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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.
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: Hello, and welcome to the Fourth Quarter 2025 Conference Call for AirBoss of America. [Operator Instructions] I would now like to turn the conference over to Gren Schoch. Please go ahead. Peter Schoch: Thank you, operator. Good morning, everybody, and thank you for joining us for the AirBoss Fourth Quarter and Annual '25 Results Conference Call. My name is Gren Schoch. I'm the Chairman and Co-CEO of AirBoss. With me today are Chris Bitsakakis, our President and Co-CEO; Frank Ientile, our CFO; Chris Figel, our EVP and General Counsel. Our agenda today will start with a review of the operational highlights for the quarter and year, followed by a discussion of our financial results before we open the conference line to questions. Before we begin, I'd like to remind listeners that our remarks today contain forward-looking statements, including our estimates of future developments. We invite listeners to review risk factors related to our business in our annual information form, our financial reports and our MD&A, all of which are available on SEDAR+ and our corporate website. We may also discuss certain non-GAAP measures. Reconciliation of these measures are available in our MD&A. Finally, please note that our reporting currency is in U.S. dollars. Therefore, references today will be in U.S. dollars unless otherwise indicated. With that, I will now turn the call over to Chris Bitsakakis for the operational review. Chris Bitsakakis: Thank you, Gren, and good morning, everyone. 2025 represented a marked improvement for AirBoss compared to 2024 despite pronounced economic and geopolitical headwinds that affected each segment to varying degrees. Compared to 2024, 2025 concluded with a $23 million increase in consolidated revenue, a $12 million increase in adjusted EBITDA and a free cash flow of $37 million, which helped drop our net debt to $67.6 million from $98.9 million at the end of 2024. This improved our net debt to trailing 12-month adjusted EBITDA to 1.99x compared to 4.51x at the end of Q4 2024. Despite the strong consolidated performance, AirBoss Rubber Solutions, or ARS, in particular, experienced significant market softness as key U.S. customers work to establish new more tariff-friendly supply chains while working with pre-existing U.S. raw material inventory. AirBoss Manufactured Products, or AMP, however, had strong performance across both its defense and rubber-molded products businesses, supported by deliveries under previously announced contracts and footprint optimization initiatives. Management at both segments continued implementing risk mitigation strategies in response to these challenges, including cost controls and continuous improvement initiatives that helped drive the concerted effort to improve profitability and strengthen the balance sheet. The company navigated ongoing uncertainty related to economic conditions, geopolitical developments, tariffs, inflationary pressures and supply chain disruption while maintaining focus on executing its long-term strategic plan. Given the cross-border nature of its operations, a significant portion of products manufactured in Canada are sold into the United States and may be subject to existing or future tariffs. While most products currently qualify under USMCA or CUSMA, the company continues to evaluate and implement contingency plans to mitigate potential impacts under existing agreements and more particularly in advance of any future trade negotiations or agreement negotiations -- renegotiations. Despite this environment of continued economic uncertainty, management remains focused on converting key opportunities to support sustainable long-term growth. The company currently expects volume recovery at ARS to commence midway through 2026, although the timing and magnitude of recovery could be affected by additional tariff duties or evolving trade restrictions or market conditions. ARS experienced continued and pronounced softness in Q4 2025 compared to Q4 2024, with revenue contraction and reduced margins driven by overall softness in most customer sectors. This was primarily attributable to tariff-related market conditions as customers continue to manage potential exposure through the sale of pre-existing inventories. As a segment, ARS continued to invest in research and development to support enhanced collaboration with customers and remains committed to executing its strategy focused on specialized products, expanded production of a broader array of specialty compounds and enhanced flexibility in attracting and fulfilling new business opportunities. AMP experienced overall volume improvement in Q4 2025 compared to Q4 2024, primarily driven by this defense products business and improvements in the rubber molded products business. The defense business had improvements in both revenue and gross profit, mainly driven by deliveries under recently announced awards. The rubber molded products had improved volumes despite continued volatility related to the original equipment manufacturers or OEMs, periodically shuttering production to rebalance vehicle inventory levels throughout 2025. During the quarter, the company substantially completed its relocation of its operations in Jessup, Maryland to Auburn Hills, Michigan to optimize its footprint. The business continued its focus on cost management, operational efficiencies, automation and diversification into adjacent product sectors. Management also continued its focus on operational improvements and working with key customers to leverage opportunities aligned with its growth initiatives. The company's long-term priorities consist of the following: Firstly, to grow the core Rubber Solutions segment by emphasizing Rubber Compounding as the core driver for sustainable growth and productivity, focusing on innovation and custom rubber compounding while aiming to expand market share through organic and inorganic means while striving to achieve enhanced diversification by broadening the product breadth through technological advancements and investments in specialty compound niches. And secondly, to focus manufactured products growth strategy on diversifying and expanding its range of rubber molded products while positioning current and future core defense products to take advantage of new growth opportunities within NATO and other partner customers around the world as many nations around the world set more aggressive defense spending goals. AirBoss continues to focus on these long-term priorities while investing in core areas of the business to expand a solid foundation that will support long-term growth. I will now pass the call over to Frank for the financial review. Frank? Frank Ientile: Thanks, Chris, and good morning, everyone. As a reminder, all dollar amounts presented today are in U.S. dollars. Percentage changes compare Q4 2025 to Q4 of 2024, unless otherwise noted. To be respectful of your time today, I will be brief in my summary of our Q4 2025 results. Starting from the top line, AirBoss' consolidated net sales for Q4 of 2025 were $106 million, an increase of 15.3% from $92 million in Q4 2024. This improvement was due to increased sales at AirBoss Manufactured Products, partially offset by lower volumes at AirBoss Rubber Solutions. Consolidated gross profit for Q4 of 2025 increased by 30.4% to $19.9 million compared with Q4 of 2024. This was primarily the result of increased sales from AirBoss Manufactured Products. Turning now to our individual segments. Net sales at AirBoss Rubber Solutions for Q4 of 2025 were $45.8 million, a decrease of 3.3% compared to Q4 of 2024. Volume decreased by 3.5% with declines across most customer sectors. Tolling volume was down 65%, while non-tolling volume was down 1.2%. Gross profit at Rubber Solutions for Q4 of 2025 was $5.3 million compared with $5.9 million in Q4 of 2024. The decrease in gross profit was principally due to lower volumes across most customer sectors and product mix, offset by managing controllable overhead costs and continuous improvement initiatives. At AirBoss Manufactured Products, net sales for Q4 of 2025 were $72.5 million, an increase of 50.4% compared to Q4 of 2024. The increase was a result of higher volumes in the defense products business and increases across the rubber molded product lines despite continued volume softness and volatility related to the original equipment manufacturers. Gross profit within AirBoss Manufactured Products for Q4 of 2025 was at $14.7 million compared to $9.4 million in Q4 of 2024. The increase was primarily a result of new business awards at AMP's defense products business, margin improvements at AMP's rubber molded products business, further supported by operational cost improvements in the segment by managing controllable overhead costs and continuous improvement initiatives. For the full year of 2025, consolidated net sales for AirBoss were $410.2 million, up 6% from $387 million in 2024. The full year gross profit for 2025 improved to $71.1 million, 17.3% of sales from $54 million, 14% of sales in 2024. For the year ended December 2025, net cash provided by operating activities was $49.1 million versus $8.8 million as at the end of 2024. Free cash flow for the year ended December '25 was $37.3 million versus negative $1.8 million in 2024. For the year ended December 2025, capital investments of $4.5 million were made by ARS and $6.6 million were made by AMP. These capital expenditures related to cost savings initiatives, growth initiatives, upgrading existing property, plant and equipment. On December 31, 2025, our net debt balance was $67.6 million versus $98.9 million at the end of 2024. We expect to fund the company's 2026 operating cash requirements, including required working capital investments, capital expenditures and scheduled debt repayments from cash on hand, cash flow from operations and committed borrowing capacity. The company's asset-based revolving credit facility provides financing up to $125 million with an accordion of $25 million. On December 31, 2025, $71.5 million was available under this facility and $24.3 million was drawn. With that, I will now turn the call over to Chris. Chris? Chris Bitsakakis: Thank you, Frank. Operator, at this point, we can open the line up for Q&A. Operator: [Operator Instructions] Your first question comes from Ahmed Abdullah with National Bank. Ahmed Abdullah: You updated your strategic priorities to double down on defense products and remove the commentary around strategic review. Can you give us some color as to what drove that decision? And are you seeing any early green shoots related to the increased NATO defense spending you referenced earlier? Chris Bitsakakis: Yes. I mean, like any strategic review, it's not meant to go on indefinitely. And so we took some time to take a look at all of our different product lines and made some assessments in terms of what is sort of a long-term strategic growth priority for us and what may not be. And I think it really fell along the lines of how it fit into the vertical integration strategy that the company has. So from that perspective, we feel that strategic review is complete. It doesn't mean that we're in the process of divesting of any of those businesses that did not fit directly into that long-term strategic plan. However, we are still nurturing those businesses. We're still building them up and looking for the right opportunity to decide where they would best fit. So from that perspective, I think we have a very good and clear direction for the future of the business. In terms of the NATO spending, we are seeing significant opportunities as our partner countries around the world have made statements of increased defense spending. We see quite a lot of activity coming out of Europe. And we're hearing a lot of good things from the Canadian government, and we are in contact with the government here in Canada and throughout our NATO partners. So we're fairly optimistic that in this period of uncertainty around the world and increased defense spending that AirBoss Defense Group should have opportunities ahead that can really drive significant growth. Ahmed Abdullah: Okay. And during your period of strategic review, has there been any engagement around possible divestitures? Or was it really more of an internal process without really shopping around any lines? Chris Bitsakakis: It was really mostly an internal process. Although throughout the process, we were in contact with outside consultants in terms of what makes sense and what possible opportunities for divestiture could be out there. But again, the idea behind that is if something doesn't fit strategically to the long-term plan of the company to make sure that we maximize the value of it before we look at a divestiture. And that's the process that we're in right now. Ahmed Abdullah: Okay. Just switching gears to the ARS business. On the outlook commentary related to ARS, can you help us bridge the gap between the ongoing weakness here and your view of a recovery in mid-2026? What building blocks are you seeing that would kind of support that recovery taking place? Chris Bitsakakis: So we have a bunch of new customers that we're launching right now. And so we're looking at those volumes going forward to be able to estimate some level of recovery. We're seeing early this year increases from many of the customers that were quite slow last year. So we are assuming that -- and not just assuming because we have lots of conversations directly with our customers and the reductions were pretty broad-based across many of them. And so we saw this sort of industrial slowdown as our customers in the U.S. who -- their supply chains are really global, took the last 2 quarters of last year, worked off existing inventory and we're working on establishing new supply chains that were more tariff-friendly for them because a lot of their products coming in were -- had tariff supplied to them and -- but not the rubber, of course, because it was still covered under CUSMA. So as they were trying to reestablish their supply chains and bring some more efficiency into what was going on with them, they were getting rid of old inventory and their sales were dropping. We're seeing now in early this year some return of that broad base. And we are also launching new customers, some very high-volume customers and also some smaller customers on the specialty side that will drive increased margin. So we're assuming that through the ramp-up and launch phase here in the first and second quarter, we should be able to see those results going into the second half of the year. Now of course, that's predicated on any new and exciting information coming out of the U.S. administration related to CUSMA to tariffs and to any other sort of geopolitical events, but that's what our modeling is showing right now. Operator: Your next question comes from Tim James with TD Cowen. Tim James: First question, just returning to the -- your expectation for a volume recovery in ARS midway through 2026. Does that mean you expect like a sequential improvement in volume as you go through the year? Or do you expect year-over-year volumes could actually turn positive middle of the year? Chris Bitsakakis: Yes. I mean if you look at Q1 and Q2 last year, they were pretty strong quarters. So I haven't compared our modeling to the quarters of last year. But what we're looking at is the performance in Q3 and Q4 of 2024. And as we look at the new customers that are coming online and some assumptions based on a recovery from what we saw late last year, we're seeing a sequential improvement from the beginning of the year into the second quarter that we should then carry forward into Q3 and Q4. Tim James: Okay. My second question, Chris, what work remains, if any, to prepare the company for a negative outcome with regards to CUSMA negotiations? And I'm just thinking in terms of sourcing materials and the locations of your own operations to limit cross-border shipments. Are you kind of in a good place, do you feel like in terms of risk mitigation at this point? Or is there other work that needs to be done? Chris Bitsakakis: No, I'd say we're in a good place. We did a lot of work all of last year, and we actually spent a lot of money taking every single compound, for example, that's currently compounded in Canada, taking it to our southern location, getting approvals to our customers, getting the approvals that we needed in place, running samples. So we did a lot of work to make sure that we were prepared for anything. I guess that work happened sooner than we needed it. And hopefully, we don't need it this year. But we're in a position where we have contingency plans set up that we're going to be able to handle whatever happens out of CUSMA. Now obviously, for us, clarity is the most important thing. I mean not knowing is really very difficult because you have to plan for any sort of inevitable event. We have done that, of course. But at the same time, if we had some clarity, we'd be able to know. For example, if in September, CUSMA was no longer there, we'd be putting into our contingency planning execution right now. So hopefully, the negotiations happen in a way that our business is not affected. But in a worst-case scenario, we have our contingency plans set up and ready to execute on them. Tim James: Okay. Just wondering next, if you could elaborate on the product mix changes in ARS that negatively impacted gross margin year-over-year in the fourth quarter. Chris Bitsakakis: Yes. It's -- I mean, it's interesting. Obviously, if you look at all of our competitors, and of course, one of them being a public company that it's very easy to look up. But all of our competitors had significant drops in volume last year and especially particularly in the last 2 quarters. And with that, you have to get a little bit more aggressive on pricing in order to defend your business from the open capacity that exists. So I think there's sort of a temporary drop in margin based on a bit more of an aggressive strategy to defend the business that we do have still. And I think that's really the biggest driver behind that. The other part of it is all of the contingency planning that we did last year required significant amounts of free samples basically that we had to make and provide to our customers, which then also reduced our gross profit in terms of doing that, but it was necessary in order to make sure that we have our contingency plans in place. Tim James: Okay. That's helpful. Just then finally, just thinking about '26, can you give us a sense for your CapEx requirements? Forgive me if I missed that earlier. And I'm also wondering, and I know this one is a hard one to sort of provide thoughts on, but working capital requirements in '26, whether you can sort of generate some cash from working capital this year, whether it may require some cash. Just those 2 items and the impact on '26 would be helpful. Frank Ientile: Yes. Thanks, Tim. As it relates to capital, again, our investment, we believe, will be a moderate step-up from 2025, obviously, investing in projects that support payback and are part of the strategic growth from that perspective. But we'll basically be looking at maintenance CapEx plus a little bit more as it relates to the growth. And in terms of working capital, obviously, we have a strong focus and had a strong focus in a very successful year in 2025 with respect to managing working capital and converting obviously some of these sales opportunities into cash in a much quicker cycle. We expect 2026 to be an investment in working capital as we continue to launch some of the previously announced awarded programs as well as some new programs that are coming up. So we do anticipate there being a bit of a cash burn in '26 relative to '25. Operator: Your next question is a follow-up from Ahmed Abdullah with National Bank. Ahmed Abdullah: Just on the rubber molded products, you mentioned an increase, and then you also mentioned in your release that there's volume softness and volatility related to OEM production. Can you just give us a bit more color as to what drove that increase in such a backdrop that has the softness and volatility? Chris Bitsakakis: Yes. No problem. Late last year, we launched the production of the MALO program for the defense group. So the rubber molding division ramped up multiple presses in order to begin the ramp-up for the deliveries of the molded overboots for the U.S. military contract that we had announced previously. The volume production there for that MALO is the highest volume production we've ever had. And so it required presses, machines and a lot of people and a ramp-up of volume that really drove a significant increase in the rubber molded business at a time when the auto side was sort of volatile, a little bit up, a little bit down depending on car lines and that sort of thing. So that's really what offset some of the volume reductions on that side. Ahmed Abdullah: Okay. And I guess one for Frank. On the delevering, we have no financials yet, but looking at your CFO, can we assume that the increase in the CFO in this quarter is primarily driven from a working capital inflow rather than an outflow? Frank Ientile: Yes, it's definitely a working capital inflow, a combination of, again, some -- obviously, deliveries of the contracts with the quick conversion of cash. Also, keep in mind, Ahmed, from the restructurings and everything we've done in the previous periods, obviously, the lower cost base is also supporting it and then managing our direct working capital levers as we tightened up on inventory, really work to get our collections in faster. And obviously, the combination of those helped support the strong quarter from that perspective. Ahmed Abdullah: Okay. And I guess final one for me. Any updates on the real estate sale in Kitchener? Chris Bitsakakis: Yes. I mean we Obviously, it's still part of our long-term strategic plan to move out of that facility into a new modern facility. Having said that, with the drop and the softness in the condo market, it's made it a little bit trickier for developers to take on such a big project in this time of uncertainty. But certainly, we have lots of conversations ongoing almost on a weekly basis of people that are interested in what could transpire in that facility with us. Of course, we're not in a hurry to move at a discount. We're hoping to be able to get very close to what the appraised value is before we move on it. But there's lots of activity in that area. It's shifted a bit from a pure residential type development into more of a mixed use, which could include things like data centers and commercial locations and a variety of ideas that people are bringing to us. So we're still very active in that area, but we're also being very patient about it in that we're still operating there and still doing very good work there. So we're not in any hurry to fire sale it. So hopefully, as the residential construction rebounds a little bit and some of the other ideas that we're getting maybe start to solidify, we'll be in a position to announce something there. But we're not in a hurry, but we're still actively involved in lots of conversations about it. Operator: There are no further questions at this time. I'll turn the call to Chris Bitsakakis for closing remarks. Chris Bitsakakis: Thank you, operator, and thanks again to everybody for attending today's call. Please feel free to reach out to us directly or through our Investor Relations team if you have any questions on our results or any questions in general. Thank you again, and have a great day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good morning. Thank you for holding. Welcome to the earnings release call of Ultrapar to discuss the results referring to the fourth quarter 2025. The presentation will be conducted by Mr. Rodrigo Pizzinatto, CEO of Ultrapar; and by Mr. Alexandre Palhares, CFO of Ultrapar. Our question-and-answer session will follow, and we will have with us Mr. Leonardo Linden, CEO of Ipiranga; Mr. Tabajara Bertelli, CEO of Ultragaz; and Mr. Fulvius Tomelin, CEO of Ultracargo. This call is being recorded and will be accessed later through the website, ri.ultra.com.br. After the initial presentation, we are going to start the Q&A session where further instructions will be provided. [Operator Instructions] Presentation will be provided in Portuguese, and you have the option in English to be downloaded later. Before moving on, we would like to clarify that forward-looking statements that may be made during this conference call with respect to business prospects, forecasts and operation and financial goals of the company are all based on beliefs and assumptions of the Executive Board of Ultra, as well as currently available information. These beliefs and assumptions involve risks and uncertainties since they relate to future events and therefore, depend on circumstances, which may or may not occur. Investors should understand that general economic conditions, market and other operational factors may affect the future performance of the company and lead to results, which may differ materially from those expressed in forward-looking statements. I would like now to hand it over to Mr. Rodrigo Pizzinatto, who will start the presentation. Mr. Pizzinatto, you have the floor. Rodrigo de Almeida Pizzinatto: Good morning, everyone. It is a pleasure to be here once again to share Ultrapar's results. 2025 was another year marked by significant growth at Ultrapar. Clear strategy and disciplined execution are the base for the continuation of good operating results. We ended the year with the highest recurring adjusted EBITDA ever recorded in the fourth quarter. This improvement was directly reflected in cash. Ultrapar had a record operational cash flow generation of BRL 5.500 billion. This allowed us to end the year with a leverage of 1.7x, even after the anticipated payment of BRL 1.1 billion in dividends in December. Without this effect, leverage would have been of 1.5x, a very comfortable level. Considering the anticipated payment and the regular dividends, we paid BRL 1.4 billion in dividends in 2025, equivalent to BRL 1.30 per share and a dividend yield of 7%. I also highlight important progress on the institutional agenda, such as the approval of the persistent debtor and the single-phase taxation for naphtha, which strengthened fair competition and regulatory certainty and the Gás do Povo Provisional Act, which reinforced safety and regulatory framework of the LPG sector. We continue to advance our growth, productivity and value creation agenda with the completion of expansion of the Rondonópolis base of Ultracargo and the acquisition of a 37.5% stake in Virtu GNL, both in January. In February, we completed the migration of Ultracargo's SAP system to the SAP 4HANA platform, a significant step towards increasing our operational efficiency. We also announced our investment plan for 2026, which can reach BRL 2.6 billion intended for the expansion, maintenance, safety and efficiency of our business. And we continue to strengthen our capital structure with raising about BRL 260 million in incentivized credit lines for expansion projects at a weighted average cost equivalent to 87% CDI. We entered 2026 with a global scenario marked by geopolitical tensions and economic volatility. We are prepared to face this context and seize opportunities with an engaged team, strengthened business and a constant focus on operational efficiency, financial discipline, innovation and sustainable growth. Thus, we continue our journey of value creation. Thank you for your attention. I will now hand over to Palhares, who will detail the results for the quarter and the year 2025. Alexandre Palhares: Thank you. Good morning, everyone. I would like to remind you of the reporting criteria and standards used in this presentation, which can be seen on this Slide 3. Now let's move on to the results for the fourth quarter and the year 2025, starting with Ultrapar's consolidated results on Slide 4. Adjusted EBITDA amounted to BRL 1.6 billion in the quarter, a 34% decrease compared to the same period of last year due to the nonrecurring effects highlighted on Page 2 of the release that we disclosed yesterday. For the year, adjusted EBITDA reached BRL 6.8 billion, a 2% increase compared to 2024. Recurring EBITDA was BRL 1.7 billion in the quarter, a 36% increase compared to the fourth quarter of 2024, mainly reflecting the better performance of Ipiranga and Ultragaz in addition to the effect of the consolidation of Hidrovias. For the year, recurring EBITDA totaled BRL 6.2 billion, 15% above 2024, reflecting the results of Ipiranga, Ultragaz and Hidrovias, whose consolidation began in May. Net income for the fourth quarter was BRL 256 million, a 71% decrease compared to the same period of 2024, also impacted by the nonrecurring effects that I mentioned. Without these effects, net income would have been BRL 439 million, a 49% increase in the quarter. In 2025, net income was stable at BRL 2.5 billion, reflecting the record operating result, partially offset by the increase in depreciation and amortization and higher financial expenses resulting from the consolidation of Hidrovias. This result level allowed the distribution of BRL 1.4 billion in dividends in the year, considering the anticipated payment of BRL 1.1 billion made in December. Moving on to the next slide. Let's talk about the cash generation for the year. On the left, operating cash generation reached BRL 5.5 billion, Ultrapar's historical record. This result was mainly due to 3 factors: higher operating result; consolidation of Hidrovias, which contributed BRL 855 million; and lower working capital needs, especially at Ipiranga, partially offset by the effect of settlement of draft discount for suppliers in the amount of BRL 1 billion. Regarding CapEx, we reached BRL 2.5 billion, a 15% increase compared to 2024. This is explained by higher investments of Ipiranga in addition to the effects of the consolidation of Hidrovias of BRL 235 million, which was not included in the initial plan. And at the same time, we had lower investments at Ultracargo. Looking more closely at the capital allocation, we completed some transactions, mainly the capital increase and the increase of our stake in Hidrovias, which totaled BRL 693 million, acquisition of TRRs in the total amount of BRL 103 million, and Virtu's transaction in the amount of BRL 36 million in the year. Throughout the year, the sale of the coastal navigation operation by Hidrovias in the total amount of BRL 715 million was also completed. In addition, we completed Ultrapar's buyback share program and made a relevant distribution of dividends. Moving to the next slide, and talking about debt and leverage. We ended 2025 with net debt of BRL 12.1 billion, an increase compared to September, but still keeping leverage steady at 1.7x, exactly the same level as the previous quarter. This possible stability is explained by the record operating cash generation, which offset the anticipated payment of dividends in December. Excluding the effect of the anticipated payment of dividends, leverage would have ended the year at 1.5x. The increase in net debt when comparing year-end 2025 to year-end 2024 mainly reflects the consolidation of Hidrovias, with an impact of BRL 2.2 billion. It is also worth highlighting the additional effect resulting from the reduction of BRL 1 billion in draft discount over the period, as shown at the bottom of the table. Now let's move to the results of Ipiranga on Slide 7. In the quarter, Ipiranga's volume grew 7% compared to 2024 with an increase of 8% in the Otto cycle and of 6% in diesel with a higher share in the spot market. This is due to the beginning of the market recovery after intensification of measures to combat irregularities in the sector. For the year, sales volume grew 1% with an increase of 2% in the Otto cycle and of 1% in diesel. We ended 2025 with a network of 5,805 service stations, resulting from 271 stations opened and 326 closed. Ipiranga's adjusted EBITDA totaled BRL 1.2 billion in the fourth quarter, 37% lower when compared to last year due to the recognition of nearly BRL 1 billion in extraordinary credits in the fourth quarter of 2024. Recurring adjusted EBITDA reached BRL 1.1 billion in the quarter, a 26% increase compared to 2024. This performance mainly reflects higher sales volume and better margins, partially offset by higher expenses. For the year, adjusted EBITDA totaled BRL 4.3 billion and recurring EBITDA totaled BRL 3.5 billion, a 4% increase compared to 2024. Operating cash generation was once again a highlight and reached BRL 4.3 billion, an increase of 41% in the annual comparison. This result reflects efficient working capital management and operational discipline. The first quarter began with the import arbitrage window open, which led to greater product availability. That window closes at the end of February and with the Middle East conflict, import parity turned much less favorable. In this context, we expect continued growth in volumes and margins. Moving to Ultragaz' results on the next slide. The volume of LPG sold in the fourth quarter was 2% lower than the same period of 2024 with a 5% decrease in the bulk segment, mainly due to the lower demand in the industry segment and with stability in the bottled segment. In 2025, the volume sold was also 2% lower than in 2024, with a decrease of 4% in the bulk segment and of 1% in the bottled segment. This performance is explained by the competitive dynamics of the market, impacted by the pace of pass-through of increased costs of Petrobras auctions throughout the year, in addition to lower business demand mainly in the industry segment. Recurring EBITDA reached BRL 474 million in the quarter, a 7% increase compared to the previous year. The result reflects the pass-through of cost inflation and a favorable sales mix, and on the other hand, the lower volume of LPG sold. For the year, adjusted EBITDA totaled BRL 1.8 billion, 5% increase compared to 2024. This performance reflects the effects of the pass-through of cost inflation, a more favorable sales mix and the contribution from new energies, which offset a lower LPG volume and higher costs and expenses. For first quarter '26, we see continuity of good results and an EBITDA similar to that observed in first quarter '25. On the next slide, we move to Ultracargo's results. The average installed capacity reached 1,131,000 cubic meters in the quarter, a 6% increase compared to the fourth quarter of 2024, resulting from the additions of capacity in Palmeirante, Rondonópolis and Santos. For the year, the average installed capacity was 1,090,000 cubic meters. The cubic meters sold was 5% lower in the quarter and 9% lower in the year compared to 2024. This decrease is mainly due to the lower demand from our customers for tanking services related to fuel imports, an effect partially offset by the increase in handling in Opla. Net revenue totaled BRL 261 million in the quarter, an 8% decrease compared to the previous year, reflecting the cubic meters sold and less favorable sales mix. For the year, net revenue amounted to BRL 1.021 billion, a 5% decrease explained by the lower cubic meters sold, partially offset by higher tariffs in the period. Adjusted EBITDA was BRL 144 million in the quarter, a 15% decrease compared to the fourth quarter of 2024. This performance mainly reflected lower cubic meters sold and higher costs with operations still in the ramp-up phase, partially offset by lower expenses. In 2025, adjusted EBITDA was BRL 585 million, a 12% drop compared to 2024. This result reflects lower cubic meter volume and higher costs associated with new operations, which are still in their ramp-up phase, partly offset by higher tariffs and lower expenses. We continue to see a gradual recovery in demand from customers of terminals at the beginning of the year, challenged by the closed import arbitrage window since mid-February. I also remind you of the negative initial effects of the ramp-up of some expansions. In this context, we expect first quarter volume and recurring EBITDA to be higher than in the last quarter of 2025. Now let's move to Hidrovias results. The total volume handled increased by 65% in the quarter compared to 2024, reflecting better navigation conditions in the North and South in addition to operational improvements. For the year, the volume handled increased by 22%, reflecting the same, more favorable navigation conditions, operational improvements throughout the year and higher volume in Santos, with the beginning and consolidation of the salt operation. Recurring EBITDA amounted to BRL 160 million in the quarter, reverting the negative result recorded in the same period last year, highlighting the positive effects of better navigation conditions and operational improvements. For the year, recurring EBITDA totaled BRL 1.1 billion, a 95% increase compared to 2024. This advance mainly reflects better navigability in the regions served, operational improvements and better average tariffs. I remind you that in November, we completed the sale of the cabotage operation, which contributed to the results of 1Q '25. Looking now at the first quarter, we have seen greater challenges in receiving cargo from the North operation, navigability conditions closer to normal levels in the South, although with some restrictions on iron ore loading. As a result, we expect results to be lower than those of the first quarter of last year. Finally, to conclude the presentation, we will look at the composition of investments made in 2025. We invested BRL 2.5 billion in the year, about half allocated to business expansion and the other half to maintenance and other investments. The total was in line with the announced plan, even considering BRL 235 million in investments at Hidrovias, which were not included in the original plan. Excluding this effect, investments would be 9% below the plan. We announced in the 2026 investment plan of up to BRL 2.6 billion. Of this total, approximately 42% will be allocated to expansion and the remaining to maintenance and business efficiency and safety initiatives. The highlights are in this presentation and in the market announcement. Well, with that, I conclude my part. Thank you all for the participation. Let's move to the Q&A session. To ensure better dynamics of this moment, I would like to reinforce that questions related to Hidrovias will be answered from the perspective of Ultrapar as the controlling shareholder. For specific operational details, the appropriate channel is Hidrovias' IR team. Thank you. Operator: [Operator Instructions] The first question comes from Monique Greco with Itaú BBA. Monique Greco: Great results. I would like to explore further the margins for Ipiranga. You've had very strong margins in the fourth quarter, especially because of strong December. What were the main reasons for these stronger margins obtained in the month of December? I'd also like to understand whether there is some relevance, the fact that you have favorable arbitration for import or some other factors along these lines. And I would also like to ask about the share because in January, you've been subject to some more pressure in terms of market share because of an oversupply in the chain. What can you tell us about that? Do you think that January was just one-off effect? I know it's too early to talk about that, but especially with the perspective of a very short window for import. What can we expect in terms of market share from now on? Leonardo Linden: Linden speaking. Monique, thank you for the question. You are right. The fourth quarter showed this journey of progression. December was stronger, similar to November, October was somewhat weaker. I think this is very much aligned with improved landscape. We've all been seeing what's going on in Brazil in terms of regulatory affairs, fighting the legal market. So throughout the quarter, we've noticed a positive trend. When you talked about market share, January indeed showed an inverted position of the share. It's probably due to the fact that inventory levels went up in the last quarter when inventories go up with open arbitration, there is a lot of speculation, and it applies some additional pressure to the system. In my opinion, it was a one-off effect with a better commercial scenario, Ipiranga might recover the share that it had lost throughout the years. And finally, about what's going on in the Middle East, you are right. It's still too early to talk about that or draw conclusions. But we know that arbitration will be more limited. And if it's significantly closed, it means less speculative supplies, which favors companies which have a substantial supply in Brazil, such as Ipiranga. The whole infrastructure and our capacity would generate positive aspects to our own businesses. Rodrigo de Almeida Pizzinatto: Let me pick back on that and talk about this topic a bit more. Rodrigo speaking here. That window of import affects the whole market, up to February, there was an open window of imports. So levels of inventory of industry have reached very high levels. But as of mid-February, the windows closed. And now they are even more closed because of the Gulf tension. This is going to affect negatively the market and positively depending on being closer or open and favoring companies, which can really supply the market in Brazil. Operator: The next question comes from Rodrigo Almeida with BTG Pactual. Rodrigo Reis de Almeida: My question is more focused on Ultragaz to start. You've talked about the perspective for the first quarter, but I would like to hear about the trend for the year. 2025, there was an increase in volume. But how do you anticipate that, especially for bulk, which had worse performance than we expected last year. Can you see any possibility of gains of volume, new clients or new initiatives? Can you also see an effect of the program of the Brazilian government [Foreign Language]? Is it also impacting the bottled market? And my second question concerns your strategy and the possibilities of growth. What are the main characteristics that you consider when you are trying to lever your businesses or drive further your business? Do you just intend to operate your own assets or maybe go into additional investments? It would be great if you could tell us and share with us the investment strategy you currently have. Tabajara Bertelli: Tabajara speaking, Rodrigo, thank you for the question. I'm going to start with the point concerning Ultragaz. You've asked about volume trends. We don't expect any major changes to our plan. We are still focusing on operational excellence, operation-based initiatives. We have performed quite well last year, and this is what we anticipate for 2026. There were some variations, especially in industrial segment because of characteristics of the segments themselves. And these are fluctuations that we've seen happening before. Our perspective is that everything will go into normal operations as months go by. We focused on segments that we believe are the best and strongest, and we have been delivering all results in them. [Foreign Language], this government program. It has been fully approved, and it's already in its initial implementation stages. It's a very smart program because it direct subsidies to the needy population. It's at the implementation stage. I've been -- we've been really involved in it. And it's something that will come in full operation within the next quarters. But now it's fully approved with a clear definition of pillars really -- which is good for the official players and something really important for all of us as a society. Rodrigo de Almeida Pizzinatto: Pizzinatto speaking. Asking about strategy, we have 3 main pillars that we considered when we are considering any transaction: first of all, industry where the company works, perspective of growth and consolidation; second pillar, is how close is it of what we already do and our management model, really getting synergy and generating value; and thirdly, someone who is willing to sell at interesting price range that would really prove to be good on return on investment. This is what we came across in Hidrovias. And this is the kind of analysis that we take into consideration whenever considering new investments. Operator: The next question comes from Gabriel Barra with Citi. Gabriel Coelho Barra: I have two points to make. The first one about Ipiranga CapEx. It was below what you had planned. The actual number was lower than what had initially planned for 2025. I would like to hear from you the reason behind it. We've seen a very favorable market because of the discussion of fighting illegal practices. So official brands are getting favored. But a lower CapEx at Ipiranga is something that attracted our attention. And I would like to try to understand why did you want to have less investments upfront in your branding -- in branding new stations? Or are you operating in a more competitive market and decided to take a step back and just wait for more aggressive players to set their game. So what were the reasons? If you could shed some light into that, that would be really helpful. So why have you invested less than was initially planned? Secondly, it's about Ipiranga and capital allocation as well, building up on what was asked before. I know we cannot talk about market rumors. But last week, someone talked about -- started hearing the news about the divestment of Ipiranga, sales of Ipiranga. So I'd like to hear from you, not only in terms of acquisition, but also looking inside and considering adjustments. You've been talking about having a more active understanding of the company, revisiting its own thesis and also looking outside because you've been generating a lot of cash. And in our perspective, you are going to have even better cash levels this year and in a very comfortable leverage level. So what is the equation now? Should -- are you going to sell it now? Are you going to sell it later? So if you could please tell us more. So these inside, right? So these are my two points. Rodrigo de Almeida Pizzinatto: Rodrigo speaking. Let me answer those two questions. About CapEx and the other issues. Let me remind you, and we've said that a number of times before that Ipiranga has been through a cycle of CapEx before -- greater than expansion. And there are two points of fluctuation. So investments in infrastructure and technology. And for '26, '27, we are going to replace our technology platform at Ipiranga, very relevant investments. We've talked about that during the Ultra Day. Infrastructure is also closing some terminals and some expansions that we have put in place. These are why there are oscillations between the years. Some postponement of investments were made, especially because of the technology platform. As projects are completed, we are going to return Ipiranga's CapEx to the level of maintenance unless we see new opportunities of branding stations, but then we are going to revisit the plan. But this is what we anticipate for '26. Now concerning the news, the rumors in the market, we have nothing to talk about it. Whenever there is anything relevant, we have a formal communication of the market as the law expects. Cash generation has 2 main purposes, either we're going to find good projects to keep on expanding our company or share dividends. And this is an agnostic economic decision. We are going to keep on doing as is. Operator: The next question comes from Bruno Montanari with Morgan Stanley. Bruno Montanari: Well, let me go back to the topic of import window, especially for diesel, a closed window benefits the well-established players. We know that. I know it's too early. But with the price of diesel in the international market, do you think you can have an average price and really execute it in the Brazilian market? We'd also like to hear from you what are the next steps in the regulatory agenda to fight further against the regular market? What is the time line that you expect it to progress further? And could you please tell us more about the strategy of funding debt versus working capital and also your draft discount, that would be very helpful. Rodrigo de Almeida Pizzinatto: Well, Bruno, concerning the import window, Brazil has a structure dependence on diesel imports. We have a commitment with our clients, and we are going to import and guarantee supply. And the cost in our profile of supply will be just build to customers. Concerning the next steps of the market regulation, we really have to make sure that everything that we've seen in the new legislation is really enforced. For example, persistent debtor and other initiatives have to be enforced, and we have to see the practical result of these changes that were really an important achievement for all of us. Yes, there are a number of things to be done. For example, single-phase taxation for ethanol. Part of the regular market lies in the hands of ethanol. Biodiesel, also a challenge. Not now, of course, because there was a change in the cost of byproducts, but biodiesel tends to cost more, and there are problems of non-mixture. Still a lot to be done in our agenda. It's not something fully resolved, and we really need to focus on improving competitiveness scenario as a whole. The government is very much willing to support these changes. The government of São Paulo increased the taxes because they've been fighting legal practice and now they have more legal players. So especially now when we deal with critical budgeting, all the governments are more than interested in having that in place. Now concerning the strategy of funding, we have access to a marginal cost of debt, which is highly competitive. Throughout last quarter, we've noticed there was an opportunity of anticipating the refunding of the company for the upcoming year. The marginal cost, even carrying over into the cash, it will have a positive carryover, and it's very much comfortable with our position of liquidity to really pay all our needs this year. As we've been emphasizing, funding is an alternative of investment, which is highly competitive in some specific situations, and we are very comfortable in using it more or less depending on the needs and mismatch with our cash levels. It's been so in recent quarters, and we do not expect to have any differences in upcoming quarters, but always considering the cost attractiveness in our analysis. Operator: Next question comes from Tasso Vasconcellos with UBS. Tasso Vasconcellos: I have two questions. First, Ipiranga. Linden, I recall at the end of last year in the Investors Day, you said that you were going to discuss the micro perspective and not the macro perspective. I would like to go back to Ipiranga's expansion plan and try to understand, based on the changes that you started implementing your business in 2022, what is still pending? What do you still see at the operational level, really putting aside all the improvement of the legal framework, but where can you still see value extraction this year and upcoming years in-house? Second question to Palhares or Pizzinatto. Going back to what Rodrigo has talked about in terms of capital allocation. You've had a very strong cash generation in the quarter. But looking at your balance sheet, despite this cash generation, there was still an increase in gross indebtedness, which was compensated by your financial assets, about BRL 2 million, BRL 2.5 million. I would like to hear a bit more about the reconciliation of resources and how all these initiatives are part of your capital allocation strategy at the level of the holding. Leonardo Linden: Well, Tasso, what I said Ultra Day is that I would rather discuss ways of improving Ipiranga and make us sell more rather than discussing irregular market, of course. The agenda of the regular market is always with us. But by having that, we can look closely into our sales, improving our own operations, focusing on things that we really have to fine-tune. We have an expansion plan for 2026. You've seen the CapEx for expansion. We are talking about 300 branding stations, working on our infrastructure plan, technology, which is extremely important. The plan has been maintained. In addition to qualitative issues that we've been working throughout the years, and I'm sure you're all familiarized with them. Considering what's still pending and all the different drivers that I'll be able to list, there are two of them. Logistics, something that we've talked about a lot, the logistic plan. We still need 2 years to complete the journey, and it will mean a lot in terms of value capture. And the migration of ERP, the benefit is not a new operating system, but something that really changes the way we've been operating all our processes and internal elements, which will generate more efficiency. In terms of the main effort lines for 2026, these are the two. Pizzinatto speaking, Tasso. Concerning financial investments, let me make 3 points here: first, we always follow the principle of discipline and prudence; our average cost of debt, excluding bonus, is below 100% CDI. We have no cost of carryover of debt; and thirdly, 1 day of operation in Ipiranga is BRL 300 million, BRL 400 million. We are dealing in a moment of great volatility, and we have BRL 4.5 billion of debt to be paid this year. So what did we do last year? We anticipated somewhat the funding of debt that would mature, so that we wouldn't have to go to the market considering the conditions that we have. And this is why we have an increase in our investment line. Operator: The next question comes from Vicente Falanga with Bradesco BBI. Tasso Vasconcellos: I also have two questions. First, in addition to that open window, Petrobras auctions for fuel, which impacts some of the competitive landscape and the share, do you still see an opportunity to improve profitability in the fourth quarter? And what is the feedback that you get from resellers in relation to your competitors? Secondly, Palhares said that it's going to be an increase in volume and margins as is. Is it year-over-year, quarter-over-quarter? What is your expectation there? Rodrigo de Almeida Pizzinatto: Vicente, having a better commercial landscape is not something just for Ipiranga, it's for our whole industry, of course. So we can see healthier margins in reseller, healthier margins in distribution and the government collecting more taxes. When the whole industry is benefiting, we can see opportunities of improving our own profitability, of course. It's not trying to be more profitable. It's being part of an industry which has been evolving positively. And the margin is still not paying back the invested capital. There is still room for improvement. In terms of volume and margin, we are comparing against the fourth quarter last year. This is our reference when we say we're going to increase it. Operator: Well, our Q&A session is completed now. We would like to hand it over to Alexandre Palhares for his closing remarks. Alexandre Palhares: Well, thank you all very much for your time, for your interest and participation. Our team is here at your disposal for any follow-up or additional questions. Thank you all very much. Operator: The earnings release call of Ultrapar is closed now. Thank you all for your participation. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and welcome to the Xtract One Technologies Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Adviser. Please go ahead. Chris Witty: Good morning, everyone, and welcome to Xtract One's Fiscal 2026 Second Quarter Conference Call. Joining me today is the company's CEO and Director, Peter Evans; and CFO, Karen Hersh. Today's earnings call will include a discussion about the state of the business, financial results and some of Xtract One's recent milestones, followed by a Q&A session. This call is being recorded and will be available on the company's website for replay purposes. Please see the presentation online that accompanies today's discussion. Before we begin, I would like to note that all dollars are Canadian unless otherwise specified and provide a brief disclaimer statement as shown on Slide 2. Today's call contains supplementary financial measures. These measures do not have any standardized meanings prescribed under IFRS and therefore, may not be comparable to similar measures presented by other reporting issuers. These supplementary financial measures are defined within the company's filed management's discussion and analysis. Today's call may also include forward-looking statements that are subject to risks and uncertainties, which may cause actual results, performance or developments to differ materially from those contained in the statements and are not guarantees of future performance of the company. No assurance can be given that any of the events anticipated by the forward-looking statements will prove to have been correct. Also some risks and uncertainties may be out of the control of the company. Today's call should be reviewed along with the company's consolidated financial statements management's discussion and analysis and earnings press release issued March 4, 2026, available on the company's website and its SEDAR+ profile. It's now my pleasure to introduce Peter Evans, Chief Executive Officer of Xtract One. Peter? Peter Evans: Well, thank you, Chris, and thank you, and welcome to all of our investors and analysts that are joining us today. Let's start by opening up with Slide #4. With Slide 4 here, I'm pleased to say that we start off by saying that we had normally expect the second quarter to be relatively slow, typical slowdown to American Thanksgiving people slowing down as they head to the holidays as they're waiting for new budgets in January. However, our second quarter turned out to be a very busy one for us for both bookings and deployment of our product lines. Which comes as no surprise to me given that our current commitment to deliver on our backlog and continually convert that over to revenue and onboarding new customers. We remain on a solid trajectory for this to be our very best year ever with record revenue anticipated as growth continues into the second half of fiscal 2025. Revenue in the second quarter rose by 70% year-over-year, and our backlog remains strong at a near-record level of around $49 million or so. This reflects the demand for both of our innovative product lines, both the SmartGateway and the One Gateway across a wide variety of end markets. And we believe that we're well poised to see a continued influx of new orders and increased numbers of installations. And I'm pleased that we continue to see that to this day. As we turn the corner into spring, we see more and more opportunities in front of us. Alongside the successful deployment of numerous Xtract One Gateway systems, we also continue to see a healthy interest for the SmartGateway, right, purpose-built for particular markets and particularly those markets being health care and entertainment sectors. Our production levels continue to grow, matching our demand from the marketplace as we'll discuss in a moment, which leaves us feeling very upbeat about the coming quarters. Given the size of our backlog, given the improved pace and growing pace of deployments, and a strong balance sheet, along with expanding our manufacturing capabilities on a continuous basis, we have better visibility than ever before into our fiscal 2026, which has been as categorized previously a transformational year for us and for the company. Let's move on to Slide 5 a little bit and dig into the details on the Xtract One Gateway. The Xtract One Gateway continues to gather momentum in North America and is now garnering interest outside of the United States. As our bookings and total backlog indicates, we are very pleased with the rollout of this exciting new product and the overall success we're seeing across a number of markets. I'm in the U.K. right now, and we're starting to get inbound interest on the One Gateway as an example from the U.K. It's an all-important education sector, though is where we're really making our mark with One Gateway. Given the ongoing threat level that unfortunately exists in the world today, which we read about almost every single day. It should come as no surprise that more and more institutions are reaching out to us for information about these groundbreaking AI driven innovations and applications of both of our solutions. The heightened interest has been steady and sometimes, quite frankly, overwhelming. That said, there is usually a period of test and evaluation that goes into reviewing our technology. Many of the customers who are inbounding to us and many of the school boards. Those customers tend to be Fortune 500-type companies and they take the time to meet and make decisions and run demonstrations of the products and look through all the contractual terms, scheduling phased deployments as well as in the case of schools obtaining grant funding. This takes time, but we're very pleased that we're seeing positive impacts to our pipeline and to our average deal size overall. This quarter, we actively engaged with numerous schools and other customers to deploy Xtract One Gateway continuing to ramp that backlog to revenue. And with the additional institutions and installations who are looking for the next phases that they're planning for this fiscal year. We already have orders for almost 150 Xtract One Gateways with roughly $21 million with approximately 1/3 of that already delivered and installed by the end of Q2. Our products can now be found spread across almost every state and in numerous school districts throughout the country. And although we believe that this is just the tip of the iceberg for this product. As we benefit from word of mouth from one school district to another, as an example, and that strong referenceability from the positive impact that we're having on those students and those school environments, we continue to get more and more increased exposure and more inbound interest for the solution. And we're seeing much higher demand throughout North America, including with larger metropolitan school districts that sometimes comprise dozens of buildings or more. We're also tracking legislation, a question that's often asked of the company, such as the legislation that recently passed in Georgia and Pennsylvania and is expected with similar mandates in other states. This legislation is key. It mandates that schools will be required to screen for weapons. Similar to how building codes require mandate sprinkler systems or smoke detectors and other systems and where people have done the risk-benefit analysis, we're seeing the same thing applying to weapon detection. And we believe it will become a similar standard mandating weapon detection in every building in every school district and every hospital across the country. We look forward to the continued contracts and the rollout of Xtract One Gateway, which we see accelerating as the year progresses. Just when we thought we couldn't get busier, the demand continues to increase more and more. And particularly, we see that expanding as we continue to expand our production capabilities accordingly. As a reminder, we are ramping up manufacturing and deliveries in a very efficient and phased approach in order to match client demand manage our cash flow and also to manage the installation requirements and forecast that we get for each of the future coming quarters. Let me add that our suppliers are on track with regard to expanding increasing the product throughput and as evidenced by our increased deployment of record revenue for this quarter, and though we expect this trend to continue as we move further and further into the second half of fiscal 2026. As we see the ramp in demand, we are also investing in ramping our sales channel and support channels in both North America and markets like the U.K. and Mexico, where we're seeing a tenfold increase in inbound interest in those regions for both of our solutions. We're ramping through both experienced sales staff and selectively chosen partners who are leaning into the market opportunity versus waiting for it to come to them. An example of this expansion that we're seeing was recently announced with our win with the British Museum. For those who are unfamiliar, this is one of the world's most iconic venues. It's not a stuffy dusty museum, but a venue that greets almost 7 million visitors from all over the world. And to put that in context, that is 2x more than what Madison Square Garden does in the year in terms of patronage and almost as much as a major Disney theme park. It is also because of who they are, the British Museum is a target for both terrorist and protector activities, and as such, has some of the most stringent security standards. When organizations actually care about security or innovation and ongoing innovation, they choose Xtract One. This landmark win sets a stage for more wins that we believe will follow the British Museum's leadership not only throughout the U.K. but throughout the world. We now have over USD 105 million in our qualified sales pipeline across both product lines, amount that continues to grow and that amount is approximately split evenly between our two solutions, the SmartGateway and the Xtract One Gateway. Given increasing traction with our innovative AI-driven systems and the expanding market demand and our ongoing and continuously improved production capabilities, we remain very upbeat about the outlook for fiscal 2026 and beyond. We are very well positioned to make this year the best ever for Xtract One. I could not be happier about the trajectory we're on, and it's putting us on track for even better results thereafter. With a strong balance sheet, near record-breaking backlog, increasing demand and accelerating production, we are truly, as I said earlier, in a transformational year for the company. Now I'm going to turn it over to Karen to provide more details around the financial results. Karen, over to you. Karen Hersh: Thanks, Peter. I'm pleased to review the financial highlights for our second quarter of fiscal 2026, which, as Peter just mentioned, points to a strong year ahead. Turning to Slide 7. Total revenue was approximately $5.8 million for the second quarter versus $3.4 million in the prior year period, up 70%. Sales rose not only compared to fiscal 2025, but we're also up 26% from the first quarter of this year. Much like prior periods, a majority of revenue was from upfront purchases, resulting in a healthy boost to current quarter revenues. As Peter indicated, we remain on track for a record year of top line performance in fiscal 2026 with revenue expected to continue to increase as the year plays out, largely reflecting new and expanded customer bookings and deployments, the continued fulfillment of our backlog and phased installations of our larger, more complex deployments. Our rate of shipments has also improved over the last quarter due to expanded production capabilities of our suppliers. Many of the initial manufacturing and supply chain constraints that we mentioned last quarter for our Xtract One Gateway has started to resolve, resulting in an increase in production levels and accordingly, an acceleration in customer installations. In terms of key markets, revenue for the second quarter was once again spread across numerous customers and industries, including the health care, education, commercial and automotive sectors. Additionally, we're starting to see a fairly even split between our two gateway products being SmartGateway and the Xtract One Gateway. Our gross profit margin was 54% for the second quarter versus 70% in the prior year period. As previously stated and expected, margins have been negatively impacted by the higher expenses related to initial start-up costs and the ramp up of production levels for the Xtract One Gateway. With commercial deployments increasing, we expect margins will improve for the Xtract One Gateway in the latter part of fiscal 2026 and beyond, following the same path as the SmartGateway. Reflecting greater operating leverage and efficiencies in our supply chain and installations in the field. Gross margin for SmartGateway remains healthy in the mid- to high 60s as we continue to drive efficiencies in our production processes and support capabilities. Now turning to Slide 8. New bookings for the quarter were $8.7 million compared to the prior year quarter of $13.5 million. And as we've seen from trending in recent periods, a good portion of these were upfront contracts. Specifically, in the second quarter, 73% of our bookings were from upfront contracts, meaning these contracts will impact revenue growth relatively quickly once deployed. In addition, Q2 bookings were relatively evenly split in terms of our products as both systems benefited from broad market acceptance and solid demand. From a market perspective, orders this quarter were once again spread across a variety of industries with a substantial portion coming from sports and entertainment, commercial and health care sector. We're pleased by the continued expansion and diversification of the markets we serve and anticipate strong growth in these areas as well as in education, which is typically very busy in the latter half of our fiscal year. As a reminder, some sectors such as sports, entertainment and health care, have a perfect product market fit with the SmartGateway application. While others like education, commercial and convention centers are better suited for the Xtract One Gateway. Moving to Slide 9. Our contractual backlog and signed agreements pending installation collectively totaled $48.8 million versus $37.2 million last year. The fiscal 2026 backlog was comprised of $13.9 million of contractual backlog with an additional $34.9 million worth of signed agreements pending installation. Of the latter, approximately 83% of the total contract value relates to upfront deals and cover a multitude of customer markets, including health care, sports and entertainment, schools and other target markets. We anticipate the majority of agreements pending installation to be deployed within the next 12 months. Given what we see as a strong pipeline of opportunities going forward, we expect our bookings and our backlog to grow further in the quarters to come. This, along with the faster conversion of backlog into revenue makes us confident in the outlook for fiscal 2026 and beyond. Now let's turn to Slide 10, which shows second quarter operating costs year-over-year for each of our key expense categories. Sales and marketing expenses were $1.8 million in the quarter versus approximately $1.2 million in the prior year period reflecting increased business development initiatives across a wide array of industries through campaigns, trade shows and other marketing initiatives while costs associated with R&D were flat year-over-year at $1.6 million. General and administrative expenses were approximately $2 million for the quarter versus $1.6 million in fiscal 2025, of which around $200,000 relates to foreign exchange movements. Overall, there was a modest increase in total operating costs year-over-year as we grew and replenish the backlog, invested in the commercial rollout of Xtract One Gateway and adjusted to higher production volumes. We'll continue to actively manage operating expenses going forward, which should lead to improved results as we grow the top line, keeping us on track towards profitability as we scale the business. Finally, on Slide 11, I'll discuss cash flow. During the quarter, the company had operating cash usage of $4.2 million compared with $0.2 million in fiscal 2025, largely reflecting a notable investment in working capital year-over-year as we ramped up production of our Xtract One Gateway inventory. Excluding such changes, we spent approximately $1.4 million relatively unchanged compared to last year's $1.2 million. Also, as previously discussed in our last earnings call in December, the company closed on a bought deal that raised aggregate gross proceeds of approximately $11.5 million, including the full exercise of an over-allotment option. Such funds have strengthened our balance sheet and have provided fuel to accelerate the company's growth trajectory, including the expansion of our production capabilities and investment in working capital. We ended the quarter with $15.7 million in cash and cash equivalents on hand. In closing, we remain on track for record top line results this year as our manufacturing capabilities increase, we look forward to stronger revenue in the second half of the fiscal year. We will continue to work on building the backlog, investing in strategic business development activities to increase our market penetration and pipeline and anticipate improved operating results in the quarters to come. And with that, as always, Peter and I welcome any questions investors may have at this time. Operator: [Operator Instructions] The first question comes from Amr Ezzat with Ventum Capital Markets. Amr Ezzat: Just back on your prepared remarks, you mentioned the orders will get increasingly stronger, can you give us more color on the cadence of fulfilling your backlog into revenues over the next couple of quarters? And I know you won't give us exact numbers, but we already saw a nice uplift in revenues in Q2. So I just wonder, are the constraints in getting your products installed and in customer hands easing in Q3 even more so than Q2? Peter Evans: Amr, it's Peter here. First off, it's great to hear your voice. Thank you for joining us as always. Yes, I think like any new product when you first bring it to market, you intentionally take a little bit of time about some of your installs. The last thing you want to do is flood market with 50 new units and then find out that there's an issue in the field that's going to cost a lot of time and money to correct. So you ramp slowly, you get market feedback ramp a little faster, get market feedback and keep on going that way. And we're on that trajectory right now. So I expect the trend that we're seeing to continue as we have further building confidence in not only demand for One Gateway, but its performance in the field and its predictability in the field. Amr Ezzat: Then maybe switching gears to margins. Can you give us a rough margin delta between SmartGateway and the One Gateway at the current stage? And where do we expect One Gateway margin to land once you guys are steady state? I believe in the past, you guys have said it would be a similar sort of margin profile. So can you guys confirm that then directionally, how long until you guys get there? Peter Evans: Yes. From my perspective, and Karen, I'd invite you to jump in also, from my perspective, Amr, again, the first quarter or 2 when you're deploying a new product, your cost of sales sometimes have some choppiness to them. There's new things that we've learned about deploying to a school versus deploying to a different type of a customer as an example. And so as we understand those and as we start to build out and scale, we expect that a lot of those costs of sales to reduce. I do expect the One Gateways margins to follow a similar trajectory as the SmartGateway. How long that takes? That's a good question. It could be handful of quarters, it could be a year, 1.5 years. I think it took us about a good 18 months to really get SmartGateway to a high-margin position. Karen Hersh: I would add to that, and I think specifically what you're asking in terms of the relative range, as I mentioned in my speaking notes that the SmartGateway was sitting in the higher 60s this quarter, whereas the Xtract One Gateway are in the very low 50s. We don't believe it will stay in that at all, and we've already seen improvements subsequent to year-end. So a question of timing, as Peter mentioned, and I think we hesitate to say over what period of time. But I think it's a question of quarters. We've already got plenty of improvement that we've seen subsequent to year-end. So ultimately, we hope to be in the 60s. That product is very important to us and has great potential. And so we fully expect it to follow that same journey that SmartGateway did. Hopefully, that gives you a bit more insight, Amr. Amr Ezzat: It does. And it does -- is it too far for me to read into this that your -- the quarter you just reported like Q2 would be the trough gross margin? Karen Hersh: 8 Absolutely. Peter Evans: Yes. 100%. Amr Ezzat: Fantastic. Then maybe one more. You guys have talked about scaling manufacturing capacity to meet demand [ for the One Gateway ]. I just wonder if you could somehow quantify or maybe let us know what -- where you are today versus where you expect it to be? And what is sort of the next bottleneck as volumes rise, final assembly or software or anything like that? Peter Evans: It's a good question, Amr. And hard to sort of put guidance out there because very much of it is based on the demand. We don't want to overbuild capacity and have hundreds of systems sitting in inventory. But at the same time, we want to be able to serve that demand very, very quickly. So we're kind of watching all the measurements and all the metrics very, very closely on a week-by-week basis. I expect that -- and the nice thing is how we built out the manufacturing capacity with our subcontract manufacturer is we have the ability to scale up or scale down very quickly in terms of the manufacturing process itself. If there's any bottleneck, there are a couple of components that are a little bit longer cycle, but there are some things that we're doing with buying safety stock so that if all of a sudden, we do have a spike up in demand. We've got the safety stock to deal with it, and we won't be waiting months for that components to be able to come in the door to deliver on that demand. So right now, if there's any bottleneck at all, maybe a couple of components, but we've addressed that. And then it's just how fast we can move to go start getting as many orders in the door as possible. Amr Ezzat: Okay. So what I'm hearing is there isn't a major sort of gating factor when it comes to manufacturing. Peter Evans: Not right now, no. Amr Ezzat: Okay. Fantastic. Then maybe one last one. Can you maybe like speak to how the competitive environment is evolving. I mean, I think everybody understands the demand picture and you guys have painted a pretty rosy picture, but on the competitive side, I'd appreciate some color. Peter Evans: From my perspective, every market has always got different players who serve different needs in different ways. They have different strategies. There will always be people who want to buy the low-cost provider and essentially check mark a box. And that's okay. There's a market for McDonald's hamburgers and [ Yugo ] cars. There's other strategies which are around what do we do to manage the channel as much as possible, and that can be done through sponsorships and things like that. Our competitive advantage is all about innovation and continuous innovation. Each of the individual market segments we serve, whether it's the industrial sector like manufacturing and, distribution, schools, health care, you name it, they all have specific unique needs and there's the one must have or two must have to reach those markets. Our platforms are such that we can deliver the innovation where we can uniquely address those unique market needs. Hospitals, you have to catch the knives. In places like schools, don't alert on the laptops without the need for a secondary platform. And so we can uniquely do that and our platform that allows us the extensibility to say yes to more customers who may have those unique needs. Operator: The next question comes from Scott Buck with H.C. Wainwright. Scott Buck: I'm curious, besides the kind of ramp in inventory, are you able to use the new kind of fortified balance sheet to invest more on the growth side in terms of sales. I mean are you increasing marketing expense? Are you adding salespeople, more trade shows, et cetera? Peter Evans: Yes. Scott, it's good to hear from you, too. We are investing in more on the sales and marketing side to ramp that up, particularly now that we've tested the market aggressively with the One Gateway and the market response has been outstanding. So based on that market response and that demand, we are investing not only in more sales resources, both domestically as well as internationally. But we're also investing in more channel partners while being very, very selective about those channel partners. People are leaning in and creating opportunities just versus tactically reacting to the market. So yes, we are investing to drive more growth. Scott Buck: Peter, can you give us a sense of what percentage of maybe new bookings is coming in through channel partners versus your direct sales efforts? Peter Evans: Interesting question, Scott, because it does have a little bit of choppiness because there is a little bit of seasonality to some of the segments. And so we have seen different quarters vary. We had one very nice deal come in from a one channel partner, that was a multimillion dollar deal. Other times, we'll see two lane deals. So it does depend a little bit on the deal mix. Order of magnitude, partner-led partner originated deals tend to be in the range of about 25% to 35%. Scott Buck: Okay. Perfect. And then I wanted to ask about the backlog. I mean, I think you came in a little bit this quarter versus the previous quarter. I know we have the holidays in there, and that may slow some of the sales opportunities, or is this more just kind of general lumpiness? I mean -- I guess, what decline it... Peter Evans: Why the backlog declined a little bit? Karen Hersh: I just want to clarify, are you talking about the backlog? Or are you talking about the bookings in the quarter? Scott Buck: The backlog, right? Didn't we go from low 50s to high 40s. Peter Evans: Yes. So Scott, a large portion of that decrease in total backlog is due to a couple of things. First off, we had a high number of installations that took place in the quarter with, frankly, a lower number of bookings to backfill the decrease. We had some nice deals in January that actually slipped out to February. And so we didn't quite backfill the backlog as much. But additionally, we made some what we believe were the right decisions to remove one large deal from our pending backlog which was taking an overly extended period of time for the customer to actually deploy due to a number of external factors that they couldn't necessarily control. And so we did remove one deal just in the abundance of caution. Customer hasn't gone away, but we felt it was the right thing to do because of their extended time lines and the circumstances surrounding that customer. We're confident -- in the current backlog composition that consists of customers who are interested who signed deals who have plans for deployment or are already in phases of deployment and they're eager to deploy. Scott Buck: Awesome. And Peter, I'm curious, British Museum, is that your first museum contract? Or are you working with any other museums. And then more broadly, what are the trends you're seeing outside the U.S., specifically Europe and maybe the Middle East and Asia? Peter Evans: Yes. Good question. We have signed up other museums. Nothing as iconic as the British Museum. Scott, I don't know if you've ever been in the British Museum, but I highly recommend it. It's a wonderful place. But we've never seen -- we have other museums but nothing of that size or that stature. In terms of trends that we're seeing outside of North America, I think as I alluded to, I'm a bit surprised, but pleasantly surprised by the volume of inbound interest that we're seeing, particularly in the U.K., a lot of new interest in Europe right now and particularly in Mexico. Those markets seem to be moving very, very quickly, and we're very pleased to be a part of that. Operator: [Operator Instructions] Our next question comes from [ Stephen Garcia ] as a private investor. Unknown Shareholder: So year-over-year, we can see that 70% increase in revenue, but we also see the year-over-year increased costs negated that kind of entirely so that comprehensive loss for this quarter is higher than the same period in the prior year. But then alternatively looking at this quarter compared to the last few quarters, we've seen revenue grow significantly. And quarter-over-quarter, that revenue growth has been higher than the cost increases. So comprehensive loss has been decreasing. So in light of those two comparisons, my question is this, are the last few quarters of top line growth, which we're exceeding the cost growth, are those the product of sustainable and structural factors in the company's business? And what is the company's strategy going forward to maintain that momentum towards cash flow breakeven and profitability? Karen Hersh: I'll start with the mechanics and you can talk a little bit more about the market side of it, Peter. I think the comments are exactly right. We've had this top line growth. It hasn't necessarily reflected itself in the bottom line this particular quarter. And I think that, that is a factor of our gross margin. That is the #1 indicator. Our operating expenses are relatively stable as they always have been and show the scalability of our business model. But the reality is we're bringing a complex product to market, and we did experience some of those short-term onetime hits to our cost of sales, and that has impacted our margins for the Xtract One Gateway. As we resolve those, and we feel positive about the direction we're heading with that. I think you're going to see quite a change in terms of the outcomes to the bottom line, and that will show some more trending that great trending that we've been showing in terms of reducing our cash burn and our move towards profitability. So I'll turn it over to you, Peter, if you want to add anything to that as well. Peter Evans: Yes. I think you hit the key points, Karen, but to kind of reiterate a few things, Steve. We have built a highly scalable operational model. but we will have to continue to invest in it. Our expectation is that our operating costs will grow single digits over time. because there is not infinite scalability when you have a hardware business. And as Karen pointed to, we've got lower gross margins, which has impacted our bottom line. Bringing a new product to market, particularly one that has some 800 or 900 components in it, is a complex thing. And what we're doing is we're bending or breaking the laws of science and physics or with what we are doing. And there's always that scenario where you start putting a product out in the market. and customers use it in ways you didn't quite expect. And still you might have some things that are learned some things you've got to correct some ways that the technology has to be improved. And so there's higher cost for that first handful of systems you put out. It's why I mentioned earlier that you don't necessarily want to shove 100 systems out the door and have to go correct 100 systems. You ramp cautiously and get that market feedback. And so with that, we've had lower gross margins because of those initial cost of sales. But now we still worked all the bugs out of the system, we feel that we're on a really good trajectory. Does that help answer your question, Steve? Operator: The next question comes from [ Dave Carlson ] of a private investor. Unknown Shareholder: I have a few questions. First, a couple of years ago, you had a cash infusion and sold some stock to the Madison Square Garden Group. Are those people still involved? And if so, has that relationship been helpful, resulting in additional clients and completed installations? Peter Evans: Yes. Let me answer that. And I'm sorry, I didn't catch your name, I'm sorry. But it has. And our relationship with Madison Square Garden could not be better. We closed a deal in Q2 which the customer visited Madison Square Garden and spent a good day with them and their executives not only listening about how the product works, but also learning the best practices around training, around deployment around the concept of operations and things like that. I could not be more pleased with the relationship with Madison Square Garden. They continue to be a great advocate for us and a great supportive. Unknown Shareholder: Great. Given the current circumstances, are there any military applications for your products? Peter Evans: It's a great question. But right now, it is not our primary focus for the segments. The four segments that we've got our primary focus on is in education, in hospitals and health care, in arenas and stadiums and in manufacturing and distribution. The primary reason there is the sales cycle is less complex than trying to sell into, for example, the military or into international embassies and things like that. But we do find that there are certain organizations because of the state of the world, are accelerating some of their activities around hardening up their security. And so while I'd say it's not sales to the military organizations, but commercial office buildings, for example, who are concerned that they may be -- there may be a heightened level of concerns who are now accelerating some of their deployments. Unknown Shareholder: Okay. And last question. I know that some of your clients don't want it advertise that they have your systems, but are you able to do more press releases about threats that you've prevented to promote more visibility to your successful deterrent? Peter Evans: We are updating various case studies. There should be an update to a couple of them coming out. As we get more and more data from the customers, about the weapons they stop, the weapons they prevented. We had one customer share with us the first two systems that they deployed prevented about 1,600 weapons coming into their facility in the first half a dozen months or so. And so that's a great case study, but it also -- there's a lot of information there about best practices. So we try and wrap that in for the betterment of all of the operators in the industry. So yes, you'll see more case studies with more information when we're allowed to publish it. Operator: The next question comes from [ Gianluca Tucci ] with [ Haywood Securities]. Unknown Analyst: Could you perhaps speak to the sales cycle on the Xtract One and how you see these trending over time? And as a follow-up to that, how are you thinking about R&D in terms of the pipeline for when it comes to next-gen iterations of the gateway. Peter Evans: Excellent. So I will say that there is some variability in the sales cycle and how long it takes to close a deal. We have one customer that we closed in Q2, who only saw the system over a Zoom call. They loved it and placed their order. Other customers are more meticulous because they particularly have larger deployments. And if they're going to make an investment in a larger deployment, particularly something that is the first time that they're going to screen and so there will be an impact to their employees. There's a lot of things to work through, they have to think about privacy issues. They have to think about the employee reaction, how they position what they're doing, testing, verification, going and seeing customers who already use the system getting their ConOps correct. So sometimes larger organizations are more thoughtful about all elements of a successful deployment. And we can help them with that. We bring our expertise to the table and we bring other experts who had successful deployments to the table. In general, the average sales cycle for the average deal is probably in the range of about 4 to 5 months or so, but it can vary wildly depending on various other contributing factors. And I'm sorry, the second part of your question was? Karen Hersh: The R&D pipeline. Peter Evans: Yes. Where do we go next with innovation -- thank you. As people have heard me talk about on these calls, I'm a big believer in being a customer-backed, not a product forward organization. And so as we deploy more and more technologies like the One Gateway, we're getting some very interesting feedback from customers about the kinds of things they would like to see. Because we have the ability to do object detection, a key focus is on theft prevention. I had an interesting conversation with the gentlemen this morning about exactly that, where you're screening for weapons on the way in you're screening for stolen electronics on the way out with the same platform and being able to identify, for example, on the way out, I want to make sure that smartphones, Apple watches, et cetera, are not leaving the building. We've had similar requests around loss of intellectual property on thumb drives. We've had interesting requests around integrating in credentialization and authentication capabilities into our system. So I'm managing the whole end-to-end journey for individual as they enter into a facility. So there's a lot of these areas that we're exploring but we will always make sure that when we go invest in the R&D to do something, it's not a one-off or a bespoke custom develop thing. It's something where there's a significant market with a multibillion dollar impact that we can uniquely play into. Unknown Analyst: Okay. And then just lastly, given the state of affairs globally, like are you seeing customers being more receptive to outreach? In other words, like could sales cycle shorten as a consequence of the tailwinds out there globally from a security perspective. Peter Evans: I think we are seeing a shortening sales cycle and heightened interest in certain market verticals. I think organizations like health care, for example, we're not seeing a change to the sales cycle. Other organizations, I mentioned the British Museum, who because of their iconic nature are unfortunately the targets of malicious activities. We're seeing more inbound from those types of organizations. Operator: Thank you. At this point, there are no further questions in the queue. So I'll turn it back to Peter Evans for any closing remarks. Peter Evans: Well, thank you very much, everyone, and thank you for the very rich and robust questions at the end. There was a lot of participants with a lot of very good questions. So thank you for that. We -- I could not be happier right now. And hopefully, you can all hear in the tone of my voice. I personally love what we're doing. I love our customers, our investors are being very, very supportive, and we have a great team of people at the company, and there's only goodness to come right now. So I'm feeling very, very good about where we are. I want to thank everyone for their time today to listen in hear about how we're doing and where we're going next. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. Thank you for holding. Welcome to the earnings release call of Ultrapar to discuss the results referring to the fourth quarter 2025. The presentation will be conducted by Mr. Rodrigo Pizzinatto, CEO of Ultrapar; and by Mr. Alexandre Palhares, CFO of Ultrapar. Our question-and-answer session will follow, and we will have with us Mr. Leonardo Linden, CEO of Ipiranga; Mr. Tabajara Bertelli, CEO of Ultragaz; and Mr. Fulvius Tomelin, CEO of Ultracargo. This call is being recorded and will be accessed later through the website, ri.ultra.com.br. After the initial presentation, we are going to start the Q&A session where further instructions will be provided. [Operator Instructions] Presentation will be provided in Portuguese, and you have the option in English to be downloaded later. Before moving on, we would like to clarify that forward-looking statements that may be made during this conference call with respect to business prospects, forecasts and operation and financial goals of the company are all based on beliefs and assumptions of the Executive Board of Ultra, as well as currently available information. These beliefs and assumptions involve risks and uncertainties since they relate to future events and therefore, depend on circumstances, which may or may not occur. Investors should understand that general economic conditions, market and other operational factors may affect the future performance of the company and lead to results, which may differ materially from those expressed in forward-looking statements. I would like now to hand it over to Mr. Rodrigo Pizzinatto, who will start the presentation. Mr. Pizzinatto, you have the floor. Rodrigo de Almeida Pizzinatto: Good morning, everyone. It is a pleasure to be here once again to share Ultrapar's results. 2025 was another year marked by significant growth at Ultrapar. Clear strategy and disciplined execution are the base for the continuation of good operating results. We ended the year with the highest recurring adjusted EBITDA ever recorded in the fourth quarter. This improvement was directly reflected in cash. Ultrapar had a record operational cash flow generation of BRL 5.500 billion. This allowed us to end the year with a leverage of 1.7x, even after the anticipated payment of BRL 1.1 billion in dividends in December. Without this effect, leverage would have been of 1.5x, a very comfortable level. Considering the anticipated payment and the regular dividends, we paid BRL 1.4 billion in dividends in 2025, equivalent to BRL 1.30 per share and a dividend yield of 7%. I also highlight important progress on the institutional agenda, such as the approval of the persistent debtor and the single-phase taxation for naphtha, which strengthened fair competition and regulatory certainty and the Gás do Povo Provisional Act, which reinforced safety and regulatory framework of the LPG sector. We continue to advance our growth, productivity and value creation agenda with the completion of expansion of the Rondonópolis base of Ultracargo and the acquisition of a 37.5% stake in Virtu GNL, both in January. In February, we completed the migration of Ultracargo's SAP system to the SAP 4HANA platform, a significant step towards increasing our operational efficiency. We also announced our investment plan for 2026, which can reach BRL 2.6 billion intended for the expansion, maintenance, safety and efficiency of our business. And we continue to strengthen our capital structure with raising about BRL 260 million in incentivized credit lines for expansion projects at a weighted average cost equivalent to 87% CDI. We entered 2026 with a global scenario marked by geopolitical tensions and economic volatility. We are prepared to face this context and seize opportunities with an engaged team, strengthened business and a constant focus on operational efficiency, financial discipline, innovation and sustainable growth. Thus, we continue our journey of value creation. Thank you for your attention. I will now hand over to Palhares, who will detail the results for the quarter and the year 2025. Alexandre Palhares: Thank you. Good morning, everyone. I would like to remind you of the reporting criteria and standards used in this presentation, which can be seen on this Slide 3. Now let's move on to the results for the fourth quarter and the year 2025, starting with Ultrapar's consolidated results on Slide 4. Adjusted EBITDA amounted to BRL 1.6 billion in the quarter, a 34% decrease compared to the same period of last year due to the nonrecurring effects highlighted on Page 2 of the release that we disclosed yesterday. For the year, adjusted EBITDA reached BRL 6.8 billion, a 2% increase compared to 2024. Recurring EBITDA was BRL 1.7 billion in the quarter, a 36% increase compared to the fourth quarter of 2024, mainly reflecting the better performance of Ipiranga and Ultragaz in addition to the effect of the consolidation of Hidrovias. For the year, recurring EBITDA totaled BRL 6.2 billion, 15% above 2024, reflecting the results of Ipiranga, Ultragaz and Hidrovias, whose consolidation began in May. Net income for the fourth quarter was BRL 256 million, a 71% decrease compared to the same period of 2024, also impacted by the nonrecurring effects that I mentioned. Without these effects, net income would have been BRL 439 million, a 49% increase in the quarter. In 2025, net income was stable at BRL 2.5 billion, reflecting the record operating result, partially offset by the increase in depreciation and amortization and higher financial expenses resulting from the consolidation of Hidrovias. This result level allowed the distribution of BRL 1.4 billion in dividends in the year, considering the anticipated payment of BRL 1.1 billion made in December. Moving on to the next slide. Let's talk about the cash generation for the year. On the left, operating cash generation reached BRL 5.5 billion, Ultrapar's historical record. This result was mainly due to 3 factors: higher operating result; consolidation of Hidrovias, which contributed BRL 855 million; and lower working capital needs, especially at Ipiranga, partially offset by the effect of settlement of draft discount for suppliers in the amount of BRL 1 billion. Regarding CapEx, we reached BRL 2.5 billion, a 15% increase compared to 2024. This is explained by higher investments of Ipiranga in addition to the effects of the consolidation of Hidrovias of BRL 235 million, which was not included in the initial plan. And at the same time, we had lower investments at Ultracargo. Looking more closely at the capital allocation, we completed some transactions, mainly the capital increase and the increase of our stake in Hidrovias, which totaled BRL 693 million, acquisition of TRRs in the total amount of BRL 103 million, and Virtu's transaction in the amount of BRL 36 million in the year. Throughout the year, the sale of the coastal navigation operation by Hidrovias in the total amount of BRL 715 million was also completed. In addition, we completed Ultrapar's buyback share program and made a relevant distribution of dividends. Moving to the next slide, and talking about debt and leverage. We ended 2025 with net debt of BRL 12.1 billion, an increase compared to September, but still keeping leverage steady at 1.7x, exactly the same level as the previous quarter. This possible stability is explained by the record operating cash generation, which offset the anticipated payment of dividends in December. Excluding the effect of the anticipated payment of dividends, leverage would have ended the year at 1.5x. The increase in net debt when comparing year-end 2025 to year-end 2024 mainly reflects the consolidation of Hidrovias, with an impact of BRL 2.2 billion. It is also worth highlighting the additional effect resulting from the reduction of BRL 1 billion in draft discount over the period, as shown at the bottom of the table. Now let's move to the results of Ipiranga on Slide 7. In the quarter, Ipiranga's volume grew 7% compared to 2024 with an increase of 8% in the Otto cycle and of 6% in diesel with a higher share in the spot market. This is due to the beginning of the market recovery after intensification of measures to combat irregularities in the sector. For the year, sales volume grew 1% with an increase of 2% in the Otto cycle and of 1% in diesel. We ended 2025 with a network of 5,805 service stations, resulting from 271 stations opened and 326 closed. Ipiranga's adjusted EBITDA totaled BRL 1.2 billion in the fourth quarter, 37% lower when compared to last year due to the recognition of nearly BRL 1 billion in extraordinary credits in the fourth quarter of 2024. Recurring adjusted EBITDA reached BRL 1.1 billion in the quarter, a 26% increase compared to 2024. This performance mainly reflects higher sales volume and better margins, partially offset by higher expenses. For the year, adjusted EBITDA totaled BRL 4.3 billion and recurring EBITDA totaled BRL 3.5 billion, a 4% increase compared to 2024. Operating cash generation was once again a highlight and reached BRL 4.3 billion, an increase of 41% in the annual comparison. This result reflects efficient working capital management and operational discipline. The first quarter began with the import arbitrage window open, which led to greater product availability. That window closes at the end of February and with the Middle East conflict, import parity turned much less favorable. In this context, we expect continued growth in volumes and margins. Moving to Ultragaz' results on the next slide. The volume of LPG sold in the fourth quarter was 2% lower than the same period of 2024 with a 5% decrease in the bulk segment, mainly due to the lower demand in the industry segment and with stability in the bottled segment. In 2025, the volume sold was also 2% lower than in 2024, with a decrease of 4% in the bulk segment and of 1% in the bottled segment. This performance is explained by the competitive dynamics of the market, impacted by the pace of pass-through of increased costs of Petrobras auctions throughout the year, in addition to lower business demand mainly in the industry segment. Recurring EBITDA reached BRL 474 million in the quarter, a 7% increase compared to the previous year. The result reflects the pass-through of cost inflation and a favorable sales mix, and on the other hand, the lower volume of LPG sold. For the year, adjusted EBITDA totaled BRL 1.8 billion, 5% increase compared to 2024. This performance reflects the effects of the pass-through of cost inflation, a more favorable sales mix and the contribution from new energies, which offset a lower LPG volume and higher costs and expenses. For first quarter '26, we see continuity of good results and an EBITDA similar to that observed in first quarter '25. On the next slide, we move to Ultracargo's results. The average installed capacity reached 1,131,000 cubic meters in the quarter, a 6% increase compared to the fourth quarter of 2024, resulting from the additions of capacity in Palmeirante, Rondonópolis and Santos. For the year, the average installed capacity was 1,090,000 cubic meters. The cubic meters sold was 5% lower in the quarter and 9% lower in the year compared to 2024. This decrease is mainly due to the lower demand from our customers for tanking services related to fuel imports, an effect partially offset by the increase in handling in Opla. Net revenue totaled BRL 261 million in the quarter, an 8% decrease compared to the previous year, reflecting the cubic meters sold and less favorable sales mix. For the year, net revenue amounted to BRL 1.021 billion, a 5% decrease explained by the lower cubic meters sold, partially offset by higher tariffs in the period. Adjusted EBITDA was BRL 144 million in the quarter, a 15% decrease compared to the fourth quarter of 2024. This performance mainly reflected lower cubic meters sold and higher costs with operations still in the ramp-up phase, partially offset by lower expenses. In 2025, adjusted EBITDA was BRL 585 million, a 12% drop compared to 2024. This result reflects lower cubic meter volume and higher costs associated with new operations, which are still in their ramp-up phase, partly offset by higher tariffs and lower expenses. We continue to see a gradual recovery in demand from customers of terminals at the beginning of the year, challenged by the closed import arbitrage window since mid-February. I also remind you of the negative initial effects of the ramp-up of some expansions. In this context, we expect first quarter volume and recurring EBITDA to be higher than in the last quarter of 2025. Now let's move to Hidrovias results. The total volume handled increased by 65% in the quarter compared to 2024, reflecting better navigation conditions in the North and South in addition to operational improvements. For the year, the volume handled increased by 22%, reflecting the same, more favorable navigation conditions, operational improvements throughout the year and higher volume in Santos, with the beginning and consolidation of the salt operation. Recurring EBITDA amounted to BRL 160 million in the quarter, reverting the negative result recorded in the same period last year, highlighting the positive effects of better navigation conditions and operational improvements. For the year, recurring EBITDA totaled BRL 1.1 billion, a 95% increase compared to 2024. This advance mainly reflects better navigability in the regions served, operational improvements and better average tariffs. I remind you that in November, we completed the sale of the cabotage operation, which contributed to the results of 1Q '25. Looking now at the first quarter, we have seen greater challenges in receiving cargo from the North operation, navigability conditions closer to normal levels in the South, although with some restrictions on iron ore loading. As a result, we expect results to be lower than those of the first quarter of last year. Finally, to conclude the presentation, we will look at the composition of investments made in 2025. We invested BRL 2.5 billion in the year, about half allocated to business expansion and the other half to maintenance and other investments. The total was in line with the announced plan, even considering BRL 235 million in investments at Hidrovias, which were not included in the original plan. Excluding this effect, investments would be 9% below the plan. We announced in the 2026 investment plan of up to BRL 2.6 billion. Of this total, approximately 42% will be allocated to expansion and the remaining to maintenance and business efficiency and safety initiatives. The highlights are in this presentation and in the market announcement. Well, with that, I conclude my part. Thank you all for the participation. Let's move to the Q&A session. To ensure better dynamics of this moment, I would like to reinforce that questions related to Hidrovias will be answered from the perspective of Ultrapar as the controlling shareholder. For specific operational details, the appropriate channel is Hidrovias' IR team. Thank you. Operator: [Operator Instructions] The first question comes from Monique Greco with Itaú BBA. Monique Greco: Great results. I would like to explore further the margins for Ipiranga. You've had very strong margins in the fourth quarter, especially because of strong December. What were the main reasons for these stronger margins obtained in the month of December? I'd also like to understand whether there is some relevance, the fact that you have favorable arbitration for import or some other factors along these lines. And I would also like to ask about the share because in January, you've been subject to some more pressure in terms of market share because of an oversupply in the chain. What can you tell us about that? Do you think that January was just one-off effect? I know it's too early to talk about that, but especially with the perspective of a very short window for import. What can we expect in terms of market share from now on? Leonardo Linden: Linden speaking. Monique, thank you for the question. You are right. The fourth quarter showed this journey of progression. December was stronger, similar to November, October was somewhat weaker. I think this is very much aligned with improved landscape. We've all been seeing what's going on in Brazil in terms of regulatory affairs, fighting the legal market. So throughout the quarter, we've noticed a positive trend. When you talked about market share, January indeed showed an inverted position of the share. It's probably due to the fact that inventory levels went up in the last quarter when inventories go up with open arbitration, there is a lot of speculation, and it applies some additional pressure to the system. In my opinion, it was a one-off effect with a better commercial scenario, Ipiranga might recover the share that it had lost throughout the years. And finally, about what's going on in the Middle East, you are right. It's still too early to talk about that or draw conclusions. But we know that arbitration will be more limited. And if it's significantly closed, it means less speculative supplies, which favors companies which have a substantial supply in Brazil, such as Ipiranga. The whole infrastructure and our capacity would generate positive aspects to our own businesses. Rodrigo de Almeida Pizzinatto: Let me pick back on that and talk about this topic a bit more. Rodrigo speaking here. That window of import affects the whole market, up to February, there was an open window of imports. So levels of inventory of industry have reached very high levels. But as of mid-February, the windows closed. And now they are even more closed because of the Gulf tension. This is going to affect negatively the market and positively depending on being closer or open and favoring companies, which can really supply the market in Brazil. Operator: The next question comes from Rodrigo Almeida with BTG Pactual. Rodrigo Reis de Almeida: My question is more focused on Ultragaz to start. You've talked about the perspective for the first quarter, but I would like to hear about the trend for the year. 2025, there was an increase in volume. But how do you anticipate that, especially for bulk, which had worse performance than we expected last year. Can you see any possibility of gains of volume, new clients or new initiatives? Can you also see an effect of the program of the Brazilian government [Foreign Language]? Is it also impacting the bottled market? And my second question concerns your strategy and the possibilities of growth. What are the main characteristics that you consider when you are trying to lever your businesses or drive further your business? Do you just intend to operate your own assets or maybe go into additional investments? It would be great if you could tell us and share with us the investment strategy you currently have. Tabajara Bertelli: Tabajara speaking, Rodrigo, thank you for the question. I'm going to start with the point concerning Ultragaz. You've asked about volume trends. We don't expect any major changes to our plan. We are still focusing on operational excellence, operation-based initiatives. We have performed quite well last year, and this is what we anticipate for 2026. There were some variations, especially in industrial segment because of characteristics of the segments themselves. And these are fluctuations that we've seen happening before. Our perspective is that everything will go into normal operations as months go by. We focused on segments that we believe are the best and strongest, and we have been delivering all results in them. [Foreign Language], this government program. It has been fully approved, and it's already in its initial implementation stages. It's a very smart program because it direct subsidies to the needy population. It's at the implementation stage. I've been -- we've been really involved in it. And it's something that will come in full operation within the next quarters. But now it's fully approved with a clear definition of pillars really -- which is good for the official players and something really important for all of us as a society. Rodrigo de Almeida Pizzinatto: Pizzinatto speaking. Asking about strategy, we have 3 main pillars that we considered when we are considering any transaction: first of all, industry where the company works, perspective of growth and consolidation; second pillar, is how close is it of what we already do and our management model, really getting synergy and generating value; and thirdly, someone who is willing to sell at interesting price range that would really prove to be good on return on investment. This is what we came across in Hidrovias. And this is the kind of analysis that we take into consideration whenever considering new investments. Operator: The next question comes from Gabriel Barra with Citi. Gabriel Coelho Barra: I have two points to make. The first one about Ipiranga CapEx. It was below what you had planned. The actual number was lower than what had initially planned for 2025. I would like to hear from you the reason behind it. We've seen a very favorable market because of the discussion of fighting illegal practices. So official brands are getting favored. But a lower CapEx at Ipiranga is something that attracted our attention. And I would like to try to understand why did you want to have less investments upfront in your branding -- in branding new stations? Or are you operating in a more competitive market and decided to take a step back and just wait for more aggressive players to set their game. So what were the reasons? If you could shed some light into that, that would be really helpful. So why have you invested less than was initially planned? Secondly, it's about Ipiranga and capital allocation as well, building up on what was asked before. I know we cannot talk about market rumors. But last week, someone talked about -- started hearing the news about the divestment of Ipiranga, sales of Ipiranga. So I'd like to hear from you, not only in terms of acquisition, but also looking inside and considering adjustments. You've been talking about having a more active understanding of the company, revisiting its own thesis and also looking outside because you've been generating a lot of cash. And in our perspective, you are going to have even better cash levels this year and in a very comfortable leverage level. So what is the equation now? Should -- are you going to sell it now? Are you going to sell it later? So if you could please tell us more. So these inside, right? So these are my two points. Rodrigo de Almeida Pizzinatto: Rodrigo speaking. Let me answer those two questions. About CapEx and the other issues. Let me remind you, and we've said that a number of times before that Ipiranga has been through a cycle of CapEx before -- greater than expansion. And there are two points of fluctuation. So investments in infrastructure and technology. And for '26, '27, we are going to replace our technology platform at Ipiranga, very relevant investments. We've talked about that during the Ultra Day. Infrastructure is also closing some terminals and some expansions that we have put in place. These are why there are oscillations between the years. Some postponement of investments were made, especially because of the technology platform. As projects are completed, we are going to return Ipiranga's CapEx to the level of maintenance unless we see new opportunities of branding stations, but then we are going to revisit the plan. But this is what we anticipate for '26. Now concerning the news, the rumors in the market, we have nothing to talk about it. Whenever there is anything relevant, we have a formal communication of the market as the law expects. Cash generation has 2 main purposes, either we're going to find good projects to keep on expanding our company or share dividends. And this is an agnostic economic decision. We are going to keep on doing as is. Operator: The next question comes from Bruno Montanari with Morgan Stanley. Bruno Montanari: Well, let me go back to the topic of import window, especially for diesel, a closed window benefits the well-established players. We know that. I know it's too early. But with the price of diesel in the international market, do you think you can have an average price and really execute it in the Brazilian market? We'd also like to hear from you what are the next steps in the regulatory agenda to fight further against the regular market? What is the time line that you expect it to progress further? And could you please tell us more about the strategy of funding debt versus working capital and also your draft discount, that would be very helpful. Rodrigo de Almeida Pizzinatto: Well, Bruno, concerning the import window, Brazil has a structure dependence on diesel imports. We have a commitment with our clients, and we are going to import and guarantee supply. And the cost in our profile of supply will be just build to customers. Concerning the next steps of the market regulation, we really have to make sure that everything that we've seen in the new legislation is really enforced. For example, persistent debtor and other initiatives have to be enforced, and we have to see the practical result of these changes that were really an important achievement for all of us. Yes, there are a number of things to be done. For example, single-phase taxation for ethanol. Part of the regular market lies in the hands of ethanol. Biodiesel, also a challenge. Not now, of course, because there was a change in the cost of byproducts, but biodiesel tends to cost more, and there are problems of non-mixture. Still a lot to be done in our agenda. It's not something fully resolved, and we really need to focus on improving competitiveness scenario as a whole. The government is very much willing to support these changes. The government of São Paulo increased the taxes because they've been fighting legal practice and now they have more legal players. So especially now when we deal with critical budgeting, all the governments are more than interested in having that in place. Now concerning the strategy of funding, we have access to a marginal cost of debt, which is highly competitive. Throughout last quarter, we've noticed there was an opportunity of anticipating the refunding of the company for the upcoming year. The marginal cost, even carrying over into the cash, it will have a positive carryover, and it's very much comfortable with our position of liquidity to really pay all our needs this year. As we've been emphasizing, funding is an alternative of investment, which is highly competitive in some specific situations, and we are very comfortable in using it more or less depending on the needs and mismatch with our cash levels. It's been so in recent quarters, and we do not expect to have any differences in upcoming quarters, but always considering the cost attractiveness in our analysis. Operator: Next question comes from Tasso Vasconcellos with UBS. Tasso Vasconcellos: I have two questions. First, Ipiranga. Linden, I recall at the end of last year in the Investors Day, you said that you were going to discuss the micro perspective and not the macro perspective. I would like to go back to Ipiranga's expansion plan and try to understand, based on the changes that you started implementing your business in 2022, what is still pending? What do you still see at the operational level, really putting aside all the improvement of the legal framework, but where can you still see value extraction this year and upcoming years in-house? Second question to Palhares or Pizzinatto. Going back to what Rodrigo has talked about in terms of capital allocation. You've had a very strong cash generation in the quarter. But looking at your balance sheet, despite this cash generation, there was still an increase in gross indebtedness, which was compensated by your financial assets, about BRL 2 million, BRL 2.5 million. I would like to hear a bit more about the reconciliation of resources and how all these initiatives are part of your capital allocation strategy at the level of the holding. Leonardo Linden: Well, Tasso, what I said Ultra Day is that I would rather discuss ways of improving Ipiranga and make us sell more rather than discussing irregular market, of course. The agenda of the regular market is always with us. But by having that, we can look closely into our sales, improving our own operations, focusing on things that we really have to fine-tune. We have an expansion plan for 2026. You've seen the CapEx for expansion. We are talking about 300 branding stations, working on our infrastructure plan, technology, which is extremely important. The plan has been maintained. In addition to qualitative issues that we've been working throughout the years, and I'm sure you're all familiarized with them. Considering what's still pending and all the different drivers that I'll be able to list, there are two of them. Logistics, something that we've talked about a lot, the logistic plan. We still need 2 years to complete the journey, and it will mean a lot in terms of value capture. And the migration of ERP, the benefit is not a new operating system, but something that really changes the way we've been operating all our processes and internal elements, which will generate more efficiency. In terms of the main effort lines for 2026, these are the two. Pizzinatto speaking, Tasso. Concerning financial investments, let me make 3 points here: first, we always follow the principle of discipline and prudence; our average cost of debt, excluding bonus, is below 100% CDI. We have no cost of carryover of debt; and thirdly, 1 day of operation in Ipiranga is BRL 300 million, BRL 400 million. We are dealing in a moment of great volatility, and we have BRL 4.5 billion of debt to be paid this year. So what did we do last year? We anticipated somewhat the funding of debt that would mature, so that we wouldn't have to go to the market considering the conditions that we have. And this is why we have an increase in our investment line. Operator: The next question comes from Vicente Falanga with Bradesco BBI. Tasso Vasconcellos: I also have two questions. First, in addition to that open window, Petrobras auctions for fuel, which impacts some of the competitive landscape and the share, do you still see an opportunity to improve profitability in the fourth quarter? And what is the feedback that you get from resellers in relation to your competitors? Secondly, Palhares said that it's going to be an increase in volume and margins as is. Is it year-over-year, quarter-over-quarter? What is your expectation there? Rodrigo de Almeida Pizzinatto: Vicente, having a better commercial landscape is not something just for Ipiranga, it's for our whole industry, of course. So we can see healthier margins in reseller, healthier margins in distribution and the government collecting more taxes. When the whole industry is benefiting, we can see opportunities of improving our own profitability, of course. It's not trying to be more profitable. It's being part of an industry which has been evolving positively. And the margin is still not paying back the invested capital. There is still room for improvement. In terms of volume and margin, we are comparing against the fourth quarter last year. This is our reference when we say we're going to increase it. Operator: Well, our Q&A session is completed now. We would like to hand it over to Alexandre Palhares for his closing remarks. Alexandre Palhares: Well, thank you all very much for your time, for your interest and participation. Our team is here at your disposal for any follow-up or additional questions. Thank you all very much. Operator: The earnings release call of Ultrapar is closed now. Thank you all for your participation. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Jean-Mari Pretorius: Good afternoon, everyone, and welcome to Acomo's Investor Call for the 2025 Full Year Results. Thank you for joining us today. We appreciate your continued interest in Acomo. My name is Jean-Mari Pretorius, and I will be hosting today's call. Joining me is our Acomo Group CEO, Allard Goldschmeding; and CFO, Mirjam van Thiel. During this call, we will walk you through the highlights of our performance for the period, discuss developments across our business segments and provide further context around market conditions and our strategic priorities. The Q&A will take place at the end of the presentation where we will open the floor for questions. [Operator Instructions] Before we begin, I would like to remind everyone that today's discussion may include forward-looking statements. These statements are based on our current expectations and are subject to risks and uncertainties that could cause actual results to differ. Please refer to the disclaimer included in our press release for further details. We will now continue with the 2025 full year results. Firstly, I would like to hand over to our Acomo Group CEO, Allard Goldschmeding. Allard Goldschmeding: Good afternoon, everyone, and thank you for joining us on today's call. In a world that continues to present both challenges and opportunities, today's call will focus on Acomo's strong performance in 2025 and the path forward. While the broader outlook for the global economy, sea freight rates and product availability in 2026 remains uncertain, navigating complexity is not new to our business. Last year, we successfully managed a range of external factors, including tariffs and significant cocoa price volatility. Our resilient business model, combined with the expertise and commitment of our people, has once again enabled Acomo to adapt effectively and deliver solid results. Today's agenda will cover several topics. I will start with the key highlights that characterized our 2025 performance. I will also discuss how our results compare against our midterm strategy and objectives, which we shared during our Capital Markets Day last April. And I will discuss a few examples of the initiatives we took during 2025. Mirjam will then cover in more detail the financial performance of the group and of the individual segments. At the end of the presentation, I will finish with a look ahead to 2026 before we take your questions. 2025 was another record year for Acomo in terms of sales, profitability and earnings per share. We are very happy with this overall performance, and this reflects the drive to perform of our people. Our teams bring unique capabilities that are highly relevant to our suppliers and our customers and enable us to support them effectively. Excellent results in 3 out of 5 segments are proof of the ability and expertise of the Acomo teams in managing volatile market environments and the strong attributes of our business model that offers resilience through diversification. By a volatile environment, I mean mostly in terms of price developments, geopolitical developments and changing regulations. In the Spices & Nuts segment, all our companies delivered record high results. The continued impressive performance and the attractive long-term market outlook make our Spices & Nuts segment a natural area of focus. We have expertise and we have scale, which provides a strong foundation for further expansion. The Organic Ingredients segment showed a very healthy recovery from the negative impact of cocoa hedging in previous years. This recovery started in the second half of 2024 and continued in 2025. The Tradin Organic team was able to manage the price volatility and delivered strong results this year. Besides cocoa, the business also posted positive results for other product groups, reinforcing our confidence in the segment's portfolio. We also made substantial progress in improved alignment of the organizational structure as well as our portfolio investment decisions. Food Solutions also delivered a record year in 2025. Demand for both dry and wet blends remained robust throughout the year, driven by sustained consumer interest in plant-based, clean label and culinary solutions. The business was further supported by the commissioning of the new wet blend facility in Oostende in 2025, which became operational before the summer. The new facility provides a significant increase in capacity and flexibility with the opportunity to triple the output. The year was, however, not without its challenges. In particular, our Edible Seeds segment experienced a difficult year, driven by a mix of challenging market conditions and operational issues. Let me provide a brief overview as Mirjam will address this in greater detail later in this presentation. The challenges that materialized in the first half year and which we spoke about in our H1 call continued into the second half. Tariff uncertainty in the North American market continued and made pricing decisions complicated. Alongside higher input costs, this placed pressure on margins. Next to that, the impact of restrictions on U.S. grown sunflower seeds to export markets continued to have an impact in 2025 as the measures to compensate with new growth avenues do take time. On top of these market effects, our SunButter plant was affected by production issues, which caused a temporary stop in production in the fourth quarter. Production resumed towards the end of January 2026. The result is a more negative overall picture than is warranted based on the fundamentals of the segment, which remains solid. To address this, we have made the necessary strategic and organizational changes in North America, and the business is expected to largely trend back towards normal performance levels. The Edible Seeds business delivered a resilient performance despite market price pressure on key seed categories. The Tea segment faced continuous pressure on sales volumes throughout the year, reflecting ongoing destocking by customers, oversupply and more fragmented buyer landscape. The implementation in 2026 of the new organizational and commercial model that I will explain later in this presentation is designed to respond more flexibly and effectively to changing market circumstances. As discussed during our Capital Markets Day, M&A is a tactical growth lever. We are, therefore, pleased to welcome Manuzzi to the group as of November. This Italian company represents the first foothold of our Spices & Nuts segment in the Mediterranean region, giving us access to an attractive market in terms of consumption patterns. I also want to call out that despite the relatively high level of working capital, our balance sheet remains strong. The characteristics of our business result from time to time in elevated levels of working capital. The unprecedented high prices of cocoa have resulted in higher inventory values. The strength of Acomo is that with our diversified portfolio, we can deal with higher market prices for individual product groups and can continue to make a sensible commercial calls. The 2025 performance resulted in a proposed full year dividend of EUR 1.40 per share, which is another record and an increase of plus 12% versus 2024. At the Capital Markets Day last April, we communicated our midterm targets in the areas of sales, EBITDA margin, balance sheet leverage and dividend distribution. With a total 2025 group sales increase of plus 7% to EUR 1.5 billion and an adjusted EBITDA increase of plus 9% to EUR 180 million, we are on track with these targets. Our current leverage ratio is impacted, as I mentioned, by the higher working capital consumption linked to the increased inventory values due to the high prices for a number of our products, in particular, cocoa. However, based on our current knowledge, we would expect the leverage to go down during 2026. As stated, the full year dividend is an increase of plus 12% versus 2024 and is consistent with our communicated payout ratio policy. The split of the results between the first half year of 2025 and the second half shows that the first half year was relatively strong. Historically, the performance was more or less evenly distributed between the first half and the second half. Since 2023, this has changed, mainly due to the enormous change in cocoa prices that had a material impact. Therefore, the half-year performance in those years was not a reliable indicator for the full year. For 2026, we expect price levels changes to be less extreme, which would result in an EBITDA distribution between H1 and H2 that is closer to historical patterns. The vision we discussed during our Capital Markets Day remains relevant and up to date. And the 2025 results underpin the trajectory towards the ambitions we outlined. Our value creation shows our focus areas and the way in which we address the market dynamics. We continue to execute along the lines presented, and let me highlight some examples, which demonstrate this more clearly. One of the elements of the 3 is scale. We strongly believe that scale is prerequisite to being effective and efficient in our industry and to create long-term value. In Q4 2025, we acquired Manuzzi, a leading Italian nuts and dried fruits company. Through this acquisition, we are expanding the Spices & Nuts segment footprint in Southern Europe. The culture of this family business is a good fit with our Acomo entrepreneurial spirit and through cooperation with the Delinuts in the Netherlands and the Nordics, we will create synergies. These synergies will be focused on growing the top line. By using the available Acomo capabilities and the broad product portfolio we have, Manuzzi will be able to expand its offerings. The company also has its own state-of-the-art facilities, including modern packaging lines with sufficient room for further growth. As part of creating resilient and responsible supply chains, Tradin Organic joined the Nature Positive initiative. These initiatives gather some of the world's largest sustainable business and finance coalitions to broader -- to support broader long-term efforts to deliver nature-positive outcomes. It supports farmers in adopting regenerative and resilient practices, which is aligned with a number of initiatives that Tradin Organic had already begun. The outcome is improved soil health and restored biodiversity, consistent with product quality and supply. Then to increase the benefit from its global reach and have a closer connection with customers, Royal Van Rees Group is transitioning to a centralized business model that consolidates the commercial, trading and strategic functions within a central hub. This enhances customer intimacy and focus and offers our customers improved multi-origin solutions. Our customers will have a single point of contact that covers multiple origins and our local offices will enable efficient physical execution. The new setup will phase in during 2026. Lastly, our value creation 3 is rooted in ESG, and I'm happy to report that for the second year in a row, we obtained limited assurance from our external auditors on the sustainability statement in our annual report. We achieved a substantial reduction in our Scope 1 and 2 CO2 emissions as a result of our efforts to increase the use of renewable energy sources. Other initiatives are an SBTi project at Delinuts and the installation of a lightweight solar panel construction at King Nuts & Raaphorst on the roof that could not carry the usual solar panel construction. Tradin Organic continues their dynamic agroforestry product in Sierra Leone and the farmer livelihood product in Indonesia next to the nature positive initiative that I mentioned. With that, I would like to hand to Mirjam van Thiel to take us through the detailed financial performance. Mirjam Thiel: Thank you, Allard. Let's start with the overall P&L of the Acomo Group. As mentioned by Allard, we achieved record growth this year with an increase in sales of 7.4%. On constant currency, the increase is actually much higher, close to 10% as we had some FX headwinds, in particular, stemming from the U.S. dollar to the euro. Now from a cost management perspective, you will see that our COGS increased at a lower pace in proportion to sales, which in turn led to an expansion of our gross profit margin by 1.8 percentage points. Looking at our G&A expenses, we see an increase of 5.8%, which reflects inflation and some additional costs due to M&A projects and investment in people. This resulted in an increase in our operating income of 43.5%. Looking below the operating income, we benefited from lower financing costs because of lower interest rates. And this, together with the higher operating income, led to an even more significant year-on-year improvement of our net profit by 64% to EUR 74 million. Let's then move over to the key KPIs on an adjusted basis. Adjusted EBITDA grew by 8.7% to EUR 118.2 million. The difference between reported and adjusted is mainly due to the impact of unrealized results on FX and sales hedges and exceptional items related to our Edible Seeds business in the U.S. On the next slide, I will share some further detail on this. You see that there is an increase in the EBITDA margin from 8.0% to 8.1%. As communicated at the CMD, we want to move towards 9%. Excluding some of the exceptional items we had this year, we would have progressed further towards that goal. So overall, we are on track with our ambition. Adjusted earnings per share improved by 8.8% to EUR 2.18, which is a record performance for the company. On the right, for added context, you will see the contribution share for each of the segments in which we are active, and I will discuss those in detail shortly. Moving to Slide 14, where you see the bridge between the reported and adjusted EBITDA. As mentioned just now, the main difference is due to the unrealized noncash results on our CX and FX hedges. That includes the revaluation of outstanding hedges to the market value at the date of reporting. The main impact here comes from the outstanding hedge contracts on cocoa. Last year, due to an increase in the cocoa market price towards the end of the year, the reported results included a negative impact due to the revaluation of outstanding hedges. This year, we saw the opposite. Cocoa prices declined towards the end of the year, which increased the value of the outstanding hedge contracts. We exclude this from the reported numbers. Once we settle the hedge contracts, we book the realized results, which normally we time together with the physical sales. The other impacts specifically related to 2025 are the exceptional items in Edible Seeds. These exceptional items relate to organizational restructuring and the cost related to a production issue in one of our facilities. This relates to the Edible Seeds business in the U.S., which I will cover in a minute. We thought for transparency purposes, it will be clear to outline these items as they are clearly nonrecurring by nature. Let me now take a closer look at the performance per segment. Let me start with Spices & Nuts, one of our key segments. This segment has been growing for several years. And in 2025, it delivered an all-time high performance. And what we are even more proud of is that every company in this segment delivered a record performance. Revenue benefited from sustained demand and higher market prices for most products. To share some examples, one of our key products is desiccated coconut, which is grated and dried coconut. In the last 1 to 2 years, we saw a sharp increase in prices. And also in 2025, prices were elevated globally due to reduced coconut supply and strong export demand. And also for some of the key nuts such as cashews and almonds, we saw high prices in 2025. There is sustained demand despite the high prices, and this is reinforced by the overall megatrend of increasing demand for plant-based products. All in all, we continue to expect this trend of increased demand to persist and hence, a relatively high pricing base. At the same time, how this develops year-on-year is to be seen. Also included in this segment are the 2 bolt-on acquisitions we made recently with Delinuts Nordics in August 2024 and Manuzzi in November 2025. Turning to Edible Seeds, where we have faced a series of challenges due to a mix of market conditions and operational issues. Before I go into the challenges, I want to be clear that we strongly believe in the fundamentals of this business. Let me take a step back. Within this segment, we have a sizable business in the U.S. in which we process sunflower seeds and use them to make various products, including well-known retail brands such as SunButter. In the U.S., we are also seeing an increase in demand for cleaner label, plant-based alternatives and allergen-free options. The attributes of sunflower seeds are perfectly aligned to these trends, and we have developed our leadership position in this market. In addition to the U.S. business, we have a smaller seeds business in Europe. But back to 2025. Let me recap the challenges we flagged to you in our H1 investor call and explain more about what we have faced in the second half. First, we spoke about the impact of the restrictions of U.S. grown sunflower seeds to some export markets. As anticipated, it will take time to offset this lost stream with new business. Second, we saw tariff uncertainty continuing, making pricing decisions complicated. That, together with higher input costs, placed pressure on margins. On top of that, our SunButter plant was affected by a production issue causing a temporary stop in production in the fourth quarter. The issue has been resolved and production resumed towards the end of January. Now how we tackle these challenges and what are the prospects for the segment, turn with me to Slide 17. Consequently, you can see the margin decline in this segment. Our top priority is to restore profitability. The corrective actions we have taken include improvements, including full cleaning of all equipment, improved preventive maintenance and equipment modification. We also implemented organizational changes, including the appointment of a new CEO, and we created center of excellence. Also on this slide, you see some more specific actions by each category, including price increases that have been implemented. Included in exceptional items and excluded from the adjusted EBITDA are items that are exceptional by nature, which include the cost for restructuring the organization and extraordinary cost items and under absorption due to the specific production issue. So remaining in the adjusted EBITDA, but to some extent, temporary are missed sales in SunButter due to the Q4 production issue and lower margin due to misalignment between higher input costs and sales prices. On top of that, we are starting to see the impact of the other corrective actions we have taken. So as I say, we fully believe in the strong fundamentals of this business, the power of the sunflower and a diversified business model. This supports our expectation of a recovery to a normalized performance level over the coming years. Then looking at Organic Ingredients. We have achieved an excellent performance across all categories within this segment. We see in general an increase in demand for organic food and beverages in the market. For example, the Organic Trade Association in the U.S. reported that the organic sector was growing at more than double the pace of the overall food market. Specifically on cocoa, as you all know, the market has been very volatile in recent years with big price swings. After the sharp increase in the first half of 2024, the price remained elevated up until the start of the second half of 2025 when it started to reduce and has reduced even further in the first months in 2026. Within that dynamic market, the team has been able to secure supply and continue to offer the best quality and required specifications to our customers, which is a commendable achievement and has allowed us to continue to excel despite the external turbulence. It had an impact on working capital, which I will cover in a minute. There was also some catch-up effect of delayed volumes from 2024, especially in H1, which contributed further to our strong 2025 performance. Besides cocoa, as I mentioned, we also saw a strong performance in the other categories. The fruit and vegetable business continued to show strong momentum with accelerated growth, while nuts and seeds and oils and fats delivered consistent sales growth with improved margins. Coffee achieved record high sales and succeeded in growing volume when prices were elevated. Then moving on to tea. The tea business is operating in a challenging global environment. Some of the larger branded players are losing share. And as a result, we see a more fragmented customer base. Also, global tea supply remains elevated. Despite these challenges, the business demonstrated gross margin resilience. As Allard already explained, we will strengthen the collaboration across the Van Rees Group by implementing a more customer-centric business model that will drive additional value to our customers. For Food Solutions, we saw a record EBITDA performance, driven by strong volume development for the dry and wet plants, resulting from the sustained demand for plant-based, clean label and culinary solutions. Further commercial development was driven by a strong entrepreneurial spirit in R&D, combined with new long-term partnerships with customers. We are especially proud of these results as at the same time, the new wet plants facility became operational. The new facility is set to support scaled up production for the coming years, as mentioned by Allard. Now over to the cash flow development. Looking at the operating cash flow, excluding working capital, we posted a year-on-year increase of 12%, effectively reflecting our profitability improvement. On the bridge, you can see the main drivers from the EUR 120 million in operating cash flow, excluding working capital to the net cash from operations. The largest swing is obviously driven by EUR 164 million working capital consumption during the period, and I'm going to spend a bit more time on this on the next slide. Next to that, we had a reduced outflow from cash interest expenses due to lower interest rates and a slightly lower effective tax rate. Let me now go back to working capital. Here, you can see the development over the last 4 years with the orange line representing the total working capital and the green line, the investment in inventory. You will see that the increase in working capital is driven by higher inventory value. Based on market prices, availability of stock in the market and the positions we take, the inventory value will move up and down. In 2025, the higher inventory value is mainly coming from 2 parts. One, due to shortages in the previous year, we are holding more cocoa inventory at higher prices. And besides, we saw higher market prices within the Spices & Nuts segment. So here, there is an extra outflow due to the prices of the various inventory we hold, but this is something that is fully embedded in our business model. With everything remaining equal, our trade payables and receivables remain broadly unchanged. We expect working capital to go gradually downward in the course of 2026, mainly a reflection of the pricing dynamics of our commodities. Finally, before handing back to Allard, let me talk briefly about our liquidity and leverage. As we explained at the CMD, we see working capital as a commercial instrument. And we have enough financial headroom to deal with this, which is where the added value of the holding comes into place. The diversification of the portfolio gives us the financial headroom we need. The strength of our balance sheet enables us to deal effectively with increased working capital. We remain committed to our long-term targets. And we have also shown in the past that we could temporarily absorb a higher leverage and have also been able, you see it on the chart, to deleverage, a function of the EBITDA growth we want to achieve and lower working capital requirements as inventory levels will gradually reduce. With that, I would like to hand back to Allard. Allard Goldschmeding: Thank you, Mirjam. As we move to 2026, I would like to share a little more on our views and initiatives for this year. The market dynamic of a positive trend towards plant-based diets is expected to continue, providing a strong fundament for our business. I started this call by referring to the latest geopolitical development. The impact on the global economy and our business cannot be predicted. However, our people and our business model are positioned to deal with this in the most effective way as we have proven in previous years. We will continue to build routes to healthier foods. A specific development for our organic business is the cocoa price development. Prices dropped from USD 6,000 per tonne at the end of 2025 to around $3,000 per tonne today. This level is not far from the historic normal levels. This would indicate that the cocoa market is moving to more regular price levels, although we still see major daily swings. A continued lower cocoa price level should lead to lower working capital levels, as Mirjam already mentioned, and normalized profitability. The actions we have taken in our Edible Seeds business in the U.S. should allow us to progress towards improved profitability levels during 2026, considering that the fundamentals of the business are strong and attractive. Based on our 2025 performance and our expectations for 2026 and beyond, we are committed to the midterm ambitions we communicated during our Capital Markets Day. Finally, I would like to mention that 2 new nonexecutive Board members will be proposed at the AGM in April as communicated in our press release that was issued this Tuesday. Jan Piet Valk and Barbara van Hussen have relevant Board, governance and M&A experience and will be a great addition to our Board. With that, I would like to hand it back to Jean-Mari. Jean-Mari Pretorius: Thank you, Allard, Mirjam. To summarize, today, we have discussed our performance for the period, the key drivers across our segments and the broader developments impacting our business. We now open the lines for the Q&A. Jean-Mari Pretorius: I see we already have one question coming through. The question states, will the trend of H2 2025 continue? And what is your view for 2026? Mirjam Thiel: Thank you, Jeanie. Let me maybe comment on the second half to start with, the second half of 2025. A few things important there is, one is our reported sales improved with 2%, but we had a currency impact, of course, of the dollar to euro. So if you look at it on a constant currency, we actually grew in the second half with 5% and that 5% is against a strong H2 we had in 2024. And what Allard already explained, the phasing has been a bit of, let's say, between H1 and H2, and we expect to go to a more evenly phasing going forward. But this H2, we were comparing versus a high H2 in 2024. And then the last element which impacted the second half was, of course, the slow performance at Edible Seeds. And there really, we saw there the continuing of the market challenges and then compounded really in Q4 with the production issue that we faced. So those elements really impacted our second half performance. So maybe, Allard, you want to talk a little bit about 2026. Allard Goldschmeding: Yes. Thank you, Mirjam. I mean based on, let's say, what Mirjam just said, there are a couple of components that in 2026 will be different than in 2025. So one of them, obviously, is what we mentioned, the edible seeds development. It was impacted, and we expect that during 2026, this will trend back to the normal or the normalized performance levels. So I think that's important. The other thing is that cocoa prices will come down. The question is what is going to happen to other commodity prices or prices in our portfolio. So what the exact sales development will be, that's to be seen. Like we said that the split between H1 and H2 had a major impact in 2025 versus 2024. But also if we look at 2026, we expect it to be more even. And if it would be more balanced and more even, you should expect or you can expect that the EBITDA potentially can be in H1 2026, a little bit below H1 2025 and that we will catch up in the second half of 2026. So it's important to understand that we will look at the full year performance and our objectives and that the split between H1 and H2 in 2026 can be very different than we saw in 2025. So I think that's important to mention. Jean-Mari Pretorius: Okay. Thank you. I see we already have our first caller on the line. It is Reg Watson from ING. Reginald Watson: Allard and Mirjam, I have a number of questions for you both, please. So I'd like to take them in turn. Firstly, the working capital. I think, Allard and Mirjam, you've both highlighted higher cocoa prices and I think, in particular, higher volumes. When I look at the evolution of cocoa prices, '25 is no different from '24. In fact, on average, probably slightly lower. But -- so I'm not sure if that's the reason for the higher working capital. Mirjam, you mentioned higher volumes. And then my question on that then is, if it was higher volumes, why would you take higher volumes in '25 when in '24, you were suffering a demand shock, and you actually had too much volume. So I'd like to understand the dynamics of that. That's the first question. Mirjam Thiel: Yes. Right. We were actually coming from a shortage, right? So in 2024, inventory was actually in volume very low. So we -- there is indeed an impact when you compare '25 volume levels, specifically in cocoa in '24 on higher volumes because '24, the base is very low. So we really build up normal stock levels again. And then on average, of the stock we are holding, the price is higher now in 2025. So there's, of course, a little bit of a lagging impact versus the market price development in the inventory value that we're holding. Allard Goldschmeding: Reg, maybe to build upon that, when we contract the volumes, it's not evenly spread out over the year, right? So we contract the crops. And that is at a specific point in time of the year where the price can be much higher than what you have seen at the end of the year. So I understand you're right, the average price during the year is different, but that's not the price we contracted against. Reginald Watson: Okay. Okay. So that accounts for the variability. And then I'd like to move on to Edible Seeds. It's been a thorn on your side. I think at the time of the Capital Markets Day, correct me if I'm wrong, but there was an expectation that we would have run through the anniversary of the problems by the time we got into the second half of the year. And it seems that the problems continue. Have I misunderstood that, misremembered that? Or have additional problems arisen in the intervening period? Allard Goldschmeding: No, I don't think you misunderstood it. What we've seen is that the consequences were more severe than we anticipated originally. It took longer to get rid of the products that we still had. So the exports issue, which you probably referred to, indeed, we mentioned and at the time, we thought that, that would fade out. But in reality, the aftermath of that was longer and had a bigger impact than we expected. So yes, but we should be through that now. Reginald Watson: And -- okay. But you are confident that, that is now done and dusted? Allard Goldschmeding: Yes, because we still had to clear all inventory and let's say, the price levels against which we could clear that inventory was below what we -- below our expectations. Reginald Watson: Right. Okay. And then just a technical question on the dividend, Allard, I think in your prepared remarks, you mentioned that it was in line with policy. But again, I seem to recall that the dividend policy is 70% payout ratio. And I think unless I'm much mistaken, the ratio is lower than that for this year. Allard Goldschmeding: Yes, the ratio is 65%. So you're right, that's a little bit below the 70% that we communicated. But 70% is an average, right? And we look at different things. So first of all, it's the performance of the company. Secondly, it's available cash or the cash position we have. Thirdly, it's other investment opportunities we see like M&A opportunities. So when you put that all together, we came to this proposed dividend, which we feel is completely in line with our communicated policy. Reginald Watson: And then final question on tea. You very helpfully provided a slide in the presentation pack, which sort of noted some of the changes that you're making. Could you perhaps flesh -- give us some flesh to those bones, perhaps a work example of how things have worked in the past and how they will work in the future and what benefits you expect those changes to bring? Allard Goldschmeding: Yes. No, fair. Now what we've seen is that historically, Van Ree very much operated from a local level. So yes, there was central oversight, and the strategic direction was obviously set at the central level. But the local offices, to a high degree, maintained their own commercial operations and approach themselves the customers they had. What we've seen changing basically in the industry that the customers are looking more for -- are more flexible, let's say, in buying tea and in looking for what I tend to call multi-origin solutions. So for example, if a certain grade or a certain price of tea in Kenya is not competitive to Ceylon or to Indonesia, we can -- they are basically looking at other origins as well. And my belief is that we can be more efficient and more effective by centralizing that approach and to be a sparing partner for our customers to help them actually making the right calls. So the central multi-origin solutions that we can offer to the key customers will be crucial to be closer to customers to better understand them and therefore, be more effective. So it means, in the essence, a little bit of a shift or it means a shift from certain responsibilities that were embedded in the local organizations. And again, whether it's in Africa or in Asia or whatever, to more the central hub where they will make the calls and that will be a change to the organization, which, in our view, will be for the better because, again, the tea market has changed, and tea buyers have changed their behavior. Reginald Watson: Okay. So just so I'm clear, so reading between the lines there, basically the local organizations were more incentivized to promote their local origins rather than helping customers source more efficiently other origins of tea. Is that my understanding, correct? Allard Goldschmeding: Well, the way I would phrase it that they had less visibility on alternatives for the origin. So their knowledge was on their local origin. And they -- it took more time to react to changed consumer or customer behavior and now we centralize that. So we can now proactively offer other origins if we see that the preference of certain customers is changing. So I think we will be faster and more effective. Reginald Watson: And with that centralization, will that come -- will therefore -- will there have to be exceptional costs taken in the local organizations then for this? Allard Goldschmeding: No, no, no. Reginald Watson: Great. Those are all my questions. Sorry to monopolize the performance. Allard Goldschmeding: Thanks, Reg. Jean-Mari Pretorius: Thank you, Reg. We have another question coming through. This question states, what M&A projects is Acomo working on? If you can prioritize on a segment basis, what would have priority and why? Example, consumer preferences and diets, food safety, price development, raw materials, labor cost development. Allard Goldschmeding: As we stated at our Capital Markets Day that M&A, and I think we also included that in the presentation today. The M&A is an important part of our growth trajectory and our ambition towards where we want to be in the midterm. So we are looking at different M&A opportunities. What we've communicated before is that our prime focus will be our Spices & Nuts segment, and that will be in Europe and in the U.S. We will look at Edible Seeds, which will be a little bit more geared towards the U.S. Organic, we are looking at how can we strengthen the portfolio. Tea, like I said, we focus more on changing the organization, and that's our prime priority now. And thirdly, we will look if we can expand our Food Solutions presence, but that will be mainly in Europe. Those are the priorities. Jean-Mari Pretorius: Great. Thank you, Allard. Another question here is this is a question on artificial intelligence, so AI. Is AI also applicable in a company like Acomo? And do you see AI as an opportunity or a threat? Mirjam Thiel: It's an interesting question. I think AI, I think, is in everybody's mind at the moment, and it's impacting, of course, all of us, I think, in a certain way. I think for us, it really is about our processes, right? How can we make it more efficient? And you can imagine that in the trading that we're doing, we're collecting a lot of data. We need to get everything in order for all the certifications for all the quality requirements, et cetera. So there's a lot of data we are processing. So I really see the benefit in more -- making our processes more efficient. So for sure, there is an opportunity for us there. I think really, if you look into the core activities of what we are doing, that is a people business. So in that sense, we are less impacted because really the work of the traders, the knowledge of the traders, making means out of all the different data that is there, yes, we very much believe that, that is really the human capital that we have. And hence, yes, that is less impacted by AI. So it's more about the processes than the core of our business model. Jean-Mari Pretorius: Thank you, Mirjam. Well, this concludes today's call based on our time. Thank you once again for your time and your continued interest in Acomo. We look forward to speaking with you again for the 2026 half year results. Have a good day.
Operator: Good morning, everyone, and welcome to the CareRx's Fourth Quarter 2025 Financial Results Conference Call. Please note that this call is being broadcast live over the Internet, and the webcast will be available for replay beginning approximately 1 hour following the completion of the call. Details of how to access the webcast replay are available in today's news release announcing the company's financial results as well as on the company's website at www.carerx.ca. Today's call is accompanied by a slide presentation. Those listening on their phones can access the slide presentation from the company's website in the Investors section under Events and Presentations. Certain statements made during today's call, including the answers that may be given to questions, may include forward-looking information, including information consulting -- excuse me, including information constituting a financial outlook under applicable Canadian securities laws. Apologies, everyone. Forward-looking information, including financial outlook information, includes statements regarding forward -- regarding future events, conditions or results, including the company's future plans, strategies, objectives and expectations. Forward-looking information and financial outlooks are based on information available to management as well as their assumptions and expectations as of the date of this presentation. Forward-looking statements and financial outlook information is given as of the date of this presentation, and the company assumes no obligation to update any forward-looking information as a result of new information or future events, except as required under applicable laws. Forward-looking information is subject to risks and uncertainties, some of which may be unknown to management or beyond the control of the company, which could cause actual results to differ materially from those contemplated by the forward-looking statements or financial outlook provided today. Given these risks and uncertainties, investors are cautioned not to place undue reliance on the company's forward-looking information. For additional information on the risk factors that could cause actual results to differ materially from those contemplated by the forward-looking information and the factors and assumptions associated with such forward-looking information, please refer to the company's MD&A for the 3- and 12-month periods ended December 31, 2025 and 2024, and other documents filed on the company's profile on www.sedarplus.ca. I would now like to turn the conference over to Puneet Khanna, President and CEO of CareRx Corporation. Please go ahead, Mr. Khanna. Puneet Khanna: Thank you, and good morning, everyone. Welcome to our fourth quarter 2025 earnings call. With me this morning is our Chief Financial Officer, Suzanne Brand. In the fourth quarter, for the 3-month period ending December 31, 2025, we delivered strong financial and operating performance. We generated revenue of $96.1 million and adjusted EBITDA of $8.8 million, representing an adjusted EBITDA margin of 9.2%. We also delivered net income of $1 million in the quarter after adjusting to remove the effect of a deferred income tax recovery. Average beds serviced increased to 92,250 in Q4. For the year, we delivered revenue of $370.2 million and adjusted EBITDA of $32.9 million. Adjusted EBITDA margin for the year was 8.9%, and we delivered net income of $3.3 million after adjusting to remove the effect of an income tax recovery. We are proud of the financial results of the company as 2025 marks the first full year of positive net income. Our financial performance also reflects the contribution from new beds onboarded throughout the year, combined with the ongoing benefits of our cost savings and efficiency initiatives. I'm very proud of the entire CareRx team from coast to coast, those in our pharmacies, our office-based locations and the team supporting on-site within the homes we service. It is the dedication and hard work of the collective team that has enabled us to deliver these results while continuing to provide high-quality pharmacy services and programs to our residents and home partners. Turning to our full year highlights. In 2025, we added over 4,500 new beds across our network, and we are well positioned to continue to leverage our operating platform. We grew adjusted EBITDA by 8.7% compared to prior year and expanded our adjusted EBITDA margin by 63 basis points. We also reduced net debt by approximately 24% year-over-year, reflecting our strong cash generation and disciplined approach to capital allocation. In line with our commitment to returning capital to shareholders, we initiated a quarterly dividend during the year. We also renewed our normal course issuer bid, reinforcing our view that our share price does not fully reflect the fundamental value and long-term growth potential of our business. 2025 was also a year of important strategic milestones. We hosted Natalia Kusendova-Bashta, Ontario's Minister of Long-Term Care at our Oakville pharmacy location, where we showcased the innovative pharmacy services and technologies we use to deliver integrated pharmacy services and programs across the seniors housing spectrum. We also fully transitioned all regional beds in the BC Lower Mainland to our new Burnaby pharmacy, and we were pleased to host members of the BC legislative assembly for a tour of this new facility. This site is a strategic component of our high-volume operating platform and further enhances our ability to support growth while maintaining a high standard of service for our home operator partners and residents. Taken together, these achievements highlight the momentum in our business and the strength of our platform as we look ahead. I will now turn the call over to Suzanne, who will discuss our fourth quarter financial results in more detail. Suzanne Brand: Thank you, Puneet, and good morning, everyone. As Puneet outlined, we delivered solid growth in our key financial metrics in the fourth quarter of 2025. Average beds serviced in the fourth quarter increased to 92,250 from 87,658 in the same period of 2024. Revenue in the fourth quarter grew to $96.1 million compared to $92.2 million in the fourth quarter of 2024. The year-over-year increase in revenue was driven primarily by the increase in the number of average beds serviced. Fourth quarter adjusted EBITDA increased to $8.8 million from $7.6 million in the fourth quarter of 2024, and adjusted EBITDA margin improved to 9.2% from 8.2% a year ago. The increase in adjusted EBITDA and adjusted EBITDA margin was driven by the onboarding of new beds and continued realization of cost savings and efficiency initiatives across our operations. After removing the effects of income tax recoveries, we reported net income of $1 million in the fourth quarter compared to a net loss of $2.2 million in the fourth quarter of 2024. The improvement in net income reflects the higher average number of beds serviced, the impact of our cost savings initiatives and reduction in finance costs. We are proud to report our first full year of positive net income as CareRx and specifically positive net income in every quarter of 2025. Cash from operations in the quarter was $9.6 million compared to $8.4 million in the fourth quarter of 2024. Cash from operations was influenced primarily by the contribution from the new onboarding and our ongoing cost-saving initiatives. Turning to our balance sheet. As of December 31, 2025, we had cash of $13.9 million compared to $15.5 million at the end of the third quarter of 2025. Net debt was $27.1 million at quarter end compared to $28.8 million at the end of the third quarter of 2025. The quarter-over-quarter improvement in net debt was driven primarily by repayments to our term loan. Net debt to adjusted EBITDA improved to 0.8x at the end of the fourth quarter compared to 0.9x at the end of the third quarter of 2025. This improvement reflects both the decrease in net debt and the increase in our run rate of adjusted EBITDA. During the quarter, we also paid dividends in the aggregate amount of $1.3 million, consistent with our balanced approach to capital allocation, which prioritizes growth, growth investments, balance sheet strength and returning capital to shareholders. Overall, our financial position remains very strong, and we believe we are well positioned to support continued growth while maintaining conservative leverage profile. And with that, I'll turn the call back over to Puneet. Puneet Khanna: Thank you, Suzanne. Across CareRx, teams have strengthened relationships with home partners as well as with industry and government stakeholders. We have also delivered improvements in the care we provide to residents, enhanced the clinical support offered to homes and advanced key initiatives throughout a year of growth and momentum. During the fourth quarter, CareRx pharmacists administered over 40,000 flu shots. This is an important contribution to protecting residents in long-term care while preventing hospitalization and underscores the critical role our teams play in preventative care and immunization programs. We were also proud to have a diabetes management study co-led by CareRx pharmacists published in JMIR Diabetes. This work reflects our ongoing focus on clinical excellence, medication management and supporting evidence-based practice research to shape the future of senior care. We continued our support for the Senior Living CaRES Fund, which provides assistance to employees working in the senior living sector, supporting the people who care for seniors every day is core to our mission and values. In addition, our teams remained active in community initiatives, including participating in Lace Up to End Diabetes, writing holiday cards for seniors and sponsoring and attending other community events. These activities allow us to give back to the communities where we live and work, strengthen our relationships with residents and families and reinforce our commitment to being a trusted partner across the continuum of care. We have built a scalable, operationally efficient organization that we believe is exceptionally well positioned to capitalize on the significant long-term growth opportunities we see in the industry. Importantly, our business is built to handle significant growth, and we remain confident in our pipeline and our strategic positioning so that when our home partners are ready to move, we are ready. With that, I would now like to open the call to questions. Operator? Operator: [Operator Instructions] And today's first question comes from Gary Ho at Desjardins Capital Markets. Gary Ho: Puneet, can you maybe give us an update on bed count growth pipeline this year? What are your sales team working on behind the scenes? And also maybe on the flip side, any notable customer that's up for renewal in 2026, we should be watching for? Puneet Khanna: So on growth, as I said in my prepared comments, we are optimistic and bullish on growth. I think we've publicly stated 6,000 to 8,000 net new organic beds is what we are targeting. Our sales team has hit the ground running this year in both prospecting and pushing those initiatives through the pipeline. So we feel good about that. With respect to large customers, we don't have any significant or large customers that are expiring this year. Gary Ho: Okay. Great. And then second, wondering if you can provide a progress update on your hub-and-spoke strategy trial. What do you hope to accomplish this year? And any plans to build out new mega facilities over the next 12 to 18 months? Puneet Khanna: Yes. So our hub and spoke continues -- we continue to feel good about where that's going. We now -- out of the pilot site that we do have in Oakville, we now have 2 of our other pharmacies being packaged out of the Oakville location. The -- and we're seeing that volume handled nicely with further capacity. And so we'll continue to expand that throughout the year. We're also looking to take that into BC. We are in the Lower Mainland location, we are servicing outside of our own geography in the Lower Mainland. And so we'll continue to leverage and expand that as well. So -- and then with your second part of your question, yes, we've got -- I think we would like to get 2 more hubs built time lines within the next 24 months, but nothing confirmed at this point, Gary. Gary Ho: Okay. Perfect. And then if I can just sneak one more in, maybe for Suzanne. I know there's a new deferred tax amount on the balance sheet, $23 million. I don't think it was there in Q3. What drove that? And does that impact future income tax rate looking out? Suzanne Brand: Yes. Thanks, Gary, for the question. The analysis was not complete. The analysis in Q3, we actually did the full analysis in Q4 on our tax position. You did see within the results that we posted a full year of positive net income. And with our future forecast in terms of profitability, it allowed us to recognize the deferred tax asset that we'll be able to offset some capital losses against. So it is a very good news story. It's a positive net income story. And we do have the noncapital losses that we'll be able to utilize. So hence, the deferred tax asset was recognized. Gary Ho: Okay. So maybe I can just clarify to see if I understand this correct. So in previous years, tax years where you had net losses, I guess those weren't recognized on the balance sheet. And as a result, now you have better visibility of having positive net income. And as a result, you can book these deferred taxes. Is that the right way to look at it? Suzanne Brand: That's exactly right. Yes, that's right. We did not have that profitability in the past. Gary Ho: So does that mean there's no current taxes we should look for in the near term? Suzanne Brand: In the near term, we will be able to utilize our noncapital losses with respect to being noncash tax positive. Operator: And our next question today comes from Gireesh Seesankar with Bloom Burton. Gireesh Seesankar: Now as your partners acquire beds, could you provide some detail on the onboarding economics, specifically incremental margin that gets added as you add in new beds and the lag time from a partner closing an acquisition to the beds coming online? Puneet Khanna: So with respect to the lag time, it's one of the -- the answer is it depends. So we've seen somewhere if they are long-term care and licenses need to be transferred from the ministries, like we've seen that take as long as a year in some cases. And then in others, just depending on closing or if it's going to Competition Bureau, what we're seeing on the retirement home operator side as that side of the business or our customers continue to consolidate, it seems that it's triggering comp bureau review more and more. And so -- especially with the larger operators. And so a little bit of that is uncertain that we know we've won it, we're going to get it. Timing is not necessarily in our control. And then sort of with your first part of your question on margin profile, because of the way we've built our network, when we do add beds, we do it at very little additional labor. So it is much more incrementally accretive to us than our run rate. Suzanne Brand: If I can just add to that. Of course, it's dependent on the volume of the bed adds. It is marginally accretive, as Puneet said, with respect to minimal labor required. So with a large add, it's very, very supportive with respect to accretion, with small bed adds, it's a minimal impact. But we do get to absorb the labor. Gireesh Seesankar: And would it be possible to quantify the bed count threshold required to break into that double-digit margins? And then beyond just pure scale, what other levers could you pull to further drive margin expansion? Puneet Khanna: Yes. So I think what we've demonstrated over the last 2 years is that commitment to operational excellence. And when we started on that journey, it was really -- we committed to lean methodology, which is sort of a dedicated daily focus on rooting out waste and wasteful activities in the business and driving efficiencies. And so we'll continue to find opportunities throughout the business. And I think from what we've seen when we went to Europe and the partnerships we've created with best-in-class pharmacies across the EU is that there are still learnings that we are sharing back and forth and driving further efficiencies in our business that way. And so we will continue to drive those throughout the year. And then to Gary's earlier question, even with hub and spoke, as we continue to drive towards that model, there will be a significant upside for us on that part as well. Gireesh Seesankar: Just on the -- with the 6,000 to 8,000 beds potentially being added this year, do you think you'll be able to break double-digit margins with those adds? Suzanne Brand: We're optimistic. Sorry, Gireesh, I apologize, for a little bit of throat there. Optimistic with respect to breaking through to the double digit with the 6,000 to 8,000 as the target. Operator: [Operator Instructions] Our next question today comes from Max Czmielewski with Stifel. Max Czmielewski: Just firstly, I'd like to ask, you're at historically low leverage. You guys have done a great job in sorting out the balance sheet, and it's in great health now. I guess just with respect to that, can you provide a little bit of color on firm capital allocation plans? I know the dividend is now in place and the buyback continues. But is that the plan? You do expect to invest a little bit more into existing facilities, building out any capacity? I understand Ontario is well positioned to add new beds with its current capacity, but maybe provide a little detail on what you think about using your balance sheet for? Suzanne Brand: Max, with respect to capital allocation, you are correct. We will continue in terms of our -- the -- we focus on the dividend. We focus on the NCIB in terms of the buyback. But of course, we'll continue with capital allocation between the $8 million and $10 million with respect to pure capital. And then secondarily to that, we'll also look for opportunities from an M&A perspective and how that might obviously impact our business positively. But because we are so -- positioned very effectively on our balance sheet, we'll be able to maneuver that within our current structure. Max Czmielewski: That's great. And maybe just broadly, with regards to M&A, are you in discussions to any degree? Or does the pipeline looks a little bit more active than it is historically? Just what does that look like? Puneet Khanna: Yes. It's still early innings on that, Max. So nothing -- we haven't -- we're not bearing any fruit yet. But again, I think we're pretty optimistic on using our cash effectively to fuel growth. Max Czmielewski: Great. And maybe just on what's over the horizon this year. And I think we've spoken about it in the past, but with the genericization of semaglutide in Canada, maybe lay out your expectations or refreshed expectations and if this will translate into any gross margin expansion in the back half of the year? Suzanne Brand: So with respect to Ozempic/semaglutide molecule, there is an expectation. Word is, is that it would likely go generic late in the year. So we are watching that, never any guarantees with respect to getting through all the regulatory hurdles. It will -- again, as you know, it's a pass-through from both revenue and cost of sales, but we will be able to push a little bit of upside with respect to our wholesale terms. But at the end of the day, it's just still a little bit of a wait and see on semaglutide to see that it actually does get into the generic space. Max Czmielewski: Great. Maybe one more question. This is a bit of a shot in the dark. Have there been any discussions with Quebec officials yet on expanding services into the province or even in the maritime provinces for maybe a broader geographic reach? And how are those advancing? Puneet Khanna: Yes. So we operate in Moncton, New Brunswick already. With the legislation there, we could service into Nova Scotia from that location. And just with the limited geography, that would most probably make the most sense out of the gate for us. So we continue to look for opportunity to expand into that market. And then with Quebec, it's one of those. We are continuing to have ongoing conversations with a number of different individuals. But again, nothing to report back at this point. Operator: And that concludes our question-and-answer session. I'd like to turn the conference back over to Puneet Khanna for any closing remarks. Puneet Khanna: Thank you, everyone, for participating in today's call and for your continued interest in CareRx. We look forward to reporting on our continued progress next quarter. Operator: Thank you, sir. This brings to a close today's conference call. You may now disconnect your lines. We thank you for participating, and have a pleasant day.
Operator: Good morning, ladies and gentlemen, and welcome to the Vermilion Q4 2025 Conference Call. [Operator Instructions] This call is being recorded on Thursday, March 5, 2026. I would now like to turn the conference over to Dion Hatcher, President and CEO. Please go ahead. Anthony Hatcher: Thank you. Good morning, ladies and gentlemen. I'm Dion Hatcher, President and CEO of Vermilion Energy. With me today are Lars Glemser, Vice President and CFO; Darcy Kerwin, Vice President, International HSE; Randy McQuade, Vice President, North America; Lara Conrad, Vice President, Business Development; and Travis Thorgeirson, Director of Investor Relations and Corporate Planning. Please refer to our advisory on forward-looking statements in our Q4 release. It describes forward-looking information, non-GAAP measures and oil and gas terms used today, and it outlines the risk factors and assumptions relevant to this discussion. Vermilion had an impactful year, positioning ourselves as a global gas producer with top decile gas prices, lower cost structure and a long-duration asset base capable of delivering sustainable free cash flow for decades to come. In 2025, we delivered record production and marked a pivotal year in our company's history through strategic A&D activity, particularly the acquisition of the high-quality assets in our core Deep Basin area. And the disposition of noncore assets in Saskatchewan and the United States, our portfolio is now focused on liquids-rich gas assets in Canada and premium priced gas assets in Europe, building one of the largest land footprints in the Deep Basin, along with our growing liquids-rich gas business in the Montney has sharpened our operational focus. This allows us to improve our cost structure and more importantly, higher profitability in our Canadian portfolio. In Germany, during Q1, we brought online the first well of the deep gas exploration program, Osterheide, and progress the build-out of infrastructure to facilitate the production from one of our largest European gas discoveries, Wisselshorst, which we expect to bring online by mid-2026. In the Netherlands, we successfully drilled 2 wells with multiple prospective zones and brought them on production in Q4. The long runway of future prospects we've identified in Europe with finding and development costs of approximately CAD 1.50 per Mcf, represents an opportunity for profitable organic growth in our domestic European gas business. These core assets drove another strong quarter in Q4, both operationally and financially. Production of 121,308 BOEs per day was ahead of guidance. This was partially driven by highly productive wells in the Deep Basin, where 3 of the most productive gas wells in December were Vermilion owned and operated. Production also benefited from record volumes in the Montney as well as outperformance from the Osterheide well in Germany, which had 40% higher production compared to the third quarter and generated approximately $8 million of free cash flow in Q4 alone. Strong realized gas pricing of $5.50 per Mcf or double the AECO benchmark was driven by our direct European gas exposure, where TTF prices averaged $15 per MMBtu in the quarter. Our realized gas prices also benefit from enhanced market diversification in Canada and a sophisticated hedging program. On the operational side, we apply a continuous improvement mindset to the areas within our control, safety, production and cost management. I'm excited about the progress by each team across the business. In Canada due to the improved operational scale, high-quality assets, our unit operating costs are now the lowest in over a decade, which improved our corporate unit costs, now the lowest since 2020. Investments in infrastructure such as the Mica facility and development initiatives in Germany are expected to deliver an increase in excess free cash flow over the next few years. The long duration of our asset base and our commitment to disciplined capital allocation, when combined with only 153 million shares outstanding, positions Vermilion to add meaningful per share value. Moving to reserves. Vermilion's total proved plus probable or 2P reserves increased by 36% from the prior year, reaching 592 million BOEs. This growth was driven by a combination of organic development and the Deep Basin acquisition, which closed in February 2025, partially offset by the divestment of the United States and Saskatchewan assets in mid-2025. We added 86 million BOEs of proved developed producing or PDP reserves and 201 million BOEs of 2P reserves in 2025. Our average finding, development and acquisition costs, including future development costs, were $14.91 per BOE for PDP and $7.71 per BOE for 2P. That's a recycle ratio of 1.8 to 3.5x, respectively. These recycle ratios highlight the capital efficiency and strong returns of our reserve additions. It's also worth noting that PDP reserves do not include any volumes or present value associated with the Wisselshorst discovery well on the Bommelsen license, whereas the 2P reserves include approximately 7 million BOE or 43 Bcf related to our 64% working interest in the initial discovery. We have identified up to 6 additional drilling locations on the Bommelsen license that currently have no 2P reserves assigned, representing significant further upside for European reserves. We remain on track to spud the first 2 of these locations in early 2027 with long lead equipment ordered, the drilling rig secured and permitting progressing as expected. By applying the learnings from the previous program, we anticipate lower cost and faster cycle times resulting in these wells being on production in the second half of 2028. The 2P reserve life index was 14 years, in line with our historical averages. Our internal estimate is we have 1,700 drilling locations across our 1.3 million net acres of land that's in the Deep Basin and Montney and only 23% of these are included in our year-end reserves. Also of note, internal estimates of initial gas in place related to exploration and development prospects in Europe are minimally included in our year-end reserves. We believe there's significant upside to our European gas reserves given our 1.4 million net acres land across Germany and Netherlands combined with our track record of exploration success. Across our portfolio, the combination of book reserves and additional internally estimated locations provide long-term visibility for future production and cash flow. Before-tax net present value of our 2P reserves discounted at 10% using the 3 consultant average pricing as of Jan 1, 2026, and deducting year-end net debt, is $23 per basic share, well in excess of our current share price. I will now pass to Lars to discuss the Q4 results in more depth. Lars Glemser: Thank you, Dion. Vermilion generated $241 million of funds flow from operations in the fourth quarter. An active quarter of drilling saw $192 million invested in exploration and development capital expenditures, resulting in free cash flow of $49 million. Production averaged 121,308 BOE a day with a 69% weighting to natural gas. In Canada, we executed a 3-rig drilling program in the Deep Basin, drilling 16 and bringing on production 17 liquids-rich gas wells. We made the deliberate decision to defer the start-up of several highly productive wells that were drilled and completed in the third quarter into mid-Q4, allowing us to capture stronger realized gas prices and maximize returns. As Dion noted, these were some of the most prolific wells in Alberta. In the Montney, we drilled 4 gross and net liquids-rich gas wells, which are scheduled for completion and start-up in Q2 2026. Combination of strong Deep Basin well results, the return of previously shut-in production and record Montney performance drove a significant increase in production in Canada. Normalized for disposition activity, our Q4 production was more than 5,000 BOE per day higher than in Q3 with a lower unit cost structure, improving cash flow netbacks and overall profitability of our Canadian operations. International operations averaged 30,137 BOE per day in the fourth quarter, consistent with Q3. New production in the Netherlands and increased gas output in Germany largely offset natural declines in Ireland, Australia and Croatia. Vermilion completed and brought online 2 gross or 1.2 net natural gas wells in the Netherlands during the fourth quarter. We also advanced permitting and technical work in the Netherlands to facilitate the drilling of 1 gross or 0.5 net wells in 2026. Our approach to European development remains disciplined, leveraging our long-standing operating experience and strong regulatory relationships. In Germany, infrastructure development for the first Wisselshorst well, which is a 0.6 net ownership to Vermilion continued during the quarter, with first production expected mid-2026. The Osterheide well brought on earlier in the year saw an increase in production, averaging 10 million a day or 1,600 BOE a day for the quarter. Germany continues to be a key region for Vermilion, providing direct exposure to premium European gas markets and development upside. On the balance sheet, we accelerated our debt reduction during the fourth quarter by selling a portion of our ownership in Coelacanth Energy, which resulted in $42 million of incremental debt reduction and a realized gain on disposition of $12 million. We continue to hold a 10% ownership in Coelacanth. Returning capital to shareholders remains a core priority. Our strong free cash flow generation and disciplined capital allocation provide the foundation for sustainable dividends and opportunistic share buybacks. Our debt reduction trajectory has been accelerated with the sale of the Coelacanth shares and an increasing commodity price environment. This allows us to continue to be opportunistic in our balance of further debt reduction and returning capital to shareholders. As we continue to grow our asset base and improve profitability, we are confident in our ability to deliver attractive shareholder returns over the long term. I will now pass it back to Dion. Anthony Hatcher: Thank you, Lars. Prior to my closing remarks, I want to take a moment to thank our staff in Australia. In Q1, our Wandoo platform was impacted by a category three cyclone, which resulted in minor damage than the delay of the planned crude export lifting. We do budget for cyclone downtime each year. And fortunately, it's been more than 5 years since we've had an experience of a direct storm event. Again, thank you to our staff for their hard work and commitment to safety and the lead up during and after the cycle event. In addition, our team has worked very closely with the regulator on the integrity of our asset, including planned maintenance of the export system, which is already included in our budgets. In late February, we exported over 300,000 barrels of crude following the cyclone-related delay, and we're in the process of restoring production on the Wandoo B platform. So on the back of the record 2025 annual production and strong Q4, while factoring in Australia cyclone-related downtime, we are providing a Q1 outlook of 122,000 to 124,000 BOEs per day. We expect production in the first half of 2026 to be in line with recent levels with lower Q3 production reflective of the planned maintenance as outlined with our budget release. The recent run-up in global gas prices offer as a reminder that in a commodity-based business, being able to sell your product for more offers a substantial advantage. Our unique portfolio offers direct exposure to European gas, where inventories are well below the 5-year averages and the current price is over $20 per MMBtu as well as Brent crude, both of which have been impacted by recent geopolitical events. In closing, it has been a very active year, high grading our portfolio and advancing major projects. Through this busy time, we have outperformed on the operational side, and that comes down to the exceptional work of our employees and contractors. This is an exciting time at Vermilion. The strategic road map to 2030 as outlined in our recent Investor Day. Multiyear plan reflects a disciplined approach to long-term profitability designed to generate meaningful per share excess free cash flow growth even under a flat commodity price environment. The higher free cash flow growth will support debt reduction and increased shareholder returns. Our asset base offers longevity, capital allocation flexibility, our top decile realized gas price, along with significant upside driven both by our operational excellence and our large resource position. We remain committed to operating with discipline, maintaining a strong balance sheet and investing in high-return projects that drive value for our shareholders. With that, we'll now open the line for questions. Operator: [Operator Instructions] Your first question comes from Menno Hulshof with TD Cowen. Menno Hulshof: At your Investor Day in December, you talked about material free cash flow inflection starting in 2028. And at that time, I believe you were anchoring to something close to strip gas prices and oil prices that were generally north of $70, which could now prove conservative. So with that in mind, how would you frame free cash flow inflection in 2028 relative to what you were talking about in December? Anthony Hatcher: Thank you, Menno. I appreciate the question. You're right. When we went through the Investor Day, we used $70 WTI, $3.50 AECO and CAD 13 for TTF, and using those numbers, and to your point, the inflection is driven by the ramp-up in Germany volumes with the gas that we see coming online there, but also, of course, the Montney, where we've nearly built out the kit and we'll get our production up to 28,000 BOEs a day. And with that, we'll see the higher production, lower capital. So we were running at about $2.70 per share of excess free cash flow at that time, which was, again, based on that price deck. But maybe I'll pass it over to Lars, if you want to kind of tie that price deck to potential upside from where we are today. Lars Glemser: Yes. No, it's a good observation, Menno, in terms of the run-up here that we've seen recently. And so we've updated the slide in our slide deck. This would be Slide 13, to show what the impact of the run-up in commodity pricing is here. So we're showing FFO for 2026 around $950 million. That's a 40% increase to our excess free cash flow. Some of these near-term price moves haven't necessarily rippled through the curve yet. So that's something that we'll monitor. We stress the business as well as look at upside to the business on multiple price decks, but we are capturing a pretty decent portion of what we've seen here in the last week or so in terms of the commodity price run-up. Menno Hulshof: Yes. I mean I was just -- I guess my second question ties exactly into what you were just describing, and it's a standard hedging question. Like there's a lot of backwardation. There's limited liquidity the further out you go. Are you getting anything done today? Are you looking to capitalize on that? Capitalize is a wrong word, it's a horrible situation, but are there opportunities to hedge further? And is there a scenario where you hedge more aggressively than you have in the past? Lars Glemser: Yes. Menno, Lars here again. So we're about 50% hedged on European gas for 2026, 53% on oil and then 45% on North American gas. Some of the recent hedges that we've put in place, specifically on oil have had participating structures. So calls that are -- allow us to participate in this rally. On European gas specifically, we have been active hedging this past week, locking in some of the price increases here. In the past, I'm not saying that this will be the playbook here, but in the past, we have taken our hedge percentage on a commodity up to 70% if we see an opportunity to lock in revenue as a result of significant price increases. So that is something that we'll continue to look at as a team. We will also continue to monitor periods like 2027, 2028 as well to see if some of these moves are going to be structural throughout the curve and take advantage if there is something to take advantage of. Operator: Your next question comes from Amir Arif with ATB Capital. Laique Ahmad Amir Arif: Just 3 quick questions. Just first on the Deep Basin well outperformance. Just curious, is that -- are you targeting more Tier 1 locations or specific zones? Or do you feel that this recent well outperformance relative to your budget or your type curve can continue through the rest of '26? Anthony Hatcher: Thanks, Amir. I'll pass it over to Randy. He can't wait to answer this question. Randy McQuade: Yes, thanks. So yes, this really is kind of a continuation of the positive results that we showed in the Investor Day, where we had the strong kind of IP30 rates from the second half of 2025 drill program. That's continued to perform. And then when you take the results from our current 3-rig program where we're currently drilling, we brought on an additional 14 wells and they've also exceeded expectations. So it's worth noting that in that well mix, we have quite a wide range of well types and production areas. So that really does speak to our depth of inventory. We're not -- as you mentioned, it's not all Tier 1 locations. We are also drilling proof-of-concept wells. So it speaks to our depth of inventory and really the efforts of everybody on the Deep Basin teams to continue to achieve these strong results. Laique Ahmad Amir Arif: Okay. So it sounds like there's a good chance for these well outperformance to continue above the type curve. Would that be a fair comment? Randy McQuade: Yes. It's very -- yes, based on the results to date, yes. Anthony Hatcher: Yes. I mean, I think we've got 40, 45 wells, Amir, for the program, and we're first quarter into it, but everything we're seeing in the first quarter is encouraging. So we can provide more updates as we go. But to Randy's point, I think the team is doing an excellent job with the locations they are selecting and the execution. So as we get more data, we can revisit where we are. Laique Ahmad Amir Arif: Okay. Those are great results. Second question, just on Australia, can you provide a little more granularity on when do you expect Australian volumes to ramp back up to previous production levels? Anthony Hatcher: Thanks. I'll pass it to Darcy Kerwin, our VP International and just talk with -- on Australia, the kind of plan there to kind of watch -- maybe a little more color on what happened, but more importantly, the plan to restore production here. Darcy Kerwin: Yes. Thanks for that, Amir. I'll start by giving a bit of background on the issues that we've been having in Australia. So in December of last year, while we're performing inspection and maintenance activities on our export system, we did have a small leak on one component of that system. Now at the time, the system was not exporting. We were isolated for maintenance. But nonetheless, we did have a release of residual crude oil from that part of the system. We liaised pretty closely with the regulator, both with our initial spill response and then subsequent repair plans for that system. That did require an approved diving campaign to address the issue that we had. That diving campaign was completed by mid-January. On February 6, we did receive a notice from the regulator that limited the use of this export system, kind of a standard regulator response kind of in a situation like that. And then later that same day, we did receive their approval to complete a planned loading after we formally responded to their issued notice. So in parallel to all this, we had a tropical cyclone that had been building offshore Australia, and we did have a direct hit from category three tropical cyclone on the weekend of February 7. That shut in both our production operations and our export systems, which did delay an export that we had planned. We've conducted the damage assessments and are completing necessary repairs at this point in order to restart production operations on Wandoo B. We did manage to successfully complete an export of over 300,000 barrels last Friday, so February 27. A little bit more longer term, we had already planned and budgeted for the replacement of portions of this export system. And we had a completed engineering, received bids in 2025. We've committed to fabrication starting this year in offshore installation in 2027, and that's kind of now a formal commitment we've made to the regulator to do that. Anthony Hatcher: Thanks, Darcy. And then with respect to Q1, we've assumed minimum volumes, Amir, post the early Feb shutdown. So in our Q1, we effectively -- we just want to diligently give the guys some time to restart, which we're in the process of doing. So going into Q2, we expect things to be back to normal. But at this point, we want to be conservative for Q1. Laique Ahmad Amir Arif: Okay. So but by 2Q, you should be fully ramped back up? By the end of 2Q for sure, around there? Anthony Hatcher: That's our plan. Laique Ahmad Amir Arif: Okay. Okay. Sounds good. And then just one final question. Just noticed some negative technical revisions on the 1P, 2P side in both North America and international. Could you just provide a little color behind. Anthony Hatcher: Just want to make sure I heard you there, Amir, negative technical revisions on the international side? Laique Ahmad Amir Arif: It was on both the international and the North American side. There was some negative technical revisions on 1P and 2P. So just some color around what was driving that. Anthony Hatcher: Okay. I'll pass it over to Lara, she'll take that one. Thanks. Lara Conrad: For sure. Thanks, Amir. So really, when we at the negative technical, this is a result of us high-grading our reserves book, really primarily as a result of the M&A activity. So when we think about in Canada, the team in Canada under Randy have done a great job of high-grading locations, part of why we saw those great results in the Deep Basin. And so now we've shifted our reserves book to reflect that. So really, the negative technicals are because we've replaced locations with locations that we see as having better profitability. And you can really see this because when you look at the numbers, we've added 4x as much volume through drilling extensions as we removed in our technical revisions in the Deep Basin. So a net positive overall, but negative from the ones that we replaced. As far as the international side of the book, we did have some minor negative technicals in the Netherlands, Germany and France. And this is really to do with, again, shifting development plans between wells as well as our capital allocation decisions, prioritizing drilling in Canada and the Deep Basin and Montney and in Germany over development opportunities in France. So just really making sure that our reserves book matches our long-term plans as an organization. Laique Ahmad Amir Arif: That makes a lot of sense. So it's mostly locations that have been taking out, not really production performance on existing wells. Is that fair? Lara Conrad: That's correct. Yes. Operator: Your next question comes from Jeremy McCrea with BMO Capital Markets. Jeremy McCrea: Maybe just probably back to Lara here. Can you give me a sense of what the M&A market looks like here now? Just in terms of how many deals have you potentially looked at? Is there more deals potentially to come, you think? And then I've got one more follow-up question here as well. Anthony Hatcher: Thanks, Jeremy. So just general M&A wherever, but maybe, Lara, do you want to provide a commentary there? Lara Conrad: For sure. We've got a really great portfolio when it comes to looking at M&A opportunities, especially on the back of the Westbrick acquisition. I think whenever you do a rejig of your portfolio, it opens up further opportunities. So I'll give the standard M&A response. We look at everything. And when we have something to talk to, we'll let you know. But do you think there's going to be some interesting opportunities, both in Canada and in Europe. You've seen us core up the portfolio. Vermilion has done some divests recently, which is a little bit different than historically, but we're really trying to create that focused portfolio. So M&A will be part of that when we see the right opportunities. Jeremy McCrea: Okay. And maybe just a bit more follow-up with Amir's question here earlier. When these better wells were coming out of the Deep Basin, was there anything -- I know you talked about like the geology looks good and you have a lot of Tier 1, but was there anything different that you did on the drill or completion design that led to the better results? Or was it just almost 100% geology? Anthony Hatcher: I'll just give a quick answer and pass it on to Randy if he wants to elaborate. But no, I think it's the rock, Jeremy. As you know, the history is we've developed our legacy land position over the years, and I think the teams did a great job of working that land base harder. Effectively now they've got a bunch of new inventory and high quality. And you put the, I would say, the high-performing teams of Vermilion and Westbrick together and that range for us has found a lot of opportunities, ability to extend wells and again, just make things happen. But I think it's really the rock quality we're seeing. But Randy, anything I missed there or... Randy McQuade: Yes. The only other thing I would add is the ability -- the combination of our 2 land bases plus all the deals we've done, we've done lots of swaps and Crown land sales that have created a bit more of land. So we're able to drill optimal locations as opposed to previous where we weren't. So I would say on the drilling completions, nothing different than what we've done. We've continued to perform, costs come in where we expect them to come in. So that's all good. It really comes down to geology and optimal from the land position. Anthony Hatcher: Thanks, Randy. Operator: Your next question comes from Dennis Fong with CIBC World Markets. Dennis Fong: My first one is just around Osterheide. Obviously, that's fantastic to see the incremental uplift in terms of the production. As I recall, there is -- I think from your Investor Day, you highlighted a little bit about infrastructure and kind of local gathering constraints. Can you talk towards we'll call it, the durability of the higher throughput and kind of what some of the considerations happen to be? Anthony Hatcher: Thanks, Dennis. I mean, I'll give a quick answer and then pass it to Darcy to elaborate. But I mean, I think the guys have positioned it well where we've got the well set up to be able to deliver and we've seen higher demand, which, again, probably no surprise with the situation in Europe, and it's been pretty steady here into the new year as well. But Darcy, what am I missing there? Darcy Kerwin: Yes. I think that covers it. I would add, Dennis, the kind of infrastructure constraints that we had assumed are probably not as negative as we assumed initially. So we expect that the production rates that we have seen as of late will continue flat kind of through 2026. There is some day-to-day kind of market variation depending on who's buying and sending gas to different points. But overall, I think there is more capacity in that part of the system than we had assumed and the market seems to have a desire for that gas. So I think we expect that, that will stay flat. Dennis Fong: Okay. Great. And then does that also bode well then for some of the opportunities you were discussing around Wisselshorst? Darcy Kerwin: Yes, I think it does. Now it's not a direct same kind of tie-in point, but I think we were again quite conservative on our assumptions on both the infrastructure and what the market in that area would take. But I think directionally, it's going in the right direction. And yes, I think we hope to see the same results on kind of Wisselshorst takeaway as we've seen in Osterheide. Dennis Fong: Great. My second question, really shifting focus to the Netherlands. It's obviously great to see that you received the permits there, helping kind of confirm the timing of your drilling in the region later this year. Maybe more broadly, can you -- and obviously understanding it's still incredibly early stage, can you talk to any shifts in terms of regulatory government discussions and discussions around kind of permitting time lines? I know that's been, we'll call it, a -- not point of friction, but a bit of a bottleneck in terms of the pace of activity that you guys were looking to pursue in some of these regions. How has it been shifting? How has that been evolving through time? And has there been kind of an uptick even this past week? Anthony Hatcher: Yes. I'll pass it back to Darcy to walk you through. Darcy Kerwin: Yes. I think, Dennis, certainly, the messages that we're constantly trying to send out about the benefits of domestic production in Europe is maybe falling on more open ears all of a sudden. So that can only be good for us. You asked specifically about regulators sticking to time lines. I think we have seen and heard commitments, especially from the Dutch regulator about sticking to their own time lines and just kind of -- we have been quite successful lately in building up a nice pipeline of opportunities, both in the Netherlands and Germany. And just as a reminder, we drilled 2 wells in the Netherlands and Offenhausen in Q3 of last year. We discovered 16 Bcf of gas there at an F&D cost less than $1.50. And then we brought those wells on production in Q4, right? So it was a pretty quick cycle time. We brought Osterheide on as planned in 2025. As you mentioned, that continues to have strong production volumes and had record volumes for us in Q4. We're progressing well on Wisselshorst with gas plant installation and the pipeline tie-in. We're still on schedule to start up mid this year. That's again a significant discovery with. Our net share is 43 Bcf there. On plan to drill 2 additional wells in the Netherlands in 2026, plans to spud 2 more wells in Germany in early 2027. And I think probably one of the biggest differences, and you would have saw that in the Investor Day is the opportunities that we're drilling. They're more step-out exploration type opportunities. They're bigger. If we look at kind of the last 30 wells that we've drilled in Europe versus the next 30, they're kind of 2.5 to 3x the size of what we've drilled over what was a pretty successful decade of exploration drilling there with a 70% success rate. We'll continue to work with the regulators and the stakeholders to develop support for additional domestic gas production. We think it's a strong message. It has security of supply implications that I think people are starting to listen more and more to. Operator: [Operator Instructions] Your next question comes from Josef Schachter with Schachter Energy Research. Josef Schachter: Congratulations on Germany and Netherlands. I'm wondering about Ireland. Have you done any more work there? And is there much opportunity to maybe do some future drilling there? And then maybe if you can give us some idea of Croatia, if there's any further work that you're doing that might open up some opportunities in like '26 or '27 for growth in those areas. Anthony Hatcher: Thanks, Josef. I'll just give the high level on Ireland and Darcy, please fill in the blanks. But quick answer is, we don't see any drilling activity in Ireland. Darcy just talked about, in particular, Germany, those prospects that are 30 Bcf, they're onshore. It's a bit about 50 an Mcf to drill those from a cap. So what that means, Josef, like when we look at it from a capital allocation, we really like Germany, and it just streams so well. But Ireland is a great asset, the team is optimizing. It's super steady and generates strong, strong free cash flow. But no plans internally to allocate capital to drilling in Ireland, just given the strong opportunities that we have in Germany. But Darcy, anything to add there? Darcy Kerwin: Yes. I think, Josef, our focus, certainly in Ireland has been on the existing well stock that we have and making sure that, that plant is as efficient as possible, and we have the highest recoveries we can out of those wells that are currently drilled. Anthony Hatcher: And then with our activity over the last couple of years here in the coring up. We are progressing the potential divestment of some of the assets in Croatia. I know we can't say a lot, but Lara, any color to add to Croatia or CEE? Lara Conrad: Yes. I think -- I mean, we announced that we'll be exiting those areas. And so for Croatia and like in specific, there are nice drilling opportunities there. And we just decided, as Dion just said, we really like Germany. And so you have to make tough decisions around where you're going to focus your portfolio. So from a Croatia perspective, I think there are some lovely opportunities, but they're not opportunities for us, and that's why we're divesting and focusing elsewhere. Operator: There are no further questions at this time. I will now turn the call over to Dion for closing remarks. Anthony Hatcher: With that, thank you again for participating in our Q4 call. Enjoy the rest of your day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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.
Jean-Mari Pretorius: Good afternoon, everyone, and welcome to Acomo's Investor Call for the 2025 Full Year Results. Thank you for joining us today. We appreciate your continued interest in Acomo. My name is Jean-Mari Pretorius, and I will be hosting today's call. Joining me is our Acomo Group CEO, Allard Goldschmeding; and CFO, Mirjam van Thiel. During this call, we will walk you through the highlights of our performance for the period, discuss developments across our business segments and provide further context around market conditions and our strategic priorities. The Q&A will take place at the end of the presentation where we will open the floor for questions. [Operator Instructions] Before we begin, I would like to remind everyone that today's discussion may include forward-looking statements. These statements are based on our current expectations and are subject to risks and uncertainties that could cause actual results to differ. Please refer to the disclaimer included in our press release for further details. We will now continue with the 2025 full year results. Firstly, I would like to hand over to our Acomo Group CEO, Allard Goldschmeding. Allard Goldschmeding: Good afternoon, everyone, and thank you for joining us on today's call. In a world that continues to present both challenges and opportunities, today's call will focus on Acomo's strong performance in 2025 and the path forward. While the broader outlook for the global economy, sea freight rates and product availability in 2026 remains uncertain, navigating complexity is not new to our business. Last year, we successfully managed a range of external factors, including tariffs and significant cocoa price volatility. Our resilient business model, combined with the expertise and commitment of our people, has once again enabled Acomo to adapt effectively and deliver solid results. Today's agenda will cover several topics. I will start with the key highlights that characterized our 2025 performance. I will also discuss how our results compare against our midterm strategy and objectives, which we shared during our Capital Markets Day last April. And I will discuss a few examples of the initiatives we took during 2025. Mirjam will then cover in more detail the financial performance of the group and of the individual segments. At the end of the presentation, I will finish with a look ahead to 2026 before we take your questions. 2025 was another record year for Acomo in terms of sales, profitability and earnings per share. We are very happy with this overall performance, and this reflects the drive to perform of our people. Our teams bring unique capabilities that are highly relevant to our suppliers and our customers and enable us to support them effectively. Excellent results in 3 out of 5 segments are proof of the ability and expertise of the Acomo teams in managing volatile market environments and the strong attributes of our business model that offers resilience through diversification. By a volatile environment, I mean mostly in terms of price developments, geopolitical developments and changing regulations. In the Spices & Nuts segment, all our companies delivered record high results. The continued impressive performance and the attractive long-term market outlook make our Spices & Nuts segment a natural area of focus. We have expertise and we have scale, which provides a strong foundation for further expansion. The Organic Ingredients segment showed a very healthy recovery from the negative impact of cocoa hedging in previous years. This recovery started in the second half of 2024 and continued in 2025. The Tradin Organic team was able to manage the price volatility and delivered strong results this year. Besides cocoa, the business also posted positive results for other product groups, reinforcing our confidence in the segment's portfolio. We also made substantial progress in improved alignment of the organizational structure as well as our portfolio investment decisions. Food Solutions also delivered a record year in 2025. Demand for both dry and wet blends remained robust throughout the year, driven by sustained consumer interest in plant-based, clean label and culinary solutions. The business was further supported by the commissioning of the new wet blend facility in Oostende in 2025, which became operational before the summer. The new facility provides a significant increase in capacity and flexibility with the opportunity to triple the output. The year was, however, not without its challenges. In particular, our Edible Seeds segment experienced a difficult year, driven by a mix of challenging market conditions and operational issues. Let me provide a brief overview as Mirjam will address this in greater detail later in this presentation. The challenges that materialized in the first half year and which we spoke about in our H1 call continued into the second half. Tariff uncertainty in the North American market continued and made pricing decisions complicated. Alongside higher input costs, this placed pressure on margins. Next to that, the impact of restrictions on U.S. grown sunflower seeds to export markets continued to have an impact in 2025 as the measures to compensate with new growth avenues do take time. On top of these market effects, our SunButter plant was affected by production issues, which caused a temporary stop in production in the fourth quarter. Production resumed towards the end of January 2026. The result is a more negative overall picture than is warranted based on the fundamentals of the segment, which remains solid. To address this, we have made the necessary strategic and organizational changes in North America, and the business is expected to largely trend back towards normal performance levels. The Edible Seeds business delivered a resilient performance despite market price pressure on key seed categories. The Tea segment faced continuous pressure on sales volumes throughout the year, reflecting ongoing destocking by customers, oversupply and more fragmented buyer landscape. The implementation in 2026 of the new organizational and commercial model that I will explain later in this presentation is designed to respond more flexibly and effectively to changing market circumstances. As discussed during our Capital Markets Day, M&A is a tactical growth lever. We are, therefore, pleased to welcome Manuzzi to the group as of November. This Italian company represents the first foothold of our Spices & Nuts segment in the Mediterranean region, giving us access to an attractive market in terms of consumption patterns. I also want to call out that despite the relatively high level of working capital, our balance sheet remains strong. The characteristics of our business result from time to time in elevated levels of working capital. The unprecedented high prices of cocoa have resulted in higher inventory values. The strength of Acomo is that with our diversified portfolio, we can deal with higher market prices for individual product groups and can continue to make a sensible commercial calls. The 2025 performance resulted in a proposed full year dividend of EUR 1.40 per share, which is another record and an increase of plus 12% versus 2024. At the Capital Markets Day last April, we communicated our midterm targets in the areas of sales, EBITDA margin, balance sheet leverage and dividend distribution. With a total 2025 group sales increase of plus 7% to EUR 1.5 billion and an adjusted EBITDA increase of plus 9% to EUR 180 million, we are on track with these targets. Our current leverage ratio is impacted, as I mentioned, by the higher working capital consumption linked to the increased inventory values due to the high prices for a number of our products, in particular, cocoa. However, based on our current knowledge, we would expect the leverage to go down during 2026. As stated, the full year dividend is an increase of plus 12% versus 2024 and is consistent with our communicated payout ratio policy. The split of the results between the first half year of 2025 and the second half shows that the first half year was relatively strong. Historically, the performance was more or less evenly distributed between the first half and the second half. Since 2023, this has changed, mainly due to the enormous change in cocoa prices that had a material impact. Therefore, the half-year performance in those years was not a reliable indicator for the full year. For 2026, we expect price levels changes to be less extreme, which would result in an EBITDA distribution between H1 and H2 that is closer to historical patterns. The vision we discussed during our Capital Markets Day remains relevant and up to date. And the 2025 results underpin the trajectory towards the ambitions we outlined. Our value creation shows our focus areas and the way in which we address the market dynamics. We continue to execute along the lines presented, and let me highlight some examples, which demonstrate this more clearly. One of the elements of the 3 is scale. We strongly believe that scale is prerequisite to being effective and efficient in our industry and to create long-term value. In Q4 2025, we acquired Manuzzi, a leading Italian nuts and dried fruits company. Through this acquisition, we are expanding the Spices & Nuts segment footprint in Southern Europe. The culture of this family business is a good fit with our Acomo entrepreneurial spirit and through cooperation with the Delinuts in the Netherlands and the Nordics, we will create synergies. These synergies will be focused on growing the top line. By using the available Acomo capabilities and the broad product portfolio we have, Manuzzi will be able to expand its offerings. The company also has its own state-of-the-art facilities, including modern packaging lines with sufficient room for further growth. As part of creating resilient and responsible supply chains, Tradin Organic joined the Nature Positive initiative. These initiatives gather some of the world's largest sustainable business and finance coalitions to broader -- to support broader long-term efforts to deliver nature-positive outcomes. It supports farmers in adopting regenerative and resilient practices, which is aligned with a number of initiatives that Tradin Organic had already begun. The outcome is improved soil health and restored biodiversity, consistent with product quality and supply. Then to increase the benefit from its global reach and have a closer connection with customers, Royal Van Rees Group is transitioning to a centralized business model that consolidates the commercial, trading and strategic functions within a central hub. This enhances customer intimacy and focus and offers our customers improved multi-origin solutions. Our customers will have a single point of contact that covers multiple origins and our local offices will enable efficient physical execution. The new setup will phase in during 2026. Lastly, our value creation 3 is rooted in ESG, and I'm happy to report that for the second year in a row, we obtained limited assurance from our external auditors on the sustainability statement in our annual report. We achieved a substantial reduction in our Scope 1 and 2 CO2 emissions as a result of our efforts to increase the use of renewable energy sources. Other initiatives are an SBTi project at Delinuts and the installation of a lightweight solar panel construction at King Nuts & Raaphorst on the roof that could not carry the usual solar panel construction. Tradin Organic continues their dynamic agroforestry product in Sierra Leone and the farmer livelihood product in Indonesia next to the nature positive initiative that I mentioned. With that, I would like to hand to Mirjam van Thiel to take us through the detailed financial performance. Mirjam Thiel: Thank you, Allard. Let's start with the overall P&L of the Acomo Group. As mentioned by Allard, we achieved record growth this year with an increase in sales of 7.4%. On constant currency, the increase is actually much higher, close to 10% as we had some FX headwinds, in particular, stemming from the U.S. dollar to the euro. Now from a cost management perspective, you will see that our COGS increased at a lower pace in proportion to sales, which in turn led to an expansion of our gross profit margin by 1.8 percentage points. Looking at our G&A expenses, we see an increase of 5.8%, which reflects inflation and some additional costs due to M&A projects and investment in people. This resulted in an increase in our operating income of 43.5%. Looking below the operating income, we benefited from lower financing costs because of lower interest rates. And this, together with the higher operating income, led to an even more significant year-on-year improvement of our net profit by 64% to EUR 74 million. Let's then move over to the key KPIs on an adjusted basis. Adjusted EBITDA grew by 8.7% to EUR 118.2 million. The difference between reported and adjusted is mainly due to the impact of unrealized results on FX and sales hedges and exceptional items related to our Edible Seeds business in the U.S. On the next slide, I will share some further detail on this. You see that there is an increase in the EBITDA margin from 8.0% to 8.1%. As communicated at the CMD, we want to move towards 9%. Excluding some of the exceptional items we had this year, we would have progressed further towards that goal. So overall, we are on track with our ambition. Adjusted earnings per share improved by 8.8% to EUR 2.18, which is a record performance for the company. On the right, for added context, you will see the contribution share for each of the segments in which we are active, and I will discuss those in detail shortly. Moving to Slide 14, where you see the bridge between the reported and adjusted EBITDA. As mentioned just now, the main difference is due to the unrealized noncash results on our CX and FX hedges. That includes the revaluation of outstanding hedges to the market value at the date of reporting. The main impact here comes from the outstanding hedge contracts on cocoa. Last year, due to an increase in the cocoa market price towards the end of the year, the reported results included a negative impact due to the revaluation of outstanding hedges. This year, we saw the opposite. Cocoa prices declined towards the end of the year, which increased the value of the outstanding hedge contracts. We exclude this from the reported numbers. Once we settle the hedge contracts, we book the realized results, which normally we time together with the physical sales. The other impacts specifically related to 2025 are the exceptional items in Edible Seeds. These exceptional items relate to organizational restructuring and the cost related to a production issue in one of our facilities. This relates to the Edible Seeds business in the U.S., which I will cover in a minute. We thought for transparency purposes, it will be clear to outline these items as they are clearly nonrecurring by nature. Let me now take a closer look at the performance per segment. Let me start with Spices & Nuts, one of our key segments. This segment has been growing for several years. And in 2025, it delivered an all-time high performance. And what we are even more proud of is that every company in this segment delivered a record performance. Revenue benefited from sustained demand and higher market prices for most products. To share some examples, one of our key products is desiccated coconut, which is grated and dried coconut. In the last 1 to 2 years, we saw a sharp increase in prices. And also in 2025, prices were elevated globally due to reduced coconut supply and strong export demand. And also for some of the key nuts such as cashews and almonds, we saw high prices in 2025. There is sustained demand despite the high prices, and this is reinforced by the overall megatrend of increasing demand for plant-based products. All in all, we continue to expect this trend of increased demand to persist and hence, a relatively high pricing base. At the same time, how this develops year-on-year is to be seen. Also included in this segment are the 2 bolt-on acquisitions we made recently with Delinuts Nordics in August 2024 and Manuzzi in November 2025. Turning to Edible Seeds, where we have faced a series of challenges due to a mix of market conditions and operational issues. Before I go into the challenges, I want to be clear that we strongly believe in the fundamentals of this business. Let me take a step back. Within this segment, we have a sizable business in the U.S. in which we process sunflower seeds and use them to make various products, including well-known retail brands such as SunButter. In the U.S., we are also seeing an increase in demand for cleaner label, plant-based alternatives and allergen-free options. The attributes of sunflower seeds are perfectly aligned to these trends, and we have developed our leadership position in this market. In addition to the U.S. business, we have a smaller seeds business in Europe. But back to 2025. Let me recap the challenges we flagged to you in our H1 investor call and explain more about what we have faced in the second half. First, we spoke about the impact of the restrictions of U.S. grown sunflower seeds to some export markets. As anticipated, it will take time to offset this lost stream with new business. Second, we saw tariff uncertainty continuing, making pricing decisions complicated. That, together with higher input costs, placed pressure on margins. On top of that, our SunButter plant was affected by a production issue causing a temporary stop in production in the fourth quarter. The issue has been resolved and production resumed towards the end of January. Now how we tackle these challenges and what are the prospects for the segment, turn with me to Slide 17. Consequently, you can see the margin decline in this segment. Our top priority is to restore profitability. The corrective actions we have taken include improvements, including full cleaning of all equipment, improved preventive maintenance and equipment modification. We also implemented organizational changes, including the appointment of a new CEO, and we created center of excellence. Also on this slide, you see some more specific actions by each category, including price increases that have been implemented. Included in exceptional items and excluded from the adjusted EBITDA are items that are exceptional by nature, which include the cost for restructuring the organization and extraordinary cost items and under absorption due to the specific production issue. So remaining in the adjusted EBITDA, but to some extent, temporary are missed sales in SunButter due to the Q4 production issue and lower margin due to misalignment between higher input costs and sales prices. On top of that, we are starting to see the impact of the other corrective actions we have taken. So as I say, we fully believe in the strong fundamentals of this business, the power of the sunflower and a diversified business model. This supports our expectation of a recovery to a normalized performance level over the coming years. Then looking at Organic Ingredients. We have achieved an excellent performance across all categories within this segment. We see in general an increase in demand for organic food and beverages in the market. For example, the Organic Trade Association in the U.S. reported that the organic sector was growing at more than double the pace of the overall food market. Specifically on cocoa, as you all know, the market has been very volatile in recent years with big price swings. After the sharp increase in the first half of 2024, the price remained elevated up until the start of the second half of 2025 when it started to reduce and has reduced even further in the first months in 2026. Within that dynamic market, the team has been able to secure supply and continue to offer the best quality and required specifications to our customers, which is a commendable achievement and has allowed us to continue to excel despite the external turbulence. It had an impact on working capital, which I will cover in a minute. There was also some catch-up effect of delayed volumes from 2024, especially in H1, which contributed further to our strong 2025 performance. Besides cocoa, as I mentioned, we also saw a strong performance in the other categories. The fruit and vegetable business continued to show strong momentum with accelerated growth, while nuts and seeds and oils and fats delivered consistent sales growth with improved margins. Coffee achieved record high sales and succeeded in growing volume when prices were elevated. Then moving on to tea. The tea business is operating in a challenging global environment. Some of the larger branded players are losing share. And as a result, we see a more fragmented customer base. Also, global tea supply remains elevated. Despite these challenges, the business demonstrated gross margin resilience. As Allard already explained, we will strengthen the collaboration across the Van Rees Group by implementing a more customer-centric business model that will drive additional value to our customers. For Food Solutions, we saw a record EBITDA performance, driven by strong volume development for the dry and wet plants, resulting from the sustained demand for plant-based, clean label and culinary solutions. Further commercial development was driven by a strong entrepreneurial spirit in R&D, combined with new long-term partnerships with customers. We are especially proud of these results as at the same time, the new wet plants facility became operational. The new facility is set to support scaled up production for the coming years, as mentioned by Allard. Now over to the cash flow development. Looking at the operating cash flow, excluding working capital, we posted a year-on-year increase of 12%, effectively reflecting our profitability improvement. On the bridge, you can see the main drivers from the EUR 120 million in operating cash flow, excluding working capital to the net cash from operations. The largest swing is obviously driven by EUR 164 million working capital consumption during the period, and I'm going to spend a bit more time on this on the next slide. Next to that, we had a reduced outflow from cash interest expenses due to lower interest rates and a slightly lower effective tax rate. Let me now go back to working capital. Here, you can see the development over the last 4 years with the orange line representing the total working capital and the green line, the investment in inventory. You will see that the increase in working capital is driven by higher inventory value. Based on market prices, availability of stock in the market and the positions we take, the inventory value will move up and down. In 2025, the higher inventory value is mainly coming from 2 parts. One, due to shortages in the previous year, we are holding more cocoa inventory at higher prices. And besides, we saw higher market prices within the Spices & Nuts segment. So here, there is an extra outflow due to the prices of the various inventory we hold, but this is something that is fully embedded in our business model. With everything remaining equal, our trade payables and receivables remain broadly unchanged. We expect working capital to go gradually downward in the course of 2026, mainly a reflection of the pricing dynamics of our commodities. Finally, before handing back to Allard, let me talk briefly about our liquidity and leverage. As we explained at the CMD, we see working capital as a commercial instrument. And we have enough financial headroom to deal with this, which is where the added value of the holding comes into place. The diversification of the portfolio gives us the financial headroom we need. The strength of our balance sheet enables us to deal effectively with increased working capital. We remain committed to our long-term targets. And we have also shown in the past that we could temporarily absorb a higher leverage and have also been able, you see it on the chart, to deleverage, a function of the EBITDA growth we want to achieve and lower working capital requirements as inventory levels will gradually reduce. With that, I would like to hand back to Allard. Allard Goldschmeding: Thank you, Mirjam. As we move to 2026, I would like to share a little more on our views and initiatives for this year. The market dynamic of a positive trend towards plant-based diets is expected to continue, providing a strong fundament for our business. I started this call by referring to the latest geopolitical development. The impact on the global economy and our business cannot be predicted. However, our people and our business model are positioned to deal with this in the most effective way as we have proven in previous years. We will continue to build routes to healthier foods. A specific development for our organic business is the cocoa price development. Prices dropped from USD 6,000 per tonne at the end of 2025 to around $3,000 per tonne today. This level is not far from the historic normal levels. This would indicate that the cocoa market is moving to more regular price levels, although we still see major daily swings. A continued lower cocoa price level should lead to lower working capital levels, as Mirjam already mentioned, and normalized profitability. The actions we have taken in our Edible Seeds business in the U.S. should allow us to progress towards improved profitability levels during 2026, considering that the fundamentals of the business are strong and attractive. Based on our 2025 performance and our expectations for 2026 and beyond, we are committed to the midterm ambitions we communicated during our Capital Markets Day. Finally, I would like to mention that 2 new nonexecutive Board members will be proposed at the AGM in April as communicated in our press release that was issued this Tuesday. Jan Piet Valk and Barbara van Hussen have relevant Board, governance and M&A experience and will be a great addition to our Board. With that, I would like to hand it back to Jean-Mari. Jean-Mari Pretorius: Thank you, Allard, Mirjam. To summarize, today, we have discussed our performance for the period, the key drivers across our segments and the broader developments impacting our business. We now open the lines for the Q&A. Jean-Mari Pretorius: I see we already have one question coming through. The question states, will the trend of H2 2025 continue? And what is your view for 2026? Mirjam Thiel: Thank you, Jeanie. Let me maybe comment on the second half to start with, the second half of 2025. A few things important there is, one is our reported sales improved with 2%, but we had a currency impact, of course, of the dollar to euro. So if you look at it on a constant currency, we actually grew in the second half with 5% and that 5% is against a strong H2 we had in 2024. And what Allard already explained, the phasing has been a bit of, let's say, between H1 and H2, and we expect to go to a more evenly phasing going forward. But this H2, we were comparing versus a high H2 in 2024. And then the last element which impacted the second half was, of course, the slow performance at Edible Seeds. And there really, we saw there the continuing of the market challenges and then compounded really in Q4 with the production issue that we faced. So those elements really impacted our second half performance. So maybe, Allard, you want to talk a little bit about 2026. Allard Goldschmeding: Yes. Thank you, Mirjam. I mean based on, let's say, what Mirjam just said, there are a couple of components that in 2026 will be different than in 2025. So one of them, obviously, is what we mentioned, the edible seeds development. It was impacted, and we expect that during 2026, this will trend back to the normal or the normalized performance levels. So I think that's important. The other thing is that cocoa prices will come down. The question is what is going to happen to other commodity prices or prices in our portfolio. So what the exact sales development will be, that's to be seen. Like we said that the split between H1 and H2 had a major impact in 2025 versus 2024. But also if we look at 2026, we expect it to be more even. And if it would be more balanced and more even, you should expect or you can expect that the EBITDA potentially can be in H1 2026, a little bit below H1 2025 and that we will catch up in the second half of 2026. So it's important to understand that we will look at the full year performance and our objectives and that the split between H1 and H2 in 2026 can be very different than we saw in 2025. So I think that's important to mention. Jean-Mari Pretorius: Okay. Thank you. I see we already have our first caller on the line. It is Reg Watson from ING. Reginald Watson: Allard and Mirjam, I have a number of questions for you both, please. So I'd like to take them in turn. Firstly, the working capital. I think, Allard and Mirjam, you've both highlighted higher cocoa prices and I think, in particular, higher volumes. When I look at the evolution of cocoa prices, '25 is no different from '24. In fact, on average, probably slightly lower. But -- so I'm not sure if that's the reason for the higher working capital. Mirjam, you mentioned higher volumes. And then my question on that then is, if it was higher volumes, why would you take higher volumes in '25 when in '24, you were suffering a demand shock, and you actually had too much volume. So I'd like to understand the dynamics of that. That's the first question. Mirjam Thiel: Yes. Right. We were actually coming from a shortage, right? So in 2024, inventory was actually in volume very low. So we -- there is indeed an impact when you compare '25 volume levels, specifically in cocoa in '24 on higher volumes because '24, the base is very low. So we really build up normal stock levels again. And then on average, of the stock we are holding, the price is higher now in 2025. So there's, of course, a little bit of a lagging impact versus the market price development in the inventory value that we're holding. Allard Goldschmeding: Reg, maybe to build upon that, when we contract the volumes, it's not evenly spread out over the year, right? So we contract the crops. And that is at a specific point in time of the year where the price can be much higher than what you have seen at the end of the year. So I understand you're right, the average price during the year is different, but that's not the price we contracted against. Reginald Watson: Okay. Okay. So that accounts for the variability. And then I'd like to move on to Edible Seeds. It's been a thorn on your side. I think at the time of the Capital Markets Day, correct me if I'm wrong, but there was an expectation that we would have run through the anniversary of the problems by the time we got into the second half of the year. And it seems that the problems continue. Have I misunderstood that, misremembered that? Or have additional problems arisen in the intervening period? Allard Goldschmeding: No, I don't think you misunderstood it. What we've seen is that the consequences were more severe than we anticipated originally. It took longer to get rid of the products that we still had. So the exports issue, which you probably referred to, indeed, we mentioned and at the time, we thought that, that would fade out. But in reality, the aftermath of that was longer and had a bigger impact than we expected. So yes, but we should be through that now. Reginald Watson: And -- okay. But you are confident that, that is now done and dusted? Allard Goldschmeding: Yes, because we still had to clear all inventory and let's say, the price levels against which we could clear that inventory was below what we -- below our expectations. Reginald Watson: Right. Okay. And then just a technical question on the dividend, Allard, I think in your prepared remarks, you mentioned that it was in line with policy. But again, I seem to recall that the dividend policy is 70% payout ratio. And I think unless I'm much mistaken, the ratio is lower than that for this year. Allard Goldschmeding: Yes, the ratio is 65%. So you're right, that's a little bit below the 70% that we communicated. But 70% is an average, right? And we look at different things. So first of all, it's the performance of the company. Secondly, it's available cash or the cash position we have. Thirdly, it's other investment opportunities we see like M&A opportunities. So when you put that all together, we came to this proposed dividend, which we feel is completely in line with our communicated policy. Reginald Watson: And then final question on tea. You very helpfully provided a slide in the presentation pack, which sort of noted some of the changes that you're making. Could you perhaps flesh -- give us some flesh to those bones, perhaps a work example of how things have worked in the past and how they will work in the future and what benefits you expect those changes to bring? Allard Goldschmeding: Yes. No, fair. Now what we've seen is that historically, Van Ree very much operated from a local level. So yes, there was central oversight, and the strategic direction was obviously set at the central level. But the local offices, to a high degree, maintained their own commercial operations and approach themselves the customers they had. What we've seen changing basically in the industry that the customers are looking more for -- are more flexible, let's say, in buying tea and in looking for what I tend to call multi-origin solutions. So for example, if a certain grade or a certain price of tea in Kenya is not competitive to Ceylon or to Indonesia, we can -- they are basically looking at other origins as well. And my belief is that we can be more efficient and more effective by centralizing that approach and to be a sparing partner for our customers to help them actually making the right calls. So the central multi-origin solutions that we can offer to the key customers will be crucial to be closer to customers to better understand them and therefore, be more effective. So it means, in the essence, a little bit of a shift or it means a shift from certain responsibilities that were embedded in the local organizations. And again, whether it's in Africa or in Asia or whatever, to more the central hub where they will make the calls and that will be a change to the organization, which, in our view, will be for the better because, again, the tea market has changed, and tea buyers have changed their behavior. Reginald Watson: Okay. So just so I'm clear, so reading between the lines there, basically the local organizations were more incentivized to promote their local origins rather than helping customers source more efficiently other origins of tea. Is that my understanding, correct? Allard Goldschmeding: Well, the way I would phrase it that they had less visibility on alternatives for the origin. So their knowledge was on their local origin. And they -- it took more time to react to changed consumer or customer behavior and now we centralize that. So we can now proactively offer other origins if we see that the preference of certain customers is changing. So I think we will be faster and more effective. Reginald Watson: And with that centralization, will that come -- will therefore -- will there have to be exceptional costs taken in the local organizations then for this? Allard Goldschmeding: No, no, no. Reginald Watson: Great. Those are all my questions. Sorry to monopolize the performance. Allard Goldschmeding: Thanks, Reg. Jean-Mari Pretorius: Thank you, Reg. We have another question coming through. This question states, what M&A projects is Acomo working on? If you can prioritize on a segment basis, what would have priority and why? Example, consumer preferences and diets, food safety, price development, raw materials, labor cost development. Allard Goldschmeding: As we stated at our Capital Markets Day that M&A, and I think we also included that in the presentation today. The M&A is an important part of our growth trajectory and our ambition towards where we want to be in the midterm. So we are looking at different M&A opportunities. What we've communicated before is that our prime focus will be our Spices & Nuts segment, and that will be in Europe and in the U.S. We will look at Edible Seeds, which will be a little bit more geared towards the U.S. Organic, we are looking at how can we strengthen the portfolio. Tea, like I said, we focus more on changing the organization, and that's our prime priority now. And thirdly, we will look if we can expand our Food Solutions presence, but that will be mainly in Europe. Those are the priorities. Jean-Mari Pretorius: Great. Thank you, Allard. Another question here is this is a question on artificial intelligence, so AI. Is AI also applicable in a company like Acomo? And do you see AI as an opportunity or a threat? Mirjam Thiel: It's an interesting question. I think AI, I think, is in everybody's mind at the moment, and it's impacting, of course, all of us, I think, in a certain way. I think for us, it really is about our processes, right? How can we make it more efficient? And you can imagine that in the trading that we're doing, we're collecting a lot of data. We need to get everything in order for all the certifications for all the quality requirements, et cetera. So there's a lot of data we are processing. So I really see the benefit in more -- making our processes more efficient. So for sure, there is an opportunity for us there. I think really, if you look into the core activities of what we are doing, that is a people business. So in that sense, we are less impacted because really the work of the traders, the knowledge of the traders, making means out of all the different data that is there, yes, we very much believe that, that is really the human capital that we have. And hence, yes, that is less impacted by AI. So it's more about the processes than the core of our business model. Jean-Mari Pretorius: Thank you, Mirjam. Well, this concludes today's call based on our time. Thank you once again for your time and your continued interest in Acomo. We look forward to speaking with you again for the 2026 half year results. Have a good day.
Operator: Good morning. We would like to welcome everyone to Canadian Natural's 2025 Fourth Quarter and Year-End Earnings Conference Call and Webcast. [Operator Instructions] Please note that this call is being recorded today, March 5, 2026, at 9:00 a.m. Mountain Time. I'd now like to turn the conference over to your host for today's call, Lance Casson, Manager of Investor Relations. Lance Casson: Thank you, and good morning, everyone. Thank you for joining Canadian Natural's 2025 Fourth Quarter and Year-end Results Conference Call. As always, I'd like to remind you of our forward-looking statements, and it should be noted that in our reporting disclosures, everything is in Canadian dollars, unless otherwise stated, and we report our reserves and production before royalties. Also, I would suggest to review the advisory section in our financial statements that includes comments on non-GAAP disclosures. Speaking on today's call will be Scott Stauth, our President; Robin Zabek, COO of E&P; and Victor Darel, our Chief Financial Officer. Additionally, in the room with us this morning is Jay Froc, COO of Oil Sands. Scott will first run through our strategic updates and our strong operational performance that once again included numerous production records in the quarter and annually. Next, Robin will provide highlights of our growing high-value reserves that are significant when compared to other major oil and gas companies. And Victor will summarize our strong financial results and our significant return to shareholders in the year, along with details on the enhancement of our free cash flow allocation policy. To close, Scott will summarize prior to open up the line for questions. With that, over to you, Scott. Scott Stauth: Thank you, Lance, and good morning, everyone. 2025 was the best operational year in the company's long history of maximizing value for our shareholders. We set several new production records, lowered operating costs, and capital expenditures came in under our previous forecast. We grew our production organically as well as completed several accretive acquisitions. These include the Palliser Block assets, Southern Alberta, liquid-rich Montney assets in the Grande Prairie area, as well as increasing our ownership in the Albian mines 100% through an asset swap. We achieved record annual production of 1,571,000 BOEs per day in '25, resulting in year-over-year growth of 15% or approximately 207,000 BOEs per day from 2024 levels. We also showed continuous improvement in our safety record with our total recordable injury frequency at the lowest levels ever. Our teams continue to be focused on safe, steady applications with a goal of no harm to people and no safety incidents. Specific to some of the annual operating highlights, record annual total liquids production of approximately 1,146,000 barrels per day, an increase annual liquids production of 141,000 barrels per day or 14% from 2024 levels. 65% are our liquids production at SCO, light crude oil or NGLs. Strong total corporate liquids operating costs of $18.44 per barrel. Record Oil Sands mining and upgrading production of approximately 565,000 barrels per day of zero decline SCO with upgrader utilization of 100%, including the planned turnaround at AOSP. Industry-leading Oil Sands mining and upgrading operating costs of $22.66 per barrel. Record thermal in-situ production of approximately 275,000 barrels per day of long life, low decline production and primary heavy crude oil production growth of approximately 88,000 barrels per day, which is 11% growth from 2024 levels. This reflects strong drilling results from our multilateral well program. Operating costs in our primary heavy crude oil operations averaged $16.68 per barrel in 2025, a decrease of 8% from 2024 levels, primarily reflecting lower operating costs from multilateral production. Record natural gas production of approximately 2.5 Bcf per day, an increase of 400 million per day or 19% from 2024 levels. In December, we received regulatory approval for our Pike 2 70,000 barrel per day SAGD Growth Project opportunity. Shifting to our quarterly results. Q4 2025 was equally impressive with numerous records, including record quarterly production of approximately 1,659,000 BOEs per day. Record total liquids production of approximately 1,215,000 barrels per day, an increase of 125,000 barrels per day or 12% from Q4 2024 levels. Record Oil Sands mining and upgrading production of approximately 620,000 barrels per day of SCO with upgrader utilization of 105%. Industry-leading Oil Sands mining and upgrading operating costs of $21.84 per barrel. Within our thermal areas, production from the first Pike 1 pad came on production ahead of schedule in December. Current production from this pad exceeds our expectation at approximately 27,000 barrels per day with an SOR of approximately 1.8 xas we target to keep the production at the Jackfish facilities at full capacity. Second Pike 1 pad will come on production in the second quarter. Canadian Natural's reserves are significant when compared to other major oil companies, which support long-term growth opportunities. Year-end 2025 total proved reserves and total proved plus probable reserves increased by 4% and 3% respectively from year-end 2024 levels, another strong year of reserve replacement with very strong F&D costs. Robin will provide additional color on our year-end reserve shortly. Strong execution across our large, diverse asset base continues to provide significant opportunities to create shareholder value in 2026 and beyond. This is evident by our increased production, cash flow, and reserves achieved in 2025 through accretive acquisitions and organic growth, which gave the board of directors confidence in their approval of a quarterly dividend increase of 6.4% and the enhancement of our free cash flow allocation policy by adjusting our net debt targets, accelerating direct returns to shareholders. Victor will explain in more detail in this finance section this morning. In addition, we completed a strategic acquisition in Q1 of '26, and as a result, we are increasing the midpoint of our 2026 production guidance by 20,000 BOEs per day with a range of 1,615,000 BOEs per day to 1,665,000 BOEs per day, and we are reducing our '26 capital, operating capital forecast by $310 million to approximately $6 billion. We continue to progress our defined short and medium-term growth strategy development in our conventional EMP assets. Our drill to fill pad additions and FEED capital on both the 70,000 barrel per day Pike 2 Greenfield project and the 30,000 barrel per day Jackfish Brownfield expansion project. As part of our long-term growth strategy, we are deferring FEED capital for the Oil Sands Jackpine Mine expansion opportunity at Albian that was included in our 2026 capital budget. This approximately $8.25 billion project is being deferred due to lack of finalization of government regulatory policies around carbon pricing and methane, which creates uncertainty and economic burden for our long-term growth investment. Once there's more certainty on improved regulatory policy, improved timelines, and additionally egress, we will reassess the economic viability of this project. Complementing the accretive and opportunistic acquisitions completed in 2025 and in Q1 of 2026, we have plenty of organic growth opportunities within our large, diverse asset base. We will leverage our portfolio of opportunities to continue creating long-term shareholder value while maintaining flexibility to manage the pace of these development opportunities and continue to maximize shareholder value. Now I will turn it over to Robin to provide additional details on our year-end 2025 reserves. Robin Zabek: Thank you, Scott. Good morning, everyone. I'll start by reminding everyone that 100% of Canadian Natural's reserves are externally evaluated and reviewed by independent qualified reserve evaluators. Our 2025 reserve disclosure is presented in accordance with Canadian reporting requirements using forecast pricing and escalated costs on a company working interest or royalties basis. As you just heard from Scott, 2025 was another very strong year for Canadian Natural, with that strength including the company's reserves. For December 31st, 2025, total proved reserves are 15.9 billion BOE, representing a 4% increase compared to 2024. Total proved plus probable reserves increased 3% to 20.75 billion. Through a combination of organic growth and accretive acquisitions, Canadian Natural replaced 2025 production by 218% on a total proved basis and 212% on a total proved plus probable basis. To put that in context, that's more than 1.2 billion BOEs of reserves added in each of the proved and proved plus probable categories. As you heard from Scott, we've done that while achieving industry-leading finding, development, and acquisition costs. For 2025, our FD&A, including changes in future development cost, was $3.64 per BOE for total proved and $2.42 per BOE for total proved plus probable, underscoring the strength of our extensive diverse assets. Highlighting one of the attributes that differentiates Canadian Natural, approximately 73% of total proved reserves are from long life, low decline or zero decline assets, resulting in a total proved reserve life index of 31 years and a total proved plus probable RLI of 40 years. Notably, at year-end 2025, approximately 50% of the company's total proved reserves are high-value SCO and mining bitumen reserves with zero decline and a total proved RLI of 39. In summary, our 2025 reserves continue to reflect the strength and depth of Canadian Natural's diverse asset base, the predictability of the company's long life, low decline reserves, and our proven ability to create value through organic growth and accretive acquisitions. I will now hand over to Victor for the financial highlights. Victor Darel: Thanks, Robin, and good morning. The fourth quarter full year 2025 results were excellent, with record operational performance, which also reflected the impact of the acquisitions we did in 2024 and 2025, and which contributed to similarly strong financial performance. The strong execution by our teams in 2025 has resulted in adjusted net earnings of $7.4 billion or $3.56, and adjusted funds flow for the year of $15.5 billion or $7.39. Quarterly performance was equally strong, with adjusted net earnings of $1.7 billion or $0.82 per share and adjusted funds flow of approximately $3.7 billion or $1.82. Net earnings of $5.3 billion this quarter or $2.55 per share was higher than the operational earnings related to the accounting for the AOSP asset swap, which resulted in a non-cash gain of approximately $3.8 billion after tax this quarter. Following the asset swap, where we assumed the entirety of the interest and control of the AOSP mines, we accounted for the transaction in accordance with the relevant requirements and recognized an adjustment from the previous carrying value to its fair value in accordance with GAAP. In doing so, we demonstrated the significant value that has been created in those operations since the acquisition of the initial interest in AOSP in 2017. As Scott mentioned, the accretive acquisitions in late 2024 and throughout 2025, including the AOSP asset swap in November of this past year, have increased reserves, production and cash flow while contributing to net debt reduction of approximately $2.7 billion at year-end 2024, with net debt at approximately $16 billion at the year-end 2025. In 2025, the company returned approximately $9 billion to our shareholders, including direct returns of approximately $4.9 billion in dividends, $1.4 billion in share repurchases, and additionally the $2.7 billion in net debt reduction I just mentioned. As we end 2025, our balance sheet is strong, with quarter-end debt to EBITDA of 0.9 xand debt to book capital coming in at 26%. Liquidity was also strong at over $6.3 billion at year-end, reflecting undrawn revolving bank credit facilities and cash on hand at end of period. Demonstrating the continued performance of and their confidence in our business, the board approved a 6% increase to our quarterly dividend, bringing the annualized dividend to $0.52 per common share. This marks 2026 as the 26th consecutive year of dividend increases by Canadian Natural, with a compound annual growth rate of 20% over that time, demonstrating the sustainability of our business model, our strong balance sheet, and the strength of our diverse, long-life, low-decline reserves and asset base that Robin spoke to. Additionally, the board of directors have, effective January 1st, 2026, adjusted the net debt target level in our free cash flow allocation policy, which results in an acceleration of the next increase to shareholder returns. When net debt is below $16 billion compared to the previous target of $15 billion, we will increase shareholder returns to 75% of free cash flow generated and managed on a forward-looking basis. When net debt levels reach $13 billion compared to the previous target of $12 billion, we will target to increase shareholder returns to 100% of free cash flow generated. Our robust funds flow generation and strong balance sheet demonstrates our industry-leading cost structure, large reserve base, high quality, long-life, low-decline assets, and our commitment to continuous improvement and reliable execution. These factors, along with the company's track record of delivering strong shareholder returns, support significant long-term value creation for Canadian Natural and its shareholders. Our financial flexibility and low maintenance capital requirements demonstrate a track record of execution and allow us the opportunity to provide strong returns to shareholders going forward. With that, Scott, I'll turn it back to you. Scott Stauth: Thanks, Victor. In summary, our strong 2025 results and our growing reserves are supported by safe, reliable and consistent operations. Our commitment to continuous improvement as part of our effective and efficient operations is driven by focusing on cost improvement, margin expansion, and strong execution. This is combined with our increased production guidance and accelerated shareholder returns. We are set up to continue to return real value to our shareholders in the near, medium, and long term. With that, I will turn it over for questions. Operator: [Operator Instructions] Your first question comes from the line of Dennis Fong from CIBC World Markets. Dennis Fong: Congratulations on a strong quarter and year. My first one here is really you guys have shown a track record of applying CQ best practices on kind of new assets you've acquired or taken over operatorship of. And as you alluded to in your prepared comments, really a focus on continuous improvement. Can you talk to some of the opportunities you're looking to chase down or that you're seeing now that you control 100% of the Albian mine? And how does that maybe interact with Horizon on a go-forward basis? Scott Stauth: Yes, Dennis, I think if you recall, we did have a bit of this discussion at the last quarter. We had estimated an instantaneous savings of about $30 million and an annual savings in around $30 million per year, $30 million to $40 million per year. It's just really about the synergies of being able to utilize the equipment and the people resources, the contractors back and forth at the mine sites in a more efficient manner than we would have otherwise been able to do so before. Better utilization of your service providers allows for more efficient practices and ultimately more efficient costs. You know, over time, Dennis Fong, it's fairly evident to be able to see the reduction in operating costs from 2017 going right through to the acquisition of Chevron 2024, and we continue to make improvements in the operating costs from that point going forward here, just through our continuous improvement methodology and also, you know, significant increase in production in the range of 50,000 barrels a day since 2017. You know, we had made some significant gain certainly before the acquisition of Chevron, and at this point in time, we'll be working more on the continuous improvement portions of that where small dollars add up to big dollars. Dennis Fong: Great. . Really appreciate that color. My second question shifts here a little bit. It's obviously great to see the confidence in the board or from the board on the current strength of the balance sheet and the potential acceleration of returning free cash to shareholders. Can you talk towards a little bit around where the discussions may have gone in terms of we'll call it bookends or ensuring kind of key metrics that both management and the board focus on in terms of determining some of these factors, as well as maybe touching on some of the flexibility that you still have in the capital program, obviously either higher or lower, given the volatile commodity price environment that we're in today. Scott Stauth: Yes, Dennis, it's really about the robustness of our balance sheet. On the backs of the synergies created through these recent acquisitions, we've been able to achieve increased cash flow, lowering the operating costs, increasing the production. All of those things combined don't necessarily lead towards bookends per se, Dennis, but what they do is show a continued improvement to the overall strength of our balance sheet, primarily providing additional cash flow. That's resulted in the board taking a look at all of the acquisitions that we've done, combined with the way we've been able to effectively and efficiently manage our capital development programs through organic growth, have really provided that stepping stone to get to change the net debt levels for the free cash flow policy and obviously continue to increase our dividends. Dennis, not really about bookends, but just part of the ongoing continued growth of the company, both organically and through acquisitions that have strengthened the balance sheet and have set us up for continued strength through strong commodity prices, lower commodity prices or any cycle. Operator: Your next question comes from the line of Patrick O'Rourke from ATB Capital Markets. Patrick O'Rourke: Maybe just a little bit more on the capital side of the equation here. Obviously, the bulk of the capital that came out was, it seems like with respect to Jackpine. I just wonder what opportunities there are still remaining for the rest of the year. I think back to years past, we were looking at a sort of a weaker gas tape right now. Are there any opportunities to potentially shift some capital from the liquids rich gas portfolio towards some of the short cycle oil here remaining in 2026? Scott Stauth: We always carry that nimbleness, certainly when we're looking at our capital allocation. Seeing good returns, strong returns with strong liquids pricing on the liquid rich natural gas activity areas that do compete. If you look at it, Patrick, we've got payouts in our multilaterals 12 months or less, very comparable payouts to 12, 13 months or less on the strong liquid rich gas areas. They're very competitive with each other. I think what the way to look at it is we have a very well-balanced rig program across all of the areas. We're working very hard to ensure that we don't sort of apply any self-inflicted inflation in the areas in which we're operating in. We do that by having that balanced rig program. We continue to monitor the commodity prices. We have about 21 rigs working, very well balanced across the entire basin here. Looking at strong returns, we're not spending money on dry gas activity. We're really focused on the value returns. I don't see us making significant changes to that a whole lot. We do have the capacity to be able to increase the heavy oil multilateral potentially to a small percentage. Again, we're running very well balanced. We're not creating inflation. We're making sure we're keeping up with the efficiencies in our drill times. People are very focused, and we wanna keep the momentum going in that direction. Patrick O'Rourke: Okay, great. Just thinking about the operational performance, sort of one thing that really stuck out to me was the 105% upgrade or utilization in the quarter. Just wondering how you think about how repeatable this is, does that open sort of the pathway to a potential rerate on these assets going forward? Scott Stauth: Patrick, we'll see on a go-forward basis here. I think you've seen some strong production in the fourth quarter. That's not unique, in compared to previous years. Strong efficiencies, running into the fourth quarters, coming out of turnarounds and so forth. You know, 105% is certainly very strong. And 620,000 barrels a day is extremely strong production levels. We're happy with, in the range of 600,000 barrels a day is very strong efficiencies and utilization. You know, we certainly strive to continue to work towards maximizing and overutilizing the facilities from a utilization perspective. I doubt it's gonna lead us to a rewrite. We'll look at that some point down the road at Horizon, potentially when we bring on the 6,300 barrels a day of SCO from the NRU project. Until that time, Patrick, I think we're pretty happy with where our capacities are rated at. Operator: Your last question for today comes from the line of Neil Mehta from Goldman Sachs. Neil Mehta: Congrats on a good quarter as always. I had some more macro questions, so I want to get your perspective on the environment that we're in right now, where there's a lot of volatility. There's talk of, obviously, the Venezuela barrels coming to the market. At the same time, we've got some disruptions here in the Middle East in terms of supply. How you are seeing real-time that flowing through into the heavy markets and how that shapes your near-term view around TIWCs? That's a good starting point, and then I have follow-up on gas. Scott Stauth: Yes, Neil, I think if you look back a month or so ago with the potential to increase the volumes into the US Gulf Coast, the differentials to WTI did widen out. We did see increased barrels of Venezuelan barrels coming into the US Gulf Coast for processing. Now as to your point, there has been some tightening in the market with the recent developments in the Middle East. We're seeing differentials swing back down, probably about $1.50 to $1.60 lower than they were. Approximately tighter than they were, excuse me, about a month or so ago. For us, it's all about continued focus on our operating costs and ensuring that we can be competitive in all the markets, and that we also have a diversified portfolio. We've got 256,000 barrels a day, and we've got that well diversified between the U.S. Gulf Coast and the West Coast of Canada here. Continue to focus on those types of opportunities for diversification of our portfolio and continue to focus on our operating cost to ensure that in the long run, rather than just on the short-term thinking, that in the long run, we can manage and excel and be competitive in any market condition. Neil Mehta: And to the extent we are in a firmer market condition as the world is now pulling on heavy barrels maybe a little bit harder, does that change the way you think about your near-term activity, or you kind of have to stay level loaded just given the long-term planning assumptions? Scott Stauth: We have to go by long-term planning assumptions, Neil. You know, there's ebbs and flows that are caused by various different factors. Obviously a major factor going on right now in the Middle East, but also what times in the year, there's factors of turnarounds that happen in the U.S. refining complexes. You know, again, the thinking has to be long-term and ensuring that we're achieving the best net backs that we can with our portfolio. Neil Mehta: And then that's a follow-up is just natural gas. I think a number of us have been waiting for AECO to get firmer, and it just seems like production is ever flowing. Just how do you guys think about this cleaning itself up? As you guys look at the AECO balances, is this a structural issue or is there line of sight to better pricing on the Horizon? Scott Stauth: Well, I think it's evident that you're seeing with LNG Canada, processing in the range of about 1.5 Bcf, not yet approaching full capacity, but not that far away from full capacity. You're seeing the market is suggesting that the system is full. That's likely coming through the development of, a lot of liquids rich gas production and some producers, drilling with potentially, lower liquids, gas production as well. A very strong, supply market. We continue to see on a go-forward basis that those conditions will remain tight, over time. Canada really needs additional LNG export capacity and the projects to be approved in an expeditious matter, so we can take advantage of prosperity for all Canadians by increasing our gas production and our exports, and providing a product the world truly needs. Operator: We have an additional question coming from the line of Greg Pardy from RBC Capital Markets. Greg Pardy: Scott. I was not gonna let you off that easy. Look, just maybe I may have missed this. It's, it's kind of a question for Victor, but effectively, are you at 75% payout now? I.e. post everything in terms of the updated budget, year-end numbers, the acquisition and so forth. Is the debt at a level where it's now triggered that higher payout or is that still to come? Scott Stauth: Yes. So to your point, Greg, at December 31st, we were below 16%. Under the policy, we would have achieved the target for sure. Of course, as a result of that target increase returns here in 2026. As you know, we do that on a forward-looking basis. We model the script and the cash flows for it as we look at the policy over the course of the year. Of course, keep in mind significant volatility in pricing, we're all aware. Under the current policy as just announced, strong pricing we're seeing we'd be very solidly there in Q3 with slightly higher and slightly lower debt over the course of the first and second quarter. Hopefully that helps. Greg Pardy: Yes, yes. No, exactly from a modeling perspective. Operator: There are no further questions at this time. So I'd like to turn the call back to Lance Casson for closing comments. Sir, please go ahead. Lance Casson: Thank you, operator, and thanks to everyone for joining us this morning. If you have any questions, please give us a call. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Joseph Hudson: Good morning, everyone. Nice to see everybody. Great. So good morning, and welcome to Ibstock's 2025 Full Year Results Presentation. Joining me today is Simon Bedford, our interim CFO. So turning to the agenda. After I provide an overview and market context, Simon will walk us through the financials and cover divisional performance. I'll then focus on how we're thinking about shareholder value creation, specifically through the lens of five strategic drivers. Having covered the summary and outlook, Simon and I will then be very happy to answer your questions. So turning first to the overview. As you'll know, 2025 was a tough year. We started well with strong volume growth in the first half coming mainly from new build residential demand. Market uncertainty in the second half resulted in progressively tougher conditions. Revenues for the group increased by 2% to GBP 372 million with EBITDA at GBP 71 million, in line with the guidance issued in Q4 '25, but a reduction of around 10% versus '24. Despite the challenges in the market, this is a business that does not stand still, and I'm proud of the progress our teams have made at our major investment projects at Atlas and Nostell, both of which are now coming to their conclusion. At the same time, we've taken decisive action on costs and flex capacity where needed. We've also remained disciplined in how we allocate capital. In Q4, we made the decision to dispose of our Forticrete roofing sites and we now completed a number of land disposals releasing about GBP 30 million of capital. With major CapEx program largely complete, volume recovery and continued opportunities to release capital from our land bank will lead to an acceleration in free cash flow, and this will provide optionality on growth opportunities and shareholder returns as we move forward. Before handing over to Simon and to provide a bit more context on our financial results, I'd like to recap on how our markets developed in 2025. As we entered 2025 with market momentum continuing from Q3 in '24, we took steps to reactivate network capacity to meet the recovering demand. It was promising double-digit growth volume in the first 2 quarters, followed by a deceleration to 4% growth in quarter 3 and as you can see from the chart, the final 3 months were challenging with brick volumes actually falling to 2% year-on-year. Ultimately, with the initial momentum proving a false dawn, our capacity moved ahead of demand and looking back, I acknowledge that we went too early on this. Given the progressively tougher market demand dynamics in the third quarter, we readjusted capacity and acted on costs, which will position us better for the near term. Overall, in 2025, the total brick market grew 6% to 1.83 billion. And encouragingly, our market share was ahead of the market and ahead of the prior year. And with that context, let me now hand you over to Simon to go through the financials. Simon Bedford: Thanks, Joe, and good morning. Turning to cover the financial summary with Joe having already covered detail on our revenue and adjusted EBITDA performance. I will focus on three key metrics. Looking first at our EBITDA margin, this is reduced by 260 basis points to 19.1% as a result of inflationary pressure and increased cost as capacity is reactivated in clay. In addition, we experienced adverse product mix with lower volumes in higher-margin concrete categories of rail and infrastructure. EBITDA margin improved in H2 to around 20% as incremental costs from bringing capacity back tapered and also decisive cost management starts to kick in. Now considering the balance sheet strength, although leverage has increased marginally from a year ago to 2x, net debt of GBP 120 million has reduced both marginally from last year and significantly from the June position despite the trading environment. This is a result of our disciplined approach on to capital allocation and a focus on priority markets, generating around GBP 30 million of proceeds through the disposal of noncore assets. Return on capital employed at 5.8% remains well below our targeted level and reflects recent capital invested in both core and diversified platforms combined with earnings that continue to be impacted by markets well below normalized levels. With the recovery in market demand, combined with anticipated returns from our growth investments, we expect return on capital employed to revert to our targeted level of at least 20% over the medium term. Finally, the Board has recommended a final dividend of 1.5p, bringing the total dividend to 3p, which is a payout ratio of 53%, in line with the prior year. We set out on this slide, group revenues compared to the comparative figures in 2024. Group revenue for the year was up 2% to GBP 372.1 million. Within this context, clay revenues increased by 5% to GBP 260 million, driven by strong new build growth in H1 with H2 flat year-on-year. However, these numbers mask the contrast between the quarters as the year progressed, which I won't go through again. However, we also saw regional variation with growth more concentrated in Midlands and the North with the London and Southeast markets more subdued. Futures delivered revenues of GBP 9 million compared to GBP 10 million in the prior period as a result of our glass reinforced concrete business being closed in Q1 2025. Concrete revenue of GBP 117 million was 5% below the comparative period, largely as a result of the weakness in the U.K. rail infrastructure market. Turning to cover the divisional financial performance in more detail, starting with the clay division. As already seen, the clay division delivered a resilient performance against a tough market backdrop. We saw growth in wire cut bricks, which are favored in new build housing markets whilst demand for soft mud bricks, which are more exposed to RMI and specification markets and more concentrated in the Southeast and London regions was more muted. A more competitive environment constrained pricing, which, together with a negative shift in sales mix led to average pricing slightly below the comparative period. We took the decision to reactivate parts of the clay factory network during the first half of 2025. And whilst this has led to higher-than-expected incremental costs in the period, we saw these costs taper in the second half. This, combined with the cost actions taken, meant margins improved in H2. The facade product categories within Ibstock Futures move forward with broad-based growth across the portfolio. We expect EBITDA to build from 2027 after a year of ramp-up in 2026 as our major investment in Nostell start to deliver positive returns. Turning to cover concrete. Here, revenues decreased by 5% to GBP 112 million. Overall, residential new build sales volumes were tempered by lower growth in the RMI market and falling infrastructure sales volumes, as the U.K. rail infrastructure markets continue to be impacted by control period spending constraints. Similar to clay, we saw strong volume growth in many of the residential product categories in H1, partly offset by lower infrastructure volumes. In H2, market uncertainty resulted in progressively tougher conditions with flooring and infrastructure categories particularly affected. Sales pricing in the residential categories mirrored the market dynamics seen in the clay brick division. It is important to note that spending in the U.K. rail network has reduced to historically low levels. We have seen some pickup recently, but this constitutes a high-margin part of the concrete division, adversely impacting both mix and profitability. Whilst EBITDA margins remain well below historic levels achieved within our concrete business, as markets recover, we believe the division is well positioned to benefit with strong growth in both volumes and margin over the medium term. Moving now to cover cash flow performance. Inventory levels grew as demand weakened in the second half of the year, resulting in a net working capital outflow of around GBP 14 million. Capital expenditure was in line with last year with GBP 21 million our growth projects and around GBP 24 million of sustaining spend, with major capital expenditure programs largely complete, we expect total CapEx to fall to around GBP 25 million to GBP 30 million in 2026. It is important to note that the noncore disposals of around GBP 30 million proceeds are treated as exceptional and are therefore not included in the adjusted free cash flow. Moving to the balance sheet. Net debt reduced marginally to GBP 120 million by year-end, resulting in a leverage of 2x up on the prior year. The group has GBP 225 million of committed borrowings comprising the GBP 100 million private placement loan notes and GBP 125 million revolving credit facility, which we successfully refinanced in Q4 at improved terms. These borrowings contain leverage covenants of no more than greater than 3x tested semiannually. Based on the covenant definition, leverage at the 31st of December 2025 totaled 1.7x and the group had over GBP 100 million of available liquidity. I will now outline the refinements we've made to our capital allocation framework to better reflect our choices for excess cash after considering balance sheet strength, organic investment considerations and dividends. This shows the balance choice between inorganic investment and shareholder returns in accordance with our strategic and financial investment criteria and they are, of course, not mutually exclusive. With our major capital expenditure program is now largely complete, a high cash drop-through on incremental volumes and strategic options, which Joe will discuss later, this will provide significant optionality with respect to excess cash and capital allocation. For those looking for the technical guidance for 2026, this is now included in the appendix, with Joe covering how we will see 2026 developing in the summary and outlook section. And with that, Joe, I'll hand back to you. Joseph Hudson: Thanks, Simon. So turning now to our market drivers and strategic progress. As set out on the screen, we see continuing shareholder value creation being built around these five clear strategic levers. You can see here that our leadership in our core markets remains key and has significant bearing on our financial performance. However, crucially, the remaining four levers are more within our control and are already driving progress through new market sectors, product innovation, operational efficiencies and the strategic value embedded in our land and clay reserves. . This unique balance gives us resilience today and will be important to underpinning our midterm targets. I'll now walk through each in turn. With a 200-year heritage, we enjoy a leadership position in our core markets, and over recent years, we've been -- we've deliberately brought our brands, people and capabilities together under a single unified Ibstock. That wasn't a branding exercise. It was about how we show up for our customers. Today, that leadership position allows us to support customers across clay, concrete and specialist building products alongside our design and technical services supporting national and regional housebuilders, the RM&I market and increasingly infrastructure and nonresidential applications. I've talked in the past about engaging with customers across multiple categories, and that shift has picked up momentum in the last 18 months as both national and regional customers have seen the breadth of our offer and our technical capabilities. Looking ahead, we also see a clear opportunities to grow in the 10% infrastructure and other sectors where our capabilities, assets and relationships position us well. That sector represents a significant share of the overall construction market where we are underrepresented today. And it's a space that lends itself to innovation and new products and new solutions. I'll give more details on this later. Before I come on to the other areas, let's look at those core markets and what we're seeing on the ground. At a structural level, the long-term fundamentals that underpin demand in these housing and RMI markets remain firmly intact. The U.K. continues to face a significant housing shortage, household formations have been outstripping housebuilding for years, and we have an aging housing stock that requires ongoing investment and renewal. Demand for social and affordable housing remains strong, supported by promising new funding allocations. Against that backdrop, we're starting to see some more supportive signals emerging. Inflation is easing from its peak and expected mortgage rates cuts should over time, help improve confidence. Government reforms and planning initiatives are also welcome steps. However, the pace of delivery and affordability, especially for the first-time buyer on major issues. We're set to have a third year below 150,000 housing starts way off the run rate of getting to 1.5 million homes. Even where starts are improving, build-out rates remain firmly controlled, housebuilders are prioritizing cash and aligning build programs to sales rates. As a result, we continue to take a cautious view in the near term with industry forecasts, including those from the CPA pointing to a continued subdued market conditions over the short term, and that remains consistent with what we're seeing. However, the market will turn at some point. And importantly, we don't need to get to 300,000 housing starts to see a material improvement for our business. As a reminder, the U.K. brick fully installed capacity is around 2.1 billion. So even when we get close to this range, which equates to around 107,000 housing starts, we'll see a big improvement in industry utilization levels. This slide shows why we're well placed to capture volume recovery by looking at our clay capacity evolution. As you can see on the slide, we break out the total network into three components: volumes manufactured in the period, further active capacity available, that's incremental volumes available through higher push rates or increasing shift patterns. And finally, an active capacity where capacity is mothballed or idled. As we've outlined, the progressively tougher market conditions we saw in 2025 meant we build inventory and therefore, in 2026, we'll be actively managing production and inventory. This will give a margin headwind, but benefits overall cash flow generation. We've done that by adjusting soft mud capacity at our Leicester sites, which have much more operational flexibility. However, our active clay network gives us the ability to ramp up by more than 20% with very low cost additions and therefore, compelling drop-through to the bottom line. With this network and stock levels, we're very well positioned to capture the upside as the market conditions improve. Outside of our core market exposure, there's significant medium-term opportunity in other construction market sectors. If stock is increasingly aligning with three growth market sectors, infrastructure, social and affordable housing and mid- to high-rise buildings that require cladding remediation. We're doing this by developing tailored sector solutions, broadening both our existing and new product ranges and working directly with the contractors delivering these major projects. The challenge is well understood the U.K. is under-invested in recent years in schools, hospitals and public sector buildings. And that's why the government's 10-year infrastructure strategy includes an identified GBP 725 billion pipeline, covering work in departments such as the MOD, Department of Education and Ministry of Justice. Now that's not just theoretical opportunity for us. Over the last 12 months, we've undertaken additional product testing and assurance to enable delivery into these programs. That includes testing new products for the MOD's GBP 3 billion a year work program as well as other key public sector customers including the GBP 15 billion schools capital investment program. Around half of the GBP 39 billion in social housing is expected to be delivered through Homes England. Housing associations are partnering with developers to unlock wider scheme, and we're already seeing this translate into activity. For example, we've received initial orders on our regeneration project in Birmingham a GBP 1 billion long-term master plan that will ultimately deliver about 3,500 homes. In addition, challenges around the cladding remediation and the Building Safety Act requirements are creating new opportunities where Ibstock is exceptionally well positioned. Our high-quality, high-performing products in both our established ranges as well as the new innovations coming through at Nostell directly support safe, compliant and even more sustainable construction. With that context, let me move on to our new product development pipeline and investment and how that positions us for future growth. You can see on the screen that over the last 8 years, an increasing proportion of our revenue now comes from new and sustainable products. This creates real value for our customers and helps sustain our margins. By working closely with our key customers, it's important to understand their strategic priorities, whether it's speed of build, low carbon, design flexibility or efficiency, and we focus our innovation on helping them to deliver against those aims. Alongside our major strategic projects, we continue to strengthen and modernize our core clay and concrete product ranges through continuous product development and performance improvements. Today, I'll just focus on the Nostell redevelopment and on FastWall, which you'll have seen in the opening video. FastWall has been designed to support both existing and new markets. For existing customers, particularly housebuilders investing in panelized construction and timber frame, it delivers higher productivity and reduced weight, both critical drivers for customers adopting modern methods of construction. Alongside FastWall, our new ceramic facade facility at Nostell is creating a further wave of innovation, delivering new facade solutions with a greatly expanded architectural range and almost unlimited design flexibility. It's the first facility of its kind to bring all of these things together in one place and initial customer interest has been really positive. We see these solutions as complementary, not competing with our core products. If there are skill gaps to meet the challenges of growing construction targets, this will be part of the answer. To fully appreciate it, you have to really see it in operation, and we look forward to hosting another factory event similar to the one we did in Atlas last year, and we'll share more details about that soon. Moving now to focus on our factory estate. Over the last 8 years, as already alluded to, we have invested more than GBP 325 million across our clay and concrete manufacturing network, creating a safer, more automated, more efficient and lower-cost estate. The Atlas factory is the latest of these investments, and we'll add 105 million bricks per year at full capacity, strengthening reliability, reducing cost and delivering the same high-quality, high-performing but more sustainable products, the way that we manufacture today. In addition, we've -- having done two capital investments projects in our Concrete division recently, we see further options to invest in process automation to reduce cost. These projects are relatively capital light with quick payback. Our new multiyear operational excellence program is also well underway at our pilot factory at Aldridge and will drive further competitive advantage, improving operational performance and strengthen our ability to service our customers. More efficient, modernized asset base positions us for higher margins, stronger cash generation and greater operating leverage as the market recovers. You'll see me reference this later as the network efficiencies are a key underpin for our midterm targets. Moving on now to look at our fifth strategy lever, which delivers further optionality in centers on our land and clay reserves. To give some context, we manage over 2,700 acres of land across the U.K., spanning our factory estate, clay quarries and significant natural estate. From an Ibstock perspective, a large part of this asset base is not fully utilized. We then have options to drive value through three complementary routes. Firstly, Calcined clay commercialization. This is now a proven low carbon cementitious replacement capable of materially reducing embodied carbon when used in blended cements and in concrete. And you'll know we've been exploring the commercialization of Calcined clay at scale turning an existing asset into a strategic growth option. I'm pleased to confirm that commercial discussions with a preferred partner to get to an agreement is well advanced, and we expect to share a further update on this at the half year. Secondly, as noted before, our disciplined land disposal program will ensure capital is released where land is no longer supports long-term strategic or operational priorities. To that end, we expect to generate GBP 20 million to GBP 30 million in the next 3 to 5 years. And thirdly, the expansion of our existing land-based income streams. Our land already generates material long-term revenue alongside core manufacturing with land-based income from quarry restoration through landfill delivering approximately GBP 2 million to GBP 3 million per year. This demonstrates the commercial value of well-managed nonoperational land. Taken together, these three routes create a diversified platform for value creation. So to conclude, these five leaders together define our value creation strategy. And while market conditions will continue to influence near-term performance, the actions were taken across these levers are firmly within our control. In 2026, we are focused on the execution of our customer experience work, expanding into new market segments, progressing operational excellence, including pilot at our Aldridge site, fully commissioning Nostell and finalizing our Calcined clay project. So bringing that all together, as you can see on this slide, we have the potential for significant earnings growth over the coming years. As I've said, to a large extent, this will be driven by market recovery, but it will also be supported by our market independent initiatives, including the points we've made today. We remain confident that our revenue target of GBP 600 million when markets recover to historic levels is achievable. This should drive margins up from 19% today to 28% in the future. The dynamics -- these dynamics should ensure a strong earnings growth in the years ahead. And as Simon has said earlier, the improved cash flow from improved earnings, the strategic land disposal program and lower capital investment will provide more optionality for value creation for shareholders. So finally, looking at the -- taking a look at the outlook. After a weather-impacted start to 2026, near-term demand remains challenging. We expect modest year-on-year volume growth in H2 2026, with volume recovery in new build and RMI markets dependent on activity gaining momentum in the spring. Price increases implemented in February 2026 should enable us to offset anticipated cost inflation for the year. Although the timing of the market recovery is uncertain, we're confident that the long-term market fundamentals are intact. Therefore, with a well-invested, lower cost, more efficient and sustainable network, we expect to benefit from meaningful operational leverage and cash generation across the business. And with that said, Simon and I will be happy to take your questions. If you could state your name and institution before asking the questions. Aynsley Lammin: Aynsley Lammin from Investec. Just two for me, please. On the production and kind of management and stock level management for this year, maybe if you could elaborate on that a bit more where stock levels are, where you'd like them to be? And would you be kind of thinking of mothball in any plants? Or is it just stopping production and therefore, that's why you get the kind of margin headwind? And then secondly, I guess just on the energy side, I think it's sort of 80% hedged. When does that become a concern if [indiscernible] continue and natural gas prices remain elevated, you have to be pretty confident for the next 6 to 8 months of time. Joseph Hudson: Yes. Yes. Look, we will be managing stock this year quite carefully. We're not anticipating to mothball any other sites at this stage. We've got -- part of the reason for the, the sort of headwind on the margins is the overhead recovery. We've got more shutdowns, so you just don't get the leverage, but we produced around 40 million to 50 million bricks more than we needed at the end of last year. So we're going to manage that carefully this year. Obviously, we've got stockyards, they are limited as well. So -- we've done this. Obviously, we've had a bit of a partner of this in the last few years, so we sort of know how to do things, and I think we're well positioned. The main thing is if the market comes back faster, we can respond very, very quickly. Energy, do you want to take energy Simon? Simon Bedford: Yes. So in terms of energy, we've said in the statement, we're about 80% hedged. That is actually more front-end loaded. So the first 3 quarters were hedged higher than that. So really, we're more exposed in Q4. We don't see at the moment, an issue with that, and we have other options when we actually get to Q4. Priyal Mulji: Priyal Woolf here from Jefferies. I've just got two questions. Firstly, you talked about price increases, I think, from February. I think one of the issues we've had in previous years is different players going at different times and sort of having to reverse on that. Do you have any color on whether the magnitude and the timing across the market has been fairly consistent so far this year? And then the second question is just the whole shift from soft mud to wire cut last year. Do you think that's done? Or is there sort of more to go as an incremental headwind? Joseph Hudson: Good. Yes. I think we're a better place this year for sure, on pricing. Last year it was difficult. People went at different times. And frankly, it didn't stick. This year most of the industry went in February, 1. And we think that there's been a lot more discipline in that approach. So we're confident that we can cover inflation this year with our price increases around sort of 3%-ish margins. And then soft wood, wire cut dynamics. I mean, obviously, as you had greater new build residential growth last year and more subdued RMI, it was a mix shift. So we're probably about -- the industry is about 70% wire cut, 30% soft mud. We're obviously have a greater weighting towards soft mud ourselves. I don't think that's a long-term structural change. I think it's largely because of the fact that the RMI market subdued and the southeastern London are very, very weak. So I think -- as I said earlier on, you've got an industry that only -- can only -- when it's -- when all the mothballed capacity is back on, you can only produce 2.1 billion bricks anyway. So all of the brick capacity will be used soft mud and wire cut in the U.K. Clyde Lewis: Clyde Lewis with Peel Hunt. I think I've got four. So apologies. I'll do them one at a time. Could you update us as to where you think sort of merchant levels are in terms of sort of brick stocks? Second one, again, it can useful to get an update on imports as to what you're seeing on that front? Third was on, I suppose, stock futures and slips within that as to how you're seeing the market develop for those products, and particularly the slips, how much activity is going on there with architects and designers in particular? And then the last one was on rail. Obviously, a tough year last year. How does the rail outlook look for 2026? Joseph Hudson: I'll let you take the rail one. So merchant stocks at the moment, I think, are quite healthy. Merchants -- most merchants that we talk to are managing their balance sheet carefully, and they know they can call on stocks from the manufacturers when needed. So I'd say they're not overstocked. There's a normalized stock level at the moment, but certainly not stocking up at this stage. Imports last year were about 350 million. So they actually -- if our markets, we went ahead by about 8%. The imports went ahead by a little bit more than that. But actually, if you look at import brick levels, they're quite consistent. They're about 19%. I think they went to about 22% in 2022, but they've been about 18% to 19% consistently. We do need imported bricks when the market comes back. And I think a lot of importers including a major player here has a mothballed bit of capacity and has got a pan-European strategy. So we're bringing a bit more of the bricks in still. And obviously, they're still quite sticky. They want to maintain our position. And there's not much going on in Europe. So they've been a little bit more competitive last year. I think we're excited about the growth in slip systems, ceramic facade systems. It's still coming from a low base. So it's still -- but it's -- the CAGR is very good. The growth is very good. Whether it's mechanical rain screen buildings, high-rise going up, whether it's panelized construction volumetrics with bricks going on the outside or whether it's some of the stuff like FastWall, we alluded to there on, there's a lot more change in that. We see our own -- this year, we expect about a 40% uplift in our volumes. And in 2 to 3 years' time, we expect that to triple. I think the -- this year at Nostell, obviously, we're commissioning the factory. There's a longer lead time for these products because they're specified in their systems. So they have to be tested and there's a specification period from the time it's signed up by the developer and the architect to when actually the project gets delivered. It's not like a brick just going off the yard. So there's a bit of a lead time there, which is probably about, I'd say, 8 to 12 months, but we're excited about it. That's why we invested in it. We think it's not going to like cannibalize our core business. We think this is the -- these products are going to be what brings additionality to get you to the higher build rates that we need to do given the skill shortages. So we think there's room for both the cavity wall and traditional building as well as some of these new systems, but we're very excited. And the infrastructure sector as well, is very excited by them. They're very open to -- they're more open to sort of faster change. So we're working with a lot of the big contractors infrastructure people. Rail? Simon Bedford: Yes. And if I just pick up rail, so we've suffered with rail volumes over the last few years, we reached the historical low level in 2025. We have seen recent data points which suggest that is actually turning, and therefore, we would expect some growth in 2026. It's off a low base, but it is also a high-margin business for the concrete business. Robert Chantry: Rob Chantry, Berenberg. Just three questions from me. I guess, firstly, on the concrete business. Could you just give us an update on the weighting towards the different subdivisions within that and that the margin profile, i.e., kind of what are we actually taking a view on the next 2 to 3 years around what's going to drive the recovery there? And secondly, affordable housing. I know a lot of the contracts have talked about building up big mixed-use development pipelines looking at affordable housing as a huge driver in the next few years and some of the contractors this week, last week saying it -- it's been quite slow, but it's starting to pick up. Just what's your kind of on the ground experience of affordable housing build rate dynamics. And then thirdly, obviously, the Southeast London market has been exceptionally weak in terms of new starts and volume, a lot of discussion around gateway, other planning type of regulation. Can you -- again, can you give us some on the ground insight around quite the bottleneck there from your point of view and if that is looking to be released at any point? Joseph Hudson: Good. I mean our concrete business has got quite diversified. As you know, we divested the roofing business. That was a relatively small part and lower market share. But we have leading positions in most of our other categories. So we have walling stone, which is a reconstituted sort of natural stone that goes into a lot of areas, reasonably good margins there, double-digit margins. We've got leading fencing and building business, landscaping business with very, very good margins. We've got the rail business, which obviously has rail and infrastructure business, which has suffered, but again, it's very high margins with leading positions. What else have we got, Simon? Simon Bedford: I think that covers it. Joseph Hudson: That's the main focus of it. We think that -- and we've got a large flooring business. Flooring is -- we've got about 25% market share of the flooring business. So we think that when you put the concrete business with some of the brick business, we're seeing a lot more uptake from especially contractors and people interested in these big infrastructure projects, schools, prisons, hospitals because we can do hollowcore floors, we can do the walls. We can do lots of retaining walls, applications like that. So it's quite complementary as well, our concrete business. Affordable housing, I mean, everyone is talking about this GBP 39 billion and it being back-end loaded. There was some news at the beginning of this year around funding allocations of about GBP 2 billion. That's promising. We're doing a lot of work with housing associations themselves and getting quite close to them. It is going to take time, but we will see some -- I mean, if you look at the stats this year, public housing has got a sort of a slightly higher growth rate than the private house building. So we're seeing some momentum there already. But it's -- again, how much, how quick, it's not going to go crazy this year. But I will -- I do think that the sustained improvement in social housing in the U.K. is much needed and is going to create a much flatter sort of less oscillation in cyclicality for us. The Southeast in London, I think there are a lot of things that are causing issues around the Southeast in London. The main one is affordability and building safety. I think the building safety regulator has got a much more proactive approach. They're releasing projects much faster now, and I think that will start to unwind much faster this year. But affordability is a big issue. If you think about buying a house in London and the Southeast compared to other parts of the country, there's a real issue there. And I think that's where we need some support. I think it will get a little bit better this year, but I don't think it's going to improve until we see some support for the first-time buyer. Benjamin Pfannes-Varrow: Ben Varrow from RBC. I'll do three as well, please. First on guidance, in terms of volumes. I understand that's H2 weighted, I guess, what gives you confidence in that at the moment and the sort of spring selling season picking up? Second is on Forticrete the disposal there. Can you give a bit more color on if there's anything else in the portfolio that could go the same way, infrastructure, just so I understand correctly. Is that mainly then focused on the concrete side of the business? And do you need any investment there? And how big could that be for the group? Joseph Hudson: Good. Do you want to do the guidance one? Simon Bedford: Yes. So just talk about volumes. So with the weather impacted first couple of months, we're sort of seeing the first half of the year to be more in line with the H2 2025 volumes. So that would mean slightly down on the comparative period, H1 '25. And then more growth in H2 2026. And based on the spring selling season, the elements, which give us confidence is affordability metrics are looking better. Inflation is stabilizing, and we could look at further interest rate cuts. And that gives us confidence that the macro look better. And then some of the housebuilders are giving more positive updates on what the site visits are, how that's looking. So we have confidence based on the sort of demand dynamics in quarter 2 the spring period, getting better, and therefore, growth will be realized in the second half of the year. Joseph Hudson: Yes. And I think if you look at last year, I mean, we had this wonderful consumer confidence crisis with what's going to happen to tax, what's going to happen to the budget. The budget was pushed out I think that the budget was a bit of a clearing event, and I think you'll see more clarity going forward unless we get further noise from that side. So I think there'll be more confidence and people will be building a bit more this year. But it will take some time because the second half of last year affects the first half of this year, in particular, but I think you'll start to see improving build rates. Let's see what the spring selling season does. Look, we do -- we always look at capital allocation and what a business needs in terms of capital going forward. Our Forticrete business was a very good business, but we've had some performance challenges that I gave them some time to look at. And on low volumes where it was at the moment, we felt that with someone else who could be a better custodian of that business, it's relatively low market share, and we want to have positions where we have high market share, leading #1 or #2 positions. So we felt it was the right thing to do. And there's not really anything else that we're thinking about right now at the moment other than land disposals, as I've mentioned. And then on the infrastructure stuff, it's not just concrete. Actually, when you look at it's concrete, it's the facades and it's bricks. So when we're going to talk to contractors, they're looking at the whole package now, and that's what's quite exciting about it. So it's not just that. The construction infrastructure market is about GBP 35 billion, GBP 40 billion in this country. So it's something that we really need to be more aggressive. And I'd like to see that donor 10% going to 20% very soon. Alastair? Alastair Stewart: Alastair Stewart, from Progressive. A couple of related questions. First of all, you displayed refreshing candor, if I might say so, for a CEO and personally acknowledging you moved too quickly last year. In terms of this year, irrespective of -- you're saying you're able to ramp up capacity. Is there a psychological -- once bitten twice shy feeling. You're going to have to wait longer to see positives from the house builder before moving today. So that's question one. And question two, related to that, on Slide 17, the production volumes and active capacity available, how quickly would it take to turn that gray into blue should the market pick up more convincingly? Joseph Hudson: Good. Thanks, Alastair. I thought all CEOs were very candid. Alastair Stewart: No, no. Some of them [indiscernible] Joseph Hudson: Okay. Look, I think you have to -- you have to be honest, and we're dealing with a very tough market situations. And I think we've got a lot of trust from shareholders in this community, and you've got to be open about things. I think look, you saw the graphs here. So you saw the movements. And then you saw -- so I would have done it change my mind. I think we made the decision we felt was right at the time. And of course, I'll be very cautious about bringing new capacity back and new cost back, especially with this market. But the good thing is that gray area, we can convert that very quickly. Even the blue area on that graph, which is 65% utilization, that's got shutdowns in it, yes. We can -- if the market comes back, we can produce a lot more, and also, we've got plenty of stock on the ground. So the industry levels at the moment, there are about 550 million bricks, which is not massive, but it's healthy, and we've got a healthy share of that. So we can deploy that stock very quickly, which will be great for free cash flow generation. So we'll eat into the stock first, then we'll reduce shutdowns and then we'll bring on a bit more capacity. Unknown Analyst: Max from [indiscernible] Asset Management. Just a regional outlook. So you see London and the South is potentially being weaker in 2026 than the rest of the country. Is that correct? Joseph Hudson: London and the Southeast have been weaker from a residential housing point of view for some time. I think, as I mentioned earlier on, there are some reasons for that. Some of them are building safety, but the main one is affordability. I think it will get better. But I think until we saw at the affordability issue. That's both for buying and for costs for builders to build with land and things like Section 106, it will stay behind other areas in terms of growth. But I think it will improve a little bit this year. Unknown Analyst: So the outlook for RMI then is slightly weaker than residential construction. Is that also correct? Because I'm looking at your U.K. well, at the market U.K. construction forecast. Joseph Hudson: Yes. I mean we go on what the BNS say, we go on what the CPA says. So at this stage, it looks like it's a bit of a decline this year of about 1% on RMI markets. Unknown Analyst: What do you think is causing that on the RMI side? Is it the interest rate? Joseph Hudson: RMI is really around consumer confidence. So let's go to Stephen. Stephen Rawlinson: Stephen Rawlinson from Applied Value. Two for me if you don't mind. Firstly, with regard to reach market, could you just talk us through the way in which the channels to size are altering and how that might play through in the next few years to particular reference to our margins, i.e., what's going through merchants, what's actually going direct to site and the implications for margin that might have happened over the last few years and are present in these numbers, but may potentially how they may progress in the future. And the second question is with regard to brick slips, off-site construction. Do you anticipate that you'll be doing that yourselves and is an industry emerging, you believe can absorb the capacity that you're creating for the slips production such that actually there will be -- you'll be able to satisfy that demand. How is that going to play out? Is that something that's going to be at your cost on your sites? Or is there an industry merging the satisfactory from your point of view to actually absorb the capacity you've created? Joseph Hudson: Yes, good. So our routes to market. Look, I think with infrastructure, there's definitely people are coming to talk to us because they want looking at the whole package. So I think you might see a little bit of a shift in more direct relationships with contractors than we have in the past. But the merchant industry, for example, creates a great sort of service for the U.K. because it stocks and it takes credit risk and it redistributes breaks book. So we think there's a real value in that route to market in that supply chain. We've got great partnerships with merchants. We've got great margin with brick specialists, and we've got direct relationships with housebuilders. There's no doubt more people want to talk to us directly because they're seeing now as we've been marketing all of our product capabilities, not just bricks, oh, well, we'd like to have all of this as a package, please. And that's where we see probably more direct relationships going forward. But we have to think about cost to serve as well. So we're not going to have a myriad of millions of relationships we've got and got to think about that. And then the whole ceramic facades there's a whole ecosystem there where you've got installers, you've got contractors, subcontractors. We won't be doing that in store ourselves. We want to provide the product and the solutions that go into -- with the installers, the developers and the contractors. We're not going to start installing ourselves. That's not our core business. It's not something I'd get into. We don't know enough about the risk factors and all outside of the market. But they are waiting to see -- this Nostell factory, they're waiting to see it because they've never seen it before. So that's why it's going to pick up momentum, and we've got the capability to really make a big Change, I think, in MMC in the U.K. with our factory. Christen Hjorth: Christen Hjorth from Deutsche Bank. Two, hopefully, pretty quick ones. Just on net debt, you normally see that the increase as you move to the half 1 stage with working capital investment, but it sounds like you're quite well invested in inventory. So just a sense of what we should expect in terms of net debt as we move through H1? And then second, I was following up on the volume phasing piece. What's your current thinking around the EBITDA phasing H1, H2 because there's a few moving parts in terms of capacity and things like that. So those are the two for me, please. Simon Bedford: Okay. So in terms of net debt, we would see a normal seasonal working capital build, but less so in inventory. It will be more debtors related as we have more sales in those periods versus like in November, December last year. So we see that. And then in terms of EBITDA, yes, I think we're going to be more weighted to the second half. We've got production shutdowns and producing less inventory in the first half of the year, which gives us that margin headwind. So we're thinking about our weighting probably being between 40% and 45% in the first half of the year. Harry Dow: Harry Dow from Rothschild & Co. I think just two questions, if possible. So first on the concrete business, how should we think about the operating leverage as that kind of volumes recover maybe for railway comes back. I think the drop-through this year is quite high in terms of , I think we lost GBP 5 million of revenue and then GBP 5 million EBITDA. So maybe also just what happened in 2025 for such a high drop-through maybe. And then just also just a comment on other operating costs, so sort of expected wages inflation or distribution costs, things like that? Joseph Hudson: Yes. I think operating leverage in the rail business has quite a big bearing on our margins and that moving forward will really help margin improvement this year. Concrete is a little bit different to clay. Clay, you've got high fixed costs, and the deal concretes more of a batch. You've got more flexibility with it. So really, it's around volumes and it's around margin in specific categories, and that's why we believe there's reasonable momentum in concrete this year. Other costs, Simon, do you want to talk about that? Simon Bedford: Yes. So our major cost really is around labor. So we'd expect a low single-digit sort of impact around that, which is in line with the industry and the wider positions. And then in terms of variable costs, we'd expect a similar number. We'll wait to see how things like oil pans out, how is that working? How that feeds through to say haulage costs, but I think we've got a little while to see how that's actually going to pan through. Charlie Campbell: Charlie Campbell, with Stifel. Just one. You haven't really mentioned planning as a potential opportunity this year. Clearly, there is hope that after 2 years, we -- the planning system has started to free up a bit. Just wondering what your view on that is and whether you've noticed any change in the rate of site openings maybe in the last few months or projections in the next few months? Joseph Hudson: Yes. Planning is still not great, if I'm honest. I think what is promising is that there's a focus on it. And what I think where we have seen improvements is if there's a decision on a large site, the decision -- there are people coming from above saying, let's do it. But we still have a long -- too long a time gap from planning permission to build out rates. It's really taking too long. So I think it's an opportunity. It's an opportunity. There's definitely proactivity from the government getting involved to make decisions about it, but it's not going to -- we haven't seen any major changes in terms of site openings in the last few months. . Okay. Do we have any questions from the Ita? No? Operator: No. I think all the questions have been covered in the room. So Joe, I'll hand back to you for any closing remarks. . Joseph Hudson: Good. So thanks, everyone. Look, it's very -- it's a crazy time in the world. It's a difficult market that we're navigating carefully. But this is a real high-quality business, 200 years old, and we will get some recoveries soon, and when it comes, we're really well positioned, and I'm excited about that, and I'm looking forward to it greatly. But really good to see you, and we can have a chat afterwards. But thanks very much for coming today.
Operator: Greetings, and welcome to the Lightwave Logic's Q4 and Full Year 2025 Financial Results and Business Update Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Ryan Coleman with Investor Relations. Please go ahead. Ryan Coleman: Thank you, operator, and good morning, everyone. Thanks for joining us today for Lightwave Logic's Fourth Quarter and Full Year Financial Results and Business Update Call. I'm joined on today's call by Lightwave Logic's President and Chief Executive Officer, Yves LeMaitre. Please note that this call is in listen-only mode for the duration of the call, and that a replay will be posted to the company's website shortly after the call concludes. Some of the matters we'll discuss on this call, including statements and our business outlook, are forward-looking, and as such, this call speaks only as of today, March 5, 2026. Such statements may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The matters discussed on this call are subject to known and unknown risks and uncertainties, and these risks and uncertainties could cause actual operating results to differ materially from those expressed in the call. A more detailed description of the risks our company faces is more fully described by the company under the caption Risk Factors included in our most recent Form 10-K and 10-Q. As always, Lightwave Logic assumes no obligation to update the information presented on this conference call. And lastly, you are cautioned that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. So with that, I'll turn the call over to Yves. Yves LeMaitre: Thank you, Ryan. Good morning, everyone. Thank you for joining us. Let me start with a note of appreciation to our shareholders. Thank you for your continued confidence and long-term commitment. We are building something transformative that requires patience and conviction. To our employees and partners, 2025 was a year of real execution. The progress we made in material science, reliability engineering, foundry integration and customer advancement reflects extraordinary discipline and focus. We are building the company in the right way. 2025 was not a promotional and marketing year. It was an execution year. We moved aggressively from research validation towards structure commercialization. Our Perkinamine electro-optic polymer platform continued to demonstrate high-speed bandwidth, low drive voltage, compact device footprint and compatibility with the silicon photonics and semiconductor ecosystem. The importance of this last point is often underestimated. Our belief is that tomorrow's winning photonic technologies for AI networking must fully integrate within the semiconductor foundry, packaging and testing infrastructure. So we strengthened our reliability data sets, most notably around the challenges faced by previous generation of polymers, primarily temperature stability and photo-oxidation. We advanced our back-end of line process integration with novel solutions for electro-optic polymer deposition and encapsulation that are fully aligned with the semiconductor fab infrastructure, tools and processes. We deepened our engagement with foundry ecosystem with multiple committed programs by major foundries to add or improve their PDK related to front-end silicon photonics chip design and manufacturing. This was especially important for Lightwave Logic to enable new customer design wins for customers who have already selected their preferred foundry. Our design win cycle matured meaningfully. We have now 3 programs advanced to Stage 3, prototype to final product in 2025, and we recently added a fourth Fortune Global 500 customer to that list in 2026. Approximately 15 additional engagements are progressing through Stage 1 and Stage 2, and we are hopeful that some of our recent success with new foundries will help accelerate the transition to Stage 3. We are not trying to [ invent ] a market. We are well positioned inside the market that is scaling rapidly. But before we dive into an update of our customer engagements and the market, I'd like to briefly review our select financial results. Now for the full year 2025, revenue was approximately $237,000, primarily from licensing and nonrecurring engineering compared to $96,000 in 2024. Net loss was approximately $20.3 million or a loss of $0.16 per share, an improvement from $22.5 million or a loss of $0.19 per share in 2024. Our R&D investment was approximately $11.5 million compared to $16.8 million in the prior year, and our G&A expense was approximately $9.5 million compared to $6.4 million in the prior year. In December of 2025, we completed a public offering, raising approximately $32.8 million in net proceeds through the issuance of 11.6 million shares of common stock. The transaction strengthens our balance sheet and contributed to our year-end cash position of approximately $69 million, roughly double the $34.9 million we had at the end of third quarter. In January of 2026, we exercised the over-allotment portion of the offering, adding another $4.9 million in cash. So based on our operating plan, we believe we are funded beyond December of 2027. We are managing capital deliberately. Every dollar is allocated towards commercialization readiness. Now let's move to the customers. The customers' programs deepened in 2025. Stage 3 engagements currently involve primarily wafer level tape-outs, followed by chip processing and testing with possibly iterative design optimization. This is where real technical programs conversion into commercial agreements begins. We are supporting customers inside foundry environments, not just in isolated R&D settings. Regarding specific customer updates, one of our Tier 1 customers is focused initially on 1.6 terabit per second transceivers operating at 200G per lane. In January, we launched a full wafer tape-out with them at a new silicon photonics foundry and expect chips to come back in Q2 2026 for processing and testing. Another Tier 1 customer is seeking a next-generation material suitable for CPO packaging that can operate at higher temperature to enable new packaging processes. We launched this program in 2025, and it is a key priority for our chemistry design team in 2026. In parallel, we're also planning a foundry run over the next few months with that customer to validate the custom modulator chip design required for CPO. Our third and most recently announced Tier 1 customer will design and build silicon photonic chips with embedded modulators at a state-of-the-art silicon photonics foundry, where it will be the first implementation of EO polymer modulators. Finally, our long-time customer and partner, Polariton continues their steady path to bringing Plasmonics to commercialization. Plasmonics is an exciting new technology that has the potential to accelerate the path to 800 gigabits per second modulation. Our focus there is to support their prototyping efforts and device packaging reliability programs. We have made excellent progress in 2025 in terms of customer acquisition, and our goal is to continue that in 2026. As previously disclosed, 2026 revenue is expected to be driven primarily by material supply and NRE activity. Volume production and licensing revenues are not anticipated until 2027 at the earliest. That time line is deliberate. Qualification cycles in this industry are rigorous as they should be, given the performance and reliability requirements of these applications. We are taking a disciplined approach, working through the necessary validation and integration steps to ensure long-term success. Our focus is on building durable, repeatable revenue streams supported by qualification and design wins, not pursuing short-term or opportunistic revenue. Let's step back to the industry context. According to LightCounting Research in 2018, the share of silicon photonics in the optical transceiver market was 10%. It jumped to 33% in 2024 and for the first time, is expected to be the dominant technology in 2026. Silicon photonics is winning the integration platform battle for hyperscale and AI networking. Why? Because of CMOS compatibility, including for advanced packaging, because of providing a scalable foundry infrastructure, because it is aligned with the ecosystem, because of the supply chain maturity and the cost efficiency. Alternative technologies such as [ 35 ] materials or lithium niobate remain relevant, but the ecosystem center of gravity and momentum are clearly with silicon photonics. Our strategy is simple. We enhance silicon photonics. We do not compete against it. Electro-optic polymers allow silicon photonics to reach higher bandwidth with lower power per bit. This is precisely what AI infrastructure requires. As you know, at Lightwave Logic, we operate as a fabless material and IP platform. Scale comes first to foundries for the front-end silicon photonics chip production. Throughout 2025, we worked diligently at expanding the number of foundries that are able to process the modulator structures required for electro-optic polymer reference design. This was a gating factor in enabling customers already committed to certain foundries. Earlier this week, SilTerra, a pioneer in silicon photonics foundry services, announced the availability of a high-speed modulator platform based on EO polymer through the process design kit, or PDK, from Luceda Photonics. SilTerra, Lightwave Logic and Luceda Photonics successfully completed a wafer tape-out earlier in 2026. Device characterization and performance validation are expected in mid-2026. With SilTerra, GlobalFoundries and 2 other unnamed partners, we now have agreement in place with 4 major foundries with wafer runs either underway or scheduled for the first half of 2026. An additional 3 foundries are under consideration, and we intend to onboard them as our process engineering resources become available. Regarding our back-end processes currently performed in Denver, Colorado, we initiated a production ramp-up program in 2025, focused on supporting multiple wafer size and improving yield, cycle time and equipment efficiency. We are also identifying industrial partners to potentially outsource this portion of the manufacturing process for future high-volume production. This is a result of manufacturing discipline. We are preparing for scalable integration, not boutique deployments. Now let's talk about the market. According to LightCounting's January 2026 report, Ethernet optical transceivers of 100G and above and CPO reached approximately $16.5 billion in revenue in 2025. The market is projected to reach approximately $26 billion in 2026. This corresponds to a 60% growth rate for both '25 and '26. AI clusters are expected to consume roughly 80% of Ethernet transceivers and CPO through 2031. This is not incremental growth. This is a structural shift in terms of infrastructure expansion. The speed road map is also accelerating. 1.6 terabit per second transceivers revenue are expected to reach USD 1 billion in 2026 and 3.2 terabits per second optics volume production will begin in 2028. CPO or co-packaged optics is also moving into early deployment. NVIDIA has announced its first CPO products last year with InfiniBand products entering the market in the first half of 2026 and Ethernet in the second half of 2026. Vendors are now targeting approximately 5 picojoules per bit at 200G per lane. Power efficiency is becoming the gating constraint. Shrinking size is now critical, in particular for CPO. The ability to easily incorporate photonics materials into semiconductor packages is a must. This is exactly where polymer-enabled modulation matters. Growth might moderate beyond '26 and '27, but the base level of optical demand remains structurally higher than pre-AI cycle. This is a multiyear expansion. As a result, our Perkinamine polymer ramp strategy is disciplined. 2026 focuses on expanded qualification test, material supply scaling, yield and performance improvement, materials characterization data set expansion. If design wins conversion to production occurs, 2027 would represent the earliest meaningful volume phase. So to prepare, we are scaling polymer synthesis capacity, strengthening our process controls, enhancing our supply chain readiness and refining our production economics. We are preparing for scale responsibly. Technology alone does not create durable companies, operational discipline does. So in 2025, we maintain effective internal controls, we strengthened our IP protection, we built deeper systems integration expertise. We are building the company infrastructure required to support long-term licensing and material supply at scale. Our 2026 priorities are clear: number one, advance Stage 3 programs towards qualification milestones and Stage 4; number two, convert technical engagements into structured commercial agreements; number three, broaden and strengthen the electro-optic polymer-ready silicon foundry ecosystem; number four, continue performance optimization at 200G, 400G per lane and beyond; number five, prepare operationally for a 2027 production ramp transition. Execution, conversion, scale readiness. AI infrastructure is not slowing. Bandwidth requirements are not slowing. Power constraints are tightening. Silicon photonics is scaling and it needs better modulators. This is where Lightwave Logic fits. 2025 strengthened our foundation, 2026 is about disciplined execution. We remain confident in the AI opportunity before us and committed to building long-term shareholder value. Let me turn the call back to Ryan to moderate our Q&A session. Ryan Coleman: Thanks, Yves. When we announced this call, we invited investors to submit their questions ahead of time. We'd like to thank those investors who took the time to do so, and we appreciate your continued engagement on these calls. Our first question is, company presentations for nearly the past 12 months have indicated that the back end of line process is ready for transfer to a foundry. What specific milestones remain to complete the technology transfer and is transfer dependent on PIC completion with Stage 3 partners and progression to Stage 4? Also, has Lightwave Logic achieved acceptable yields with its wafer scale pulling and encapsulation of modulators? Yves LeMaitre: Yes. Thanks, Ryan. Good question. As I indicated earlier, we intend to proceed with our back end of line process and capacity expansion in Denver to support prototyping and final product qualification. We're also continuing process development in Denver to match the semiconductor industry road map, including migration to, for instance, large or larger wafer sizes. In parallel, we intend in 2026 to bring 1 or 2 external foundry partners to bring high-volume manufacturing scale to our back-end of line process. Ryan Coleman: And our second question, are you able to provide guidance on production volume requirements for 2026? And can you comfortably meet that requirement? Yves LeMaitre: Yes, we are planning for success. So we have made aggressive assumptions related to our ability to win share in 2027 and 2028 in order to determine the volume production of Perkinamine as well as the floor capacity, the number of technicians and the production equipment that will be required at our facility in Englewood, Colorado, close to Denver. My experience in the AI data center market shows that immediately after closing a design win, the ability to ramp-up production is so critical. So you do not want to be caught flat-footed when the time comes for a significant increase of polymer production. We have a good model of yield capacity and equipment required to achieve our production target in 2027. Ryan Coleman: And our next question, can shareholders expect to see an EOP modulator-based pluggable transceiver prototype completed this year? Yves LeMaitre: Well, obviously, our customers are working diligently at bringing silicon photonics PICs to the market in the form of photonics engines for transceivers or CPO. We participate to these programs of suppliers of materials and PDK, but we do not control the full transceiver program. So we will continue to update you on our progress towards Stage 4 throughout 2026. Ryan Coleman: And regarding the products we are working on with Tier 1 partners, when a product is finalized or rolled out, do we expect to see joint press releases? Or how can shareholders expect to be updated regarding their progression? Yves LeMaitre: Well, as we did hopefully today, I mean, we will provide visibility to our shareholders on our progress through quarterly financial and business update calls like the one today. Now when it comes to endorsement of Lightwave Logic by customers, it is in the hand of our customers, and they will decide if and when to issue press release or public announcement. Ryan Coleman: And our last question, regarding the SilTerra announcement, what specific performance metrics will be validated for the mid-2026 device characterization? Were there any limitations or yield constraints identified during the early 2026 tape-out? And can you talk about the announcement and how it fits into your broader foundry strategy? Yves LeMaitre: Yes. Thanks for that question. I mean this tape-out is a really important milestone that will validate both a number of key design and performance parameters for 200G and 400G modulators, but it will also confirm or help confirm optimal foundry process and equipment capabilities. And most of the test results for this specific tape-out at SilTerra are expected by mid-2026. Ryan Coleman: Thanks, Yves, and thank you again to everyone who sent questions. I'd like to turn the call back over to our operator to conclude this conference call. Operator: Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, and thank you for joining the Pine Cliff Energy Fourth Quarter and Year-end Results Conference Call. Today, we will open with remarks from President and CEO, Phil Hodge. Mr. Hodge is joined today by Terry McNeill, Chief Operating Officer; Kristopher Zack, Chief Financial Officer; Austin Nieuwdorp, Vice President, Finance; and Dan Keenan, Vice President, Exploitation. Questions for the management team can be registered on the webcast. Prior to starting, we'd like to remind participants that this call may contain comments on or discussion of forward-looking information. As such, we refer participants to the cautionary statements on forward-looking information included in the presentation on our website, www.pinecliffenergy.com. With that, we'll turn the call to Mr. Phil Hodge, President and CEO. Philip Hodge: Thanks, Chris. Thanks for those joining in and for those who will be listening on the replay that will be on our website. As we've been doing on these webcasts in the past, our intent is not to reread the President's message or the press release that you've already got access to. Many of you already received my quarterly e-mail also that went out last night, which focuses a bit more on the macro, how we see the environment. We received several questions last night, and so I think we'll work through those. But if you've got any other questions, please send them along as we're speaking, and we'll be happy to address them. Philip Hodge: One of the -- probably the most questions I got last night and this morning have been just looking for a little bit more clarity on our Glauc well that we drilled, and we totally understand the curiosity around that because we haven't done any drilling for a couple of years. Everybody is well aware of how much we think of that area and that we're very positive and that we've actually increased the number of Glauc locations that we have in that area to now be in 22 net locations. And for a company of our size, that's significant because these locations are highly valued. That being said, anyone who's been following Pine Cliff or has been a shareholder of ours for some time knows that we're not a neon light type of company, as I sometimes refer to it. We're not going to be out there with the 24-hour type IP rates. We want to make sure we're giving the market a very clear picture of the well. Maybe what I'll do is I'll hand this over to Terry and let him give you a bit more detail on the well. But again, we're not intending to give a lot of production information until we know that we have a more consistent production in history. Terry McNeill: Thanks, Phil. Good morning, folks. Yes, with regards to the well itself, execution went well, drilled ahead of schedule. Overall costs came in consistent with our expectation. The well has been on production for almost 2 weeks now, and it's still in very, very early cleanup. So really hasn't reached a stabilized rate. We're quite encouraged by the early results, but it's really too soon to draw any firm conclusions on any long-term productivity or performance. So we keep an eye on it regularly. And that's probably the best update we can give at this time. Philip Hodge: Thanks, Terry. Yes, our intent will be to -- once we do have a consistent longer-term production history to be able to update the market at that time. But as Terry said, we're quite encouraged by it. And so -- but we just don't want to be in a case where we're giving out information that's either positive or negative on the results. It's just too early, it's too early to say. One question we did get last night was around the infrastructure spend in Q4 around that well. So the 4-23 well is the Glauc well that we drilled in December and brought on in mid-February. At the time, we also put in a sales pipeline and other infrastructure that not only assisted getting the production from that well on but also will be able to be utilized for other wells in the area. So we're pretty happy with where the costs came in at. We're essentially on budget for what we expected to do in that area for both the well and the infrastructure, and are well set up for -- as we look at the back half of this year, I mean, we've got right -- our intent would be to go back to drilling in the Central Alberta area and the Glauconite wells later this year. But we haven't -- like we say, the flexibility that we have is something that's, I think, an advantage. Pricing is -- in AECO is starting to strengthen here over the last couple of weeks. That's a good thing. We'll see how that plays out through the summer. Our plan would be, if we are going to drill and that's our intent, we will be looking at kind of Q3, Q4 as to when we go back to the Sundre area. One of the questions I got, we've had several questions around the data center update. And so again, those of you that follow the Pine Cliff story know that we announced, we are, I think, the first natural gas producer to announce an arrangement with a data center in our Central Alberta. That has not -- I mean, we're -- let me back up. We are a gas provider for all of these types of projects. And so in that situation, that group that we're dealing with seems to be very close to finishing their financing. But it is not within our control as to -- for them to get the final financing put in place so that they can launch construction on the site. There, to date, has been no construction started on the site, but we're still encouraged that, that's going to happen here in the next couple of quarters. And so that's still something that we're working very closely on. In the meantime, we've had a lot of interest on other sites that we've got in the Province of Alberta and even in Saskatchewan about data centers and about power generation in general for various uses. We continue to talk to all groups about this. I mean our goal is really to try to get a premium price for the molecules that we produce. And how that gets -- how we do that and where it gets used and how it gets used, that's all part of these discussions because it kind of varies among the parties. But it's -- our goal would be to -- for the same production that we have today to be able to get a more premium pricing on it. And so those, we will -- as projects get put in place, we'll update the market. The fact that we've got as many groups interested in some of the sites that we have, which are, we think, are very conducive to these types of projects where they've got good natural gas, they've got fiber availability in several of the sites we own the land. So therefore, it could be co-located with our existing industrial facilities. So there's a lot of reasons why we think that this is an area that has got potential for Pine Cliff. But it's a slow -- everybody is figuring out the regulatory process. Everybody is -- again, a lot of these groups are getting their financing put in place. The Province of Alberta has announced that they want to attract $100 billion of data center development to the province, which is great. And there's been a lot of announcements. I referred to a lot of them in my e-mail that you would have received last night, if you're on the e-mail list. But there's only so many projects that actually have started construction. And again, that's not surprising. These are, in many cases, multibillion dollar type projects. And so there's a lot of steps that need to be done before they're actually going to break ground. That said, it's quite encouraging on how much activity there is in this area. Another question received, got a couple of people ask me about kind of what's the impact of the European situation and with the Iran war. Right now, all of the natural gas that can come out of North America really is already allocated. In other words, the LNG capacity, that's what prohibits us from sending more gas over to Europe when there's clearly a strong demand right now for gas in Europe. Pricing has gone back over $12 an Mcf, whereas here in Canada, it's at $2 an Mcf. That arbitrage really can't get closed without more LNG export capacity. And there's lots of -- as many of you know, Canada, the LNG Canada is now well on its way to getting its Phase 1, reaching its capacity of 2 Bcf a day. That's great. Hopefully, we'll see a positive investment decision on Phase 2 sometime in '26. That will take it to, hopefully, at 4 Bcf a day. There's other projects underway. But in the really short term, there's really nothing that the North American producers or the North American LNG can do to send this -- to send more gas to Europe. So I think the issue that the Europeans are having is right now with the Strait of Hormuz shut in, a lot of LNG that's coming out of Qatar, a lot of other -- the supply chain for LNG has been disrupted. And therefore, there's a concern that they're not going to be able to put gas into storage, not so much for this winter because we're already kind of through this winter. It's about getting ready for next winter because they had a fairly cold winter. And so their storage was depleted. And now if they don't -- aren't able to fill it, there's going to be a real panic on -- for natural gas in Europe for next year. And you can see that already. There were some headlines this morning about Putin threatening that he could cut off natural gas to Europe if they don't allow oil and natural gas exports, if there's any kind of embargo put on Russia. That's a significant threat because the European nations still use a lot of Russian gas. They don't use as much as they did before, but they still use a lot of Russian gas. So there's a lot of dynamics. What it does do is that -- and there was a piece that came out this morning, just looked at the chart about how many new LNG projects have been announced. You'll see in our presentation, all the LNG projects that are under -- that are currently in operation and those ones under construction. Well, there's another wedge on top of that, which is new announced production and future capacity builds on LNG. That would take it to well beyond 40 Bcf a day coming out of North America, which is a massive number. Today, that number is around 20 Bcf a day. And that's been a huge increase from where it's at. So I think all of this global dynamic pricing really does have an impact on the future viability of more LNG projects coming on because you're getting -- this is why our Prime Minister is traveling around the globe right now. It's also why we're seeing more and more requests for Canadian energy around the LNG. So the one thing I would say about the impact of the war, I mean when we saw oil prices, the spot price is $78, $79 this morning. You'll see in our financial statements that about every dollar increase in WTI equates to about a $1.4 million increase in annual cash flow to us. So we are Pine Cliff even though we are 80% gas. That move in WTI moving oil prices does have an impact on our cash flow statements of a pretty material nature. I think the only other question that I kind of got from last night was just on our hedging. I think our hedging is pretty well set out. Kris has done a good job of -- and it's in our press release. You can see that we're fairly well hedged going into '26, protecting the summer prices. But also, like I say, locking in some pretty -- some prices that we're pretty comfortable going forward. I don't know, Kris, if you want to comment just generally on how we kind of look at hedging going forward? Kristopher Zack: I would just only add that we'll continue to hedge where possible to continue to protect our cash against near-term volatility. So again, just to reiterate what's in the press release, 37% of our gross natural gas production is hedged at an average price of around $3.19 for 2026 and around 31% of our crude oil production at around USD 63.45. Philip Hodge: Thanks, Kris. So I think that covered all the major questions that we've received either this morning or last night. I mean, you've always got access to us if anybody wants to talk further. It's been a challenging quarter because it's Q4. As you saw in the numbers, it was actually pretty good. AECO was moving up nicely. That has a big impact. We're obviously highly correlated to AECO price moves. Q1, AECO was -- it came down, and the reasons for that was primarily because of the warm weather in Western Canada, but also the LNG Canada delays because there were some technical issues. But as that ramps back up, as we head into the back half of this year, where we're going to hopefully see LNG Canada back to kind of get to their capacity around 2 Bcf a day. There's a lot of reasons for us to be positive. And our goal will be to continue to kind of allocate capital to the best we can, to both continue to lower our debt, which is something that we think that just makes us more flexible going forward for potential opportunities, but also to continue to finance the drilling program because we think having that such strong locations that can deliver such positive returns, that's something we should be allocating capital towards. And all in the backdrop of all of that, we continue to keep the dividend rolling. I mean very proud of the fact that a company of Pine Cliff's size has been able to pay over $100 million of dividends, which is almost $0.30 a share since we started the program in summer of -- sorry, summer of '22. So okay. Well, if there's no further questions, we won't take any other time away from you. Thank you very much for your attention and for your ongoing interest in Pine Cliff. Have a good day.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Baytex Energy Corp Fourth Quarter 2025 Financial and Operating Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. [Operator Instructions] 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, Ashida. Good morning, and welcome to Baytex's fourth quarter 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 between 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. And 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 Greager: Thanks, Brian. Good morning, everyone. 2025 was a defining year for Baytex. 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 a significant upshift in the trajectory. Baytex 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 discipline, 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 remain interrupted. I have complete confidence in Chad's leadership and ability to drive our next chapter. I'm proud of the foundation we've built together. Baytex is in excellent shape, and I look forward to its continued success under Chad's leadership. I now turn the call over to Chad Lundberg for his remarks and a detailed operational overview. Chad Lundberg: Thank you, Eric. I appreciate the Board's confidence, and I'm excited to lead Baytex 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. Our 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 a 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 on stream this year, a 50% increase over 2025. We currently have 1 rig drilling a 4-well pad on our southern acreage. Completion operations are scheduled for the second quarter with the wells expected on stream by midyear and the remaining 2 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 12 years of drilling at our current pace of development. In total, we expect to bring 91 heavy oil wells on stream in 2026. We are pleased with the expansion of our Northeast Alberta acreage, where we are currently targeting 7 discrete horizons in the Mannville stack. Recent success includes 2 multilateral wells in the Sparky and a 5-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 2 waterflood pilots 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'll turn the call over to Chad Kalmakoff to discuss our financial results. Chad Kalmakoff: Thanks, Chad, and good morning, everyone. Our 2025 financial results demonstrates 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 $275 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 USD 59 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 $148 million impairment on our Viking assets. These noncash adjustments have no impact on our cash flow generation outlook for 2026. Turning to the balance sheet. We exited 2025 in the strongest financial position in Baytex'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 $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're maximizing the 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'll now turn the call back to Eric for closing remarks. Eric Greager: Thanks, Chad. To build on those points, this focused, high-return Canadian company is the next chapter for Baytex. For 2026, our operations are on track and our annual guidance of 67,000 to 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'm proud of the trajectory we've established. We are now positioned to demonstrate the true potential of this Canadian portfolio. Operator, let's open the call for a line of questions. Operator: [Operator Instructions] The first question comes from Menno Hulshof with TD Cowen. Menno Hulshof: Congrats to both of you on the transition. Yes, I'll just start with the question on the growth outlook. You're 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 Lundberg: Thanks, Menno. It's Chad. I'll take a crack at answering your question. So on growth, yes, I mean, we've 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're actively monitoring the macro kind of picture and situation right now and we would expect to make any decisions on increased growth at the breakup time frame. 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. We'll look at that 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 potentially another pad in the Duvernay that may look like a drill that gets ducked into next year and completed or continued expansion in that Northeast Alberta Fairway where we utilized the 2 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've got 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're not moving it too fast, but those will come kind of decisions through breakup. Menno Hulshof: Terrific. 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. Like 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 next, call it, 12 to 18 months? Chad Lundberg: So we're deploying 2 pilot projects this year. One is into the kind of part of the play that we've been actively drilling to this point. So you can expect that we produce barrels out of the well that's going to be converted ultimately into an injector. What we're 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're actually drilling the producers and the injectors simultaneously with each other, and we'll turn them on together at the same time. So what's all this mean? I mean, certainly, the waterflood has been doing great things for our industry. We're not sure what happens with our rock. That's why we've 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's really part and parcel to the incremental pressure that we have in situ in the rock itself. So there's 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're 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 18 months? I think we're going to work very hard to try and understand this through kind of 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're just going to have to wait and see Menno where we go. Menno Hulshof: Can you remind me, I should know this, but when is the last time Baytex dabbled in waterfloods, if at all? Chad Lundberg: Yes. So I mean waterflood is not new to Baytex at all. We've actually been at it for 2 decades. Waterflood and then also polymer floods. It just depends on the quality of rock and then oil that we're working with. But you could think about it this way Menno, approximately 10% of our heavy oil production so 43,000 barrels a day is waterflood derived production. So not new to the story, and it's not foreign to us. We've got technical capacity and teams to really, we think, advance this forward. Operator: That's 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: Yes, there are a few questions coming through the webcast. I'll try and run through those with you here, Chad. Menno spoke to sort of the current WTI price environment and optionality and growth. But another question comes in around, I think it's referencing sort of breakeven prices. Is there a WTI price that we would sort of pause the growth scenario, Chad? Chad 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 certainly, the flexibility is we've built the program to pull that back below $60 oil. I think that's how we think about our growth. And again, we're just really observing the macro climate right now. Obviously, it's incredibly dynamic. And we're taking it in and 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 just can you speak to the capital efficiencies, meaning that you see in the business generally chat and steps we can take to continue to work on the cost of production and efficiencies overall. Chad Lundberg: Yes. Brian, I think that gets into how we've laid out the budget for 2026. We've started a 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'll just give an example in the Duvernay. The infrastructure spending is at a higher and elevated pace for the next 3 years and then falls off post 3 years to a much lower rate. That flows right through to capital efficiencies and excess free cash flow to the shareholder. If you look in our investor pack, we've done 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 our capital costs by 11%. So both of those flows straight through to capital efficiency. Maybe just a little bit on the heavy oil program, touched on the $50 million that's allocated to exploration. This is absolutely intended to enhance and lengthen our inventory position. And I think some of the wells that we released through Q4 of last year, up in the Sparky in the southern area, some of our upper Waseca wells as we step through that Northeast Alberta area and the 7 different layers in the Mannville stack, we're pretty excited about what it's doing for capital efficiency. I would make this motherhood statement, though, to end the conversation. We're 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: Chad. Let's shift gears to a couple of questions and conversations around the net cash balance sheet that we have. It's around $800 million and Chad just I know we've talked a little bit about the NCIB in the prepared remarks, but how did we see allocating that $800 million going forward? Chad Lundberg: So we've been pretty clear that a good portion of that is going to be returned to the shareholders by way of buyback. Chad Kalmakoff in his prepared remarks, talked about the NCIB as the preferred vehicle over an SIB at this point in time. But we've 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're still committed to that. Brian Ector: Maybe along those lines then, Chad, just when you look at buybacks, how would we evaluate kind of the market price, the value and where we see value in the buyback program itself. Chad Lundberg: Yes. So I would start here about 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's 3 things we look at. One is the macro commodity environment. And so we'd like to think about really acting countercyclically and respecting where we're at in the cycle. The second though is just how are we trading relative to our peers. And so as we evaluate that, it looks like we have a 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're 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 all 3 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. One question I turn over to Chad Kalmakoff, our CFO. Chad, can you just talk to our -- the existing hedges in place, maybe WTI and WCS, what the policy will look like going forward? Chad Kalmakoff: Sure. We have hedges in place kind of through the back half of last year, collared structures put for us at 60. Through the transaction, we maintain those. So we'd be roughly, I'll call it, 60% hedged on TI Q1 and about 50% -- 45% to 50% hedged in Q2. Nothing has changed policy wise. I think we always talked in the past about a strong balance sheet is the best hedge you can have. So going forward, I think we obviously have a very pristine balance sheet. I wouldn't 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're 45% to 50% hedged on WCS this year at about $13. We still think that's an important piece of business to keep hedging to kind of prevent any financial impact from major blowouts. So summary, WTI, those will be rolling off here at the end of June. I wouldn't expect us to be that active in the hedging market on WTI, maybe in specific circumstances continue to kind of hedge differentials. Brian Ector: Okay, great. I think that's 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 didn't get to address, please reach out to our Investor Relations team and we'll follow up directly. Thanks again for your time today. And 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: Good day, and thank you for standing by. Welcome to the Prada Group Full Year 2025 Results Presentation. [Operator Instructions] And please note that today's conference is being recorded. I would now like to turn the conference over to Mr. Andrea Bonini, Group CFO. Please go ahead, sir. Andrea Bonini: Good afternoon, everyone, and thank you for joining Prada Group's Full Year 2025 Results Conference Call. This is Andrea Bonini Group Chief Financial Officer, and I'm delighted to be with you again. I'm joined by Mr. Andrea Guerra and Mr. Lorenzo Bertelli. The agenda for today's presentation is on Page 4, and as always, it will be followed by Q&A. As a reminder, during today's call, we may discuss forward-looking statements, which are subject to risks, uncertainties and factors beyond our control that could cause the actual outcome and returns to differ materially from such statements. Please refer to the disclaimers included on Slide 2 of our presentation. With that, I will hand over to Mr. Guerra. Andrea Guerra: Hello, and welcome also by my side. Obviously, we are here today during a very peculiar moment, a period of turmoil in Middle East. We do not know what will happen, but we hope it will be short. And let me be -- let me say something. Let me be very close to all our associates and all our people on the ground today in Middle East to all our stakeholders in the region in this specific moment of pray, reflection and community, we're very close to all our people in the region. Having said so, and I think this is paramount. I would love to start off saying that 2025 for our industry has been a very challenging year. I can state, and we can state that during the last 3, 4 years, the industry lost something like 1 consumer out of 5. In this long period, the Prada Group has been very solid and not only for the past years, but also in 2025. Retail sales in 2025 have grown again throughout the year, mostly or mostly entirely again, like-for-like, marking another plus 8% at the end of the year. We have been able against strong comps of 2024 to keep Prada on a breakeven like-for-like and most importantly, a sequential improvement through second half compared to first half. Miu Miu finished Q4 at a plus 20% on a plus more than 80% of a year ago. And it's obvious looking to the trend in the last 4 quarters that we have begun our growth normalization journey that will continue during 2026. 2025 has been for our both brands, a very interesting journey. Why interesting? Because we were able to showcase a lot of novelties, a lot of new ways of doing things, utilizing new tools, really upgrading our capability on digital technology and artificial intelligent tools to do what, to become closer, to upgrade significantly product intrinsic value, to be sure to allow all our consumers to understand and therefore, to tell them the stories around products that were coming out of the market, upgrading significantly our hospitality inside the stores and outside the stores and in the redefinition of new stores, flows. On the other side, always in this new normal we have been very clear and very focused on enterprise products and ranges. During this year, we did not only perform solidly, but we continued investing on our people on their know-how on their motivation. We have continued investing on our strategic digital plans and AI tools. We continued investing over proportionally on desirability and awareness of our brands. And we have continued to invest over proportionally versus sales on our stores to upgrade aesthetics and even more important to increase our hospitality standards. And even if the level of investments on all these cost lines have been overproportionate, we were able to keep a steady profitability, which means that what we committed upon which was being more productive and be more efficient, we have been able to do it in all other profit and loss lines. And do not forget, and Andrea will be obviously much more detailed of me on this, the amount of FX headwinds, we have been leaving and we will continue to experience in 2026. Last but not least, we began during December, our journey, closing the acquisition of the Versace brand. What does all this mean? We have been talking about a new normal. We have been talking about digital tools really coming to a standard use. We have been discussing about hospitality. It's obvious that we are entering a new journey now together with Versace. And this means that on one side, we have new achievements to be accomplished during 2026, '27 and '28. And on the other side, also the commitment to constantly grow over market range. During this next period, we feel that the Prada performance will be solid and to really reaping all benefits of desirability first and all actions and investments in place. We are consolidating Miu Miu's success, enhancing awareness and driving growth through 2026 with very different weights on the 2 halves. The first half is more challenging because we were yet in a plus 40%, 45% range a year ago. Therefore, we expect a first half to be in the single-digit growth, but yet being able to show a much solid trajectory for the full year. We are beginning the journey with Versace, a year of consolidation, a year of synergies and a fantastic start to shape the creative vision. The journey will go through a first phase of channel repositioning, supporting high-quality full prices and distribution. And we will see what this means for the numbers of Versace and for the overall performance of the group. I will now turn the word to Lorenzo and Andrea to give you a full view of Prada and Miu Miu brands, numbers, performance and also an initial view of Versace first steps in 2026. Lorenzo Bertelli: Good afternoon. Thank you, Andrea. First of all, I would like to highlight how Prada continues to strengthen its position as a cultural and creative leader, not only by setting trends but also by consistently elevating the brand experience across all touch points. All the core of this performance is authentic creativity. Throughout the year, our fashion shows reaffirmed Prada's ability to anticipate and shape contemporary culture, translating a deep understanding of the present into a clear, distinctive aesthetic language. This creative strength was equally evident in our communication. We delivered highly impactful campaigns that combined cultural relevance with strong brand desirability. At the same time, we continue to build a multifaceted brand universe throughout unique experiences and long-term partnerships. A key milestone was the opening of Mi Shang Prada Rong Zhai, our first stand-alone restaurant in Asia, considered by renowned director Wong Kar-wai. This project perfectly represents our approach to hospitality as a cultural expression where fashion, cinema and lifestyle intersect in a meaningful way. Enhanced retail concept contributed to strengthening the client engagement. New hospitality venues in Shanghai and Singapore, the landmark retail opening in New York and the refined setting of Prada Alexandra House in Hong Kong are some of the key milestones in the evolution of the store footprint over the year. In parallel, our long-standing partnership between Prada Linea Rossa and Red Bull allowed us to engage new audiences through high-performance sportswear projects, reinforcing the brand's connection to innovation, performance and contemporary lifestyle. Finally, Prada continued to play an active role in shaping the contemporary cultural debate with signature initiatives in London, Osaka, Abu Dhabi and Milan. These events were complemented by special projects and activations such as Days of Summer and The Sound of Prada, which further expanded the brand reach. All of this reflects our ongoing commitment to creativity as a strategic driver of value. This slide illustrates how Miu Miu continues to stand out as one of the most desirable and relevant brands in the luxury landscape, driven by a language that is both distinctive and highly distinctive. At the heart of Miu Miu's performance, is a vibrant disruptive creativity, which consistently fuels the brand desirability. Throughout the year, Miu Miu maintained an exceptionally high level of buzz supported by fashion shows that were widely acclaimed and strongly resonated with both the fashion community and broader cultural audiences. This creative energy was amplified by our campaign, which features the diverse and influential cast of talent reinforcing Miu Miu connection with the new generations of consumers. Special projects played a key role in engaging and expanding Miu Miu's ever-growing community such as our collaboration with New Balance and the American Tennis Champion, Coco Gauff as well as the exploration of new creative territories through Catherine Martin's Upcycled collection accompanied by her directorial debut short film, Grande Envie. In addition, the launch of Miu Miu's first fragrance with L'Oreal Miutine marked an important step in expanding the brand's universe. Experiential activations such as the Atheneum and Gymnasium pop-ups further enriched Miu Miu's signature codes, transforming retail into spaces of discovery and cultural exchange. In parallel, Miu Miu continued to reinforce its distinctive cultural positioning throughout event initiatives that deepens its long-standing dialogue with arts. Finally, all the initiatives were accompanied by a mix of openings and renovations that elevated the store network for enhanced customer journey. One, London and Tokyo were among the most significant projects embedded over the period. Overall, Miu Miu's strength lies in its ability to combine strong desirability with authentic cultural relevance, a balance that continues to fuel growth and engagement. Let's move now to ESG. Over the past year, we continued to execute our sustainability strategy across our 3 pillars: planet, people and culture. On the environmental front, we made tangible progress across both our operations and supply chain. Investment in green energy and low impact solutions enabled us to exceed our approved science-based target for Scope 1 and 2 greenhouse gas emissions, a result that confirms the strength and discipline of our decarbonization pathway. At the same time, we advanced our raw materials conversion plan, strengthened environmental data collection across the supply chain, expanded our water stewardship initiatives and further improved responsible chemical management. Equally important is our commitment to people. During the year, we reinforced our efforts to foster a fair and inclusive workplace. We achieved the gender equality certification in Italy, rolled out our worldwide people culture forums and delivered D&I awareness training programs in line with our global D&I road map. This year also marked the 25th anniversary of the Prada Group Academy, a milestone that reflects our long-standing dedication to preserving artisanal excellence and supporting generational transitions. Culture remains a defining element of our identity. Through our partnership with UNESCO and SEA BEYOND projects, we further strengthened our commitment to ocean education, opening the first Ocean Literacy Center in Venice, launching a dedicated Multi-Partner Trust Fund and Ocean Educational Exhibition in Shanghai. We also renewed important partnerships supporting Urban biodiversity and cancer research. Overall, the year reflects consistent progress and a clear commitment to creating a sustainable long-term value. I will now leave the floor to Andrea for the financial review. Thank you. Andrea Bonini: Thank you, Lorenzo. Before we dive into the numbers, let me remind you that we completed the acquisition of Versace on December 2, and therefore, we consolidated one month of contribution from the brand into our financials. In the presentation, we will also provide growth rates excluding this impact, to which we refer as organic growth. With this in mind, let's now move to the key financials. The group reported net revenues of EUR 5.7 billion, up 9% versus fiscal year '24 at constant FX. On an organic basis, revenues grew 8% year-on-year. This performance delivered against high comps throughout fiscal year '24, marks the fifth consecutive year of growth at group level. Exchange rates had a negative impact of 380 basis points on revenues and the increase at current exchange rates is therefore plus 5%. Retail sales for the period totaled EUR 5.1 billion, up 8% organic versus fiscal year '24 and up 28% versus fiscal year '23 at constant FX. EBIT adjusted reached EUR 1.32 billion in fiscal year '25 with margin of 23.2%, including the dilutive impact of Versace. Pre-Versace consolidation, EBIT-adjusted margin was steady versus 2024, in the context of significant investments across functions and FX headwinds. On a constant currency basis, EBIT adjusted margin improved year-on-year. Finally, thanks to the significant cash generation we maintained a healthy balance sheet, closing the year with a net debt position of EUR 466 million after EUR 620 million of CapEx cash out, including real estate, EUR 1.2 billion for Versace acquisition and EUR 420 million of dividends. Moving on to the next slide. Retail continues to be the key driver of the top line performance, up 9% versus fiscal year '24 at constant FX, 8% on an organic basis, driven by like-for-like full price sales and with a positive contribution from both average price and full price volumes. The fourth quarter delivered a solid performance, up 6%, notwithstanding the challenging comparison base. As a reminder, in 2024, retail channel growth was remarkably consistent at plus 18% in all quarters. Contribution from space remains limited in the low single-digit region. Wholesale was up 4% year-on-year, 3% on an organic basis, reflecting the usual selective approach with independents. Q4 at minus 1% organic was impacted by our cautious stance on shipments to Saks Global, and we are pleased that business with this important strategic partner has now resumed. Royalties were up plus 19% year-on-year, plus 14% organic, supported by both eyewear and fragrances. Turning to next slide, retail sales by brand. We are pleased with the performance of our brands as they continue to enjoy high desirability and relevance in a challenging context. Prada showed good resilience, closing the year at minus 1%, with Q4 delivering further sequential improvement and turning positive despite the more difficult comps supported, in particular, by Mainland China, Korea, Japan and Americas. Miu Miu delivered sustained growth throughout the period against exceptionally high comps. Retail sales grew by 35% to reach EUR 1.6 billion. Growth was well spread across all product categories and regions. Q4 sales were up by 20% against plus 84% in 2024, with growth remaining well balanced. As a result, the brand contribution to group retail sales increased to 31% against 25% in fiscal year '24. As for Church's, the strategic efforts of the past years continue to keep the brand on a positive trajectory, driven by like-for-like sales. Moving to the next slide, retail sales by geography. We are pleased to report that the group achieved growth across all regions. Asia Pacific showed a good progression over the year at plus 11%, plus 10% organic with Q4 broadly in line with Q3, notwithstanding the higher comps. Positive performance in Europe, up 5% over the year, plus 4% organic. We saw softer trends in the second part of the year with strong multiyear comps and lower tourism weighing on the region. Consistent double-digit growth in the Americas, with sales up 18% plus 15% organic, driven by local demand. Japan delivered growth notwithstanding the exceptionally high touristic flows of the last year, closing the year at plus 3%. Q4 showed some improvement versus Q3, driven by both solid local demand and increased traveler flows, notwithstanding the geopolitical tensions in the region. And lastly, the Middle East also delivered a solid performance at plus 15%, we're moderating trends in the second part of the year on high comps. Turning to the next slide. Gross margin reached 8.3% in fiscal year '25, up by 50 basis points, thanks to operating leverage and channel mix, while the dilutive impact from Versace consolidation for only one month was negligible. Excluding the consolidation of such and strong FX headwinds, EBIT adjusted margin improved, driven by slightly higher gross margin. G&A savings coming from efficiencies and operating leverage which more than offset higher marketing and selling costs. Including the dilutive impact of Versace consolidation, as shown in this page, EBIT adjusted reached EUR 1.32 billion, corresponding to an EBITA adjusted margin of 23.2%. And finally, net income reached EUR 852 million, an increase of 2% versus fiscal year '24. Moving to the next slide. CapEx for fiscal year '25 was EUR 617 million, EUR 535 million excluding real estate as we continue to invest across retail, industrial capabilities and technology. On the retail side, as you've heard from Andrea, investments were concentrated on the enhancement of the store presence with renovation projects and control new openings and enlargements at both Prada and Miu Miu in line with the objective of furthering the relationship with clients. Aside from retail, we continue to strengthen our industrial capabilities, investing into our infrastructure and to progress on the digital evolution journey as we started to reap the benefits from our multiyear system upgrade plan. We expect CapEx as a percentage of sales to start reducing from the current fiscal year. Moving to the next slide. We are very pleased with the evolution of net working capital and the control of the inventory, showing further improvement year-on-year on an organic basis, with incidents on net sales declining from 15% to 14%. And lastly, we retain a healthy balance sheet post acquisition with net debt of EUR 466 million. The Board of Directors has proposed a dividend per share of EUR 0.166, which compares to EUR 0.164 last year, which would result in a total dividend of EUR 425 million and a stable payout ratio of 50%. I'll now pass it back to Lorenzo for an update on Versace. Lorenzo Bertelli: Thank you, Andrea. As we have said in the past, we are very excited about this new chapter. With Versace, we welcome a brand that has made the history of fashion and glamor as we know it today. It's estate is bold unique, represent modern elegance and constitutes highly complementary addition to Prada Group's existing portfolio. We started this journey being able to count on a lot of strengths. First of all, remarkable and long-standing awareness; second, resonance across a diversified client base, which has limited, if not overlap with our customer base. Third, strong legitimacy in haute-couture and across product categories, balanced across men and women. Lastly, strong cultural relevance, rich archive and solid brand equity. Because of this, we believe the brand offers multiple untapped levers of growth. We are aware that this won't be an overnight task, but a passionate journey towards the brand's full potential, and that's why the timing of our initiatives will be of the essence. In terms of priorities, the following slide highlights the key actions we are going to implement in the next months. Creativity will be the foundation of our work, and we have taken a first important step into this direction with the appointment of Pieter Mulier as Chief Creative Officer. Pieter will join in July, and we are very excited to have him on board. In the meantime, we will continue to assess the core collection and product lines to identify areas of improvement in terms of quality and structure. The second building block of our plan will be a gradual channel repositioning. We will progressively shift the focus towards quality, full-price sales and distribution. At the same time, instilling a retail excellence mindset will be essential for improving in-store execution. In parallel, we will progress with the integration process across functions, and we expect to complete the separation from Capri Holdings in H2. Looking at 2027 and beyond, we will essentially bring all of these areas to the next level as we lay down the basis for the building long-term desirability. At the beginning of the year, we'll present Pieter's first collection showcasing the new creative vision rooted in the brand's original spirit and DNA. The collection will also continue to evolve as we progressively reposition the brand and relaunch special project like Atelier Versace. We also continue with the network optimization as we progressively rationalize the off-price channel and the markdown practices while focusing on driving in-store productivity with self-help initiatives in terms of retail execution. All these actions will be supported by a further integration of activities and processes across the organization to unlock synergies opportunities. Now back to Andrea for some financial considerations. Andrea Bonini: Thank you, Lorenzo. In terms of financials, as already explained, we consolidated only one month of the business in 2025. On a full year basis, the brand generated revenues of approximately EUR 680 million. Looking ahead, 2026 will be a year of transition for the brand as we navigate the change in creative leadership. We also want to commence the path towards a healthier, more sustainable and more profitable business conscious that we have to move back to go forward. Therefore, we will further clean up the collections discontinuing Versace Jeans Couture and leaving no sub-brands in existence in ready-to-wear and other core categories. At the same time, we will start to implement a greater discipline in terms of discounting while remaining mindful of the commercial needs. On the wholesale front, we expect progressive stabilization, and we will start implementing some actions to rebalance the commercial relationships on healthier terms. All in all, we expect this to translate into a mid-single-digit top line contraction at constant FX, which is likely to become high single digit at current FX. Turning to profitability. First of all, let me point out that the company's initial margin is at a good level in relative terms to our industry. However, we believe that quality must be improved and also that initial margin is diluted by significant discounting. Therefore, we'll progressively invest in quality. On the other side, we will start implementing greater discipline on discounting. All considered, in fiscal year '26, we expect gross margin to be relatively stable with a caveat on duties as the situations remain fluid. In terms of OpEx, we have acted decisively, and we will see the benefit of initial synergies and savings. This will be partially reinvested in strategic areas like visual merchandising and marketing, while we maintain cost discipline on all other nonstrategic items. All in all, we expect to be able to mitigate the negative impact coming from the top line reduction, and the EBIT loss will not be too dissimilar from the one incurred in fiscal year '25. The target is to limit that to a 2-digit figure. Now moving to the next slide. Let's translate that into a group view. On top line, for 2026, our ambition is to continue to generate solid, sustainable organic growth at Prada, Miu Miu and group level. Prada turned positive in Q4, and our expectations are for a solid year. Miu Miu is now lapping the fourth consecutive year of very significant growth, and we have continued to observe normalization. As Andrea mentioned at the beginning of the call, H1 is particularly challenging with Q1 at plus 60%, and Q2 at plus 40%. Nonetheless, we aim for another year of growth. We already discussed Versace in the previous slide, so it doesn't require any further comments. Last point on top line. We expect to continue facing meaningful FX pressure in fiscal year '26, similar to 2025. Turning to profitability. Let me first discuss expectations excluding Versace. We remain committed to continue to deliver some degree of organic margin progression on a yearly basis. Marketing spend will slightly increase as a percentage of sales, and we expect to continue to achieve efficiencies in labor, rent and G&A. So leaving aside the impact of Versace, as long as the group top line growth in reported terms remains in mid-single-digit territory, we can deliver a steady EBIT margin without acting more drastically on investments or costs. Versace's consolidation will result in EBIT margin dilution in fiscal year '26, and our target is to resume progressive improvement from 2027. With that, I'll hand over to Andrea Guerra for closing remarks. Andrea Guerra: We're very happy to have shared with you our 2025 performance and to share with you our initial thoughts on future journey. Years ago, we committed to an upgrade an evolution of our ability to have a stronger and more proactive relationship with all our clients and potential clients, to be more efficient and productive in our retail network and overall in our company, to empower and upgrade our people, wherever they are in the group, aligning them constantly to their brand missions. We achieved solid constant growth. We significantly improved in all our consumer-faced activities. We have seen profitability increase year-by-year, working capital sequentially improving and therefore, cash flow. So obviously, we are pleased for all these achievements and all these activities. Now we're entering a new journey, which is made by all the things that we have already talked about in constant evolution plus Versace. We are committed. We're working hard. We will be patient to have the right pace. Obviously, in this new normal world, agility and efficiency remain nonnegotiable. I will try to anticipate some of your questions now. How are these first months? Trajectory for Prada is improving. As Andrea said, we are expecting a solid year for Prada. And we had a solid Chinese New Year full period, like-for-like on last year's and in the whole Asian region, except Japan, where Chinese tourists were much less present. But on the other side, fortunately, in Japan, we are winning with our beloved Japanese local clients. Europe started January slow and improved with Milan Olympic Games and Fashion Weeks. Obviously, Europe for Prada and Miu Miu are challenged by very high double-digit comps for the past years, not year. Korea is still strong. North America is still very strong. And obviously, I will repeat that we are here to challenge ourselves to keep a growth rate higher than market average with trajectories which are different from our different brands as stated during our presentation. With this, I would like to thank all of you for listening and we are now open to your questions and comments. Operator: [Operator Instructions] We are now going to proceed with our first question. The questions come from the line of Ed Aubin from Morgan Stanley. Edouard Aubin: So the first one is going to be on top line to Andrea Guerra. So you mentioned that you expect -- or sorry, maybe it was Andrea Bonini mentioning that you expect a solid growth for Prada in 2026. Could you please kind of define solid? Should we understand that you expect to grow kind of low single digit at constant FX for Prada after a minus 1 in '25 or would that be even higher than that? And if so, what kind of is going to drive the reacceleration from '25 to '26 and then regarding Miu Miu, do you think a double-digit growth at constant FX is something which is achievable or given the difficult comp that might be difficult to achieve? So that would be question number one. Andrea Guerra: Hello. Yes, we -- you're asking for a guidance, and we are not giving guidance, especially in this world today where, I mean, in the last -- only last 6 months, we have been living any positive and negative and side effects. So I hope that we use the proper words. We have been very careful on adjective we were using, and I will not comment further. The only comment I would do is that if everything goes well, we will be double digit on Miu Miu. But with this world, things could be different. Edouard Aubin: Got it. But maybe Andrea, if I can just follow up. Not asking for a guidance, but again, you talked about your expectation for a solid growth for Prada brand in '26. Again, without quantifying you were down 1% in '25. So if you could please elaborate on why you think you're going to reaccelerate in '26 versus '25? Andrea Guerra: Sure. We had a peak down in central months of the year and the central months of 2025 or else we would have been pretty positive in 2025 as well. I think that we can cover those months with a positive rate. We have been positive since August. August, September, October, November, December were positive. In December, it's a question sometimes of calendar where a year, you've got a couple of days gift a year, you got a couple of days back. And this was a case where we gave it back or else in a kind of organic manner, we were a little bit more positive. Having said so, I think we have a rhythm of product innovation, of product evolution of activities, of events. We -- I think we have reached a level of maturity on a number of retail activities and hospitality activities. And we're also beating our own sometimes mind effects on very high transactions. So these are all the reasons why I feel solid as we said. Edouard Aubin: Got it. And my second and last question, and maybe for Lorenzo on Versace. So you've been appointed Executive Chairman. Congratulations. You also mentioned that you've hired Pieter Mulier, which is -- who is obviously very well regarded in the industry. Is the team in place now? And did you hire mostly from the Prada Group, you had transfer? Or did you hire external people. And again, how fast it seems that you want to not rock the boat, so to speak, too quickly with the rationalization of the store estate and the outlets. But how do you -- how fast are you ready to move on kind of shrinking to grow the business longer term, yes? Lorenzo Bertelli: Thank you for the question. No, I would say it will be balanced. Let me start from the end of your question, then I go back to the other. So the priority for sure is at the full price in the retail network and then also the rationalization of the outlet also thinking that with the new collection coming out from Pieter from next year, you will have previous collection that, of course, they will need to accelerate to the outlet. So outlet will come later for sure, for the full price. Then regarding to the question organization, I think it's quite a hybrid because we have some of the functions that have been absorbed in the group function typical back office function like IT and others. And so it's more like efficiency, poor efficiency, other function. We simply had streamlined a bit the organization, so not like key significant outside role except that you heard on journal like the shift of the supply chain that was coming from Valentina was a former Prada historic employee. So external but let's say, part of the family in the past. And at the moment, more or less, we are happy like this also with Emmanuel and a CEO. So -- then we will take for sure, the next 6, 8 months to even better understand the organization and we will see. But at the moment, we are for sure happy. Of course, with Pieter, we will have some changes in the design offices, but I would say, normal stuff and that's it. Operator: We are now going to proceed with our next question. And the questions come from the line of Thomas Chauvet with Citi. Thomas Chauvet: I have two, one on revenue and one on the Middle East. The first one on Versace revenue contraction that you anticipate for this year from EUR 680 million last year. We understand it's largely self-inflicted due to the channel repositioning. Can you give us an idea of the magnitude of the store closures you are planning? Are there also some wholesale rationalization or is it just retail closures through '26 and '27? And you said earlier, the expected operating loss won't be much higher than '25. Can you indicate what was the Versace EBIT loss in calendar '25, it seems to be around EUR 10 million, EUR 20 million, if my math is correct, if we assume, as you said that the Prada Group -- the old Prada Group EBIT margin was flat at 23.6% ex Versace. That's my first question. Lorenzo Bertelli: Thomas, [Foreign Language]. So on revenue, I said it that the expectation is for mid-single-digit constant FX, which is likely to become high single digit or we will be because, I mean, with the FX, you never know on a reported basis. That's on the top line of Versace. And on the second question, likewise, I mean, not much to add to what I already said. The -- I said that the -- our target is to limit the operating loss to a 2-digit figure. And if the number you were referring to, i.e', the -- I think you mentioned EUR 10-ish million for fiscal year '25, I assume that number is for -- you were referring to a number that is the one that we consolidated for the fact of December into our numbers, and it's not of mile, let's say that it's a single-digit number, but it's around there. Is that clear? Thomas Chauvet: Yes, that's very clear. And my second question on the Middle East, which you disclosed separately in your segment reporting 5% of your sales. Can you remind us how many Prada and Miu Miu stores you operate in the region? And how many of them are currently closed, given the complex situation? And what is your overall exposure to the Middle Eastern clientele, if you take into account the sales to locals in the Middle East, but also sales to Middle Eastern tourists traditionally in Europe and other markets? Andrea Guerra: Regarding Middle East, in terms of opening and closing stores, it's a daily evolution and a daily activity. The most difficult situations are in Qatar, in Bahrain and in Kuwait. Having said that Middle East is very different places, very different regions because, I mean, basically, Saudi nothing happened and it's, I would say, 100% local clientele. The Emirates, I would say, is 1/3 locals, 1/3 expat, 1/3 tourists. And I mean, we will see what's going on. Operator: We are now going to proceed with our next question. And the questions come from the line of Chris Gao from CLSA. Chris Gao: Yes. I have two. So firstly, regarding the progressive improvement in 2027 regarding Versace, I just want to follow up a bit on that. So does it mean that we expect Versace will go back to a growth territory? And also for the margin, can we expect turnaround or... Andrea Guerra: Excuse me, your line is very, very disturbed. We can't -- there's a huge noise. Chris Gao: Can you hear me now? Andrea Guerra: Hopefully, let's see. Chris Gao: Can you hear me now? Okay. So first question is about Versace improvements in 2027... Andrea Guerra: Excuse me. No, your line is a mess. Try later, please. Thank you. Operator: We are now going to proceed with our next question. And the questions come from the line of Oriana Cardani from Intesa Sanpaolo. Oriana Cardani: The first one is on the wholesale channel. What are your expectations for this year? And my second question is on the retail network. Can you give us an idea on the store openings you expect this year and the perimeter effect you expect due to these openings? Andrea Guerra: Yes. On wholesale, more or less, we're having the same kind of percentage growth in these last years, and more or less, we will keep on with the same percentages. As we said, we had the necessity to keep back some inventory not to be shipped to Saks at the end of 2025. And we resumed and Andrea was saying our shipments beginning of '26. This is also why in Q4, we were a little bit less in our normal standard average. So I would say that we will keep on having more or less the same average growth that we had in these years. In terms of retail network, for Prada, I would say it will be between some pluses and negatives, some opening and some closures. We will remain with the same kind of square meters, but I think we will close more stores than what we will open during 2026. With Miu Miu, we will add another 5 to 10 stores during 2026. And then as we said 2 years ago, and we will also close some with Miu Miu. But at the end of 2026, the big progression in terms of space expansion for Miu Miu is basically over. That is we will be with something around 170, 175 stores, and we will remain there for a while. Operator: We are now going to proceed with our next question. And the questions come from the line of Chris Huang from UBS. Chris Huang: I have three, if I may. Starting with the first one, just a clarification on the Prada brand cluster. I think in the previous calls, you always provide some color. So if you can do the same for Q4 in terms of Americans, Europeans, Chinese cluster trends for Prada brand retail, please? Andrea Bonini: Chris, so clusters for the Prada brand, the Chinese -- starting from Chinese cluster, there was a significant quarter-on-quarter improvement which is driven by positive domestic consumption and better travel spending. Europeans was flattish for the year, slightly softer in Q4 versus Q3 with local demand remaining more resilient than travel spending. The North Americans was positive mid-single digit for the year and further improved in Q4 to positive, I'd say, high single-digit, mostly domestic. And Japanese was positive low single digit in Q4 and full year with no major differences versus Q3, mainly solid local demand. Chris Huang: Okay. Perfect. And then secondly on Miu Miu, if I caught it correctly, you were saying that given the very tough comps, I guess, on a multiyear basis, you're expecting single-digit growth in H1 before an acceleration into H2. I'm just trying to square the math here because in theory, we do start to see more meaningful space contribution from 2026. I think you were mentioning 10 to 15 stores. So going from 20% in Q4 to single digit, and if you can also quantify a bit if it's going to be like a low, mid-, high single digit. Are you assuming very cautious volume assumptions to get to that kind of guidance target, please? Andrea Guerra: Yes, we are. Exactly what you're saying. Chris Huang: So you're assuming volumes decline in H1 for Miu Miu? Andrea Guerra: No, no, no. We are being cautious. Chris Huang: Okay. So you don't rule out the potential scope for positive surprises. That's what you're saying? Andrea Guerra: I think that time has arrived, and we are happy with the journey we have done and with the journey we have in front of us. But we are now in an everyday competition and gaining our opportunities and wins and battles. I think it's a journey that it's especially the first 1, 2, 3, 4 months pretty complicated because we were in a plus 60% range last year. And then it's a little bit easier. Obviously, on the other side, when you open a store, you also need to allow the business to go where it has to go. So we're extremely happy of the new stores we opened. I think that we didn't really make any real mistake. And let's go. I mean this is -- I think this is a very important year for Miu Miu and we are into it and on to it every single day of our life. Chris Huang: Okay. Perfect. That's very helpful. And last but not least, on Versace. I think in the press release, you mentioned that 2026 obviously would be dilutive to the group, and you expect '27 onwards to start to see some gradual improvement. If I remember correctly in the past, when you were executing the Prada turnaround, I think the EBIT margin pressure kind of lasted for a longer period of time because of the acceleration in investments. But is it fair? Or can you kind of outline the underlying assumptions you have here for Versace to already start to see margin improvement in 2027, unless I'm misunderstanding anything here? Andrea Bonini: Well, first, I mean, I would start -- it's Andrea Bonini. I would start saying that the two situations are very different. So comparing the Prada turnaround to Versace, and so would not really take that as a comparable. As we look forward, there's an element, of course, of reinvestment into the business, into the brand and accelerating on certain areas of spending that will move margins in a certain direction. At the same time, I mean, we will continue to look for synergies and efficiencies that should help in the opposite direction. And most importantly, as we always say, a lot depend from the top line. And on the top line, we will see from '27 on really the results of the actions that we will be taking. On retail, at the same time on wholesale, you know that we already talked about the fact that we already said, we anticipate some sort of stabilization already starting from '26. So there's elements going in the two directions that make us believe that things are going according to plan. Yes, we can indeed start seeing an improvement from '27. Operator: We are now going to proceed with our next question. And the questions come from the line of Daria Nasledysheva from Bank of America. Daria Nasledysheva: This is Daria from Bank of America. I actually just have one. On Versace, when will Pieter Mulier present his first collection for the brand? And what will be the time line of collections change given currently Dario Vitale collections, I think, have started to arrive online and in stores so that we just understand the cadence of the collection rollout. Lorenzo Bertelli: As we said, the first show of Pieter will be beginning of next year. And on the collection first has to arrive and has to work on it, so I cannot answer to that question. Honestly, for sure, it's going to be different from the one of Dario. Operator: We are now going to proceed with our next question. And the questions come from the line of Anne-Laure Bismuth from HSBC. Due to no response, we are now going to carry on with the next question. The questions come from the line of James Grzinic from Jefferies. James Grzinic: Yes. I just had two quick ones. The first one is, Andrea, can you be perhaps a little bit more specific on what keeping losses at Versace to double digit in '26 looks like? Are you basically gaining for EUR 80 million, EUR 90 million of losses basically? That would be helpful. And secondly, perhaps more fundamentally, you seem to have gone a huge supplier rationalization process in recent weeks. Can we perhaps understand what comes out of that process? What you'll gain out of that dynamic, please? Andrea Bonini: If I -- thank you. And Andrea, you always have to be more specific, but I suppose it's for me, it's Andrea Bonini. On the Versace, did I understand correctly the question that what's keeping it at that level? James Grzinic: No, it's more, if you can be a little bit more specific on what double digit -- keeping at double-digit level means. I mean, I appreciate you gave us that, the 1 month was a minus 8%, minus 9% contribution. But are we basically looking for '26 keeping that loss at EUR 80 million, EUR 90 million. Is that the quantum of magnitude? Andrea Bonini: Yes, no, but not going to be. I think we said a lot, and I'm not going to be more specific than that for today. And second question, Andrea. Andrea Guerra: So regarding our -- what you said about supplier rationalization, I think this is a journey that really began with COVID. And this has gone in parallel on one side in creating more internal manufacture infrastructure. We created three factories from that moment to today, and we are working on two other, one is renovation and one is a new one. And on the other side, I think that in our journey, we have cut the weaker. We have given more work to more organized players. And I think this is the journey that has been the characteristic of our history since we were born. So I wouldn't consider this as a special year or a special moment. No, it's the journey we're doing. Operator: We are now going to proceed with our next question. And the questions come from the line of Chris Gao from CLSA. Chris Gao: And hope the sound looks better now. So first question from me is regarding the performance during Chinese New Year, we have seen a very solid one. So just wondering if you see any differences between high net worth consumer as well as aspirational consumer? Do you see which category of consumer group can drive the growth more? Or actually they are both performing very well. And we can see you have been launching quite a good line of product expansion into home categories, et cetera, with entry level price. So we wonder if we actually are expanding more categories that can maintain the dialogue with aspirational customers in the coming year. Andrea Guerra: So first of all, I take the opportunity to say that we have been really happy and grateful to all our Chinese and Asian teams during this last 6 weeks. They worked day and night. And I think that we have been successful on all lines. This is what I'm happy about. I mean, we have been very successful on new customers, which is something that we were not seeing for quite a while in China. So that was a good one. And we improved on all our segments from VIC to aspirational customers. And what was good about this Chinese New Year is that we had a positive outlook from travelers and from locals before Chinese New Year. So I don't want to say that China is back. I don't want to say that, but the steps and the progression have gone in the proper direction. Chris Gao: So my second question is still about Versace. So it is actually about the progressive investment -- improvement in the year of 2027. So just want to understand more about this progressive improvement. Does it mean that Versace brand will go back to the positive growth trajectory in terms of sales? Or will we actually see the profitability improving to breakeven or actually profit making? So how can we expect a mid-term outlook, especially regarding the improvement in 2027? Lorenzo Bertelli: I think at the moment, honestly, to have a clear outlook on the next year, Versace, especially in China's market is too early. And as we said, we are looking to reduce losses next year and to improve marginality and for sure, start the journey of steady pace to grow with Versace. But at the moment, it's too early to have more precise outlook than that. Chris Gao: Okay. So congratulations on the new journey with Versace. Andrea Guerra: I think we have one last question and then -- so let's move with that. Operator: We are now going to proceed with the next question. And the questions come from the line of Paola Carboni, Equita SIM. Paola Carboni: Most are about Versace. I will start asking you if you can touch base on what are your plans in terms of supply chain for the brand? What are you going to change in this respect and the possible integration with your supplier base? And the second question still on Versace. If you can elaborate on what are your plans in terms of category mix, if you envisage any change in the architecture of collections already with Pieter next year? And the third one, on the profitability of Versace, whether your stance on margins for full year '26 also takes into account of some write-down of inventories which would clearly not be probably repeated to the same extent in full year '27. Then I have another one on Miu Miu. I will go ahead after your answers. Andrea Guerra: So it's obvious that we will follow with Versace the same attitude we follow with our two brands. So a vertical integration -- vertical organization for what regards all face activity -- clients face activities. So total independence and verticalization and responsibility from that point of view. And we will use our Prada Group platform for all potential and possible manufacturing. Obviously, we have already started planning it and probably even first step of execution it will take time because, I mean, nonetheless, we also have some IT things to be done as well. So it will take some time. But for sure, all the supply chain will be integrated inside the Prada Group facilities. In terms of categories, I think that it's too early. I mean, it's obvious that Versace is incredibly strong and has a huge heritage on ready-to-wear. So -- I mean, to improve on the other categories, from a theoretical point of view, it's easy because we are really starting from small numbers, and we will see how and when -- how the different collections will evolve. In terms of margins, Andrea, I don't know if you want to answer. Andrea Bonini: No, but I wouldn't add anything in the sense that, look, when we wanted to give an order of magnitude and the order of magnitude is that also take into consideration, as we always do and when we budget and so on, I mean, what we need to do on the inventory. At the same time, there may be other one-offs that come up or not. But the point was more to give you, as I said, I mean, an order of magnitude of what we're talking about. I believe you had, Paola, an additional question, correct? Paola Carboni: Yes. Another question is about Miu Miu. My feeling is that you have turned a little bit more prudent on the expansion of the network. My understanding before was that the pace of new opening could have continued for maybe a few years more. If my feeling is right, I'm just wondering what is probably driving this stance from your side? Is a matter of overall market conditions? Is a matter of competitive environment in... Andrea Guerra: No, no. I will -- I think you got it wrong at the beginning. No, no. We gave you the opportunity that we had and we still have and we wanted to have an increase last year of a 10 to 15 stores and closing some and the same thing we're going to do this year and closing some and enlarging others. So nothing has changed. I think we are finished now. So thank you, everyone, for attending. And hopefully, next time, we will discuss in a more peaceful world. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.
Joseph Hudson: Good morning, everyone. Nice to see everybody. Great. So good morning, and welcome to Ibstock's 2025 Full Year Results Presentation. Joining me today is Simon Bedford, our interim CFO. So turning to the agenda. After I provide an overview and market context, Simon will walk us through the financials and cover divisional performance. I'll then focus on how we're thinking about shareholder value creation, specifically through the lens of five strategic drivers. Having covered the summary and outlook, Simon and I will then be very happy to answer your questions. So turning first to the overview. As you'll know, 2025 was a tough year. We started well with strong volume growth in the first half coming mainly from new build residential demand. Market uncertainty in the second half resulted in progressively tougher conditions. Revenues for the group increased by 2% to GBP 372 million with EBITDA at GBP 71 million, in line with the guidance issued in Q4 '25, but a reduction of around 10% versus '24. Despite the challenges in the market, this is a business that does not stand still, and I'm proud of the progress our teams have made at our major investment projects at Atlas and Nostell, both of which are now coming to their conclusion. At the same time, we've taken decisive action on costs and flex capacity where needed. We've also remained disciplined in how we allocate capital. In Q4, we made the decision to dispose of our Forticrete roofing sites and we now completed a number of land disposals releasing about GBP 30 million of capital. With major CapEx program largely complete, volume recovery and continued opportunities to release capital from our land bank will lead to an acceleration in free cash flow, and this will provide optionality on growth opportunities and shareholder returns as we move forward. Before handing over to Simon and to provide a bit more context on our financial results, I'd like to recap on how our markets developed in 2025. As we entered 2025 with market momentum continuing from Q3 in '24, we took steps to reactivate network capacity to meet the recovering demand. It was promising double-digit growth volume in the first 2 quarters, followed by a deceleration to 4% growth in quarter 3 and as you can see from the chart, the final 3 months were challenging with brick volumes actually falling to 2% year-on-year. Ultimately, with the initial momentum proving a false dawn, our capacity moved ahead of demand and looking back, I acknowledge that we went too early on this. Given the progressively tougher market demand dynamics in the third quarter, we readjusted capacity and acted on costs, which will position us better for the near term. Overall, in 2025, the total brick market grew 6% to 1.83 billion. And encouragingly, our market share was ahead of the market and ahead of the prior year. And with that context, let me now hand you over to Simon to go through the financials. Simon Bedford: Thanks, Joe, and good morning. Turning to cover the financial summary with Joe having already covered detail on our revenue and adjusted EBITDA performance. I will focus on three key metrics. Looking first at our EBITDA margin, this is reduced by 260 basis points to 19.1% as a result of inflationary pressure and increased cost as capacity is reactivated in clay. In addition, we experienced adverse product mix with lower volumes in higher-margin concrete categories of rail and infrastructure. EBITDA margin improved in H2 to around 20% as incremental costs from bringing capacity back tapered and also decisive cost management starts to kick in. Now considering the balance sheet strength, although leverage has increased marginally from a year ago to 2x, net debt of GBP 120 million has reduced both marginally from last year and significantly from the June position despite the trading environment. This is a result of our disciplined approach on to capital allocation and a focus on priority markets, generating around GBP 30 million of proceeds through the disposal of noncore assets. Return on capital employed at 5.8% remains well below our targeted level and reflects recent capital invested in both core and diversified platforms combined with earnings that continue to be impacted by markets well below normalized levels. With the recovery in market demand, combined with anticipated returns from our growth investments, we expect return on capital employed to revert to our targeted level of at least 20% over the medium term. Finally, the Board has recommended a final dividend of 1.5p, bringing the total dividend to 3p, which is a payout ratio of 53%, in line with the prior year. We set out on this slide, group revenues compared to the comparative figures in 2024. Group revenue for the year was up 2% to GBP 372.1 million. Within this context, clay revenues increased by 5% to GBP 260 million, driven by strong new build growth in H1 with H2 flat year-on-year. However, these numbers mask the contrast between the quarters as the year progressed, which I won't go through again. However, we also saw regional variation with growth more concentrated in Midlands and the North with the London and Southeast markets more subdued. Futures delivered revenues of GBP 9 million compared to GBP 10 million in the prior period as a result of our glass reinforced concrete business being closed in Q1 2025. Concrete revenue of GBP 117 million was 5% below the comparative period, largely as a result of the weakness in the U.K. rail infrastructure market. Turning to cover the divisional financial performance in more detail, starting with the clay division. As already seen, the clay division delivered a resilient performance against a tough market backdrop. We saw growth in wire cut bricks, which are favored in new build housing markets whilst demand for soft mud bricks, which are more exposed to RMI and specification markets and more concentrated in the Southeast and London regions was more muted. A more competitive environment constrained pricing, which, together with a negative shift in sales mix led to average pricing slightly below the comparative period. We took the decision to reactivate parts of the clay factory network during the first half of 2025. And whilst this has led to higher-than-expected incremental costs in the period, we saw these costs taper in the second half. This, combined with the cost actions taken, meant margins improved in H2. The facade product categories within Ibstock Futures move forward with broad-based growth across the portfolio. We expect EBITDA to build from 2027 after a year of ramp-up in 2026 as our major investment in Nostell start to deliver positive returns. Turning to cover concrete. Here, revenues decreased by 5% to GBP 112 million. Overall, residential new build sales volumes were tempered by lower growth in the RMI market and falling infrastructure sales volumes, as the U.K. rail infrastructure markets continue to be impacted by control period spending constraints. Similar to clay, we saw strong volume growth in many of the residential product categories in H1, partly offset by lower infrastructure volumes. In H2, market uncertainty resulted in progressively tougher conditions with flooring and infrastructure categories particularly affected. Sales pricing in the residential categories mirrored the market dynamics seen in the clay brick division. It is important to note that spending in the U.K. rail network has reduced to historically low levels. We have seen some pickup recently, but this constitutes a high-margin part of the concrete division, adversely impacting both mix and profitability. Whilst EBITDA margins remain well below historic levels achieved within our concrete business, as markets recover, we believe the division is well positioned to benefit with strong growth in both volumes and margin over the medium term. Moving now to cover cash flow performance. Inventory levels grew as demand weakened in the second half of the year, resulting in a net working capital outflow of around GBP 14 million. Capital expenditure was in line with last year with GBP 21 million our growth projects and around GBP 24 million of sustaining spend, with major capital expenditure programs largely complete, we expect total CapEx to fall to around GBP 25 million to GBP 30 million in 2026. It is important to note that the noncore disposals of around GBP 30 million proceeds are treated as exceptional and are therefore not included in the adjusted free cash flow. Moving to the balance sheet. Net debt reduced marginally to GBP 120 million by year-end, resulting in a leverage of 2x up on the prior year. The group has GBP 225 million of committed borrowings comprising the GBP 100 million private placement loan notes and GBP 125 million revolving credit facility, which we successfully refinanced in Q4 at improved terms. These borrowings contain leverage covenants of no more than greater than 3x tested semiannually. Based on the covenant definition, leverage at the 31st of December 2025 totaled 1.7x and the group had over GBP 100 million of available liquidity. I will now outline the refinements we've made to our capital allocation framework to better reflect our choices for excess cash after considering balance sheet strength, organic investment considerations and dividends. This shows the balance choice between inorganic investment and shareholder returns in accordance with our strategic and financial investment criteria and they are, of course, not mutually exclusive. With our major capital expenditure program is now largely complete, a high cash drop-through on incremental volumes and strategic options, which Joe will discuss later, this will provide significant optionality with respect to excess cash and capital allocation. For those looking for the technical guidance for 2026, this is now included in the appendix, with Joe covering how we will see 2026 developing in the summary and outlook section. And with that, Joe, I'll hand back to you. Joseph Hudson: Thanks, Simon. So turning now to our market drivers and strategic progress. As set out on the screen, we see continuing shareholder value creation being built around these five clear strategic levers. You can see here that our leadership in our core markets remains key and has significant bearing on our financial performance. However, crucially, the remaining four levers are more within our control and are already driving progress through new market sectors, product innovation, operational efficiencies and the strategic value embedded in our land and clay reserves. . This unique balance gives us resilience today and will be important to underpinning our midterm targets. I'll now walk through each in turn. With a 200-year heritage, we enjoy a leadership position in our core markets, and over recent years, we've been -- we've deliberately brought our brands, people and capabilities together under a single unified Ibstock. That wasn't a branding exercise. It was about how we show up for our customers. Today, that leadership position allows us to support customers across clay, concrete and specialist building products alongside our design and technical services supporting national and regional housebuilders, the RM&I market and increasingly infrastructure and nonresidential applications. I've talked in the past about engaging with customers across multiple categories, and that shift has picked up momentum in the last 18 months as both national and regional customers have seen the breadth of our offer and our technical capabilities. Looking ahead, we also see a clear opportunities to grow in the 10% infrastructure and other sectors where our capabilities, assets and relationships position us well. That sector represents a significant share of the overall construction market where we are underrepresented today. And it's a space that lends itself to innovation and new products and new solutions. I'll give more details on this later. Before I come on to the other areas, let's look at those core markets and what we're seeing on the ground. At a structural level, the long-term fundamentals that underpin demand in these housing and RMI markets remain firmly intact. The U.K. continues to face a significant housing shortage, household formations have been outstripping housebuilding for years, and we have an aging housing stock that requires ongoing investment and renewal. Demand for social and affordable housing remains strong, supported by promising new funding allocations. Against that backdrop, we're starting to see some more supportive signals emerging. Inflation is easing from its peak and expected mortgage rates cuts should over time, help improve confidence. Government reforms and planning initiatives are also welcome steps. However, the pace of delivery and affordability, especially for the first-time buyer on major issues. We're set to have a third year below 150,000 housing starts way off the run rate of getting to 1.5 million homes. Even where starts are improving, build-out rates remain firmly controlled, housebuilders are prioritizing cash and aligning build programs to sales rates. As a result, we continue to take a cautious view in the near term with industry forecasts, including those from the CPA pointing to a continued subdued market conditions over the short term, and that remains consistent with what we're seeing. However, the market will turn at some point. And importantly, we don't need to get to 300,000 housing starts to see a material improvement for our business. As a reminder, the U.K. brick fully installed capacity is around 2.1 billion. So even when we get close to this range, which equates to around 107,000 housing starts, we'll see a big improvement in industry utilization levels. This slide shows why we're well placed to capture volume recovery by looking at our clay capacity evolution. As you can see on the slide, we break out the total network into three components: volumes manufactured in the period, further active capacity available, that's incremental volumes available through higher push rates or increasing shift patterns. And finally, an active capacity where capacity is mothballed or idled. As we've outlined, the progressively tougher market conditions we saw in 2025 meant we build inventory and therefore, in 2026, we'll be actively managing production and inventory. This will give a margin headwind, but benefits overall cash flow generation. We've done that by adjusting soft mud capacity at our Leicester sites, which have much more operational flexibility. However, our active clay network gives us the ability to ramp up by more than 20% with very low cost additions and therefore, compelling drop-through to the bottom line. With this network and stock levels, we're very well positioned to capture the upside as the market conditions improve. Outside of our core market exposure, there's significant medium-term opportunity in other construction market sectors. If stock is increasingly aligning with three growth market sectors, infrastructure, social and affordable housing and mid- to high-rise buildings that require cladding remediation. We're doing this by developing tailored sector solutions, broadening both our existing and new product ranges and working directly with the contractors delivering these major projects. The challenge is well understood the U.K. is under-invested in recent years in schools, hospitals and public sector buildings. And that's why the government's 10-year infrastructure strategy includes an identified GBP 725 billion pipeline, covering work in departments such as the MOD, Department of Education and Ministry of Justice. Now that's not just theoretical opportunity for us. Over the last 12 months, we've undertaken additional product testing and assurance to enable delivery into these programs. That includes testing new products for the MOD's GBP 3 billion a year work program as well as other key public sector customers including the GBP 15 billion schools capital investment program. Around half of the GBP 39 billion in social housing is expected to be delivered through Homes England. Housing associations are partnering with developers to unlock wider scheme, and we're already seeing this translate into activity. For example, we've received initial orders on our regeneration project in Birmingham a GBP 1 billion long-term master plan that will ultimately deliver about 3,500 homes. In addition, challenges around the cladding remediation and the Building Safety Act requirements are creating new opportunities where Ibstock is exceptionally well positioned. Our high-quality, high-performing products in both our established ranges as well as the new innovations coming through at Nostell directly support safe, compliant and even more sustainable construction. With that context, let me move on to our new product development pipeline and investment and how that positions us for future growth. You can see on the screen that over the last 8 years, an increasing proportion of our revenue now comes from new and sustainable products. This creates real value for our customers and helps sustain our margins. By working closely with our key customers, it's important to understand their strategic priorities, whether it's speed of build, low carbon, design flexibility or efficiency, and we focus our innovation on helping them to deliver against those aims. Alongside our major strategic projects, we continue to strengthen and modernize our core clay and concrete product ranges through continuous product development and performance improvements. Today, I'll just focus on the Nostell redevelopment and on FastWall, which you'll have seen in the opening video. FastWall has been designed to support both existing and new markets. For existing customers, particularly housebuilders investing in panelized construction and timber frame, it delivers higher productivity and reduced weight, both critical drivers for customers adopting modern methods of construction. Alongside FastWall, our new ceramic facade facility at Nostell is creating a further wave of innovation, delivering new facade solutions with a greatly expanded architectural range and almost unlimited design flexibility. It's the first facility of its kind to bring all of these things together in one place and initial customer interest has been really positive. We see these solutions as complementary, not competing with our core products. If there are skill gaps to meet the challenges of growing construction targets, this will be part of the answer. To fully appreciate it, you have to really see it in operation, and we look forward to hosting another factory event similar to the one we did in Atlas last year, and we'll share more details about that soon. Moving now to focus on our factory estate. Over the last 8 years, as already alluded to, we have invested more than GBP 325 million across our clay and concrete manufacturing network, creating a safer, more automated, more efficient and lower-cost estate. The Atlas factory is the latest of these investments, and we'll add 105 million bricks per year at full capacity, strengthening reliability, reducing cost and delivering the same high-quality, high-performing but more sustainable products, the way that we manufacture today. In addition, we've -- having done two capital investments projects in our Concrete division recently, we see further options to invest in process automation to reduce cost. These projects are relatively capital light with quick payback. Our new multiyear operational excellence program is also well underway at our pilot factory at Aldridge and will drive further competitive advantage, improving operational performance and strengthen our ability to service our customers. More efficient, modernized asset base positions us for higher margins, stronger cash generation and greater operating leverage as the market recovers. You'll see me reference this later as the network efficiencies are a key underpin for our midterm targets. Moving on now to look at our fifth strategy lever, which delivers further optionality in centers on our land and clay reserves. To give some context, we manage over 2,700 acres of land across the U.K., spanning our factory estate, clay quarries and significant natural estate. From an Ibstock perspective, a large part of this asset base is not fully utilized. We then have options to drive value through three complementary routes. Firstly, Calcined clay commercialization. This is now a proven low carbon cementitious replacement capable of materially reducing embodied carbon when used in blended cements and in concrete. And you'll know we've been exploring the commercialization of Calcined clay at scale turning an existing asset into a strategic growth option. I'm pleased to confirm that commercial discussions with a preferred partner to get to an agreement is well advanced, and we expect to share a further update on this at the half year. Secondly, as noted before, our disciplined land disposal program will ensure capital is released where land is no longer supports long-term strategic or operational priorities. To that end, we expect to generate GBP 20 million to GBP 30 million in the next 3 to 5 years. And thirdly, the expansion of our existing land-based income streams. Our land already generates material long-term revenue alongside core manufacturing with land-based income from quarry restoration through landfill delivering approximately GBP 2 million to GBP 3 million per year. This demonstrates the commercial value of well-managed nonoperational land. Taken together, these three routes create a diversified platform for value creation. So to conclude, these five leaders together define our value creation strategy. And while market conditions will continue to influence near-term performance, the actions were taken across these levers are firmly within our control. In 2026, we are focused on the execution of our customer experience work, expanding into new market segments, progressing operational excellence, including pilot at our Aldridge site, fully commissioning Nostell and finalizing our Calcined clay project. So bringing that all together, as you can see on this slide, we have the potential for significant earnings growth over the coming years. As I've said, to a large extent, this will be driven by market recovery, but it will also be supported by our market independent initiatives, including the points we've made today. We remain confident that our revenue target of GBP 600 million when markets recover to historic levels is achievable. This should drive margins up from 19% today to 28% in the future. The dynamics -- these dynamics should ensure a strong earnings growth in the years ahead. And as Simon has said earlier, the improved cash flow from improved earnings, the strategic land disposal program and lower capital investment will provide more optionality for value creation for shareholders. So finally, looking at the -- taking a look at the outlook. After a weather-impacted start to 2026, near-term demand remains challenging. We expect modest year-on-year volume growth in H2 2026, with volume recovery in new build and RMI markets dependent on activity gaining momentum in the spring. Price increases implemented in February 2026 should enable us to offset anticipated cost inflation for the year. Although the timing of the market recovery is uncertain, we're confident that the long-term market fundamentals are intact. Therefore, with a well-invested, lower cost, more efficient and sustainable network, we expect to benefit from meaningful operational leverage and cash generation across the business. And with that said, Simon and I will be happy to take your questions. If you could state your name and institution before asking the questions. Aynsley Lammin: Aynsley Lammin from Investec. Just two for me, please. On the production and kind of management and stock level management for this year, maybe if you could elaborate on that a bit more where stock levels are, where you'd like them to be? And would you be kind of thinking of mothball in any plants? Or is it just stopping production and therefore, that's why you get the kind of margin headwind? And then secondly, I guess just on the energy side, I think it's sort of 80% hedged. When does that become a concern if [indiscernible] continue and natural gas prices remain elevated, you have to be pretty confident for the next 6 to 8 months of time. Joseph Hudson: Yes. Yes. Look, we will be managing stock this year quite carefully. We're not anticipating to mothball any other sites at this stage. We've got -- part of the reason for the, the sort of headwind on the margins is the overhead recovery. We've got more shutdowns, so you just don't get the leverage, but we produced around 40 million to 50 million bricks more than we needed at the end of last year. So we're going to manage that carefully this year. Obviously, we've got stockyards, they are limited as well. So -- we've done this. Obviously, we've had a bit of a partner of this in the last few years, so we sort of know how to do things, and I think we're well positioned. The main thing is if the market comes back faster, we can respond very, very quickly. Energy, do you want to take energy Simon? Simon Bedford: Yes. So in terms of energy, we've said in the statement, we're about 80% hedged. That is actually more front-end loaded. So the first 3 quarters were hedged higher than that. So really, we're more exposed in Q4. We don't see at the moment, an issue with that, and we have other options when we actually get to Q4. Priyal Mulji: Priyal Woolf here from Jefferies. I've just got two questions. Firstly, you talked about price increases, I think, from February. I think one of the issues we've had in previous years is different players going at different times and sort of having to reverse on that. Do you have any color on whether the magnitude and the timing across the market has been fairly consistent so far this year? And then the second question is just the whole shift from soft mud to wire cut last year. Do you think that's done? Or is there sort of more to go as an incremental headwind? Joseph Hudson: Good. Yes. I think we're a better place this year for sure, on pricing. Last year it was difficult. People went at different times. And frankly, it didn't stick. This year most of the industry went in February, 1. And we think that there's been a lot more discipline in that approach. So we're confident that we can cover inflation this year with our price increases around sort of 3%-ish margins. And then soft wood, wire cut dynamics. I mean, obviously, as you had greater new build residential growth last year and more subdued RMI, it was a mix shift. So we're probably about -- the industry is about 70% wire cut, 30% soft mud. We're obviously have a greater weighting towards soft mud ourselves. I don't think that's a long-term structural change. I think it's largely because of the fact that the RMI market subdued and the southeastern London are very, very weak. So I think -- as I said earlier on, you've got an industry that only -- can only -- when it's -- when all the mothballed capacity is back on, you can only produce 2.1 billion bricks anyway. So all of the brick capacity will be used soft mud and wire cut in the U.K. Clyde Lewis: Clyde Lewis with Peel Hunt. I think I've got four. So apologies. I'll do them one at a time. Could you update us as to where you think sort of merchant levels are in terms of sort of brick stocks? Second one, again, it can useful to get an update on imports as to what you're seeing on that front? Third was on, I suppose, stock futures and slips within that as to how you're seeing the market develop for those products, and particularly the slips, how much activity is going on there with architects and designers in particular? And then the last one was on rail. Obviously, a tough year last year. How does the rail outlook look for 2026? Joseph Hudson: I'll let you take the rail one. So merchant stocks at the moment, I think, are quite healthy. Merchants -- most merchants that we talk to are managing their balance sheet carefully, and they know they can call on stocks from the manufacturers when needed. So I'd say they're not overstocked. There's a normalized stock level at the moment, but certainly not stocking up at this stage. Imports last year were about 350 million. So they actually -- if our markets, we went ahead by about 8%. The imports went ahead by a little bit more than that. But actually, if you look at import brick levels, they're quite consistent. They're about 19%. I think they went to about 22% in 2022, but they've been about 18% to 19% consistently. We do need imported bricks when the market comes back. And I think a lot of importers including a major player here has a mothballed bit of capacity and has got a pan-European strategy. So we're bringing a bit more of the bricks in still. And obviously, they're still quite sticky. They want to maintain our position. And there's not much going on in Europe. So they've been a little bit more competitive last year. I think we're excited about the growth in slip systems, ceramic facade systems. It's still coming from a low base. So it's still -- but it's -- the CAGR is very good. The growth is very good. Whether it's mechanical rain screen buildings, high-rise going up, whether it's panelized construction volumetrics with bricks going on the outside or whether it's some of the stuff like FastWall, we alluded to there on, there's a lot more change in that. We see our own -- this year, we expect about a 40% uplift in our volumes. And in 2 to 3 years' time, we expect that to triple. I think the -- this year at Nostell, obviously, we're commissioning the factory. There's a longer lead time for these products because they're specified in their systems. So they have to be tested and there's a specification period from the time it's signed up by the developer and the architect to when actually the project gets delivered. It's not like a brick just going off the yard. So there's a bit of a lead time there, which is probably about, I'd say, 8 to 12 months, but we're excited about it. That's why we invested in it. We think it's not going to like cannibalize our core business. We think this is the -- these products are going to be what brings additionality to get you to the higher build rates that we need to do given the skill shortages. So we think there's room for both the cavity wall and traditional building as well as some of these new systems, but we're very excited. And the infrastructure sector as well, is very excited by them. They're very open to -- they're more open to sort of faster change. So we're working with a lot of the big contractors infrastructure people. Rail? Simon Bedford: Yes. And if I just pick up rail, so we've suffered with rail volumes over the last few years, we reached the historical low level in 2025. We have seen recent data points which suggest that is actually turning, and therefore, we would expect some growth in 2026. It's off a low base, but it is also a high-margin business for the concrete business. Robert Chantry: Rob Chantry, Berenberg. Just three questions from me. I guess, firstly, on the concrete business. Could you just give us an update on the weighting towards the different subdivisions within that and that the margin profile, i.e., kind of what are we actually taking a view on the next 2 to 3 years around what's going to drive the recovery there? And secondly, affordable housing. I know a lot of the contracts have talked about building up big mixed-use development pipelines looking at affordable housing as a huge driver in the next few years and some of the contractors this week, last week saying it -- it's been quite slow, but it's starting to pick up. Just what's your kind of on the ground experience of affordable housing build rate dynamics. And then thirdly, obviously, the Southeast London market has been exceptionally weak in terms of new starts and volume, a lot of discussion around gateway, other planning type of regulation. Can you -- again, can you give us some on the ground insight around quite the bottleneck there from your point of view and if that is looking to be released at any point? Joseph Hudson: Good. I mean our concrete business has got quite diversified. As you know, we divested the roofing business. That was a relatively small part and lower market share. But we have leading positions in most of our other categories. So we have walling stone, which is a reconstituted sort of natural stone that goes into a lot of areas, reasonably good margins there, double-digit margins. We've got leading fencing and building business, landscaping business with very, very good margins. We've got the rail business, which obviously has rail and infrastructure business, which has suffered, but again, it's very high margins with leading positions. What else have we got, Simon? Simon Bedford: I think that covers it. Joseph Hudson: That's the main focus of it. We think that -- and we've got a large flooring business. Flooring is -- we've got about 25% market share of the flooring business. So we think that when you put the concrete business with some of the brick business, we're seeing a lot more uptake from especially contractors and people interested in these big infrastructure projects, schools, prisons, hospitals because we can do hollowcore floors, we can do the walls. We can do lots of retaining walls, applications like that. So it's quite complementary as well, our concrete business. Affordable housing, I mean, everyone is talking about this GBP 39 billion and it being back-end loaded. There was some news at the beginning of this year around funding allocations of about GBP 2 billion. That's promising. We're doing a lot of work with housing associations themselves and getting quite close to them. It is going to take time, but we will see some -- I mean, if you look at the stats this year, public housing has got a sort of a slightly higher growth rate than the private house building. So we're seeing some momentum there already. But it's -- again, how much, how quick, it's not going to go crazy this year. But I will -- I do think that the sustained improvement in social housing in the U.K. is much needed and is going to create a much flatter sort of less oscillation in cyclicality for us. The Southeast in London, I think there are a lot of things that are causing issues around the Southeast in London. The main one is affordability and building safety. I think the building safety regulator has got a much more proactive approach. They're releasing projects much faster now, and I think that will start to unwind much faster this year. But affordability is a big issue. If you think about buying a house in London and the Southeast compared to other parts of the country, there's a real issue there. And I think that's where we need some support. I think it will get a little bit better this year, but I don't think it's going to improve until we see some support for the first-time buyer. Benjamin Pfannes-Varrow: Ben Varrow from RBC. I'll do three as well, please. First on guidance, in terms of volumes. I understand that's H2 weighted, I guess, what gives you confidence in that at the moment and the sort of spring selling season picking up? Second is on Forticrete the disposal there. Can you give a bit more color on if there's anything else in the portfolio that could go the same way, infrastructure, just so I understand correctly. Is that mainly then focused on the concrete side of the business? And do you need any investment there? And how big could that be for the group? Joseph Hudson: Good. Do you want to do the guidance one? Simon Bedford: Yes. So just talk about volumes. So with the weather impacted first couple of months, we're sort of seeing the first half of the year to be more in line with the H2 2025 volumes. So that would mean slightly down on the comparative period, H1 '25. And then more growth in H2 2026. And based on the spring selling season, the elements, which give us confidence is affordability metrics are looking better. Inflation is stabilizing, and we could look at further interest rate cuts. And that gives us confidence that the macro look better. And then some of the housebuilders are giving more positive updates on what the site visits are, how that's looking. So we have confidence based on the sort of demand dynamics in quarter 2 the spring period, getting better, and therefore, growth will be realized in the second half of the year. Joseph Hudson: Yes. And I think if you look at last year, I mean, we had this wonderful consumer confidence crisis with what's going to happen to tax, what's going to happen to the budget. The budget was pushed out I think that the budget was a bit of a clearing event, and I think you'll see more clarity going forward unless we get further noise from that side. So I think there'll be more confidence and people will be building a bit more this year. But it will take some time because the second half of last year affects the first half of this year, in particular, but I think you'll start to see improving build rates. Let's see what the spring selling season does. Look, we do -- we always look at capital allocation and what a business needs in terms of capital going forward. Our Forticrete business was a very good business, but we've had some performance challenges that I gave them some time to look at. And on low volumes where it was at the moment, we felt that with someone else who could be a better custodian of that business, it's relatively low market share, and we want to have positions where we have high market share, leading #1 or #2 positions. So we felt it was the right thing to do. And there's not really anything else that we're thinking about right now at the moment other than land disposals, as I've mentioned. And then on the infrastructure stuff, it's not just concrete. Actually, when you look at it's concrete, it's the facades and it's bricks. So when we're going to talk to contractors, they're looking at the whole package now, and that's what's quite exciting about it. So it's not just that. The construction infrastructure market is about GBP 35 billion, GBP 40 billion in this country. So it's something that we really need to be more aggressive. And I'd like to see that donor 10% going to 20% very soon. Alastair? Alastair Stewart: Alastair Stewart, from Progressive. A couple of related questions. First of all, you displayed refreshing candor, if I might say so, for a CEO and personally acknowledging you moved too quickly last year. In terms of this year, irrespective of -- you're saying you're able to ramp up capacity. Is there a psychological -- once bitten twice shy feeling. You're going to have to wait longer to see positives from the house builder before moving today. So that's question one. And question two, related to that, on Slide 17, the production volumes and active capacity available, how quickly would it take to turn that gray into blue should the market pick up more convincingly? Joseph Hudson: Good. Thanks, Alastair. I thought all CEOs were very candid. Alastair Stewart: No, no. Some of them [indiscernible] Joseph Hudson: Okay. Look, I think you have to -- you have to be honest, and we're dealing with a very tough market situations. And I think we've got a lot of trust from shareholders in this community, and you've got to be open about things. I think look, you saw the graphs here. So you saw the movements. And then you saw -- so I would have done it change my mind. I think we made the decision we felt was right at the time. And of course, I'll be very cautious about bringing new capacity back and new cost back, especially with this market. But the good thing is that gray area, we can convert that very quickly. Even the blue area on that graph, which is 65% utilization, that's got shutdowns in it, yes. We can -- if the market comes back, we can produce a lot more, and also, we've got plenty of stock on the ground. So the industry levels at the moment, there are about 550 million bricks, which is not massive, but it's healthy, and we've got a healthy share of that. So we can deploy that stock very quickly, which will be great for free cash flow generation. So we'll eat into the stock first, then we'll reduce shutdowns and then we'll bring on a bit more capacity. Unknown Analyst: Max from [indiscernible] Asset Management. Just a regional outlook. So you see London and the South is potentially being weaker in 2026 than the rest of the country. Is that correct? Joseph Hudson: London and the Southeast have been weaker from a residential housing point of view for some time. I think, as I mentioned earlier on, there are some reasons for that. Some of them are building safety, but the main one is affordability. I think it will get better. But I think until we saw at the affordability issue. That's both for buying and for costs for builders to build with land and things like Section 106, it will stay behind other areas in terms of growth. But I think it will improve a little bit this year. Unknown Analyst: So the outlook for RMI then is slightly weaker than residential construction. Is that also correct? Because I'm looking at your U.K. well, at the market U.K. construction forecast. Joseph Hudson: Yes. I mean we go on what the BNS say, we go on what the CPA says. So at this stage, it looks like it's a bit of a decline this year of about 1% on RMI markets. Unknown Analyst: What do you think is causing that on the RMI side? Is it the interest rate? Joseph Hudson: RMI is really around consumer confidence. So let's go to Stephen. Stephen Rawlinson: Stephen Rawlinson from Applied Value. Two for me if you don't mind. Firstly, with regard to reach market, could you just talk us through the way in which the channels to size are altering and how that might play through in the next few years to particular reference to our margins, i.e., what's going through merchants, what's actually going direct to site and the implications for margin that might have happened over the last few years and are present in these numbers, but may potentially how they may progress in the future. And the second question is with regard to brick slips, off-site construction. Do you anticipate that you'll be doing that yourselves and is an industry emerging, you believe can absorb the capacity that you're creating for the slips production such that actually there will be -- you'll be able to satisfy that demand. How is that going to play out? Is that something that's going to be at your cost on your sites? Or is there an industry merging the satisfactory from your point of view to actually absorb the capacity you've created? Joseph Hudson: Yes, good. So our routes to market. Look, I think with infrastructure, there's definitely people are coming to talk to us because they want looking at the whole package. So I think you might see a little bit of a shift in more direct relationships with contractors than we have in the past. But the merchant industry, for example, creates a great sort of service for the U.K. because it stocks and it takes credit risk and it redistributes breaks book. So we think there's a real value in that route to market in that supply chain. We've got great partnerships with merchants. We've got great margin with brick specialists, and we've got direct relationships with housebuilders. There's no doubt more people want to talk to us directly because they're seeing now as we've been marketing all of our product capabilities, not just bricks, oh, well, we'd like to have all of this as a package, please. And that's where we see probably more direct relationships going forward. But we have to think about cost to serve as well. So we're not going to have a myriad of millions of relationships we've got and got to think about that. And then the whole ceramic facades there's a whole ecosystem there where you've got installers, you've got contractors, subcontractors. We won't be doing that in store ourselves. We want to provide the product and the solutions that go into -- with the installers, the developers and the contractors. We're not going to start installing ourselves. That's not our core business. It's not something I'd get into. We don't know enough about the risk factors and all outside of the market. But they are waiting to see -- this Nostell factory, they're waiting to see it because they've never seen it before. So that's why it's going to pick up momentum, and we've got the capability to really make a big Change, I think, in MMC in the U.K. with our factory. Christen Hjorth: Christen Hjorth from Deutsche Bank. Two, hopefully, pretty quick ones. Just on net debt, you normally see that the increase as you move to the half 1 stage with working capital investment, but it sounds like you're quite well invested in inventory. So just a sense of what we should expect in terms of net debt as we move through H1? And then second, I was following up on the volume phasing piece. What's your current thinking around the EBITDA phasing H1, H2 because there's a few moving parts in terms of capacity and things like that. So those are the two for me, please. Simon Bedford: Okay. So in terms of net debt, we would see a normal seasonal working capital build, but less so in inventory. It will be more debtors related as we have more sales in those periods versus like in November, December last year. So we see that. And then in terms of EBITDA, yes, I think we're going to be more weighted to the second half. We've got production shutdowns and producing less inventory in the first half of the year, which gives us that margin headwind. So we're thinking about our weighting probably being between 40% and 45% in the first half of the year. Harry Dow: Harry Dow from Rothschild & Co. I think just two questions, if possible. So first on the concrete business, how should we think about the operating leverage as that kind of volumes recover maybe for railway comes back. I think the drop-through this year is quite high in terms of , I think we lost GBP 5 million of revenue and then GBP 5 million EBITDA. So maybe also just what happened in 2025 for such a high drop-through maybe. And then just also just a comment on other operating costs, so sort of expected wages inflation or distribution costs, things like that? Joseph Hudson: Yes. I think operating leverage in the rail business has quite a big bearing on our margins and that moving forward will really help margin improvement this year. Concrete is a little bit different to clay. Clay, you've got high fixed costs, and the deal concretes more of a batch. You've got more flexibility with it. So really, it's around volumes and it's around margin in specific categories, and that's why we believe there's reasonable momentum in concrete this year. Other costs, Simon, do you want to talk about that? Simon Bedford: Yes. So our major cost really is around labor. So we'd expect a low single-digit sort of impact around that, which is in line with the industry and the wider positions. And then in terms of variable costs, we'd expect a similar number. We'll wait to see how things like oil pans out, how is that working? How that feeds through to say haulage costs, but I think we've got a little while to see how that's actually going to pan through. Charlie Campbell: Charlie Campbell, with Stifel. Just one. You haven't really mentioned planning as a potential opportunity this year. Clearly, there is hope that after 2 years, we -- the planning system has started to free up a bit. Just wondering what your view on that is and whether you've noticed any change in the rate of site openings maybe in the last few months or projections in the next few months? Joseph Hudson: Yes. Planning is still not great, if I'm honest. I think what is promising is that there's a focus on it. And what I think where we have seen improvements is if there's a decision on a large site, the decision -- there are people coming from above saying, let's do it. But we still have a long -- too long a time gap from planning permission to build out rates. It's really taking too long. So I think it's an opportunity. It's an opportunity. There's definitely proactivity from the government getting involved to make decisions about it, but it's not going to -- we haven't seen any major changes in terms of site openings in the last few months. . Okay. Do we have any questions from the Ita? No? Operator: No. I think all the questions have been covered in the room. So Joe, I'll hand back to you for any closing remarks. . Joseph Hudson: Good. So thanks, everyone. Look, it's very -- it's a crazy time in the world. It's a difficult market that we're navigating carefully. But this is a real high-quality business, 200 years old, and we will get some recoveries soon, and when it comes, we're really well positioned, and I'm excited about that, and I'm looking forward to it greatly. But really good to see you, and we can have a chat afterwards. But thanks very much for coming today.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to the JDL Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] I will now turn the call over to Mr. Zhang Sean, Head of IR team at JDL. Please go ahead, Sean. Sean Shibiao Zhang: Thank you, operator. Good day, ladies and gentlemen. Welcome to our fourth quarter and full year 2025 results conference call. Joining us today are our Executive Director and CEO, Ms. Wang Zhenhui; and our CFO, Mr. Wu Hao. Before we start, we would 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 and 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 reconciliation of IFRS to non-IFRS financial results, please refer to the annual results announcement for the year ended December 31, 2025, issued earlier 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 statement in the original language will prevail. I would like to turn the call over to Mr. Wang Zhenhui. Please go ahead, sir. Zhenhui Wang: Dear investors and analysts, welcome to JDL Fourth Quarter and Full Year of 2025 Earnings Call. This is Wang Zhenhui, CEO of JDL. Thank you for joining us today. Reflecting on 2025, against the macroeconomic backdrop characterized by steady, progressive momentum in China's continued transition towards high-quality, innovation-led growth, JDL maintained -- committed to strengthening our core capacities. We focused on enhancing delivery timeliness, accelerating our network expansion and further deepening the application of cutting-edge technologies. We continuously solidified our operational capacities as well as the competitiveness of our products and services, leveraging ISC solutions, premium services and leading technologies to drive high-quality growth. In both the fourth quarter and the full year, we delivered a double-digit revenue growth, sustaining our high-quality development momentum. Specifically in the fourth quarter of 2025, total revenue reached RMB 63.5 billion, representing a year-over-year increase of 21.9%. Non-IFRS profit for the quarter amounted to RMB 2.4 billion, up 5.7% year-over-year with non-IFRS profit margin of 3.7%. For the full year of 2025, total revenue was RMB 217.1 billion, increased by 18.8% year-over-year. Non-IFRS profit reached RMB 7.7 billion with non-IFRS profit margin of 3.6%, maintaining stable and resilient. Now I'd like to highlight the three core differentiators that JDL continued to strengthen in 2025: our ISC capacity, supported by a comprehensive network and diverse product portfolio; our high-quality customer experience and our application of automation and AI technologies. There are three in totality. First, consistent cultivation of our ISC capacities remains a core strategic priority. Leveraging our nationwide network with expanding global reach together with deep industry insights, we provide customers with reliable and efficient integrated supply chain solutions. By the end of 2025, our warehouse network covered nearly all countries and districts in China, with over 1,600 warehouses and aggregated GFA exceeding 34 million square meters. Notably, the integration of our on-demand delivery service in 2025 further strengthened our last-mile capacity, completing our high-timeliness delivery network. This enhancement not only improved our fulfillment efficiency and customer experiences, but also increased broader opportunities for future business expansion. Leveraging our increasingly comprehensive network coverage, we remain committed to providing end-to-end ISC solutions to our customers. While effectively helping customers reduce cost, refine efficiency and enhanced competitiveness, we've also achieved a healthy growth in our own business in 2025. Revenue from ISC customers reached RMB 116.2 billion, representing a 33% year-over-year growth. Of this amount, revenue from external ISC customers was RMB 35.9 billion, sustaining a trajectory of high-quality growth. Through differentiated solutions such as omni-channel supply chain service model as well as reverse [ restoration ] services, we continue to deepen our presence in industry-specific services and expand our service scenarios to meet the evolving demands of our growing customer base. As a result, the number of external ISC customers served reached 91,161, representing 13% of yearly growth. Through extensive industry experience, we have established a series of successful cases that have become benchmarks. For example, in the consumer goods sector, leveraging our high-standard end-to-end service capacity, we achieved breakthrough in luxury segment by securing great warehousing and distribution partnership with a global renowned luxury brand and travel retailer. To meet the luxury industry's stringent logistic requirements, we established temperature-, humidity-controlled zones with our warehouses; implemented insured storage solutions for high-value items covering the full range of operation service, including B2C integrated inventory and reverse quality inspection. To address the pain points previously faced by this customer, specifically scattered inventory across multi downstream channels and low management efficiency, we deployed intelligent warehousing solution that enables centralized, consolidated management for dozens of sales channels within a single warehouse. This approach ensured both product security and service experience while reducing customer overall logistics cost by approximately 20%. This partnership further validates our operational capacity in high barrier, complex scenario and marks the establishment of our end-to-end service capacity in the luxury and high-end retail sector, laying a solid foundation for deeper market penetration moving ahead. In the home appliance sector, we extended our collaboration with a leading brand, creating a closed loop spanning forward logistics to reverse recycling and packaging refurbishment. By leveraging our differentiated capacities and expanding service scenarios, revenue generated from this customer's small appliance business achieved triple-digit growth. While steadily strengthening our leadership in China's ISC market, we also actively expanding our overseas footprint, aiming to replicate and scale up a mature supply chain model developed in China. In 2025, we achieved our goal of doubling the area of self-operated overseas warehouse, opening multiple new warehouses in U.S., U.K., France, Saudi Arabia and other countries, further enhancing our global warehousing network. By the end of 2025, we operated nearly 200 bonded warehouses, international direct distribution warehouses and overseas warehouses, covering aggregate GFA of nearly 2 million square meters. At the same time, we continue to strengthen our last-mile fulfillment capacities in overseas markets. In 2025, we launched our first self-operated express delivery brand, JoyExpress, in multiple overseas countries. Saudi Arabia, JoyExpress provides high-standard services such as to-door delivery and cash-on-delivery, among others, while in key regions of U.K., France, Germany and Netherlands, we offer 211 time-definite delivery services. This has established a comprehensive logistics network encompassing warehousing, sorting, transportation, last-mile delivery, significantly improving fulfillment timeliness and service reliability. The global deployment of our warehousing and distribution integrated supply chain services has also strengthened our strategic partnerships with more leading industry customers, driving rapid growth in our overseas business. For example, in the Middle East, leveraging our bonded warehouse cluster in the Jebel Ali Free Zone, we efficiently serve neighboring markets, including the GCC countries, Africa and South Asia. Through our warehouse for multiple countries and bonded upon entry, duty payment upon exit from the zone model, we enable customers to centralize inventory management, effectively avoiding redundant stock across multiple countries, significantly reducing inventory costs while improving inventory turnover efficiency. As a result, we have become the preferred supply chain partner in the Middle East for numerous Chinese go-global automotive brands as well as leading cross-border e-commerce platforms, we're the preferred partner. Secondly, delivering a high-quality customer experiences is not only foundation for earning customers' trust, but also a key driver for sustainable growth in our express and freight delivery services. In 2025. Our revenue from the customers primarily include express and freight delivery services reaching RMB 100.9 billion, representing year-over-year growth of 5.7%. We remain committed to drive high-quality growth by focusing on high-value services and continuously strengthen both our timeliness and service capacity. We continue to increase our investments in upgrading our timeliness logistics network. By the end of 2025, JD Airlines expanded its self-operated all-cargo fleet up to 12 planes. The recent introduction of the first A330 wide-body cargo airplane marks a significant breakthrough in our cross-border transportation capacities and long-distance route capacity in 2025. We launched multiple new international cargo routes, including Shenzhen, China to Bangkok, Thailand and Chengdu, China to Yangon, Myanmar. Our gradually expanding fleet not only enhances the timeliness and reliability of our air cargo transportation, but also provides exceptionally stable capacity support for products requiring high timeliness. Our continuously enhance timeliness capacities also drove growth in our high-value fresh products business. In 2025, revenue from key fresh products such as lychees, hairy crab and beef and lamb saw substantial year-over-year growth. For example, for beef and lamb originating from Qinghai, we launched a dedicated all-cargo airplane route, enabling as fast as the next-morning delivery from Qinghai to dozens of cities in key economic regions, including Beijing and Shanghai. This initiative addressed the pain points such as low efficiency and preservation challenges in traditional transport models, supporting cross-region sales growth for special agricultural products from production zones. In addition to that, we are committed to delivering reliable services to our customers. The dedication was particularly evident in our response to the national consumer goods trade-in program, which fully demonstrate JDL's service capacity and value. To meet the high standards for verification and risk control during the policy implementation, we leveraged our service capacities and deeply integrated technology empowerment. Using AI image recognition and other cutting cutting-edge technologies, we achieved intelligent monitoring and evidence collection for the entire process of delivery, installation, dismantling of old appliances. This initiative not only provided the regulatory authorities with accurate and traceable verification evidence, but it also demonstrated our professional capacities in high-complexity logistics scenarios. As a result, we effectively supported our customers, particularly in key home appliances and 3C categories in capturing policy-driven opportunities. Finally, I would like to highlight our third core advantage, our technology-driven approach. We have always regarded technology innovation as the fundamental driver of long-term efficiency gains and margin improvement. Supported by a professional R&D team of thousands of engineers, we continue to invest in the innovation and development of cutting-edge technologies. Leveraging the most extensive operational scenario and the most comprehensive operational chain in the industry, we built a proprietary end-to-end intelligent operation system covering all stages, including warehousing, sorting, transportation and delivery. The field of intelligent warehousing, we have achieved scale replication in the domestic market and implemented benchmark projects overseas. In 2025, our self-developed Smart Wolf goods-to-person automated warehousing solution was deployed in nearly 20 cities, with more than 20 Smart Wolf warehouses. Benefiting from in-depth application of the GTP model, we have achieved high-density storage and ultra-fast picking for millions of SKUs, significantly boosting the warehousing operation efficiency. In the fourth quarter of 2025, the first Smart Wolf was officially put into operation in U.K. Powered by the efficient operation of hundreds of Smart Wolf robots, this project supported local operation, delivering ultimate fulfillment experiences. In autonomous delivery, our solutions have progressed into standardized, large-scale operations. Today, we have deployed thousands of unmanned vehicles across over 20 provinces nationwide, improving labor efficiency in the transfers between delivery stations and delivery zones while continuously unlocking cost reduction potential emerging scenarios such as direct warehouse-to-station delivery. At the same time, we have extended our autonomous delivery classes to overseas low-altitude logistics. In December 2025, JDL successfully completed the first overseas drone trial flight in Saudi Arabia, validating our aerial last-mile fulfillment capacities in the overseas market. Looking ahead, we'll continue to center on experience, cost and efficiency, fully leveraging these three differentiators to drive high-quality growth. Building on our increasingly robust integrated supply chain capacities, we work hand-in-hand with our partners to help customers reduce costs, enhance efficiency and achieve sustainable business growth, while at the same time, advancing to the next stage of our own development. We will continue to uphold our original aspiration of customer first, delivering reliable high-quality customer experience in response to evolving market dynamics. We further strengthen our end-to-end intelligent capacities, translating tech excellence into tangible operational gains, steadily delivering on our strategic commitment to long-term efficiency improvement and margin enhancement. Welcome Wu Hao to give us the discussion on the financial performance. Thank you. Hao Wu: Thank you, Zhenhui. Dear investors and analysts, I'm Wu Hao, the CFO of the JDL. It's my great pleasure to share with you the fourth quarter and the full year of the financial report. Looking back to 2025, the Chinese macro economy is growing steadily with high quality, and we are seeing a lot of growth. The JDL relying upon the ISL (sic) [ ISC ] platform, improving our solutions as well as our long-term metrics, improve our service quality, customer experiences. In the quarter -- fourth quarter of 2025, we are achieving the [ three digital ] growth. To be more specific, the total revenue is CNY 36.5 billion (sic) [ CNY 63.5 billion ] in the fourth quarter, representing year growth of 21.9%, extending the high growth momentum over the entire year. CNY 217.1 billion was the total year revenue, up 18.8% year-over-year. This growth trajectory reflects our customers' strong recognition of our service value. In terms of profit, since the beginning of the year, we have invested deeply in core resources and capacities to build long-term competitive barriers, solidifying our growth momentum for healthy, long-term development. In the fourth quarter, our IFRS profit was RMB 2.0 billion with a margin of 3.1%. Non-IFRS profit was RMB 2.35 billion with a margin of 3.7%. In 2025, our IFRS profit was RMB 6.9 billion with a margin of 3.2% and non-IFRS profit was RMB 7.7 billion with a margin of 3.6%. Looking ahead, emerging efficiency gains from our resource investments, along with the deep empowerment from automation and AI algorithms will form the groundwork for driving continued profitability optimization. Now let's look at the segmented business lines. Our revenue from ISC customers totaled RMB 36.0 billion in the fourth quarter, increasing 44.5% year-over-year. Of this total, ISC revenue from JD Group amounted to RMB 26.7 billion, up 68.1% year-over-year due to the incremental revenue generated by our full-time riders providing delivery services for JD food delivery and acquisition of the on-demand delivery services from JD Group as well as the steady growth of the general merchandise category in the JD Retail. Revenue from external ISC customers was RMB 9.3 billion, maintaining healthy growth momentum. Leveraging our extensive network coverage and in-depth industry insights, we continue to refine and upgrade our end-to-end supply chain solutions to meet the diverse needs of customers across various industries. For instance, our advanced algorithm systems and high-standard integrated warehousing and distribution classes have helped premium retail brands achieve multichannel centralized management within a single warehouse, effectively improving warehouse utilization and reducing costs. In addition, leveraging our overseas bonded warehousing system with regional reach, we have built logistics solutions featuring bonded upon entry and one warehouse for multiple countries for automotive and other customers, helping them reduce inventory cost while improving inventory turnover efficiency. These high-quality end-to-end service and solutions have earned us widespread market recognition and trust. In the fourth quarter, the number of external ISC customers amounted to 68,000, up 9.7% year-over-year. In the fourth quarter of 2025, our revenue from other customers, primarily including express and freight delivery services, was RMB 27.6 billion, up 1.3% year-over-year with fluctuations primarily attributable to the impact of the Deppon product metrics adjustments. Excluding Deppon's business, revenue from other customers achieved double-digit growth, maintaining a steady trajectory. In express delivery services, we continue to refine our ultimate timeliness experience with a strategic focus on expanding high-value categories. In freight delivery services, leveraging a tiered, targeted and scenario-rich [ product portfolio, ] we effectively meet the differentiated needs of various customers, maintaining our industrial-leading position in both freight volume and revenue scale. Moving towards cost and profitability. In the fourth quarter of 2025, our gross profit margin was 9.3%. We continue to focus on enhancing customer experience and delivery timeliness while solidifying our operational capacity to drive JDL's long-term, high-quality business growth. Now let's turn to the key components of the cost of sales revenue. Firstly, employee benefit -- were RMB 23.1 billion in the fourth quarter, up 34.9% year-over-year. This was primarily due to the addition of full-time food delivery riders compared with the same period of last year as well as year-over-year increase in number of front-line operational employees in the delivery and warehouse operations. The number of operational employees grew from approximately 480,000 at the end of the fourth quarter last year to approximately 660,000 at the end of the fourth quarter of 2025, while quite stable. Since the beginning of this year, we have invested in our own employee in core areas such as delivery and warehousing. By strengthening our control over the delivery process, we have effectively optimized the customer experiences. Driven by this initiative, core operational metrics such as on-time delivery rate and cost satisfaction have achieved steady over -- year-over-year growth. In the fourth quarter, employee benefit expenses accounted for 36.3% of revenue, up 3.5% year-over-year. Second, our outsourcing cost was RMB 22.7 billion in the fourth quarter, up 14.9% year-over-year. Our outsourcing costs accounted for 35.7% of total revenue in the fourth quarter, a year-over-year decrease of 2.2%. Over the operational account, we leveraged digital intelligent dispatching system to precisely match capacity resources with transportation demand while optimizing our capacity resource structure by increasing the proportion of self-owned vehicles, effectively enhancing resource control and operational efficiency. Meanwhile, on the business side, the ongoing optimization of Deppon's freight product structure was -- also contributed to further reduction of outsourcing costs. Thirdly, our total rental cost was RMB 3.3 billion in the fourth quarter, up 6.5% year-over-year as we promoted site integration and optimized network structure. [ We ] continue to improve utilization efficiency of our sites. Our total revenue -- rental costs accounted for 5.2% of our total revenue in the fourth quarter, year-over-year decrease of 0.8%. Apart from major costs mentioned above, our ongoing business expansion was -- resulted in improving economies of scale, driving down our depreciation and amortization costs as a percentage of total revenue by 0.1%. In terms of expenses, our operating expenses in the fourth quarter were CNY 4 billion, up 23.2%, accounting for 6.3% of total revenue, year-over-year increase of 0.1%. Among them, sales and marketing expenses increased by 17.9% year-over-year to RMB 1.8 billion, accounting for 2.8% of the total revenue, down 0.1 percentage point. Specifically, sales and marketing expenses accounting for 4.8% of revenue from external customers, up 0.7 percentage points year-over-year. This was mainly due to our moderate investment in sales and marketing personnel to drive business growth. In the fourth quarter of 2025, our R&D expenses were RMB 1.2 billion, up 28.9% year-over-year and accounting for 1.9 percentage of the total revenue, up 0.1 percentage point year-over-year. We've always positioned the technology innovation as a core development engine, building an end-to-end intelligent operation system covering all stages, including warehousing, sorting and delivery. In the warehousing stage, we are accelerating domestic and international deployment of our self-deployed Smart Wolf automated warehousing solution, enhancing both storage density and fulfillment efficiency. In the sorting stage, we continue to iterate and upgrade our automation levels, significantly improving the accuracy and operational efficiency of the sorting process. In the delivery stage, we've deployed thousands of unmanned vehicles, empowering multi-scenario operations to reduce costs and increase efficiency. Our general and administrative expenses were RMB 1 billion, up 26.8% year-over-year, accounting for 1.6% of total revenue, a year-over-year increase of 0.1 percentage points. In terms of the profit, please also consider non-IFRS measures, which we believe may better reflect our core operations. Both non-IFRS profit and non-IFRS EBITDA exclude items that we believe are not indicative of our core operating performance to help investors and other users of financial information better understand and evaluate our core operating results. In the fourth quarter of 2025, our non-IFRS profit was RMB 2.4 billion, up 5.7% year-over-year. Non-IFRS profit margin was 3.7%. Non-IFRS EBITDA for the fourth quarter was RMB 5.8 billion, increase of 8.9% year-over-year with a non-IFRS EBITDA margin of 9.1%. We continue to monitor the health of our cash flow to ensure adequate funding for business expansion operations. In the fourth quarter, excluding lease-related payments, we recorded a free cash flow of RMB 3.3 billion. Of this total operating cash flow, excluding the lease-related payments, was RMB 5.3 billion, a year-over-year increase of nearly RMB 0.2 billion, primarily benefiting from proactive measures to improve accounts receivable turnover and accelerate collections. Capital expenditure was RMB 1.9 billion, mainly directed towards investments in automation equipment and self-owned vehicles, driving consistent improvements in operational efficiencies through efficient resource allocation. Before we wrap up, I'd like to express my gratitude to all the stakeholders for your [ long-standing ] support and trust. Looking ahead, we're focused on achieving a balance between business growth and profit stability. Over the growth front, we'll emphasize both the speed and quality of the business growth, continuously deepening our strategic focus on ISC capacities to empower our customers' business development while also preparing ourselves towards a new level of high-growth momentum. On the profitability front, we will increase technology investment, optimize our network layout and deepen refined management to enhance resource utilization efficiency. We are confident that through ongoing operational efficiency improvements across the entire chain, we can drive sustainable cost optimization and drive long-term sustainable value creation to our shareholders. Thank you. That concludes my prepared remarks. We can begin the Q&A session. Unknown Executive: Thank you, Mr. Wu Hao, for your prepared remarks. This is the end of the prepared remarks in Chinese, and we are going to start the Q&A session. [Operator Instructions] Now let's get into Q&A. Operator: [Operator Instructions] The first question is from Goldman Sachs [indiscernible]. Unknown Analyst: I'm from the Goldman Sachs. I want to share with you my comments on two questions. In 2025, you are speaking about the delivery services with very good growth momentum. So how we are going, looking to 2026? What will be the internal and external customer growth momentum? And what will be the CNY 20 billion incentive for the merchandise, what will be the impact? The next about the overseas market. We have already seen the express as well as the total GFA area in the overseas market, very good growing momentum, and you are sharing with us a lot of milestones. So my question is, how could you take JDL's footprint in the overseas market in 2026 as well? Hao Wu: Thank you for the question. About the growth momentum prospects, in 2026, we are having strong confidence in seeing the growth momentum in 2026. About the real-time delivery, we're going to do a lot of things. You have already seen that over the last few years, we are seeing very good and positive growth momentum. But still, in terms of infrastructure, we did a lot of fundamental work. We laid out a solid foundation. And we want to take a breakthrough in building, expanding the customer bases. We want to have -- we have already achieved [ three digital ] growth in 2025. And you are checking about the incentive, the business incentive of RMB 20 billion. For JDL, I believe this will be creating a positive business loop. The JD [indiscernible] is covering different products with a wide range of product portfolio, which will giving us a lot of chances to deliver our services and with [ also ] improving the efficiency in the overall manner. Most of the products have high requirements on the delivery efficiency and timeliness. JDL is in a good position to deliver the promises. And we will continue investing our resources, reducing last-mile abruption, and we have already done a lot of improvement work. I believe that with that being said, with all the efforts being done, we could improve the efficiency continuously in 2026, and we could also improve the satisfaction rate. I want to welcome the CEO to share with us the practice in Europe. Zhenhui Wang: Thank you for the questions. Thank you for staying with us. In 2025, we have briefed on you the work report. JD Logistics is prioritizing the European business. We continue to carry our logistic deepening as well as upgrade of the products and services. In 2020 -- in U.K., Germany, France and Netherlands, those are the major markets. In their major cities, we will ensure the highly efficient timeliness in terms of delivery. We have the to-door services, we have the free-of-charge exchange and refund services. At the end of the day, we could work together with local buyers as well as partners. I want to -- we could also attract more customers out there. As of now, we also have a lot of good partners such as DHL. By working with them, we could cover the terminal services. We could get into the client conversion in the European local market, and we are also working together with our customers to ensure the cross-border [indiscernible] pick-up by working with the core local partners, we would have a faster process, including the cross-border delivery as well as the customer clearance, et cetera. The purpose is to have the terminal-to-terminal ISC system in place. It is expected that by 2026, the European business will be growing very fast. This trend will be maintained. Thank you again for your question, and thank you very much for your attention to our overseas market and business. Operator: We are going to have Citibank, Brian Gong. Brian Gong: I have two questions. The first question, for the ISC, I want to check with -- about the internal growth region, except for the real-time delivery, what will be the number in 2025, what will be the growth momentum in 2025? The next is in 2025, you did some investment, Deppon, is having further impact on your profit? And what will be the trend for the profit in 2026? Unknown Executive: Thank you, Brian, for your questions. For the internal business growth ratio, for the long run, we are seeing positive growth momentum. Generally speaking, we are collaborating with JD Retail for the long run. We are also receiving benefits due to expansion of the JD Group so that we have seen very fast growth in our internal orders. For the second question, about margin in 2025, you saw a dip. So how will be the outcome in 2026 because we have considered the impact of Deppon. I believe that over the last year, through our measures of efficiency improvement and technology optimization, we could have better opportunities to receive return. Meanwhile, for Deppon, in 2025, we [ expected ] limited impact from Deppon. There are some data from Deppon. The trend is the profitability is gradually moving into a normalized and stable circle. In the second half of 2025, we saw a positive improvement from Deppon. Deppon is gradually picking up their business. So in 2026, in terms of the profit, I believe there will be positive improvement. Operator: Next question, [ Tom Chong ]. Unknown Analyst: My question is as follows: for the AI strategy, can you share with us the 2026 autonomous driving strategy as well as automation strategy or practices? The next question is about the general performance in 2026 in terms of the revenue, what will be the trend? Unknown Executive: For the AI and automation technologies, as we have already discussed, a part of the strategies, JBL is prioritizing the technologies. We know how important they are in the implementation in the past. For the wolf robot and for the unmanned devices, you are seeing a lot of implementation and utilization with very good outcome. And we also have certain AI technologies to improve scheduling of the vehicles, the dispatching of the [ ride path ] when we are using AI, especially for the robots. We have the warehousing, sorting, transportation, different steps. In 2025, over 20 cities and their warehouses are equipped with AI. In terms of the sorting, 90% of the sorting devices are equipped with automation technologies and the sorting amounts are over millions. In terms of the delivery, over thousands of -- over 1,000 vehicles, unmanned vehicles, and in 2026, we'll expand their presence. In China, we could improve the efficiency by using and driving the unmanned vehicles. The operators, the delivery man could improve their work efficiency as well, reducing the risk of delayed [indiscernible] delivery at certain steps, we could further reduce our cost while improving the efficiency. The next is about the future prediction. Through our vehicles and the drivers as well as development, we could optimize our routes through AI preparation. In terms of the scheduling of the vehicle resources as well as exploration of passes in one vehicle, we could improve the efficiency and reducing the cost. Thank you. Unknown Executive: I want to say a few words about the two questions. And we are developing our AI technologies back years ago. In 2026, the investment will be continuously down. I believe the investment will be higher than that of 2025. In terms of the automation of sorting, we have had very mature technologies. And in 2025, we did invest continuously in the unmanned vehicles as well as warehousing network. And we have launched more than 1,000 unmanned vehicles through 1-year trial. Our technologies have further been improved. The investments in 2026 will be picked up further in terms of the sorting machines. As we are reducing the cost and improving efficiency, we will continue to invest strongly. I believe that they will contribute to our increased profit in 2026 as well. Operator: Next question from [indiscernible]. Unknown Analyst: I'm [indiscernible]. I have two questions, of course, topic one: the previous speaker talked about the progress, I want to share with you my -- comments on your investment of the cross-border delivery and what will be the right maneuver for next year? And what will be the profitability? For instance, you'll be fairly high in the industrial profit level. Next about the recruitment, the delivery man. What will be the coordination plan between them and the traditional recruitment? I want to confirm with you about [ MA ], right? The acquirement of Kuayue, as we have understood that in last quarter, you have acquired Kuayue and you have done something. So I want to check with you more about the performance. Unknown Executive: For the Kuayue, we did a great job in acquiring the business. And so we are seeing a smooth business conduction and we also received a profit return. And we're also seeing the future growth momentum. In terms of the revenue growth, we are seeing continuous increase, and we are collaborating with the Kuayue management, optimizing their timeliness, their orders being traced and the online preparation. And we are still seeking more opportunities to reduce their operational cost. Every year, we continuously invest on Kuayue year-by-year in terms of the revenue, in terms of the profitability. I see very good chances. So your question is about the differences between the delivery man and recruitment. Now we have the new business of food delivery. We are ensuring the real-time and immediate delivery services. At the same time, we have to manage the rider. When we are receiving the food order, we have to manage the riders in the good metrics, and we want to optimize the people scheduling, improving the efficiency so that we could also boost up the profitability. But of course, we have to consider about the early promotion. And now we are also managing the free time or different time slots of the [indiscernible] to maximize the human efficiency. Now we are also including some of the [indiscernible] into the rider, turn them into the rider. That is what we call the [indiscernible] to rider initiative. It helps us reduce the peak time congestion, improving the efficiency on both sides. Thank you. Operator: Due to time constraint, that concludes today's question-and-answer session. At this time, I will now turn the conference back to Zhang Sean for additional or closing remarks. Sean Shibiao Zhang: Thank you once again for joining us today. If you have additional, further questions, please contact our IR team directly. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]