will come as decisions through breakup. Menno Hulshof: Terrific. Thanks for that, Chad. And then maybe, I guess, my second question relates to your opening comments on some of the comments that you made on the Peavine waterflood opportunity. How material could that be? How do you plan to tackle this relative to some of your peers who are already well down that track? And what could that look like over the next, in terms of deliverables, what could that look like over the, call it, twelve to eighteen months? Chad E. Lundberg: So, we are deploying two pilot projects this year. One is into the kind of part of the play that we have been actively drilling to this point. So, you can expect that, you know, we produce barrels out of the well that is going to be converted ultimately into an injector. What we are looking for there is just how fast can we fill it up to then pressure support the entire system around it to ultimately drive a lower decline and more barrels out of the ground. The second pilot is in a new development area where we are actually drilling the producers and the injectors simultaneously with each other, and we will turn them on together at the same time. So, what does all this mean? I mean, certainly, the waterflood has been doing great things for our industry. We are not sure what happens with our rock. That is why we have committed to pilots at this point in time. As a reminder, our primary development is very strong, holding 48 of the top 50 wells in the play, and that is really a part and parcel to the incremental pressure that we have in situ in the rock itself. So, there are various factors that are maybe unique to our situation that are potentially different from others. If you extrapolate that out, though, to the big picture, we are pretty excited for what it could do if it were to work with respect to base declines and driving more oil out of the ground. What does that mean for the future in the next eighteen months? I think, you know, we are going to work very hard to try and understand this through end of the year and into the budget process. And then how does that translate into our program next year? It could mean incremental waterflood injector activity in 2027. It could mean leaving gaps in our drilling program in between primary producers for the future. And we are just going to have to wait and see, Menno, where we go. Menno Hulshof: Can you remind me? I should know this. But when was the last time Baytex Energy Corp. dabbled in waterfloods, if at all? Chad E. Lundberg: Yeah. So, I mean, waterflood is not new to Baytex Energy Corp. at all. We have actually been at it for two decades. Waterflood and then also polymer floods. It just depends on the quality of rock and oil that we are working with. But you could think about it this way, Menno. Approximately 10% of our heavy oil production, so 43,000 barrels a day in 2025, is waterflood-derived production. So, not new to the story, and it is not foreign to us. We have the technical capacity and teams to really, we think, advance this forward. Menno Hulshof: Terrific. I will turn it back. That was very helpful. Thank you. Operator: That is all the questions we have from the phone lines. I would like to turn the conference back over to Brian Ector for any questions received online. Please go ahead. Brian Ector: Great. Thank you. Yes, there are a few questions coming through in the webcast, so I will try and run through those with you here, Chad. Menno spoke to the current WTI price environment, maybe optionality and growth. But another question comes in around, I think it is referencing breakeven prices. Is there a WTI price that we would pause the growth scenario, Chad? Chad E. Lundberg: Well, we set the budget out 3% to 5% centered at $60 oil, guiding to the high side, more than 5%, at $65, and then certainly the flexibility, as we have built the program, to pull that back below $60 oil. I think that is how we think about it, think about our growth. And, again, we are just really observing the macro climate right now. Obviously, it is incredibly dynamic, and we are taking it in and are not going to make any knee-jerk moves. But I would remind that we have the optionality and flexibility to move harder if so desired. Brian Ector: Another question on the operations around our cost of production, and can you speak to the capital efficiencies you see in the business generally, Chad, and steps we can take to continue to work on the cost of production and efficiency of the world. Chad E. Lundberg: Yeah. You know, Brian, I think that gets into how we have laid the budget for 2026. We have started with sustaining capital at $435 million, add the $50 million in growth, $50 million in infrastructure, and then $50 million in exploration. I think when you look into each one of those buckets, they are designed to improve capital efficiency. So, I will just give an example in the Duvernay. The infrastructure spending is at a higher and elevated pace for the next three years and then falls off, you know, post three years to a much lower rate. That flows right through the capital efficiencies and excess free cash flow to the shareholder. If you look in our investor pack, we have done it again centered on the Duvernay, a pretty good job of delineating the asset, improving the characterization, and then also reducing cash costs. Specifically, in 2024, we improved by 11% on the characterization and then equally so dropped their capital cost by 11%. So, both of those flow straight through to capital efficiency. Maybe just a little bit on the heavy oil program, touched on the $50 million that is allocated to exploration. This is absolutely intended to enhance and lengthen our inventory position. And I think, you know, some of the wells that we released through Q4 of last year up in the Sparky in the Suggton area, some of our Upper Waseca wells as we step through that Northeast Alberta area and the seven different layers in the Mannville stack, we are pretty excited about what it is doing for capital efficiency. I would make this motherhood statement, though, to end the conversation. We are not done. This is something that we do as a company. This is something that our teams are tremendously good at, and this is a huge focus and priority of mine as I step into this role and we move forward into the future from here. Brian Ector: Thanks, Chad. Let's shift gears to a couple of questions and conversations around the net cash balance sheet that we have. It is around $800 million and, Chad, just, I know we have talked a little bit about the insight in the prepared remarks, but how do we see allocating that $800 million going forward? Chad E. Lundberg: So, we have been pretty clear that a good portion of that is going to be returned to the shareholders by way of a buyback. Chad, Kamilcoff in his prepared remarks talked about the NCIB as the preferred vehicle over an SIB at this point in time. But we have also been very clear about utilizing some of the proceeds for greenfield tuck-in, land acquisition, bolt-on style activity in our key and core focus areas. We are still committed to that. Brian Ector: Maybe along those lines and just when you look at buybacks, how would we evaluate the market price, the value, and where we see value in the buyback program itself. Chad E. Lundberg: Yeah. So, you know, I would start here that this company is going to be all about value going forward and an intense focus on how we deliver that value. When we evaluate the buyback specifically, I think there are three things we look at. One is the macro commodity environment, and we would like to think about really acting countercyclically and respecting where we are at in the cycle. The second, though, is just how we are trading to our peers. And so, as we evaluate that, it looks like we have good potential to grow with respect to how our peers are trading today. And then lastly, and equally as important, is just the intrinsic value of the business. We are constantly running models at different price scenarios with different enhancements that we can put on top of the plan, speaking to the optionality that we have in the deep portfolio set in front of us. And that would inform us on an intrinsic value that, you know, all three of those combined would anchor the conversation for how we proceed forward with buybacks. I guess when we look at those altogether today, it would still signal that we are focused on the buybacks and continuing forward from here. Brian Ector: Excellent. Okay. One question I will turn over to Chad Kalmacauper, CFO. Chad, can you just talk to our existing hedges in place, maybe WTI and WCS, and what the policy will look like going forward. Chad L. Kalmakoff: Sure. We have hedges in place through the back half of last year, collar structures with a floor at 60. Through the transaction, we maintained those, so we would be roughly, you know, I will call it 60% hedged on WTI in Q1 and about 45%-50% hedged in Q2. Nothing has changed policy-wise. I think we always talked in the past about a strong balance sheet being the best hedge you can have. So, going forward, I think we obviously have a very pristine balance sheet. I would not expect us to be looking to hedge WTI contracts really in the future, given the balance sheet we have today. That being said, I think we can still look at hedging WCS contracts. We are 5% hedged on WCS this year at about $13. We still think that is an important piece of business to keep hedging to prevent any financial impact from major blowouts. So, in summary, WTI, those will be rolling off here at June. I would not expect us to be that active in the hedging market on WTI, maybe in specific circumstances. We will continue to hedge differentials. Brian Ector: Okay. Great. I think that is going to wrap up the large portion of questions coming in from the webcast. I would like to thank everyone for joining us. For those who submitted webcast questions that we did not get to address, please reach out to our Investor Relations team and we will respond directly. Again, thank you for your time today. Have a great day. Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Greetings and welcome to the Viemed Healthcare, Inc. Fourth Quarter Year End Quarterly Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Trae Fitzgerald, CFO. Thank you. You may begin. Trae Fitzgerald: Thank you, and good morning, everyone. Ryan M. Langston: Please note that our remarks on this conference call may include forward-looking statements under the U.S. federal securities laws or forward-looking information under applicable Canadian securities legislation, which we collectively refer to as forward-looking statements. Such statements reflect the company’s current views and intentions with respect to future results or events and are subject to certain risks and uncertainties, which could cause actual results or events to vary from those indicated in forward-looking statements. Examples of such risks and uncertainties are discussed in our disclosure documents filed with the SEC or the securities regulatory authorities in certain provinces of Canada. Because of these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The forward-looking statements made in this conference call are made as of today, and the company undertakes no obligation to update or revise any forward-looking statements, except as required by law. The fourth quarter financial supplement and financial news release, as well as the related financial statements, are available on the SEC’s website. I will now turn the call over to our CEO, Casey Hoyt. Casey Hoyt: Thank you, Trae, and good morning, everyone. I appreciate you joining us. Today, we will recap our 2025 performance, discuss the progress we achieved strengthening the platform, and outline how we see the business evolving as we enter 2026. 2025 was a milestone year for us. We delivered record revenue and record adjusted EBITDA, generated significantly higher free cash flow, and made real progress diversifying the business in ways you can clearly see in our results. We are building Viemed Healthcare, Inc. into a cash-generating home care platform with multiple growth engines, and we continue to differentiate ourselves through our high-touch clinical model and technology-enabled approach as we scale. As we move into 2026, we are doing it from a position of strength. We continue to execute well. We are seeing good early signals in the business, and we feel great about the long term in front of us. You can see that in the momentum continuing to build in sleep and resupply, the progress we are making in maternal health, and the way our technology investments are helping us operate at a higher and more capable level across the platform. None of it happens without our people. I want to thank our team for the compassion, professionalism, and commitment they bring to patients every day. We continue to build our workforce in a disciplined way, including developing talent pipelines through Viemed Healthcare, Inc. staffing and integrating new team members from acquisitions. We ended the year with 1,382 employees across the country, and I am proud of how consistently they deliver high-quality care and execute with integrity. That level of commitment matters most when caring for chronically ill patients in the home, and it is at the core of our complex respiratory offerings. In-home ventilation drives real and significant outcomes for patients, and we continue to see a meaningful long-term opportunity here given the underserved and underpenetrated population coupled with the increasing clinical demand. During the fourth quarter, we did see some moderation in ventilator patient growth; it is largely what we expected. The industry is continuing to work through the updated national coverage determination, and the changes are twofold. First, there is a natural operational effort when implementing new documentation and process requirements under the NCD. Our team and processes at Viemed Healthcare, Inc. were well ahead of the curve and proactively addressing the new requirements. The Engage patient platform, which is our proprietary technology deployed in the homes of our patients, has played an instrumental role in providing data that helps our therapists manage and report on real-time compliance metrics. We have also spent significant time in the field re-educating our physician referral sources and patients on how these new requirements affect qualification and ongoing care. Second, the updated criteria mean some patients who previously may have qualified under the prior framework may not qualify today. What is critical to understand is that the underlying demand and clinical need remain strong. This is primarily a coverage and execution transition, and throughout 2025, we invested in the infrastructure to navigate it well. That includes strengthening our compliance capabilities, supporting physician education, and tightening our internal workflows to align with the updated requirements so we can serve the right patients the right way under the current criteria. More importantly, the move toward more objective criteria is something we have long supported. Our view is that, over time, the new NCD changes will reduce uncertainty across the system and ultimately put scale providers like Viemed Healthcare, Inc. in a stronger position. We are already seeing progress entering 2026. A number of patients who previously were denied coverage under more subjective Medicare Advantage criteria are now qualifying under the new NCD standards. Under the new NCD, we have had a 100% success rate at the administrative law judge level on the Medicare Advantage denials we have appealed, which reinforces the appropriateness of the patients we serve and the strength of our documentation. We are also seeing denials resolved earlier in the Medicare Advantage appeals process, which improves reimbursement timing and reduces uncertainty. January was one of the strongest new ventilator setup months in our history. That gives us confidence that, as referral partners get more comfortable with the criteria and our execution continues to improve, we will establish a more consistent growth cadence. So, in summary on the NCD, while there has been some short-term friction as the industry adjusts, the work we have completed early positions us well going forward and supports a long runway for growth in our complex respiratory market. More broadly, as we think about the regulatory environment, I also want to briefly address the recent CMS update regarding the next round of competitive bidding. Based on the categories identified by CMS, we do not expect the announced round of competitive bidding to apply to any of our current product offerings, including ventilators, or to have a material impact on our business. That said, the broader compliance and program integrity elements included in the update continue to favor scale providers with strong documentation, operational controls, and national infrastructure—areas where we have been tested for many years and we know we are well positioned. As regulatory clarity continues to improve, it creates a stable foundation for growth across the platform. That stability is allowing us to progressively move into areas that are scaling quickly, particularly sleep and resupply. What started as a complementary service has become a meaningful and accelerated growth driver for Viemed Healthcare, Inc. As of 12/31/2025, our PATH therapy patient count reached 34,528, which represents growth of 62% year over year. During 2025, new sleep patient setups increased 70% compared to the prior year. That growth reflects strong execution by our sales and operational teams and solid demand in the market. It also translates into a strong pipeline for future residual sales. We ended the year serving 36,561 resupply patients, up 49% year over year. As the patient base grows, more patients move into long-term resupply relationships, which creates recurring and predictable revenue over the life of the patient. We are encouraged with the progress, and we still see room to improve conversion rates and deepen patient engagement, which gives us additional runway heading into 2026. We are also experiencing real tailwinds behind this category. Obstructive sleep apnea remains significantly underdiagnosed, clinical awareness continues to increase, and broader conversations around metabolic health and GLP-1 therapies are bringing more patients into screening and treatment. Sleep is and will continue to be an important pillar of our growth strategy. That progress in sleep is a good example of how our platform is evolving. The Lehan’s Medical Equipment acquisition is another strong example of that continued evolution in action as we expand into maternal health. Since closing the acquisition of Lehan’s Medical Equipment on July 1, the business has performed well and integrated smoothly. The transaction has been accretive out of the gate, generating positive net income contribution in both quarters since closing. What excites us going forward is the ability to scale maternal health beyond Lehan’s original footprint. Lehan brought deep expertise in the category and a strong operating team. Viemed Healthcare, Inc. brings a national infrastructure we have built over many years, including payer relationships, clinical operations, intake, billing, and compliance. Together, that allows us to take what Lehan does well and expand it through the Viemed Healthcare, Inc. platform to reach more patients in more places. We began billing our first maternal health claim outside of the Lehan footprint late in the third quarter, and early signs have been very encouraging. In 2025, approximately $9,000,000 of our revenue was associated with maternal health products across existing Lehan markets and new Viemed Healthcare, Inc. markets. Maternal health further strengthens our diversification. It broadens our payer mix, reduces our concentration in Medicare, and adds another recurring DME category, making our overall revenue base more balanced and resilient. As we continue to build payer relationships, referral pathways, and operational capacity, we expect maternal health to become a more meaningful contributor as we expand in 2026. We view maternal health as a scalable extension of our platform and an important long-term growth opportunity for Viemed Healthcare, Inc. As we have scaled the business at a high growth rate, we are pleased with how well our forecasting process has performed. In particular, our adjusted EBITDA performance has consistently tracked in line with our expectations. The key driver has been the reliability of our highest-margin offerings, which have continued to perform to plan and provide a stable earnings foundation. While lower-margin offerings such as staffing can move around from period to period, that variability is inherent in the model and does not change the underlying earnings profile of the business. Overall, we view our track record of delivering against our adjusted EBITDA outlook as a highly valuable strength as we continue to grow Viemed Healthcare, Inc. into an integrated platform. Reflecting on our success, the reason we can grow and diversify the way we have is because of the processes we built over time and the strength of our operations every day. For nearly two decades, we have proudly focused on execution, clinical quality, and doing things the right way. At the center of that execution is our high-touch clinical model. Our respiratory therapists and clinical teams stay closely connected to patients in the home through frequent touch points, education, and monitoring. We support that with our proprietary clinical platform, which connects devices, clinicians, and workflows so we can improve patient adherence, clinical outcomes, and efficiencies as we scale. We also benefit from embedded relationships through our staffing business, which sustains relationships with hospitals and discharge pathways and supports a steady flow of opportunities across our service lines. We have invested heavily in the capabilities that matter in this industry—especially documentation, compliance, and reimbursement—so that we can operate effectively as coverage criteria evolve and scale new categories such as behavioral health with confidence. The other critical piece is our payer platform. We built a nationwide network of payer relationships and reimbursement capabilities over many years, and that foundation is difficult to replicate. It is a big reason we can expand into areas like sleep and maternal health and scale them more efficiently because the contracting relationships, operational processes, and reimbursement expertise are already in place. Put all the pieces together and we have a differentiated in-home-based care platform. That is what gives us extreme confidence we can keep growing, keep diversifying, and keep expanding cash flow over time. I will now turn the call over to William Todd Zehnder to walk through our financial performance and capital allocation priorities in more detail. William Todd Zehnder: Thank you, Casey. I will begin with a review of our financial performance for the quarter and the full year, and then provide additional context around margins, cash flow, and capital allocation. In reviewing the financial results, all figures are in U.S. dollars, and our full results have been filed with the SEC. I will be referencing information available in our quarterly financial supplement, which can also be found on our Investor Relations website. For the fourth quarter, revenue was $76,200,000, an increase of 26% over the prior year. For the full year, revenue totaled $270,300,000, up approximately 21% compared to 2024. The growth was broad-based, reflecting continued organic expansion across our core service lines and the contribution from the Lehan acquisition during the third and fourth quarters. Looking at the components of that growth, equipment and supply sales were the largest contributor, increasing by $19,400,000, or approximately 63% year over year. That growth was driven primarily by continued expansion in sleep resupply and the addition of maternal health following the Lehan acquisition. Ventilator rentals increased $12,200,000, or roughly 10%, reflecting higher patient volumes and solid demand. Our other non-vent HME rentals increased by $9,700,000, or 20%, supported by growth in PATH, oxygen, and airway clearance therapies. Services revenue increased by $4,800,000, or about 24%, driven mainly by continued growth in healthcare staffing. From a mix perspective, the diversification is clear. Ventilation moved from 56% of revenue in 2024 to 51% in 2025 as other categories scaled at a faster rate. Sleep increased from 16% to 20%, and maternal contributed approximately 3% of revenue in 2025. Outside of those areas, mix was relatively stable. So, while ventilation remains a significant component of the business, revenue is becoming more balanced across multiple service lines, consistent with our strategy. For the fourth quarter, adjusted EBITDA totaled $18,200,000. For the full year, adjusted EBITDA was a record $61,400,000, representing a margin of approximately 22.7%, which has remained stable and is expected to remain at a similar level as we move into 2026. Gross margin for the year was just under 58%. We are not seeing structural margin deterioration as the business diversifies. While sleep and maternal health have a different margin characteristic than ventilator rentals, those differences are being offset by operating efficiencies, scale benefits, and disciplined expense management. We continue to see operating leverage within SG&A as revenue scales, even as we invest in technology and platform expansion. Turning to cash flow, performance improved meaningfully in 2025. Net cash provided by operating activities was $51,900,000 for the year. After net CapEx of approximately $23,800,000, free cash flow totaled $28,100,000 compared to $11,600,000 in 2024, more than doubling year over year. In the fourth quarter alone, free cash flow was $10,800,000. Net CapEx represented approximately 10% of revenue for the quarter, and we continue to expect net CapEx to be in the 10%–11.5% range for the full year 2026. As the revenue base continues to diversify, a larger portion of growth is coming from categories that are less capital intensive. Over time, that supports lower capital intensity and continued expansion in free cash flow as we scale. Turning to the balance sheet, we ended the year with $13,500,000 in cash and approximately $46,000,000 available under our existing credit facilities. Long-term debt totaled $11,300,000 at year end. Net of cash on hand, we effectively had no net debt, which provides us with significant financial flexibility. Following the Lehan acquisition, we have already begun reducing the associated debt, supported by ongoing cash generation. The combination of low leverage, strong operating cash flow, and manageable capital intensity provides us with meaningful financial flexibility as we allocate capital across growth initiatives and shareholder returns. This brings me to capital allocation. As announced yesterday, our board has authorized a new share repurchase program for 2026. This authorization reflects our confidence in the durability of our cash flows and our long-term outlook. At current operating levels, we are generating meaningful free cash flow after capital expenditures, and we believe it is appropriate to return a portion of that capital to shareholders while maintaining flexibility for strategic investments. Our approach remains balanced. First, we will continue to prioritize organic growth investments that enhance our competitive position. Second, we will evaluate disciplined, accretive acquisition opportunities that expand our platform and meet our return thresholds. And third, when appropriate, we will return capital to shareholders through share repurchases. We view share repurchases as an opportunistic and value-oriented component of our capital allocation framework. Given our cash generation profile and modest leverage, we believe we can execute this balanced strategy without compromising growth. Current market dynamics present an attractive opportunity to execute on this buyback. Overall, we believe our capital structure and capital allocation priorities position us well to drive long-term shareholder value. Turning to our outlook for 2026, we are guiding to full-year net revenue in the range of $310,000,000 to $320,000,000. At the midpoint, that represents approximately 17% year-over-year growth, excluding any contribution from potential acquisitions. We are guiding adjusted EBITDA in the range of $65,000,000 to $69,000,000. EBITDA growth is expected to trail revenue growth on a percentage basis. That largely reflects the fact that 2025 adjusted EBITDA benefited from non-recurring items, including the $2,200,000 gain from the vent buyback program. On a normalized basis, the 2026 outlook reflects healthy growth in core EBITDA dollars and continued margin stability within our recurring revenue base. As we have discussed, we expect the quarterly cadence to be uneven. We anticipate the first quarter to be relatively flat to slightly down sequentially, reflecting the continued transition in complex respiratory documentation and the normal seasonality of the business. Beginning in the second quarter, we expect to return to a more normalized quarterly growth pattern with sequential growth in the range of approximately 3% to 5% throughout the remainder of the year. Our guidance assumes continued investment in technology, compliance, infrastructure, and platform expansion alongside disciplined expense management. We are not assuming a material change in our margin profile, and we are not building in aggressive operating leverage beyond what is supported by the current cost structure and our operating plan. Overall, our 2026 outlook reflects solid growth, stable margins, continued improvement in free cash flow, and disciplined capital allocation. With low leverage, strong liquidity, and a scalable operating model, we are in a very strong financial position as we enter 2026. While we do not currently guide to a free cash flow amount, we are comfortable saying that we expect to continue to generate a significant amount of free cash flow even after the aggressive growth that we are guiding. Before we open the line up for questions, I will briefly summarize what 2025 represented financially and how we are positioned going forward. We delivered record revenue and record adjusted EBITDA, maintained margin stability through a shifting revenue mix, and more than doubled free cash flow year over year. We ended the year in which we bought back 5% of the outstanding shares at an average price of $6.69 with effectively no net debt and significant liquidity, providing flexibility to invest in organic growth, pursue accretive opportunities, and once again return capital to shareholders. As we look to 2026, the combination of diversified revenue streams, stable profitability, improving free cash flow conversion, regulatory stability, and a strong balance sheet positions us well to continue executing our strategy. With that, operator, please open the line for questions. Operator: Thank you. We will now be conducting a question-and-answer session. The first question is from Dave Storms from Stonegate. Please go ahead. Dave Storms: Good morning. Just wanted to start with the expansion from the Lehan acquisition. Just curious as to what is at the top of your to-do list there. Is that going to be expanded payers? Is that going to be improving the sales force? What do you think is your priority number one to maintain that expansion? Casey Hoyt: I will start that, and, Todd, you can fill in wherever you want to. Basically, all of those initiatives are important to us. I would say the payer initiative is more important. Getting the Lehan network expanded into the Viemed Healthcare, Inc. network of payers is underway. It is not as simple as just turning on each individual payer. There is a lot of research that goes into reimbursement rates for certain states, and we are strategically picking out the correct states to expand into. From there, it is onboarding that into the technology piece, which executes the breast pump sales. The second piece is yes, we are going to train some boots-on-the-ground sales folks. That is the Viemed Healthcare, Inc. way, if you will, and that is already underway. We are cross-training some of our sleep reps that are out and about and have the bandwidth to expand their referral sources. We will look to do that concurrently with building up the payer network. I would say the other thing that we are working on is this is a significant growth area. We are confident, on a percentage basis, it will be the fastest-growing product line for our company. We are making sure the back-office support from fulfillment and onboarding of patients can keep up with the rapid growth that we are putting around the country. There are a few different prongs, and we are proactively working on all of that with the Lehan management team, who are really guiding us around the country. Dave Storms: That is great commentary. I appreciate that. You mentioned in there just expanded boots on the ground and cross-training sleep folks. Just curious, zooming out a little bit, what your thoughts are around your overall sales force and comfortability with training. Are you going to need to expand that, do you think? Any commentary there around your current sales force? Casey Hoyt: That is correct. We have already begun cross-training our sleep reps. Our sales force at Viemed Healthcare, Inc. is somewhat segmented into complex respiratory, in which that sales rep would sell a vest, oxygen, and a combination of therapies, and would typically call on case management and pulmonologists, whereas we have another sales force for sleep calling on cardiologists and family practice, internal medicine—those types of contacts. It is really easy to bolt on OB-GYNs while they are out and about to call on the breast pump leads. Once it is the type of business that is turned on, it does not require much ongoing management. You just have to check in, make sure things are going well, and make sure your customer service is in line, and off you go. To circle back to your question, the training is underway. We have already got some reps out in the field in certain states where we are good to go with our payers. We will continue to expand that. Dave Storms: Understood. Appreciate that. Last one for me. You mentioned that margins are expected to remain stable throughout the year. As your mix diversifies into more diversified revenue streams, how many more levers do you think you have available to pull to keep margins stable? Or do you believe that some of that margin stability is just going to come from increased volumes? William Todd Zehnder: I think, at a net level, we have the continued opportunity to push on scalability in SG&A and the fixed costs there, really probably more than anything from a technology standpoint. Obviously, transactional volumes are going up with the evolution of diversifying this business. They do not have a per-dollar amount like the revenue from a vent patient, but the volumes are going up. So we have to get more efficient from a technological standpoint, and that would really be through the SG&A world. On the gross margin, our intent is to reduce expenses at a labor level that would keep gross margins relatively flat. That is an uphill battle, as vent gross margins carry a higher percentage amount, albeit with a higher CapEx amount that goes with it. At the end of the day, what we are really looking at is EBITDA margins and net income margins, and our goal is to try to keep gross margin as close to flat as possible. Dave Storms: That is great color. Thank you for that, and I will get back in the line. Casey Hoyt: Thanks, David. Operator: The next question is from Ilya Zubkov from Freedom Broker. Please go ahead. Ilya Zubkov: Good morning. Thank you for taking my questions. My first question is related to the guidance. Could you just elaborate on the key assumptions underlying your current revenue guidance across the business segments? William Todd Zehnder: Our overall view is that we are not forecasting rapid growth this year as we are working our way through the NCD. We are not saying that vents are going to grow at the historical level that they have. With that being said, like Casey said in his prepared remarks, we are seeing a significant benefit in the first one to two months of new patient starts, so that is encouraging. But just with the uncertainty of the NCD, we are not forecasting an aggressive amount there. We are forecasting a pretty aggressive amount when it comes to sleep, a notional amount that is probably even larger than we forecasted last year. And then, like I said on the last question, maternal from a percentage standpoint is by far the largest, partially because we have a full year of the Lehan acquisition, so that is naturally going to give you a boost there. We are also modeling pretty significant growth within the Viemed Healthcare, Inc. contracts around the country, like Casey talked about a little while ago. To summarize it, the growth is across all product lines. It is going to be split between organic and a little bit of acquisition just because Lehan is there for the full year. If we get back to our historical growth rates, then that is just upside for us. And this assumes no net new acquisitions. Ilya Zubkov: Thank you. This is helpful. I also noticed a sequential decline in the number of respiratory therapists during 2025. Could you walk us through how you determine when to add or reduce RT capacity and how the reduction in the last quarter may affect service revenue in 2026? William Todd Zehnder: RTs are really driven by patient volumes, and sometimes that number will ebb and flow depending on whether we are going into new areas that do not carry as large of a patient-per-RT value. I do not know the exact sequential decline—it may be off a little bit—but it could be because we had more of our RTs in areas that have significant volumes, our established cities. Vent patients were relatively flat quarter over quarter with the adoption of the NCD. We would expect that number to continue to stay relatively in line on a patient-per-RT basis, and the hope is that those numbers both start growing again in 2026. That is the plan. Ilya Zubkov: Great. Thank you very much. William Todd Zehnder: Thanks, Ilya. Operator: There are no further questions at this time. I would like to turn the floor back over to Casey Hoyt, CEO, for closing comments. Casey Hoyt: Thanks, everyone, for joining us. We appreciate your trust in Viemed Healthcare, Inc. We will continue this positive momentum and look forward to a wonderful 2026. Everyone have a good day. Thank you. Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Kenny Green: Ladies and gentlemen, thank you for standing by. My name is Kenny Green. I am part of the investor relations team at Ituran Location and Control Ltd. I would like to welcome all of you to Ituran Location and Control Ltd.'s Results Zoom webinar, and I would like to thank Ituran Location and Control Ltd.'s management for hosting this call. All participants other than the presenters are currently muted, and following the formal presentation, I will provide instructions for participating in the live Q&A session. I would like to remind everyone that this conference call is being recorded, and the recording will be available from the link in the earnings press release and on Ituran Location and Control Ltd.'s website from tomorrow. With me today on the call are Mr. Eyal Sheratzky, CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamer, CFO of Ituran Location and Control Ltd. Eyal will begin with a summary of the quarter's results, followed by Eli with a summary of the financials. We will open the call for the question and answer session. You should have all by now received the company's press release. If not, please view it on the company's website. I would like to remind everyone that the safe harbor statement in today's press release also covers the contents of this conference call and the associated presentation. Now, Eyal, would you like to begin, please? Eyal Sheratzky: Thank you, Kenny. I would like to welcome all of you to our fourth quarter and full year 2025 results call, and thank you for joining us today. Before I begin, I would first like to acknowledge the war between Israel and the United States against Iran. We honor the bravery of both the Israel Defense Forces and U.S. military personnel and their air forces, and we sincerely wish for their swift and safe return home. We hope the war will draw to a quick resolution and lead to lasting peace for all countries in the Middle East. Now to the results. We are very happy with the results of the fourth quarter as well as the full year of 2025, our best ever and record across all key parameters. For the quarter, overall revenue growth was 13% to almost $94 million, a record, with subscriber revenue growth at 15%. EBITDA grew to over $25 million, a record for us and puts our yearly EBITDA run rate in excess of the $100 million milestone for the first time. We generated a significant amount of cash in the quarter at $29.4 million, our highest ever, and as I will discuss later, given our very strong balance sheet, we have decided to share all the rewards of our success in 2025 with our shareholders through a special dividend and increased buyback in addition to the regular dividend. Our growth and success in 2025 continued to be driven by our long-term efforts in bringing new value-adding telematics and connected car products and services to both existing as well as new customers globally. Throughout the year, we were particularly successful at bringing additional new OEM partners to our growing roster. Examples during 2025 were Stellantis, Renault, Yamaha, and BMW. We are in active discussions with others. Beyond our new partnership with Fiat that we announced last week, we hope to bring additional ones in future. Our results show an ongoing expansion in our large subscriber base, reaching at year-end well over 2.6 million subscribers. In the fourth quarter, we added 42,000 net subscribers, adding 221,000 net new subscribers in 2025, a record year for subscriber growth for Ituran Location and Control Ltd. I remind you that in Q1, our new OEM agreement with Stellantis brought their subscribers into Ituran Location and Control Ltd., which gave us a bump in net new subscriber adds in that quarter. Our net adds in recent years have tended to be in the 40,000-plus per quarter range. Looking ahead, while the rate can vary between quarters, we expect to maintain this overall current net subscriber add run rate, which means for 2026, we would expect to add between 160,000–188,000 net during the year. I want to summarize some of our new activities, which we believe will contribute to our growth and success in the midterm over the coming years. These all have the potential to completely transform the company. Our IturanMob smart-mobility platform is a differentiated solution enabling remote vehicle access, real-time telematics, and efficient management for shared mobility, rental fleet, and specialized vehicle application. IturanMob was first launched in Brazil and Israel, where it has gained solid traction among fleet operators and rental companies. Building on this success, we recently introduced the platform to the U.S. market and recently established dedicated IturanMob operations there. We see a clear opportunity among small and mid-sized car rental companies seeking to improve operational efficiency and the end-user rental experience. This is the first time we are coming to the U.S. market, the largest rental market in the world, with over 17,000 small to mid-sized car rental companies, with a solution that is unique, with a real need in the market, and therefore has the potential to gain significant market share. In addition, IturanMob is expanding into new verticals. In the past few weeks, we announced a partnership with leading Israel-based motorsport data analytics company, Griiip. Under this agreement, IturanMob becomes Griiip’s official IoT technology provider, combining Ituran Location and Control Ltd.’s real-time telemetry with Griiip’s AI-powered analytics platform for racing drivers. Based on industry estimates, there are over 60,000 racing events each year, with closer to 1 million participants, representing a large addressable market for our technology. Our goal is that this partnership will already connect thousands of new vehicles in 2026. As you may have seen in the video we published together with the press release, the technology is deployed in some of the most demanding operating environments, professional racing and track day driving, demonstrating the robustness, precision, and scalability of our solution. The higher complexity of this technology allows us to generate a high ARPU for this type of services. IturanMob represents another new long-term growth avenue alongside our core telematics and subscriber-based businesses. Credit Carbon is a new and unique initiative being developed by Ituran Location and Control Ltd. that enables drivers of electric and other zero-emission vehicles to participate economically in the global transition to low carbon transportation, something that has not previously been accessible to individual drivers. Today, while companies that emit carbon dioxide can purchase carbon credits to offset their emissions, there has been no efficient, scalable mechanism for individuals who actively reduce emissions, such as electric vehicle drivers, to generate and monetize verified carbon savings. This solution will create a new incentive for EV adoption while opening an additional revenue stream for Ituran Location and Control Ltd. by providing the platform that connects carbon emitters with carbon savers. It leverages our existing technology, subscriber base, and infrastructure with minimal incremental cost. This initiative has been developed internally over years, leveraging our regulatory, technological, and data expertise. The solution is highly differentiated and is currently undergoing testing and validation. We are in advanced stages and have received encouraging early feedback. We expect initial commercial deployment toward year-end 2026. The timing is favorable right now as global awareness and regulatory pressure to reduce carbon emissions around the world continue to accelerate, expanding the addressable market. Another new initiative is leveraging our big data capabilities. Over many years, Ituran Location and Control Ltd. has built one of the largest and richest vehicle telematics datasets in our markets, encompassing decades of driving behavior, usage patterns, location data, and vehicle performance across millions of connected vehicles. Anonymized and aggregate insights derived from our extensive road use, driver behavior, and transportation dataset with decades of data can support governments, transport ministries, and local authorities in optimizing traffic flow, improving road safety, and informing infrastructure planning. Our data can also support leading vehicle OEMs in advancing driver assistance and autonomous driving capabilities, providing deep understanding of actual road usage and training systems to better reflect real-world driving behavior. We are actively exploring multiple avenues to monetize this significant asset. Overall, our big data capabilities strengthen customer retention, support margin expansion, and provide a highly scalable platform for future growth beyond traditional subscription revenues. Finally, as I discussed earlier, 2025 was the most successful year in Ituran Location and Control Ltd.’s history. As such, given our strong profitability, very strong cash generation, and balance sheet with well over $100 million in cash and no debt, the board declared a total dividend of $30 million for the fourth quarter, consisting of our regular $10 million quarterly dividend and an additional $20 million special dividend. Therefore, for the full year, we will have shared a total of $60 million in dividends, representing approximately 100% of our net income, which amounts to a dividend yield of around 7% based on our year-end share price. This is an excellent dividend yield for a strong, stable, and continually growing company demonstrating record results year in, year out. Beyond all this, and in line with the feedback we hear from many of our investors, we also declared an addition to our buyback of up to $10 million. During 2025, we bought back $3.1 million in shares, or a total of 85,000 Ituran Location and Control Ltd. shares. We believe all this reflects our commitment to creating value and generating capital for our shareholders, while at the same time continuing to develop new products and services and invest in long-term growth at Ituran Location and Control Ltd. We see our ongoing dividend and share buyback as a reward to our shareholders for their loyalty and long-term support of our company. In summary, we remain very pleased with Ituran Location and Control Ltd.’s performance in the fourth quarter, and more generally, Ituran Location and Control Ltd.’s long-term and ongoing performance in 2025. At the same time, we look for more revenues to bring further growth to our business across all our regions, and the recent product launches I spoke about earlier are examples of this. Additionally, we will continue to partner with new OEMs, as we have successfully done throughout 2025, as well as new financing companies and other lending companies. 2025 marked 20 years as a public company and 30 years as a company. We look forward to continued success over the next decades, and I thank our shareholders for their long-term support of our business. With that, I hand over to Eli. Eli, please go ahead. Eli Kamer: Thanks, Eyal. I will provide a short summary of the financial results. You can find the more detailed results that we issued in the press release earlier today. Fourth quarter revenues were $93.5 million, a 13% increase year-over-year. Subscription revenues were $71.1 million, up 15% and representing 76% of total revenues. Product revenues were $22.4 million, up 5% year-over-year. Our subscriber base reached 2,630,000 at the end of 2025, an increase of 42,000 in the fourth quarter and 221,000 year-over-year. The geographic breakdown of revenues in the fourth quarter was as follows: Israel 55%, Brazil 23%, rest of world 22%. EBITDA in the fourth quarter was $25.3 million, representing 27.1% of revenues and a 12% increase year-over-year. Net income for the fourth quarter was $15.3 million, or diluted earnings per share of $0.77, an increase of 10% year-over-year and compared to $13.8 million or diluted earnings per share of $0.70 in the fourth quarter of last year. Cash flow from operations for the fourth quarter of 2025 was $29.4 million. Taking a look at the full year 2025 results. Revenues for 2025 were a record $359 million, a 7% increase over the $336.3 million reported in 2024. 74% of revenues were from location-based services subscription fees and 26% were from product revenues. Revenues from subscription fees were $264.6 million, representing an increase of 9% over 2024. Product revenues were $94.5 million, representing an increase of 1% compared with 2024. EBITDA for 2025 was $96.2 million, 26.8% of revenues, an increase of 5% year-over-year. Net income in 2025 was $58 million, 16.1% of revenues, or fully diluted earnings per share of $2.92, an increase of 8% compared with net income of $53.7 million, 16% of revenues, or fully diluted earnings per share of $2.70 in 2024. Cash flow from operations for the year was $88.6 million. As of December 31, 2025, net cash and marketable securities totaled $107.6 million. This is compared with net cash including marketable securities of $77.2 million as of year-end 2024. The board declared a $30 million dividend for the fourth quarter, including a $20 million special dividend and a $10 million dividend in line with our dividend policy. In addition, during the quarter, we purchased $1.6 million in shares under our buyback program. As of the end of the year, we had around $3.5 million remaining available under this program. Eyal Sheratzky: However, the board today approved a $10 million increase to the existing buyback authorization, which will be funded from available cash and executed in accordance with SEC Rule 10b-18. This means that as of today, there is $13.5 million available under the buyback program. The current dividend and buyback take into account the company's continuing strong profitability, ongoing positive cash flow, and strong balance sheet. With that, I would like to open the call for the question and answer session. Operator. Kenny Green: Thank you. At this time, we will begin the question and answer session. If you have a question, please raise your hand via the Zoom platform. I will introduce you and ask you to unmute, after which you may ask your question. We will now open the call for your questions. We will begin with Chris Reimer of Barclays. Chris, please go ahead. Allen Klee: My question. Kenny Green: Now can you repeat your question? Allen Klee: I am just writing on the chat. Kenny Green: Okay. We will move. The question will be from Sergey Glinyanov of Freedom Capital Markets. Sergey, go ahead. Sergey Glinyanov: Good day, gentlemen. Great results. Could you please add some color on ARPU and the EBITDA dynamics in 2026 and after your initiatives are fully deployed, I mean, carbon credits, et cetera? Eyal Sheratzky: Hi, Sergey. First of all, we are not providing any guidance as you know, but practically and in a general way, I think that the ARPU as it is today should continue. More than 2.6 million subscribers is a big ship of a customer base, so one year is not changing the total ARPU. Looking forward, we really believe that the ARPU is not going to go down because of things that I did not mention today; I said it in the past, we always have additional services to our current subscribers which allow us to provide a kind of upsell of services. This is regarding our traditional services, the fleet management, the stolen vehicle recovery, the UBI, et cetera. Regarding the new technologies and offers that we have, as I mentioned, and it is important to say again, those initiatives are after a few years of putting R&D development and making all the technological and regulatory infrastructure. For us commercially, it will be ready, as I said, mid to the end of 2026. I must say that the financial contribution in 2026 of those initiatives will be very low. The idea to put more color on those items was to show a little bit longer future from 2027, 2028, and of course ahead. We will see because we know some negotiations and we know some customer attractions in the Credit Carbon as well as in the rental solution. The main idea is to show it, to expose it, and the majority of the contribution will be in the next years. I believe that in the second half of 2026, we will be able to talk or discuss some deals and contribution. Sergey Glinyanov: Okay. Thank you. The next question about. Eyal Sheratzky: By the way, Sergey, regarding EBITDA, I did not answer you. We are not providing guidance, but all the things should leverage our EBITDA margins, of course. Sergey Glinyanov: Do you believe that new initiatives could change your margin profile in the long term? Eyal Sheratzky: First of all, if you look backwards, you will see that our margins are growing. We show the operating leverage dynamics happening in the margins. I totally believe that it will continue based on the new services and the upsells that we can do to the current customers. Yes. Sergey Glinyanov: Okay, great. The next question about the motorcycle market in Brazil. How is it going, and did you gain any additional market share in this market? Eyal Sheratzky: Can you repeat? There was some noise here. Can you repeat? Sorry. Sergey Glinyanov: The question about motorcycle. Eyal Sheratzky: Oh, okay. Sergey Glinyanov: And did you gain any additional portion of this market in Brazil? Eyal Sheratzky: First of all, this market in Brazil is very, very big, and we did not touch this segment until about a year ago, until the moment that we understood, or we developed the right device that can be very productive, and we can go then to motorcycles OEM distributors, as well as to insurance companies. As you remember, we already reported about two OEM deals, one with Yamaha Brazil, the second one with BMW Brazil. This year we will see along the year, or we already started, thousands of motorcycles, or maybe even closer to 10,000 subscribers from this segment in 2026. Now we expanded to the retail market after we gained more confidence and we have more to show to the retail market after Yamaha and BMW. As always, I also believe that we will add more motorcycle producers, international producers, during this year and the next year. Sergey Glinyanov: Awesome. Thank you. Thank you for taking my question. That is all from me. Kenny Green: Our next question is from Allen Klee of Maxim Group. Allen, please go ahead. Allen Klee: Hey, guys. Thanks for taking my questions. I know it is still a little early as you expect commercialization towards the end of the year, but I was wondering if you could help walk through what you would expect the economics to look like for the new big data and Credit Carbon products you are rolling out. Maybe in terms of big data, what deal sizing and contract terms could potentially look like. Then on Credit Carbon, maybe the economics for EV drivers in terms of the additional benefits they gain from the product. Eyal Sheratzky: Since we are very optimistic and we see the reaction, I would not come with any guidance because it can be not realistic or not serious that we will do it. It is like new startups among our business. It is a startup that is done by a very big, or the largest telematics company in the world. We will continue to use our connections, our brand, our infrastructure in every country that we work. I must say that, for example, the Credit Carbon, once we start to commercialize it, we are talking about a situation where, for example, taxi drivers or truck drivers or truck companies can get with Ituran Location and Control Ltd.’s solution additional revenues. They have a total interest to come and put our solution because, just as an example, if I can give a truck driver per truck on an average mileage something like €200, €250, €300 a month from emitters through a worldwide or European broker, why should he give up on it? If I am in Brazil, giving a kind of an Uber-type company the ability for the drivers to get additional income, an additional source of revenue that without me they cannot get while they are driving an electric vehicle. I think that the request is going to be tough; there are questions. First of all, it is new to the world. This is the first time, except in some smaller markets in the world where people get money for non-accurate information, not regulatory. The rest of the world requires very tough regulation to approve credit for emitters. In that case, I think that the request should be tough. No one up until now has shown to the world how EV drivers can get money just for driving. For example, take a taxi driver that does not have a client, and he just drives from place to place; he gets money. I think that this is something that can be big, but still it is not yet at a commercialized place, so I do not want just to come and throw numbers. It can be something with a high contribution. Again, it will take time. It will take time to market it, to stabilize it, et cetera. The same is the rental, remote rental company in the U.S. The U.S. is a huge market; we are not, as Ituran Location and Control Ltd., going to be aggressive. We are conservative. We are not starting with tens of millions of dollars of marketing, et cetera. We go step by step with strategic partners in the U.S. I believe that we will do it. Regarding big data, we already started to sell data in Israel, mainly to governmental entities, like road operators, like road accident authorities, et cetera. Up until now, we charge a few hundreds of thousands of dollars for a pilot, only one pilot. I believe that this will continue and will support our results. Again, I do not want anyone to wait for a major contribution in 2026. Allen Klee: Okay. Got it. That is really helpful. Could you quantify the FX impact you saw this year and maybe what you are expecting for next year? Eyal Sheratzky: Yes. I will ask Udi to answer it. He has the pages. Udi? Udi Mizrahi: Yes. Can you repeat the question, please? Allen Klee: Just on the FX impact to the business in 2025, and then maybe expectations in 2026. Udi Mizrahi: I will start with the future. It is really hard to say what will be the FX in 2026 due to all the parameters that can change or affect the FX. Regarding 2025, I would say that if we look on an annual basis, the FX in the EBIT, for example, was about between $1 million to $1.5 million. This is more or less. Allen Klee: Okay. Got it. My last question is, with everything that is going on, with geopolitics and the war, are you expecting any potential disruptions to your business or any supply chain issues, or how do you view the situation? Eyal Sheratzky: Since we, unfortunately, for many years, are used to this situation, I think I will divide my answer to two. First of all, there is a major part of our business revenues and profits that comes out of the Middle East. This has, of course, never been influenced by that. Regarding our operations in Israel, which of course is a major operation, it is not nothing. As you maybe heard from today, the market in Israel also already, I mean not the stock market, I mean the commercial life in Israel also, is back to get authorization to work half a day. Up until now, of course, the last three or four days, the market was shut down. Those were anyway a holiday, a Jewish holiday that in any case was in the diary, a day off for car dealers, insurance, et cetera. Currently, we do not see a damage or anything major. In the past, in June, for example, there were about 12 days in the last war where car dealers in Israel were shut down. After those 12 days, we covered the gap, or those dealers covered the gap in the next month or two. Overall, with our experience in the past, with what is happening in Israel today, and with the situation that we are used to, I do not believe there will be any major influence on the 2026 results. It might move one month or two weeks, from month-to-month kind of volatility, but no more than that, as I expect. Allen Klee: Great. Got it. That is helpful. All right. Well, thanks for taking my questions. Kenny Green: Next question is going to come from Eric Gregg of Foretree Advisory. Eric, please go ahead. I am going to ask you a question now. Are you there? Eric Gregg: I am here. Kenny Green: Oh, great. Okay. Eric Gregg: I am sorry. Do you hear me? Kenny Green: Yeah. Eric Gregg: Okay, great. First of all, tremendous results. We hope you all stay safe through this situation. If you could tease out the big data initiative—it sounds very interesting. Can you tease out a little bit more there beyond just some of the use cases in terms of how you think your data could be used for various different initiatives? I understand the road accident, maybe the road repair, maybe for civic uses. Are there other things you think you could be using the big data for? Eyal Sheratzky: Yes. Eric Gregg: I have another— Eyal Sheratzky: Okay. I will answer first, and then you can ask your second question. First of all, just to illustrate one deal that we already did in Israel. The road authorities want to know where most of the trucks arrive between specific hours along the evening to create parking lots for nights around the country. They wanted to get one month of movement of trucks in the country and find the most trafficked places. They asked to do it for a month, historically, of course. They paid for it, and of course, in less than one second we had this raw data converted into customized data for them. For that only, we charge a few hundreds of thousands of dollars, only for that. We have, for example now, potential fees for entering cities from highways, which is a nationwide project in Israel. For that, they need a lot of data for those movements, those traffic flows from highways to the gates of municipal and central cities. Like today, if you know in London, local British drivers pay money when they get with the car inside London. For that, there is a need for a lot of data, so this is something that we are almost the only one in the country that has such big and such accurate data. Of course, this will lead, I believe, to much larger deals with those governmental offices. This is from a governmental point of view. Let us think about an approach that we have from commercial malls that want to know, for example, at specific hours a day, how many cars valued more than $50,000 are driving in order to customize advertisement and coupons for specific high-end shops. They are willing to pay for that. Everything should be anonymous, of course, because we are according to all the regulation anonymous. The data itself is something that for us exists almost for 30 years. Up until a year ago, we did not do anything with that because the market and the technology and our AI capabilities were not enough to customize it at low cost. Today, that is what we developed, that is what we offer; really the potential customers are across all the segments, as I said, governmental, commercial. Car dealers want to know in which area in the country people sell their car to a second hand and then they buy again. We realized for one of the car dealers in Israel that only a third of the people that sell the car come back to him. He wants to issue to all of his clients a campaign and sales at the specific time that they sell their car; he does not know anymore after they sold it once. There are many aspects. We have a technology; we have today a software that knows how to get the raw data in and bring out customized data upon any request. This is an example for a big data product that we are going to charge for. We talk with everybody today. Eric Gregg: That is tremendous. Thank you. That was very helpful. Second is on capital allocation. If you take consensus estimates that, based on these very strong Q4 results, I think are going to be going higher, net of your cash position, you trade at less than 13 times forward earnings, which is less than what your growth rate of services was in Q4. As your growth keeps on accelerating, it is kind of a PEG of less than 1, which is very inexpensive. The question is, it is great how generous you have been with shareholders in terms of dividends and the special dividend, but why are you not emphasizing stock repurchase more versus the dividends here, given how cheap you seem to be? Thank you. Eyal Sheratzky: Practically, when we do only this, investors ask why not that. You may be right, but Ituran Location and Control Ltd.’s volume, we grew in the last 12–15 months. The volume in the market is low, and we do not want, by going with $30 or $50 million to the market a year, to shrink the volume, because one of the interests for the shareholders is the volume. We find a balance between dividend and share repurchase. As you see in the past and even now, every quarter when we have a board discussion about it, we check it again and we take a new decision. I totally accept what you say, but we have to balance, and this is the current decision of the board. As we did in the past, this might grow. We look at the volume, we get advice with some brokers and bankers on how it can influence, and we do the best that we can at the moment. Kenny Green: Next question will go to Evan Tindell of Byron Capital. Evan, please go ahead. Evan Tindell: Hi. Yes. Thanks for taking my question. Just a quick comment if you do not mind, one second, on the buyback issue and volume. My personal advice as a shareholder is, do not listen to the shareholders or the bankers that tell you that volume is a big problem, because there is research that shows that actually, if you have a buyback in place, it can increase the volume in the stock even though you are shrinking the float. If the price goes up and the valuation is more reasonable, that can actually bring volume and interest into the company. I would just say maybe do not listen to those people and go ahead and buy back the stock if that is what you think is the right thing to do based on the valuation. Sorry for that aside. Sorry for that. Eyal Sheratzky: Okay. No comment. No comment on the buyback. Thank you. Yeah. No comment. Okay. Okay. Okay. Evan Tindell: Yeah, I would say just do based on what you think the value of the stock is in the open market versus the fair value. Okay. Can you talk about competition in both Brazil, and I know in Israel there is not much competition, but can you talk about the state of your competitors in both markets in terms of market share and pricing and competitive positioning? Eyal Sheratzky: Okay. First of all, as you said regarding shares, I will tell you regarding competition. We have a very strong competition also in Israel, but we win it, and this is totally different than no competition. Pointer is in the market more or before Ituran Location and Control Ltd.; this is the main competitor, and along the years we succeeded to gain more and more market share, and that is what we do today. In order to keep and gain this market share more and more, in Israel we have to be the best every day, and this is why we develop more and more technology, why we have to have more recovery rates, a better recovery rate, et cetera. For insurance companies and for car dealers, to change is one day, because they want better results, they want better solutions, they want their customers to be satisfied. We have everyday competition, but for 30 years we have succeeded to win and gain market share. This is regarding Israel. Regarding Brazil, I think that it is almost the same. The market is much bigger. The size of Brazil is much bigger. There are specific geographies in Brazil, in the north, in the Amazonas area, where there are some small companies that might have some subscribers. When you talk about the main commercial area in Brazil, which is São Paulo State, Rio de Janeiro, Brasília, and all the main urban areas, we are also, I think, controlling the telematics market; we are the main provider. What has happened in the last two years, and I believe that we will show it this year and later, is we also see in the B2B market customers like leasing companies, like big fleets, that even if they tried our competitor, now they change their supplier to Ituran Location and Control Ltd. The situation in Brazil is that we are also gaining more and more market share. In the telematics business, I think that we are the largest, and the situation is very close to Israel. The competitive landscape is bigger. There are more competitors than in Israel; the geography is bigger. I think that overall, in the ongoing new subscribers in the telematics industry, we are the one adding the major portion of those subscribers. Evan Tindell: Okay, thanks. I have one more question. On the fleet business, I know you also have a fleet business, where you sell to fleets. It seems like the leaders in that business, whether it is Samsara or Geotab—I am thinking of Geotab mostly—they really have built out their software suite and the integration with other providers and things like that to go with the telematics platform for fleet owners. I am just wondering how much thought and effort you put into trying to match that capability over time to make your product more competitive in the fleet segment, because it seems like that is going to be a really big market over time. Eyal Sheratzky: The main difference, if you mention Samsara and Geotab, is the market that we choose to go to. If I put aside Samsara with their video solution that we are adding from third parties today or in the last two years, Geotab is mainly focused in the European market and other markets, but in Latin America, specifically in Mexico and Brazil, when we consider market share, Ituran Location and Control Ltd. has a larger market share in fleet management. In Israel, this is totally right. I think that the most differentiated issue is that Samsara is mainly in the U.S. Ituran Location and Control Ltd., from the beginning, did not start to go to lion caves to fight with companies that put billions of dollars in order to penetrate markets. We went to the markets where we are strong, where we have brand, where we have relationships. From a technological point of view, if you judge our technology as a fleet manager, I am totally sure that you will see a state-of-the-art solution, not a single point under a Geotab or Samsara. It is only the markets. We did not go to Europe. We did not go to the U.S. We are very focused on Israel and Latin America. Currently, that is what we do. In the future, if we decide to go to other geographies, probably we will do it based on acquisition. We will not start from scratch. Kenny Green: We will now try and go back to Chris Reimer from Barclays. Chris, are you able to talk? Looks like Chris. Chris Reimer: Yeah, I think— Kenny Green: Oh, great. Continue. Chris Reimer: Thank you. Question answered. About larger. Eyal Sheratzky: We cannot hear you, Chris. Kenny Green: We cannot actually hear you. Eyal Sheratzky: Maybe you will approach us not in this platform. I cannot hear you, sorry. Kenny Green: Chris, we will speak to you offline. That ends our question and answer session. The call will be available on Ituran Location and Control Ltd.'s website in the next day for download. Other than that, Eyal, please make your concluding statements. Eyal Sheratzky: Thank you, Kenny. On behalf of the management of Ituran Location and Control Ltd., I would like to thank you, our shareholders, for your continued interest and long-term support for our business. We look forward to continuing our accomplishments over the next decade. If you are interested in meeting or speaking with us, feel free to reach out to our investor relations team. With that, we end our call. Have a good and safe day. Thank you very much.
Operator: Good morning, and welcome to the Ranpak Holdings Corp. fourth quarter 2025 earnings call. All participants are in a listen-only mode. After the speakers’ remarks, we will conduct a question-and-answer session. To ask a question, you will need to press star followed by 1 on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sara Horvath, General Counsel. Please go ahead. Sara Horvath: Thank you, and good morning, everyone. Before we begin, I would like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings with the SEC. Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. Ranpak Holdings Corp. assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today. The earnings release we issued this morning and the presentation for today’s call are posted on the investor relations section of our website. A copy of the release has been included in a Form 8-K that we submitted to the SEC before this call. We will also make a replay of this conference call available via webcast on the company website. For financial information that is presented on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. Please refer to the table and slide presentation accompanying today’s earnings release. Lastly, we will be filing our 10-K with the SEC for the period ending December 31, 2025. The 10-K will be available through the SEC or on the investor relations section of our website. With me today, I have Omar Asali, our Chairman and CEO, and Bill Drew, our CFO. Omar will summarize our fourth quarter results and issue our outlook for 2026. Bill will provide additional detail on the financial results before we open up the call for questions. With that, I will turn the call over to Omar. Omar Asali: Thank you, Sara, and good morning, everyone. Thank you for joining us today. We finished 2025 on a positive note as all geographies experienced volume growth and automation finished the year with a lot of momentum, positioning us well for 2026. Large enterprise accounts in North America continue to be a key driver of performance, both from a top-line and margin perspective. We experienced a very robust e-commerce-led holiday season in North America, particularly in December, following a brief lull during the government shutdown. The e-commerce strength drove volume growth of 5.5% in the quarter and 14.3% for the year in North America. Excluding the impact from warrants, automation was the other bright spot in the quarter as we achieved nearly 40% growth on a constant currency basis and enter 2026 with a strong order book, giving us visibility to what we believe will be our largest growth year yet in that area. With our fourth quarter performance, we hit the lower end of our Adjusted EBITDA guide but did miss the top line slightly due to a continued challenging environment in Europe and a few automation project milestones getting pushed into Q1. Excluding the impact of warrants, automation achieved the goal of being north of $40 million in revenue for the year, resulting in almost 35% growth. 2025 was an important year for Ranpak Holdings Corp. We strengthened our economic relationships with two of the world’s largest e-commerce and retail leaders. These are partnerships that we believe will fuel substantial growth across both our protective and automation business for years to come. We also elevated our position as a leader in automated box customization through a major collaboration with Medline Industries, the largest provider of medical surgical products and supply chain solutions in the U.S. Together, we are providing automation solutions across some of the highest volume operations in the healthcare sector. These achievements validate the years of work and strategy we have been executing toward and set the stage for Ranpak Holdings Corp.’s next era. The world is evolving at an unprecedented pace. With rapid advances in AI and robotics, capabilities that once felt like science fiction are now becoming operational reality. Ranpak Holdings Corp. is well-positioned to lead in this new landscape, one defined by larger, more sophisticated warehouses and logistics networks that must also meet rising expectations for environmental responsibility. Our internal innovations and customer relationships, combined with strategic relationships with cutting-edge leaders like Pickle Robot, give us a unique advantage. We are not just providing packaging; we are delivering end-to-end solutions for goods movement and AI-driven insights that help our customers operate smarter, faster, and more sustainably. More on our results. We experienced another quarter of volume growth, making it 9 out of the past 10 quarters, growing volumes at 3% over a really strong Q4 in 2024, which experienced 12 points of volume growth. It was encouraging to see sequential volume growth in each region and for Europe to experience volume growth for the first time this year. Consolidated net revenue increased 2.2% on a constant currency basis for the quarter, or 4.4% excluding warrants, driven by e-commerce activity in North America and automation achieving its largest revenue quarter ever. 4.8% volume growth for the year and 34.4% growth in automation drove 2025 full year net revenue to increase 5% on a constant currency basis. Our North America business again was the engine that drove top-line performance with sales up 5.8% for the quarter and 14% for the year, driven by more than 20% growth in void fill and 91.7% growth in automation excluding warrants. In the quarter, the distribution channel was less robust, but we did grow mid-single digit for the year and I believe have some momentum in the channel given our new product releases and focused growth and expansion initiatives. Invigorating this channel is key to helping improve our margin profile in the region, and we believe the setup going into 2026 has us positioned to continue to grow here while enhancing margins. In Europe and Asia Pacific, less favorable mix as well as increased rebate activity offset slightly higher PPS volumes and 30% automation growth in the quarter, resulting in a revenue decrease of 1.5% year-over-year on a constant currency basis. Similar to last year, Europe did not experience the same holiday season strength that we saw in the U.S. The environment in Europe seems to be improving from the negative impacts of tariffs we saw earlier in the year. After several years of recession-like conditions across the region, driven by energy price shocks, elevated inflation, and tariff uncertainty, economic fundamentals are stabilizing and the outlook is improving. We will need to see how the recent events in the Middle East unfold as that could have an impact on sentiment in the region. The input cost environment has remained relatively stable and consistent with the trends we saw in the second half of last year. Europe has been somewhat more favorable, driven largely by softer demand while the U.S. experienced tighter pricing through mid-year. Those pressures eased and ultimately leveled off once the paper market disruptions from early in the year were resolved. In Europe, energy market volatility is the unknown at the moment. There was some volatility to start the year as colder than normal winter weather drove a heavier draw in reserves. Even so, Dutch TTF gas was around €30 per megawatt hour prior to the events of the last few days, resulting in pricing in Q1 in line with what we experienced in the second half of the year. On a constant currency basis, Adjusted EBITDA declined 10.3% for the quarter, or just 1.2% when excluding the impact of warrants. For the full year, Adjusted EBITDA was down 8.5% or 2.4% excluding warrants. Our second half performance allowed us to achieve the low end of the revised guidance we communicated in our Q2 results despite the top-line challenges we faced in EMEA. Overall, 2025 proved to be a more difficult year than we anticipated. Many companies shifted priorities, curtailed activity, and took a more cautious stance in response to a rapidly evolving tariff environment. Europe, in particular, appeared to take a meaningful step back as customers there lacked confidence in their forward outlook. Our sequencing and priorities remain clear. First, drive top-line growth to achieve scale. Leverage that scale to unlock operational efficiencies and enhance purchasing power, which will flow through to Adjusted EBITDA as revenue continues to grow. This, in turn, will support deleveraging and ultimately enable us to generate meaningful cash. With that, here is Bill with more info on the quarter. Bill Drew: Thank you, Omar. In the deck, you will see a summary of some of our key performance indicators. We will also be filing our Form 10-K, which provides further information on Ranpak Holdings Corp.’s operating results. Overall, net revenue for the company in the fourth quarter increased 2.2% year-over-year on a constant currency basis, or an increase of 4.4% excluding the impact of warrants, driven by solid e-commerce volume growth in North America and increased automation sales, bringing full year net revenue up 4.7% on a constant currency basis or 6.1% excluding the $5 million headwind associated with warrants. For the quarter in the Europe and APAC reporting division, combined revenue decreased 1.4% on a constant currency basis as higher PPS volumes and automation sales were offset by higher rebate activity due to the competitive environment in Europe and investment in pricing ahead of local paper source in Asia. On a full year basis, net revenue in the region declined 2.7% on a constant currency basis, primarily due to lower volumes reflecting the choppier operating environment post Liberation Day and higher impact of rebates. Automation grew 14% in the region on an annual basis, exiting the year with good momentum after only being up slightly through the first half of the year. North America lapped 39% volume growth in the prior year and grew volumes 5.5% as relationships with large e-commerce players continued to drive growth. Net revenue for the quarter was up 5.8%, which brought the full year net revenue in the region to growth of 14%. It was another strong year for top-line growth in North America as automation ramps and we continue to grow with e-commerce accounts. Gross profit declined 16% on a constant currency basis in the quarter and would have declined 10.6% excluding the $2.3 million non-cash impact of warrants. Excluding depreciation within COGS and warrants, gross profit would have declined 5% on a constant currency basis due to the mix impact of increased contribution from North America large e-commerce customers and lower industrial activity. For the year, gross profit declined 9% on a constant currency basis and would have declined 5.3% excluding the $5 million non-cash impact of warrants. Excluding depreciation within COGS and the non-cash impact of warrants, gross profit would have declined 4.5% on a constant currency basis due to the mix impact of increased contribution from North America large e-commerce customers and lower industrial activity. We believe gross margins are a real opportunity for us in 2026. With greater scale, we are becoming better buyers of key input costs and have identified a number of key cost-out actions to optimize operations in order to enhance our margin profile. SG&A, excluding RSU expense, was down 2% on a constant currency basis versus prior year. As I shared previously, controlling our spend and leveraging our G&A investments to better absorb our fixed overhead remains a top priority. We have invested more than $20 million in our technology infrastructure since 2022, building a modern cloud-native stack that is AI-ready. We are fast but selective adopters of AI solutions to help us drive productivity and get more efficient in our operations and service. We initially are focused on specific use cases where we can measure the impact and returns, but overall, believe these tools will enable us to extract savings from the business as we grow, helping to improve the overall margin profile of the business in addition to driving more commercial opportunities. At roughly $40 million in sales, automation remained a meaningful drag on our profitability for the year, being a negative $6 million contribution to Adjusted EBITDA. Although we did get to break even on an Adjusted EBITDA basis for the fourth quarter, we are expecting substantial growth in 2026 in automation, which we expect would put us in positive territory for the year on an Adjusted EBITDA basis, which is a critical milestone for us to hit. Although we had PPS volume and automation growth across the organization for the quarter, the gross profit headwinds resulted in an Adjusted EBITDA decline of 10.3% in the quarter on a constant currency basis or down 1.2% excluding the impact of warrants. This brings the full year’s results to down 8.5% on a constant currency basis or down 2.4% excluding the non-cash impact of warrants. Moving to the balance sheet and liquidity. We completed 2025 with a strong liquidity position with a cash balance of $63 million and no drawings in our revolving credit facility, bringing our reported net leverage to 4.4 times on an LTM basis. Our goal remains to achieve between 2.5 times and 3 times leverage, which we believe we can do over the next 18–24 months. Our CapEx for the year was $30.3 million, a reduction of $2.8 million from 2024 and a 45% reduction from the $55 million spent in 2023. We continue to be disciplined in our CapEx spend in order to maximize cash. With that, I will turn it to Omar. Omar Asali: Thank you, Bill. In closing, we believe the structural forces shaping the packaging and fulfillment landscape continue to strengthen, and we believe Ranpak Holdings Corp. is well positioned to benefit from them. First, the largest e-commerce players are growing faster and consolidating share. We are both economically and strategically aligned with the two most important companies in the space, and we are working closely with them on opportunities that have the potential to reshape Ranpak Holdings Corp.’s scale over the next number of years. We continue to expect more than $1 billion in cumulative revenue from these two relationships over the next 8–10 years, and we are pushing to accelerate that timeline. Second, labor shortages in warehouse environments remain persistent and costly. Wage inflation and high turnover are structural realities. In the U.S., immigration and border policies are also amplifying the labor issue. Our automation portfolio is a direct hedge against these pressures, providing customers with greater stability, less cost, and less variability in their operating model. Third, warehouses and factories are becoming smarter. At Ranpak Holdings Corp., we are assembling an unmatched technology stack combining robotics partnerships, internal hardware innovation, advanced vision systems, AI, and data. The bottlenecks in fulfillment are physical, not digital. Our flywheel of technology and data access allows us to solve these physical world constraints in ways that simply were not possible even a few years ago. The technology is finally ready, and we believe our ecosystem gives us a unique advantage in addressing goods movement and labor challenges at scale. Fourth, while AI and LLMs have advanced rapidly, the physical world still needs to create and move goods. Companies that manufacture differentiated products and eliminate physical bottlenecks will be winners in the years ahead. We believe we have spent the past several years positioning Ranpak Holdings Corp. to be one of those winners. The One Big Beautiful Bill Act in the U.S. is presenting a significant opportunity for businesses to automate and modernize their operations, and the tax incentives are providing further savings and improving ROIs for customers deploying our automation equipment. As we look toward 2026, we enter the year with a more stable operating environment in North America than we saw in 2025 and improving economic outlook. We face difficult comparisons in Q1 due to last year’s paper market disruptions where distributors were restocking. Adverse weather in January and February contributed to a choppy start in North America. Feedback from both distributors and end users point to continued strength as the year progresses and an encouraging outlook. We expect North America performance versus prior year to even out in the second quarter, where we saw less distributor demand last year as a result of restocking in Q1. Europe remains more muted relative to the U.S., but the direction is constructive. Inflation has been moderating. Real wage growth has turned positive as wage increases are outpacing inflation. Unemployment remains at historically low levels. Industrial production and manufacturing sentiment remain below long-term averages, but we are seeing early signs of stabilization. Germany’s renewed commitment to defense investment and broader fiscal support are beginning to show up in the data, creating a foundation for gradual improvement. For the first time in a long time, the outlook there for businesses and consumers seems to be improving. That being said, the war in the Middle East makes the outlook for the world economy and Europe more uncertain. The duration of the conflict, impact on trade routes, and impact on energy pricing, particularly in Europe, could play a role in the way this year unfolds. This week, due to the conflict, Dutch TTF gas has been volatile and remains elevated near the €50 area. Within this environment, we are focusing on things that are in our control and building on our momentum through our differentiated solutions. Enhancements to our commercial organization and stronger cross-selling of automation into larger accounts are enabling us to outperform our peers from a growth perspective. We have tailwinds in automation such as Packaging and Packaging Waste Regulation, or PPWR, in Europe, as companies are preparing to adhere to the regulation requiring them to drastically reduce packaging waste and promote a circular economy, namely minimizing unnecessary packaging and reducing packaging weight and volume. We expect automation to deliver another year of meaningful growth in 2026 as we advance toward our goal of surpassing $100 million in automation revenue. Related to our near-term priorities and guidance, our focus is on driving top-line growth to build scale, improving margins through cost-out initiatives and better buying, accelerating automation and advancing our industrial technology platform, and strengthening cash generation and deleveraging towards a net leverage ratio below three-thirds. For 2026, on a constant currency basis at the current spot rate, we expect net revenue growth of 5%–12.7% and Adjusted EBITDA growth of 5.4%–19.9%. Assuming a spot rate of 1.16 EUR to the U.S. dollar, this implies a net revenue range of $415 million–$445 million and Adjusted EBITDA range of $83.5 million–$95 million. We are anticipating automation revenue growth of 30%–50%, potentially reaching more than $60 million and turning positive from an Adjusted EBITDA perspective. This guidance also reflects a non-cash revenue and Adjusted EBITDA reduction of $5 million–$7 million related to warrant expense recognition. Over the past few days, we adjusted our guidance range to reflect what we are currently seeing out of the Middle East. We previously were expecting double-digit growth in Adjusted EBITDA, but believe it is appropriate to be conservative on the margin and top line in this environment. We believe the lower end of the range reflects our optimism of growth in North America and automation and a potentially less robust and more expensive environment in Europe if the war persists. In terms of PPS, we expect low- to high-single-digit volume growth in PPS, building on the momentum of 2025 while recognizing a tough comparison in Q1 of 2025, which we expect to improve throughout the year. Thank you again for your time and continued support. With that, we would like to open the line for questions. Operator? Operator: As a reminder, to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw any questions, press star 1 again. We will pause for just a moment to compile the Q&A roster. Our first question comes from Ghansham Panjabi from Baird. Please go ahead. Your line is open. Ghansham Panjabi: Hey, guys. Good morning. Omar Asali: Good morning, Ghansham. Ghansham Panjabi: Morning, Omar. First off, can you give us a sense as to the PPS volume outlook that is embedded in your guidance for 2026? If you could also do that by region, Omar. I know there is a lot going on with some of the things you mentioned in Europe and also the political situation, et cetera. Just what do you have embedded at this point? Omar Asali: Sure. Maybe I will just give some high-level color and then have Bill give you a bit more detail. We continue to do really well with enterprise accounts for PPS in North America. We are working hard with our distribution channel as well to really ramp up volume. My expectation is that you will see meaningful growth in the U.S., maybe high single-digit to double-digit, and continue to drive volume around that in North America. Europe, Ghansham, honestly, is a bit harder. If you asked me five, six days ago before the events in the Middle East, we felt we were turning the corner in Q4. We were showing some good signs, we felt we were entering the year with potentially some, let us call it, modest momentum to show volume growth. Right now, that is a bit more unknown, and I think it may depend a little bit on the duration of the conflict. In APAC, we are investing heavily in localization and local sourcing of paper, and we think that is going to drive quite a bit of volume. That is the high level in terms of how we are thinking about PPS volume growth. I will have Bill chime in maybe with more specifics. Bill Drew: Ghansham, I think Omar covered it right. In North America, we think that there is good potential to grow mid-to-high single-digit, maybe a little bit more than that, depending on some of our initiatives with some of our large customers here. In EMEA, we ran a number of different scenarios, and I think with the low end of the guide, we are assuming that will be down slightly, and then on the higher end, up mid-single digits if we get a resolution quicker than we are expecting. I think overall, we are looking at a range of low- to high-single-digit on the PPS business for 2026. Automation, we are expecting some pretty meaningful growth there, call it 3–5 points worth of growth just based on what we are seeing there and also just the order book that we came into the year with. Ghansham Panjabi: Perfect. Then on PPS, as it relates to your assumption, what percent of that is specific to the customer initiatives that you have with Walmart and Amazon? Omar Asali: Both of these accounts, Ghansham, we think are going to drive meaningful growth. Remember, part of the transactions we have include automation equipment, and in 2026 with some of the accounts you mentioned, equipment may drive more of the PPS piece because of just the installment and deployment schedule, if you will. As we put this equipment throughout the year, then that equipment will be consuming the consumables as the year progresses. In terms of just the consumable piece, we think both of these accounts will be double-digit growers for us. We think it is going to be a pretty important driver for us. Frankly, that is part of our excitement, not just for 2026, but as we look for outer years as well. We believe there is tremendous volume activity that we think we can drive with these two relationships. Ghansham Panjabi: Got it. Maybe I will ask my last two questions together. The 30%–50% growth that you are targeting for automation in 2026, just curious as to your backlog specific to that. Just trying to get a sense as to the visibility specific to those numbers. Second, Bill, in terms of free cash flow, how are you thinking about drop-down free cash flow relative to the midpoint of your EBITDA guidance, net of CapEx and interest and so on? Omar Asali: I will take the first one. As Bill said, we enter 2026 with our best backlog ever. We continue to see tremendous activity, frankly, in the U.S. and in Europe around our automation business. Our strategic relationships, again, that you touched on, Ghansham, are driving also a big part of that. Our confidence in surpassing the lower end of that number, the 30%, is pretty high. We believe that we are on our way to hit potentially $60 million or more in revenue in 2026, again, assuming no surprises from a macro environment. Frankly, our pipeline as we speak this year, our backlog is increasing as well, and part of the help we are getting is from some of the tax changes in the U.S., part of it is around labor. Honestly, I feel great about our automation story. I feel great about how it is progressing. I think the $100 million goal is becoming closer and closer in our mind as reality, and I think the team is executing and our products, by the way, are getting great feedback from some of the most demanding customers that we have mentioned, whether it is people like Medline in healthcare or others. We feel really good about that as a growth driver, Ghansham. Ghansham Panjabi: Bill? Bill Drew: Yep. As far as the free cash flow question goes, if you take the midpoint of the guide, Ghansham, at $83.5 million–$95 million, call it $89 million at the midpoint, that is being burdened by a good $6 million–$7 million of warrant expense, which are non-cash; you add that on top. We are expecting to spend roughly, call it, $37.5 million or so in CapEx, could be less. We have been pretty disciplined over the past few years in that. We will continue to be disciplined. Cash interest we expect to be about $34 million. Cash taxes about $3 million–$4 million this year. We are expecting a use of working cap this year, just based on some of the initiatives that we have with larger customers where we carry a little bit more inventory, so call that about $5 million, which, if you take all those together, gets you to about $15 million in free cash for the year. Ghansham Panjabi: Okay. Very helpful. Thanks so much. Omar Asali: Thank you. Operator: Our next question comes from Greg Palm from Craig-Hallum. Please go ahead, your line is open. Greg Palm: Yeah, thanks. Just going back to the Q4 results specifically on revenue. I mean, it seems like the operating environment was fairly stable, and I know you talked about or mentioned better e-com facility around the holiday season. Was the revenue miss mostly due to some automation stuff shifting to the right? I know you mentioned there was, I think, a couple of projects, but maybe just give us a little bit more color. Omar Asali: Yeah. Sure, Greg. I think a couple of things. One, yes, in automation it is very tough to be very precise in terms of which quarter things would happen. Sometimes there is slippage. It has got nothing to do with us; sometimes it has to do with us and our schedule of building and deploying, as you know, just given the nature of the business. Part of it is a few things that slipped from Q4. The other part of it, honestly, Greg, is industrial activity was not at the level that we liked. E-commerce was certainly strong, but e-commerce came in very, very heavy in December, I think in the U.S. in particular. There were some periods in November where we saw a little bit of softness, around government shutdown, et cetera, and then the recovery was very strong. Some of that impacted us, but overall we were very happy with e-commerce activity. I think industrial activity, we would like to see a pickup in that, and I think that could help us both from a volume standpoint as well as frankly a margin standpoint. Greg Palm: Yep. Okay. Your comments on Q1 specifically, I was not sure how to interpret those. Should we assume revenue is more flattish on a year-over-year basis? Versus, call it, the high single-digit growth for the year at the midpoint. I think that would imply double-digit growth for the remainder of the year. It would be great just to get a little bit more color on how you are thinking about the cadence this year. Omar Asali: I think the cadence that you are highlighting is correct. Normally at Ranpak Holdings Corp., as you know, Greg, the second half of the year is stronger than the first half. That is just the nature of our business. As we are building backlog, pipeline, et cetera, and as we are building files in PPS. The second piece, honestly, is typically, again, in normal environment, Q2 is stronger than Q1, Q4 is stronger than Q3. We are expecting the year to play out that way. We have a bit of a tough comp given paper disruptions and some dislocations from 2024. That is the piece that I was just trying to highlight. I think what you highlighted as a cadence is correct. From where we sit, again, honestly, we were going to give a very different guide five, six days ago, but the recent events caused us to just lower some numbers a little bit to be cautious. Not that we have a crystal ball around the war. We do not know where the war is headed. We do not know how long it will last. We do not know when and if the escalation happens. All these things are unknown to us, just like they are unknown to the world. We felt the prudent thing is to be a little bit more conservative in our guidance. What you highlight and the strength that we see and the double-digit growth as the year progresses, that is our base case expectation. The numbers that we highlighted, Greg, reflect some conservatism around the war to the best of our ability, if you will. Greg Palm: Okay. Yep, that makes sense. Specific on what is going on in the Middle East, in terms of the guide, how would you take into account, for instance, natural gas prices and the potential headwind from input costs over there? Omar Asali: Sure. Obviously, as you have seen, Dutch TTF gas has gone up quite a bit in the last few days and continues to be at elevated levels. We have a number of partners and mills that we work with that are not dependent on that. That is the good news, whether it is renewable or other sources. We also have a number of folks that have hedged some of the exposure, but not all of it. I think the exposure that we have is on the recycled piece, the recycled paper that we buy. That is the piece that has the exposure and is less than 50% of our total buy. That is where we have some exposure from a cost standpoint that we are monitoring closely. I do not think the numbers at the end of the day—and Bill and I have looked at them and ran some sensitivities—I do not think they are going to be huge at these levels. They clearly are not going to be positive. They will have a negative impact, but they are not going to be huge. To be honest, Greg, what is on our mind a bit more is what does that do from a demand standpoint in Europe when energy is elevated and when you start seeing CEOs of industrial companies and e-commerce consumers and so on just get a little bit more cautious. That is the piece that we are monitoring. We do not have a great answer on it right now because it just happened in the last few days. I think the demand piece is the piece that could have a bigger impact. I feel from a cost standpoint on the Dutch TTF gas, yes, we have some exposure, but I think it is under control. Greg Palm: Yep. Okay. I guess last one for me, how do you think about unlocking shareholder value? I mean, you think about what happened in 2025. You made a lot of important steps. You won some meaningful business that is just getting started. Given where the stock is, the value of the PPS business, automation, your Pickle ownership, maybe you could just give us some thoughts on how you expect to unlock some of that value over time. Omar Asali: Yeah, sure. Look, I will be the first to say 2025 did not play out the way we expected. We entered 2025 thinking we are going to structure two important transactions for us with two large customers, and that will be the beginning of starting to unlock shareholder value. Obviously, through a whole host of things, including, frankly, tariffs, the year did not play out as expected. I would say the best way I think about unlocking shareholder value from here, Greg, is to the comment I said a few months ago that we believe we can double the top line of this business and really drive significant growth in EBITDA. I think the best way to describe that is what is the bridge to doing that? I think our largest two customers—we have said that they could deliver more than $1 billion in revenue in the next 8–10 years. We think in the next few years, we are working with them on a number of projects to accelerate some of their spend and some of their buying from us. We think these two large relationships are going to drive a very big chunk of the growth toward that bridge to $800 million in total in the next number of years. We think the switch from plastic to paper, in particular in the U.S. with large enterprise accounts, with other accounts that we are working with our distribution channel and some of the efforts there, is going to drive some real volume growth. We think localizing in Asia-Pacific and becoming more competitive from a pricing standpoint is going to drive significant growth there and rerate our business at that level. We have a number of new initiatives that we have been working on the last couple of years that we think will materialize from a revenue standpoint, things like cold chain and things like new product developments that we are working on. Frankly, last but not least, the most important piece. We think automation is a grower of 30%–50% in the next number of years per year. You run basic math, my confidence in now surpassing the $100 million is quite high, and that is going to be a pretty big bridge towards also helping us grow into that $800 million. You put these building blocks together, we think that is what is going to rerate the company. As we execute on these endeavors, Greg, we think that will be driving shareholder value. Greg Palm: By the way, just given Amazon’s—you talked about the plastic to paper switch. Given what Amazon has done, what Walmart is doing, have you noticed any other major behavioral changes in the market in the U.S. specifically? Omar Asali: We are, and this is a big part of our wins in enterprise accounts, and this is a big part of our discussions with accounts in 2026 that we think can drive growth. It is very hard to give you an exact timeline of when that switch is going to happen with some of these accounts. We absolutely feel it like a tailwind that there are more and more large enterprise accounts that want to switch to that substrate. I think the consumer has spoken, and the consumer wants less single-use plastic. I think that is going to play a factor in terms of our growth. Yes, we are seeing that. Obviously, we are not going to talk account by account on those names. Walmart and Amazon are unique. They are unique in their size, they are unique now in their relationship with us. I think that trend is a bit broader. The timing is the piece that is a bit harder. Frankly, Greg, not only is that trend happening and helping us, but the protective packaging space is consolidating. There are different transactions that, some were announced and others that people are working on. The table is changing, and we believe both from a substrate standpoint and a strategic standpoint, we are well-positioned to drive growth and drive shareholder value as you discussed. Greg Palm: Okay. Best of luck. Thanks. Omar Asali: Thank you. Operator: We have no further questions. I would like to turn the call back to Bill Drew for closing remarks. Bill Drew: Thank you, Julianne, and thank you all for joining us today. We look forward to speaking again following Q1. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the DHL Group conference call. Please note that this call will be recorded. You can find the privacy notice on dhl.com. [Operator Instructions] I would now like to turn the conference call over to Martin Ziegenbalg, Head of Investor Relations. Please go ahead. Martin Ziegenbalg: Thank you, and a very good morning from my end to everyone participating in this call. Thank you for your interest. As the title says, I have with me here our group CEO, Tobias Meyer; and our Group CFO, Melanie Kreis. We will start with the presentation, starting by Tobias and following with the Q&A. And with that, over to you, Tobias. Tobias Meyer: Thank you, Martin. Good morning, everybody. Thank you for your interest in DHL. 2025 turned out to be a bit different from the macro assumptions than many had told us. But despite that, we delivered on guidance, particularly through effective cost and yield management in all of our divisions. So that for the full year, EBIT increased to EUR 6.2 billion, and we have a 8% year-on-year growth in the earnings per share. We continue to generate good cash flow. You will have seen that cash flow, free cash flow, net M&A increased to EUR 3.2 billion and execute our policies -- our finance policy to provide good shareholder returns. As it relates to the outlook, I think 2025 really made us in many aspects, a better company and we have a more solid base to tackle the opportunities that our industry offers that's what we will stay focused on the 1 side, resilience in a volatile world, and we expect 2026 to remain volatile, but execute on our growth initiatives. With that, on the next page, you see some key numbers that you will already have absorbed on EBIT ROIC up 20 basis points, free cash flow I mentioned. We also delivered on the nonfinancial growth that we set ourselves with employee engagement of 82, realized decarbonization factor of 2.1 million tonnes. That's slightly above our target as well. And the cybersecurity rating at really top of the range, top of our peer group with 780. We do remain committed to attractive shareholder returns on Page 4 of the presentation, you see our historical dividend increase. We thought that after waiting through the period of post-COVID normalization, it's now the right time to get back into a gradual increase of the dividend and stay on top of the corridor that we set ourselves in terms of the payout ratio. We also stay committed to our share buyback programs. We have EUR 1.5 billion of remaining to be spent. So also continuity on that side. As it relates to the development of the operating environment, Page 5 gets an indication what we dealt with in the year of 2025, the example of DHL Express, the weight per day development on the destination U.S. lanes stands at minus 26% for the entire year. You obviously see the significant drop after the changes in U.S. tariff policy, the so-called Liberation Day and the impact that, that had. But it's also important to note that the rest of the world has been very resilient. So we do see growth out of several origins in Asia. We are very engaged to also increase our competitiveness on intra-European trade. So that worked out well. But it is a world that is quite heterogeneous as it relates to growth trends and the resulting actions we have to take as it relates to capacity management. We do believe that Strategy 2030 on the next page is still a very fitting answer to the challenges that the world poses to us. Our top line growth accelerators remain extremely relevant from an industry focus, but also from a geographical focus, our geo tailwind 20 set of countries are really those where things are happening in a positive sense. So we remain very committed to that program, but also the profitability accelerators obviously had to be a big focus in 2025 as it relates to the adjustment of capacity, but also our structurally orientated Fit for Growth program really delivered very, very well. We're very happy with that. And also the group set up the alignment of the legal structure is very well underway. To deep dive a little bit into some of those profitability accelerators on the following Page 7, you see a Fit for Growth execution. We were faster, also needed to be faster on some measures, aviation airfreight, particularly significant structural reset in Europe and the U.S. through network redesigns, air to truck, but also structural levers in the optimization of our fleet and aviation setup, which partners we operate with that all made us more efficient. The fleet renewal, obviously, being a part that many of you are familiar with. On the ground side, ground operations, warehouse, sorting and handling Similarly, and more broadly as it relates to the divisional relevance, we executed that very well. P&P in the first half, significant adjustments also, given the flexibility of the new postal law that were executed very swiftly and I think overall very well. And there's the longer-term trend of standardization, automation and robotics, which remains very relevant for us across the divisions and will deliver additional benefits. Support functions, a lot and a deep dive on that a little bit on AI, the digitalization we have been driving for many years provides an excellent basis for that. We continue to be frugal as it relates to discretionary spend and especially overhead. We do this in a very continuous way to really create lasting sustainable impact for us. This is not a short-term exercise. We want to create a better company. And I think that's what we did in 2025. Again, this will continue into this year with some additional benefits to be seen. As it relates to the deployment of technology, AI is also very relevant for us. I think we are very excited by this technology, but we don't get carried away by that excitement, but have I think a very clear focus on where we deploy own resources where we have in-house engineering, these are particularly areas that are bespoke to us or have high opportunity for deeper integration of AI functionality. So we're working on agentic multimodal models. I think the entire industry is excited about the deployment in customs. That is definitely the case for us as well. Customer service as well. What's important to us is efficiency is great. But the opportunity is way beyond that, that we get in customs better compliance, better documentation, a better value proposition for our customers in recruiting similarly great efficiency gains by helping the process, but what we're really looking forward to is hiring more fitting people for the respective roles. In vehicle maintenance and repair, this is an area where we will have double-digit million impact in Germany alone by just having AI know the condition of the vehicle, know what we can bundle when we do repairs with maintenance and execute that in a much more stringent way with the repair shops. So these are those areas which are not so often talked about but really have a significant impact. What is a big program for us into 2026 is the delivery buddy to bring AI onto the hand scanner of the courier and thereby provide better guidance about specific locations, share the experience that we've collectively built up in the organization about the specifics of a premise of a location of a city, that's something that will make our service not only more efficient, but also truly better. And that's the part where we deploy own resources to really deeply reengineer the process and integrate AI into our platform. And number two, we are more opportunistic deploying what is offered to us. We have great partners. Not all partners in this space deliver great value, but we found some, and that's developing very well. And then we also spend a lot of time on people and culture to ensure we have great engineers. We have great managers that know how to make use of this technology, and we have a workforce that is ready to adopt it. We want to have our own value-add in this space. This is why we're ramping up resources as it relates to AI practitioners on use case implementation, as it relates to trained experts in our IT services, shared service functions with also deep technical expertise that can help us to make this part of our journey. So that's what we're looking for to integrate AI deeply in an industrial scale into our processes. And this is why we're looking forward really to a decade of AI-driven improvements across multiple processes where we are very focused from a group perspective on some projects that are of broader relevance for our divisions across. In terms of top line accelerators on the following page or update on the programs that most of you will be familiar with, e-commerce, our focus areas remain the same, which means for Express the top end of the spectrum in terms of value, in terms of urgency, whereas P&P and e-com play in the standard parcel space, which is scale-driven. We had changes in the year of 2025. In our European footprint, we continue to drive that. We want to be part of the consolidation play in Europe and offer a really great pan-European service where there are few that spend, that entire spectrum. Geographic tailwinds, I talked about, it's 20% of group revenue and there are some countries where we really want to further broaden our footprint. Life science & Healthcare, great progress in terms of the setup, you will see significant investments in equipment and infrastructure. This will take time to execute. This is an industry that is rather conservative due to quality reasons but this also makes this a sticky business once it's converted. So that's something that we remain very excited about, but also now it takes time to build this unique offering that we are shooting for. Data center and new energy, more opportunistic in the sense that we have a lot of those capabilities that are needed, significant growth with hyperscalers in 2025 and also with new energy particularly in those specific areas like battery transportation, also battery storage solutions, which have high requirements when it comes to safety and compliance. And those are areas where we particularly grew also in wind energy, which is more in industrial projects type of engagement. That's an area that developed very, very positively in 2025. This is also why we are confident despite the geopolitical turmoil, that 2026 will be a good year for us. On Page 10, you see the guidance for this year. We are shooting for EBIT for the group in excess of EUR 6.2 billion. You see the split up for DHL P&P and group functions, free cash flow in excess and around the EUR 3 billion mark with gross CapEx between 3% and 3.3% and the tax rate as per usual, around 30% and also our midterm outlook unchanged. So overall, a year behind us that surely had its volatility and changes in the macro environment, I think we can say that we adjusted well to that and enter 2026 with a platform and business base that gives us confidence to execute along our strategic priorities. And with that, over to Melanie for some more details on the divisional performance and the financials. Melanie Kreis: Thank you very much Tobias, and good morning, and a very warm welcome to all of you dialing in also from my side. I will start my part with a quick recap of the last quarter, Q4 2025, where we have seen the expected seasonal acceleration. When you look at our biggest EBIT contributing division, DHL Express, we have now seen the sixth consecutive quarter of EBIT growth adjusted for nonrecurring items. So that's a very encouraging development. And for me, that shows the effectiveness of the yield, cost and capacity measures executed by the DHL Express team. Post & Parcel Germany and DHL e-commerce have also achieved another successful peak season locking in the highest operating contribution of the year in the fourth quarter. So for these three network divisions, the strong Q4 performance, hence, reflects the usual seasonal volume increases, but also continued cost focus and our targeted peak season surcharge mechanisms. For DHL Forwarding Freight, the market circumstances, especially in ocean freight, are well known. Beyond that, we clearly see independent of cyclical swings, further structural improvement potential for this division with a similar scope for accelerated digitalization as Oscar De Bok has successfully implemented at DHL supply chain. Speaking of which, DHL Supply Chain has delivered top and bottom line growth in the quarter and for the full year, showing the intact structural tailwinds in the business, both from the demand side with another year of strong new contract signings as well as from automation and digitalization benefits on the cost side. This has also contributed to the 7% operating EBIT increase for the full year '25, as shown on Page 12. As you know, and as we have disclosed transparently, we had a series of nonrecurring items this year, mainly cost of change related to our successful Fit for Growth program, but also net effects from M&A and some other topics. Stripping these items out, we managed to increase group operating profit by 7.1% year-over-year to EUR 6.2 billion. And that has also set the minimum level of EBIT we want to achieve in 2026 as Tobias has just shown on our guidance page. 2025 EBIT was, however, up also year-on-year on a reported basis at 3.7%, as you can see on Page 13. The operating profit increase, together with the benefits of our ongoing share buyback program has driven an 8% increase in reported earnings per share for the full year 2025. So that is only slightly below our 10-year CAGR of 9% for earnings per share growth. Group ROIC increased 20 basis points year-over-year in '25 also reflecting the ongoing investments in our growth initiatives that Tobias explained earlier. And this is also nicely visible in our cash flow summary on Page 14. We again spent close to EUR 3 billion on net CapEx and close to EUR 1 million on net M&A as we invest in those topics that will drive our accelerated growth going forward. At the same time, strong CapEx discipline on any capacity-related investments is one of the main drivers for our once again strong cash generation. Free cash flow, excluding M&A, came in ahead of target at EUR 3.2 billion and has allowed us to also return significant amount of capital back to our shareholders in the form of our regular dividend and our share buyback. Also here, the factual 10-year view speaks for itself, as you see that we achieved a structural step-up in our cash flow conversion. And I would really like to reiterate that point. Quite honestly, also because we still see a lot of valuation models looking back at 10 or even 12-year average valuation multiples. So you see on the left side of Page 15, our 10-year step-up on EBIT and free cash flow. What I think is, however, at least as important as the absolute increase in these numbers, is the structural transformation that our group has accomplished in the last decade. For me, that means that DHL shareholders do not only invest in a company with higher EBIT margin and cash flow, our shareholders are owners of a structurally improved company. In terms of business mix, earnings and cash flow resilience and what is not to be underestimated, and agile, adaptable and international culture that has allowed us to successfully navigate through all external volatility over the last years. Before I finish, a quick reminder regarding the process on One of the last technical steps of this historic group transformation. Our planned alignment of legal structures is progressing fully on schedule subject to the AGM vote on May 5th, we will, hence, this year, also officially renamed the listed group entity into DHL AG, the P&P Germany operations, legally becoming the Deutsche Post AG subsidiary similar to the status of the other divisions. So all on track here and in line with our plans and intentions as previously explained. And that already brings me to three quick conclusions from my side on Page 17. We expect further profit growth in 2026, while the dynamic circumstances required continued close steering of costs, yield and CapEx. This will allow us to keep a good balance between attractive shareholder returns and continued targeted investments into growth. Because in the end, you can't shrink to greatness. We are, therefore, fully focused on leveraging growth opportunities in those countries, trade lines and sectors where our logistics expertise will allow us to drive sustainable, accelerated growth as outlined in our Strategy 2030. And with that, we are looking forward to your questions. Operator: [Operator Instructions] We'll take our first question from Alexia Dogani with JPMorgan. Alexia Dogani: I'll ask three if that's okay. Just firstly, on Express, Clearly, your efforts this year have been focused on improving cost competitiveness to regain market share from airfreight, can you give us a little bit of progress in which verticals you're already managing to do that? Or is this something that we have to look forward to in 2026. Secondly, on your Fit for Growth achievements this year. I believe the structural cost out was around EUR 600 million. That's ahead of what had been indicated before of basically slightly ahead the cost of change charges. Can you discuss what went better and you were able to achieve these savings earlier? And then thirdly, could you give us some comments on the current situation in the Middle East, perhaps kind of the first derivative effects of the market being closed, but also potentially if the duration of that market being closed for longer what are the implications for airfreight capacity globally translation to Express and any kind of other relevant comments there? Tobias Meyer: Yes. Thank you, Alexia, for those three questions. On the first one, indeed, steps to cost competitiveness in Express are very favorable. We would look at the task at hand, so to say, differently. It's not about regaining from airfreight. The way and what we're trying to do is more if you look at the 40-year trend of the integrated industry, the integrated industry has taken share from the general air freight market. We started as document companies then went into different verticals over time, kind of an S-curve transformation, not entirely dissimilar from what happened in e-commerce. And since COVID, the integrated industry is not back on that trend. And that's what we are trying to do with smart industrial growth to focus particularly on B2B verticals to hone the business model of Express with additional features, but also the attention to industry verticals. That has now been initiated and that should lead over the quarters to a gradual increase in the weight per shipment. And some of those elements will definitely take effect this year. Some will take later as it relates to cold chain transport, for instance, in Express. This is something that is yet to come from its effects. As it relates to Fit for Growth, absolutely, we are ahead of the original plan, particularly in Europe for Express, but also for P&P, those adjustments went quicker than we had originally maybe slightly conservatively foreseen. So that's particularly the area also in the United States, the adjustments needed were executed very swiftly. And also on the technology side, some of the programs that we have been driving went indeed very well from an executional point of view. So it's fully in swing especially as it relates to those more tech-dependent programs. That's what's going to support the progress in 2026 and provide us with a very healthy base also for further growth, which obviously is what we intend to do in Express and beyond in 2026 against a still volatile environment, which then also brings me to your third question on the Middle East. Now how those things develop is not easy to see. Definitely, the current situation is heavily constraining air activity in some countries, but also obviously, ocean-going vessels through the Strait of Hormuz are constrained. What happens now operationally is we had some partial opening of airspace and airports to move planes out obviously, Saudi is largely open or open we have, and that helps us a lot on the Express side a very well-established road network in the Middle East, which enables us to bring cargo to those airports that are open. That's very vital at presence to keep the region connected. And I would expect that to continue and further expand if constraints in some countries like Bahrain, Kuwait and UAE, those constraints would remain for longer. On the Ocean side, that will have consequences especially if cargo is offloaded to enable vessels to move on loops that do not include the ports of the Gulf region. Some carriers have started such offload processes. This creates some chaos that needs to be dealt with. As you know, that's also sometimes an opportunity because it creates urgencies for certain cargoes, but it's too early to see how this unfolds. If the constraints would stay longer, there's definitely a lot of work to be done. Alexia Dogani: And when you say offloaded cargo, I mean that cargo, how will it find its way to the region? Is it just a move to potentially air or road to clear the inventory? Tobias Meyer: Well, that might take -- might require different cargo to replace that because those offloads would then happen in a port that is typically not in the region or might be in the region and then you could obviously use road transport offloads more on the Asian side on the Indian subcontinent would then require ultimately to load it on a vessel that has a string into the Gulf, but that would mean significant delays. So that's what we start to see now. I think it's really too early to tell whether that is a phenomenon that takes a broader hold so far, people have more taken a wait-and-see mode, but that can last for another couple of days, not a couple of more weeks. Operator: Our next question comes from Muneeba Kayani with Bank of America. Muneeba Kayani: Melanie and Tobias. So first question around the moving parts on the guidance, please. So the Fit for Growth had kind of over EUR 600 million benefit last year. So is it right to think that your guidance assumes kind of a EUR 400 million benefit from Fit for Growth in 2026. And then related to that, what have you assumed in terms of your cost of change assumption in '26 compared to the EUR 245 million that you had last year on reported EBIT. So that's the first question. And then Secondly, if I could follow up in terms of the Middle East, specifically, we've heard earlier this week that 18% of global capacity in air cargo was impacted. We've heard that come down to something like 8% yesterday. Would you agree with that in terms of market impact. And then specifically for DHL, is your capacity impacted like do you have planes in the Middle East? And how do you see the fuel spike impact on the Express business, please? Melanie Kreis: Yes. Thank you very much. Muneeba, let me start with the guidance question and the moving parts there. Yes, I mean, of course, there are numerous external factors, the whole macro situation. There are some known topics like the fact that in P&P, we have a year without a price increase. So many moving parts. With regard to the Fit for Growth questions, yes, I can follow your math that if we say we finish kind of like the EUR 600 million in '25, there should be something like EUR 400 million left for '26. I think we also have to be conscious of the fact that particularly in the first half of the year, we will still see the annualization of some of the headwinds from '25 on the currency side, the tariffs, the de minimis abolishment. So like in '25, we will also need Fit for Growth benefits to help us compensate for those. With regard to cost of change, I mean, if we come up with new good ideas for further improvements and there is some cost of change attached to it. We will, of course, do it. However, I would expect that to be an order of magnitude which will not warrant a separate flagging the way we did it in '25. So more of a return to this being included in our normal reported figures. Tobias Meyer: Yes. And on the Middle East, I've seen those numbers as well. We will not engage in that discussion because it changes day by day, hour by hour. We had plans in places that were closed. That's been a discussion whether you can move the plane out empty or whether that location reopens. Again, that's very dynamic. It's clearly not yet over. So some impact is going to be there. I think what's more relevant is the question of spillover from ocean freight and what happens on the ocean freight side because some of those countries are highly dependent on essentials. The region is not self-sufficient on food, for instance. So that is something that will be significant if the ocean freight situation does not change over the coming days. Air cargo operations, as I said, for us, we have flexibility. We have a broad footprint in the region. And what happens in each location can change hour by hour. Melanie Kreis: Yes. And I think on the fuel surcharge, as you asked for that specifically. I mean, we have a well-established mechanism. So there are then some time elements in a period of rising fuel price, but by and large, we have well-established mechanisms in place to deal with that. Operator: Next question comes from Jacob Lacks with Wolfe Research. Jacob Lacks: So your slides show U.S. TDI import trends remained weak through December. Has there been any improvement since the start of the year, just given the ruling against IEEPA tariffs and some better readings in the macro indicators? Or has the step down in tariff rates not really been enough to incentivize new demand? And then a follow-up. One of your competitors last month discussed the goal to mix more towards cross-border freight in Europe over the next few years. Have you seen any change in the competitive parcel environment in the European TDI market? Melanie Kreis: Okay. I think on the impact of the Supreme Court ruling, that's too early to see a real impact. I think everybody is now working through the implications. So in terms of what we saw going into the year was more of a continuation of what we had already seen in the fourth quarter. With regard to the European competitive situation, we haven't seen a change on the ground. So we also saw these announcements that in terms of material impact on our daily business, we haven't seen it. Tobias Meyer: And overall, I think the -- particularly in the B2B market, it's a very healthy setup in Europe. As Melanie said, no significant changes. I think we have an excellent offering. If you look also at our presence in secondary markets, the connections via Leipzig are unmatched by any competitor. So the service aspect of that, I think, gives us some confidence on the TDI side and DDI overall, as it has in recent years, outgrown. So the cross-border element has outgrown domestic markets. That's the case in B2B, but also in B2C. And we see those segments very positively also into this year. Operator: Next question comes from Marco Limite with Barclays. Marco Limite: Hello. Hello, can you hear me? Tobias Meyer: Yes. Marco Limite: Okay. I have a follow-up question on Iran. So actually a few questions from Iran. First of all, whether you can disclose what percentage of your group revenues or EBIT is directly exposed to the Middle East? Is the first question. Second question, when we think about disruption, clearly, volumes into the Middle East are going to be disrupted and are going to change. To what extent, the Middle East tensions also affect other trade lanes, for example, I don't know, Europe to China, for instance. Is there any, let's say, transit and offloading reloading of cargo in these regions and so on. So does that affect also Europe to other Asian countries operations. And then when we think, I mean, thinking about the potential disruption coming from the Middle East, again, how do you -- what's your sense about the potential positives coming from better pricing versus headwinds coming from demand? Do you think you are going to be more exposed to positive from disruption or to the negative coming from demand? And just a final question, very quick on cost savings. Clearly, EUR 600 million is above the previous guidance. Just curious whether the step-up versus the previous guidance as to be, let's say, attributed only to Q4? Or you have been running on a higher rate since Q2? And what is the run rate in Q4 in the context of the EUR 1 billion? Tobias Meyer: Yes. Thank you for your questions. So our presence in the Middle East varies by division. We have relative to the GDP size of the region, it's slightly higher in Express. It's lower in supply chain to name the two extremes. As strategic as these conflicts are and as regrettable, given what we do and the segments we are in, we typically benefit from this turmoil than we have exposure to the downside. I think this is just a learning from past situations. The main reason, and I think you already heard that in the answering of previous questions, is that those disruptions spill into the airfreight from ocean or land transport surface transport into Air and Express. And people tend to rely on providers like us and with our significant footprint in the region, we are often the go-to party. That has been the case with the recent floodings in Morocco, which have driven volume massively. Now you're not going to see that in your numbers because Morocco overall is too small. But it's just to make the point around the -- in principle effect this has on supply chains and the need for our services. For ocean, especially the tying up of vessels is reducing supply. There has been some concerns about supply-demand balance with the Red Sea, the Suez route reopen. I think that's off now or at least further shift it into the future that such vessel routings would be accessible for the great majority of ocean liners. So that it has an impact on Europe to China as it relates to lead times and the competitiveness of ocean freight lead terms or the airfreight lead times, but also on the supply-demand balance in the container, the cellular vessel space. So far on the Middle East, any follow-up questions on this are welcome. On our Fit-For-Growth program. Indeed, we have been executing this very well across the year of 2025. Now the measurement of those things is not on a daily basis for all of those initiatives. So it is now with the year-end that we have taken stock and we see that we are significantly ahead of what we had originally planned, and we see this again very positively. It's speed, but it's also the impact that we have in some areas is ahead of what we originally thought. But that has been an outcome of the work throughout the year of 2025. Melanie Kreis: And we had already flagged in Q3 in November that we were ahead of schedule. But of course, also the importance, given the importance of Q4 and the peak season. We then really saw that those structural cost improvements also held during the peak season. And that, of course, then also drove up the overall performance towards the end of the year. Martin Ziegenbalg: Okay, Marco? Marco Limite: And yes, just on the run rate of cost savings because I think there is a bit of confusion this morning out there whether the EUR 600 million is the run rate versus the EUR 1 billion or the EUR 600 million is the achieved cost savings and therefore, that's in the bridge to '26, we just need -- we need to plug EUR 400 million more. So if you could clarify whether EUR 600 million is the run rate in Q4 or the achieved number in so far. Melanie Kreis: Yes. So the EUR 600 million is what we achieved gross in 2025, excluding the cost of change. And so in a very simple calculation that should leave around 400 to come now for '26. Tobias Meyer: And obviously, if it's a little bit more, we won't stop the measures just because we said it's EUR 1 billion. Operator: [Operator Instructions] We'll take our next question from Cedar Ekblom with Morgan Stanley. Cedar Ekblom: I've just got a question on if you could reflect on the volume performance in the Express business, particularly in the context of volume growth in broader airfreight cargo, I understand the points around sort of weight per shipment rather than just shipment count, but this sort of persistent trend of lower express trends or flat at best and air freight -- general air freight cargo growing continues to sort of play out quarter-over-quarter. And I'd just like to sort of hear how you are perceiving the relative trends in those two categories and how we should think about that over '26 and possibly a bit further out. I think sort of the debate around is Express structurally impaired relative to history, remains quite alive in the market. And with the volume positions that we've had, I wonder if you've got a view on how to sort of debate that question or respond to that question. Thank you. Tobias Meyer: Yes. So Cedar, I think a fair question given the market developments that you characterized, I do not think that DHL Express has a share versus our traditional competitors in the Express space. If you look historically, these waves a little bit between Air Freight and Express have happened before. It's particularly now kind of post COVID, the e-commerce normalization that has impacted us, but also the broader industry, which is why the broader integrated industry, I think is the key driver of why we have lost a share or a point of market share also in the broader market. And it is absolutely our objective to get back on to a track to outgrow the broader airfreight market as we have done as an industry for the last 40 years. We target that through specific verticals, but also a broader and engagement more on the B2B side, that has not shown effects yet in the fourth quarter. So that's something which we would only see now in 2026 as that program gets implemented. We had good discussions with the management team with the broader management team around that. I think DHL Express is very in its usual way, a very structured set up to address that, but it will only unfold as we go through the year. In some of the verticals, and we said that also with Strategy 2030, and its execution, some of those verticals, particularly Life Science and Health Care and Cold Chain Express will take some more time until that infrastructure and equipment is ready. So that will not happen this year. This is more for the years to come. Melanie Kreis: And maybe just to add from my side, we have this on Page 5 in the deck, we have talked about it before, where I mean you can see that actually weight per day rest of world was already just flat in 2025. And obviously, our clear focus is to now get rate per day back into growth territory. And we think that weight per day will be the more relevant KPI to look at for Express. A, which also drives a lot of the economics of the division in terms of associated revenue per shipment in terms of weight load factor on the aviation side and so on. But it will then also give a good comparison to the relative performance vis-a-vis the air freight market, and that is what we will focus on in '26. Martin Ziegenbalg: Thank you, Cedar, and we've got another caller waiting. Operator: Our next question comes from Alex Irving with Bernstein. Alexander Irving: Two for me, please. First of all, you've heard from some of your peers about how they're deploying AI in their business and why they in particular, stand to benefit. Own platforms, data, quality and so on. You spoke earlier on about some of your aims during the presentation, but what factors give you the right to win from AI? And what are the main actions you're currently taking here, what's the impact you expect those to have gross and net after any sharing gains with customers. Second question, you're nearing into the simplification project and subject to AGM approval, the carve down of P&P. How committed are you to the ongoing ownership of all 5 divisions? What conditions must these divisions satisfy to remain owned by DHL. Thank you. Tobias Meyer: Yes. Thank you for these questions. Starting with AI, I think for us, what's important we are not in the -- don't have the approach to think that putting a AI sauce source over everything creates great benefit. This is a task that ultimately is technical. This is a major transformation as the induction of the PC into our business world and will have a similar size, if not larger, benefits. Now why we think we have the right to win and we'll have a net benefit. This is a technology where scale will matter to a greater extent. And we have some applications I mentioned what we intend to do and are implementing on the hand scanners, where also across the divisions, we can deploy similar technology and reap those benefits. So we see AI as a driver of scale benefit, increasing scale benefits, but also it will benefit companies more that have a well set up, well structured IT landscape, and we very much believe we have that, especially in Express and Global Forwarding, and in P&P, but also in supply chain, where Oscar in his previous role, has driven a standardization of warehouse management systems and so forth for many years. We have a great track record as it relates to use of data, become a much more data-driven company. So that is a foundation that we can now build on. Now we know that others also claim that. So here, I think as often, it's in the execution that will prove who can really make benefits from that. Again, I think we know very well what we are doing. And we are striving to use this technology at industrial scale for efficiency, but also effectiveness reasons. And that's what we're very much focused on. This will take time to implement for companies. This is always harder than for consumers to adapt to new technology. But we are absolutely sure that we will stand to benefit. As it relates to the commitment to owning the different divisions, we, I think, have addressed this multiple times across the portfolio. We do think that the portfolio does make sense, but we also have a clear success criteria for the different divisions that we operate in. You asked specifically for P&P, where, again, we think we are the right owner for that business. We need to have the right regulatory conditions that enable us to self-fund the division to self-fund the transformation from a letter centric to a parcel-centric company where we have progressed much, much further than many others with our great offering on the parcel side and significant market share that we do have in Germany. So that success factor for us is currently clearly fulfilled. And in the other divisions, we obviously are closely monitoring our performance versus peers. In some areas, we are top of the list. And in other areas, we have more work to do. But with a clear plan to close those -- that gap. So we are committed to the portfolio that we currently own. Martin Ziegenbalg: Okay. Very good. Thank you, Alex. I think we've got a follow-up from Alexia. Operator: Yes. Our next question comes from Alexia Dogani with JPMorgan. Alexia Dogani: Some follow-ups. I actually have again 3 -- 2 very quick ones. Just firstly on Express, can you let us know when you would consider putting emergency surcharge or a war disruption surcharge, if that will be part of the consideration. Then secondly, would you give us some kind of short comments about Q1 kind of notwithstanding the normal seasonality of the business, should we kind of be looking out for anything specific? And then kind of my real follow-up question is Melanie, you discussed a little bit about kind of historic performance, valuation. And obviously, growth is very important for kind of the sector that you are in, I guess, would you consider any other means to accelerate growth? I mean we've discussed your M&A strategy in the past, which is much more kind of bolt-on. Would you consider something a little bit more transformation that you could basically put more capital at risk? Or do you see at the moment kind of the return of cash and kind of levering up the balance sheet slightly as the most prudent kind of capital allocation near term? Tobias Meyer: So I'll start with the first two, then Melanie being specifically addressable comment on the third question. So on the Express, we do implement emergency surcharges depending on the local situation, that is typically country specific, and that's what's also happening in this context. We particularly use that to pass on higher cost, either through insurance or other. So we will handle that also in this, and we're in the process of doing so in this situation that is unfolding in the Middle East. Overall, I think and I tried to express that I think we exited 2025 with really good achievements and at a good momentum. I think also, personally, I feel about 2026 quite positive, knowing that the turmoil is often something that stands to benefit us. It's not always to describe why that is, but that has been historically the case. And that's why even though the macro situation, we are not so optimistic on that the per se, the macro environment is going to be very favorable. I'm quite optimistic about 2026 based on the achievements on the cost side, on the structural improvements, but also what the current environment means for our industry and specifically our portfolio of businesses, and that's how with the mindset that we enter and are engaged here in the year 2026. Melanie Kreis: And to your third question, yes, as I showed in the presentation, we have significantly improved profitability and cash generation and also the composition of where earnings are coming from, where we now want to double down on is how to accelerate also growth. And of course, profitable growth. The focus will remain on organic growth opportunities. We are convinced that there are ample opportunities out there also in the current environment. We are going to double down on those. And we will continue using M&A more as an add-on supplement. So no fundamental change in strategy. Martin Ziegenbalg: Thanks, Alexia. And we have Andy Chu joining the call. Andy Chu: Just one question for me, please. I guess the market always worries for DHL particular around any sort of crisis, and we seem to be lurching from one crisis to another. But I guess, historically, you've shown some really great flexibility, resilience, probably most recently COVID being the best example. So could you just give us a favor maybe just using Express -- could you just give an example, maybe using Express as to how quickly you can make adjustments to your network, just examples of flexibility because it just strikes me that this business is -- has a proven track record of tremendous resilience. Tobias Meyer: Yes, Andy, thank you for that question. Which is more a comment that I would absolutely agree to and especially in the Middle East, I mean, we have a very strong presence there. We have colleagues there that were already in the region during the second Gulf war, where we also still already had a significant presence due to historical reasons. We even had a monopoly in Saudi for some time. Obviously, that's not the case anymore. But our presence there is very strong. Express with its setup also of different airlines has flexibility that others do not have. Now location by location that requires work, traffic rights, aircraft change in registry or this doesn't happen by itself. But over the decades, I think we have built that muscle that capability and I think are somewhat unique in our industry in that setup and capability set. And that's why, indeed, I would echo the confidence that you also expressed in your comment, the confidence that as tragic as this military conflict is and the crisis that it triggers it's not bad historically for our setup and does not harm in any way, our confidence about 2026. Melanie Kreis: Maybe just two quick points to add from my side. I think one thing which is remarkable, our express aviation setup is that we have now shown over the last years, the capability that we can flex up quite rapidly if that is required globally on specific trade lanes that we can likewise also flex down key contributor, of course, also to the fact that we had 6 consecutive quarters of EBIT growth in Express despite the top line headwind. And the complementary element is also going back to Alexia's question, we have also shown that on the pricing side, we are able to smartly price given the circumstances with elevated risk surcharges if and where needed. Martin Ziegenbalg: Andy, thanks for your call. We just passed the 60-minute mark, but we still got time for a follow-up question by Marco. Operator: Marco, please unmute your line. Melanie Kreis: Marco, we can't hear you. Martin Ziegenbalg: Still working on it. Operator: Marco, please go ahead. Marco Limite: I think you can hear me now. Just One more question, which is a bit more longer term. So if we look at your overall OpEx line of EUR 75 billion. I mean clearly, that's fairly big one. And my question to you is whether you see further opportunities in terms of cost savings on top of the EUR 1 billion program you are running at the moment. And in the context of that whether you think that there are cost synergies potential from maybe in the future, better integrating divisions and therefore, achieving extrapolating cost synergies across divisions as one of your big competitor is doing in the U.S. Tobias Meyer: Yes. So thank you for this question, which is obviously not easy to answer across all the spectrum of what we do. I would definitely say that our drive for efficiency will continue. That is basic frugality. We're a logistics company, we're not a bank, and we should look like a logistics company, we should not look like a bank. But more importantly, the obsession with efficiency in processes and having great processes with an adequate amount of technology that in supply chain, supply chain is going to be the first business that has a significant impact with robotics. We are already leading in the deployment of robots. It will change the business. It will add a different revenue stream robotics as a service to what we do, similar to what we did with Real Estate Solutions, which is a great contributor of the successful path that we have taken with supply chain. So those elements are very important next to AI, not to forget that the physical part of AI being manifested in robotics is also very, very relevant for us. In Express, I think we're on a great path to make the best service in the industry more affordable, and that will give us broader access to certain markets and companies and is underpinning our drive for industrial growth. Also, in Europe with the expansion of our road network and that related offering across the continent, that's a driver of growth as well. As it relates to divisional synergies, yes, we will have those on the technology side. We'll be very careful with operational integration that harms our value proposition. Express has a different value proposition than the standard parcel business, and we will not ever damage that value proposition. The spreadsheet might tell you something different. But experience tells us that, that setup that we have, particularly with Express is working very well for us, is working very well for our customers. Collaboration is what's going to happen, but this very cost and efficiency minded synergy, we will remain very careful because we see with our own experience, but also what happens across the industry that the detrimental effects on value proposition are often outweighing the benefits. So on the technology side, yes, on the collaboration side, absolutely, yes, you also see this in Europe between e-commerce, P&P, and also increasing the e-commerce and Express. We often talked about the great collaboration we have on the aviation side between Express and Global Forwarding, the joint plans we have there in terms of Life Science and Health Care. You might have seen the health logistics plan that Express operates, which is also used for DGF for Global Forwarding cargo. So we'll collaborate value proposition and efficiency, but we'll be very careful to integrate with the sole mind of cost synergies. Marco Limite: And what did you mean when you said making Express more affordable? Tobias Meyer: Well, I mean, we have undertaken significant steps to enhance productivity through technology, but also through streamlining processes, especially in Europe and the U.S., and we're also growing in the European road offering, DDI significantly. So that is what I mean. It doesn't harm our value proposition as it relates to the time defined offering, where we will always put quality first, but it gives us access to some segments that we haven't been serving to that extent in the past. Martin Ziegenbalg: Great. Thanks, Marco, for that follow-up, and that concludes our Q&A round. We're looking forward to seeing you over the next couple of days and weeks on roadshows and conferences. And to close off the call, I hand over for closing remarks to Tobias. Tobias Meyer: Well, thank you all for your interest. Again 2025 was not an easy year as it relates to the macro. I think we've managed as well. And I feel this leaves us really in a position where we enter 2026, and we operate in 2026 despite, again, a very volatile environment with great confidence that we will offer great service to our customers during the year of 2026 with the initiatives that we've put forward, and we get back on the track of growth through the measures that we've described and talked about in this call, but also beyond the divisional strategies that we have presented. This is going to be the focus in 2026 to add the growth component through what I believe was a good bottom line management, that's what we are 100% focused to do and confident to achieve. Thank you.
Axel Lober: Good morning, everyone, here in Darmstadt at the Merck Innovation Center and from Darmstadt into the world and a warm welcome to our annual of Merck press conference. My name is Axel Lober, I'm Head of Communications of Merck, and I'm here today with our CEO, Belen Garijo; and our CFO, Helene von Roeder, and both will walk you through our results of 2025 and of course, talk about our outlook for 2026. So as always, -- both Helene and Belen will give some insights first before we dive into our Q&A session a little bit later. And with that, already, I'd like to ask to the stage, Belen Garijo. Belen, the stage is yours. Belén Garijo López: Thank you, Axel, and good morning, everyone. Thank you for taking part in our full year press conference, whether you are here in Darmstadt or following us virtually. As Axel mentioned, Helene and I will provide an overview of our business performance for 2025 as well as an outlook for '26. After this, we look forward to your questions. So let me start by summarizing 2025 in a few messages. First of all, we delivered on our financial guidance. Second, our diversified business and regions was a source of strength. And last but not least, we are positioned in major growth areas such as health and AI, and these will be strong platforms for future growth. Before we dive into the numbers, let me reflect on 2025. We recognize that the ongoing crisis, the geopolitical tensions and rather global challenges have become the new normal, our new reality. The recent developments in the Middle East once again demonstrates how quickly political uncertainties can escalate, this is obviously a very concerning situation. And as you can imagine, the safety of our employees and the safety of our partners in the region is a top priority for us right now. We are in close contact with our teams on the ground. And at this moment, we see no material impact, both at the employee level or in anything that relates to our logistics and distribution. Now let us deep dive now on 2025. Our achievements are made possible by our more than 62,000 dedicated colleagues globally and our recently expanded Executive Board team. I want to take this opportunity to extend my heartfelt gratitude to the entire Merck team for their commitment, for their creativity and for their dedication. Thank you so much, everybody. In 2025, as you know, we strengthened our Executive Board, welcoming Danny Bar-Zohar, Jean-Charles Wirth and Khadija Ben Hammada to the team. We also announced that Kai Beckmann will be my successor as the CEO of Merck. And most recently, Benjamin Hein has been appointed as Kai's successor as the CEO of Electronics. Let me now highlight some of our business sectors in 2025. First, in Life Science, we continued to invest on both capability and capacity. In 2025, we opened our new EUR 100 million facility in Blarney in Ireland. And this site produces critical filtration technologies that are used in advanced therapies and is expected to create over 200 jobs by 2028. We are also strengthening our innovation capabilities, including in the next-generation biology. This is illustrated through the strategic acquisitions that we have announced as HUB Organoids and the JSR chromatography business in Life Science. Those are excellent examples of how we are reinforcing our portfolio leadership strategy. Organoids provide earlier predictive insights into human biology and help researchers identify promising candidates faster and make better informed decisions when it comes to clinical development. And of course, this leads to faster clinical progress and hopefully, to improve outcomes for complex diseases like cancer as well as genetic disorders. You can see an organoid 3D dome as an exhibit here. Now in the health care sector, we are making strategic moves to strengthen our position in high-growth areas. In July 2025, we completed the acquisition of SpringWorks in the U.S., establishing rare diseases as a new strategic growth pillar for Merck. In October, we announced an agreement with the White House to increase access to approved IVF therapies. This will strengthen our presence in this highly attractive market while providing affordable access to innovative fertility treatments on their -- and to families on their journey to parenthood. You will also see Pergoveris Pen, one of our key IVF treatments in today's exhibit. In December, we received an approval for pimicotinib in China for treating symptomatic tenosynovial giant cell tumor, which is a rare tumor that affects joints, tendons or the bursae. This is PV's first global approval and a significant step in strengthening our leadership in rare tumors, which will stay a key growth drivers for us. Now let's look at electronics. In 2025, we seized new opportunities for our electronic business and gain benefit from the growing artificial intelligence demand. In August, we also completed the sale of Surface Solutions, allowing Electronics to become a pure-play business in semiconductor solutions. At the end of 2025, the acquisition of Unity-SC already contributed to our organic growth for the first time since we acquired the company. In December, we also inaugurated a EUR 500 million Semiconductor Solutions megasite in Taiwan. Therefore, Electronics is well positioned to meet the rising demand from artificial intelligence. It is important to note that Merck is involved in 99% -- yes, 99% of chips that are produced worldwide. We supply materials and chemical solutions for many of the critical steps in chip manufacturing process. In our exhibits today, you can see 3 different types of transistors that are essential for chip production. To give you an idea of a scale, the Apple M1 Max chip contains approximately 57 billion transistors, all packed into an area about the size of the chip of an index finger. The technologies and services that we offer to the semiconductor industry are one of Merck's key growth drivers. Let me now give you an example of how Merck delivers on future technologies because as a science and technology company, we drive innovation by bringing technologies together. A great example is our partnership with imec on organ-on-a-chip technology, which combines our expertise in biology with advanced semiconductor chips to simulate human organ functions using living cells. This allows scientists to test medications safely and effectively without using animals. Making also drug development faster and even more reliable. You can see this technology once again among our exhibits today. All these achievements demonstrate what I said at the beginning, and this is our strategy to drive growth through innovation is working. Our diversified businesses and regions is giving us significant resilience and strength. Our in-region for-region approach provides global flexibility while meeting local needs. And we are well positioned in major growth areas also for the future, and those are semiconductors, rare diseases and advanced therapies. Today, Merck stands strong with a clear focus on 3 growth drivers: Process Solutions in Life Science, rare diseases in health care and semiconductor solutions in Electronics. And this is once again a strong platform for future growth. Now let's move on to the financial performance of 2025 that Helene will further detail. We have delivered on our guidance spot on despite a tough 2025 that was marked by significant geopolitical challenges in major markets and importantly, very strong currency headwinds. Net sales were around stable at EUR 21.1 billion. And throughout the year, strong negative foreign exchange effects weighed on net sales and EBITDA pre. These effects largely resulted from the exchange rate development of several ASEAN currencies as well as the U.S. dollar. Overall, the group EBITDA pre was EUR 6.1 billion, up by 5.6% organically. Now let's look briefly at some of the highlights from Q4 of 2025. In Q4 2025, our group organic sales came in at a solid 2.6% growth. We delivered profitable growth, once again supported by all the 3 sectors with group EBITDA pre up 3.1% organically. In Life Science, a strong order intake momentum in Process Solutions fueled the growth in the business sector. The organic sales growth in healthcare was driven by strong growth in our CM&E franchise alongside contributions from Mavenclad and from Fertility. Both Mavenclad and Pergoveris achieved double-digit growth. Although Electronics reported a decline in organic sales due to headwinds from our DS&S business, our semiconductor material business achieved its strongest quarter of the year in Q4. It continued to benefit from strength in artificial intelligence and the advanced nodes markets. Based on this result, we will propose a stable dividend of EUR 2.2 during our general meeting -- Annual General Meeting in April 24. And now let's take a closer look at the numbers for the full year 2025, and it's my pleasure to hand over to Helene, who will walk you through our 2025 financial performance. Helene, welcome on the stage. Helene von Roeder: Thank you very much. And a warm welcome also from my side. So if you look at our net sales in '25, they came in around stable. And our organic sales growth was really dampened by foreign exchange effects of around 4%. Foreign exchange had a significant negative effect across all sectors, mainly driven by the U.S. dollar as well as Asian currency. Our Life Science business, if you look at it, grew organically driven by sustained demand from our Process Solutions customer that drove order momentum. Healthcare delivered solid organic performance despite market pressures. And Electronics recovered towards the end of the year, thanks to AI-driven demand in our semiconductor solutions, although full year organic sales were slightly down. EBITDA pre was EUR 6.1 billion, which actually corresponded to a margin of 28.9% of net sales. And with that, let's take a look at our business sectors, and I'm starting with Life Science. Life Science has returned to growth, delivering organic sales growth of 4%. And as mentioned earlier, this growth was driven primarily by double-digit organic growth of our Process Solutions business that saw the market normalize and move beyond the destocking phase finally this year. EBITDA pre rose 3.9% on an organic basis but due to foreign exchange effects, EBITDA pre remained around stable at EUR 2.6 billion. Now despite the challenging environment, the EBITDA pre margin remained stable at 28.8%. What we have seen is slightly higher R&D expenses as well as ramp-up costs for recent site expansions, which reflect our increased investment in innovation. And this investment is absolutely crucial as it serves as a key driver for our future growth and differentiation in the market. Moving on to Healthcare. Net sales in this sector climbed 3.7% organically. Foreign exchange effects, however, had a negative impact of 4.1%. Growth was primarily driven by our CM&E franchise, which grew a stellar 7% as well as strong contributions from our multiple sclerosis treatment, Mavenclad and Fertility treatment Pergoveris. And as Belen just mentioned, we announced an agreement with the White House in October to enhance access to approved IVF treatment from EMD Serono. Our complete fertility portfolio has been available since beginning of February 2026 on trumprx.gov and the new fertility instant savings website. And of course, in the U.S., we are working towards approval of Pergoveris, a fertility medication already available in 75 countries. All in all, EBITDA pre came in at EUR 3 billion for the business, which is up more than 11% organically. Once again, foreign exchange effects partially offset the strong organic growth. And with that, let's look at the Electronics sector. Now Electronics experienced the slight organic decline of 0.6%, which was mainly driven by our DS&S business caused by prolonged delays to large customer projects. Merck expects DS&S to stabilize in '26 and to return to growth in the medium term. But despite this temporary headwind, our semiconductor materials business remained the main growth driver for Electronics. It delivered strong high single-digit organic sales growth for the year, thanks to increased demand for high-value materials that enable AI chip systems and advanced nodes. Advanced nodes refer to the latest semiconductor manufacturing processes, allowing for smaller feature sizes and the development of the most powerful chips. EBITDA pre was 9% lower, mainly due to onetime adjustments we reported in the second quarter of '25, as you may remember. And with that, let's take a look at our guidance for '26. Before I share the '26 guidance, note that there's 3 key assumptions underlying this guidance. First, regarding portfolio changes, our forecast reflects the SpringWorks acquisitions as well as the Surface Solutions divestment. And both of those will show portfolio effects in the first half. They will contribute to organic performance in the second half. Second, product scope. This guidance assumes no sales in the U.S. of Mavenclad from March '26 onwards amid generic competition. What it also excludes is the positive effects from a potential U.S. launch of Pergoveris. And third, my favorite topic, currencies. We expect a more volatile foreign exchange environment again in '26. And we assume negative FX effects to continue. Of course, the main drivers are U.S. dollar developments, but we also observe various Asian and emerging market currencies extremely volatile. And with the evolution of currencies, please bear in mind that we expect for Q1 a disproportionate headwind coming from currencies relative to our full year FX guidance. Now with these 3 underlying assumptions in mind, we are expecting group net sales of between EUR 20 billion and EUR 21.1 billion, which is based on an organic sales development of minus 1% to 2%. Group EBITDA pre of between EUR 5.5 billion and EUR 6 billion. And with that, let me walk you through the sector breakdown for '26. Starting with Life Science, our largest business, we confirm mid-single-digit organic sales growth. And that is very much in line with our projections from our Capital Markets Day, which was held in last October. We include in our assumption the continuation of the strong performance in our Process Solutions business. And across Advanced and Discovery Solutions, we anticipate gradual improvements in biotech funding and academic research stabilization in -- as well as an evolving market environment in China. With that, moving on to Healthcare. There, a challenging year is ahead of us amid life cycle challenges for key brands, and that is in particularly Mavenclad. On the other hand, we expect growth in the remainder of the portfolio, including CM&E, Fertility and above all, the rare diseases, which will become, as already said earlier, organic in the second half of '26. For Electronics, we anticipate continued strong growth in our semiconductor materials business, while our DS&S business stabilizes going forward. And with that, I would like to hand it back for Belen for closing remarks before we take your questions. Belén Garijo López: Thank you, Helene. So let me first summarize our results and highlights on what 2025 has truly shown us. In the face of a multitude of challenges, we have delivered on our guidance. We also demonstrated our strength of our diversified strategy across businesses and regions, and we believe we are sitting a strong platform and in the right growth areas, semiconductors, artificial intelligence, rare diseases, advanced therapies, which, as I have said before, are a strong platform for growth -- for future growth. And this was not by any chance. It was the result of a strategy built to endure and to build a resilient team that consistently delivers. As many of you mentioned to me at the beginning of the meeting, today is my last conference -- press conference with Merck. When I joined Merck in 2011, the company had just begun an unprecedented period of transformation. You may remember those days, I do. Alongside major acquisitions like Sigma-Aldrich and Versum, I took on the task of transforming our Healthcare business for a new era of patient care. When I became CEO in 2021, none of us could have imagined the volatile world we would have to navigate together. A global pandemic, remember, I call myself a COVID CEO, the artificial intelligence revolution and the geopolitical fragmentation reshaping entire industries. Through it all, Merck just not only survived, but I believe we also thrived. We shifted from growth driven by acquisitions to disciplined capital-efficient growth. And today, our earnings are rising faster than our sales. Our leverage is failing and our -- every euro is working harder. The numbers tell the story. We invested over EUR 7 billion in more than 30 new and expanded sites worldwide. We deployed over EUR 4 billion in strategic acquisition and divestments, and we didn't just weather the storm, we emerged stronger. I am absolutely confident that Merck will continue this successful trajectory under Kai's leadership. And why? Because Merck is very well prepared and have very solid foundation for the next growth cycle. We have proven we can execute with discipline. We bridge the physical and the digital world. We turn science into solutions that matter for patients and customers. And we know that the future belongs to those companies that can navigate complexity and deliver results. And this is exactly what our company does and will continue to do. And I want to use this opportunity as well to say a heartfelt thank you to our teams around the world and of course, to the executive team that has been working with me in recent years. And to you, thank you for covering our story. Thank you for holding us accountable, and thank you for your trust. Overall, thank you for this journey. And with this, Helene and I are ready for your questions. Over to you, Axel. Axel Lober: Thank you, Belen. So we are now transitioning into our Q&A sessions. [Operator Instructions] So we have now 3 chair, I suggest we use them, so Helene, if you would like to join us on stage again for the Q&A session. And I see already -- and I knew it, one hand up from Sonja Wind from Bloomberg. Sonja Wind: I would be curious what you think about some analyst comments who said that Merck gave a deliberately conservative guidance because of the early Mavenclad like that it's not included from March on and also Pergoveris that it's not included in the guidance. Do you agree with that assessment? Is there more upside for earning upgrades if all goes well? And my second question would be on the deal with Trump on the drugs. Can you give a bit more color on how much -- like what is the size of that financial impact on the earnings? How much does it matter because it's only a certain patient group? Belén Garijo López: The agreement -- Sonja, the agreement with the U.S. administration, you mean? What is the impact? So I will take this. Perhaps you want to start with the guidance. Helene von Roeder: I do that. So overall, I mean, what do we guide? We guide the things that we have under our control and that we can actually see and predict properly. And in both of the things, it's like both Pergoveris, we are in discussions, we are talking, but it's unclear exactly how that will shape. I'm sure Belen will say that in a second. Mavenclad, the problem is we don't know how many generics will come when and at what point in time. And as a result, this is a guidance which reflects our current knowledge at this point in time as it should really. Belén Garijo López: So for the agreement of the U.S. administration, we have signed 2 agreements, and we believe that this is a real win-win-win. It's a win first for the patients who are going to have access to IVF at affordable prices. It's a win for the administration because with our agreement, they have been able to also start this novel approach through the -- from Rx to sell directly to patients. And it's a win for the company because we were already offering our treatments through different channels. And financially, there is not a huge impact to -- under the agreement. The second agreement is the one that is going to make us exempt of tariffs for pharmaceuticals during 3 years. So with this, you can imagine that we are extremely satisfied with the agreement, and we are actually hoping that as part of this agreement, we will also get the approval for Pergoveris in the U.S. at some point in time in 2026. Axel Lober: And the next question comes also here from the room from Patricia Weiss from Reuters. Patricia Weiss: Some questions around Mavenclad. The strong effect comes something of a surprise even though the patent loss was known. Why no sales at all in the U.S. instead of fewer? And how much of the EUR 1.2 billion in last year was in North America? And what is the higher burden this year ForEx or Mavenclad? And it's your main product in healthcare. So what does that mean for the division? And which successor candidates are ready to fill this gap? Helene von Roeder: So maybe I'll start with the Mavenclad question and then move -- Belen will take the successor candidates, et cetera. So yes, roughly 50% of the sales in Mavenclad were U.S. with 50% roughly in Europe. At this point in time, when we look at the U.S., we have a number of generics lining up. We -- they could be starting to sell tomorrow. And as a result, this is how we look at our guidance to basically say we don't exactly know when the sales are going to start and how it's going to impact our sales. I think when you look at the guidance, this is basically how we see the world going forward. So I don't think I need to add anything around that. And maybe, Belen, you want to do the successor products. Belén Garijo López: Well, I mentioned already the acquisition of SpringWorks has given us a new growth pillar. SpringWorks will contribute to organic growth, as Helene mentioned, as of the second half of 2026. But if you take the portfolio impact of the SpringWorks acquisition, it's already pretty nice and it's contributing 5% of portfolio growth already. So we are confident that SpringWorks will bring healthcare to the midterm guidance that we have communicated before progressively with 2026 being a year of transition in relation to the Mavenclad loss of exclusivity in the U.S. Axel Lober: Thank you. Patricia, does it answer all your questions? Perfect. So we don't have a question online yet. And here from the room, I see a question over there. Shan Weiyi: I'm Shan Weiyi from XInhua News Agency. And I would like to ask a question about the global investment. And due to the current rising geopolitical tensions, and you have already mentioned about the agreements with the U.S. administration, I would like to ask about whether you are considering a change in any other investments or strategic focus in different -- in any other markets like Europe or China? Belén Garijo López: Absolutely. I mean we have mentioned several times our significant investment in our region-for-region approach. And this includes all the major regions. Keep in mind that our main source of revenue already for the group is coming from Asia Pacific. And of course, this is a very important growth avenue for Merck. And we will continue to operate in this geopolitical context very much as a global company, but with a region-for-region approach. Axel Lober: Thank you. And we have a question from an online participant. So we have [indiscernible] from Handelsblatt. Unknown Attendee: Just a quick one. I'm a bit confused about the issue of U.S. tariffs. Did Merck pay tariffs on imports into the U.S. in 2025? And if so, will you demand a refund and take legal action to get it? Belén Garijo López: We are not thinking about refunds. So I mean, the situation of tariffs in the U.S., as you may know, has recently changed with the Supreme Court decision. But this is not changing or having an impact on the agreement that we have signed with the U.S. administration that I mentioned already. For 2025, you want to comment? Helene von Roeder: Yes, so as you know, pharma tariffs under the Annex II were exempt. So we didn't pay any tariffs in the pharma area. However, there were products in the Life Science area, which were not exempt. So we did pay tariffs in '25 and also small imports that we've seen in electronics, which were subject to tariffs. As Belen just said, I'm not sure how the refund regime will be on the back of the Supreme Court. So definitely nothing to be put in any guidance short term. And then let's see how exactly the world pans out now post the recent announcements, Supreme Court, et cetera. That one at the moment, it's pretty unclear how this will be. Belén Garijo López: But our agreement is basically out of this Supreme Court decision. So it holds. Axel Lober: So I'm looking into the room. Do we have further questions here from the live audience in Darmstadt. And [indiscernible]. Unknown Analyst: Just to bridge the time gap. Just a personal question for you. Belen Garijo, looking back, what's the most important task that you achieved here at Merck? And what would you have liked to see unfold, but now you like the time because you're leaving? Belén Garijo López: I think I have been privileged to work with this company for 15 years. I still remember my times in healthcare, and we need to remember that, as I mentioned, when I came in 2011, we -- we're starting an unprecedented transformation and the turnaround of healthcare. In 2017, we launched 3 products to the market, Mavenclad, Bavencio and Tepmetko. If you look at how will we refocus on pharma to be able to diversify the company, I feel very proud that, that transition that I supported that transition actively from healthcare to find this globally diversified business that I fight in 2021. I feel particularly proud of everything that we have done on culture, talent and people. And of course, the financial performance that we have delivered is stellar because if you look at the period between 2020 and 2025, our business -- revenues grew by 20%. Our earnings grew faster, and our debt has been going down. So of course, there are many other things that we could have done. But if you look at the overall picture, I feel extremely proud of what we have achieved together in the last 15 and even 5 years. Helene von Roeder: And because Belen is very humble. I mean, you're looking at a CEO who has steered the company through unprecedented volatility in a very safe way. And actually, if you look at how we're set up now for the future, especially on the back of our local-for-local strategy, immunizing us from all of these geopolitical changes, that is like a real feat. And I think we're all here at Merck super grateful for everything that Belen has done. Belén Garijo López: Thank you, Helene. Axel Lober: And we have a follow-up question, Sonja from Bloomberg. Sonja Wind: Yes. My question is about the strategic review in the CDMO business. How is that progressing? And what is your plan there? Belén Garijo López: Go ahead. Is future looking -- so I mean, we have looking at -- let me say that we are looking at all the options, and we will communicate once a decision is made. But clearly, this is what we can say today. I don't know if you want to... Helene von Roeder: No, I think it's ongoing. I mean we've announced clearly that we're looking at this. Yes, you'll get news if they're ready to be announced. Axel Lober: And [ Tania ] [indiscernible]. Unknown Analyst: Just one task, it didn't succeed. It was a deal for the Life Science business. Is this a task for your successor, Mr. Beckmann now? Or do you step away from this? Belén Garijo López: I mean you have to have -- you will hear from Kai what is the agenda. I'm confident that the focus on Life Science will stay because, I mean, Life Science is our most important business. So -- but I would really wait to hear directly from Kai because he is the one that will be in charge as of May 2026. Axel Lober: Thank you. Do we have further questions here in the room? Looking left and right. There's a bit of an overweight from questions from that side. If not, also online, we don't have any questions, maybe last call. We have a question from Focus Money from [indiscernible]. Unknown Analyst: I have one question concerning healthcare. So the last few weeks, we have seen very conflicting messages from the FDA, to say the least, especially concerning rare diseases. So first question, how have Merck's interactions with the FDA been through the last month -- months? And second question is more broadly, what does it mean for the healthcare business if somehow goalposts are moving and there are new regulations concerning how a study has to be done or how many studies have to be done? Belén Garijo López: We are very close to the regulatory agencies, not only to the FDA and particularly to the FDA because, of course, as part of that agreement that I mentioned before, we are having discussions on the Fertility franchise and another products. Overall, I see some of the news coming from the FDA as positive, if at the end, confirm that they will be a bit more open to grant approval with less studies or with a lower -- I don't think they will lower the bar anyway for the evaluation of risk benefit of any new drug. But in particular, just to be brief on our orphan drugs, we are confident that this is the environment in which we can expect not only support from the regulatory agencies, but also encouragement to continue to invest and investigate new solutions for patients given that orphan drugs and rare diseases are huge unmet medical needs. Axel Lober: Looking into the room, and we have a question from [ Ralf ] from Darmstadter Echo. Unknown Analyst: First question is the personal question to Belen Garijo. Have you been surprised becoming the next CEO of Sanofi? Then I would like to know your plans for the headquarters in Darmstadt. I think your last big investment program is over or will be over in the next time. I'm not sure what will be next in Darmstadt. And I would like to know your plans for the employees in Germany and in Darmstadt? Belén Garijo López: Look, we are highly committed to Darmstadt. We have been investing in the last decade, a significant amount of EUR 1 billion. Here, this is our hard quarter. We repeat and repeat that because this is very important to us. So we have given good signals of this and our plan for Darmstadt, you will have to further discuss for future years with my successor. I don't know if he want to comment, but is to continue to make sure that becoming a global company, we operate our company from our headquarter. As for my personal question, I always said I keep all my options open. And that's the only thing I can continue to repeat. Helene von Roeder: And maybe I take a little bit on the Darmstadt. I mean we continue to invest. You see the number of construction cranes if you walk around the site. And we're laser-focused on bringing more business into Darmstadt. And now I will do something slightly mean because we also need German politicians and German politics to finally deliver on the simplification agenda. It is very clear that we are frequently faced with the discussion around can we put things here into Germany, which we really want. Belen said, a headquarter. But then if you actually look at the delays around getting permissions at the entire red tape that we have in Germany, it is not helpful. So if you could maybe include a big plea from our side, please deliver on the simplification, that would be great. Axel Lober: Thank you. Looking online, we don't have a question online into the room, further follow-up questions here from the audience. Maybe one last check. See a lot of smiles, but no raised hands, also not online. So I would say this concludes our press conference this year. A big thank you to all of you joining us here in Darmstadt today. Also a big thank you to everyone online for joining us virtually. I'm looking forward to seeing all of you during our Annual General Meeting on April 24, live and in color from Frankfurt from Jahrhunderthalle and of course, to our Q1 webcast on May 13, online as always. So please take care. See you soon and all the best. Thank you. Belén Garijo López: Thank you.
Operator: Good morning, ladies and gentlemen. Welcome to the Spin Master Fourth Quarter 2025 Results Conference Call. [Operator Instructions] This call is being recorded today, Thursday, March 5, 2026. I would now like to turn the conference over to Tim Foran, VP of Investor Relations. Please go ahead. Tim Foran: Thank you. Good morning, everyone, and thank you for joining our call. With me here today are our CEO, Christina Miller; and our CFO, Jonathan Roiter. For your convenience, the press release, MD&A and consolidated financial statements are available on the Investor Relations section of our website at spinmaster.com and on SEDAR+. Before we begin, please note that remarks on this conference call may contain forward-looking statements about Spin Master's current and future plans, expectations, intentions, results, levels of activity, performance, goals or achievements and any other future events or developments. Forward-looking statements are based on currently available information and assumptions that management believes are appropriate and reasonable in the circumstances. However, there can be no assurance that such assumptions will prove to be correct and many factors could cause actual results to differ materially from those expected or implied by the forward-looking statements. As a result, you are cautioned not to place undue reliance on these forward-looking statements. For additional information on these assumptions and risks, please consult the cautionary statements regarding forward-looking information in our earnings release dated March 5, 2026. Except as may be required by law, Spin Master disclaims any intention to update or revise any forward-looking statements, whether because of new information, future events or otherwise. Please note that Spin Master reports in U.S. dollars, and all dollar amounts today are expressed in U.S. currency, unless otherwise noted. Also, all industry data that we referenced related to toys is from Circana LLC retail tracking service and relates to data from our G11 markets, which are specified in our Q4 2025 supplementary presentation. And unless noted otherwise, all percentage growth rates refer to the period ending December 31, 2025, relative to the same period in 2024. In terms of an agenda for the call, Christina will start with a review of the year 2025 and then an overview of our strategy and priorities for 2026 and beyond. Jonathan will then provide a financial review of the year, Q4 and our financial outlook for 2026. I would now like to turn the conference call over to Christina. Christina Miller: Thank you, Tim, and good morning to everyone who is joining us today. 2025 was a challenging year for our U.S. toy sales as we navigated a difficult tariff macro environment. And while we achieved many of our goals, our results did not meet our expectations we wet at the beginning of the year. However, I'm pleased with how the team responded and made adjustments to set us up for a return to profitable growth in 2026. Most notably, we focused on execution, investing where it matters most and making clear choices to drive growth. In Digital Games, we focused our investments on improvements to our 2 core platforms, Toca Boca World and Piknik by optimizing the user experience and increasing content releases. We also expanded the reach of our brands through exposure on third-party platforms. This strategy led to more than 20% growth in revenues and adjusted operating income in 2025. In entertainment, expanding the reach of PAW Patrol was our top priority. We introduced new tent-pole specials to build towards the summer release of the third PAW Patrol movie, and we invested in a broader content slate and new IP development. In Toys, we increased our POS driven by consumer demand across our key categories, products and licenses. We invested in strengthening our core brands, driving innovation and expanding into higher growth categories. And we have diversified our supply chain responding to the evolving tariffs. At the corporate level, we've been investing in material IT improvements to enable efficient, scalable and future-ready business operations. It has been a significant amount of change, and I'm proud of the team's commitment and resilience. Now in terms of specific results for our creative centers. In Toys, we started 2025 strong with a solid first quarter, reflecting momentum in our core brands, innovation and licensed brands. However, driven by economic uncertainty following the introduction of tariffs, the remainder of 2025 was challenging, notably in the U.S. As I noted, our POS was up in 2025. However, our sales to retailers were negatively impacted as they reduced their inventory levels. But this does set us up well for 2026. Melissa & Doug was the most impacted by these shifts, given almost all of the sales entering 2025 were in the U.S. and manufacturing for the brand was primarily in China. As I outlined on our last call, we are executing on a plan to stabilize M&D and return it to growth. We had a solid start to the international expansion and the team successfully optimized inventory levels for 2026, a year in which we aim to gain more retail space in the U.S. and in Europe. In 2025, we deepened our position with partners. Jurassic World Primal Hatch was the top selling in youth electronics, Ms. Rachel was the #1 absolute growth license in infant, toddler and preschool category and Monster Jam continued to take market share in vehicles, remaining the #2 property in the category. Quality innovation also helped drive growth in our core brands, Hex Bots Wall Crawler was the #1 item in remote control vehicles. Cool Maker Heishi Bracelet was a top-selling new item in arts and crafts in the U.S. and Europe and our new Melissa & Doug WOW products helped the brand become #1 in craft kits. We remain a preschool leader and gained market [indiscernible] which moved us up to the #1 manufacturer in our infant, toddler, preschool and plush category. PAW Patrol was #1 here. Looking ahead to 2026. We've had very positive feedback from retailers on our toy line. Our PAW Patrol movie line is filled with exciting new transformation for preschoolers. Grounded in our mission of purposeful play with Melissa & Doug, we are introducing new pretend play experiences and adding infant and play sets. Primal Hatch won the Toy of the Year and Action Figures Toy of the Year in 2025. Now we are extending the line with new iterations across multiple price points. We continue to launch new innovation-driven concepts, including Magic Jellykins and [indiscernible]. Gund had strong POS growth in 2025. And in 2026, we will continue to broaden its appeal with great new licenses and a unique brand promise Forever Friends, plush that can last the lifetime. And we have a portfolio of exciting new products for popular licenses, including Monster Jam, Ms. Rachel, Gabby's Dollhouse, as well as KPop Demon Hunter, Hello Kitty and a key item for the upcoming Super Mario Brothers movie with Hatchin' Yoshi. We also recently announced our expansion into strategic trading card games, a category that nearly doubled in size in 2025. We are taking a two-pronged approach here. The first is a distribution partnership in North America, Australia and other markets with Italian brainrot, a series of collectible trading cards that has successfully tapped into this wonderfully weird viral trend. And this fall, we are launching Hellbreak, a fast, competitive and highly collectible game for an older demographic. This is a multiyear initiative to build out a one-of-a-kind horror crossover universe that will include characters from across the horror genre from Universal and other major studios. In summary, our focus on toy going forward is to expand our leadership position in our major categories, create new categories from white space through our innovation and enter and compete in high-growth categories where we have the right to win with compelling products. Moving to Entertainment. We have an exciting year ahead with the global release of the PAW Patrol movie in August and we are investing ahead of that. We continue to build the PAW Patrol universe with new content and expanded distribution to ensure the pups remain a global preschool leader with the next generation of children and their parents. We've been reaching new audiences by adding previous seasons and movies on Netflix, which have driven strong engagement. In 2025, hours viewed on Netflix of PAW Patrol increased by 10% to almost 1 billion hours, a testament to the relevance of the brand. In 2026, we have new seasons of PAW Patrol and Rubble & Crew being released on Nickelodeon and Paramount+ and other global channels with future seasons in development. In addition to PAW, we are continuing to create new IP including the development of our animated 4-quadrant movie. The release of the new season of Unicorn Academy also begins globally on Netflix this month. In Digital Games, our focus on Toca Boca and Sago Mini Piknik subscription bundle is paying off. We have created value in the Toca Boca community by increasing the frequency of free and paid features, content releases and collabs, including Universal's Wicked: For Good and Hello Kitty, enhanced our Piknik subscription offering, including through the addition of Crayon Club and extended the reach of our brands by licensing to third-party platforms. In 2026, we plan to put the Toca Boca user experience first by continuing to invest in improving the tech platform to support faster production, more content and live service and we will be bringing this playful world to fans with Miniso this summer, and we have a pipeline of other partnerships coming. With Piknik, our strategy is to drive growth in subscribers and increase retention by showcasing the value proposition of the deep bundle of titles included. As part of this, we have a content pipeline to fuel subscriptions, including the first quarter release of the new reading app Superfonik. We also have a new UX launch planned in the coming months that will make it easier for parents to access the full Piknik offering within their subscription, a key driver of higher retention. And we are continuing to expand our partnerships. In the first quarter, we launched Jinja's Garden, Sago Mini's first-ever immersive 3D game on Apple Arcade. Finally, the integration of Lylli s going well, and it is an example of how we can drive value across our creative centers. We are utilizing Lylli as a platform to make reading part of our brands, including PAW Patrol and Melissa & Doug. In summary, we have clear priorities for 2026, as I outlined in detail on our last call. The first is capturing the movie moment for PAW Patrol across all creative centers. The second is fully realizing the potential of Toca Boca digitally in the physical world and through content. And the third is returning Melissa & Doug to growth. Beyond 2026, we are setting the stage to reignite a new growth cycle by investing in innovation in our toy portfolio and digital platforms, expanding into high-growth categories and accelerating collaboration across our creative centers to unlock the full potential of our portfolio and brands. With that, I turn it over to Jonathan. Jonathan Roiter: Thank you, Christina, and good morning, everyone. As Christina noted, the 8% decline in our Toy gross product sales in 2025 and was driven by an approximate 12% reduction in retailer inventory levels. And because we don't expect significant more reductions, we believe we have a healthy setup going into 2026. We have successfully reduced our own inventory levels in the year by about 20% due to our sell-through efforts with Melissa & Doug successfully reducing its age inventory as well as a reduction within Spin Master of licensed products that we are exiting. Our improved days inventory outstanding, combined with improved payable management, help us decrease our consolidated cash conversion cycle by 7 days. During the year, we generated $308 million in operating cash flow despite the headwinds in the U.S., illustrating the cash generating power within our model. CapEx was approximately $185 million, which included certain projects that I outlined on our third call. Specifically, approximately $24 million related to our IT investments to upgrade our enterprise software across our global organization and approximately $33 million, which was attributed to our new [ Lylli ] office and showroom of which about $15 million was funded by our landlord. After CapEx and lease payments, our free cash generated was used to purchase Lylli in the fourth quarter. We also returned about $80 million of capital to shareholders through our quarterly dividends and by maximizing our share buyback program for the second year in a row. We have now reduced our TSX listed shares outstanding by approximately 7% over the past 3 years through our buyback programs. Net debt, excluding lease liabilities, was held flat year-over-year as we prioritize return of capital. We ended the year with one turn of net leverage, including leases. Now digging into our fourth quarter results by segment. Toy GPS declined by 5%. This was a significant improvement over the 20% decline we experienced in the third quarter, which was driven by the delayed timing of retail orders as many had moved from direct import to domestic replenishment. In the fourth quarter, we lapped much of that timing issue as domestic replenishment sales surged in December by 50%, making up for some of the reduced import sales that we experienced in prior months. A special thank you to our sales, supply chain management and fulfillment teams for navigating us through such an abrupt tariff-driven change in retail order patterns in 2025. In the fourth quarter, we support our retail partners and invest in sell-through to optimize our inventory, which resulted in Toy revenues and gross profits declining faster than GPS. The quantum, however, was not unusual and sales allowance percentage and gross margins were in line with levels we have seen in the fourth quarter of 2024 and 2023. As much of our promotional efforts in Toy were above gross profit, we reduced our marketing expense and OpEx, which helped protect EBITDA. As we noted on our last call, Melissa & Doug was negatively impacted in 2025 due to the tariff-driven environment and increased competition. While we are executing our plan to stabilize and return the brand to growth, the change in dynamics led us to take a noncash goodwill impairment charge. Turning to Entertainment. Revenues increased 3% driven by higher distribution revenues stemming from deliveries of content. However, adjusted operating income declined due to a $12 million increase in amortization of content development within cost of sales, reflecting the in-period dilutive impact from content delivery. Within Digital Games, revenues increased 16%, driven by increased partnership revenues, increased engagement and monetization on Toca Boca World and improved retention and higher ARPU in Piknik. The revenue increase drove a 24% increase in adjusted operating income. So now turning to our outlook for 2026. We are guiding for a stable to low single-digit growth in revenues and a mid- to upper single-digit growth in adjusted EBITDA. The top end of our range reflects growth drivers with a downside reflecting conservatism due to the uncertain economy and its impact on the U.S. consumer demand. In terms of drivers, we expect healthy growth in Entertainment, through the release of PAW Patrol movie and more modest growth in Digital Games as it faces a challenging comp in '25 when it grew by more than 20% and benefited from significant partnership revenues. As it relates to Toy, we expect drivers to include the third PAW Patrol movie, M&D improvements, continued innovation through the portfolio, exciting new licenses as well as the potential to recapture some shipping revenue that we lost in the prior year. Headwinds to growth will be the lapping movie years for DreamWorks Dragons, Gabby's Dollhouse as well as exiting certain licenses, notably D.C. In terms of top line cadence throughout the year, we anticipate year-over-year results in Entertainment to be relatively stable in the first half, with growth in the second half following the release of the PAW Patrol movie. This would be a combination of revenues of approximately $20 million, followed by additional distribution revenues thereafter. Within Digital Games, we're aiming for modest growth in each quarter with rates increasing in the second half partially driven by the launch of our new PAW Patrol digital game and improvements we are making to our platforms. And in Toy, we anticipate an approximately 30-70 split in Toy revenues between the first and second half of the year with the first quarter anticipated to be in the low double digits and the second quarter high teens. Year-over-year results through the quarters in Toy are anticipated to be volatile to a significant shift in retail order patterns last year. Retailers pull forward orders in the first quarter last year in anticipation of the introduction of tariffs, which makes it a challenging comp. Therefore, in the first quarter, we are expecting a significant year-over-year decline in Toy, which in turn is anticipated to result in a double-digit decrease on a consolidated basis. For the same reason, of course, we should have easier comps in Toy in the following quarters, notably in the third quarter. In terms of gross profit, I'll note that the current geopolitical climate may result in certain higher cost of sales such as freight. It is too soon to quantify these. We do expect approximately $22 million of increase in depreciation and amortization within cost of sales, primarily related to amortization of entertainment content development. In the first quarter specifically, we expect a year-over-year decline in gross margin due to a $12 million increase in entertainment amortization. In terms of operating expenses, we anticipate efficiencies in certain areas to help us pay for increased technology investments. The increased adjusted EBITDA margin implicit in our guidance is consistent with the 50 to 100 basis point general target, I outlined on previous calls. As it relates to adjusted EBITDA cadence, we expect seasonality to be similar to last year and '24, with the second half representing more than 85% of our full year results. In the first quarter specifically, we anticipate negligible EBITDA due to the anticipated decrease in gross profit. Below adjusted EBITDA, we are anticipating depreciation and amortization in 2026 to be approximately $160 million, with the increase driven by entertainment, as I previously noted. Finance costs are anticipated to be similar to 2025. Now turning to our cash flows. Lease payments are anticipated to be just under $40 million annually and our CapEx is anticipated to be approximately $150 million in 2026. Now about $25 million of this relates to investments we are making to upgrade our enterprise software, which we expect to launch by the end of the year. This includes leveraging the latest technology to prove and automate our data quality and processes and facilitate tighter integration within our creative centers. The remainder is primarily investments in 3 areas: first, new entertainment content of which 70% is earmarked to continue to expand the PAW Patrol universe, where we generate strong cash-on-cash returns with much of the remainder on our new animated original IP film. Secondly, [ tooling within toy ]. Apple intensity in toy continues to remain in the low single digits. And thirdly, digital game projects. Specifically, the majority will be spent on Toca Boca with a focus on driving growth through next-generation game development, additional content, features and platform upgrades. The remainder will be spent on driving retention in Piknik by investing in new game launches, content expansion and live service development, and we'll be completing our new PAW Patrol digital game. In terms of capital allocation, we remain focused on first investing and driving growth, both in OpEx and CapEx. With the free cash we generate after CapEx and lease payments, we expect to continue to look for M&A to further our strategies. We are maintaining our dividend. We are also renewing our share buyback program. So in summary, we'll look to maintain a balanced capital allocation approach with prudently [indiscernible] conservative leverage. With that, operator, please open the line for questions. Operator: [Operator Instructions] Your first question comes from Adam Shine from National Bank Financial. Adam Shine: And of course, thanks for the outlook and a lot of details, Jonathan. If I could go back, one item that I didn't hear was on the sales allowance front. And maybe you can talk a little bit more in terms of the nature of promotional activity that you think might transpire during the course of this year, let alone perhaps still in Q1. Jonathan Roiter: Thank you for the question. I'm glad that you appreciate the details on the guidance, return to guidance. In terms of sales allowances, we finished this year I didn't -- sales allowance in Q4, I'd point out that those are similar to levels that we had in '23, '24. And so really, when you look at the overall year of '25, it's not necessarily an anomaly. And so heading into 2026, I think we're expecting similar levels. We're really early in the year. Sales allowances really are determinant of your products. And when we look coming out of New York Toy Fair, there's a lot of excitement around our core new products. And so ultimately, sales allowances, we are expecting it to be similar to 2025. Adam Shine: As you reflect on some of the latest dynamics around the tariffs, I think we were moving from 10% into 15% perhaps other changes are afoot. How do you read the landscape. Is this another year where you effectively pass pricing on to the consumer to wash the tariff impact? One part to the question. And then secondarily, are there other benefits to be extracted by virtue of some of the supply chain management issues you pursued last year? Jonathan Roiter: Yes. Thanks, Adam. It certainly is a dynamic environment. You're right, we're currently at 10%. I think there's some expectation from the Treasury Secretary that next week we'll move up to 15%. Bear in mind, those are lower than the previous years. If we just step backward for a moment in 2025, tariffs themselves were not -- the actual dollars that we paid were not material. The net dollars that we paid versus price was not material. Really tariffs, the element that was material was how the consumer ended up showing up and how the retailer bought throughout the year. So we don't expect a movement from 10% to 15% or thereabouts to have a material impact on the net dollars going out. Obviously, the bigger question mark is, does that impact the consumer? And does that impact the retailers? So far, as we began Q1 and 2 months in, we have not seen changes in the retailer purchasing behaviors with the change in the tariff environment. Adam Shine: And just one last one, and I'll queue up again. Just to confirm and clarify with respect to the PAW Patrol movie expected distribution, I think you said $20 million. And is that something that hits the Q3? Or is that $20 million figure the -- a figure for all of 2026? Jonathan Roiter: No. So when we release the theater -- release the move, there's contractual responsibilities. And of those, we received $20 million, and that will be a Q3. How the movie performs, then there's additional funds that we would receive. Adam Shine: Perfect and this is as per the last 2 movies. Operator: Your next question comes from Kylie Cohu from Jefferies. Kylie Cohu: First, just thinking about the industry as a whole, what are you expecting from preschool infant and toddler category? And then also just like the broader toy industry as a whole for 2026 in terms of sales growth? Christina Miller: I think that what we -- just looking at the category overall for us, we see that the consumer sentiment like towards the end of last year was a little bit softer, but improved by the time we got into December slightly. And that toys continue to -- people still continue to shop for toys, even if it's on a promotional basis, right, that they're looking for discount or otherwise. So our approach going forward and even towards the end of last year is to make sure that we have a balanced mix on pricing that across all of our brands that we're bringing value to the consumer. So more than 50% of our products are still priced below $19.99. So I think we have that kind of mix between driving innovation, helping grow that category and then also making sure that we have price points that work. And on top of that, I would add that we have some of the stronger brands in the space as well. So whether it's PAW Patrol being in a movie year or continuing to see growth in Ms. Rachel or Gabby's Dollhouse had a good year coming off the movie. So I think when we move into next year, it's about what else can we bring into that category, given our strength in that category and creating products for that category and then how do we continue to drive the products that we -- brands we have. Kylie Cohu: Super helpful color. And then I guess last one for me is just kind of what needs to go right in order for the results to end up at the high end of your EBITDA guide? Jonathan Roiter: Thanks, Kylie. Well, if we go back to kind of our prepared comments, there are really 3 focuses that we have, right? The first is capture the PAW Movie moment. And so ultimately, not just success at the theater, but also the toys that we have launched that are associated with the movie. We've had really strong response coming out of New York. And so we're really feeling bullish and positive about those products. The second is realizing the full moment of Toca and fully realizing the Toca's potential. So that is a multiyear journey. And we're going to start seeing over the course of this year, increased content, increased features, increased Toca being outside of the digital realm. That is a multiyear journey and executing on that will certainly help on the high end. And then lastly, we talked about for a number of quarters now, returning M&D to growth, and that is a focus of the team. We have -- we brought back innovation to the pretend play category. There's some new areas that we're launching products around and the feedback that we received, again, from the Toy Fair was positive. And so ultimately, those are the 3 elements that would bring us to the top end, plus the consumer showing up and plus stability with how retailers are ordering throughout the year. Operator: Your next question comes from Gerrick Johnson from Seaport Research Partners. Gerrick Johnson: Given the Supreme Court tariff ruling, has that changed conversations with dealers? And just in general, how are they wanting this to be fulfilled in the first half? Are they shifting back to FOB or still pretty much domestic fulfillment? Christina Miller: It's still too early to tell, right? The changes are coming daily at this point. So being able to react to them before the next one comes, I think people are just taking a wait-and-see approach at the moment. So we're not seeing any drastic changes. Gerrick Johnson: Okay. And how are they wanting to be fulfilled? Last year that we talked a lot about that shift from FOB to domestic and have we shifted back to normal shipping patterns? Or are we still in that domestic preferred over FOB? Christina Miller: Domestic continues to be about at the same rate as it was. We don't see a big swing back immediately. Jonathan Roiter: . Yes. I think it will take a number of years for that change. And if anything, there may be more domestic than FOB over the course of the year. Gerrick Johnson: And then on channel inventory, I heard a couple of numbers. Was it down 12%, down 20%? What was the channel inventory number? Jonathan Roiter: Sure. So the channel is down 12%. So that certainly positions us well kicking off the year. And we were down 20% year-over-year. And so from a working capital perspective and again, also positioning us well for next year with the quality of our inventory on hand. Gerrick Johnson: Okay. Is there still any excess out there in the channel that needs to be cleared or inhibiting first quarter -- first half shipments? Jonathan Roiter: I think there's always going to be some level of access. I would just revert back to we're starting the year in a great position, both from our own inventory position, down 20% and the market -- the retailers down 12% that is a strong position to start from. Operator: Your next question comes from Jaime Katz from Morningstar. Jaime Katz: I hope you guys can give us some insight. Maybe I missed it in the prepared remarks, but do you have any insight to the POS momentum coming out of the quarter? We're in March already. So hoping to get a little bit more recent visibility. Christina Miller: I mean I think right now, at this moment, it's slightly up is what we're seeing for the POS getting into the first 8 weeks of the year. Jaime Katz: Okay. And then we haven't really talked too much about this trading card market. But for horror specifically, I'm not very in the weeds in the space. I think there are some other brands in this space. So can you talk a little bit about what the total addressable market there is for you guys to tap into? How you expect the rollout of that to go and sort of when you expect it to start contributing to the P&L? Christina Miller: Sure. A couple of pieces there. I think in the prepared remarks, you would have heard us talk about a two-pronged approach, right? So we have a distribution partnership with Italian brainrot, which is a trading card brand out of Italy. And that will be the first one to go to market and that will be more of a mass trading card play. And then when you look at Hellbreak, which is the strategic trading card game that we're putting into the market later this year, and that's a multiyear growth initiative. So it will start at specialty and really look to permeate that channel and grow with the fan base that older demo. Right now, there's a big show going on in the trade show market called GAMA in Kentucky. And that's like one of the first legs of really revealing it to the specialty channel and to building fandom for the game. The game is there this week. It's doing really, really well. That's that first leg. So I think that really, at this point, it will be about -- we will not see huge growth from this category in 2026. It will start to grow more for us in '27 and '28. Operator: Your next question comes from Brian Morrison from TD Cowan. Brian Morrison: Maybe just you mentioned the key to returning M&D to growth. In New York, we saw the expanded product line beyond [ wood ], the expanded addressable market and your international expansion opportunity. But what's the strategy to gain market share following the tariff heightened impact last year? Is it product differentiation? Will you have to use price? How do we gain more market share back? Christina Miller: There's a couple of paths to returning M&D to growth, right? It's never going to be one thing. I think it is regaining retail space right across the channels, doing that through both category expansion into things like infant as well as continuing to grow our space with WOW products and driving some of the innovation you saw, also really digging into the pricing of our products as well and really making sure that the value is there for both our consumer and our retail partners. And then last but not least, of course, is international expansion. You saw us track towards model at the end of last year with growth into our international channels and growing further there will help us really expand the brand. And then beyond that, I think anyone that was able to spend time with us at Toy Fair will see the way that there's definitely other adjacencies that Melissa & Doug can grow into from an experiential standpoint and really looking at seeing how else we can make sure that the people that love Melissa & Doug can spend time with Melissa & Doug beyond just having a toy in their hands. Brian Morrison: Okay. And then maybe, Jonathan, can you clarify? I mean, obviously, growing Toca digital content is a priority next year or this year, pardon me. Maybe just reconcile the monthly active users in Slide 19, it appears that the ending MAU is down, but the average MAU is up. Can you just clarify how that works? Jonathan Roiter: Sure, Brian. I mean the simple answer is the -- 2 numbers are different. One is an ending number and the second as an average for the period. And so what you see is the trend, I guess, ultimately, in terms of what is transpiring. When we look at Toca, they really -- you really do have to look at it across the 3 core metrics: monthly active users, the conversion of those users and then ultimately, what people are paying. And we are not managing just for 1 of those metrics. We are managing across all 3, and we're comfortable to have some variability in our MAU, in our monthly active users as we try different ways to increase our conversion and increase our, what we call, our ARPU. So we're very comfortable with the trend that you're seeing there. And we're really trying to focus on all 3 of the variables at play. Brian Morrison: So is it safe to say it's a bigger basket from a more concentrated base of users? Christina Miller: Yes, Brian, I think what you're seeing is that it's both, right? And same thing that Jonathan was saying about the difference of its MAUs. It is there. Yes, we're trying to grow the top of the funnel and you see lots of releases -- content releases, both free and premium. And we are converting at the bottom of the funnel well. And I think that's one of the differences for Toca Boca versus competitors, right, is that the markets that we're going to and our ability to convert at the bottom of the funnel. So it's a little bit of both. Operator: Your next question comes from Martin Landry from Stifel. Martin Landry: Jonathan, I just want to talk about the impairment charge you took on Melissa & Doug, it's pretty large. I just want to understand when you did your cash flow analysis to write down the goodwill, was the write-down driven by a lower revenue profile? Or is it more from a lower profitability profile? Jonathan Roiter: Yes. Thank you, Martin. The math on any time you're looking at your CGUs and ultimately, the goodwill associated with it is driven first by your top line. And then what -- how does that translate into cash? Clearly, in 2025, we talked about a number of times. M&D was a brand that was disproportionately impacted by the tariff environment as the vast, vast majority of its production was coming out of China and the vast majority of the sales were to the U.S. And so it had a disproportionate impact. So when you take that in consideration, you rerun your model, ultimately, the baseline of where you're starting from is lower, and that's what drives the impairment. What's important is what we're doing going forward. And I think Christina walked through the growth drivers quite clearly. We're really excited to see a path to having more doors and more shelf space in 2026 than we had in 2025. And couple that with the innovation, the right pricing and continued international expansion. We think that we're -- our aspiration and our goal to bring back Melissa -- M&D back to growth, we're well underway on that. Martin Landry: Okay. And switching gears, I mean, in the past, there were lots of discussions and efforts and resources dedicated to the development of IP internally like Unicorn Academy, for instance. But we don't hear you talk about or maybe I've missed it, but is this a strategy that you're still pushing to develop IP internally? And what's the pipeline of the IP developed internally, if there is any? Christina Miller: Thanks, Martin. I think that we did discuss it a little bit in the prepared remarks around, one, obviously, we are continuing to invest in PAW Patrol, and we talk a lot about that. I think that's definitely one of the things you're noticing. And then other than that, we do have a pipeline of content, whether it's the 4 quadrant movie that's in development. Whether it's relooking at [ Bakugan ] which is an internal property talking about how we're going to develop Toca Boca. Again, when we look at driving and unlocking value for our portfolio, it's about getting it to its full potential. So I think one of the things you're noticing is the pipeline is filled with some of our very core brands that we have the ability to pull through across all of our creative centers. And then we always have a robust development slate where we're looking at what are the new content we can create. And as we get further along with that, we will obviously share it. Martin Landry: Okay. So is it fair to say that there's more focus on your core brand and trying to develop new stuff at the moment? [indiscernible] Christina Miller: No. I think that, again, I'm going to take a chance of just sort of repeating myself. But I think that, obviously, the core brands inside our portfolio are the brands that we are focused on giving and unlocking -- giving attention to and resources and unlocking their potential. Not in -- it's not binary. It's not just doing that. I think the development brands are just that. The same way we're developing over 500 toy products that we will bring far less of those to market. So we have a strong development pipeline. We're constantly looking at what else we can bring to market and when. But as you're probably aware, it's a pretty long process between when we start to develop the property and when we bring it to market. So no less development currently, what's closer in sight is the development or the shows that we're talking about. Jonathan Roiter: Yes. And there's a healthy -- 30% of our entertainment CapEx budget is outside of PAW. So there's a healthy amount of dollars that are being placed on those items that Christina just walked through. Christina Miller: Yes, we will always be a company that's in the active creation, right, that we're always looking at building and adding to our portfolio, and developing franchises across the business, whether they come from digital or they come from toy or they come immediately from content. So I think it's about looking left and right around us to bring what can we pull into content and then where are there those new content ideas. So we are, in fact, doing both. We are committed to doing both. Operator: Your next question comes from Luke Hannan from Canaccord. Luke Hannan: I wanted to follow up on the PAW movie contribution. I think I heard you correctly, it should be $20 million that's going to be recognized in Q3. Is the accounting for that similar as in the past where it will show up -- 100% of that revenue shows up in the EBITDA line and then there's the associated charges against that? And then if so, so just a clarification, so that $20 million then is included in the adjusted EBITDA guidance. And then if we break that out, it's more like flat to up low single digits on the year rather than mid- to high single digits? Jonathan Roiter: I missed the second part. But on the first part, I think it was muffled when I mentioned before. So similar to historical practices when we release content, if we're within a partnership, there's contractual -- we've met some contractual responsibilities and therefore, there is -- we can tell you the number that we're going to receive. And so we're going to receive $20 million of revenue. There will be amortization associated with that against that $20 million as we release content. I didn't get the second part of your question. I apologize. Luke Hannan: Maybe -- so I'll just clarify that. So in the past, like in 2023, for example, the number was in and around $15 million, and that showed up -- 100% of that revenue showed up in the adjusted EBITDA line as well. So in effect, it's almost like the margin on adjusted EBITDA was a little bit higher relative to where it should be because you have the amortization showing up below the EBITDA line. So I guess I'm just trying to think of, if we're thinking about it on a like-for-like basis, we're thinking of the margin expansion in '26 versus '25, should we be then excluding that $20 million of contribution from 2026 EBITDA? Jonathan Roiter: Yes. So it's -- I mean, I thought I addressed it, sorry. It's no different than in the past. So the $20 million, there's amortization associated with it. So therefore, EBITDA, you do see a flow through, through the EBITDA, where you won't see it flow through, excuse me, fully is to the [ EBITDA ]. Luke Hannan: Yes. Got it. Okay. Appreciate that. And then just as a follow-up, you talked about there are certain dynamics, obviously, geopolitical dynamics going on right now that make it very difficult to figure out what the impact is of higher freight costs on what your COGS is going to be going forward. Can you just give us an idea of what it is that you're seeing as far as changes in freight rates currently? Jonathan Roiter: Well, I mean, currently none. But I mean we're 4 days into the spike in oil. And so ultimately, I think it will come down to how high does oil go and how long does it stay at those rates. We're 4 days into the increase in prices. So right now, there's, what I'll say, no material impact. Of course, if this continues for an extended period of time, you will -- we will start seeing that. And there's probably a 3- or 4-month lag in terms of our freight costs and then ultimately hitting our P&L through our COGS. Operator: Your next question comes from Drew McReynolds from RBC. Drew McReynolds: Two for me. First, on the Digital Games side, just in terms of profitability. Obviously, we saw a little bit of a margin lift here in Q4 on pretty good performance. I think margin is stable overall in 2025. Just as you continue to grow the top line here, and invest in the platforms, how do you see margins unfolding going forward? And then second question on the M&A environment. Just maybe for you, Jonathan, just what areas of focus at a 30,000-foot view, are you looking at, at the moment? Jonathan Roiter: I'll start on the first one on the margins on Digital. There's really -- like when you think about Digital, there's 3 revenue streams ultimately that are in that business, there's the Toca stream, the Piknik stream and the partnership stream. Partnerships are very accretive. And so that's why you sometimes see some variability, upward variability on our margins is when we get to -- when we recognize partnership revenue. Some deals, we get to recognize all at once. Some deals are over, of course, a number of years. And if they're material, we do on the call, I'd like to point out the accounting treatment associated with it. Then when you look at Toca and Piknik, they're both in very different stages of their journey. Toca has hit what I'll call scale, and so it's a very accretive business. And our focus is to continue to manage all 3 of those metrics that I talked about before and bring -- and further bring Toca to life outside of the Digital realm. Piknik, we're scaling that business, and so there are certainly more investments associated with the Piknik business. And so the accretion around Piknik is smaller than you would see at Toca. So those are the 3 variables at play when you look at the Digital business. And then in terms of M&A, we're -- I would say the current management team continues to have the same focus as the previous management team around the importance of M&A to our growth platform. Areas that we continue to be looking at are areas that can boost up our core competencies within Toy, areas that we're not necessarily playing in and are high growth in Toy, regions that we can benefit from as well. And then we continue to be actively looking and you saw our last acquisition was in the digital space in the digital realm where we can add more content and more capabilities. Operator: [Operator Instructions] Your next question comes from Ty Collin from CIBC. Ty Collin: I just want to circle back to the discussion around margins. So the 2026 guidance implies probably somewhere between 50 and 100 bps of EBITDA margin improvement. As discussed in a previous question, it sounds like a fair bit of that is going to be coming from Entertainment and Digital rather than the Toy business. So I guess my question is just what's it going to take to kind of get core Toy profitability back to 2024 levels? What does that pathway look like? And are there any other sort of self-help levers available to the company to get there? Jonathan Roiter: Thanks, Ty. It's a great question. The challenge when you have kind of these high-level numbers, you don't see kind of all the different pluses and minuses underneath each. What I can tell you is that there is accretion and there is margin improvement within the Toy business. It's the biggest part of our business, right? It's 80-ish percent of our overall business. We are -- and we've talked about in the past, ensuring that we are setting up this company to have a new growth cycle and a sustained growth cycle and a profitable growth cycle. So there are investments that we're making on the increased margin because we are getting -- from a portfolio approach, we are getting accretion on entertainment. So this is a year where we could certainly put dollars back to work to set ourselves up for success, '27, '28 and '29 on that journey of continuing to grow the top line and expanding our margins. I've talked in the past that I see this business being able to consistently add 50 to 100 basis points a year for a number of years, and we're doing it. And so we're making sure we can do it this year, and we're going to make sure we can keep on doing it going forward. Operator: And there are no further questions at this time. I will turn the call back over to Christina for closing remarks. Christina Miller: Thank you all for being with us today. We look forward to talking to you on our Q1 call on April 30th. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Ferrellgas Partners, L.P. Q2 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Michelle Maggi, Vice President, Corporate Affairs. Please go ahead, Michelle. Michelle Maggi: Thank you, Jonathan. Good day, everyone. Thank you for joining us today for our second quarter 2026 earnings conference call. We released this morning pre-market our earnings. If you haven't seen it yet, you can find it on our website under the Investor Relations tab at ferrellgas.com. With me today is Tamria Zertuche, our President and Chief Executive Officer, and Nick Heimer, Ferrellgas' Vice President and Corporate Controller. Today's call includes prepared remarks where Tamria and Nick will go over our second quarter results for fiscal 2026, concluding with responses to previously submitted questions. Please note that this call may contain forward-looking statements as determined by federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed forward-looking statements. These statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in any forward-looking statements. We undertake no obligation to publicly update any forward-looking statements except to the extent required by law. In addition, please refer to the Form 8-K earnings release to find disclosures and reconciliations of non-GAAP financial measures that may be referenced on today's call. This morning's conference call is being webcast and is also available for replay via our website. With that, I will turn the call over to Tamria. Tamria Zertuche: Thank you, Michelle. Thank you to you and Nick for representing Ferrellgas at the J.P. Morgan Global Leveraged Finance Conference this week in Miami. We appreciate you. Thank you to all for joining our call today. Let me begin with a discussion of our capital structure. Yesterday, after market, we announced that the board of directors declared a cash distribution to the Class B Units of $82.32 per Class B Unit, or approximately $107 million in aggregate. The distribution is payable on or about March 13, 2026. Upon the payment of this distribution, we will have achieved the Class B Conversion Threshold, which allows us to elect to convert the Class B Units into Class A Units. The board of directors also approved the conversion of all 1.3 million outstanding Class B Units into Class A Units. So we will convert the Class B unit into Class A Units on a 5 to 1 ratio after making the distribution. Our consistent and positive cash flow performance has put us in this position to take this meaningful step in strengthening our capital structure. We are fortunate to have strong strategic partners as key stakeholders in our capital structure, such as [ PGIM and Ares ]. They have supported the company since our restructuring, and they continue to support us as we work to simplify and improve our capital structure. We also appreciate our bank group, including our administrative agent, J.P. Morgan. We are excited for the future of Ferrellgas and the opportunities that this step allows for us. Growth is always on our mind. This step, it truly unlocks our ability to focus on even more growth initiatives. We are excited about our future. But shifting for a second back to our second quarter performance, we are very pleased with the results. We continue to demonstrate disciplined execution, executing on our initiatives to grow our customer base strategically, maintain margin performance, and stay relentlessly focused on efficiency. These efforts translate into consistent profitability. Seasonality is part of this industry. We're prepared regardless of how winter unfolds early, late. As I've said before, propane is an essential energy source that our customers rely on, not only to heat their homes, but to power their businesses. Our strong customer mix helps offset weather inconsistencies. Additionally, the winter readiness that I spoke about last quarter, it really proved to be key to our success this quarter. Winter weather did arrive later than usual this quarter, following unseasonably warm conditions in November and December, especially across the western half of the country. In those warmer areas, we really leaned into tank sets and growth initiatives. Winter Storm Fern brought significant snow and ice, and our drivers encountered downed trees and unplowed roads that made travel unsafe at times. But through it all, we performed and delivered a great quarter. While talking about our core capabilities, I speak to our national footprint. Our national footprint allowed us to reposition drivers and equipment from the west to the east to meet elevated demand effectively. That flexibility, it's a differentiator, and it really shows our ability to scale. The safety of our drivers, our fleet, and the communities we serve, it remains our top priority. We continue to see results from our focus on safety. Our [ OSHA ] recordables improved 10% quarter-over-quarter. What we call slips, trips, and falls are down nearly 4% year-over-year, despite the challenging weather. These gains reflect the investments we continually make in safety. At the same time, our continual progress in telematics and in-cab cameras is driving operational discipline. With improved real-time visibility and stronger integration into Samsara AI, that's the provider of our telematics, we're seeing reductions in safety events, improved driver performance, and measurable gains in fuel efficiency and fleet productivity. You see that in the results this quarter. I will now turn the call over to Nick Heimer, our controller, to review our second quarter financial accomplishments. Nick? Nicholas Heimer: Thanks, Tamria. I'll start by thanking our employee owners for delivering on a great second quarter. In particular, their focus on providing excellent customer service, margin expansion, and improving efficiencies continued to propel us forward. We saw strong performance across both retail and wholesale segments. Turning to the financial results, overall gross profit was up $3 million or about 1% compared to last year. Propane prices at Mont Belvieu were down roughly 22% versus prior year, which led to about a $28 million decline in revenue. Because our product cost came down even more by about $31 million, we more than made up for that revenue pressure. Adjusted EBITDA increased $9.1 million or about 6% to $166.1 million. The preparation work we did last quarter really made a difference. When we were ready, winter demand picked up and that helped drive a $7.1 million improvement in gross profit in our retail business. On the wholesale side, results were softer since we didn't have any of the hurricane-related activity this year to boost volumes. We also improved how we operate day to day. Margin per gallon increased about 6% as we cut down on unproductive deliveries and reduced skipped stops. Those efficiencies translated into roughly a 13% increase in operating income per gallon. At the bottom line, net earnings increased $3.3 million to $102.2 million. That improvement was mainly driven by higher gross profit, it was also supported by tighter cost control. General and administrative expenses were down $4.6 million, largely due to lower personnel and legal costs. Operating lease expense declined by $1.6 million as we refinanced several operating leases into finance leases during the quarter. Overall, it was a quarter where preparation, operational discipline, and cost control all came together nicely, and you see it in our financial results. Winter is not over yet, so we're optimistic about the third quarter. Back to you, Tamria. Tamria Zertuche: Thank you, Nick. Really about the third quarter, I wanna recognize, as you did, our frontline employee owners and the incredible work that they did in February as we approached the close of the heating season. Day in and day out, they navigate winter, snow, ice, rain to make sure that our customers have what they need, all while supporting the communities that they live in, helping families facing food insecurity. Our long-standing partnership with Operation BBQ Relief remains strong as we work together throughout the quarter to provide essential meals. We remain the clear leader in the propane industry for many reasons, and our continued progress on building out our customer base, maintaining margin, and improving efficiencies, as well as taking advantage of our improved capital structure allows us to build on this momentum. The industry has growth opportunities in power generation, autogas, and more. We look forward to leveraging our improved capital structure to take advantage of the growth opportunities in this industry. That is the end of our prepared remarks. Tamria Zertuche: We will now go through some previously submitted questions. Nick, if you don't mind, since you took hundreds of them on Monday and Tuesday at the conference, I'll go ahead and go. We categorized them into five areas. The first was there were questions around the Eddystone litigation and whether it was finalized. I wanna make sure it's clear for everyone, yes, we made the final payment in January. The matter is closed. We are not incurring legal costs any longer. There is no outstanding litigation related to the Bridger transactions. The next set of questions was around the hiring of a new CFO. It is a priority. As we previously stated, we continue our search. We are looking for the right fit and taking our time to find that person. Andy Safran continues to be our advisor, helping us to navigate our capital structure and advising us through our efforts to improve our investor relations program as well. There was a series of questions that we could really categorize as headwinds maybe around the third quarter due to geopolitical items. Obviously, we are watching the conflict in Iran carefully to see what effect these actions might have on our costs. You know, due to the positions that we took in the first and the second quarter to secure favorable pricing, we are optimistic that we will be able to mitigate any potential unfavorable impact. We are also continuing to watch the most recent developments in tariffs. As you can imagine, we received many questions around what's next now that we have announced a conversion of the B Units. Kind of several questions relating into that. Going to just answer that as all those questions at a, at a macro level here. This conversion reduces our cost of capital to match the realities of our business performance today. With this conversion, we strengthen our ability to grow, and we look for ways to expand on our leading capabilities, which I've spoke to today and are the catalyst to not only the results this quarter, but beyond. We are consistently looking for ways to grow our business and take advantage of the necessary and essential industry that we are leaders in. Power generation for businesses such as data centers, as well as our expanding autogas business, which is school buses, it's strategic for us. We believe we are experts at acquisitions, and we have a long history of solid acquisitions with really strong returns. We look to continue our focus on simplifying and improving our capital structure. There was a question around what do we think about the range of capital expenditures from here on out? I think really what the question was asking is, what's going to happen with cash? Let me give you a little bit of a history there. We generate a healthy amount of cash each year. We've been able to continue to invest in the company, maintain our debt, and address key pieces of our capital structure. Over the past four and a half years, the company has paid out $250 million to Class B Units, soon to be $357 million. The company has paid $125 million to Eddystone. That alone is almost a $0.5 billion of cash over the last four and a half years the company has generated. We also remained current with maintenance on our debt, our senior preferred units, our high-yield bonds, and the company also has invested in operations between $70 million and $90 million of CapEx per year. When you think about that, we have been consistent, and we evaluate the needs of the company, and we balance those against our desire to acquire, to maintain our debt, and to tackle key pieces of our capital structure. We appreciate everyone attending the call today. Your support of Ferrellgas now and in the future is more important than ever. We really want to maintain your interest in Ferrellgas, and so our investor relations program will continue on its outreach. For now, I will turn it back over to the operator. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.