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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.]
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.]
Operator: Hello, and thank you for standing by for JD.com's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, Head of Investor Relations. Please go ahead. Sean Shibiao Zhang: Thank you. Good day, everyone. Welcome to JD.com's Fourth Quarter and Full Year 2025 Earnings Conference Call. With us today are CEO of JD.com, Ms. Sandy Xu; and CFO, Mr. Ian Shan. Sandy will kick off the call with her opening remarks, and Ian will discuss the financial results, then we'll open the call to questions from analysts. Please note, unless otherwise stated, all comparisons in this call will be against our results from the comparable period of 2024. Before turning the call over to Sandy, let me quickly cover the safe harbor. Please be reminded that during this call, our comments and responses to your questions reflect management's view as of today only and will include forward-looking statements. Please refer to our latest safe harbor statement in the earnings press release on our IR website, which applies to this call. We'll discuss certain non-GAAP financial measures. Please refer to the reconciliation of non-GAAP measures to the comparable GAAP measure in the earnings press release. Please also note, all figures mentioned in this call are in RMB, unless otherwise stated. Now let me turn the call over to our CEO, Sandy. Xu Ran: Thank you, Sean. Hello, everyone. Thank you for joining our fourth quarter and full year 2025 earnings conference call. We closed Q4 with results in line with expectations as we navigated short-term challenges while delivering on solid overall full year performance for 2025. During Q4, despite a high year-on-year comparison base in electronics and home appliances, our top line remains resilient, thanks to the continued strong momentum in both our general merchandise categories and marketplace and marketing revenues. Our profitability, our core business, JD Retail achieved a notable gross margin expansion in Q4 as we further leveraged our supply chain advantages. We strategically invested some of these gains into our price competitiveness, particularly in electronics and home appliances categories as well as in R&D capabilities and talent to secure a long-term edge. This slightly tempered retail's margin expansion in the quarter, but the impact was well absorbed by our increasingly diversified profit streams, including high-margin marketplace and marketing services and margin improvement in categories such as supermarket and health care. Beyond core retail, our new businesses continued to report steady efficiency gains and a sequential decline in total investments. Beyond the quarterly fluctuation, 2025 remained a year of solid execution where we delivered on our full year expectations. We have made encouraging strides across our key long-term growth drivers. User base and engagement gained significant momentum and our core retail segment accelerated back to double-digit top line growth. Notably, we achieved this while expanding JD Retail operating margin for the sixth consecutive year, despite a highly competitive landscape, and we are expanding our TAM with several promising new business initiatives. This solid progress is rooted in our deepening supply chain capabilities, which remain the engine for delivering superior user experience, optimized and enhanced operating efficiency. This is the backbone of our business model, not only supporting our core retail business, but also fueling our expansion into the new markets, our strategic initiatives. We are confident that these strategic pillars position us for more sustainable and profitable growth. Moving into our operational highlights. I'd like to share 3 highlights from Q4 and full year 2025 as well as our thoughts for 2026. First, our user base expanded in both scale and depth [Technical Difficulty]. Our quarterly active customers grew by 30% year-on-year in Q4, capping a year where we exceeded 700 million annual active customers. This growth was powered by the organic user growth of our core retail business and further accelerated by new strategic initiatives, including JD Food Delivery and Jingxi. High-value users also hit a new milestone. Our active JD Plus user base sustained double-digit [Audio Gap] surpassing [Audio Gap] by year-end. What is even more encouraging is the quality of user growth. User shopping frequency surged by over 40% year-on-year for the full year with broad-based gains across all user groups, including new and existing users as well as Plus members. In addition to user acquisition, JD Food Delivery also played an important role in this frequency lift. We view the expansion of user base and engagement as a long-term strategic driver for our business and expect it will further amplify in 2026 and beyond. Second, our core retail business demonstrated remarkable resiliency in Q4, maintaining stable margin in the quarter despite short-term top line headwinds. On a full year basis, JD Retail delivered strong double-digit growth in both revenue and operating profit with operating margins expanding by 52 bps to 4.6%. Viewed through a long-term lens, this consistent trajectory of JD Retail's growth and margin expansion over multiple years stands as a powerful testament to the resilience of our supply chain-driven model. While Q4 revenue edged down to 1.7% year-on-year due to softness of electronics and home appliance categories, we have proactively strengthened our supply chain capabilities and deepened user mind share. These efforts are already paying off with improved momentum year-to-date in 2026. Furthermore, we expect to be benefiting from the resumed trade-in program this year, which will provide a constructive backdrop for industry growth. Turning to general merchandise. Its performance remained strong with revenue up 12.1% year-on-year in Q4 and 15.3% for the full year. Supermarket revenue maintained double-digit growth in Q4. For the full year, supermarket growth reached mid-teens, accompanied by steady growth and operating margin expansion. Our fashion categories also achieved significant gains in both top line and user mind share expansion throughout 2025, with healthy growth across user base, shopping frequency, ARPU and ticket size. These results were driven entirely by the team's execution rather than external tailwinds. We are confident in sustaining the general merchandise momentum as our category mix continues to evolve towards a more diversified structure. Another exciting emerging growth driver for JD Retail is advertising revenue, which boosted our marketplace and marketing revenues to grow 15% in Q4 and 18.9% year-on-year for the full year. The robust growth was fueled by our optimized traffic allocation, enhanced conversion efficiency and the roll out of our AI-powered algorithms and agents for our suppliers and merchants. We are also seeing a strategic shift where advertisers are reallocating budgets towards platforms like JD as we are regarded as the most consistent daily sales platform, the premium designation for brand building and the platform that offers the highest return throughout a product's entire life cycle. Notably, the synergy with JD Food Delivery is starting to bear fruit, contributing an incremental 2% to 3% to ad revenue in Q4. We remain confident in sustaining our advertising revenue momentum in 2026. The third highlight is the solid progress of our new businesses. Within the segment, JD Food Delivery continued to drive healthy progress in Q4. We maintained steady order momentum while further optimizing our investment, further reducing the total investment scale by nearly 20% quarter-on-quarter. Since its inception, JD Food Delivery has sustained sequential loss reduction every single quarter, a direct result of our relentless focus on improving operating efficiency and an ROI-driven investment framework. In Q4, JD Food Delivery loss rate over GMV narrowed significantly compared to a quarter ago while maintaining the scale momentum. More importantly, the strategic synergies with our core retail business are deepening. Beyond the strong user momentum mentioned earlier, both cohorts cumulative cross-selling rate and shopping frequency trended upward in Q4. Additionally, total active merchants have increased by over 270%, which was also partially contributed by the high-quality restaurants that onboarded our platform. Looking ahead, JD Food Delivery will continue to prioritize healthy volume growth while improving its unit economics at a greater level. We expect investment efficiency in food delivery to improve further this year compared to 2025 levels. Regarding our other new business initiatives, both Jingxi and international business are progressing on track. Jingxi continues to successfully penetrate lower tier markets, expanding both our user base and user mind share. Furthermore, we are excited to announce that Joybuy, our online retail business in Europe, will officially launch this month. We are committed to redefining the local shopping experience by providing same-day and next-day delivery services, a move that opens up greater growth horizons for JD. We will continue to invest in these higher potential segments in a prudent and controlled matter to build our long-term sustained development. While executing our core strategies, we are equally inspired by the transformative potential of AI. By leveraging our deep supply chain capabilities, we are embedding AI across our entire value chain, identifying and stimulating demand, sourcing 1P and 3P supply and pioneering autonomous logistics. Let me share a few samples of our AI initiatives. First, proprietary intelligence. Our large language model, JoyAI, now supports over 1,000 real-world applications across customer experience, procurement, merchant services and operations. In 2025, JoyAI's total token invocations surged nearly 100-fold from 2024, fueling faster, smarter decision making throughout the company. Second, demand cultivation. We are reshaping the shopping journey and enhancing user experience through AI-driven search and recommendations. Jingyan, our AI agent, surpassed 150 million annual AAC in 2025 with over 20% user penetration driven billings in GMV. We expect to double this user base in 2026. Third, logistics automation. Parallel to the digital intelligence is our leadership in autonomous logistics. In 2025, JD Logistics continued to redefine logistics efficiency. As of the year-end, it deployed over 20 flagship LangzuTech warehouses across China. We also launched this capacity internationally, launching our first LangzuTech facility in the U.K. to efficiently support a premium 211 same day and next day fulfillment experience locally. Furthermore, services and innovation. Our multimodal AI customer service handled over 4.2 billion user inquiries during the 11.11 promotion, achieving higher satisfaction with lower human intervention. Beyond operations, we are unlocking new consumption potential through JoyInside, our AI agent for hardware, which has partnered with 40 hardware brands to introduce a range of AI products. Sales of JoyInside-integrated products surged 20-fold during 11.11 compared to the June 18 promotion. By harnessing AI to redefine our competitive edge, we are further equipped to enhance our user experience, lower costs and improving operating efficiency. We are well positioned to capture the opportunities arising from AI to unlock new growth frontier for 2026 and beyond, ultimately placing us at the forefront of AI commerce. In summary, 2025 was a year of constructive progress and strategic fortitude. Despite navigating short-term macro environment and high base comparison, we remained steadfast in sharpening our supply chain edge and fortifying our foundation for the future. As we enter 2026, we are already seeing a consistent upward trend. Our user momentum remains robust and the growth trajectory of our general merchandise and the marketplace and marketing services has carried over seamlessly into the new [Audio Gap]. In the meantime, we have continued to strengthen our competitiveness advantages across product supply, price competitiveness and fulfillment experience. This operational strength, combined with our technological advances and disciplined ROI-focused approach to new businesses gives us great confidence in our 2026 outlook. We remain fully committed to driving sustainable, profitable growth and creating long-term value for our shareholders. With this, I will turn the call over to Ian. Ian Su Shan: Thank you, Sandy. Hello, everyone, and thanks for joining the call today. In Q4, our total revenues grew by 2% year-on-year, and non-GAAP net profit came in at RMB 1.1 billion. While we faced short-term headwinds in electronics and home appliances categories, our overall performance remained resilient. This stability was driven by our strategic focus on diversifying growth drivers and profit streams alongside disciplined investments in our new business. On a full year basis, we achieved meaningful progress across our core retail segment, new businesses and user growth and engagement, reinforcing our long-term sustainable development. As we drive business development, we remain firmly committed to delivering shareholder returns. Our Board has approved a total annual cash dividend of approximately USD 1.4 billion for 2025, representing USD 0.05 per ordinary share or USD 1 per ADS. Furthermore, we remained active in terms of share buybacks. In 2025, we repurchased about 6.3% of our outstanding shares for a total of USD 3 billion. All of the repurchased shares have been canceled. These efforts underscore our confidence in long-term development. Now let's go through our Q4 and full year 2025 financial performance. Total net revenues for Q4 increased by 2% year-on-year to RMB 352 billion. On the full year basis, total net revenues increased by 13% to RMB 1.3 trillion in 2025. Breaking down the mix, product revenues faced a 3% dip in Q4, mainly due to a high trading base, but grew by 10% for the full year. By category, revenues of electronics and home appliances was down 12% in Q4, but up 7% for the full year. We have navigated this high base challenge in close collaboration with our partners and are encouraged by the improved momentum year-to-date in 2026. On the other hand, general merchandise delivered robust results with revenues up 12% in Q4 and 15% for the full year, led by sustained momentum in our supermarket, fashion and health care categories throughout 2025. We believe this momentum will continue in 2026 as we further build our strength in these high-potential sectors. Service revenues grew by 20% year-on-year in Q4 and 24% for the full year. Notably, marketplace and marketing revenues were up 15% and 19% for the quarter and full year, respectively. A key driver of this was advertising revenues, which achieved double-digit growth across every quarter of 2025. We have enhanced advertising efficiency of our platform through leveraging technology as well as our surging user traffic and engagement. Looking into 2026, we expect marketplace and marketing revenues to maintain solid growth momentum, contributing to both top line growth and profitability. Additionally, logistics and other service revenues grew by 24% year-on-year in Q4 and 27% for the full year, mainly driven by the incremental delivery returns revenues from our food delivery business. Now let's turn to our segment performance. JD Retail revenues down 2% year-on-year in Q4, but up 11% for the full year of 2025. The quarterly decline was primarily due to the high trading base for electronics and home appliances, which was largely mitigated by growth in general merchandise and advertising revenues. It's important to note that JD Retail is no longer a single growth driver business. We have successfully built a diversified growth metric that provides the business with multiple engines and strong resilience across different market conditions. Notably, JD Retail's gross margin increased by 1.1 percentage points year-on-year in both Q4 and full year 2025. This consistent improvement has sustained across multiple years despite changes in the competitive landscape, reflecting our enhanced supply chain strength and a favorable mix shift. JD Retail's non-GAAP operating income in Q4 was down 2% year-on-year with operating margin holding steady at 3.2%. The temporary pause in margin expansion this quarter was a strategic choice. We deployed supplementary subsidies for electronics and home appliances to offer competitive price and maintain market leadership while increasing OpEx through targeted investments in R&D and employee compensation to fuel future growth. On a full year basis, JD Retail's non-GAAP operating income in 2025 grew by 25% year-on-year, with operating margin improved by 52 bps to 4.6%. Taking a long-term view, JD Retail's margin trajectory remains very healthy, climbing consistently from 2.7% in 2019, when we initiated this segment reporting, to 4.6% in 2025. As we continue to emphasize high-margin advertising business and realize efficiency gains in categories such as supermarket, we remain on a steady and successful path towards our long-term margin targets. Moving to JD Logistics. Its revenues grew by 22% year-on-year in Q4 and 19% for the full year with incremental contribution from food delivery. On the profitability front, JD Logistics' non-GAAP operating income was down 17% year-on-year in 2025, but up 3% in Q4. JD Logistics remains committed to investing in elevating customer experience, expanding service capabilities in both domestic and overseas markets, and advancing AI and robotic technologies. We view this as essential investments that pave the way for JDL's long-term sustainable growth in both top and bottom line. New businesses' revenue surged by 201% year-on-year in Q4 and 157% for the full year driven by the rapid scaling of food delivery, Jingxi and international business. The segment's non-GAAP operating loss narrowed to RMB 14.8 billion in Q4. This sequential improvement was primarily driven by the narrowing loss at JD Food Delivery, which achieved a notable reduction of about 20% in loss compared to the previous quarter, continuing its consistent trend of improvement since launch. As we enter 2026, our priority for food delivery remains to drive healthy order volume while deepening synergies with our core retail business. We believe investment in food delivery has peaked in 2025 and will trend downward this year if market competition trends towards becoming more rational. Beyond food delivery, we will continue to explore promising opportunities in Jingxi and international business with financial discipline to ensure long-term value creation. Moving to our consolidated profit performance. Group level gross margin expanded by 32 bps year-on-year to 15.6% in Q4 and rose 18 bps to 16% for the full year. This improvement was primarily driven by the consistent gross margin expansion of JD Retail. Consolidated non-GAAP net income attributable to ordinary shareholders was RMB 1.1 billion in Q4 and RMB 27 billion for the full year, representing a non-GAAP net margin of 0.3% and 2.1%, respectively. Our near-term profitability mainly reflects our strategic investments in new businesses. We believe these initiatives will broaden the group's growth potential, driving both sustainable growth and margin improvement over the long term. Our free cash flow for the full year of 2025 was RMB 6 billion compared to RMB 44 billion last year. This primarily reflects cash outflows associated with the trade-in program alongside fluctuations in operating income. Our accounts receivable also recorded a sequential decline for 2 consecutive quarters, primarily due to the healthy recovery of the trade-in related receivables. We conclude the year with a robust liquidity position with cash and cash equivalents, restricted cash and short-term investments totaling RMB 225 billion as of year-end. In summary, 2025 was a year of solid strategic progress. We achieved strong growth in our user base, accelerated core retail top line with margin expansion fueled by increasingly diversified drivers. Furthermore, our new businesses are now on a healthy, promising operating track. We have built a more resilient ecosystem. While our business segments operated with increasing synergies, our focus remains clear. We will continue to focus on enhancing user experience, lowering costs and improving operating efficiency to deliver strong performance across our retail business top line and profitability while advancing our new business initiatives with a long-term perspective. With that, I will turn it back to Sean. Thank you. Sean Shibiao Zhang: Thank you, Sandy and Ian. For the Q&A session, analysts are welcome to ask questions in Chinese or English. Our management will answer your question in Chinese and will provide English translation for convenience purpose only. In case of any discrepancy, please refer to our management statement in original language. Operator, we can open the call for Q&A session now. Operator: [Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs. Ronald Keung: [Interpreted] First is on JD Retail 2026 growth, as electronic appliances return to a more normalized base from the second half, the general merchandise remains very healthy. So how should we think of the growth rate for JD Retail in 2026 for the first half and second half and the differences given the base? Second is on the on-demand and food delivery. How should we think of the path to further unit economics improvement? Compared with the bigger competitors, how are we differentiating ourselves through supply chain, supply chain-driven business models? And how should we think about your determination and commitment to this business? And with the regulations and investigations on the food delivery industry, would that also contribute to the unit economics improvement? Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] Okay. Thank you, Ronald. So for your first question, first, our general merchandise category continues a very healthy, robust growth trajectory. Looking back at 2025, the category achieved growth faster, even factoring in the impact of trade-in program on the other category. So general merchant category served as a primary growth engine for JD Retail. Categories such as -- subcategories such as supermarket, fashion and health care all achieved very strong results. Looking into 2026, we remain very confident in sustaining this healthy momentum. Supermarket category still has significant untapped potential in terms of user penetration and expansion of the subcategory. Fashion category, we have completed many infrastructural work such as merchant recruitment last year and will further build growth momentum on this very strong foundation. Health care category, we expect to continue maintain its industry-leading position and user mind share. Regarding electronics and home appliance category, it continue to face high base effect in the short term. In 2026, the government trade-in program will continue, but we have to bear in mind that the government-backed cash subsidy were consumed much faster and more in first half 2025 compared to the second half 2025. So for our electronics, home appliance category, including home appliances, cell phones, computers and digital products, will remain affected by a high base in the first half this year. However, we anticipate a sequential improvement in growth compared to the last quarter, fourth quarter of 2025 with more robust recovery expected in the second half 2026, and our market share remains very resilient. Furthermore, we have to bear in mind that memory chip costs keep rising. So prices of mobile phones, digital products are expected to increase across the board. This may dampen consumption and affect sales volume. But at the same time, the rise of AOV will partially offset the impact of lower sales to a certain extent. We'll continue to strengthen our user mind share and drive sales by further reinforcing our supply chain capability, expanding our proactive off-line presence and enhancing overall service experience. Meanwhile, AI and emerging technologies are creating numerous opportunity for innovation and new product categories further demonstrating our strength of supply chain. While initial data contribution from this new AI-related products remain modest relative to our -- the current scale of this category, but we see significant opportunities and shifts. And we will work closely with brand owners and suppliers to respond rapidly and develop new products and meet evolving user needs through the swift application of new technology. Looking ahead to 2026. First, our growth drivers are becoming more diversified. General merchandise category maintains a healthy growth trend, while service revenue, including advertising will also sustain rapid growth momentum. Second, we expect electronics and home appliance category to remain impacted by a high base in the first half this year and with growth in the second half to accelerate better than the first half. Overall, we will maintain our market share and user mind share. At the same time, we'll continuously leverage technological innovation to drive industry progress. Third, supported by the steady improvement in JD's traffic, user base and shopping frequency, we are confident to achieving -- in achieving healthy and high-quality growth for the full year 2026. Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] Regarding your second question. So while food delivery business -- our food delivery business remains in its early stage in 2025, we actively invested in both operations and R&D. Looking at this year 2026, we'll continue to strengthen our capabilities and onboard more quality merchants and products and enhance user experience. At the same time, we'll begin generating revenue through offering merchant services, achieving an orderly and rational monetization. So our goal is to sustain healthy scaling of this business while continuously improving operational efficiency. We expect total investment in food delivery to decrease in 2026 compared to 2025. Well, that also, of course, depends on the market competition dynamics. How we do this? First, JD Food Delivery's differentiating advantage includes our commitment to our positioning in high-quality food delivery. Second, superior service quality driven by full-time riders. Third, the synergetic integration across JD ecosystem, leveraging on our strong supply chain advantage. In terms of improving UE, we have clear drivers. First, more diversified revenue streams; second, continuous optimization of subsidy efficiency, including targeted subsidy tailored to different users and regions; third, enhanced delivery efficiency driven by economic scale that accompany healthy order volume growth. It's also worth noting that our Seven Fresh Kitchen, which is a highly innovative and differentiated business model, is progressing well. It's deeply integrated with JD supply chain capability, leverage strong synergy with our on-demand retail business. As of the end of February, Seven Fresh Kitchen operational footprint has expanded to over 50 kitchen locations and we welcome analysts and investors to try it out. Regarding the long-term positioning, food delivery and on-demand retail is a long-term strategy for JD, will drive our strategic progress with a long-term perspective, continuously enhancing operational efficiency to drive profitability improvement. At the same time, we'll continue to unlock potential synergy between food delivery and our core retail business, fueling the company's long-term healthy growth. In 2025, our food delivery provided -- proved to be a strategic engine for user growth, effectively acquiring new users and significantly boosting purchase frequency across our platform. In 2026, we expect to see a further unlocking of synergies driven by robust cross-selling and incremental growth in advertising revenue. Lastly, regarding the food delivery regulation, first, we support and welcome regulatory oversight that maintains a fair and competitive market environment as they foster a healthy development of the industry. Second, we remain steadfast in our opposition in evolutionary competition within the sector. Third, we are committed to driving high-quality -- evolution of quality food delivery, high-quality food delivery through continuous innovation in our supply chain model. Thank you. Next question, please. Operator: Your next question comes from Kenneth Fong with UBS. Kenneth Fong: [Interpreted] My first question is about the profitability and investment in new business. Under the backdrop of macro uncertainties and yet the accelerated investment in overseas and Jingxi business, how should management balance the growth as well as the profitability? What level of investment should we expect for 2026 for this new business? And how should it affect the group earnings? And my second question is about the overseas business. Can management share some update on the CECONOMY acquisition progress time line and the impact on financials post consolidation? From the strategic angle, how would Joybuy position? And what kind of benefit or synergy should we expect from the group level, i.e., retail, logistics and the whole supply chain point of view? Ian Su Shan: [Interpreted] Regarding our thoughts on investment and profitability, from a long-term perspective, we are confident in the prospects of the China market and our own business development. Based on our views of the market opportunities, we have made long-term strategic investments, including in our international business, lower tier markets and on-demand retail. At the same time, we have been committed to investing in R&D and technologies. By enhancing our foundational capabilities and expanding our service scope, we believe we will continue to unlock new growth opportunities, which will also drive our long-term profitability. JD's high single-digit long-term margin target remains unchanged. In terms of JD Retail, we expect to see healthy growth of retail's profit in 2026 and our long-term target for JD Retail, which is high single-digit profit margin, also remains unchanged. Key growth drivers of this, including improvement in product sales, gross margin brought by our enhancing supply chain capabilities, robust growth in high-margin business, such as advertising, as well as continued margin improvement in categories, including supermarket. JD Retail's flow benefit will also continue to play out and its operating efficiency will have further room to improve as we increasingly adopt AI technology. In terms of our investments in new businesses. For JD Food Delivery, its loss narrowed by nearly 20% quarter-on-quarter in Q4. We continued to maintain its healthy scale expansion while narrowing its loss ratio with improved operating efficiency and revenue growth during the quarter. Looking at 2026, we will continue to drive healthy scale growth of the food delivery business and further unlock its synergies with core JD Retail. If the industry competition trends towards more rationality, we expect our investment in JD Food Delivery in 2026 to decline from the 2025 level. For international business, we will gradually increase our investment on a controlled scale. We will maintain financial discipline in the investment. For Jingxi, it has focused on lower-tier markets and a nonbranded product supply. It has made a meaningful penetration improvement, particularly in Tier 6 and lower cities. This has helped expand our user growth boundaries as it offers differentiated product offerings from our main apps. We expect to increase our investment in Jingxi a little bit, but we believe its UE to continue to improve in 2026, delivering healthy and sustainable business growth. As to your question about the CECONOMY deal, at the current stage, it is under regulatory review. We will update the market in due course. Joybuy is our full category online retail platform in Europe. It is scheduled to officially launch in March. Building overseas supply chain capabilities is a long-term initiative that takes time and continued efforts. Based on its trial operations, Joybuy has received a very positive user feedback, especially on the performance side. Logistics experience will be a key differentiator for Joybuy. We are building our own delivery network in Europe, and the JoyExpress has been launched recently. It provides same and next-day delivery in major cities across the U.K., Germany, France and the Netherlands along with services such as door-to-door delivery. We welcome all analysts and investors to try out our services. As for synergies, first, on supply chain capabilities, while helping Chinese brands expand globally, we also aim to bring more high-quality European brands into the Chinese market, further strengthening our global supply chain capabilities. Second, on logistics, as Joybuy expands in Europe, the synergy between retail and the logistics in our overseas business will be further strengthened, reinforcing Joybuy's competitive edge. Third, on the technology front, JD's long-standing expertise and robust infrastructure will continue to empower our international business. Sean Shibiao Zhang: Next question, please, operator. Operator: Your next question comes from Alicia Yap with Citigroup. Alicis a Yap: [Interpreted] So in light of the potential slower retail sales growth outlook this year, what is the growth rate management have in mind for your general merchandise GMV and revenue growth? How can JD continue to grow faster in this category amid the competitions and also slower consumption? And what are the specific differentiated areas JD is able to drive sales in this segment? And second question is that can management share your thoughts on how JD might prepare and position to embrace the upcoming threats and opportunity from the agentic commerce? Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] Thank you, Alicia. For your first question on the general merchandise category, we shared in the opening remarks that the category is maintaining healthy momentum. So looking back at our track record, the general merchandise category have maintained double-digit growth for the past 5 consecutive quarters and notably outperforming the industry. This is driven by our evolving supply chain capability and a remarkable improvement in operation efficiency expertise. This lay a solid foundation for continued growth in this category. So we are -- we remain very confident in the healthy momentum of general merchant category in 2026. The sustained growth driver includes, first, huge market potential with ample room for growth in categories such as supermarket, fashion and health care. Second, user growth. So new business, including food delivery, Jingxi, have brought growth in traffic, user and shopping frequency on JD platform. So we are also accelerating internal synergy and we have observed healthy cross-selling trends in category like supermarkets. Third, continuously strengthen supply chain capability and user mind share. So from a category perspective, our supermarket category leverages JD's unique 1P model to deliver an excellent user experience and at the same time, competitive pricing. Meanwhile, our fashion category has seen notable improvement in building underlying capability, including search and recommendation in 2025 as well as attracting more high-quality brands to deepen their collaboration with us. We are also applying AI to achieve more precise and personalized matching in search and recommendation. In Q4 '25, we recorded double-digit growth -- year-on-year growth in both sports and outdoor apparel revenues. In terms of our differentiated advantage in this category, first and foremost, the core moat of JD 1P model is the key. This includes more diverse product selection, more competitive pricing and more rigorous quality control. Second, leveraging on the core capability of JD Logistics, we offer high-quality fulfillment experience of faster, more accurate and door-to-door delivery service. Third, from the brand standpoint, JD is the most consistent daily sales platform. JD is the premier destination for brand building and the platform that offers the highest returns throughout our product's entire life cycle. So we provide brands with stable and efficient sales performance. Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] For the second question, we see AI and agentic commerce as a greater opportunity for JD evolution than a challenge. First, agenetic commerce is still in early stage and mainly affect the front-end user traffic. Our view is that no matter how traffic patterns change, the core retail business remains as user experience, cost and efficiency. So as we stay focused on optimizing product price and service, JD supply chain strength will yield even greater synergy, further widening our competitive moat in the agentic era. At the same time, we are accelerating our technology investment while driving the adoption of our in-house large language model, we remain committed to an open ecosystem, actively collaborating with industry-leading external AI LLM providers. We are evolving into a leading technology commerce company, spending entire spectrum from supply chain to customers. As JD run a 1P business model with in-house fulfillment logistics service capability, the technology and AI application scenario is abundant. So this really differentiates us from platform business model. I'll briefly give some examples. On the demand side, we are reshaping the shopping journey and enhancing user experience through AI-driven search and recommendation. On the supply side, we leverage AI to continuously enhance operational efficiency in AI in areas such as sourcing, pricing, inventory management, replacing manual labor. We are also expanding our application in the physical world in terms of fulfillment, automation and after-sale services. Beyond operation, we are unlocking new consumption potential as well through applying AI, such as JoyInside, our AI agent for hardware. As I mentioned before, the sales of JoyInside-integrated products surged 20-fold during 11.11 compared to the June 18 promotion. So you can see we are leveraging -- we are very proactively leveraging AI to reshape our competitive advantage and continue to optimize our user experience, at the same time, drive cost efficiency. Looking ahead, we are very confident and believe we are well positioned to capture the strategic AI opportunity to solidify our leadership in AI-driven e-commerce. Next question, please? Operator: Your next question comes from Thomas Chong with Jefferies. Thomas Chong: [Interpreted] I have 2 questions. First, can management share about the latest developments on shareholders return? And second, can management talk about any changes to the regulatory environment for Internet platform companies and how should we think about it? Ian Su Shan: [Interpreted] Thank you, Thomas. Despite the long-term strategic investment we made in 2025, we remain committed to shareholder returns through both dividends and share buybacks. We declared the 2025 annual cash dividend of USD 1 per ADS, stable compared to last year. The total dividend amount is USD 1.4 billion. This underscores our commitment to delivering consistent cash returns to shareholders based on our sustainable profitability and cash flow in the long term. In addition, we repurchased USD 3 billion worth of shares in 2025, representing 6.3% of total outstanding shares as of the end of 2024. All the repurchased shares have been canceled. We remain firmly committed to shareholder returns through healthy business development, dividends and share buybacks. At the same time, we will remain focused on the healthy growth of our business scale, profitability and cash flow and make strategic investments for the long term while creating value and sharing JD's long-term success with our shareholders. Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] I'll take the last question. Regulators continuously promote the standardized development or the healthy development of the platform economy, ensuring sector's long-term sustainability. So we welcome regulatory guidance. The government's commitment is to support compliance, corporate development rather than -- remain unchanged. We believe regulatory oversight is not a constraint, but rather a catalyst for driving healthy, high-quality industry growth. So JD has always prioritized compliant operation as the cornerstone of our business. Whether it is antimonopoly measures, tax standardization or preservation of evolutionary competition -- prevention of evolutionary competition, this effort aligns perfectly with JD long-standing philosophy of compliance. So under a normalized regulatory environment, fair growth opportunity are created as we prevent bad money drives out good. So as a result, over the long term, the advantage of JD compliant and sustainable business model will become increasingly prominent. Thank you. Operator: We are now approaching the end of the conference call. I will turn the call over to JD.com's Sean Zhang for closing remarks. Sean Shibiao Zhang: Thank you for joining us on the call today, and thanks for all your questions. If you have further questions, please contact me and IR team. We appreciate your interest in JD.com and look forward to talking with you again next quarter. Thank you. Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
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.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Group Full Year 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giorgio Medda, CEO of Azimut. Please go ahead, sir. Giorgio Medda: Thank you very much. Good afternoon, everyone, and thank you for joining us today for the Azimut Full Year 2025 results presentation. I'm Giorgio Medda, CEO of the group, and I'm pleased to be here with Alessandro Zambotti, CEO and Group CFO; and Alex Soppera, Head of Investor Relations. So this past year has been a truly defining one for Azimut and likewise, a very exciting one. As you know, it was a year marked by change in leadership, yet our growth not only continued, but actually accelerated. The defining step in our growth journey reflects both the strength of our business model and the dedication of our people across all our markets. So let's dive right into the presentation and move to Slide 3, please. So the year 2025 continued to be one where we executed a deliberate results, and we closed by achieving a record EUR 32 billion in net inflows and a net profit of EUR 526 million, both above the Street expectations. Most notably, our recurring net profit grew by an impressive 20%. That is a best-in-class result. During the year, we also anticipated some key guidelines for our Elevate 2030 strategic plan. This plan will drive the next stage of growth for Azimut, defining an even more ambitious trajectory that we showcase the full potential of our diversified global platform and reinforce our position as a leading global independent player. Beyond these exceptional operating numbers, we are thrilled to discuss our concrete commitment to creating shareholder value, including a proposed raised dividend of EUR 2 per share and a strategic capital allocation framework that aims to return roughly 25% of our current market cap over the next 18 months through dividends and share buybacks. Finally, while the process has taken longer than we originally envisaged, we continue to make progress on the TNB transaction. And let me tell you that this represents a transformational step for the group that will unlock significant value and, certainly Alessandro will discuss it more in detail later during the presentation. We are moving full steam ahead, carrying the strong momentum into our 2026 targets and the execution of our Elevate 2030 strategic plan. And with that, let us please move to Page 4, where we can look at the key financial and operating highlights for the full year. First of all, total assets reached an impressive EUR 145 billion at the end of January '26, marking an excess of 30% increase per year in terms of assets, a new absolute record for the group. This was fueled by a spectacular EUR 32 billion in net inflows during 2025, which represents the strongest annual performance in our company's history. More importantly, 66% of these flows came from our global operations. This clearly demonstrates how the continued expansion of our international platform is successfully driving growth beyond our core markets in Italy, which remains strong and continues to be the foundation of our success. Furthermore, looking at our current trading for 2026, we are off to a very strong start and continue to see excellent momentum across the board. On the financial side, at a very high level, revenues reached EUR 1.4 billion, supported by a solid 9% increase in recurring revenues, and that confirms the high quality and resilience of our business mix, while the operating profit stood at EUR 649 million with our recurring EBIT also up 9% year-over-year. Group net profit reached EUR 526 million, and the recurring net profit grew by a very strong 20% compared to last year. This reflects the steady expansion and scalability of our core business. Finally, let me highlight that net profit from our global operations reached EUR 101 million, which now represents 19% of our total net profit. This consistent growth across our regions confirms the effectiveness of our international strategy. And these figures, let me tell you, put us in a highly robust position to continue executing our long-term growth agenda and creating tangible value for our shareholders. Now turning to Slide 5. We want to put our exceptional performance into a clear perspective. And these numbers, I think, speak volumes. Our recurring net profit growth of 20% is not just strong. It completely dominates the sector when compared to our Italian peers. And the difference is quite striking. While our competitors reported profit growth ranging from negative 1% to a maximum of 11%, Azimut delivered a robust 20% increase. This significant outperformance directly reflects the resilience and high scalability of our diversified global model and a factor that, in our view, is not fully appreciated by the market. Moving to slide 6, we look at the as we normally do at the bridge between our 2024 and 2025 net profits. As I mentioned earlier, the group net profit reached EUR 526 million compared to EUR 568 million last year. However, as this chart clearly illustrates, the difference main reflects lower performance fees and capital gains below the operating profit line, while recurring profitability continued to grow strongly. Finally, under other items below EBIT, we see a negative variance of EUR 57 million and it's important to note that the 2024 baseline was significantly elevated by the capital gain from the sale of our stake in Kennedy Lewis. While in 2025, this block includes some non-recurring write-offs onto investments reflecting conservative valuation assumptions, which were partially offset by the growth of Nova, lower taxes, including a one-off tax refund and gains on our own investments. Because of this moving part below the operating line, the truest measure of our success is highlighted in the lighter blue columns, and the already mentioned 20% recurring net profit growth to a phenomenal EUR 479 million. Now, let us turn to slide 7 and 8, where we look at the economics behind our different business lines and regions. Because the underlying drivers of our business remain highly consistent with what we presented during our 9-month update, I will keep this section very brief. On slide 7, looking at our business line, you can see that Integrated Solutions continues to act as a powerhouse for the group. This core vertical commands superior stable recurring margins of 70 basis points. And at the same time, Global Wealth and our Institution and also divisions are experiencing strong commercial momentum and have become incredibly robust contributors to our net profit, making up about 20% of the overall net profit. And let me tell you that our strategic affiliates remain in a very active phase of growth and consolidation, with investments ramping up as planned to expand their platforms. Moving to Slide 8 and zooming in by region, the results really confirm the strength and diversification of our global strategy, with Italy that continue to show exceptionally robust earnings, maintaining obviously a stable operating development even when factoring in lower performance fees and some TNB-related costs. And obviously, globally, we are, you know, our underlying profitability is accelerating thanks to asset growth and strong operating leverage with a very strong and impressive momentum in the Americas, driven by the U.S. and Brazil. And when you look at the contribution of the global business, I mean, this is summing up to a very healthy recurring net profit margin of 41 basis points. Now moving to the next few slides, we are incredibly excited to share a new level of detail and transparency with all of you today. For the first time, we are providing a deeper look under the hoods of our key business verticals to truly showcase the underlying power of our platform. Let us start with Slide 9 and look at Integrated Solutions, which represent the DNA of the firm and remains a massive growth engine for the group. This core vertical is built on a powerful vertically integrated business model that combines our proprietary product factories with our exceptional network of top-tier financial advisors. This is what's made Azimut succeed in Italy out of a very pioneering business model. Today we have been able to say that we successfully exported the same model to key high growth markets such as Brazil, Mexico, Turkey, and Taiwan. Here, we are disclosing the average assets per advisors across our key countries. And as you can clearly see, our network is highly productive. In Italy, excluding the TNB perimeter, average assets per advisors stand at a very strong EUR 29 million. However, when you look at the global figures, I mean, these are even more striking. In Brazil, average assets per advisor reach EUR 32 million. And in Turkey, pretty impressive results of EUR 66 million per advisor. This proves that our model of combining proprietary product factories with top-tier financial advisors is highly scalable and remarkably effective across different global jurisdictions. Turning to slide 10, we want to spotlight our Global Wealth Solutions division and the productivity that we are seeing across our key international hubs. To give a brief overview of this business, Global Wealth Solutions connects our extensive network to deliver exceptional investment ideas and products worldwide, where we offer a true multi-asset proposition across both public and private markets, all supported by a unified custody set up with the world's leading banks. Our solutions range goes from personalized advisory and discretionary portfolio management services to highly customizable, actively managed certificates and bespoke structured products as we aim to cater to high-net-worth to ultra-net-worth individuals, families, and institutions around the world. In Monaco, for example, we combine a bespoke private banking heritage with sophisticated asset management solutions. In Switzerland, we leverage a unique local model to serve our clients. And our U.S.-based Azimut Investment advisers provide neutral client-focused advisory portfolio consolidation for both domestic and Latin American investors. And in Dubai, Singapore, and Hong Kong, we act as a premier global partner for individuals and institutions. A major competitive advantage for our high net worth clients is our capability to facilitate offshore investing as we leverage our Luxembourg idea factory as a central hub for product generation, as we provide a unified financial services offering with multi-booking capabilities across different jurisdictions. Our regional figures are truly exceptional. In the United States, our relationship managers oversee an average of $260 million individually. Monaco and Switzerland are also highly productive, managing $140 million and $138 million per adviser respectively. Also we are seeing fantastic scale in the UAE, Singapore and Hong Kong that are coming up and showing very high growth rate. The average book of business relationship manager globally has increased by a solid 8% year-over-year, reaching an impressive $104 million. And we grew our team with 12 new additions throughout the year. That obviously proves that as we expand our footprint and grow our team of relationship managers, we are just not adding headcount, but also productivity. When you look at slide 11, you see how our total assets for this division, for this distribution line reached $9.4 billion by the end of 2025. And You know, $1.3 billion was essentially addition during the year, the result of organic business development that is a very robust 18% growth rate, and we see this accelerating as we have started the year in a great fashion. We continue to attract new assets and scale our overall book of business, cross-selling our high-quality proprietary solutions to these existing portfolios, and we are incredibly excited for what, you know, lies ahead for us in the future. And finally, on slide 12, we detail our institutional and wholesale division. This segment has grown into a globally diversified platform, with now more than EUR 41 billion in total assets. And you know, the mix is exceptionally well-balanced, with 42% institutional clients and 58% wholesale. We wanted also to provide here more details about the institutional business by region to give more color about our activities that go beyond our domestic market. And certainly to note here is the weight and the significance of our U.S. business from a regional standpoint, and that is the result of certainly the consolidation of the recently acquired North Square Investments. And then turning to slide 13, we want to highlight a selection of our most significant client wins. I'm not gonna go through every single win, although each one is certainly a big testament to our ability to perform and to have now the credentials to grow beyond our home market, but you can see here that certainly we display the power of a very well-diversified product factory across both public and private markets. Now turning to slide 14, I think, you know, this is the best slide to perfectly translate everything that we just discussed in terms of our global platform into tangible bottom-line numbers. Historically, some market observers have been very skeptical about the true profitability and value of our international expansion, certainly over the last decade, where we have been very focused and committed to grow the business. But finally, we can see that these are very exceptional data that, you know, prove, in my view, in a very sort of indisputable way that those skeptics were very, very wrong. Over the years, we have strategically deployed approximately EUR 660 million in net M&A investments to build our international footprint. Today, this platform accounts more than EUR 73 billion of total assets and generates more than EUR 100 million of net profit. That itself translates on a 15% return on investment. That, you know, compared to any cost of capital you can estimate for the business, we believe our cost of capital is 10%, proves a very meaningful and sizable value creation that we see expanding in the short and long term. And as I said, it clearly demonstrates what has been the effectiveness of our capital allocation strategy. In slide 15 is just a very quick but powerful reminder of our ambitions through the Elevate 2030 targets that we already published in November. And just make one point very clear, our growth story is far from over, and our fundraising efforts of EUR 5 billion to EUR 8 billion a year will lead to effectively double our average total asset. It translates into a remarkable EUR 180 to million-EUR 280 million in net profits generated strictly from our global operation by the end of this decade. In the following slide, we just summarize what are the different product initiatives, you know, driving growth in the short term across public markets, our Luxembourg mutual fund range, our financial planning franchise with our life insurance solutions. Certainly here, we have been moving very, very aggressively when it comes to the launch of a brand-new product such as active ETFs in the U.S. market courtesy of the distribution reach of NSI. And the strong push that we are making for our Global Wealth Solutions business around the world. And then let me touch very briefly upon something that has been very, say important topic of interest in the market over the last few weeks, the state of, private credit and private markets in general, aside from the news flow that we see particularly overseas. I wanna just give a brief update on our 2026 product pipeline when it comes to private markets. First of all, we are in the market now with a significant number of funds that are currently raising a commitment. Overall, we have a target over the next 12 to 18 months for EUR 2.1 billion of commitment to be raised for a very wide range of strategies. As I mentioned, we already covered almost, you know, 30% of this target. But what is important to appreciate from slide 17 is the diversified offering that we have, certainly diversified in terms of investment verticals, and likewise in terms of geographies now with Europe, U.S., Latin America and Turkey, you know, showcasing a very strong product development activity in this respect. In page 18, we show where is for our Italian business, the exposure of our retail clients to illiquid strategies. Here what is remarkable is essentially, there are two things that actually they are probably noteworthy. The first one is that we started talking to our clients and, you know, explaining the merits of diversification across liquid assets well before many of our competitors did. Actually, this is an exercise that started 6 years ago in 2019. Today, we have achieved an exposure of almost 9%. That is remarkable in absolute. Certainly is the, you know, proof of the very hard work that we put and the trust of our clients into this investment diversification effort, but also proves how we are ahead looking at our global competition. We are using here data coming from a McKinsey report. But what is striking is that we have an average exposure that is 4x larger than what you have globally. And even when you look at the long-term target, there is a target forecasted and projected by McKinsey of 10% exposure of retail to private market investments, but we keep our long-term target of actually achieving 15% to 20%. And this can only be done with, as I mentioned, diversification. We have read a lot of things over the last couple of weeks, as I mentioned. What we want to show in slide 19 is the approach that we have, particularly when it comes to our Italian franchise. And here is just a deep dive into a subset of our Italian private market strategies that amounted to approximately EUR 5.5 billion overall. Here we are focusing on 3.1, and we are only focusing on private equity and direct lending strategies. And what we want to show here is the very high level of diversification, both in terms of assets and sectors, essentially reducing any geographic risk that comes from very large exposure to a single sector or to a very concentrated portfolio of investments. And in slide 20, and I think that is the most important of all these slides, you know, highlighting our success across private markets is, you know, the result, the performance that we are generating. There are a lot of figures in this slide, but let me focus on a few metrics. First of all, you see here what we have raised across the different verticals. Obviously, we are looking at different asset classes in a way. And let's look at some performance metrics such as total value to paying investments. That is a measure of the performance as it is accounted in our NAVs. Let me tell you that the NAV calculation rules are pretty tough in Europe, and we are not really allowed to assume or to take any sort of mark to market beyond what is really proven by the actual accounting of the businesses and what has been achieved. So these are very reflective measures of performance embedded into the funds and obviously when we come to these portfolios, we come to, you know, realization of the value out of exits, we will be able to distribute reasonably higher performance to our investors. Let's see, what is the average vintage of all these strategies, and certainly compare also to our, you know, to the benchmark. These are very remarkable, they say proof of our ability to generate even over a short period of time, value out of illiquid portfolios. And then last but not least, I mean, certainly, meaningful when you look at the news flow that I mentioned just now, what is the ratio of distributions to our investors that in certain instances for private equity, private debt and a number of club deals has achieved almost, you know, between 15% and 20% of capital being returned to our investors. That is certainly considered a very average young vintage, a very important element appreciated by clients who have started familiarizing with this illiquid investments only recently. I will now turn to Alessandro for a detailed review of our financials for 2025. Alessandro Zambotti: Yeah. Thank you, Giorgio, and good afternoon to everyone. Moving to slide 21, let us take a step back and look of the fantastic track record that we have built over the past 7 years. Since 2019, we have expanded our footprint and compounded our growth, driving our total asset to continuous new all-time high and growing at a remarkable 16% CAGR to about EUR 145 billion as of today. So over this time, over this same period, we captured EUR 94 billion in cumulative net inflows with an highly strategic EUR 10 billion flowing directly into private market. And our success goes hand-in-hand with the success of our clients as we generated a net performance for clients of about 28% after cost. And for our shareholders, the numbers are also speaking for themselves. The group generated EUR 3 billion in net profit, distributing EUR 1.3 billion to shareholder, including the actual this year proposed dividend of EUR 2, and fully repaid close to EUR 1 billion in debt and transforming to cash position of over EUR 800 million. So these are important numbers and are a direct reflection of our discipline, execution and the structural resilience of the entire Azimut Group. So then turning to slide 22, we want to highlight the exceptional quality of the revenues that are driving these record results. I mean, historically, some market observers question our reliance on performance fees, that this slide definitely demonstrates we have completely transformed our earnings profile. It's a clear strategic choice that has led us to have a P&L driven mainly by highly stable recurring revenue. And today, only a small fraction of our revenue base remains exposed to variability. With about 95% of our total revenue now coming from this stable income stream, and we have built a robust engine that delivers a highly predictable value year after year. So now moving to slide 23, we once again review our ability to generate value and recurring profit, confirming for 2025 the solidity of the recurring net profit margin. But above all, as you can clearly see from the chart, 2025 marks a new all-time high in the history of our firm. We deliver an outstanding EUR 479 million in recurring net profit, constantly growing year after year. And to put this, I mean, this into perspective, this figure is more than two and a half times larger than in 2019. Let's now also go into the details as we always do, in particular on slide 24, where we have the revenue breakdown. The revenue grow by a solid EUR 71 million thanks to the continuous growth of the recurring revenues, which offset the lower contribution from variable fees from both the open-ended and the insurance funds. Looking more closely to the components, so at the level of the recurring fees increased by EUR 82 million year-over-year. This was supported by the continuous expansion of global business. EUR 42 million is coming from our international business and mainly driven by the contribution from U.S., U.A.E., Brazil, Singapore and Monaco. In Italy, we deliver broad-based growth across all business lines, spanning mutual funds, alternative investment, pension funds, and also our Nova partnership is becoming more significant. Regarding also performance fees, we recorded a year-over-year decrease of EUR 17 million. However it is important to highlight the EUR 24 million positive global momentum, driven by Brazil, Turkey, Monaco, and Switzerland. In Italy, we sustain strong alpha in our domestic discretionary portfolio management, which help us to offset a negative fulcrum effect. Finally, looking at the insurance revenue, while the total was down at EUR 11 million compared to last year, the underlying quality of this revenue stream improved. We achieved a 5% increase, representing EUR 5 million in recurring insurance revenue due to the solid growth and the optimization of our product mix. The overall decrease was entirely driven by a EUR 60 million drop in the insurance performance fees, reflecting a softer, first half performance compared to the exceptionality, coming from the strong figures we saw in 2024. No less important, I mean, when looking to the first two months of 2026, we are off to a solid start. At the level of the other revenues increased by EUR 70 million, compared to last year, mainly driven by structuring fees related to our growing Brazilian private infrastructure business that we already commented for the previous quarter. So then we are back to, let's say, to a normal evolution of the, I mean, of this line. On the next slide, we analyze the cost, where we note an increase of EUR 55 million in total. Here, we try to give you so some more detail as well. At the level of the distribution cost, we have an increase of EUR 29 million compared to last year. This is partially explained by the direct correlation with recurring revenue growth in Italy and abroad, particularly in the areas of Singapore and Monaco. And it also reflects the higher provision for variable incentive to Italian FA, alongside the strategic marketing and TNB related costs that we already mentioned during the year 2025. Moving to personnel and SG&A, we recorded a EUR 25 million increase. This is primarily a perimeter effect driven by our successful M&A activities, and in particular I'm referring to Kennedy Capital and HighPost, while domestically we maintain cost discipline. A few words on the fourth quarter increase. This is strictly tied to performance linked compensation that align with the strong alpha and that our team and portfolio manager deliver. D&A and provision, I would define it as broadly flat. And in general, it is always important to emphasize that acquisition costs are mainly driven by the Italian business. You see about 90% contribution, while the administrative costs are split 60/40 between Italy and the international business. We close with the next slide, which instead tries to detail the results below our EBIT. First, thanks to the geographical diversification of the group, recurring EBIT grew by 9% to EUR 578 million. Moving below the operating line, finance income amounts to EUR 41 million for the year. This was primarily driven by a positive EUR 37 million contribution from our own investment and related portfolio performance, along with EUR 8 million in net interest earned, and another EUR 8 million in dividends from our GP stakes and strategic affiliates. It is worth noting that this line item was impacted during the quarter by EUR 25 million, non-recurring, write-off on specific investments. We are talking about VC proprietary investment. And achieving, I would say, looking also to the fantastic results, an extremely conservative approach, we define it as a better and conservative approach to make more, you know, confident on the future numbers of the group. Regarding our tax position, we're recording an adjusted tax rate of 21.5% for 2025 and excluding our EUR 27 million of one-off tax refund related to the infra-group foreign dividends. Looking ahead, we are guiding for a normalized tax rate of approximately 25% for the full year 2026. And then ultimately, this brings us to the bottom line and the recurring net profit of EUR 479 million as already mentioned, with an impressive 20% compared to last year. Moving to the slide 27. Here we have, as usual, our net financial position. Today, the group has no debt and the net financial position is, it's around EUR 813 million, with an increase compared to the previous year. The change of, I mean, the increase of EUR 63 million compared to last year is mainly due to the contribution, obviously, of the net profit before tax. So I'm referring to the EUR 673 million, then we have the contribution, the positive contribution coming from our proceeds from our disinvestment in Australia and the exit of RoundShield that is contributing EUR 121 million. And then let's say we have an observation of cash coming from the M&A for EUR 60 million, advanced taxes for EUR 275 million, dividend for EUR 323 million, and buyback of EUR 62 million. So this should reconcile the variation compared to previous year. Moving to slide 28. We highlighted our continual commitment to delivering substantial tangible returns to our shareholders based on our record recurring profitability and our highly resilient cash generation. The Board of Directors is proudly to propose a dividend of EUR 2 per share with an increase of 15% compared to the previous year and dividend yield of approximately 6%. This proposed dividend perfectly aligned with our stated capital return strategy that we will elaborate into more detail shortly. Moving to slide 29. We want to detail our capital return strategy, which reflects our concrete commitment to create value for our shareholders. So as you can see from the headline, we are targeting an optimal capital structure to allow us to distribute approximately EUR 1.3 billion in cash over the next 18 months. To put this into perspective, this represents roughly 25% of our current capitalization. Looking at the bridge chart, this plan is fully supported by our strong financial position. We start with EUR 379 million in distributable cash and EUR 434 million in committed equity at the end of 2025. A significant portion of this commitment is tied to our expansion in the United States, most notably our acquisition of NSI. And as you may recall, this strategic transaction involves a minimum purchase price of $110 million, which will be paid through a combination of cash and Azimut shares. Furthermore, this commitment equity covers our recent transaction in Brazil and includes provisions for future potential turnout, commitment, and options to increase our shares in transaction done across our global platform. We have set aside approximately 30% to cover our operating cash and net working capital needs. And then there is another 15% specifically reserved to meet our global regulatory capital requirements. Finally, the remaining 10% is deployed into our proprietary investment, as are referring to open-ended fund are included in the net financial position and are directly support our product generation and co-investment strategies and provide potentials for outside returns, such as the one we achieved with Kennedy Lewis in 2024. Looking ahead over full year, I mean, the year 2026 and 2027, we expect to generate approximately EUR 650 million in free cash flow available for distribution. And along with roughly EUR 250 million in proceeds from our strategic disinvestment, most notably the upfront cash from TNB transaction. This is basically give us about EUR 1.3 billion, as I mentioned at the beginning, to return to our shareholders. We plan to execute this return through two main channels. First, a share buyback program of up to EUR 500 million, which includes the full cancellation of the repurchase shares. Second, the distribution of between EUR 715 million and EUR 800 million in dividends during 2026 and 2027. To conclude on this slide, we want to reiterate that our capital return strategy is the ultimate testament to our ongoing value creation. With the comprehensive plan we have laid out today, we are decisively addressing and resolving any doubt regarding our use of cash and our capital allocation policies. So moving to slide 30, for a quick update on TNB project. The project is ongoing and the TNB division, with the support of the FSI, the fund is proceeding with a good growth result. Robust numbers for total asset growth, which at the end of January already exceed EUR 29 billion. Also at the level of the revenues and the net profit, they are continuing to expand. Although the net profit is penalized by directly affiliated marketing and project costs, that is as well mentioned at the beginning when we comment our evolution of the administrative costs. Regarding the transaction timeline, as you know, we are extending the agreement with FSI substantially until the end of the year, and we continue to work together on the IT separation and all the operational setup necessary to complete our migration and, you know, to conclude our important project. Finally, I want to provide a brief update regarding the Bank of Italy remediation plan of Azimut Capital Management. At the end of February, we successfully concluded the remediation activities. This has been completed also maintaining a constant alignment with the regulator. We are now entering the final phase, which involves the internal audit verification of all the implementation related to the remediation plan. This internal verification will conclude, we expect to conclude it at the end of March. So then concluding this phase, we expect then the regulator will formally validate the outcome. This keeps us fully on track on the officially complete the action plan by our target that was defined with the regulator at the end of April 2026. But as well as I mentioned, we are achieving it 1 month before. This we know that is 1 of the prerequisite steps to receiving the necessary regulatory approvals from the regulators for the overall TNB transaction. So we are confident that we will have conclude this project before the end of the year. With this, I hand over to Giorgio, thank you. Giorgio Medda: Thank you, Alessandro. So turning to the last slide, Slide 31. I'd like to conclude today's presentation by looking at our guidance for 2026. We are building on a fantastic commercial momentum that we have generated across our global platform. And we can only confirm our targets for the year that I remind you are as follows: under normal market conditions, we are targeting EUR 10 billion in total net inflows and a core net profit of EUR 550 million, excluding extraordinary items. I mentioned at the beginning of the call, we are already off to a very strong start. And as you can see on this slide, based on the preliminary February figures in just the first 2 months of the year, we have already achieved over EUR 3 billion in net inflows. And at the beginning of next week, we will provide a more detailed review of how we got there. This early momentum gives us a very solid foundation and the confidence in our ability to deliver another year of robust and profitable growth. So to sum it up, our platform is accelerating also in 2026, -- our growth path is clearly defined, and we remain entirely focused on executing our strategy, creating outstanding value for you, our shareholders. So thank you all for your time today, and we remain very excited about the future of Azimut, and we will now open the floor to your questions. Thank you. Operator: [Operator Instructions] First question is from Gian Luca Ferrari, Mediobanca. Gian Ferrari: Three for me. I would start with TNB. I understood that the first part of the process has almost been completed. I was wondering more on the second part of the process. Will be you guys in charge of it or FSI will step in and will, let's say, discuss with the regulators about the final approval of the project. The second is -- and the third actually are both on Page 29 on the new capital management policy, a couple of clarifications. The first one is the EUR 250 million proceeds divestments -- is this related to the first part of the upfront of TNB that if I recall correctly, was EUR 240 million. Are you referring to the distribution of that part of the cash you should receive? And secondly, going forward, after 2027, how should we think about this new capital management policy? Are you going to provide us with a dividend payout on the cash flows you generate plus are you still -- will you still go for a sizable big buyback program with cancellation or you will shift to annual buyback programs? And if you elaborate a bit on what will be over time the approach? Alessandro Zambotti: So I'm going to take the first 2, and then Giorgio will elaborate on the third one. So in relation to TNB and the other way around, we are running, let's say, both sides in the discussion with the regulator because, as you said, at the level of total capital management, we are running the remediation. And as I mentioned, we finalized the remediation at the end of February. And this is our main focus as Azimut, obviously. On the other way around, the fund, so FSI is dealing with the other division, I would say, of Bank of Italy responsible of the authorization or at least the preliminary presentation before it goes to the European Central Bank. So we are splitting the activity in 2 parts. And obviously, the fund is the main reference for Bank of Italy to finalize the regulatory process of the authorization on their side. For the EUR 250 million, it's like surrounding amount linked to the EUR 247 million of proceeds. So I'm absolutely referring to TNB just with the rounding to make the numbers easy to read it. Giorgio Medda: So Gian Luca, let me pick up your third question. Obviously, we are providing here visibility until the end of 2027, that is more than 18 months from now. And let me tell you that you can certainly tell how something will go by how it begins. So obviously, we set the tone for the next 18 months and the future, we will certainly stick to a principle of optimal capital structure. The reason why we are not saying anything more than what we are saying today, although it's pretty substantial, is that we still have the TNB transaction that is pending, and we would like to have any shareholder remuneration policy or capital allocation strategy to be elaborated within a very clear set of financial objectives for the group for the next 4 to 5 years. We have already, I think, covered a long distance over the last 6 months, pending the uncertainties related to TNB. But today, you see our capital allocation strategy, the way it defined as a very strong commitment to create value through as we called it an optimal capital structure. Operator: Next question is from Alberto Villa, Intermonte SIM. Alberto Villa: I have 3. One is back on Slide 14, where you show more details about the international business and you give us more details, and that's obviously very helpful. Can you maybe give us also an indication of revenues and operating costs related to this business in 2025 to have some more details there? And the second question is on the private markets. Thanks here again for giving us more visibility. At the same time, maybe you can elaborate a little bit on the amount of funds that will start to mature in the next, let's say, 2, 3 years and how it works if there are sort of grace periods or anything that can eventually accommodate any situation in which you -- the fund need more time or anything that could give more, let's say, details on that would be helpful. And finally, on one line item in the P&L, the financial income going forward, how should we look at it? Because maybe that's fueled by the investment of the liquidity you have in your balance sheet. So given that you are going to distribute, that's nice. But maybe -- is that fair to assume that financial income will be probably less supportive on the P&L side in the future? Giorgio Medda: Okay, Alberto, I'll take the first 2 questions. Regarding the breakdown of our, let's say, P&L by region or business line, I would encourage you to look at our Slide 7 and 8. I mean, I think we tried to summarize what are the key underlying drivers of our business at all levels, revenues, cost and certainly margins. Also with this presentation, we are providing a look-through in terms of KPIs such as advisers or assets under management by single distribution lines. I wouldn't probably bore you now with all the details. And certainly, we are available for a follow-up call to discuss more what has been driving the business country by country or business line by business line. But in general, the business has been growing, average assets per adviser increasing scale effect across businesses and now have become pretty sizable, and we are able to extract operating leverage benefits. And you see that in terms of margins on assets or margins on revenues. As far as the private markets business is concerned, let me tell you something. Funny enough, we were the very first to start promoting private markets investments with individual or private clients -- but we have really been very cautious when it comes to offering evergreen funds to the same clients. I think the market has been inundated by what I call effectively an evergreen washing in the offering of these products. People really try to entice clients with providing them the dream of liquidity when actually there's no liquidity in the underlying portfolios. If that liquidity is sort of possible, maybe it comes at the expense of lower returns because obviously, funds they need to retain a meaningful cash buffer to honor the call for redemptions. We have really started probably with the most complicated part with our clients, explaining them the merits of diversifying across illiquid strategy, the possibility to enjoy what is the so-called illiquidity premium, patient capitals and within a diversified portfolio, certainly seeing how to create, let's say, a segmentation or diversification of the portfolio using different time horizons. On that basis, we have not relied on evergreen funds. And I can tell you, considering what is our average vintage that we would expect the first liquidations of the funds that we have launched over the last few years to start in '28, '29. And our clients, they are waiting for '28, '29 to get their money back and portfolios have been built with that specific purpose. So we are not planning and we do not see any need whatsoever to ring-fence or to gate or to sort of promote continuation funds because things are being done the proper way. Alessandro Zambotti: Well, referring to your point on finance income, I mean, it's obviously, let's say, to take the point, considering, first of all, let's say, the different contributors on this finance income line. As I mentioned during the details of the evolution for referring to this year, we were talking about portfolio performance. We were talking about net interest turn, dividend from GP stakes. So there is a mix of things that they are contributing below EBIT. Obviously, compared it to last year where there was the benefit and the positive gain on Kennedy Lewis, we cannot compare the 2 here in a, let's say, fair like-for-like way. But at the same time, over the last 3 years, I would say that the finance income line is contributing on our net profit. Therefore, I would expect also for the next year to be at least in line with our EUR 40 million, but probably even more due to the fact that also there, we have the contribution of our partnerships our equity participation that are generating dividends. So again, a mix of things that make us confident to maintain a nice level of contribution on this line. Alberto Villa: If I can follow-up question on the net inflows target. You started very well the year. Of course, as you did in the past, maybe you will adjust the estimate later on during the year. Is there any particular flavor you can give us in terms of what is happening in terms of contribution? Any area of particularly strong indications coming from the net inflows of the early months of the year? Giorgio Medda: No, Alberto, we can tell you that it's a very balanced contribution from all the business lines, all the geographies. When you look at 2025, the global business was accounting for 66% of total net inflows, certainly and sign the U.S. took the lion's share for that. This year, we start 50-50 kind of balanced. And I think we are firing on all cylinders consistently across all the business lines and geographies. I mean, I think this is the beauty of the platform today. We see, particularly when it comes to emerging markets, what I call a synchronized growth, something that has not been always the case in the previous years where it can happen is a mixed bag. You have geographies doing very well, others slowing down. But now we see -- right now, we see really strong momentum across the board. Operator: Next question is from Hubert Lam, Bank of America. Hubert Lam: I've got a few questions. Firstly, on your excess capital, which you're focused on in terms of paying dividends and buyback, does this mean that in the near term over the next 18 months, you don't plan on doing any M&A? That's the first question. Second question is on private markets. Do you expect any slowdown in fundraising for the private markets, just given the noise in the sector, specifically on Slide 17. So will the rest of the fundraising target take longer than the first EUR 800 million that you've raised? And next question is also on private markets. I just want to double check what you said about redemptions. Do the funds actually have redemption features or not? And if they do have redemption features, can you remind us what the redemption profile is? And if I could squeeze in one more on your investment write-down that you had in Q4. I just -- sorry, maybe I missed it, but can you remind us or just elaborate what's related to? And any relation to any co-investments you may have with clients or not on the write-down? Giorgio Medda: I will take your question on private markets. First of all, we are not expecting a slowdown. As I mentioned, we have a number of strategies that are actively fundraising right now, EUR 2.1 billion overall. We are kind of almost 1/3 -- more than 1/3 of that target. And we don't see any slowdown. I have to tell you that although we have been expanding globally, this franchise Italy still remains the most important market. And most of the things that we read today in the press, they are very much geographically isolated apart from our investors reading what's happening in the U.S., but this is the U.S. is not Italy and people -- they are not concerned. Certainly, we have our advisers that is the value of the Azimut's business model. We sit down with clients and they explain the differences and provide all the comfort they need with constant updates on the portfolio and providing all the reasons why if more investments are, let's say, possible, then these are effectively and efficiently placed into other private market strategies. In terms of liquidation or let's say, realization of investments and distribution to clients, as I said, we are expecting now, particularly for our private credit strategies, the first liquidation starting '28, '29. By nature, these are closed-ended funds. When it comes to private credit, think about direct lending, these are loans that have a term that is consistent with the fund life or the fund terms. We do not have any cockroaches. We have been always implementing very tight and disciplined investment policies, and it's not always working for every single investment the way we want. But overall, we are delivering and you see that from the performance of the different verticals, in average, a better performance than we have sort of discussed with clients when they came -- when they have come to the portfolio. So in general, as I said, unaffected by what's happening away from Italy, clients are very well catered in terms of being informed and explained what's happening, and we are growing. That means that at the end of the day, people they understood the differences and they put more trust in us. Alessandro Zambotti: So I mean, looking to the capital structure, so probably going back to Slide 30, you can probably see where -- I mean that we put -- we put an amount of money that we commit for the '26 and '27 of EUR 300 million. This is -- I mean, it doesn't mean that we are going to do M&A with this amount. Obviously, it's a group that is growing. Therefore, we have to look back also again to regulatory requirements, look back to the operational cash needs because, again, we are present in 80 company. Therefore, we need to maintain the right level of the operating cash. As well, we are investing in general on the IT, on the AI. So we have a bulk of CapEx that we have to support to grow our business and to support internally, but also our financial adviser, our distribution network with the right instruments to proceed with the right way to meet and target the market. So all in all is an amount that as well as different view and different elements to consider. This cover, let's say, the portion of cash that we would expect to keep for this. Moving to the point of the investments, as I was referring during the explanation, again, we decide -- I mean, we evaluated the opportunity to be very conservative on 2 VC proprietary investments. Therefore, this approach help us to look again to the forward-looking of the numbers more confident on the future results. So we take advantages on that. Giorgio Medda: And just to add one thing about investments, Alessandro said it all, but just also to link to what we said in the past. As opposed to the past, we are really putting at a same level growth and shareholder remuneration. What we are targeting is an optimal capital structure. Azimut is and it will always be a growth company. We will certainly consider should anything come to our attention, external financing for a transaction. What we are putting here is a clear statement in terms of giving the right and the same importance to shareholders and to growth opportunities. But it's a pretty unique proposition that we want to promote in the market. And hopefully, the market will appreciate it. Operator: Next question is from Elena Perini Intesa Sanpaolo. Elena Perini: The first question is on Slide 30, again -- 29, sorry, again, on your capital distribution strategy. Because I read from the press release and then the slide also confirms it that you are going to distribute EUR 750 million to EUR 800 million in dividends over the next 18 months. So this, I suppose, also includes the dividend that you propose now and is going to be paid in May, just for a confirmation. And then you mentioned that the dividend starting from next year will be split in 2 tranches. But I was wondering whether this would imply an interim dividend already in November this year and then the balance in May next year? Or on the contrary, you will have the first tranche referring to '26 earnings in May '27 and then the second tranche in November, just to clarify. Then going to Slide #30 on TNB transaction. Considering that June now is quite close and you are still waiting for the approval of the Bank of Italy is on your -- on the effectiveness of the remediation measures that you have taken. I mean, is it more likely to see the finalization of the spin-off in the second half? Just to have some flavor about the potential time line. And then finally, I have a question on your tax rate for next year. As you mentioned recurrent taxation for this year at around 21.5%. But if I remember well, you mentioned in the past a higher level of taxation for the future, but just for a confirmation. Giorgio Medda: Elena, I will answer your question on the dividend. So 2026 dividend paid against the 2025 earnings will be fully paid at the end of May. And we will propose to the general assembly of shareholders to switch to installment dividend payment starting with 2027 against 2026 earnings. That is a transition to a new system that is in line with what now a very large number of financial services companies do, but has become now a standard. And I have to say that we see a strong merit to adopt the same policy as we have over the years, noted a behavior of the share price around the dividend payment that has been disturbing us creating unnecessary volatility. We want to offer very smooth and predictable cash flow generation for shareholders, hence, the decision to move to May and November payment against the previous year earnings. Alessandro Zambotti: Well, taking your point of TNB and the expectation, well, as you know, we built the renewal of the binding agreements and the exclusivity in a way that there will be no additional pressure in the market and as well to the regulator in a way that it automatically the date of June can be postponed to the end of December without any additional negotiation or whatever. So basically, our attention now is on the remediation, as I was saying before, the funds and the FSI -- so FSI is focused on the regulatory side. And I would say both of us are concentrated to be in the right way, the migration process of this transaction because as you probably remember when also we discussed together, it's something that we cannot do not consider because it's significant and it's important tomorrow when the client will migrate and operate correctly starting from day 1. So this is our focus for the 2026, considering also, obviously, the objective to get there within the end of the year. At the level of the tax rate, if you recall Slide 26, -- we have mentioned the benefits, so the lower tax rate for this year, but also we confirm our guidance at 25% for 2026. Operator: Gentlemen, there are no more questions registered at this time. Giorgio Medda: Well, great. Fantastic. Thank you, everyone. Hopefully, we will catch up in person soon. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Hello, and thank you for standing by for JD.com's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Sean Zhang, Head of Investor Relations. Please go ahead. Sean Shibiao Zhang: Thank you. Good day, everyone. Welcome to JD.com's Fourth Quarter and Full Year 2025 Earnings Conference Call. With us today are CEO of JD.com, Ms. Sandy Xu; and CFO, Mr. Ian Shan. Sandy will kick off the call with her opening remarks, and Ian will discuss the financial results, then we'll open the call to questions from analysts. Please note, unless otherwise stated, all comparisons in this call will be against our results from the comparable period of 2024. Before turning the call over to Sandy, let me quickly cover the safe harbor. Please be reminded that during this call, our comments and responses to your questions reflect management's view as of today only and will include forward-looking statements. Please refer to our latest safe harbor statement in the earnings press release on our IR website, which applies to this call. We'll discuss certain non-GAAP financial measures. Please refer to the reconciliation of non-GAAP measures to the comparable GAAP measure in the earnings press release. Please also note, all figures mentioned in this call are in RMB, unless otherwise stated. Now let me turn the call over to our CEO, Sandy. Xu Ran: Thank you, Sean. Hello, everyone. Thank you for joining our fourth quarter and full year 2025 earnings conference call. We closed Q4 with results in line with expectations as we navigated short-term challenges while delivering on solid overall full year performance for 2025. During Q4, despite a high year-on-year comparison base in electronics and home appliances, our top line remains resilient, thanks to the continued strong momentum in both our general merchandise categories and marketplace and marketing revenues. Our profitability, our core business, JD Retail achieved a notable gross margin expansion in Q4 as we further leveraged our supply chain advantages. We strategically invested some of these gains into our price competitiveness, particularly in electronics and home appliances categories as well as in R&D capabilities and talent to secure a long-term edge. This slightly tempered retail's margin expansion in the quarter, but the impact was well absorbed by our increasingly diversified profit streams, including high-margin marketplace and marketing services and margin improvement in categories such as supermarket and health care. Beyond core retail, our new businesses continued to report steady efficiency gains and a sequential decline in total investments. Beyond the quarterly fluctuation, 2025 remained a year of solid execution where we delivered on our full year expectations. We have made encouraging strides across our key long-term growth drivers. User base and engagement gained significant momentum and our core retail segment accelerated back to double-digit top line growth. Notably, we achieved this while expanding JD Retail operating margin for the sixth consecutive year, despite a highly competitive landscape, and we are expanding our TAM with several promising new business initiatives. This solid progress is rooted in our deepening supply chain capabilities, which remain the engine for delivering superior user experience, optimized and enhanced operating efficiency. This is the backbone of our business model, not only supporting our core retail business, but also fueling our expansion into the new markets, our strategic initiatives. We are confident that these strategic pillars position us for more sustainable and profitable growth. Moving into our operational highlights. I'd like to share 3 highlights from Q4 and full year 2025 as well as our thoughts for 2026. First, our user base expanded in both scale and depth [Technical Difficulty]. Our quarterly active customers grew by 30% year-on-year in Q4, capping a year where we exceeded 700 million annual active customers. This growth was powered by the organic user growth of our core retail business and further accelerated by new strategic initiatives, including JD Food Delivery and Jingxi. High-value users also hit a new milestone. Our active JD Plus user base sustained double-digit [Audio Gap] surpassing [Audio Gap] by year-end. What is even more encouraging is the quality of user growth. User shopping frequency surged by over 40% year-on-year for the full year with broad-based gains across all user groups, including new and existing users as well as Plus members. In addition to user acquisition, JD Food Delivery also played an important role in this frequency lift. We view the expansion of user base and engagement as a long-term strategic driver for our business and expect it will further amplify in 2026 and beyond. Second, our core retail business demonstrated remarkable resiliency in Q4, maintaining stable margin in the quarter despite short-term top line headwinds. On a full year basis, JD Retail delivered strong double-digit growth in both revenue and operating profit with operating margins expanding by 52 bps to 4.6%. Viewed through a long-term lens, this consistent trajectory of JD Retail's growth and margin expansion over multiple years stands as a powerful testament to the resilience of our supply chain-driven model. While Q4 revenue edged down to 1.7% year-on-year due to softness of electronics and home appliance categories, we have proactively strengthened our supply chain capabilities and deepened user mind share. These efforts are already paying off with improved momentum year-to-date in 2026. Furthermore, we expect to be benefiting from the resumed trade-in program this year, which will provide a constructive backdrop for industry growth. Turning to general merchandise. Its performance remained strong with revenue up 12.1% year-on-year in Q4 and 15.3% for the full year. Supermarket revenue maintained double-digit growth in Q4. For the full year, supermarket growth reached mid-teens, accompanied by steady growth and operating margin expansion. Our fashion categories also achieved significant gains in both top line and user mind share expansion throughout 2025, with healthy growth across user base, shopping frequency, ARPU and ticket size. These results were driven entirely by the team's execution rather than external tailwinds. We are confident in sustaining the general merchandise momentum as our category mix continues to evolve towards a more diversified structure. Another exciting emerging growth driver for JD Retail is advertising revenue, which boosted our marketplace and marketing revenues to grow 15% in Q4 and 18.9% year-on-year for the full year. The robust growth was fueled by our optimized traffic allocation, enhanced conversion efficiency and the roll out of our AI-powered algorithms and agents for our suppliers and merchants. We are also seeing a strategic shift where advertisers are reallocating budgets towards platforms like JD as we are regarded as the most consistent daily sales platform, the premium designation for brand building and the platform that offers the highest return throughout a product's entire life cycle. Notably, the synergy with JD Food Delivery is starting to bear fruit, contributing an incremental 2% to 3% to ad revenue in Q4. We remain confident in sustaining our advertising revenue momentum in 2026. The third highlight is the solid progress of our new businesses. Within the segment, JD Food Delivery continued to drive healthy progress in Q4. We maintained steady order momentum while further optimizing our investment, further reducing the total investment scale by nearly 20% quarter-on-quarter. Since its inception, JD Food Delivery has sustained sequential loss reduction every single quarter, a direct result of our relentless focus on improving operating efficiency and an ROI-driven investment framework. In Q4, JD Food Delivery loss rate over GMV narrowed significantly compared to a quarter ago while maintaining the scale momentum. More importantly, the strategic synergies with our core retail business are deepening. Beyond the strong user momentum mentioned earlier, both cohorts cumulative cross-selling rate and shopping frequency trended upward in Q4. Additionally, total active merchants have increased by over 270%, which was also partially contributed by the high-quality restaurants that onboarded our platform. Looking ahead, JD Food Delivery will continue to prioritize healthy volume growth while improving its unit economics at a greater level. We expect investment efficiency in food delivery to improve further this year compared to 2025 levels. Regarding our other new business initiatives, both Jingxi and international business are progressing on track. Jingxi continues to successfully penetrate lower tier markets, expanding both our user base and user mind share. Furthermore, we are excited to announce that Joybuy, our online retail business in Europe, will officially launch this month. We are committed to redefining the local shopping experience by providing same-day and next-day delivery services, a move that opens up greater growth horizons for JD. We will continue to invest in these higher potential segments in a prudent and controlled matter to build our long-term sustained development. While executing our core strategies, we are equally inspired by the transformative potential of AI. By leveraging our deep supply chain capabilities, we are embedding AI across our entire value chain, identifying and stimulating demand, sourcing 1P and 3P supply and pioneering autonomous logistics. Let me share a few samples of our AI initiatives. First, proprietary intelligence. Our large language model, JoyAI, now supports over 1,000 real-world applications across customer experience, procurement, merchant services and operations. In 2025, JoyAI's total token invocations surged nearly 100-fold from 2024, fueling faster, smarter decision making throughout the company. Second, demand cultivation. We are reshaping the shopping journey and enhancing user experience through AI-driven search and recommendations. Jingyan, our AI agent, surpassed 150 million annual AAC in 2025 with over 20% user penetration driven billings in GMV. We expect to double this user base in 2026. Third, logistics automation. Parallel to the digital intelligence is our leadership in autonomous logistics. In 2025, JD Logistics continued to redefine logistics efficiency. As of the year-end, it deployed over 20 flagship LangzuTech warehouses across China. We also launched this capacity internationally, launching our first LangzuTech facility in the U.K. to efficiently support a premium 211 same day and next day fulfillment experience locally. Furthermore, services and innovation. Our multimodal AI customer service handled over 4.2 billion user inquiries during the 11.11 promotion, achieving higher satisfaction with lower human intervention. Beyond operations, we are unlocking new consumption potential through JoyInside, our AI agent for hardware, which has partnered with 40 hardware brands to introduce a range of AI products. Sales of JoyInside-integrated products surged 20-fold during 11.11 compared to the June 18 promotion. By harnessing AI to redefine our competitive edge, we are further equipped to enhance our user experience, lower costs and improving operating efficiency. We are well positioned to capture the opportunities arising from AI to unlock new growth frontier for 2026 and beyond, ultimately placing us at the forefront of AI commerce. In summary, 2025 was a year of constructive progress and strategic fortitude. Despite navigating short-term macro environment and high base comparison, we remained steadfast in sharpening our supply chain edge and fortifying our foundation for the future. As we enter 2026, we are already seeing a consistent upward trend. Our user momentum remains robust and the growth trajectory of our general merchandise and the marketplace and marketing services has carried over seamlessly into the new [Audio Gap]. In the meantime, we have continued to strengthen our competitiveness advantages across product supply, price competitiveness and fulfillment experience. This operational strength, combined with our technological advances and disciplined ROI-focused approach to new businesses gives us great confidence in our 2026 outlook. We remain fully committed to driving sustainable, profitable growth and creating long-term value for our shareholders. With this, I will turn the call over to Ian. Ian Su Shan: Thank you, Sandy. Hello, everyone, and thanks for joining the call today. In Q4, our total revenues grew by 2% year-on-year, and non-GAAP net profit came in at RMB 1.1 billion. While we faced short-term headwinds in electronics and home appliances categories, our overall performance remained resilient. This stability was driven by our strategic focus on diversifying growth drivers and profit streams alongside disciplined investments in our new business. On a full year basis, we achieved meaningful progress across our core retail segment, new businesses and user growth and engagement, reinforcing our long-term sustainable development. As we drive business development, we remain firmly committed to delivering shareholder returns. Our Board has approved a total annual cash dividend of approximately USD 1.4 billion for 2025, representing USD 0.05 per ordinary share or USD 1 per ADS. Furthermore, we remained active in terms of share buybacks. In 2025, we repurchased about 6.3% of our outstanding shares for a total of USD 3 billion. All of the repurchased shares have been canceled. These efforts underscore our confidence in long-term development. Now let's go through our Q4 and full year 2025 financial performance. Total net revenues for Q4 increased by 2% year-on-year to RMB 352 billion. On the full year basis, total net revenues increased by 13% to RMB 1.3 trillion in 2025. Breaking down the mix, product revenues faced a 3% dip in Q4, mainly due to a high trading base, but grew by 10% for the full year. By category, revenues of electronics and home appliances was down 12% in Q4, but up 7% for the full year. We have navigated this high base challenge in close collaboration with our partners and are encouraged by the improved momentum year-to-date in 2026. On the other hand, general merchandise delivered robust results with revenues up 12% in Q4 and 15% for the full year, led by sustained momentum in our supermarket, fashion and health care categories throughout 2025. We believe this momentum will continue in 2026 as we further build our strength in these high-potential sectors. Service revenues grew by 20% year-on-year in Q4 and 24% for the full year. Notably, marketplace and marketing revenues were up 15% and 19% for the quarter and full year, respectively. A key driver of this was advertising revenues, which achieved double-digit growth across every quarter of 2025. We have enhanced advertising efficiency of our platform through leveraging technology as well as our surging user traffic and engagement. Looking into 2026, we expect marketplace and marketing revenues to maintain solid growth momentum, contributing to both top line growth and profitability. Additionally, logistics and other service revenues grew by 24% year-on-year in Q4 and 27% for the full year, mainly driven by the incremental delivery returns revenues from our food delivery business. Now let's turn to our segment performance. JD Retail revenues down 2% year-on-year in Q4, but up 11% for the full year of 2025. The quarterly decline was primarily due to the high trading base for electronics and home appliances, which was largely mitigated by growth in general merchandise and advertising revenues. It's important to note that JD Retail is no longer a single growth driver business. We have successfully built a diversified growth metric that provides the business with multiple engines and strong resilience across different market conditions. Notably, JD Retail's gross margin increased by 1.1 percentage points year-on-year in both Q4 and full year 2025. This consistent improvement has sustained across multiple years despite changes in the competitive landscape, reflecting our enhanced supply chain strength and a favorable mix shift. JD Retail's non-GAAP operating income in Q4 was down 2% year-on-year with operating margin holding steady at 3.2%. The temporary pause in margin expansion this quarter was a strategic choice. We deployed supplementary subsidies for electronics and home appliances to offer competitive price and maintain market leadership while increasing OpEx through targeted investments in R&D and employee compensation to fuel future growth. On a full year basis, JD Retail's non-GAAP operating income in 2025 grew by 25% year-on-year, with operating margin improved by 52 bps to 4.6%. Taking a long-term view, JD Retail's margin trajectory remains very healthy, climbing consistently from 2.7% in 2019, when we initiated this segment reporting, to 4.6% in 2025. As we continue to emphasize high-margin advertising business and realize efficiency gains in categories such as supermarket, we remain on a steady and successful path towards our long-term margin targets. Moving to JD Logistics. Its revenues grew by 22% year-on-year in Q4 and 19% for the full year with incremental contribution from food delivery. On the profitability front, JD Logistics' non-GAAP operating income was down 17% year-on-year in 2025, but up 3% in Q4. JD Logistics remains committed to investing in elevating customer experience, expanding service capabilities in both domestic and overseas markets, and advancing AI and robotic technologies. We view this as essential investments that pave the way for JDL's long-term sustainable growth in both top and bottom line. New businesses' revenue surged by 201% year-on-year in Q4 and 157% for the full year driven by the rapid scaling of food delivery, Jingxi and international business. The segment's non-GAAP operating loss narrowed to RMB 14.8 billion in Q4. This sequential improvement was primarily driven by the narrowing loss at JD Food Delivery, which achieved a notable reduction of about 20% in loss compared to the previous quarter, continuing its consistent trend of improvement since launch. As we enter 2026, our priority for food delivery remains to drive healthy order volume while deepening synergies with our core retail business. We believe investment in food delivery has peaked in 2025 and will trend downward this year if market competition trends towards becoming more rational. Beyond food delivery, we will continue to explore promising opportunities in Jingxi and international business with financial discipline to ensure long-term value creation. Moving to our consolidated profit performance. Group level gross margin expanded by 32 bps year-on-year to 15.6% in Q4 and rose 18 bps to 16% for the full year. This improvement was primarily driven by the consistent gross margin expansion of JD Retail. Consolidated non-GAAP net income attributable to ordinary shareholders was RMB 1.1 billion in Q4 and RMB 27 billion for the full year, representing a non-GAAP net margin of 0.3% and 2.1%, respectively. Our near-term profitability mainly reflects our strategic investments in new businesses. We believe these initiatives will broaden the group's growth potential, driving both sustainable growth and margin improvement over the long term. Our free cash flow for the full year of 2025 was RMB 6 billion compared to RMB 44 billion last year. This primarily reflects cash outflows associated with the trade-in program alongside fluctuations in operating income. Our accounts receivable also recorded a sequential decline for 2 consecutive quarters, primarily due to the healthy recovery of the trade-in related receivables. We conclude the year with a robust liquidity position with cash and cash equivalents, restricted cash and short-term investments totaling RMB 225 billion as of year-end. In summary, 2025 was a year of solid strategic progress. We achieved strong growth in our user base, accelerated core retail top line with margin expansion fueled by increasingly diversified drivers. Furthermore, our new businesses are now on a healthy, promising operating track. We have built a more resilient ecosystem. While our business segments operated with increasing synergies, our focus remains clear. We will continue to focus on enhancing user experience, lowering costs and improving operating efficiency to deliver strong performance across our retail business top line and profitability while advancing our new business initiatives with a long-term perspective. With that, I will turn it back to Sean. Thank you. Sean Shibiao Zhang: Thank you, Sandy and Ian. For the Q&A session, analysts are welcome to ask questions in Chinese or English. Our management will answer your question in Chinese and will provide English translation for convenience purpose only. In case of any discrepancy, please refer to our management statement in original language. Operator, we can open the call for Q&A session now. Operator: [Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs. Ronald Keung: [Interpreted] First is on JD Retail 2026 growth, as electronic appliances return to a more normalized base from the second half, the general merchandise remains very healthy. So how should we think of the growth rate for JD Retail in 2026 for the first half and second half and the differences given the base? Second is on the on-demand and food delivery. How should we think of the path to further unit economics improvement? Compared with the bigger competitors, how are we differentiating ourselves through supply chain, supply chain-driven business models? And how should we think about your determination and commitment to this business? And with the regulations and investigations on the food delivery industry, would that also contribute to the unit economics improvement? Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] Okay. Thank you, Ronald. So for your first question, first, our general merchandise category continues a very healthy, robust growth trajectory. Looking back at 2025, the category achieved growth faster, even factoring in the impact of trade-in program on the other category. So general merchant category served as a primary growth engine for JD Retail. Categories such as -- subcategories such as supermarket, fashion and health care all achieved very strong results. Looking into 2026, we remain very confident in sustaining this healthy momentum. Supermarket category still has significant untapped potential in terms of user penetration and expansion of the subcategory. Fashion category, we have completed many infrastructural work such as merchant recruitment last year and will further build growth momentum on this very strong foundation. Health care category, we expect to continue maintain its industry-leading position and user mind share. Regarding electronics and home appliance category, it continue to face high base effect in the short term. In 2026, the government trade-in program will continue, but we have to bear in mind that the government-backed cash subsidy were consumed much faster and more in first half 2025 compared to the second half 2025. So for our electronics, home appliance category, including home appliances, cell phones, computers and digital products, will remain affected by a high base in the first half this year. However, we anticipate a sequential improvement in growth compared to the last quarter, fourth quarter of 2025 with more robust recovery expected in the second half 2026, and our market share remains very resilient. Furthermore, we have to bear in mind that memory chip costs keep rising. So prices of mobile phones, digital products are expected to increase across the board. This may dampen consumption and affect sales volume. But at the same time, the rise of AOV will partially offset the impact of lower sales to a certain extent. We'll continue to strengthen our user mind share and drive sales by further reinforcing our supply chain capability, expanding our proactive off-line presence and enhancing overall service experience. Meanwhile, AI and emerging technologies are creating numerous opportunity for innovation and new product categories further demonstrating our strength of supply chain. While initial data contribution from this new AI-related products remain modest relative to our -- the current scale of this category, but we see significant opportunities and shifts. And we will work closely with brand owners and suppliers to respond rapidly and develop new products and meet evolving user needs through the swift application of new technology. Looking ahead to 2026. First, our growth drivers are becoming more diversified. General merchandise category maintains a healthy growth trend, while service revenue, including advertising will also sustain rapid growth momentum. Second, we expect electronics and home appliance category to remain impacted by a high base in the first half this year and with growth in the second half to accelerate better than the first half. Overall, we will maintain our market share and user mind share. At the same time, we'll continuously leverage technological innovation to drive industry progress. Third, supported by the steady improvement in JD's traffic, user base and shopping frequency, we are confident to achieving -- in achieving healthy and high-quality growth for the full year 2026. Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] Regarding your second question. So while food delivery business -- our food delivery business remains in its early stage in 2025, we actively invested in both operations and R&D. Looking at this year 2026, we'll continue to strengthen our capabilities and onboard more quality merchants and products and enhance user experience. At the same time, we'll begin generating revenue through offering merchant services, achieving an orderly and rational monetization. So our goal is to sustain healthy scaling of this business while continuously improving operational efficiency. We expect total investment in food delivery to decrease in 2026 compared to 2025. Well, that also, of course, depends on the market competition dynamics. How we do this? First, JD Food Delivery's differentiating advantage includes our commitment to our positioning in high-quality food delivery. Second, superior service quality driven by full-time riders. Third, the synergetic integration across JD ecosystem, leveraging on our strong supply chain advantage. In terms of improving UE, we have clear drivers. First, more diversified revenue streams; second, continuous optimization of subsidy efficiency, including targeted subsidy tailored to different users and regions; third, enhanced delivery efficiency driven by economic scale that accompany healthy order volume growth. It's also worth noting that our Seven Fresh Kitchen, which is a highly innovative and differentiated business model, is progressing well. It's deeply integrated with JD supply chain capability, leverage strong synergy with our on-demand retail business. As of the end of February, Seven Fresh Kitchen operational footprint has expanded to over 50 kitchen locations and we welcome analysts and investors to try it out. Regarding the long-term positioning, food delivery and on-demand retail is a long-term strategy for JD, will drive our strategic progress with a long-term perspective, continuously enhancing operational efficiency to drive profitability improvement. At the same time, we'll continue to unlock potential synergy between food delivery and our core retail business, fueling the company's long-term healthy growth. In 2025, our food delivery provided -- proved to be a strategic engine for user growth, effectively acquiring new users and significantly boosting purchase frequency across our platform. In 2026, we expect to see a further unlocking of synergies driven by robust cross-selling and incremental growth in advertising revenue. Lastly, regarding the food delivery regulation, first, we support and welcome regulatory oversight that maintains a fair and competitive market environment as they foster a healthy development of the industry. Second, we remain steadfast in our opposition in evolutionary competition within the sector. Third, we are committed to driving high-quality -- evolution of quality food delivery, high-quality food delivery through continuous innovation in our supply chain model. Thank you. Next question, please. Operator: Your next question comes from Kenneth Fong with UBS. Kenneth Fong: [Interpreted] My first question is about the profitability and investment in new business. Under the backdrop of macro uncertainties and yet the accelerated investment in overseas and Jingxi business, how should management balance the growth as well as the profitability? What level of investment should we expect for 2026 for this new business? And how should it affect the group earnings? And my second question is about the overseas business. Can management share some update on the CECONOMY acquisition progress time line and the impact on financials post consolidation? From the strategic angle, how would Joybuy position? And what kind of benefit or synergy should we expect from the group level, i.e., retail, logistics and the whole supply chain point of view? Ian Su Shan: [Interpreted] Regarding our thoughts on investment and profitability, from a long-term perspective, we are confident in the prospects of the China market and our own business development. Based on our views of the market opportunities, we have made long-term strategic investments, including in our international business, lower tier markets and on-demand retail. At the same time, we have been committed to investing in R&D and technologies. By enhancing our foundational capabilities and expanding our service scope, we believe we will continue to unlock new growth opportunities, which will also drive our long-term profitability. JD's high single-digit long-term margin target remains unchanged. In terms of JD Retail, we expect to see healthy growth of retail's profit in 2026 and our long-term target for JD Retail, which is high single-digit profit margin, also remains unchanged. Key growth drivers of this, including improvement in product sales, gross margin brought by our enhancing supply chain capabilities, robust growth in high-margin business, such as advertising, as well as continued margin improvement in categories, including supermarket. JD Retail's flow benefit will also continue to play out and its operating efficiency will have further room to improve as we increasingly adopt AI technology. In terms of our investments in new businesses. For JD Food Delivery, its loss narrowed by nearly 20% quarter-on-quarter in Q4. We continued to maintain its healthy scale expansion while narrowing its loss ratio with improved operating efficiency and revenue growth during the quarter. Looking at 2026, we will continue to drive healthy scale growth of the food delivery business and further unlock its synergies with core JD Retail. If the industry competition trends towards more rationality, we expect our investment in JD Food Delivery in 2026 to decline from the 2025 level. For international business, we will gradually increase our investment on a controlled scale. We will maintain financial discipline in the investment. For Jingxi, it has focused on lower-tier markets and a nonbranded product supply. It has made a meaningful penetration improvement, particularly in Tier 6 and lower cities. This has helped expand our user growth boundaries as it offers differentiated product offerings from our main apps. We expect to increase our investment in Jingxi a little bit, but we believe its UE to continue to improve in 2026, delivering healthy and sustainable business growth. As to your question about the CECONOMY deal, at the current stage, it is under regulatory review. We will update the market in due course. Joybuy is our full category online retail platform in Europe. It is scheduled to officially launch in March. Building overseas supply chain capabilities is a long-term initiative that takes time and continued efforts. Based on its trial operations, Joybuy has received a very positive user feedback, especially on the performance side. Logistics experience will be a key differentiator for Joybuy. We are building our own delivery network in Europe, and the JoyExpress has been launched recently. It provides same and next-day delivery in major cities across the U.K., Germany, France and the Netherlands along with services such as door-to-door delivery. We welcome all analysts and investors to try out our services. As for synergies, first, on supply chain capabilities, while helping Chinese brands expand globally, we also aim to bring more high-quality European brands into the Chinese market, further strengthening our global supply chain capabilities. Second, on logistics, as Joybuy expands in Europe, the synergy between retail and the logistics in our overseas business will be further strengthened, reinforcing Joybuy's competitive edge. Third, on the technology front, JD's long-standing expertise and robust infrastructure will continue to empower our international business. Sean Shibiao Zhang: Next question, please, operator. Operator: Your next question comes from Alicia Yap with Citigroup. Alicis a Yap: [Interpreted] So in light of the potential slower retail sales growth outlook this year, what is the growth rate management have in mind for your general merchandise GMV and revenue growth? How can JD continue to grow faster in this category amid the competitions and also slower consumption? And what are the specific differentiated areas JD is able to drive sales in this segment? And second question is that can management share your thoughts on how JD might prepare and position to embrace the upcoming threats and opportunity from the agentic commerce? Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] Thank you, Alicia. For your first question on the general merchandise category, we shared in the opening remarks that the category is maintaining healthy momentum. So looking back at our track record, the general merchandise category have maintained double-digit growth for the past 5 consecutive quarters and notably outperforming the industry. This is driven by our evolving supply chain capability and a remarkable improvement in operation efficiency expertise. This lay a solid foundation for continued growth in this category. So we are -- we remain very confident in the healthy momentum of general merchant category in 2026. The sustained growth driver includes, first, huge market potential with ample room for growth in categories such as supermarket, fashion and health care. Second, user growth. So new business, including food delivery, Jingxi, have brought growth in traffic, user and shopping frequency on JD platform. So we are also accelerating internal synergy and we have observed healthy cross-selling trends in category like supermarkets. Third, continuously strengthen supply chain capability and user mind share. So from a category perspective, our supermarket category leverages JD's unique 1P model to deliver an excellent user experience and at the same time, competitive pricing. Meanwhile, our fashion category has seen notable improvement in building underlying capability, including search and recommendation in 2025 as well as attracting more high-quality brands to deepen their collaboration with us. We are also applying AI to achieve more precise and personalized matching in search and recommendation. In Q4 '25, we recorded double-digit growth -- year-on-year growth in both sports and outdoor apparel revenues. In terms of our differentiated advantage in this category, first and foremost, the core moat of JD 1P model is the key. This includes more diverse product selection, more competitive pricing and more rigorous quality control. Second, leveraging on the core capability of JD Logistics, we offer high-quality fulfillment experience of faster, more accurate and door-to-door delivery service. Third, from the brand standpoint, JD is the most consistent daily sales platform. JD is the premier destination for brand building and the platform that offers the highest returns throughout our product's entire life cycle. So we provide brands with stable and efficient sales performance. Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] For the second question, we see AI and agentic commerce as a greater opportunity for JD evolution than a challenge. First, agenetic commerce is still in early stage and mainly affect the front-end user traffic. Our view is that no matter how traffic patterns change, the core retail business remains as user experience, cost and efficiency. So as we stay focused on optimizing product price and service, JD supply chain strength will yield even greater synergy, further widening our competitive moat in the agentic era. At the same time, we are accelerating our technology investment while driving the adoption of our in-house large language model, we remain committed to an open ecosystem, actively collaborating with industry-leading external AI LLM providers. We are evolving into a leading technology commerce company, spending entire spectrum from supply chain to customers. As JD run a 1P business model with in-house fulfillment logistics service capability, the technology and AI application scenario is abundant. So this really differentiates us from platform business model. I'll briefly give some examples. On the demand side, we are reshaping the shopping journey and enhancing user experience through AI-driven search and recommendation. On the supply side, we leverage AI to continuously enhance operational efficiency in AI in areas such as sourcing, pricing, inventory management, replacing manual labor. We are also expanding our application in the physical world in terms of fulfillment, automation and after-sale services. Beyond operation, we are unlocking new consumption potential as well through applying AI, such as JoyInside, our AI agent for hardware. As I mentioned before, the sales of JoyInside-integrated products surged 20-fold during 11.11 compared to the June 18 promotion. So you can see we are leveraging -- we are very proactively leveraging AI to reshape our competitive advantage and continue to optimize our user experience, at the same time, drive cost efficiency. Looking ahead, we are very confident and believe we are well positioned to capture the strategic AI opportunity to solidify our leadership in AI-driven e-commerce. Next question, please? Operator: Your next question comes from Thomas Chong with Jefferies. Thomas Chong: [Interpreted] I have 2 questions. First, can management share about the latest developments on shareholders return? And second, can management talk about any changes to the regulatory environment for Internet platform companies and how should we think about it? Ian Su Shan: [Interpreted] Thank you, Thomas. Despite the long-term strategic investment we made in 2025, we remain committed to shareholder returns through both dividends and share buybacks. We declared the 2025 annual cash dividend of USD 1 per ADS, stable compared to last year. The total dividend amount is USD 1.4 billion. This underscores our commitment to delivering consistent cash returns to shareholders based on our sustainable profitability and cash flow in the long term. In addition, we repurchased USD 3 billion worth of shares in 2025, representing 6.3% of total outstanding shares as of the end of 2024. All the repurchased shares have been canceled. We remain firmly committed to shareholder returns through healthy business development, dividends and share buybacks. At the same time, we will remain focused on the healthy growth of our business scale, profitability and cash flow and make strategic investments for the long term while creating value and sharing JD's long-term success with our shareholders. Xu Ran: [Foreign Language] Sean Shibiao Zhang: [Interpreted] I'll take the last question. Regulators continuously promote the standardized development or the healthy development of the platform economy, ensuring sector's long-term sustainability. So we welcome regulatory guidance. The government's commitment is to support compliance, corporate development rather than -- remain unchanged. We believe regulatory oversight is not a constraint, but rather a catalyst for driving healthy, high-quality industry growth. So JD has always prioritized compliant operation as the cornerstone of our business. Whether it is antimonopoly measures, tax standardization or preservation of evolutionary competition -- prevention of evolutionary competition, this effort aligns perfectly with JD long-standing philosophy of compliance. So under a normalized regulatory environment, fair growth opportunity are created as we prevent bad money drives out good. So as a result, over the long term, the advantage of JD compliant and sustainable business model will become increasingly prominent. Thank you. Operator: We are now approaching the end of the conference call. I will turn the call over to JD.com's Sean Zhang for closing remarks. Sean Shibiao Zhang: Thank you for joining us on the call today, and thanks for all your questions. If you have further questions, please contact me and IR team. We appreciate your interest in JD.com and look forward to talking with you again next quarter. Thank you. Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Good morning, and thank you for standing by. At this time, I would like to welcome everyone to the Parex Resources 2025 Operational and Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning. Please go ahead. Michael Kruchten: Good morning, everyone, and welcome to Parex Resources Fourth Quarter 2025 Conference Call and Webcast. My name is Mike Kruchten, and on the call with me today are our President and Chief Executive Officer, Imad Mohsen; our Chief Financial Officer, Cam Grainger; and our Chief Operating Officer, Eric Furlan. [Operator Instructions] As a reminder, this conference call includes forward-looking statements as well as non-GAAP and other financial measures with the associated risks outlined in our news release and MD&A, which can be found on our website or at sedarplus.ca. Note that all amounts discussed today are in U.S. dollars unless otherwise stated. I will now turn the call over to Imad. Please go ahead. Imad Mohsen: Thank you, Mike, and good morning, everyone. As we reflect on 2025, I'm pleased to say that this year was defined by disciplined execution, meaningful strategic progress and strong shareholder returns, all of which further strengthened our foundation and position Parex for sustained long-term value creation. During the year, we delivered full year average production of approximately 45,000 barrels a day to achieve our budgeted guidance range. This outcome reflects our strong asset base, consistent operational uptime and ability to grow efficiently with [indiscernible] . At our Cabrestero and Block-34 assets, enhanced recovery initiatives continue to perform as designed. Optimized waterflood patterns combined with polymer injection programs are enabling us to effectively manage decline rates and maximize recovery enforcing the long-term life nature of these assets and reducing our year-on-year sustaining capital requirements. At Block 32, the Frontera acquisition completed early last year has been highly successful. Since assuming full control, we increased peak production to more than 3x pre-acquisition levels, have added significant reserves and recently drilled a complex multilateral well, the first in Colombia. This is a clear example of our execution capability where we acquired a high-quality asset was identified upside, applied our basin operational knowledge and scaled efficiently. On the exploration front, our high-quality prospect funnel continues to generate strong results. Our 2025 near field exploration program delivered a 75% success rate, reflecting strategic refinements to our exploration approach and our ability to deliver repeatable near-field successes. With our strategic partner, Ecopetrol, we made clear progress to strengthen our alignment and grow future production. In the Putumayo, we successfully gained operational access and started drilling activities. These blocks are sizable and underexplored. With more than 1.8 billion barrels of oil in place, our strategy is already seeing promising results and positioning us for significant inventory growth by moving from vertical production to multilaterals. Eric will touch on this further giving its importance and potential. In the Llanos Foothills, we formalized our strategic alliance and strengthened our position in a truly world-class basin with predrill work underway. With all of the puzzle pieces now in place, we are excited to start our first foothill well later this year. A high impact growth opportunity and alignment with our gas and exploration strategies. On the financial front, we remain focused on shareholder returns. We returned USD 134 million in 2024, '25, bringing total capital return over the last 8 years to CAD 2 billion. Additionally, through ongoing share repurchase programs, we have reduced the diluted share count by over 40% with significant achievement that enhances per share value and sets our long-term track record apart from our peers. I'll hand over to you. Eric Furlan: Thanks, Imad. In the fourth quarter, production averaged 48,606 BOE per day, achieving our planned growth profile for the second half of the year and enabling us to meet our guidance. This was driven by strong results from our base assets in addition to successful growth in the Llanos 32, in Llanos Block 32 and Block 74. With a front-end weighted activity plan for 2026, we currently have 6 rigs running, 5 operated by Parex and one on Block 34. Our year-to-date production is roughly 46,000 BOE per day with additive operations coming out of LLA-32, where a multilateral horizontal well was just drilled and completed and in the Putumayo region, where we are seeing encouraging results across multiple plays. At Block 32, we have successfully drilled Columbia's first four-leg multilateral well, representing a major technical milestone for Parex. This well is expected to deliver strong production by maximizing reservoir contact and driving enhanced capital efficiency. Beyond its immediate production contribution, this success serves as proof of concept to be used in the Putumayo region where it has the potential to unlock significant value. Let me expand. Today in the Putumayo, we are advancing work across 3 distinct blocks, achieving results that exceed our expectations and provide a clear line of sight to substantial additions for development inventory. Firstly, at the Orito block. Our initial well has 1,700 feet of horizontal length and is currently producing 600 barrels of oil per day gross. A second horizonal injection wells has just been completed and will begin injection shortly. Importantly, what makes this 600-barrel per day rate exciting is that this is a shallow horizontal well, meaning it is low cost. Leveraging a combination of our horizontal multilateral drilling experience. We're optimistic that we can draw an established North American plays, such as the Clearwater formation, to design and implement multilateral producer injection patterns to unlock this block. This block has over 1 billion barrels of oil in place with relatively low recovery factor, implying strong torque to enhance recovery initiatives with any gains in recovery providing an opportunity to meaningfully expand recoverable reserves. The next phase will involve drilling a multilateral producing well to test this concept. Secondly, at the Area Sur block, we are targeting efficient low-cost recompletes. Our most recent success has produced at a strong initial rate of 1,500 barrels per day gross. These types of opportunities are what drew us to this farming area, and we are excited by the potential we see. And thirdly, at the Occidente block, our first well has delivered encouraging logging results. Further confirmation of the down dip oil extension will translate into incremental locations and development upside. Across all 3 blocks, we are pleased with the progress to date and look forward to building this momentum into our next update. Switching gears on the near-term exploration front, we are building our near-field exploration success with programs such as Llanos 111 where we are using a streamlined, cost-efficient rig to minimize capital intensity. We have had positive log results on the first well of the program and we'll be testing in the near term. Success here could provide even more visible inventory ahead of 2027. Turning to our 2025 reserves report. The assessment was positive with the results reinforcing a sustainable outlook. Across all categories, PDP, 1P and 2P, we grew reserves per share, realized over 100% reserves replacement, including notable 152% in 2P, and realized FD&A recycle ratios that were 2x or higher. In addition to the standard reserves auditor price deck, we asked our reserves auditor to evaluate our after-tax net asset value per share using a constant $70 per barrel Brent price, equivalent to approximately $65 per barrel WTI. Under this pricing scenario, the resulting Canadian dollar net asset values per share are $23 on a PDP basis, $28 on a 1P basis, and $39 on a 2P basis demonstrating the strong underlying value of the asset base. It has been a solid start to 2026 for us operationally, and I'm confident in our plan that has multiple independent projects to add high-quality inventory and grow reserves. With that, I'd invite Cam to please go ahead. Cameron Grainger: Thanks, Eric. We generated strong financial results in 2025 despite a softer commodity price environment than seen in years past. For the quarter, funds flow provided by operations or FFO, was $123 million or $1.28 per share. Despite a Brent oil price in the low 60s, we had fourth quarter production growth as well as improving production expense and lower current tax relative to the prior quarter that helped FFO. Compared to the prior quarter, production expense benefited from new production that improved fixed cost absorption in addition to corporate efficiency initiatives that were implemented to reduce fixed and variable costs as well as a low amount of absolute current tax. Regarding commodity pricing, in short order, Brent has moved to over $80 per barrel due to global issues compared to our budget, which was released at $60 per barrel. While our core benchmark price has improved, part of this gain is being offset by wider heavy oil differentials with Vasconia being at upwards of $8 per barrel. This widening reflects ongoing expectations around incremental heavy oil supply, primarily from Venezuela. Further, any reassessment of our guidance would require commodity prices to be sustained at these higher levels. In the meantime, our operational and capital programs are progressing as planned, and our full year 2026 production and capital guidance remains unchanged, underpinned by higher commodity prices and the strength of our balance sheet. I will now pass it over to Imad for his final remarks. Imad Mohsen: Thank you, Cam. As we look ahead to 2026, I'm pleased with the progress we are making across our portfolio, which is inventory rates and supported by strategic acreage expansion and ongoing prospect replenishment that we have done. I am particularly excited about the ongoing development in the Putumayo with results to date surpassing our expectations. And I can add 111 to that. As Eric mentioned, our farming strategy has been validated. Our technical thesis strengthened and our view of the meaningful upside potential into clearer focus. Today, we have a compelling combination of low-risk development, near-field exploration and selected step-out opportunities all supporting based production stability with modest growth potential. Overlaying this foundation, we retain exposure to some of the most attractive onshore exploration opportunities globally in the Llanos Foothills. This is where we plan to spud the well that's on trend with existing discoveries, a milestone that has been in the making for years and provides an undeniable high-impact growth opportunity for Parex. With a strong start to 2026 and a constructive operating backdrop, we see Parex approaching a compelling inflection point. On that note, I want to sincerely thank our employees, communities and shareholders for their continued support which plays a crucial role in driving our shared success. To conclude my final remarks, I would like to comment on our recently announced M&A activity and more importantly, why we believe Parex is uniquely positioned to acquire and optimize Colombian assets. For example, when we consider Frontera Energy's Colombia E&P assets, it is Parex's view that our existing partnership with Frontera provides valuable insights. Through our partnership at VIM-1, we have direct experience with Frontera's assets and capable people, particularly across basins where our operations overlap. In addition to our long-standing partnership with Ecopetrol reinforces our confidence that we can create a win-win outcomes for the future of joint assets like Quifa combined with our proven track record of applying technology and technical excellence. A successful combination will position us to unlock the full potential of the combined portfolio. Our clean balance sheet position is a competitive advantage. This provides us with access to a competitive cost of capital and the flexibility to deploy leverage opportunistically. And our robust foundation to access across operations, marketing, tax and other key functions, which should enable us to capture the highest amount of potential synergies. We are positioned to drive meaningful upside through operational efficiencies, streamlined administration as well as optimized marketing and tax strategies to maximize shareholder value. In summary, a portfolio combination would immediately create the largest independent Columbian [focused] energy company, delivering greater scale, enhancing capital efficiency and achieving accretion across all key metrics. It would also optimize capital allocation further strengthens the resilience of our platform for sustainable long-term growth and strategic exploration. We view M&A in Colombia as a natural extension of our strong position there. And we are confident in our ability to unlock significant value for all shareholders. I'll now turn it over to Mike to make a short legal comment before the Q&A session. Go ahead, Mike. Michael Kruchten: Thank you for your attention today. Before we move to the Q&A portion of the call, I want to reiterate that we are committed to maintaining transparent and timely communication with the investment community regarding strategic opportunities, including potential M&A activity. That said, given the current circumstances, we will not be providing additional commentary or taking questions on our proposal to acquire Frontera Energy's Colombian E&P assets at this time. This concludes our formal remarks. I would like to turn the call back to the operator to start the Q&A session for the investment community. Thank you. Operator: [Operator Instructions] And we'll take our first question from Jamie Somerville at ROTH Canada. James Somerville: With regards to differentials I know there's a lot of moving parts there, but I'm wondering if you could give your view on what a reasonable outlook is for the rest of the year whether you think those differentials will come back in again? Cameron Grainger: Jamie, it's Cam. It's really hard to say. Before the Iran crisis, we were seeing differentials as we said, around $8 per barrel. It's still early. We haven't -- we don't really have any visibility at this time on how the Iran situation is going to impact things going forward. We don't really have that clarity right now. James Somerville: Okay. We will make our own assumptions and stay in touch. Maybe on a different subject, operationally, I'm curious about the multilateral targets. I guess, Colombia traditionally has produced a lot of oil from high porosity, high permeability, lighter oil reservoirs, including in the areas like Llanos 32 and Orito but these are multi-zone areas. And I'm just kind of guessing that maybe you're targeting some of the zones that have the more difficult reservoirs. I'm wondering if you can kind of comment on how you -- why you see an opportunity for multilaterals from a technical point of view? How much improved drilling speeds contributes to that and what you're seeing that gives you confidence from contractors globally and in Colombia? And what you think the size of the prize that you're going after is maybe? Eric Furlan: Okay. Thanks, Jamie. It's Eric here. You're correct in your first statements. Columbia is generally known for really high-quality reservoirs that are supported with a water aquifer and produce at high rates. But there are very large opportunities in some of the reservoirs that are slightly lower quality. So the one we're specifically referencing is in the Putumayo and the Orito area. It's the uphole [ Patino ] reservoir. It's at about 2,500 feet TBD on average. It's a fixed sandstone package. It has an area that was historically produced the highest quality area in this entire play, which represents about 1/3 of the entire play through vertical development. And those were very prolific wells. It did recover about 30 million barrels from that limited development. And so we're approaching this [Patino] from 2 perspectives. One, that original area that was developed was never waterflooded. It was essentially primarily produced and shut in. So we are going to waterflood, repressure that and get that online. And then the so-called halo area where 2/3 of the oil is in place has many penetrations that tested oil rates from vertical wells. Not fantastic oil rates. So what we were trying is to try the first single horizontal well to test how a horizontal may be able to be used to exploit this halo area that contains a larger component of the oil in place. The first well is performing exceptionally well with the rates that we're discussing here. It's a very easy well to drill. Our next step is to try and approach -- it's a different type of play than something like the Clearwater, where they're targeting higher-quality reservoir with very, very heavy oil. And here, we're targeting lower quality reservoir but with very good quality oil, 25 API type oil. But we're trying to look at the same kinds of technique where we're going to go ahead and drill multilateral wells, expose the reservoir with single wellbores to 5,000, 10,000, 15,000 feet of exposed area. And this first well that's producing 600 barrels a day has about 1,700 feet exposed. So we're at the early stages. We need to delineate what is a very large area and a very large oil in place. But it's very exciting for us. The drilling -- the first concept to test was the drilling of the well. It went very, very well and showed that we could drill these wells for very low cost. The next step is we -- as we said, we've got a horizontal well now on injection or about to commence injection. And we're going to spud shortly a multilateral well, all open hole with a similar type of well style as the Clearwater, but see if we can exploit this reservoir. So we see that throughout the Putumayo. Sure, the best of the low-hanging fruit was captured early on. But we're talking not Tier 3 or 4 reservoir here. We're talking still high-quality reservoirs here with what we're chasing. Definitely -- and we're quite excited about the whole opportunity here and in the rest of the Putumayo. Imad Mohsen: Thanks, Eric. Let me add a couple of things here to the logic. If I take the multilateral in Azogue for example, the productivity is just gigantic. We're talking about thousands of barrels with minimum drawdown, yes, less than 2% draw down. So the reason we're doing it, for example there, is not to increase productivity as such, is to be able to drain a large area of the reservoir with limited number of wells. To give you an order of magnitude, I don't know, it takes maybe close to $5 million to get to the 12,000 feet target in Azogue and every lateral cost of less than $1 million. So having 4 laterals there is much cheaper than drilling 4 horizontals, yes? So it's capital efficiency driven. In the Putumayo, as Eric said, the core area is very decent. In fact, Ecopetrol produced more than 1 million barrels per well at rates starting above 1,000 barrels when the well field was fully pressurized. That's not Clearwater like productivity with vertical wells. That's really very good quality. Now we are -- once we do repressurize the reservoir back to close original with waterflood, your productivity goes up. The one we drilled right now was to test what would productivity now be before pressurization starts and exceeded our expectation and also prepares us to going outside the core area, which has produced so far 35 million barrels, close to maybe 10% recovery. I don't know the exact places. But you go to outside that to what -- the extension area is like monetizes bigger than this one. So if we -- and it's never been produced commercially. So if we can unlock that with very high capital efficiency, multilaterals that creates an additional economic incentive to do it. Again, these are, I would say, if I combine the reservoir quality and productivity, these are still conventional reservoirs. We're not talking anything that's in conventional realm, but we do want to increase the capital efficiency. Does that make sense, Eric? Eric Furlan: Yes. Operator: And there are no further questions at this time. I will now turn the conference back over to Mike for closing remarks. Michael Kruchten: Thank you very much for joining us on our Q4 call. If you have any further questions, please feel free to contact us at Parex. Have a great day. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, everyone, and welcome to BBVA Argentina's 4Q '25 and Fiscal Year 2025 Results Conference Call. Today with us are Mrs. Belén Fourcade, Investor Relations Manager; Diego Cesarini, IRO; and Mrs. Carmen Morillo, CFO, who will be available for the Q&A session. This presentation and the 4Q '25 earnings release are available on BBVA's Investor Relations website, ir.bbva.com.ar, and will also be available for download in the chat. First of all, let me point out that some of the statements made during this conference call may be forward-looking statements within the meaning of the safe harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20-F for the fiscal year 2024 filed with the U.S. Securities and Exchange Commission. [Operator Instructions] I will now turn the call over to Mrs. Belén Fourcade. Please go ahead. María Belén Fourcade: Good morning, and thank you all for joining us today. After a third quarter that was marked by political instability with its consequent monetary and exchange rate tensions, the results of the midterm legislative elections reaffirmed support for the government's fiscal reform and order policy. This translated into a rapid normalization of financial variables, which returned to pre-event levels. BBVA Argentina continues to consolidate its growth strategy, reflecting its commitment to being a key player in Argentina's recovery of activity. This was achieved despite a year ultimately marked by interest rate volatility in the second half and the progressive deterioration of credit quality within specific segments of the retail portfolio. In this line, on December 22, 2025, the bank secured a credit line of up to $150 million from the International Finance Corporation. These funds allow BBVA to expand its financing capacity for small- and medium-sized enterprises, thereby reaffirming its commitment to the productive sector. BBVA Argentina's non-performing loan ratio on private loans reached 4.18% as of December 2025, a figure that remains below the system average of 5.29% for the same period. The bank stands out for having consistently lower delinquency ratios than the sector average, which reflects the quality of its credit risk management and its prudent approach to portfolio origination. Before diving into numbers, it is important to mention that on December 10, 2025, the transaction through which BBVA Argentina acquired 50% of the share capital of FCA Compañía Financiera has been closed. This had a ARS 1 billion impact in the P&L and all balance sheet figures include FCA, including loans and deposits. Nonetheless, market shares expressed in this report and on this call do not include FCA as the consolidation was made as of the last day of December. Moving to Slide 2 to 5 of the webcast presentation, I will now comment on the bank's fourth quarter 2025 and 2025 fiscal year financial results. BBVA Argentina's inflation adjusted net income in 2025 was ARS 267.4 billion, decreasing 43.2% versus 2024. This implies an accumulated ROE of 7.3% and accumulated ROA of 1.1%. The year-over-year decline in results is mainly explained by the deterioration of loan loss allowances in a context of high delinquency ratios in the financial system. Also, in spite of observing a 29.4% lower net interest income as a result of lower interest rates and inflation, this should be considered in comparison to lower losses from the net monetary position, which more than offset the lower NII. It is worth noting the 36.9% increase in net fee income, thanks to a proactive approach in improvements, and also in foreign currency and gold gains, the latter explained by an increase in activity after the partial lift in FX controls on April 14, 2025. In the fourth quarter of 2025, net income was ARS 59.3 billion, increasing 44.5% quarter-over-quarter. This implied a quarterly ROE of 6.5% and a quarterly ROA of 0.9%. Quarterly results were mainly explained by higher income along with lower expenses. The increase in income is mainly due to: one, better net interest income; and two, an increase in results from write-down of assets at amortized cost and OCI. The latter due to the sale of bonds classified in the OCI model. Expenses improved mainly on the side of personnel expenses and administrative expenses. These were negatively offset by, one, loan loss allowances; two, an increase in operating expenses mainly due to turnover tax; and three, lower net fee income in the quarter. Net income from the net monetary position was 32% higher quarter-over-quarter, explained by a higher quarterly inflation. Net interest income in the quarter was ARS 758.9 billion, increasing 20.2% quarter-over-quarter. After the uncertainty surrounding the midterm elections were off, average market interest rates declined. With the liabilities repricing at a faster pace than assets, we observed the reverse effect from the one seen in the third quarter of 2025, with income from public securities and loans increasing and expenses from funding increasing, but to a much lower extent. In the year, net interest income decreased 29.4%, as mentioned before, more than offset by the lower losses on the side of the net results from the net monetary position. Loan loss allowances increased 31.3% in the quarter and 181.2% accumulated year-over-year, explained by the deterioration of non-performing loans, in particular, on the retail book, which implied higher provisioning. The effect of loan loss allowances can be observed in the evolution of the cost of risk, which reached 8.11% in the fourth quarter of 2025 and 5.54% on an annual basis. During 2025, personnel and administrative expenses decreased by 11% and 12.6%, respectively. This was achieved, thanks to the active pursuit of efficiencies during the year. During the fourth quarter of 2025, in particular, total operating expenses were ARS 537.5 billion, remaining stable quarter-over-quarter. Both the efficiency ratio as well as the fee to expenses ratio evidence the stability and the improvements that are taking place on these lines of the income statement, and we expect them to improve even further for 2026. Going on to Slide 6 and 7. Private sector loans as of the fourth quarter of 2025 totaled ARS 14.8 trillion, increasing 7.6% in real terms quarter-over-quarter and 47.6% year-over-year. In the quarter, growth was mainly driven by an increase in loans in pesos. In total currency, the products that increased the most were mostly commercial loans such as financing of projects and exports and discounted instruments. On the peso portfolio, discounted instruments, pledged loans and credit cards stood out. Pledged loans are mainly affected by the introduction of FCA into the loan book. In the case of consumer loans, prudency policies taken in a context of higher deterioration of non-performing loans were noticeable on this line with a 2.2% quarter-over-quarter decline. BBVA Argentina's consolidated market share of private sector loans reached 11.91% as of the fourth quarter of 2025, improving 64 basis points from 11.27% a year ago. As for asset quality, the NPL ratio of BBVA Argentina on private loans reached 4.18% as of December 2025. As mentioned before, BBVA is renowned for presenting delinquency ratios spread consistently below the sector average, which reflects the quality of its credit risk management and its prudent approach to portfolio origination. By the end of 2025, total gross loans and other financing over deposit ratio was 88%, above the 78% in December 2024. Participation of total loans over assets is 57%, the highest since 2020 and above the 51% recovery in 2024. As of the fourth quarter of 2025, the total NIM was 17.5%, higher than the 15.2% in the third quarter of 2025 and below the 20.2% in the fourth quarter of 2024. While the NIM in pesos increased by 277 basis points to 20.2% quarter-over-quarter, the NIM in dollars fell 91 basis points to 4.8%. In the quarter, the increase in NIM is mainly explained by a better yield on public securities and loans in pesos, while the drop in dollar NIM is explained by a higher volume and rate of interest-bearing liabilities. In the accumulated annual comparison, although the total NIM presents a considerable drop, it should be understood that this is a consequence of the rapid decrease in inflation and therefore, the level of rates and is more than offset by the lower cost of inflation adjustment. This can be seen in the adjusted NIM, which dropped from 17.30% to 13.75%. On the funding side, as of the fourth quarter of 2025, total private deposits reached ARS 16.7 trillion, increasing 3.1% quarter-over-quarter, and 29.7% year-over-year. The bank's consolidated market share of private deposits as of the fourth quarter of 2025 reached 10.04% from 8.60% a year ago. Private non-financial sector deposits in pesos, totaled ARS 10.5 trillion, a decrease of 1.4% quarter-over-quarter, explained by a decrease in time deposits and in other deposits, including interest-bearing checking accounts. This effect was partially offset by an increase in savings accounts. Private non-financial sector deposits in foreign currency expressed in pesos increased by 11.6% quarter-over-quarter. This is mainly due to an increase in savings accounts and in time deposits. In hard currency, U.S. dollar loans increased 12.7% quarter-over-quarter and 26.6% year-over-year. As of the fourth quarter of 2025, capital ratio reached 18.3%. The quarterly increase in the ratio was due to a 9.4% increase in Common Equity Tier 1, mainly impacted by the recovery in the value of government bonds at fair value through OCI. Public sector exposure, excluding Central Bank totaled ARS 3.9 trillion, implying a 15.5% exposure, below the 16.4% recorded in the third quarter of 2025 and 17.9% in the fourth quarter of 2024. For the year, the drop in exposure is mainly explained by the increase in assets led by the growth of loans over that of financial instruments. It is important to highlight that more than 90% of the National Treasury's public debt portfolio in pesos is at TAMAR floating rate. These bonds represent approximately 65% of the bank's sovereign portfolio and in the context of higher real interest rates in the second half of the year added value to the financial margin. In the quarter, the liquidity ratio reached a level of 44.2%. The liquidity ratio in local and foreign currency reached 37.7% and 55.2%, respectively. In line with our commitment of generating value for our shareholders, the bank continued the payment of dividends corresponding to the 2024 fiscal year in 10 installments, having paid 9 of the 10 installments required by the Central Bank's regulation up to the date of this report. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Tito Labarta with Goldman Sachs. Daer Labarta: I guess my main question is really on asset quality and how that continues to evolve and what that could mean for loan growth for 2026. We kind of expected already that you're still not out of the credit cycle, but it seems provisions jumped a bit more than expected. NPLs went up a bit. I mean do you still think 1Q, 2Q should be the worst of it? Do you think that can get delayed and the credit cycle can last a bit longer? I just want to understand how comfortable you feel on credit quality stabilizing and potentially improving? And what could that mean for loan growth? You have pretty good loan growth in the quarter, but is there some risk to your ability to grow loans if credit quality does not improve? Carmen Arroyo: Tito, good morning. Hi, everyone. This is Carmen Morillo. Thank you for your question. Related to asset quality growth and yes, we think that these are the main questions for this year. So first of all, I would like to highlight that during 2025, we have been able to gain market share in a quite solid way, this 11.91% market share that means 60 basis points increase in market share is quite solid. And in terms of credit risk, we've been under the system ratios. Having said that, we believe that first quarter will be also a tough one. But from then on, what we believe is that credit indicators should go downwards. So for us, the peak should be in the first quarter in terms of NPLs for sure, and in terms of cost of risk also. In terms of growth, maybe it's too soon to answer this question. What we believe is that depending on what the financial system growth is. And what we still believe is that we are -- so our strategy is to gain market share. So we see the credits in the system growing around 18% in real terms. So we should be growing above that. So our guidance was to grow between 25% and 30% for the 2026. And we think it's too early to change our guidance. So we would maintain these figures. So yes, around -- so to grow faster than the system. And also in terms of deposits. So we believe that our strategy is the good one in that sense. We've been growing also in deposits during 2025. We've been able to gain -- to be more -- so to have a better participation in the transactionality of our clients. And in that sense, we will be also beating the system in deposits. So I hope I could have answered your question. Thank you. Daer Labarta: Yes. No, that's helpful, Carmen. I guess how do you think that then translates to profitability for 2026? I mean, do you think you can achieve a double-digit ROE? Can you start getting to like the low teens by the end of the year? Or does that also get delayed a bit and we could see some pressure on profitability? Carmen Arroyo: Okay. So I think we have been very consistent in our guidance in terms of ROE. We were talking about low to mid-teens for the last quarters. It's -- as I mentioned, and all of you know, the environment is not so easy to predict. But we think it's early to change this guidance. So we are confident we will be able to achieve a better profitability than the one we have done this year, which, by the way, is much better than the systems one and other peers. So we are happy with that performance in relative terms. Of course, we have faced a lot of difficulties this year. And I think it -- so the year is a very positive one in this environment. And for next year, we hope to be above, so low to mid-teens, it's too early to say low or mid-teens, but I believe we should be achieving this goal. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: Carmen, I wanted to maybe expand a bit on deposits because I think your market share gains were very relevant. You're above the double digit maybe for the first time in some time. So I think it's a very important point. Just wanted to see your strategy, right? Because I think given the conditions that are very tight, maybe the competition for funding intensified. So I just wanted to ask you what's your strategy here? And how do you prevent maybe a spike in the cost of funding? Diego Cesarini: Brian, this is Diego Cesarini. I will take this question. Well, it's true. We have been growing on deposits much faster than the system. Last year, we grew 32% in real terms, while the system grew around 12%. So our gains in market share have been huge. Here, we have been working on many fronts. On one side, we have seen a recovery on retail deposits. Retail term deposits, for example, represented a couple of years ago before Milei took cover. And below -- before the 2023 presidential elections represented around 30% of our deposits in pesos. And after 1.5 years, they just represented 10%. Last year, we started to see a recovery in the investors' appetite for bringing that kind of deposits. So we put a lot of focus on trying to make them grow faster. Now they represent around 15%. We have also been very active on companies on SMEs deposits. We were out of that market a couple of years ago because we didn't need that funding. So we are back on that market. We are putting a lot of aggressive targets to our work in our commercial forces. And we have also succeeded a lot in growing very fast on SMEs deposits. And the last -- I guess, that the last leg of this strategy wholesale deposits. Institution, as you know, they still represent a huge amount of Argentinian market. And again, 2 years ago, we didn't need those deposits after we started growing, well, we were going for them again. So we are on every front. And of course, in dollar deposits, we have also been growing market share. We are also active on that market. And we still think that we have room to keep growing there. Brian Flores: Super clear. And then a follow-up on Tito's question. Just to summarize, basically, you're envisioning growth as Carmen was saying, 25% to 30% in real terms, I don't know if you could elaborate a bit on the composition because I know you're a bit more on the commercial side in terms of the mix, right? The deposits, do you think they grow above or in line with loans? ROE, you mentioned already maybe low double digits. And then I have maybe another question on asset quality. Do you think cost of risk could be at some point, maybe at the end of 2026, closer to the end of 2024, which is closer to the 5% rather than the 7%, we are now? Diego Cesarini: Starting with your latest questions. Yes, we think that by the end of this year, it could be reaching the 2024 levels. Of course, it will start at levels that are similar to the end of last year, as Carmen said before. And regarding the composition of our portfolio, I think that maybe in general terms, it will be similar to the one that we have right now. But of course, at the beginning of the year, probably during the first semester, we will be much more focused on big corporations because for obvious reasons, that the retail market is still not recovering. So probably consumer loans or credit card loans could suffer a little during the first part of the year and probably in the second semester, things will return to normality. Carmen Arroyo: Yes. The point is when the situation in the retail side is safe enough to come back to credit cards and personal loans and all that. But having said that, we will be addressed -- we will be in mortgages, in pledged loans. So in the retail side, we see these products as the main ones in our strategy at the beginning of the year. Then, of course, as the situation gets better, we will be back in all products as we used to be. And in the commercial side, we are not expecting a higher deterioration, and that's why we think we will maintain, as we Diego was mentioning, in the mix we have nowadays. Brian Flores: Super clear. And on deposits, just to clarify, do you expect to grow above or below the loan growth? Carmen Arroyo: Below, so... Diego Cesarini: Below what? Carmen Arroyo: The loan growth? Diego Cesarini: No, I guess the below loan growth... Carmen Arroyo: Above the system. Diego Cesarini: Yes. Above the system, probably. But below loan growth just because, well, of course, equity also grows. There are other liabilities that also grow. So we need to grow less in percentage terms in deposits than in loans. That's just mathematics. But as I said before, we still think that we have room to grow. Even if deposits were behaving not so good this year, we still have liquid. We still have bonds in excess. We have a public sector portfolio in excess of what we need to comply with reserve requirements. So we still could use some liquidity in order to keep growing. Brian Flores: Perfect. So if I -- if we think of, let's say, a 20% real terms in deposits, that makes sense, right? Diego Cesarini: Yes, between 15% and 20% could make sense in a scenario where we grow in loans between 25% and 30%. Carmen Arroyo: And in both cases, gaining. So the strategy is to gain market share. So it will depend on what the system does. Operator: Next question from Carlos Gomez-Lopez with HSBC. Carlos Gomez-Lopez: Carmen, Diego, Belén. First, congratulations on the good result and the gains in market share, which is what you wanted to achieve and the stability of the results. So to ask a few things which are different. First, the dividend for 2025, do you expect it to be able to pay in a single or a discrete number of payments? Or will you still have these 10 different payments that you have had in 2024? And what level of payment are you thinking of doing? Second, on taxes. So when you look at the last 3 years, you've been paying about 34% on average over the last 3 years. Is that a level that you expect for the future? Or should we go back to the statutory rate around 30%? And finally, can you give us an update about when we might move away from inflation accounting? Is that 2028? Or do we have to wait longer? Carmen Arroyo: Carlos, thank you for your words. Then related to your question. So first one was dividends. So we still don't know what -- so how are we going to be able to pay the dividend. So I don't have an answer on that question. So we believe we need to have information in the following -- yes, during March, I would say. So we will know that soon. Related to the amount, as we -- so we ended in -- so this capital ratio of 18.3%, 2025. As I mentioned, we want to grow for the next years. So we prefer to pay a small -- so we will be paying dividend, but it will be something similar to what we did last year. So to maintain a lower payout ratio and grow faster. Then your second question... Carlos Gomez-Lopez: It was on the taxes and inflation. And by the way, what was the payout, in the end last year? Carmen Arroyo: Sorry? Carlos Gomez-Lopez: The payout, last year? Diego Cesarini: Last year payout was around 25% of our 2024 net income. Carlos Gomez-Lopez: 25%. Diego Cesarini: That was last year dividend. Carmen Arroyo: Yes. Then inflation. A couple of months ago, we were thinking about 2027, so by the end of 2027, to be the end of this adjustment. Now we changed a little bit our projections of inflation. So I think it would be prudent to say that 2028 should be the year to go out of this adjustment, but it will be, yes, in 2027, beginning of 2028, something like that. Diego Cesarini: Carlos, just to add a piece of information, according to the FX regulation that is in place, we could access in theory to the official FX market to pay dividends this year. Carmen Arroyo: Okay. And then in terms of taxes, you were asking. So I don't see a reason why they should come back to -- so other percentages. But I don't have here the information. So let me take a look on that and come back to you. Carlos Gomez-Lopez: Sure. Carmen Arroyo: Yes. So I believe -- so we should be at that levels but if -- so if we see something else, I will come to you. Carlos Gomez-Lopez: So at that level, meaning the 30% statutory? Because as I said, this year, almost every quarter, you have had 34% to 41% in my numbers, maybe I'm doing something wrong. Carmen Arroyo: No. I mean 35%. So around 35%, yes. Carlos Gomez-Lopez: Around 35%? Diego Cesarini: Correct. It should be around 35%. Operator: Next question from Pedro Offenhenden with Latin Securities. Pedro Offenhenden: I wanted to ask on cost, how should we think about personnel and administrative expenses during this year? Carmen Arroyo: Pedro, thank you for your question. This year, meaning 2026, I believe? Pedro Offenhenden: Yes. Carmen Arroyo: So the improvement we've seen during this year, we believe we will be also improving in 2026. So the trend should continue, not only in terms of being quite aggressive in not growing in expenses, but also due to our better net interest margin, fees and commissions and so on. So the efficiency ratio should go downwards. Pedro Offenhenden: Okay. Do you have a target on the efficiency ratio for the year? Carmen Arroyo: Around 46%. Operator: Our next question comes from Marcos Serú with Allaria. I believe you're having some technical issues. We're going to go ahead with the next person in the queue, which is Matías Cattaruzzi with Adcap. Matías Cattaruzzi: I have a question about the -- as we have seen in the first quarter, dollar liquidity in the system is improving. And government is signaling to probably changing regulation in dollar lending to non-dollar producing clients. How do you see [indiscernible] in this field, do you intend to lend in USD to non-dollar producing clients? And which sectors do you think would be best? Diego Cesarini: Matías, this is Diego. Well, first of all, I would like to say that in the case of BBVA, we are pretty comfortable with the amount of lending we are producing in dollars right now with the current regulation. We are growing. We have a lot of demand in our pipeline. So if you ask me, by the end of this quarter, even if we are growing a lot in deposits and other kind of dollar funding, we are -- we would really be short of liquidity. We are gaining market share in loans. And everything is being done under current regulation. So we are not in the need of a change in this regulation. Having said this, if regulation changes and opens to more sectors, of course, we have to evaluate very carefully the sectors. It's difficult to establish a general policy because we all have in mind what happened in Argentina 25 years ago where dollar lending was open for anyone. That kind of -- and hedge are very difficult to manage in case of devaluation. So this is basically our view of the situation. The regulation changes, we will analyze if there are any sectors specifically or special cases where we can relax a little our policy. But I think that the most important is that we are really lending at full with the current policy. We don't -- right now, we don't need a change in our case, we don't need a change in regulation. Besides, it's -- when you look at the loan-to-deposit ratios in foreign currency, you will see that in our case, it's around -- right now, it's around 55%, probably will be 60% in a couple of months. But then reserve requirements are really high in this currency at around 23%. We also have to keep some banknotes in our branches. We have faced -- of course, it's a public information that we have faced -- banks have faced a very sudden and deep runs on our deposits many years ago. So we still have to be very careful regarding our customers' behaviors in this kind of deposits. So we still have to keep important amounts of liquidity in dollar terms. Of course, Central Bank cannot lend dollars to banks in case of meat. So this is our approach to this subject. Matías Cattaruzzi: Okay. And a follow-up question. What's -- do you have a guidance in net interest margin for 2026? Diego Cesarini: We don't have a formal guidance on net interest margin, but we think that -- we like to measure this indicator in real terms, because, of course, if you compare 2024 to 2025, the net interest margin fell, but of course, because inflation fell and interest rates also decreased very sharply. But on the other side of our balance sheet, and our net income, you see that the cost of inflation also decreases a lot. So you have to see this in net terms. In general terms, we have seen that last year, we didn't lose -- we didn't lost margin. It was -- our net margins were similar to the previous year. And for next year, for 2026, we are seeing a similar situation. We are -- probably, our net interest margin will fall a little in real terms. That will be offset by growth in activity. So this is not an issue for now for the bank. Operator: Our next question comes from Marcos Serú with Allaria. Marcos Serú: Sorry, I was having trouble with my microphone before. I wanted to ask in first place about personnel expenses. How is -- explain the decrease in this quarter, while the headcount has increased? And then about your guidance. I wanted to know if you could share the assumptions behind that guidance about inflation, GDP growth in 2026 and effects. And the last one is, do you know about how much of the growth in loans and deposits is in pesos and in dollars? Carmen Arroyo: Okay. Thank you, Marcos, for the questions. Related to the first one, personnel expenses. Yes, so there are some provisions we decided to return. And that's why you see this is true, that you see a different evolution between headcount and expenses. So it's a one-off. This is the short answer for that. Then related to the guidance, I think... Diego Cesarini: Regarding inflation, we are expecting right now, our research department is expecting a 22%, regarding GDP, 3% growth, regarding FX, around 1,700. And regarding the mix in growth in loans, in pesos and dollars, we are still expecting dollar loans to grow a little above peso loans. Dollar loans right now represent around 23% of our book. Probably that will reach 25%, 27%. So dollar growth should be around 40% probably in real terms or a little more. Marcos Serú: Okay. Just one question. So do you think that the personnel expenses charged-off this quarter can be adjusted by inflation in order to project the followings or which number could be a normalized number? Carmen Arroyo: I'm not sure if I get your question right, Marcos, sorry. Marcos Serú: If you think that the personnel expense charge-off, this quarter in order to project it, will it growth as inflation growths or which growth do you expect for that charge? Carmen Arroyo: So I would say that you -- so first, efficiency ratio is going to be lower than this year. And second, the growth in expenses as a whole should be very linked to inflation. So with this couple of -- okay. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: I just wanted to ask you because everyone, I think, not only you, but other peers have been mentioning about the potential recovery of the consumer. Just wanted to ask you, in your view, what are the catalysts here for us to see a recovery and also for them to start, as you mentioned, recovering not only in the demand of credit, but also maybe on deposits, I think that would be a great color. Carmen Arroyo: So thank you for the question. So the short answer should be, so interest rates need to be stable and lower, that's one issue, which is important. And the other one is the micro, the stability. So macro policies are going in the right direction, and we believe that this is also in the right path, but we still need to see what happens with the companies, with the retail, with the salaries in real terms. So it's more complicated than only interest rates. So we believe something else needs to be happening in the country to go back to consumer loans. Brian Flores: Carmen, anything on the regulatory side that you think could really help on either side, either supply or demand of credit? Diego Cesarini: A lot of the bad regulations have already been addressed. But of course, everybody is aware that last year, Central Bank monetary policy was very restrictive. Our reserve requirements skyrocketed. So I think that what probably we will need some flexibility on that side from Central Bank in order to keep growing. And we think that, that will come with time. I think that right now, of course, the inflation has gone a little above the expected levels. But once that issue is again under track, I think that Central Bank is going to act and start to be less restricted. I think that's the main issue right now. Operator: Our next question from Ignacio with Invertir en Bolsa. Ignacio Sniechowski: Can you hear me? Operator: Yes. Ignacio Sniechowski: Okay. Carmen and Diego, well, my question was regarding reserve requirements, but Diego answered that. So it was -- if you are expecting or seeing the Central Bank lowering those that you mentioned that it will depend on the evolution of inflation. So sorry, it was already answered and... Diego Cesarini: Yes, I can elaborate a little more. Let me tell you that in the case of reserve requirements, what Central Bank did last year, they raised, of course, these levels, but we can comply those requirements in bonds. So it doesn't represent a cost for our NIM. It's not affecting our net income, of course. But of course, we need those funds in order to keep growing in loans if there is enough demand. Besides that, we need a little more -- we are asking for a little more flexibility because last August, we had to comply with those requirements on a daily basis. That was from the operational side, it was very difficult for us. They have relaxed somewhat those daily requirements. But still, there are some minor issues that we think that should be addressed. We are asking, but that doesn't have really an impact on net income. So that's the general view on the subject. Ignacio Sniechowski: Okay. And Diego, one more question. Do you think that wallets and fintechs that -- well, banks already won the battle of salaries and being deposits in banks. But do you think that they will eventually strike back to that -- to potentially reverse that? Diego Cesarini: Anything can happen, but I think that the main issue is that the biggest one, Mercado Pago has already asked for a banking license. So we should guess that in any time in the future, they will get that banking license and they will be able to offer the product. So we need to be ready, our products need to be competitive and have a good user experience in order to be in a good position to keep our share. We've been growing on wallet on pay per share. We have around 15% of the total market. And we have been growing consistently through the past year. So I think that we have a good offer for our customers. Operator: The Q&A session is over. And now I would like to pass the word back to BBVA's team for final remarks. Carmen Arroyo: Thank you. Thank you all for attending the conference. And just to highlight that despite the challenge of the environment, we've been going through this year. We believe BBVA Argentina has proven resilience and effective management in the year. So credit growth and non-performing loans levels below the system average and a very solid position in solvency and liquidity are the key issues of our strategy, and we are committed to keep growing in the following quarters and to maintain our efficiency and generate profitability for our shareholders. Operator: Thank you. This does conclude today's presentation. You may now disconnect, and have a nice day.
Operator: Good morning, and welcome to The Kroger Co. Fourth Quarter Earnings Conference Call. My name is Alex. I'll be coordinating today's call. [Operator Instructions] Please note that this event is being recorded. I'd now like to turn the conference over to Rob Quast, Vice President, Investor Relations. Please go ahead. Rob Quast: Good morning. Thank you for joining us for Kroger's Fourth Quarter and Full Year 2025 Earnings Call. I am joined today by Kroger's newly appointed Chief Executive Officer, Greg Foran; Chairman, Ron Sargent; and Chief Financial Officer, David Kennerley. Before we begin, I want to remind you that today's discussions will include forward-looking statements. We want to caution you that such statements are predictions and actual events or results can differ materially. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis is contained in our SEC filings. The Kroger Company assumes no obligation to update that information. After our prepared remarks, we look forward to taking your questions. [Operator Instructions]. I will now turn the call over to Ron. Ronald Sargent: Well, thank you, Rob, and good morning, everyone. Thank you for joining our call today. Before we start, I'd like to just take a moment to welcome Greg Foran as Kroger's Chief Executive Officer. Greg is a strong leader with a proven track record of driving growth in large and complex businesses. He has spent most of his career in food retail, and he understands what it takes to run great stores and build a strong e-commerce business. His priorities align closely with the work we've been doing over the past 12 months, putting the customers at the center, moving with urgency, strengthening our e-commerce business, accelerating media and improving productivity to invest in lower prices. Many of you will know his background. He started as a store associate at Woolworths in New Zealand and eventually led Walmart U.S. where he was responsible for thousands of stores as well as over a million associates. During his tenure, the business delivered consistent sales growth while improving store operations and building e-commerce capabilities. Most recently, Greg led Air New Zealand during the pandemic, one of the most challenging periods in the history of the airline industry, helping position the company for a solid recovery and leading their digital transformation. Greg is the right person to lead Kroger, and we're excited to have him. He will close our prepared remarks today with his early impressions and focus areas, as he steps into the new role. Now turning to the fourth quarter. We're pleased to report another quarter of strong results, capping off a strong year for Kroger. Importantly, in the final period of the year, we achieved positive market share growth for the first time this year. For the full year, we nearly doubled our identical sales without fuel from 1.5% to 2.9% and grew earnings per share by 9%, which was at the high end of our earnings expectations. This performance speaks for itself. We're executing on our priorities and delivering results. This year, we've been intentional about focusing on what matters most to our customers, and this work has laid the foundation for long-term growth. Today, I'll talk about the things we got done and the proof points of our progress. In the fourth quarter, we continue to make meaningful progress on our core priorities; improving the customer experience, simplifying our business and ensuring we have the right talent in place to move with speed. These actions are strengthening our competitive position today and are building a more efficient customer-focused company for the future. Serving our customers better starts with delivering value and making the customer experience easier. This quarter, we again made price investments to lower everyday prices and to offer more promotions, and this improved our value perception with our customers. We also added store hours during the holidays, particularly in high traffic departments, so more associates were available when customers needed them most. These changes improve checkout times and contributed to positive trends in customer satisfaction. As part of simplifying the business, we announced the sale of Vitacost and plan to close nearly 50 underperforming little clinic locations. We also continue to review all noncore assets to determine their ongoing contribution and role within the company. These decisions reflect our commitment to running a more efficient company and focusing on priorities that add the most value. A strong leadership team is also essential to moving faster and executing our strategy. This quarter, we promoted Victor Smith to Senior Vice President of Retail divisions, along with new division presidents in Atlanta, Fry's and Ralphs, each with deep operational experience and a track record of running great stores. These leaders were developed within our organization, which speaks to the depth of talent we have across the company. This week, we also elevated Milen Mahadevan for a newly created role to lead artificial intelligence work across the company, reinforcing the priority that we're placing on AI. Milen most recently served as President of 84.51°. We see AI as a meaningful opportunity to both improve the customer experience and drive productivity across our business. We're already seeing results from more competitive pricing, improved shrink to faster fulfillment and tools that help our associates work more efficiently. As we move forward, we plan to expand these capabilities, including Agentic shopping on our digital properties. Milen's appointment ensures we have dedicated leadership to accelerate this work. As we look back over the full year, we took several important steps to position Kroger for future growth. We lowered prices on thousands of products making it easier for customers to see the value we offer. Customer price perception improved across the company, and we maintained our competitive positioning against our major competitors. We created a dedicated e-commerce team and completed a comprehensive strategic review of our e-commerce operations, that led to an updated hybrid fulfillment model, which will better meet customer expectations. These changes will make our e-commerce business profitable in 2026. We delivered substantial cost savings across the organization through operational efficiencies and modernizing how we work. We then reinvested those savings directly into lower prices and improved customer service. We made difficult, but necessary, decisions to close underperforming stores and reduce corporate headcount to create a more agile and focused organization. We accelerated our new store investments in 2025, completing 29 major projects. And in 2026, we expect to increase new store openings by 30% with plans to expand into 2 new regions including Jacksonville and Kansas City, 2 high potential markets that will support our long-term growth. Collectively, these actions simplify how we operate and sharpen our focus on the core business. They also position us to reinvest in the areas that matter most to our customers, more value and best service. We've made strong progress, and there's more to do, which Greg will touch on later. This is how we're building a stronger foundation for sustainable growth in the years ahead. Before walking through the quarter, I want to briefly comment on the customer environment. Customers remain focused on value in the fourth quarter, which was consistent with the trends that we've seen throughout the year, and we are continuing to invest in price to make sure we're delivering the value customers expect. Now turning to our results. Identical sales without fuel grew 2.4% this quarter, which includes nearly a 40 basis point headwind from the Inflation Reduction Act. Weather had a neutral impact on a year-over-year basis. For the full year, identical sales without fuel grew 2.9%, in line with our full year guidance. We saw continued strength in e-commerce and pharmacy, along with solid performance in key areas of the store like Fresh. Importantly, food volumes improved and grocery sales were a larger portion of our sales mix, which is a positive sign going forward. Our market share trends improved in the fourth quarter, and for the full year, and I'm pleased to report that on our final period, we delivered positive share gains, our strongest share performance since 2021. We believe the price investments we've made throughout the year are resonating with customers and are contributing to these results. And we made these investments while still improving our full year gross margin rate, excluding fuel and adjustment items by improving shrink and productivity. We're committed to this balance, investing in lower prices while being disciplined in our margin management and the work we're doing to find efficiencies across our business allows us to do both. David will speak to these factors in more detail. Our brands had a solid quarter. Excluding the impact of egg deflation, sales continued to outpace national brands. Simple Truth and Private Selection, again led our growth with customers continuing to choose these products because they deliver high quality at an affordable price. Innovation continues to be a priority. This year, we introduced more than 1,100 new Our Brands products, up from more than 900 last year. A growing number of these products are focused on health, an area where customer demand is growing and Our Brands portfolio is well positioned to lead. Our e-commerce business continued to be an important growth driver and one of the key ways we attract new households. Adjusted e-commerce sales grew 20% this quarter and we've now built this into a $16 billion business. We also continue to make meaningful improvements in e-comm profitability. As this business grows, the profitability improvements we're seeing become increasingly significant to our P&L. E-commerce growth also fuels our media business. More customers shopping online means more impressions, more data and more value for our advertising brands. That connection between e-commerce and media is key to how we accelerate profitability, and we see significant runway ahead. The early results from our new relationship with DoorDash and Uber Eats have exceeded what we originally planned. They have extended our reach to customers and shopping occasions we wouldn't otherwise capture. They're incremental, and they are profitable. Together with Instacart, we expect our convenience offerings to deliver over $1.5 billion in sales in 2026, which will help us accelerate our e-commerce growth. Before I turn it over to David, I'd like to take a moment to reflect on the progress we made this year. We took important steps to strengthen Kroger for the long term; lowering prices and improving store execution to better serve our customers; enhancing our e-commerce business to deliver growth, while improving profitability; accelerating our store footprint; taking meaningful action on our noncore assets; and strengthening our leadership team with key appointments. These actions reflect our focus on serving customers better, running great stores and simplifying the company so we can move faster. And to our associates listening in, thank you. I'm proud of what this team has accomplished. The work you delivered has built a stronger, more focused company, and I'm confident in where we're heading. It has been a privilege and I'm honored to continue serving on the Board as we enter this next chapter. And with that, I'll turn it over to David. David John Kennerley: Thank you, Ron, and good morning, everyone. Kroger delivered another strong set of results this quarter in an environment that remains dynamic. We executed well, delivering solid e-commerce growth, maintaining cost discipline and achieving our profitability goals. From a financial perspective, this was a year of both strong performance and deliberate investment in the future. We invested in price while improving our FIFO gross margin rate, excluding fuel and adjustment items. We accelerated e-commerce profitability, and we improved our cost structure to redeploy those savings into areas that drive growth. These actions strengthen our financial foundation and support sustainable performance going forward. The momentum in our business gives us confidence in our outlook for next year. Today, I'll start by covering our Q4 results in more detail and highlight some key full year metrics and then share our guidance for 2026 and the key drivers behind it. We achieved identical sales without fuel growth of 2.4%, a strong result that includes a nearly 40 basis point headwind from the Inflation Reduction Act. On a 2-year stack basis, identical sales without fuel grew by 4.8%. Growth was primarily driven by improving trends in units. As Ron mentioned earlier, our share trends improved in 2025 with fourth quarter trends again improving and culminating in positive share gains in our final period of the year. Sales growth was led by e-commerce and pharmacy, along with strong performance from Fresh. As Ron mentioned, what's encouraging is the underlying composition of that growth. We saw continued improvement in food volumes with grocery sales representing a larger portion of our overall sales mix. Pharmacy had another strong quarter led by growth in both core scripts and GLP-1s. That said, Pharmacy contributed nearly 50 basis points less than in the third quarter reflecting the impact of the Inflation Reduction Act and an accelerating shift from brand to generic beginning in January. Food inflation moderated further in the quarter, down approximately 90 basis points compared to Q3, with egg deflation a significant headwind, partially offset by beef inflation. Our FIFO gross margin rate, excluding rent, depreciation and amortization and fuel was flat in the fourth quarter compared to the same period last year. This result was primarily attributable to sourcing improvements, lower supply chain costs and lower shrink offset by price investments and the mix effect from growth in pharmacy sales, which has lower margins. When we provided our second half outlook, we updated our FIFO gross margin rate expectations, excluding fuel and KSP, to be relatively flat for the full year. We delivered better than that, and as our rate improved in the second half of the year, primarily driven by our performance in the fourth quarter with favorable mix and better shrink results. For the full year, excluding the effect of KSP, fuel and adjustment items, we improved our rate by 14 basis points, while investing more in price, reflecting the balance we are focused on achieving between delivering value and maintaining margin discipline. The operating, general and administrative rate, excluding fuel and adjustment items, increased 21 basis points in the fourth quarter compared to the same period last year. The increase in rate was primarily attributable to cycling real estate gains from a year ago and labor investments to improve customer experience, partially offset by lower incentive plan costs and improved productivity. We continue to make progress on improving our cost structure and importantly, we're generating more durable cost savings, which we are reinvesting into stores and the customer experience to deliver better service and more value to customers. With that said, we believe we are still in the early stages of what we can achieve. Sourcing and procurement remains a significant opportunity together with modernizing our ways of working, we see substantial runway for cost savings ahead. Our LIFO charge for the quarter was $11 million compared to a LIFO charge of $30 million last year. On a full year basis, our LIFO charge was $157 million in 2025 compared to $95 million last year, resulting in a $0.07 headwind to EPS. We expect our LIFO charge in 2026 to be similar to 2025. Our adjusted FIFO operating profit in the quarter was $1.2 billion. Q4 adjusted EPS was $1.28, reflecting 12% growth compared to last year. For the full year, adjusted EPS was $4.85 and grew by 9%, coming in at the top end of our long-term growth expectations. Fuel results were better than expected this quarter, driven by strong fuel margin performance even as gallon volumes declined. Q4 fuel profitability came in ahead of last year. Fuel continues to be an important part of our strategy, building loyalty through our fuel rewards program and providing another source of value for our customers. I'd now like to turn to capital allocation and financial strategy. We delivered strong adjusted free cash flow of $3.9 billion this quarter (sic) [ for full year ] , exceeding our expectations. This was driven by the strength of our operating performance, good progress on a range of working capital initiatives and favorable year-end timing. Our balance sheet remains healthy with our net debt to adjusted EBITDA ratio still below our long-term target range. This gives us the financial flexibility to pursue growth investments and other opportunities to enhance shareholder value. Over time, we expect to move back towards our target leverage ratio. During the year, we completed our $7.5 billion share repurchase authorization. This included a $5 billion accelerated share repurchase program, followed by open market repurchases, which completed our remaining authorization in Q4. In December, our Board approved an additional $2 billion share repurchase authorization, and we expect to complete these repurchases by the end of fiscal 2026. Our capital allocation framework remains consistent. We are focused on investing in opportunities where we can generate the highest long-term returns and improving ROIC remains a core priority. We are encouraged by the progress we're making on our major store projects and our recent remodels are delivering higher-than-expected returns. These investments will be important to driving ROIC improvement over time. I'd now like to share our guidance for 2026 and walk through the key factors shaping our outlook. We expect identical sales without fuel growth in a range of 1% to 2%. It is important to note that the Inflation Reduction Act will create an approximately 130 basis point headwind to identical sales without fuel this year, reflecting the impact of lower reimbursement rates on key medications while having no impact on gross profit dollars. Excluding the IRA impact, we would expect identical sales without fuel growth in a range of 2.3% to 3.3%. In terms of quarterly cadence, we expect Q1 identical sales without fuel to come in near the low end of our full year range, driven primarily by continued egg deflation. As this headwind eases, we expect sales trends to improve. A few other dynamics to keep in mind as we think about the year. We expect overall inflation to be lower than it was in 2025. Within Pharmacy, we expect sales growth to moderate to low to mid-single digits, reflecting the impact of the Inflation Reduction Act on reimbursement rates and the ongoing shift in brand to generic mix, which is currently greater than we've seen in the past, partially offset by continued GLP-1 adoption and script growth. We'll also continue to regain ESI households, though progress remains gradual, and we do not expect to fully recover the business we previously lost. We expect e-commerce to accelerate from 2025 growth rates with continued strength in delivery and increased store-based fulfillment through our third-party delivery providers. We're also enhancing our loyalty program in 2026. This includes updates to our rewards program and a revamped Kroger credit card, both designed to deepen customer engagement and drive increased shopping frequency across our in-store and e-commerce channels. Total sales without fuel should be slightly lower than identical sales without fuel, reflecting an approximately $350 million headwind from the closure of our Florida fulfillment center and $300 million headwind from the sale of Vitacost partially offset by new store openings. We expect adjusted FIFO operating profit in a range of $5 billion to $5.2 billion. We will continue to drive greater value for our customers by investing in price, both in everyday value and through promotions, and we expect these investments to increase compared to 2025. We are also investing in the customer experience, particularly in service and labor hours, ensuring our stores are well staffed. Even with these increased investments, we expect our FIFO gross margin rate, excluding fuel and adjustment items, to improve in 2026. These investments will be funded through increased productivity and cost savings. We expect to exceed our 2025 cost savings with increased contributions from 2 areas, in particular, e-commerce and procurement. In e-commerce, we will lower our cost to serve by fulfilling more orders out of stores, closer to our customers and by leveraging our third-party delivery providers. In procurement, we are going after both cost of goods sold and goods not for resale with a level of intensity that reflects the scale of the opportunity. In Fresh imports, national brands and Our Brands, we are renegotiating supplier agreements, going direct where we have historically used intermediaries and ensuring that every dollar of Kroger's purchasing power is working for us and our customers. The savings we generate flow directly into lower prices for our customers. We have dedicated teams focused on these areas, and we are confident in our ability to deliver. Our Media business delivered solid results in 2025, and we expect to build on that momentum. Our merchandising and Media teams are working more collaboratively, which is improving the quality of our activations and outcomes for brands. In 2025, our alternative profit businesses, which include Media, Kroger Personal Finance and Insights, delivered $1.5 billion in operating profit, and we expect Media to deliver double-digit growth in 2026. To support our modernization efforts, we are launching the Kroger Global Capability Center. This initiative is designed to streamline decision-making, improve productivity and increase the speed at which we execute on behalf of our customers. It complements the work already underway across the organization to modernize how we operate. Work has started and is progressing with speed. We expect modest benefits in 2026 with more significant benefits expected in 2027 and 2028. Turning to capital allocation. We will continue taking a disciplined approach focused on long-term shareholder value. We expect capital expenditures of $3.8 billion to $4 billion with increased investments in new store growth. These new locations are strategic investments in our future. They follow a natural maturation curve. It takes time to build customer awareness, establish traffic patterns and reach profitability. In early months, we absorbed start-up costs and elevated labor expenses as we staff up and invest in training. This is expected, and it reflects the same disciplined approach we have executed successfully for many years. These stores will drive volume growth, expand our customer base and strengthen our presence in key markets. We are confident they will deliver meaningful long-term returns. As part of our new store strategy, we're also testing different formats and bringing fresh thinking to the in-store experience. That means evaluating new concepts, making sure every element of the store is relevant, productive and aligned with how customers want to shop today. Beyond new stores, our capital investments will support technology and AI, where we are investing aggressively. These investments serve 2 purposes: improving the customer experience and driving productivity throughout the company. This year, we're introducing Agentic AI shopping for our customers, which will help them discover items, build baskets, plan meals and stay within budgets, all in a personalized way. We're also investing in supply chain modernization with more automation and expanded capacity. And we'll also continue investing in our remodels to ensure our stores deliver a consistently strong experience. We expect adjusted free cash flow of $2.7 billion to $2.9 billion and adjusted net earnings per diluted share of $5.10 to $5.30. I will now turn the call over to Greg. Gregory Foran: Thank you, David, and good morning, everyone. I'm excited to be here and grateful for the opportunity to lead this great company. It's been about a month since I started, and I've spent that time learning Kroger from the inside out. I've been spending time with Ron and the leadership team, having one-on-one conversations with leaders across the organization and getting out to visit stores, distribution centers and manufacturing facilities. And importantly, also watching how our customers shop. I've begun working with the team to review our strategic plan, and I'll share more as that work progresses. What I've seen so far has reinforced my belief that Kroger has tremendous strengths to build on. We have a loyal customer base, dedicated associates, a strong store network and real momentum in areas like Fresh, e-commerce and Our Brands. I've also been impressed by the energy I've seen in the stores, associates taking ownership of their work and taking pride in serving customers. The team has done excellent work, particularly over the past year to strengthen the business. And my focus is on how we operationalize our strategy to make us even better. It starts with the top line. We need to grow sales faster. And in my experience, that comes down to giving customers a compelling reason to shop with you by offering great value, great products and a great experience. Price is an important part of that equation. Customers need to trust that they're getting a fair deal every time they walk into our stores. We've made progress on price, and I want to keep pushing by pulling unproductive costs out of the business, investing in everyday value, sharpening our promotions and making sure customers see and feel the difference when they shop with us. When you combine competitive prices with strong Fresh and a well-run store, you drive traffic, you grow baskets and you gain share. That's what I want to accelerate at Kroger. I've spent my career in food retail and running great stores is how you make that happen. It's about delivering a great experience consistently in every store on every visit, with a shopping in store or online. Fresh is a good example. Customers develop a lasting impression based on the quality of fresh foods, which is incredibly important as we accelerate e-commerce, get those right and we earn their confidence. My focus will be on continuing to improve execution and ensuring our associates have the tools and support they need to serve customers well. To invest more aggressively in the customer experience, we have to be disciplined and aggressive on costs. I see significant opportunity here, and we're going after every available margin dollar across the business. Some of that is buying better, improving how we source and procure products. And some of it is improving productivity by streamlining processes and modernizing our ways of working. The savings we generate will be reinvested directly into lower prices and better service for our customers. That's how we will fund our growth. Customers want convenience and are increasingly shopping online to buy food. We have the assets to meet that demand and e-commerce is a key focus area for us. We've built this into a more than $16 billion business with 7 consecutive quarters of double-digit growth. There's a strong foundation, but we need to accelerate it. Our stores are central to how we serve customers online. Our refreshed hybrid fulfillment model, which better leverages the stores and delivery providers like Instacart, DoorDash and Uber Eats, positions us to accelerate growth while reaching profitability next year. By using our stores as fulfillment hubs, we get inventory closer to customers, reduce last mile costs and offer the speed and convenience that customers are looking for. Our Media business is closely tied to this e-commerce momentum. We have the data, we have the customer relationships, and we have the platform. As e-commerce grows and our digital capabilities expand, we see a long runway to accelerate growth. My goal is to do all of this while protecting our margins. The investments we're making in price and the customer experience are funded by the cost savings and efficiencies I described and by growth in Media. That discipline is essential. We will grow the top line and gain share, invest in the customer and deliver long-term value for shareholders. I've been in food retail a long time, and I know what good looks like. It starts with the customer. It's built on strong execution in our stores and online. And it requires a team that wants to win and is willing to move fast. That's what gives me confidence. Kroger has all the ingredients to win, and my job is to bring it all together. We'll now open it up for questions. Operator: [Operator Instructions] Our first question for today comes from Krisztina Katai of Deutsche Bank. Krisztina Katai: Welcome, Greg, to the Kroger family. I wanted to focus on your initial assessment. You obviously emphasized the need to grow sales faster. You talked about offering great value. So beyond price investments, can you dig a bit into the initiatives or the strategic shifts you envision to significantly accelerate the top line growth? And we think about a potentially softening or more price-intensive environment, protecting the margin that you talked about. Just how much runway do you see for further improvements in sourcing and procurement? Gregory Foran: Look, Krisztina, it certainly is pretty early for me. I'm just into my fourth week here. What I would say is that the foundation that Ron and the team have built is incredibly solid. So decisions that have been made, particularly in the last year set us up. Do we need to do more in price? For sure. But the work is underway on that. I need to spend more time to get into the math that is around that. But as David has pointed out in his remarks, we see opportunities. We see opportunities in cost of goods sold. We see opportunities in doing a better job with imports. We see opportunities in the Kroger capability center. And then there'll be the normal ones around shrinkage and other areas in the business that we can lean into. So as I work through this over the next sort of 90 to 100 days, I'm working with the team closely. We'll pull this together. and see how the numbers come out and at an appropriate time before the end of the year, we'll share some real detail with you. Now on top of that, we know the inherent strengths we have in the business. We've got a great Fresh business. We need to make sure that it's consistent right across every store every day. We know we've got a great Own Brands Business. We know that we can accelerate e-commerce and the decisions that have been made by Ron and the team put us in a great position. As you accelerate that, you can accelerate Kroger Precision Marketing. So look, 3.5 weeks in, I'm still doing lots of homework, but I'm feeling good about what we've got in front of us. So lots of runway. Krisztina Katai: That's great. And then if I could just have a follow-up. I mean you have a newly created AI role. Can you maybe for Kroger as a whole, just talk about maybe the talk through 2 to 3 specific quantifiable targets for AI's impact on the customer experience and productivity that you would expect to achieve in the next 12 to 24 months? David John Kennerley: Krisztina, it's David. Let me take that one. Listen, we see AI as a big opportunity, and it's an area we're excited about. Obviously, Ron talked in his remarks about the appointment of Milen to lead this work. And I think that, that makes a big statement about how serious we're taking this. And we have significant investment dollars in 2026 and beyond targeted at making sure that we crystallize this opportunity. What I'd say is, like many other companies, we're at the early stages. We've made some good progress, but we've got a lot more to do. And I think we've got already some emerging good proof points of the work that we're doing. I think if you look at areas like operations, some of the shrink results that you've been seeing from us are driven by technology and AI. And that's an area where I'd expect us to continue to invest. In the people space, we've got some really good tools that are improving the employee experience, helping us manage labor better, help us schedule labor better. And I think, of course, there's then Agentic shopping. We've got our own digital shopping assistant live in a couple of divisions. That's on the Kroger platform, and we'll expand that later this year to all divisions. We've obviously announced the partnership with Google. And I think there's a lot more to come in the Agentic space, leveraging the advantages that we have on quality, freshness, et cetera. So I think a big area of focus for us, some good early proof points, the organizational and foundational investments we're making super critical and much more to come, both from a customer experience and what I'd call productivity experience. Operator: Our next question comes from Michael Lasser of UBS. Michael Lasser: Welcome back, Greg. My first question is, can you contextualize the absolute dollar level of investment that was made in the fourth quarter in order to stabilize the market share? How does that inform how you're going to invest over the next several quarters? And how do you balance this need to improve value perception without sparking a response from your discount-oriented competitors that results in a race to the bottom in terms of profitability. David John Kennerley: Michael, it is David. Let me take that one. So I think as we've been talking about, value perception, closing price gaps has been an important priority for us all year. And we've been deliberate about investing in promotions, giving consumers ways to stretch their budgets. And as we built our plans for 2026, it was a very, very deliberate area of focus for us, that we needed to do more. So whilst we're making progress on everyday price gaps and what we call the all-in price gap, it's an area where we know we need to be more competitive. So as we think about next year, it is an area where we've put more dollars candidly than we have really over the last several years. But we've done that and they're going to be focused on this, doing this in a very deliberate way to balance the margins. As I talked about in the preprepared remarks and as Greg has already touched on as well, we see a very big opportunity for us to optimize the cost structure of the business. And I think about -- as we think about this going forward, we want to be able to take those unproductive costs, and we want to be able to, number one, invest those back into the -- both pricing and store experience whilst balancing the margins. I think as you sort of talk about the response from competitors, I mean, candidly, we're focused on what we can control. We're certainly not interested in starting price wars, but we know that we want to make sure that when consumers walk through the door of a Kroger store or any one of our banners, they walk in and can get good affordable prices. So that's the way we're thinking about it. Gregory Foran: And Michael, let me just add to that just briefly. As you can guess, we monitor our competitors all the time, and we certainly have a healthy respect for all of our competitors. But when you look at our share trends, we have improved share trends 5 quarters in a row, and we're happy they turned positive in January. And as I said before on this call, this is not a zero-sum game. At Kroger, we're playing to our strengths, whether it's Fresh categories or Our Brands or deep first-party data, our growing omnichannel business with e-commerce growing 20% last quarter. And these are not easy things to replicate in a hurry. And when you look at our focus, it's really to be a consistent and trusted local grocery retailer, whether a customer shops in-store or online. Greg recently said it very well. He said, we want to be the best Kroger we can be. Michael Lasser: Got you. Very helpful. My follow-up question is on the outlook for free cash flow. Your CapEx is going to be similar to what it was last year. Free cash flow is going to be down a bit. So a, can you explain the moving pieces there? And b, what is the distribution of the CapEx going to look like? With more new stores, how much will be invested in supply chain and the digital business to remain competitive, especially as you're leaning on some of these third-party providers for more of your incremental market share within the digital arena? David John Kennerley: Yes, Michael, let me take that one. So on free cash flow guidance, let me comment first on the cash flow number that we delivered this year. I mean we delivered a really, really strong cash flow performance in 2025 that came in ahead of the expectations. The way I'd characterize that overdelivery is kind of in 2 buckets. Number one, we've been working on a range of working capital initiatives around AP, AR, in normal buckets that you'd expect. And candidly, we delivered really well on those. And so we're really, really proud about those. And candidly, it will be an area of focus as we head into 2026 and beyond. But there's another bucket where we had a number of timing-related items that as we built the guidance and the plans for 2026, we don't think we're going to be able to kind of lap those. So they'll effectively reverse, which is what influenced the guidance range that we've offered. On CapEx, spent a lot of time on our CapEx, making sure that we're prioritizing investments in the right areas. The big area that kind of really steps up year-over-year is candidly on our storing program, both on new stores and remodels. And it was important for us to make sure that we had the right level of investment against that. But we went through a very, very deep prioritization exercise against all of the other areas. And I'd say the biggest area where I think we were able to optimize, it's kind of what we call sort of run the business maintenance CapEx. And I think we have an opportunity there to both optimize the returns, but also we had some things that candidly, we just didn't need to spend on. Now that doesn't mean that we're not doing the right things, not investing in the right areas, but we were able to optimize that area or spend while making sure we had the right investment on storing, supply chain, e-commerce. So hopefully, that gives you a good sense of the makeup and the priority choices that we made. Operator: Our next question comes from Leah Jordan of Goldman Sachs. Leah Jordan: Congrats, Greg, on the new role. I'll start with my first question for you. I know it's early days. You're still reviewing the business. But maybe if you could provide more detail on the opportunities you see regarding the in-store experience. Any color on maybe opportunities to accelerate remodels there or how you're thinking about labor hours? Gregory Foran: Yes, sure. It is very early days. I think I have been out in stores 3 days. I've gone to manufacturing facilities, one of them and also a distribution center. So I need a little bit more time to get around the business. I'm getting out, obviously, whenever I can. And clearly, a lot of the stores I'm getting to at the moment are probably announced visits and that people are expecting me to show up. So I won't necessarily be seeing the full unvarnished Kroger at this point, but that will happen. Look, I like the fact we're in the supermarket business. I like the fact we are primarily in the food business. When I go into stores that are sort of 50,000 square feet trading area or 70,000 square feet trading area or 90,000 square feet trading area, I like those. I think they're working really well. Now the marketplaces do too. But we're in the food business. And we generally, when we get it right, are anchored around a pretty good fresh offering, whether that's produce or meat or bakery, deli or seafood, really extensive grocery assortment. Some may argue, in some cases, too extensive. But early days, we will work our way through that. Our Brands are powerful, and we've seen the growth in those. So you start to pull this together, and I like the mousetrap that I see at Kroger and its associated brands. But let's be clear, it's only the beginning of my fourth week, and I've only got out there 3 days plus got to 1 DC plus manufacturing facility. But I like what I'm seeing, and I see plenty of upside. Now the obvious one, which we've picked up on the call is we've got to continue to work on price. And part of the focus that I'm going to have over this next 100 days is working with Ron and David and Mary Ellen, and [ Gia ] , all the team. It's got to be a team effort here. What else do we need to do in order to get ourselves going? Because at the end of the day, what does success look like? It looks like us selling more units. It looks like us gaining market share, and that turns into better identical sales or comp sales. And we've got some good progress. I think Ron and the team, as I said, have done a great job building some momentum. My job now is to see whether we can operationalize that and move even faster. But the basics, I like what I see. I don't think this is about Kroger coming up with a completely different strategy. I think we've got a good strategy. It is about executing well, and it is about moving faster. So those are the sort of things that strike me after 24, 25 days. Leah Jordan: That's very helpful and a lot we'll look forward to. Maybe just for a quick follow-up from David on the guide. For the ID sales guide, maybe just more detail on your embedded assumptions as we think about the drivers as we move through the year, especially around tonnage and market share, given Greg's comments. I came away from your earlier comments that, hey, once we get past 1Q, it's more inflation-driven, but anything else to call out there? David John Kennerley: Yes. I mean I think inflation Leah, is kind of moderately lower than last year. So maybe let me kind of talk about the units, which I think is at the root of your question. Obviously, as Greg just said, I mean, unit growth is critical. And it's a big priority for us to improve. And as I reflect back on last year, it did improve sequentially as we went through the year, and Q4 was the best quarter that we had in terms of units. But nonetheless, units remain slightly down. So I think as we think about the cadence for next year, the priority is keep improving and keep improving quarter-on-quarter. Our expectations are, I still think we'll see negative units in the first half of the year. But as we move sequentially through the balance of the year through a combination of our price investments, which will ramp up, new storing, accelerated e-commerce growth, there's a possibility that we move into better territory on units. But that hopefully gives you a sense of the cadence as we move through the year. Operator: Our next question comes from Simeon Gutman of Morgan Stanley. So Greg, it's early. Simeon Gutman: Greg it is early. So you mentioned early gotten out a few weeks. Great. I want to push on this self-funding idea. It sounds like it's a goal. Curious how nonnegotiable it is, meaning that's the only way you're looking at the business? Or do you reserve the right after you've given your own time to review the plans and the business to decide if the level of savings is commensurate with the amount of value that you want to achieve? Gregory Foran: It's a good question, Simeon, and one that I've been asking myself, obviously. When you write these things in the script, you got to be reasonably comfortable. I would say to you that I have a degree of comfort at the moment that what I've seen indicates that we will be able to do this. I think what's probably going through your mind is 2014 and Walmart. 2014, at Walmart, we were paying, I think, about $7.63 an hour, and we were losing a lot of our associates. So I knew that we would have to do something in terms of fixing that. I knew we had a lot of work to do around fresh, and we wanted to roll out online grocery. So that would require some investment. I knew we would have to get in and do remodels and those sort of things. So I formed a view some 10-odd years ago of what was going to be required. Obviously, I've been able to get up to speed as quickly as I can here with Ron and David and the team. They haven't been sitting on their hands. They've been hard at it and made, I think, some really good decisions around Ocado, around getting new stores up and running, around getting remodels back underway. So I'm coming in here with a business that has a good foundation, and I'm very thankful for that. And my early view, when I look at things like imports, and we don't tend to import very much in Kroger directly. So we're a big business, $150 billion. So we need to start changing our approach and start going direct to the source. Generally, any business I've been in, Simeon, there's opportunities around COGS and my sense is that's not a lot different in this business. I have now walked 2.5 of the 4 offices that we have in Cincinnati, every single floor, meeting any associate who is on track. I've got about 6 more floors to do in this actual office here and one more building to do, but I've done another building, most of this and all of 84.51°. On top of what we're doing in the Kroger Capability Center, we can continue to look at how we take cost out. But we need to get into that Kroger Capability Center, and we need to get in there in a reasonably serious fashion, sensible, but serious and execute. So after 20-odd days, I'm sitting here and I'm saying "I'm comfortable with what I've said in the script." And of course, will know a lot more over the next 90, 100 days and as we do, my commitment, David's commitment, Ron's commitment is we're going to go and present that to you and share with you what's on our mind and that will happen well before the end of the year. But at this stage, I'm feeling okay. Simeon Gutman: And the follow-up is that if you track the improvement throughout the year in share, which culminated in share gains in Q4, is it resulting of e-commerce or stores? I mean, I think we're indifferent. And then is there any categories in particular that it was concentrated? And if you can talk about the movement about through the year? David John Kennerley: Yes. Simeon, it's David. So just to clarify, we didn't gain share in Q4. So we still lost share in Q4, and it was a sort of -- we gained share in period 13. So I just want to clarify that. As I -- as you think about the categories where we did, in my mind, a little bit better relative to where we've sort of seen trends running, we did better in areas like meat and seafood, particularly meat, that was an area. We did substantially better in the deli and in bakery. Those were probably the 2 big areas that stood out. And I think meat, in particular, was an area where we deliberately made investments given the inflation that consumers are facing to drive units. Gregory Foran: The churn on grocery was better. Operator: Yes. Our next question comes from Michael Montani of Evercore ISI. Michael Montani: Congratulations. I'll echo to Greg. Good to have you back. If I could, I had a question for David and then a follow-up for Greg. So maybe just to start with David, could you talk a little bit about the quarterly cadence you see playing out for EPS relative to the Street. So in 1Q, you mentioned comps could be at the lower end. Does that mean we need to kind of commensurately look at the earnings growth, which is 13% there? And then anything on gross margin for the year relative to G&A? And then the follow-up I had for Greg was just about if you think over the next several years, you've got competitors who are known for kind of winning on price, others for kind of online delivery. What do you think will be the hallmark of Kroger that allows you not just to compete, but actually to win on unit volume longer term? David John Kennerley: So let me take that first question. So I think the only quarter that we're going to -- we've sort of specifically kind of guided on beyond the full year is on Q1. So we do expect Q1 ID sales to come in towards the lower end of our full year guidance range. Specifically, that's really mainly to do with the headwinds that we're facing on lapping eggs. And so I think the cadence in Q1 is primarily driven by that. I think as you then think about gross margin, you'll see a similar thing. I think our gross margin will be lower in Q4, again, as a result of some of that egg deflation that we're seeing and then be broadly consistent throughout the year. but still positive to be clear, still positive in Q1, but slightly below the full year expectations. And then I think EPS guidance or EPS, again, slightly lower towards the lower end of the range in Q1 and then fairly consistent as you head through the year. Gregory Foran: Thanks, David. Michael, to your second part of your question, I guess there are 5 things that come to mind as to why I am excited. I actually think I've got the best retail job on the planet. I'd begin by saying and echoing the point that Ron made, this is about being the best Kroger we can be. It's not about us trying to be someone else. And what I like about Kroger, I guess, are 5 things. I like the fact that we've got a business which is pretty well anchored in fresh foods. We've got a business that can be very convenient and fast for shoppers, size of our stores, where they're located. I like the fact that as we work hard to get affordable, customers are going to have a choice. They can go to a really low-price discounter and not get quite as much assortment, maybe not get as good a fresh or they can go to Kroger or a Kroger banner and they're going to get a better experience. And for them, that will represent better value because we are affordable. I like the fact that we are local. Now I haven't got all around the country, obviously, after 20-odd days, but I know a little bit about it. I've been to all parts of America previously. And I like the fact that Kroger has different brand names and it's seen as being local in the community. And then finally, having spent a bit of time down at 84.51° and seeing what we can do there and the caliber of the people, I like the fact that we can be pretty personal. And as you think about digital and where that's going, and we had the question previously on AI. I like the fact that we can be for you. We can deliver things for customers, that are specific to those customers. So I'm pretty excited about how the business is positioned. I think it's a great business. We'll be the best Kroger we can be. Operator: Our next question comes from Ed Kelly of Wells Fargo. Edward Kelly: Welcome, Greg. I wanted to ask, as you think about pricing and price gaps, and there's been a lot of talk about investment in price today. And I think Kroger has historically said, you don't need to be on top of Walmart. You just need to be close enough to win in a lot of your other competitive advantages. Can you talk about where the gap is today and where you think this gap needs to go? And then specifically, Greg, for you, my big picture question, I think, is there are a lot of cost saves in the business that you can attain. You want to keep a balanced approach, but the industry is moving rapidly. And are you moving fast enough with these initiatives? Or maybe better said, why not go faster? David John Kennerley: Ed, it's David. Let me take this initially, and then I'll ask Greg maybe to kind of come in on sort of more on sort of core principles. So I think when we think about price spreads relative to the competition, we look at a number of things. Number one, we're looking at this from an item perspective. So there are certain items that you want to make sure that you are right there with the competition on. And then there are certain items that philosophically, we think it's okay to operate within a certain spread. So we also then look at this from -- we obviously track every day price spreads, so kind of nonpromoted. But given we're a high-low retailer, it's also very, very important that we look at this all in. So we've been seeing this kind of improve throughout the year. And that is why we are putting a significant amount of money into this next year because we want to make sure that we're continuing to ensure that consumers have good value both on an everyday basis, but also when you look all in on a promotional basis. So I think, listen, our objective is, as you said, it's not necessarily to be right there with the competition every day, but there are a certain set of items that are important from a basket perspective that we do need to be there right there with the competition. I think the other thing, Ed, that's really important for us, and we hear consistently from our consumers is about simplicity. And one of the things consumers tell us is, "hey, it's just really complicated to figure out whether I'm getting the best price at Kroger" just because of the way some of our offers are structured. And so we're also doing work to make sure that we structure our offers in a more simple way so that they get good prices and they can understand them. And that's really important because not only is the price important and the value that they get is important, but also the value perception. And I think there's certainly many arguments to suggest that price perception is equally as important as the price itself. So those are our focus areas, and I don't know whether Greg or Ron, you want to add anything. Gregory Foran: Look, I think you said it extremely well. It is a combination of some KPIs, and it's also making sure we get the basket where we need to be. And there are some added value things that occur when you shop at Kroger that mean you don't have to necessarily match Aldi or anyone else in every single price point. The customer works out what the value equation is and our job is to make sure that we deliver that. Great question on speed. And I've said this a couple of times already, but I'm coming into a business where Ron and David and the team have already got a momentum shift in the organization. There's been a lot of work over the last year already on price. There's a lot of work that's been done on store execution. There's a lot of work done around e-commerce. And these have been very difficult but important decisions. There's work underway on accelerating the store footprint. There's work that's been done on getting out of noncore assets and of course, some good leadership appointments, not mine, other good appointments in the business. So I'm well aware that you get 1 point for talking and 9 for doing. And part of what we're doing over the next sort of 90, 100 days is we're working hard now to take what we've got here as a strategy and building that out some further and then making sure that we've got the math around that so that we're comfortable with it. We'll talk about that with Ron and the Board in detail. We'll then make sure that we've got it all buttoned up internally with our own team. And then we've got the people in place to execute this at speed. And that's going to be important. You're right that our competitors don't stand still. At the moment, they're going around that racetrack at a pretty good pace. We not only have to catch up to the pace that they're going, but we actually have to learn to go faster so that we can pull back on where they were. I'm looking forward to that challenge. I've never been more excited about the opportunity. And I think we have the assets, most importantly, in our people to deliver that. Ronald Sargent: And Ed, I'm just piling on a little bit, but our research would indicate that customers are really looking for value. And each customer defines that a little differently. And obviously, rewards is part of our offering, whether it's fresh categories, store conditions, great service, all those things are part of the equation. And I think it's more than just price. Operator: Our next question comes from Robert Ohmes from Bank of America. Robert Ohmes: Greg, congrats. I look forward to seeing you again. And maybe for David and Ron, the -- actually, 2 questions. Just the first is just on accelerating e-commerce. I know it's early days, but any drivers to that beyond DoorDash and Uber Eats? I mean, are there other things that you guys are looking at, new strategies in either delivery or things that you're not doing? And then the other question, just maybe for David, fuel sales and profitability in 2026 might be tricky given what's been going on with oil prices. I would just -- any guide on what you guys are assuming in the guidance for the fuel business sales and profit headwinds? Ronald Sargent: Yes. I'll just start with the e-commerce. We're really excited about 20% growth in the fourth quarter. I said in the script that we plan to be profitable during 2026. The reality is we plan on being profitable in the first half of '26. In terms of how we're doing it, basically, we're working on a lot of different areas to just improve the experience with our customers. And whether that's the refreshed website, whether that's a lot of initiatives around AI and Agentic shopping. In-stock is a big focus, delivery service. So all of those things, those nuts and bolts things are really important to the growth of e-commerce this quarter. Obviously, the new partners help and will continue to help. And we are growing e-commerce business much faster than the market. And then as we mentioned, I think the third-party partners are on track to be over $1.5 billion on top of our organic growth in e-commerce this year. David John Kennerley: Yes. Robert, let me take the question on fuel. So in the guidance and our plans for next year, we are expecting fuel gallons and profits to be slightly down year-over-year, a combination of gallons and margins. Operator: Our final question for today comes from John Heinbockel of Guggenheim. John Heinbockel: Two quick things. David hit on value perception. So when you think value perception as a lead indicator for food volume, your thought on that and by how much might it lead because I suspect your value perception is better than reality today. Thoughts on that. And then secondly, center store SKU rationalization, right, and the ability to tighten that up and then for what you do sell to have sharper, simpler prices, those 2 topics. Gregory Foran: Yes. It's a very good question and one that I could spend a long time on. And hopefully, we will get some time and I can spend a bit more time than what I'm going to at this stage. As David said, it's going to be a combination of KPIs and basket and making sure that we hit the right value equation, which is a combination of what the actual cost is and the quality perception that customers have. So we're working on that at the moment. That's a homework assignment, which is happening right now in the business so that we can put some math against exactly where we need to be. And we're not going to be able to do whatever we want to do in a matter of months. It needs to be a little bit like a glide path and the analogy that I've been using is it's a bit like a Boeing 787 coming into JFK, you're at 42,000 feet, you burned off all your fuel, and you've got to get down to basically sea levels. So you start at about 30 minutes out and your glide path your way in. So that's how we'll think about it, but the glide path can't go on forever, and we'll come back to you with the timing and how that looks. In terms of it all, it is a bit of an ecosystem when you think about it. If you want to improve your e-commerce business and you're going to do more picking from stores, you need to make sure that you've got the right assortment on your website, but just as importantly, that, that assortment fits comfortably on the shelf because you want your first-time pick rate to be really good and you need that to be efficient. So the team that are doing center of store need to make sure that the planograms are where we need them to be. So my comment around we need to think carefully is based on sort of 3 to 4 days out in stores where at times, we're probably trying to put 4 pounds of sugar in a 2-pound bag and it makes it a bit difficult to get all that assortment on the shelf comfortably. That in turn means that your top shelf comes under a bit of pressure. In turn, that makes picking for online grocery a bit harder. The associates find it a bit more difficult. There's a bit more stock sitting in the back room. So it all starts to become the sort of virtuous loop. And part of what we're starting to think about now is how we go about getting to a situation where you optimize the individual components, but really what you're doing is that you're optimizing the total ecosystem. And that requires everyone to play together in a team and do that quickly. So that's the sort of thing that we're now thinking about. Lots of detail that I could put into that because I haven't even spoken about what does that mean in terms of promotions, and you heard from Ron and David that there's some complexity around that. And I've picked that up just already in the 20-odd days that I have been around the place. So we've got to think about how we gradually take this Boeing 787 at 42,000 feet and just glide path it in and keep everyone on an even keel and land this plane safely. But the objective is to do that and to win. We didn't come and invest in all this so that we can come second. So that's on my mind as well. I will wrap up, if that's okay. Thank you all for the questions. And just as I close, I would like to share a few comments with our associates listening in. I have spent time visiting stores, as some of you have seen, also distribution centers and a manufacturing facility and of course, getting around our offices. And I just want to tell you that I've seen the energy and the pride that all of you are bringing to work every day. So from the associates stocking our shelves and helping customers to the teams in our supply chain support centers, keeping this business running, you are what make Kroger great. So thank you for what you do. I'm incredibly excited to be on this team, and I'm looking forward to getting out and visiting more locations and meeting more of you in the weeks ahead. Thank you, everybody, for joining us on this call this morning. Operator: Thank you all for joining today's call. You may now disconnect your lines.
Operator: Good morning, everyone, and welcome to Acorn Energy's Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] As a reminder, today's event is being recorded. I'd now like to turn the conference call over to Tracy Clifford, CFO of Acorn Energy and COO of its OmniMetrix subsidiary. Tracy Clifford: Thank you, operator, and thank you all for joining our call today. First, I'd like to remind you that today's remarks, including responses to questions contain forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected. Factors that may impact our future operating results and financial performance include general risk such as potential disruptions to business operations or changes in consumer or customer demand as well as specific risks related to our ability to execute our operating plan, maintain strong customer renewal rates and expand our customer base. Additional risks that may arise from changes in technology, competition or shifts in the macroeconomic or financial environment. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on management's current beliefs, assumptions and information that is available as of today. There can be no assurances that the company will meet its growth targets or other strategic goals and objectives. The company undertakes no obligation to update or revise such forward-looking statements to reflect future events or specific circumstances that may occur after today. For a more detailed discussion of risks and uncertainties that may affect our base -- our business, please refer to the Risk Factors section of our Form 10-K, which is available online at www.sec.gov or on our own website at acornenergy.com. Now I'll turn the call over to Jan Loeb, CEO of Acorn and OmniMetrix for further comments. Jan? Jan Loeb: Thank you, Tracy, and thank you all for your interest. In 2025, Acorn achieved record revenue, improved operating income, higher cash flow and our third straight year of profitability. Our performance benefited from a 22% increase in high-margin monitoring revenue, driven by continued growth in our installed base of remote monitoring endpoints. Our year-over-year Q4 and full year comparisons reflect the benefit of a national cellphone provider contract, the largest in our history. The bulk of hardware revenue for this contract was recorded between Q3 of 2024 and Q2 of 2025, contributing to lower year-over-year hardware revenues in the second half of 2025. The contract also includes one year of monitoring services ratably over 12 months, following each hardware units commissioning. Importantly, we earned very favorable feedback from this customer regarding our technology, managing capabilities and customer service, resulting in what we believe is a solid relationship with future potential. Our 2025 hardware revenue was also tempered by an $885,000 decrease in noncash deferred revenue amortization from units sold prior to September of 2023 when the majority of our hardware sales were deferred and amortized over 3 years. Acorn's 2025 results reflected $956,000 in revenue from amortization of deferred hardware revenue, a 48% decrease from the $1.84 million recorded in 2024, but with no impact on cash generation. This revenue impact will end this year as we expect the balance of deferred hardware revenue of $168,000 to be fully amortized by August of 2026. Lastly, our 2025 revenues were also impacted by an industry-wide slowdown in residential generated deployments, which we and other industry participants attribute to high interest rates, fewer major power outages related to hurricanes and other weather events in 2025 as well as inflation and economic uncertainty that impacted consumers' ability or willingness to invest and backup generator security at a cost of approximately $15,000 per installation. Our belief is that consumer generated demand is likely to return to more historic levels as impending factors moderate. Turning to our strategies for growth. We reviewed five complementary core initiatives in today's press release on which I'd like to provide a little more color. One is larger commercial industrial opportunities, which our internal sales teams continue to pursue across various sectors that include health care, telecom, real estate, retail grocery, hospitality, government and financial institutions. We have a range of ongoing discussions. However, the most significant opportunities with more large organizations that require budget compliance and also longer, more complex sales cycle. Two is the pursuit of strategic relationships to integrate our technology with OEMs or other strategic partners, for example, through white labeling our products for the OEMs. We have ongoing dialogues with a few industry OEMs to bundle OmniMetrix Solutions with their product offerings. Currently, our monitors are installed by the dealers in the aftermarket. However, our technology, service leadership and support for all generated brands puts us in a strong position to partner with one or more OEMs. Their core business isn't providing monitoring services and by working with us, they can offer a superior solution that offers greater value to their customers, while also providing the potential to reduce or eliminate their overhead and investment in an in-house solution. We believe this is the direction our industry is going, and we continue to work to advance OEM discussions. However, it's difficult to predict the potential or timing of these efforts. Three is expanding our penetration of the residential and small business markets through our network of 600-plus generator dealers. While the retail market was slow in 2025, as I mentioned, we are optimistic for a rebound in 2026, given the potential stimulus to secure backup power provided by recent winter storms as well as moderating interest rates. One of the larger generator manufacturers has publicly stated they expect a 10% increase in residential generated sales in 2026, so we expect to benefit if this does indeed occur. Four is our ongoing investment in research, development and engineering to enhance existing OmniMetrix products and develop new products. These investments are essential to maintain competitive -- our competitive position and expand our value proposition and addressable market. Tracy will review our recent product launches momentarily. Five is our ongoing pursuit of accretive opportunities to expand our product offerings, market reach and customer base with a focus on businesses that have a meaningful monitoring components to their businesses. The nature of the M&A process is that it takes a lot of work, research and negotiations to get to the point where you have a solid opportunity and acceptable price. We are highly motivated to identify and execute on an acquisition to enhance our growth, operating leverage and monetization of our NOLs, but balance this with a disciplined approach to managing deal terms and risk for our shareholders. Our recent strategic partnership with AIO, which stands for all in one, emerged through our M&A dialogues. AIO is the global leader in remote monitoring and control solutions for critical infrastructure but had no business operations in the U.S. They provide best-in-class technology and cloud-based business intelligence platforms that have successfully deployed at over 110,000 sites in 15 countries. In this case, we found the best path was to secure exclusive North American rights to their proven product suite for what amounts to a modest commitment to invest in building out the business. AIO solutions target the full cell phone tower campus as well as solutions for data centers and utility operations. Their monitoring control solutions deliver actionable insights to advanced analytics, machine learning and comprehensive monitoring of environmental conditions, battery health, security breaches, energy optimization, microgrids and more. The technology reduces downtime, streamlines maintenance and provides measurable cost savings and ROI, made the logical choice for smarter, safer and more profitable operations. The partnership is a perfect fit for Acorn and our OmniMetrix brand, as it substantially expands our product offerings and addressable market by integrating AIO Solutions with our industry-leading remote monitoring and control technology, our 20-plus year reputation and established U.S. customer base. We see exciting growth potential starting with our existing telecommunication customers and then expanding to data center and utilities to strengthen our ability to serve rising demand for data-driven infrastructure management with solutions that protect against power issuance, theft and environmental and other risks while maximizing energy utilization. We anticipate that the average sale of OmniMetrix labeled AIO products will be approximately 5 to 6x the average current omni sale. As we will be sharing SaaS revenue with AIO, it is too early to project what our margins will be. We will be selling AIO technology solutions under the OmniMetrix brand and from our market research, there are no better existing technologies in the industries they serve. This partnership has the potential to transform our company by expanding the respective OmniMetrix brand into new end markets with a product that would take us many years and significant R&D dollars to develop. We expect to have our first demo unit installed by the end of the month with a large existing telecom client. AIO has been in existence for 18 years. As we have stated, we do not expect any revenues from this partnership until the second half of 2026. We see secular tailwinds that should support our growth in the coming years as business and consumers take action to ensure uninterrupted access and support for their energy infrastructure management and regulatory compliance needs. Energy demands for AI, data centers, electric vehicles, electrification of buildings and reshoring of industry are all strain the aging U.S. electrical grid, which is also being disrupted by extreme weather events, forest fires and other natural disasters. Despite the relatively benign year in 2025, we've already seen a rebound in power outages from winter storms so far this year, including severe ice storms across 12 states in the Southern Appalachian in early January, resulting in over 1 million customers without power, many of them for days and some for weeks amidst winter weather. Even if the nation changed course and started massively investing in energy resources and infrastructure today, we are so far behind. It would take many years if not decades to meet our rapidly growing energy and reliability needs. Given the substantial unmet needs of the markets we now serve, we continue to believe 20% average annual revenue growth over the coming 3 to 5 years is an achievable target. Further, given the efficiency and scalability of our model, we believe approximately 50% of each incremental revenue dollar from our existing business should flow through to operating income. As a small company peaks and valleys in purchasing cycles for major hardware orders will persist, but we believe that our high-margin capital-light business model positions us very well for the future. With that, I'll turn the call over to Tracy for financial and operational insights. Tracy? Tracy Clifford: Thank you, Jan. The key takeaway from our 2025 results is the solid growth we are achieving in our annual recurring monitoring revenue stream, which achieved a 95% gross margin in 2025 and was driven by the ongoing expansion of our installed base of monitored endpoint. We view a steadily growing base of annually recurring high-margin revenue as the core value driver for our business, fueled by new hardware deployment, which could continue to be more regular in nature leading to some variation in year-over-year comparisons. We've provided a fair amount of detail in today's news release, so I'll just touch on a few key highlights. Revenue rose 4.5% to $11,478,000, thanks to the diligent efforts of the entire OmniMetrix team. Monitoring revenue grew 22% due to the expansion of monitored endpoint. Total hardware revenue declined 8% due to the timing of deliveries for our large cell phone customer and an $885,000 decrease in the amortization of deferred hardware revenue. Excluding the impact of declining amortization of deferred hardware revenue, new hardware revenues rose approximately 8% in 2025 compared to prior year. Gross margin improved to 76.8% versus 72.8%, an increase of 400 basis points, reflecting the increase in higher-margin monitoring fees as a percentage of revenue and hardware margin improvements related to the cost efficiency of the next-generation products that deliver more value. Diluted earnings per share was $0.99 in 2025, including an $0.18 per share deferred income tax benefit compared to diluted EPS of $2.51 in 2024, which included $1.77 per share of deferred income tax benefit. Cash flow from operations more than doubled to $2.090 million in 2025 or an increase of 131% year-over-year. Consequently, our year-end cash position improved by $2.1 million to $4,450,000, and we've maintained a strong cash position of $4,131,000 as of March 3, 2026, following our investment of $250,000 since December for the AIO OmniMetrix partnership in North American product launch. We also remain debt free. I think it's important to note that Acorn was able to release an additional $464,000 of its valuation allowance against our deferred tax assets in 2025 as a result of the big beautiful bill, which allowed us to treat certain R&D expenses in a more favorable way for tax purposes. This compares to $4.4 million released in 2024, both of which were reflected in our bottom line results. We now maintain a $10.3 million or greater than 70% valuation allowance, against $14.4 million in NOL and capital loss carryforwards. Most of our NOLs expire in 2031 or later. So we still have plenty of time to utilize them through growth in our existing operations via potential M&A initiatives. In late 2025, we launched our next generation and generator monitors to omni for the residential market and OmniPro for commercial and industrial applications. In addition to significant upgrades and new features, design innovation have reduced installation time and service costs while enhancing the liability. We also launched RADEX, an enhanced version of our RAD, remote alternating current mitigation disconnect, product for the Pipeline segment. These next-gen product launches enhance our value proposition, expand our technology leadership and will contribute to our growth in 2026 and beyond. We're very excited about the potential AIO opportunities ahead as well as the other growth opportunities that Jan discussed in his remarks, and we look forward to updating you on our progress. Operator, you may now prepare the lines for questions. Thank you very much. Operator: [Operator Instructions] And our first question today comes from Jason [indiscernible]. Unknown Analyst: I have a few questions. I want to follow up a few things from the AGM, if you don't mind. The first one I wanted to hit was you guys had mentioned that you're talking to three OEMs, and you don't think you'll get three OEMs. It's a very long sales cycle, and you kind of mentioned that you certainly would get one. Is that kind of still the status on that front? Jan Loeb: I believe that is still true. Unknown Analyst: Okay. And then the next follow-up from AGM would be, in terms of acquisitions, you had said that you had three acquisitions in mind and three term sheets out. It seems like the AIO is one of those. Can you give an update? Is there still two outstanding, or where does that stand today? Jan Loeb: We've had discussions with the other two. Firstly, you're right, AIO is one of them. We've had discussions with two others. As of right now, they're still available, but the price, we have not come to any agreement on price, too far apart on price. Unknown Analyst: Okay. And then my final question is a bit more open ended. I'm curious if you could kind of discuss the bottlenecks for each of the growers -- each of the growth drivers. So for instance, is the lack of personnel, or is it sales? What's kind of like the bottlenecks, and what are you guys doing to try to relieve those bottlenecks? Jan Loeb: So I think the #1 bottleneck is the customer base that we are trying to bring in-house. So on the residential side, and small commercial side, usually, it's one decision maker is making the decision to get monitoring and not monitoring, the head of the household or the owner of the small business, the doctor's office, et cetera. And going after bigger customers, we're just finding that the sales cycle is much longer. And there are other extraneous factors that come into play, the economy, tariffs, layoffs, et cetera, that impact bigger customers. So to me, our internal team is excellent. And I don't think adding more personnel is an answer. It's just staying on top of these customers, and hopefully, we reel them in because we feel very confident about our product, and how we can help them. So I think that to me is the #1 bottleneck that we have. Operator: Our next question comes from Richard Sosa. Unknown Analyst: Great to see the results this year. I'm excited about the AIO partnership and looking forward to hearing more about it. But just a really quick question. I joined late, so you might have addressed it on the call. But in terms of the monitoring revenue in the fourth quarter, I thought it was like slightly below what it was in the third quarter. Is it -- was it a timing issue, or was it something else? Tracy Clifford: Hi, Richard, thanks for the question. No, the decrease in monitoring revenue in 4Q '25 compared to 3Q '25 was actually due to the positive impact of the nonrecurring revenue recognition related to a policy that was made effective in 3Q '25 of recognizing first year of monitoring revenue on any units that have been shipped into which the first year monitoring had already been paid, but the unit had been outstanding for 24 months or longer and had not yet been installed. So that there was an impact that would be nonrecurring in the third quarter of 2025. Jan Loeb: Okay. But the actual ongoing -- Unknown Analyst: The third quarter was much higher than it should have been, really, I guess it was a onetime benefit in the third quarter. Tracy Clifford: Correct. That's correct. Jan Loeb: And then on an ongoing basis, Richard, the fourth quarter was above the third quarter in monitoring revenue. Operator: And our next question comes from Joel Sklar. Joel Sklar: Excited about the future for Acorn. A couple of questions. One, Jan, can you give us a little bit more flavor for the market receptivity to AOI. Obviously, you have one telecom customer who is least interested in getting a model in there and seeing how it works out. But can you give us some more -- I know it's still in the very early stages, but a more general flavor for the market receptivity to the product. And then the second one was anything new on demand response. Jan Loeb: Okay. Good morning, Joel. So on AIO, it's just too early to tell about market receptivity because we haven't really gone out and shopped it or sold it. Obviously, you're right. One of our telecom customers has agreed to put up everything on their demo -- in the demo site. And so we've obviously talked to them about it. And so they're certainly interested in. But I would think -- and this goes kind of beyond a little bit beyond your question, but I would think the -- any telecom tower company would be interested in the product. I'm not saying that they would buy it or -- but they would certainly be very interested in it. You have to recognize and then this also kind of goes to why we were interested in AIO, and where we see the future going. And remember, AIO has put in over 110,000 sites with their equipment. So -- and they know what they're doing and their equipment really works. But what's interesting about the equipment is, besides monitoring everything in a cell tower site, for example, whether it be locks, cameras, battery, HVAC, lots of stuff that are monitored that we don't monitor, we just monitor the generator. So obviously, it's a very good fit for us. But their products, because it's so AI-based, for example, depending on which is the cheapest form of energy at any particular time, whether it's solar, battery, fuel, they can switch. They have the technology to switch the uses depending on the cheapest source of power at that particular time. So we think it's a big -- it could turn into a big cost savings for the tower operators. Another thing we know is that security of cell phone tower is pretty lack of physical. I mean they're in remote sites. With the price of copper where it is today, we think that security has to be hardened at cell tower sites. And so they have the #1, at least what we believe to be the #1, security system in place. And then just if you think about it because it's the way we think about it, the industry is spending billions and hundreds of billions of dollars on AI based on reports that we've seen today, roughly 40% of AI is delivered through mobile apparatuses, which obviously needs cell towers. So we think sub towers are going to be -- are an important site, and we'll continue to be a growing part of the infrastructure that's needed. And we think we have, with AIO product, the best solutions for towers. And so we think there'll be great receptivity once we have a proof of concept. We have one up and showing. We have the software that we can show people. So we think it will be a very big item. But again, we're saying nothing for right now. Let's see what happens towards the second half of the year. Have I answered your question, Joel? Joel Sklar: Yes. I remember I also had on demand... Jan Loeb: Okay. On demand response, there's nothing new. We continue to have discussions with utilities that, as a matter of fact, we have one coming up in a week on their interest in demand response. The issue is how it gets structured. For example, this particular utility can only give demand response payments to their end customer by law. So how do we work that Acorn gets the money that they deserve. So the concept continues to be an important concept, the actual operations is unclear yet because it's too new as to how the money will flow. But there's certainly a lot of interest, and we are in the midst of it. Joel Sklar: Okay. Great. Can I have one quick follow-up on AOI, Jan? Jan Loeb: Sure. Joel Sklar: Okay. So the decision to -- you're going to be -- you have terms to share the monitoring revenue, and of course, we value that a lot more, it's ongoing. Recurring revenue is a great thing, like the razor-blade model. But the -- but from my understanding, and please correct me if I'm wrong, we're not going to get any revenue from the hardware sales even though it's going to be branded OmniMetrix. And I assume there are going to be some costs associated with selling the hardware, including maybe commissions. So could you tell us a little bit more what went behind the thought that we would be sharing in the monitoring, but not directly in the hardware sales. Jan Loeb: So let me correct you on that. No, we are definitely getting the hardware sale. So we are getting a hardware sale. And what we're doing is we're sharing in the monitoring. So the way I look at it, it's like a semi acquisition of the North American rights for AIOs product line. So we have given a relatively small upfront fee, which requires them to do a bunch of things, for example, putting up a demo site and providing personnel, et cetera. And then we're sharing in the ongoing monitoring. So I view that as kind of like an earn-out. So a small upfront acquisition fee and then an earn-out in terms of the ongoing monitoring fee is how I look at it, and why I think it's such an interesting structure, and again, it takes out a significant amount of risk for shareholders and leaves us with a significant amount of upside. We're going to go to market with a product in two different ways. We'll have a CapEx model. We have an OpEx model. But in all situations, we are getting paid for hardware. We're not in the 3B business. Joel Sklar: Okay. Great. Wonderful. And then at the risk of being greedy, I'm going to pose one more question. So I saw a part of the announcement with AIO is the right to forget what technically is called not right of first refusal or something to their South America, Central America to business there. And you may wonder why am I asking about that when you're just getting your toe in the door with North America, but the reason I asked there is I saw that AOI has some important existing customers. I think maybe in a SouthTower company that has expansive operations in South America. And if you could -- so that may be some low-hanging fruit if that was something that you could execute and get the rights to their South America business. So I was just curious about that. Jan Loeb: Yes. So we built that into our contract because, as you say, there's some interesting opportunities in South America. But also, we wanted so to speak. We didn't want to have our flank with somebody else. So growing up, I played a lot of risk. So I figured if we're having North America, I want to have South America as well. It's a growing area, and it's easier for us to service South America than AIO from where they're located. So it made sense, and we negotiated for it, and we got it. So we'll see -- we see what happens. But again, as you said, first, let's get North America going the way we expect it to happen and then we can see what happens with South and Latin America. Operator: And at this time, I'm showing no additional questions. I'd like to turn the floor back over to Jan Loeb for closing remarks. Jan Loeb: Thank you all for joining today's call. We appreciate the continued support from our shareholders. If you have any follow-up questions, please feel free to reach out to myself or our IR team, whose contact information is provided in today's press release. We look forward to updating you again on our Q1 call upcoming. All the best. Operator: And with that, everyone, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good morning, everyone. Welcome to Tecsys Fiscal Year 2026 Third Quarter Results Conference Call. Please note that the complete third quarter report, including MD&A and financial statements was filed on SEDAR+ after market close yesterday. All dollar amounts are expressed in Canadian currency and are prepared in accordance with International Financial Reporting Standards. Some of the statements in this conference call, including the question-and-answer period, may include forward-looking statements that are based on management's beliefs and assumptions. Actual results may differ materially from such statements. I would like to remind everyone that this call is being recorded on Thursday, March 5, 2026, at 8 30 a.m. Eastern Time. I would now like to turn the conference over to Mr. Peter Brereton, Chief Executive Officer at Tecsys. Please go ahead, sir. Peter Brereton: Thank you. Good morning, everyone. I'm joined today by Mark Bentler, our Chief Financial Officer. We appreciate you joining us for today's call. I'm pleased to share our third quarter fiscal '26 results with SaaS revenue up 17% and adjusted EBITDA up 43% compared to the same quarter last year. This is highlighted -- this is the highest adjusted EBITDA quarter in our company's history. We also achieved the largest Q3 SaaS bookings quarter in our history, achieved without any migration bookings, which we believe underscores the demand for our core offerings and the strength of our pipeline. We saw strong SaaS bookings across both our health care and distribution verticals with new logo wins leading the way, including Memorial Sloan Kettering, one of the world's most renowned cancer centers; UT Southwestern, one of the top academic medical centers in the U.S. and one of the world's largest paper packaging companies as well. In Q3, our pipeline growth remained strong with our ending Q3 pipeline up 30% from the same time last year. These results highlight the strength of our Elite platform and our health care solutions, which represent the core of our business and a primary driver of SaaS ARR. They also strongly reinforce our value as customers navigate the convergence of 3 powerful forces: an evolving regulatory landscape, persistent macroeconomic pressure and an AI ecosystem characterized by rapid innovation and uneven maturity. The shifting regulatory landscape in the U.S. health care system continues to reshape requirements across the supply chain. For example, the Drug Supply Chain Security Act requires every product to be electronically traceable at the package level and the 340B Program demands rigorous tracking, auditing and documentation to show that discounted drugs are being used appropriately. As these regulations move into a period of stricter enforcement throughout 2026, compliance is shifting from a best effort initiative to an imperative operating discipline with real consequences for organizations that aren't ready. At the same time, the broader macroeconomic climate is prompting health care leaders to accelerate technology investment, not slow it down. Despite cost pressures, organizations are allocating more budget to digital infrastructure, automation and data readiness. Analysts project continued year-over-year growth in technology spending among U.S. health care providers, reflecting the urgency around modernization and resilience. Finally, the era of unrestrained AI evangelism is giving way to more mindful evaluation, and we're seeing buyers gravitate toward partners with advanced AI capabilities, combined with deep vertical expertise and industry-specific solutions like unit level traceability, federal compliance audit capability and secure chain of custody requirements in health care, the kind of domain-informed approach exemplified by Tecsys. As mentioned in our earnings press release, our AI intelligence layer, TecsysIQ, became commercially available in Q3. TecsysIQ unifies data from multiple sources, including health care-specific ones like ASHP, which is the American Society of Health-System Pharmacists, GUDID, which is the Global Unique Device Identification Database and the U.S. Food and Drug Administration. It can bring together critical information like drug shortage data, device identifier data and recalls and safety alerts, transforming it into clear and actionable insights. This capability significantly amplifies the value of our core enterprise systems, empowering customers to unlock the full potential of AI and improve operational performance. We're encouraged by the early momentum and the expanding role TecsysIQ will play in delivering measurable supply chain value. The same appetite for operational improvement is fueling exceptional interest in our pharmacy solutions while accelerating our brand awareness in the market. Pipeline for our pharmacy inventory management system grew more than 200% year-over-year, supported by strong brand momentum, new industry research and record engagement at our Pharmacy Summit in Houston, Texas this week, where total registrations increased 77% year-over-year and participation from health system leaders was up 67%. Our research survey findings are driving increased media coverage, while recent recognitions for Modern Healthcare and RXinsider reinforce our position as a leading and trusted partner in the pharmacy space. Our distribution business also delivered solid progress in the quarter, reflecting ongoing demand, strong execution and significant market traction. As I mentioned at the top of the call, we signed a significant deal with one of the world's largest paper packaging companies, reinforcing our position as a partner of choice for complex high-volume distribution environments. In November, we went live with Carolina Cat, who are already seeing strong ROI for their operating efficiency. And in December, we successfully went live with Kirby Risk, an electrical supply manufacturing and logistics organization operating in more than 40 locations. This implementation establishes a solid foundation for their next phase of operational transformation, which will include expanded automation capabilities. Overall, the quarter reinforced the strength of our strategy as organizations across health care and distribution increasingly seek partners who combine domain expertise with advanced purpose-built AI. With strong pipeline expansion and rising market visibility, we are well positioned as a trusted modernization partner in sectors where reliability, compliance and AI readiness are critical. Mark will now provide further details on our Q3 results as well as financial guidance on several key metrics. Mark Bentler: Thank you, Peter. As a reminder to everyone, our third quarter ended January 31, 2026. I'll start with SaaS. As Peter mentioned, SaaS revenue growth was 17%, reaching $20.1 million in the quarter. That growth was 18% on a constant currency basis. SaaS ARR was $83.3 million at the end of Q3 fiscal '26, which was up 10% or 16% on a constant currency basis from the same quarter last year. Our Elite SaaS ARR, which is our core product and the predominant contributor of total SaaS ARR grew by 17% over the same period, which was actually 23% on a constant currency growth basis. Sequentially, SaaS ARR increased by $2.2 million in Q3 fiscal '26 compared to the prior quarter as record Q3 bookings were partially offset by unfavorable impact from foreign exchange of about $2.1 million and attrition among a small group of noncore customers, which was previously discussed in the Q2 MD&A and earnings call. That known attrition will continue to have a moderating effect on reported SaaS ARR growth over the next 2 quarters. One more point about SaaS bookings. I want to highlight that bookings from new logos are up over 150% during the last 12 months compared to the year ago period. That acceleration is an important indicator of the underlying demand environment and the strength of our competitive position. It speaks to the durability of our growth and the expanding relevance of our platform in the markets we serve. SaaS RPO was $248.9 million at the end of Q3 fiscal '26. That's up 18% from the same time last year. That's actually 24% growth on a constant currency basis, demonstrating again, momentum on SaaS bookings as well as renewals in the period. Professional Services revenue for the third quarter was up 8% from the same quarter last fiscal year to $15 million. Professional Services backlog was $36 million at the end of Q3 fiscal '26. That's down 19% or 14% on a constant currency basis from a tough comp at the end of Q3 last year. Based on our Professional Services backlog heading into Q4, we expect Q4 Professional Services revenue to look more like Q3 this year than Q4 last year, which was $16.2 million. For the third quarter of fiscal '26, gross margin was 51% compared to 47% in the same period last year. The key drivers here are increasing SaaS margins as well as the strength in Professional Services margins in the current quarter. Net profit in the quarter was $1.7 million compared to $1.2 million in the same quarter last year. Basic and fully diluted earnings per share were $0.12 in Q3 this year compared to $0.08 Q3 last year. Adjusted EBITDA was $5 million in Q3 fiscal '26 compared to $3.5 million same quarter last year. On a last 12-month basis through Q3 fiscal '26, adjusted EBITDA is up 49%. Turning briefly to our year-to-date highlights. SaaS revenue for the first 9 months of fiscal '26 was $58.9 million. That's up 21% from the same period last year. Foreign exchange did not have a significant impact on SaaS revenue compared to the same period last year. Our total revenue reached $143.1 million. That was a 10% increase from last year, which was 9% on a constant currency basis. Excluding hardware, overall revenue grew by 13% or 12% constant currency. For the first 9 months of fiscal '26, our adjusted EBITDA increased to $13.3 million, up from $9.1 million in the same period last year. Fully diluted earnings per share for the first 9 months of fiscal '26 were $0.29. That's up 61% compared to $0.18 in the first 9 months of last year. We ended Q3 with a solid balance sheet. We had cash and short-term investments of $36.2 million and no debt. We used about $3.7 million of cash in the quarter to buy back shares under our NCIB, and we also paid out $1.3 million in dividends. Additionally, the Board yesterday approved a quarterly dividend of $0.09 a share. After the end of the third quarter, we implemented a workforce reduction of approximately 7% across multiple functions as part of a broader initiative to optimize the company's operations. This action will result in an estimated restructuring charge of $4.5 million, which will be recorded in our fourth quarter of fiscal '26 and is expected to generate approximately $8.1 million in annual operating cost savings. These reductions create flexibility for the company to redirect resources into strategic growth initiatives. And accordingly, the future operating cost profile will reflect both the realized efficiencies and the reinvestments required to support long-term growth. Turning to financial guidance. Based on our performance through the first 3 quarters of fiscal '26 and our outlook for the remainder of the year, we're reaffirming our full year fiscal '26 guidance for SaaS revenue growth of 20% to 22%, total revenue growth of 8% to 10% and adjusted EBITDA margin of 8% to 9%. I'll now turn the call back to Peter to provide some outlook comments. Peter Brereton: Thank you, Mark. We are very pleased with our third quarter results, and I want to thank our investors and Board, our partners and customers and the whole team at Tecsys. As we look ahead to Q4 and beyond, we'll be expanding TecsysIQ with the next wave of intelligent agents designed to automate more of the routine, time-sensitive and compliance heavy work that burdens supply chains today. These upcoming capabilities will deepen our presence across point-of-use operations, pharmacy workflows and administrative processes, delivering greater visibility, earlier detection of operational risks and more autonomous decision support. We are also advancing our AI-enabled productivity tools, which will streamline configuration and simplify the day-to-day tasks that keep enterprise supply chains running. We're also in full planning mode for our annual user conference, TUC 2026, taking place in Nashville in early June. We're on track for one of our strongest events ever with record customer attendance expected, a standout lineup of customer speakers and partner sponsorship already exceeding targets, clear evidence of deep engagement and advocacy. And so in summary, I want to remind you of our key themes this quarter. Strong fundamentals. Elite SaaS ARR is up 23% year-on-year on a constant currency basis. Adjusted EBITDA, up 43%, our highest quarter on record. Quality of demand, record Q3 bookings without migration bookings, underscoring healthy new logo momentum and pipeline depth. Health care leadership, we have robust SaaS bookings and pipeline growth with traction across our diverse range of health care solutions. And when it comes to AI differentiation, we are delivering domain-informed intelligence that unifies critical data, surfaces actionable insights and enables autonomous execution, amplifying the value of our core enterprise systems. We believe these themes will be the bedrock of our ongoing success, profitable growth and shareholder value creation. With that, we'll open the call for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Amr with Ventum Capital Markets. Amr Ezzat: First off, congrats on the record bookings. If you could give us a sense of what drove that outperformance? And more importantly, does the strength give you more confidence that the elongated cycle that you guys described in Q2 are starting to clear or are these wins already deep in the pipeline for some time? Peter Brereton: Yes, good question. I mean our -- as you know, we've seen our pipeline sort of growing and growing and growing for over a year, very substantially. And we always had confidence that the wave was going to break at some point, but it's sometimes hard to predict exactly when it's going to break. There were a lot of distractions through the summer and fall and right up to Christmas. And [indiscernible] with tariffs and changes to the Affordable Care Act funding and even changes to Medicaid subsidies and so on. But the thing is at this point, it's almost like the future is kind of settled in a way. A lot of the health care organizations and general distributors are seeing, okay, tariffs are sort of just the new reality. You've got to plan them into your business planning as best you can, and you've got to move ahead. So we're seeing people starting to ignore the noise and just start to move ahead with decision-making. So I mean, we'll see where it goes from here. But certainly, it seems to us that a pretty strong pipeline velocity is back, and we're pretty excited about what we're seeing ahead over the next few quarters. Amr Ezzat: So is it fair to say that the number of deals at vendor of choice stage is lower than last quarter? Peter Brereton: No, I would say it's similar to where we were. I mean we've signed some of the deals where we were a vendor of choice, but we've also been made vendor of choice in a number of new deals. So we're feeling pretty good. Amr Ezzat: Fantastic. On the restructuring, can you guys unpack where the reductions are concentrated and what you guys are reinvesting into? Or does some of that flow into the bottom line? And then maybe related to that, given that you guys just reported record bookings and a strengthening pipeline, I just wonder what drove the decision to cut headcount now? Was it just efficiency? Or are you guys signaling that you're managing more cautious outlook? I don't believe that's the case, but I'd like to hear your thought. Peter Brereton: Mark will take a first crack at that, and then I may follow up with some extra color. Mark Bentler: Yes. I've got a few points about restructuring. First, this restructuring is about strengthening the business, not shrinking it. We're aligning resources to accelerate AI-driven productivity, improve sales execution and increase operating leverage. That's the objective. As a result, [indiscernible] Peter Brereton: [indiscernible] technologies that are making us more efficient. So you sort of take that all into account and run through a clean sheet exercise and say, what do you need moving forward. And as Mark says, from here, we will continue to reinvest. Some of these new technologies are expensive. We need room to reinvest there. But we're also very focused on efficiency and driving EBITDA to new levels as we're seeing the business sort of reaching an inflection point and a point of maturity in the migration to SaaS that says it's time for a lot more EBITDA. Amr Ezzat: Fantastic. That's great color. Then maybe one last one. On the noncore attrition over the next couple of quarters, can you give us a sense of the cadence or the roll-off cadence? And this is entirely the population that you guys already knew about? Or is there any incremental pressure that we should be thinking about? Mark Bentler: Yes. That's -- I mean that's -- it's pretty much the same story that we talked about last quarter. There's some known attrition in that noncore group of customers. We've got pretty good visibility on what that looks like. It's going to, I think, mostly play out over the next 2 quarters in terms of SaaS ARR. It has a bit of a lagging effect, of course, on revenue because SaaS ARR is forward-looking and revenue is sort of -- reported revenue is backward looking. And in terms of how much headwind is out there on the ARR, I mean, it's going to be in rough terms, around $1 million over the next couple of quarters that we'll see as headwind there, I believe. And that should play out, like I said, pretty clearly over the next couple of quarters. I think the important thing is we're trying to highlight when we talk about these metrics, this Elite SaaS ARR number. And when people look at what's happening with sequential SaaS growth, is it accelerating or is it decelerating? You should be looking at that Elite SaaS ARR number. That's the leading indicator of the core business. As we mentioned in the remarks, as Peter mentioned, that constant currency growth was 23%. That actually accelerated a bit from last quarter where it was 21%. So that underlying business and that health in that Q3 bookings that we saw and the strength of our pipeline releasing into bookings, which is manifested in that SaaS ARR growth. I mean it is -- we saw acceleration there in Q3 for sure. Operator: Your next question comes from Gavin with ATB Cormark. Gavin Fairweather: I think with the Houston pharmacy event saw now, you talked about the registrations and pipeline trending well. Any kind of anecdotes or kind of the conversations or thoughts around buyer that you're getting out of the sales team? Peter Brereton: Not really. I mean there's -- I mean, the health care providers, by and large, as they look out over the next 2, 3 years, I mean, they do see restrained revenue, right? I mean they're not certain how many of their customers will actually come in insured as a lot of customers are having to give up on the Affordable Care Act marketplace and finding it just too expensive. And as the restrictions kick in around Medicaid, those may get further kicked down the field. But generally speaking, I think a lot of these hospital networks tell us as they look over the next few years, they see at least moderating revenue, possibly declining revenue. And yet at the same time, they're seeing that there is opportunity to really sort of strengthen their operating efficiencies. And we're increasingly in a position where by word of mouth, even we're able to highlight the very hard savings that we can drive by operating the whole supply chain more efficiency across general supplies, implants, pharmaceuticals, et cetera. So that seems to be overall what's driving it. We've also had -- we've invested very substantially in quality and implementation ease over the last few years. And we're seeing that pay off as well. I mean go-lives used to be far too exciting. They're getting more and more -- I'm trying to think of a better word than boring, but they're getting very straightforward when these networks deploy and go live. So that is causing more networks to be interested in implementing when they hear it. It's just not very scary. It's actually a pretty smooth process. Gavin Fairweather: Great to hear. And then maybe just on the new logo strength that you saw this quarter. Curious where customers are starting in the IDN space. Is that pharmacy? Is it CSC? Is it point of use? Any thoughts there? Peter Brereton: It's across the board. It's a general mix. But I would say at this point, you're probably looking at -- even if I combine sort of what's signed and what's in the pipeline and so on, you're kind of looking at -- I would kind of break down 40% pharmacy, 40% point of use and 20% CSC would be the very high-level breakdown there. The CSC business continues, but it's a subset of the IDN marketplace that's interested in the CSC, whereas they can all gain efficiencies by better management of point of use, including the OR, cath lab, IR, et cetera, as well as the, of course, pharmacy. Gavin Fairweather: That's great. And then maybe just lastly on TecsysIQ. Can you just flesh out a little bit some of the use cases that you're starting to see happen in the base? And maybe just flesh out a little bit how discussions are going with customers and prospects and your sense of their keenness to adopt some of this new technology. Peter Brereton: Yes. I mean it allows you -- I mean, the main thing is it has access to both internal and external data, and it can use it in a combined fashion to sort of highlight the right actions, right? So you're -- I mean, we're seeing it -- pharmacy is probably where we're seeing the uptake the quickest. We're involved with a couple of pilot environments where we're using TecsysIQ to look at what is actually being consumed within the hospital environment, where do we have over inventory where we may actually run into product expiring on the shelf, where are we short, comparing our upcoming needs then to industry data that indicates where there may be shortages coming in the industry and based on that, making recommended buys to fill in the targeted formulary. But it's this ability to sort of write down at a granular level, combine usage data, industry data, industry on shortages from ASHP and other sources and bring it all together to say, okay, these are the things you need to look after this week and get in here. No, generally speaking, I would say we're not yet seeing -- and I think it will be another few quarters before we see people turning into more automated agents. You need time for trust to build in AI. I mean AI, as you know, it hallucinates, it makes mistakes. It does what it does. And it's going to take a while for that sort of trust to build up and not just our platform, in AI in general, for people to be willing to say, okay, I don't -- I'm looking for more than a report and a dashboard from this thing. I now want it to actually initiate action on its own. That's probably another couple of quarters. There's a lot of interest in it, some experimentation, but I would say that's not yet widely deployed. And by the way, I think that's on our platform and others from what we're hearing from customers that the platforms just aren't ready for that level of trust. Operator: Your next question comes from Richard with National Bank Capital Markets. Jack Durno: This is Jack Durno on for Richard. Just wondering if -- maybe just a follow-up on TecsysIQ. If you could just give some color on how you intend to monetize it? And then as it scales, maybe where we should expect it to show up in your KPIs? Peter Brereton: Yes. I mean there's 2 factors. You're talking specifically with TecsysIQ, right? Jack Durno: Yes, exactly. Peter Brereton: Yes. Yes, there's kind of 2 ways to measure it. We're looking at that ourselves. I mean on a simple go-forward basis, we're expecting to close a few agreements a quarter for the next several years and probably accelerating as we go into that. Now what does that turn into? These platforms will likely add over a year, maybe $1 million to ARR per year as you roll forward. So it's -- in that way, it's not huge. It could go higher than that. It could go quite a bit higher than that, but that's kind of our baseline as we look to sort of layer this in on top. What I think is the bigger factor and the more exciting factor for us is we think it's going to drive all the rest of the ARR bookings because you end up with people now looking at a platform like ours and going, okay, wow, this thing can do a lot more than it used to. I mean AI is useless without a vast amount of underlying data. Our platforms provide that vast amount of underlying data. So when customers start to see what -- prospects start to see what AI can do, they end up realizing they need the underlying data platform. They need an enterprise end-to-end supply chain platform that supplies that data to the AI engine. Otherwise, all the AI engine can do is hallucinate. So we think that this is a -- it does layer some bookings in on top of what bookings would otherwise be. But we think what we're seeing is an acceleration across all of our types of bookings because of the additional ROI that an AI platform like TecsysIQ can provide. So we're -- I mean, what we're excited about is that I know there's a lot of fear in the market around AI. What we're seeing is that for us, AI is a tailwind. It's definitely not a headwind. It's looking pretty exciting. Jack Durno: Awesome. That's really good color. I appreciate it. And then just on the -- I know last quarter, you mentioned that you were seeing in the last 12 months, I believe there was 2% churn in Elite customers. I'm just wondering if that number has changed at all and if you're still seeing the same. Peter Brereton: It's still under 2%. Operator: Ladies and gentlemen, there are no further questions at this time. I'll turn the call back over to Peter Brereton. Please go ahead. Peter Brereton: Thank you, and thank you for taking the time to join us today. As always, if you have additional questions, don't hesitate to reach out to Mark or I, and we will look forward to talking to you at the end of June when we release our Q4 numbers. Thanks. Have a great day. Bye for now. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Rigetti Computing Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, CEO, Dr. Subodh Kulkarni. Subodh Kulkarni: Good afternoon, everyone, and thank you for joining us for Rigetti's Fourth Quarter and Full Year 2025 Earnings Conference Call. I'm pleased to be joined today by our Chief Financial Officer, Jeff Bertelsen, who will walk you through our financial results in more detail following my overview. Also with us is our Chief Technology Officer, David Rivas, who will be available to participate in the Q&A session following our prepared remarks. We appreciate your continued interest in Rigetti, and we look forward to answering your questions at the conclusion of our remarks. Before we begin, I would like to remind everyone that today's call along with our fourth quarter and full year 2025 press release contains forward-looking statements. These statements reflect our current expectations, objectives and underlying assumptions regarding our outlook and future operating results. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties are described and discussed in greater detail in our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2025, and other periodic reports filed by the company from time to time with the SEC. We encourage you to review these filings for a comprehensive discussion of these risks and uncertainties, that could cause actual events and results to differ materially from those contained in the forward-looking statements. Rigetti undertakes no obligation to update any forward-looking statements made during this call, except as required by law. During today's call, we will refer to certain non-GAAP financial measures. For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect Rigetti's future operating results. Please refer to today's earnings release on Rigetti's website at investors.rigetti.com. Also the 8-k furnished with the SEC today after the close. Now turning to the business. 2025 was a year of technical validation and disciplined execution for Rigetti. We advanced materially across Fidelity, Scale and Architecture, while remaining realistic about time lines and commercialization. Our focus remains reaching true commercially meaningful quantum advantage, not headline milestones. I want to begin by grounding today's discussion in how we think about quantum computing at Rigetti, because that perspective is centered to how we operate, how we invest and how we measure progress. Quantum Computing is not about replacing classical computing. It is about enhancing it. CPUs will continue to handle sequential workloads, and GPUs will continue to handle parallel workloads, where quantum computing becomes powerful is in simultaneous computation, problems where thousands of variables interact at once and classical systems struggle to converge. That is the problem space we are building for. Our strategy has consistently focused on superconducting, gate-based quantum computing because it offers two fundamental advantages that matter at scale, speed and scalability. We are working with electrons, not atoms or ions, which gives us gate speeds measured in tens of nanoseconds. And because this technology is grounded in semiconductor fabrication, we believe it offers the most realistic path to building large-scale systems over time. Over the past year, we made great progress towards what we define as true quantum advantage. I'm excited to share that Rigetti recently achieved a 2-qubit gate fidelity as high as 99.9% at 28 nanosecond gate speed on a ProDrive platform using our new proprietary Adiabatic CZ scheme. We are still maintaining 99.9%, 1 qubit gate fidelity, and we have also reported median 2 qubit gate fidelities of 99.7% on our 9-qubit system, 99.6% of our 36-qubit system and 99% on our 108-qubit system, what we call Cepheus-1-108Q. Together, these milestones are a testament to our ongoing progress in materials, fabrication and system level design. They're helping us further narrow the fidelity gap between superconducting systems and other quantum modalities, while delivering speeds that are about 1,000x faster than some approaches like trapped ion or pure atoms. We successfully deployed multiple systems to the cloud, including an 84-qubit monolithic chip system and a 36-qubit chiplet base system. More importantly, we demonstrated that chiplet timing works in practice. That matters because scaling to thousands of qubits on a single die is not realistic. Chiplets are how we believe quantum systems will scale in the real world. As we pushed beyond 100-qubits, we gained important insights. On our 108-qubit system, we identified tunable coupler interactions that emerge at higher scale. We made a deliberate decision to delay general availability and address the issue. The executed architectural refinements that successfully improved system stability and control. That decision reflects our discipline and increases our confidence in our 108-qubit chiplet-based system, as we move towards customer readiness. That experience underscores why we have our own foundry. Rigetti operates Fab 1, the industry's first dedicated and integrated quantum device manufacturing facility, which allows us to tightly couple design, fabrication and testing under one roof. This enables faster innovation cycles as we scale beyond 100-qubits and drives proprietary advancements rather than incremental work arounds. We see Fab 1 as a durable competitive advantage that accelerates our road map and create a meaningful barrier to entry as quantum systems grow in scale and complexity. That combination of scale, control and execution is also what our customers and partners are responding to. We are also seeing increased demand for on-premises quantum systems, particularly for national governments and research institutions seeking direct access to hardware for hybrid computing and systems-level R&D. In January of this year, we announced an $8.4 million order from India's Center for Development of Advanced Computing or C-DAC, for a 108-qubit on-premises quantum computer scheduled for deployment in the second half of 2026. This system will be integrated into C-DAC's supercomputing environment and is based on our chiplet architecture, which is central to our scaling strategy. That order builds on the memorandum of understanding we signed with C-DAC to explore the co-development of hybrid classical quantum systems. Taken together, these efforts reflect how customers are engaging with us not just as a hardware vendor, but as a long-term technology partner in hybrid computing environments. At the smaller end of the spectrum, late last year, we also announced purchase orders totaling approximately $5.7 million for 2, 9-qubit Novera on-premises systems. These systems are being used as test beds for quantum hardware research, error correction and internal capability development. Importantly, they are upgradeable, which allows customers to grow with the platform as their needs evolve. Our Novera QPU also continues to be an ideal solution for customers who want to integrate our technology with their existing cryogenics and controls. We are pleased to announce that we have secured a purchase order for our Novera QPU from a Japanese research organization, which is scheduled to be delivered in April 2026. This will be Rigetti's first QPU to be located in Japan, and we are excited to be expanding into this new geographic region. A core differentiator for Rigetti is our open modular architecture. We do not believe the future of quantum computing will be built by any single company attempting to own the entire stack. Instead, we have designed our platform to integrate best-in-class partners where they can move faster or deeper, than we can alone. We are partnering with Riverlane to advance real-time quantum error correction capabilities, as it is foundational to achieving fault-tolerant quantum computing. Riverlane has demonstrated capabilities that we believe will meaningfully advance that goal. We are also working closely with NVIDIA to support NVQLink, an open platform designed to integrate quantum systems with AI supercomputing. This collaboration reflects our shared view that quantum computers will coexist with CPUs and GPUs in data centers as part of future hybrid computing environments. Another example is our collaboration with QphoX and the U.K.'s National Quantum Computing Center on optical readout of superconducting qubits. This work addresses a fundamental scaling bottleneck by reducing cryogenic heat load and wiring complexity. While this remains early-stage research, it illustrates how our architecture allows us to incorporate novel technologies that could materially improve scalability over time. This ecosystem approach gives us flexibility, accelerates innovation and reduces execution risk as the industry evolves. The quantum computing market today remains research driver. Most systems are deployed to government labs, national research centers, universities and early commercial researchers. That is not a limitation. It is a reflection of where the technology is in its life cycle. I want to be very clear about how we define quantum advantage because this frames our road map and our timelines. For Rigetti, quantum advantage meets outperforming classical systems on practical workloads in real computing environment for commercial applicability. We believe achieving quantum advantage requires several things to come together, scale, fidelity, speed and error mitigation. Specifically, systems on the order of 1,000-qubits, 2-qubit gate fidelity approaching 99.9%, gate-speeds below 15 nanoseconds and integrated error mitigation. Based on what we know today, we believe we are roughly 3 years from reaching that point. That may sound conservative, but in a technology as complex as quantum computing, prescription and credibility matter more than bold claims. Looking ahead, 2026 is about execution and scaling. Our near-term priority is completing deployment of the 108-qubit system at 99.5% median 2-qubit gate fidelity, which we expect around the end of March. Beyond that, our focus is to deploy a system with more than 150-qubits with an anticipated 99.7% median 2-qubit gate fidelity around end of December 2026. As far as we know, no one has demonstrated systems at that scale and fidelity using chiplet based architecture. In parallel, we'll continue advancing our chiplet architecture as the foundation for scaling toward a system of more than 1,000 qubits with an anticipated 99.8% median 2-qubit gate fidelity by or around the end of 2027. Chiplets are central to our strategy and represent the most practical path to large-scale systems. We also will continue working to integrate error correction into the stack. Our work with Riverlane demonstrates ongoing progress in this area. From a market perspective, we expect 2026 to remain focused on delivering on-premise systems across government, national labs and academic institutions with select commercial customers engaged in quantum research. Finally, we strengthened our balance sheet. We exited the year with approximately $590 million in cash, providing us with the flexibility and runway to execute our road map through the quantum advantage time frame. Our investment focus remains organic. We will consider M&A only if it meaningfully accelerates our road map, but we do not need acquisitions to execute our core strategy. To close, quantum computing is a long cycle opportunity. It requires patience, technical rigor and capital discipline. We are not building for next quarter or next year. We are building for a meaningful durable impact over the next 5 to 10 years. Rigetti's strategy is deliberate. We focus on speed, scalability and fidelity. We leverage a strong ecosystem. We define success rigorously, and we invest with a long-term view. Thank you for your continued support. I'll now turn the call over to our CFO, Jeff Bertelsen, for a review of our financial results. Jeff? Jeffrey Bertelsen: Thank you, Subodh, and good afternoon, everyone. I'll spend a few minutes walking through our fourth quarter financial results, our balance sheet and how we are thinking about capital deployment as we continue to execute the road map you've just heard about. For the fourth quarter of 2025, revenue was $1.9 million, compared to $2.3 million in the fourth quarter of 2024. As investors have seen over time, our quarterly revenue profile continues to be influenced by the timing of system deliveries and government contract activity. That dynamic remained true in the fourth quarter, while we saw contributions from our contracts with NQCC and AFSOR (sic) [ AFOSR ], revenue variability at this stage of the market is expected and does not change how we manage the business or allocate capital. Gross margins for the fourth quarter were 35% compared to 44% in Q4 of last year. Margin performance continues to be driven primarily by contract mix. Certain strategic contracts particularly with government and national lab customers carry lower margin profiles, but play an important role in advancing system validation, ecosystem integration and long-term positioning. Total operating expenses for the fourth quarter were $23.2 million compared to $19.5 million in the same period last year. Spending remains concentrated in research and development, including engineering headcount, fabrication and system integration. Stock-based compensation was $5.6 million for the quarter compared to $3.4 million a year ago. Operating loss for the fourth quarter was $22.6 million compared to $18.5 million in Q4 2024. Our GAAP net loss for the fourth quarter of 2025 was lower than the GAAP loss for the fourth quarter of 2024, primarily due to the noncash change in the fair value of our derivative warrant and earn-out liabilities. On a non-GAAP basis, net loss was $11.3 million or $0.03 per share compared to a net loss of $14 million or $0.06 per share in the prior year quarter. I want to briefly address the time line for revenue recognition with respect to the $5.7 million of Novera sales we announced late last year and the $8.4 million C-DAC order we announced in January. Regarding the 2 Novera sales for $5.7 million, we expect a little less than half of that revenue to be recognized in the first quarter with the balance recognized in the second quarter of 2026. Both Novera sales included lower margin dilution refrigeration systems. Therefore, we anticipate significant first quarter year-over-year revenue growth driven by a portion of the $5.7 million Novera on-premises system purchase orders expected to ship in Q1. Importantly, while individual quarters can move around, these contracts support a growing base of recurring and multiperiod activity. Regarding the C-DAC order, we expect to recognize the revenue from that sale in the second half of 2026, following testing to validate that the system meets its specifications. The C-DAC order announced in January 2026 did not include ongoing maintenance or support. We expect to receive an additional PO for those services later in the year. Turning to the balance sheet. We ended the year with approximately $590 million in cash, cash equivalents and available for sale investments compared with approximately $217 million at the end of 2024. We continue to operate with no debt. At our current operating profile, we believe our capital position provides sufficient runway to execute against the milestones Subodh outlined, including continued progress on scale, fidelity and system integration. Our approach to capital allocation remains disciplined and deliberate. The majority of our spending is directed towards core R&D activities that directly advance our technology platform. We are not managing the business around short-term revenue optimization. We are managing it around credible long-term progress towards quantum advantage. We continue to evaluate longer-term fab and R&D capital needs, including the need for dilution refrigeration as qubit counts scale. Any future investment decisions will be driven by capability requirements and evaluated carefully against alternatives, including partnerships or shared infrastructure. Our currently disclosed road map does not depend on near-term changes to our fab footprint. Our execution path remains primarily organic. We believe we have the available technical depth and internal capabilities required to deliver on our road map. At the same time, we maintain flexibility to evaluate selective opportunities that could accelerate progress in targeted areas, discipline and alignment with our strategy remain the filter. To close, our financial strategy is straightforward. We are focused on maintaining flexibility, funding innovation responsibly and aligning capital deployment with long-term value creation. While quarterly results will continue to reflect the early stage nature of the market, our balance sheet position us to execute with patience and control. With that, I'll turn it back to the operator who will open the call for your questions. Operator: [Operator Instructions] Our first question comes from Kevin Garrigan with Jefferies. Kevin Garrigan: Thanks for letting me ask a few questions. So I guess just first, on the 108-qubit system, you made some significant progress on the QPU, but what are the key remaining gating items to deliver that as a customer-ready system? Subodh Kulkarni: Yes. Thanks for your question, Kevin. So as we said in our press release, we are on track to deploy the 108-qubit system around the end of March, with about 99.5% 2-qubit gate fidelity and 99.9% 1-qubit gate fidelity. As we mentioned in our prior press release, we intentionally delayed because of some interactions between tunable-couplers that happened at that scale, and that's what we are addressing. We have done that. We feel pretty good about deploying the system here soon. Hopefully, that answers your question. Kevin Garrigan: Yes, it does. And then as a follow-up, as the quantum supply chain kind of -- or just as the quantum industry scales, manufacturing capacity could become a pretty big constraint. And given Fab-1 is a key differentiator for you guys. Would you ever consider offering foundry or manufacturing capacity to others in the quantum computing industry? Subodh Kulkarni: Well, actually, we do offer Fab-1 as a foundry to select customers, specifically the DOE, DoD and The U.K. National Government. So these are our customers, they use our systems, they have deployed our systems over there. And as part of the overall technology partnership package, we do allow them to run experiments where we become the foundry. So we already do that, and we will continue to do those kinds of arrangements with, for select customers who have interest in developing their own chip architecture, chip designs and so on. Operator: Our next question comes from Troy Jensen with Cantor Fitzgerald. Troy Jensen: Congrats on all the progress and milestones achieved last year. But maybe just Subodh for you, I just want to make sure I get this correct, there's been a few different numbers kind of quoted in your press release about the single and dual gate fidelity. So when you launched this chip at the end of March, can you just clarify exactly what you think the fidelity levels will be for single and dual mode or dual gate? Subodh Kulkarni: So when we deploy this 108-qubit systems towards the end of March, our 1-qubit gate fidelity will continue to be at 99.9%, and our 2-qubit gate fidelity, the median number is expected to be about 99.5%. The reason we started clarifying 1-qubit gate fidelity, frankly, because there are many other quantum computing companies that are confusing everyone by reporting 1-qubit gate fidelity instead of 2-qubit gate fidelity. Historically, as you know, we have always focused on 2-qubit gate fidelity because that's really the most important metric when it comes to entanglement and so on, but some of the other quantum computing companies are routinely reporting 1-qubit gate fidelity and then comparing their 1-qubit gate fidelity our 2-qubit gate fidelity numbers. So to avoid that confusion we have started reporting both numbers right now, so again, I'll reiterate our 1-qubit gate fidelity has consistently been at 99.9% or better for a few years now. Its the 2-qubit we monitor closely, and that's what will be about 99.5% median when we deployed the 108-qubit system by the end of March. Troy Jensen: Awesome. If I could toss in two more quick ones. But 28 nano second gate speed, where were you guys at previously? And then also just an update on DARPA, where you guys stand with that? Subodh Kulkarni: So sure. So probably one of the most exciting parts about our press release this afternoon is the achievement of 99.9% 2-qubit gate fidelity, along with 99.9% 1-qubit gate fidelity and 28 nano second gate speed with our proprietary what we call Adiabatic CZ gate. CZ is a standard that many of us use in quantum computing for general purpose quantum computing. And this proprietary version of CZ gate us allows to get this incredible performance. We really believe this is a great milestone to -- for us to follow because now we know it is possible to get 99.9% 2-qubit gate fidelity with our current designer architecture. So very important milestone that takes us with the confidence that we will be able to deliver a 1,000 plus qubit system in a couple of years with 99.8% or that kind of 2-qubit gate fidelity. So we're really proud of that accomplishment. Regarding DARPA, specifically, we continue to work with them. We are confident that we'll get into Phase B. As we have discussed in the past, its an open-ended program. Once we reach certain milestones, they will get us into Phase B. They have given us a list of things that we have to address, mostly related to error corrections and a few other things. And we are working on them as we speak. So we feel pretty good that we should be in Phase B by the end of this year or thereabouts. Operator: Next question comes from Quinn Bolton with Needham & Company. Quinn Bolton: I guess just wanted to come back on the 108 qubit system. Obviously, the end of March is just a few weeks away. Are you guys already at the 99.5%, meeting 2-qubit gate fidelity in the lab and you're just sort of going through the process of getting the system online? Or is there still work to do on chips -- fabbing chips and tuning the process to get to that 99.5% 2-qubit gate fidelities? Subodh Kulkarni: Quinn, It's a little more complicated than that to give a simple answer like that, partly because when we bring up a new system, there's a lot of qubits obviously, 108 qubits is a lot of qubits and we bring different parts of the grid up, look at different edges and internal parts of the grid. So yes, there are multiple areas where we already are at 99.5% or better, but obviously, the whole grid is not at 99.5% median. Otherwise, we would have deployed it right away. So we are -- we did a chip redesign to address the coupling issues. We are collecting data, verifying that all the data is consistent. So when we deploy, we will be confident that this is the right system to deploy. Just a little context. 108-qubit system at that level of fidelity and that gate speed, about 50, 60 nano-second is a really good system. I mean when we look at the overall industry right now, as far as we can tell, the only one who has anything in that league or better would be IBM at 120 qubits with their tunable coupler. They used to have 156-qubit and 6 coupler, but they moved to tunable coupler and they're at 120. Everyone else is much more than that. And certainly, when you see announcements from companies like trapped ion or pure atom companies, as far as we know, nobody has even approached 100 qubits yet. There's a lot of press releases that go out, but when we go and see actual deployments, from any of these companies, no one is in that range. So we will be only the second company as far as I can tell, to reach 108 qubits deployed on a cloud. Just wanted to put that perspective in place. Quinn Bolton: I appreciate that. The second question is for Jeff. Jeff, you gave us some sense that the gross margin on the 2 Novera sales in the $5.7 million purchase orders, we're going to be carrying lower gross margins because of dilution refrigerators. Can you give us any sense what level of gross margin would you expect on the $5.7 million? And then I guess a similar question on the C-DAC 108-qubit system. What type of gross margin would you expect on that system? Is that also low because of the dilution refrigerator? Or is that expected to be a higher gross margin sale? Jeffrey Bertelsen: Yes. I guess the way I would answer that one is, I don't know that we want to get into quoting exactly what the gross margins are for, competitive reasons and whatnot. Our typical Novera systems without the dilution refrigeration have very high margins, definitely higher. With the dilution refrigeration, it's a resold item, you really can't mark that up. So they are going to be lower than maybe what we would see with some of our other Novera sales. And regarding the C-DAC system, again, I think for competitive reasons, we won't comment on the gross margin profile specifically. I mean, it is a very important strategic account for us, and we're happy to have it. And it will definitely contribute to our sales growth next year, but don't want to get into the margin specifics. Quinn Bolton: Got it. And then just a final clarification on the C-DAC order. It sounds like, does the entire $8.4 million rev rec once validation testing has been complete? Or is there a possibility that the $8.4 million could be rev rec'd over a couple of quarters in the back half of the year? Jeffrey Bertelsen: No, it won't be spread over time. It will be rev rec'd all at once at a point in time once we've -- once it's been installed and we're able to demonstrate that it's meeting its specs. So it will be more like a traditional system hardware sale as opposed to rev rec over time. Operator: Our next question comes from David Williams with StoneX. David Williams: I guess maybe first, if you think about what you're doing with NVIDIA on the NVLink there. Can you talk maybe a little bit about the progress and anything that's maybe developed over the last quarter in that regard? Subodh Kulkarni: Sure. Thanks for the question, David. So our view is that quantum computing is not going to exist in a silo. It will be part of a hybrid ecosystem. So as we have said multiple times and even in this press release, we believe that CPUs will continue to be in data centers doing sequential computing, addition, subtraction, that kind of stuff. GPUs will continue to be in data centers, doing parallel computing. What quantum computing will take over is simultaneous computing part that is currently handled by GPUs. So effectively quantum computing becomes an accelerator to a GPU for select applications where you have simultaneous computing. That view is consistent with NVIDIA and some other companies, that's where we are partnered with NVIDIA on the NVQLink. A critical part where we think it gives us huge advantage to be doing hybrid computing with superconducting gate-based quantum computing, which is what we do, is it gets to the speedy area. Because we are dealing with tens of nanoseconds in gate speeds, as you can see, our standard product is in the 50, 60 nanosecond and with this new gate that we announced, we are talking about sub-30-nanospeed gate speed. That commensurate with CPU and GPU gate speeds, and that really allows a practical hybrid quantum ecosystem to evolve. When you compare that with some other modalities like trapped ion or pure atom, they're talking about hundreds of microseconds. In fact, if I recall this correctly, the most recent number from IonQ is 600 microseconds. So that's 30,000x slower than where we are. Just to repeat, I mean, we are talking tens of thousands of times lower speed with trapped ion type modalities. And that creates a significant challenge for them to talk about a hybrid quantum ecosystem. So that's a huge advantage superconducting gate-based quantum systems have, where we have tremendous gate speeds commensurate with CPU and GPU allows us to do that kind of stuff. So that's why we have partnered with NVIDIA, we demonstrated at GTC in October last year, how a concept would look like. And we'll continue to do that with them. They are not only a company from the HPC environment that shares this view. Other HPC builders are also sharing similar views. So you are going to see more and more companies talk about hybrid quantum computing environment with HPC and quantum computers, particularly superconducting gate-based quantum computers coexisting together. Hopefully, that answers your question. David Williams: Yes, it certainly does. And then maybe secondly, just kind of looking at the landscape for M&A or acquisitions, it seems like there's a fairly ripe environment of different enabling type technologies that are out there. So maybe just discuss the landscape, how you see it, and if there's areas of the stack where you could benefit maybe that could help accelerate your roadmap? Subodh Kulkarni: Yes. As we mentioned, we would certainly be open to M&A if it helps accelerate our roadmap. Our roadmap, again, to repeat, we are talking about more than 1,000 qubit system at sub-50 nanosecond gate speed and 99.8% median 2-qubit gate fidelity in a couple of years. As far as we can tell, that's a very impressive system that we may be one of the only ones, if not the only ones to be able to get a system to that level of performance. So to get a system there and to try to find accelerating points where we can acquire someone to help us accelerate that roadmap, at least we haven't seen what exactly is out there that would help us accelerate that roadmap. Right now, clearly, our chiplet strategy is a critical component of us getting to 1,000 qubits. And there we are the pioneers. We have the IP. We have the know-how. As far as we can tell, we are the only ones who are practicing chiplets in real life. So really, no one else can help us to accelerate that one. When it comes to the other components of the stack on the control system, as we have already disclosed, we are partnered closely with Quanta Computer in Taiwan, and they are a top player in CPU, GPU servers in the cloud, and they fully understand that control system part of the stack. So we feel pretty good about who we have partnered with. I've already mentioned NVIDIA for NVQLink and the distribution layer software like CUDA Quantum. Other areas, we have Riverlane for error correction, QphoX for optical signaling, those kinds of partnerships. So we will continue to monitor the situation. And if we believe that someone can help accelerate our roadmap faster, we are certainly open, but at this point, our roadmap clearly is dependent on just executing our plan. So that's what we have said that most of our plan is organic right now, not contingent on M&A. Operator: Our next question comes from Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: I have two of them. So first one, if I remember right, I think by end of next quarter or so is your time line for making the decision of maybe building another fab or outsourcing it. So I'm kind of curious where we are in that and have the recent acquisition by your competitors kind of changed that decision-making thought process? Subodh Kulkarni: Well, we already have our own fab that is existing in Fremont, that's what's producing our wafers every day right now. Regarding the need for a new fab, we have mentioned that there may be a potential possibility that we may have to invest in a new fab, but we have been very clear, Krish, that we do not believe we need a new fab to get to quantum advantage. So we are -- certainly, for the next 3 years, we think our existing fab is capable of getting us to quantum advantage, which is 1000 qubit 99.9% type fidelity. The fact that we just disclosed a 99.9% 2-qubit gate fidelity performance with our existing fab is a proof point that our existing fab is clearly capable of taking us there. Regarding our competitors buying CMOS foundry for a quantum fab, we are not quite sure why they did that when they had already -- I believe you're referring to IonQ buying SkyWater. We are not quite sure why they did that because as far as we knew, IonQ had already invested in a separate fab in Washington State 3 years ago, and them purchasing SkyWater, we are not quite sure and SkyWater's primary business, most of their business is CMOS foundry obviously. So we are not quite sure what exactly the rationale was, you need to talk to them. But we certainly do not believe that we need to be using any other fab except our fab for the near term. Longer term, obviously, we have said there is potentially a need for a fab to -- there are multiple initiatives being looked at right now, including there are foundry options out there, and we'll certainly take a look at foundry options, other initiatives that are being looked at and decide what is the next step. But again, to repeat, we feel pretty good about our existing fab and feel confident that it will take us there to quantum advantage, which is about 3 years from now. Sreekrishnan Sankarnarayanan: Got it. Very helpful. And so just as a quick follow-up, kind of curious on the government funding thing. Last year, we had DOE announced new funding. Have you seen any activity from them? There's also any latest thoughts on the U.S. NQIRA? And any of the sovereign initiatives that you're seeing that could benefit Rigetti? Subodh Kulkarni: Well, certainly, there's a lot of initiatives being discussed at the U.S. government level to support quantum computing. But as we can all see, there is no bill that has been signed and appropriated yet. There seems to be bipartisan support for this NQI Reauthorization Act different, both the House and Senate, there seems to be in support, but it hasn't yet led to a bill that is signed and appropriate, which we are all eagerly awaiting for. It looks imminent. Everything suggests that such a bill should be signed here soon, and that will significantly help companies like us, but along with us other companies that play in this ecosystem too. So we certainly are supportive of those kinds of initiatives and hopefully, they happen. DoD funding continues. As you can see, we clearly are already getting funded from places like Air Force Research Lab part of DoD, and we'll continue to look at other opportunities with DoD and other areas of the government. We certainly are a critical part of the U.K. government's initiative in quantum computing and there are multiple new initiatives being discussed by the U.K. government right now, and we certainly will take a look at those kinds of opportunities. And of course, we announced that, we are the first company that the Indian government has really chosen to get their quantum computer installed. We are really proud of that accomplishment. So when the first quantum computer is procured by the government of India, we believe it will be ours before the end of this year. So we feel pretty good about being closely affiliated with U.S., U.K., and now the Indian government, and we'll continue to monitor different initiatives and funding activities going on. Operator: Our next question comes from Craig Ellis with B. Riley Securities. Craig Ellis: Subodh, in your prepared comments and in the press release, there was a note of Novera QPU sale to a Japanese research entity. I'm wondering if you could just tell us a little bit more about that. And then use that to elaborate on what the pipeline is looking like as you engage more broadly with other international entities? Subodh Kulkarni: Yes, sure. Thanks, Craig. So as we disclosed, we did get an order for a 9-qubit Novera from a Japanese research organization. We always ask their permission if we can disclose their name. In this case, they didn't want to for confidentiality reasons on their side. But it is a premium -- premier Japanese organization. And once they give us permission to disclose, we'll be happy to disclose. Overall, we feel pretty good about interest increasing to get on-premises quantum computing. As we have already disclosed, we have 2 upgradable 9 qubit systems that we are going to deliver in the first half of this year and on 108-qubit system to the government of India in the second half of this year. We have disclosed this Novera order and there a few more Novera potential orders here in the pipeline, and we'll disclose them when we get them. And if they give us permission to disclose their name maybe we will obviously do that. We are certainly talking to different government entities within U.S., U.K., India and some other countries too. And we believe the demand for on-premises system will continue to grow. As you can see, just by adding the numbers that we have disclosed, we want going to see significant year-over-year increase in sales this year by just delivering the systems that we have already received orders for, and we'll continue to see that in the future. We believe that as we get closer to quantum advantage, which is about 3 years from now, you are going to see significant spike in interest as we get closer to that milestone. And that makes sense because that's really when people start seeing practical benefits with quantum computing, and you will definitely see more and more commercial authorization starting to show interest in on-premises quantum computing. Hopefully, that answers your question, Craig. Craig Ellis: Yes, that's very helpful. And it's nice to see the revenue momentum on the Japanese research sales, Jeff, are you expecting those to rev rec this year? And if so, can you give us a sense for whether that would be in the first half of the year or the second half of the year? Jeffrey Bertelsen: Yes. The Novera to the Japanese organization, we expect that to ship in April and to rev rec in Q2. Operator: Our next question comes from Richard Shannon with Craig Hallum Capital Group. Tyler Perry Anderson: This is Tyler on for Richard. To the Japanese organization that purchased your system, did they already have multiple [ dilution ] fridges installed? And are they just testing different components in the stack or different combinations of components in the stack? And I have one more follow-up. Subodh Kulkarni: Well, certainly, we know they have 1 dilution refrigerator because they have ordered core Novera QPU and not a whole 9-qubit upgradeable system. We are not sure of what other modalities they have tested and within superconducting, if they have looked at any competitive solutions. As you probably know, Tyler, IBM really doesn't offer something like a 9-qubit system, Google doesn't offer a on-premises qubit quantum computing system. There is an organization -- a couple of organizations in Europe like IQM and QuantWare, they can offer smaller qubit count systems. But frankly, our performance is significantly better than those kinds of competitors. So we believe the Japanese organization did their homework and decided superconducting quantum computing is an area they want to invest in. And within superconducting to get started, Novera is a perfect solution to get your researchers familiar with quantum computing and starting to learn about quantum computing ecosystem and work on algorithms and applications and stuff like that. Tyler Perry Anderson: Got it. And you had mentioned you're doing work with -- sorry, I'm at the airport. You're doing work with Riverlane on the scalability of error correction. Could you just elaborate on what that means? Subodh Kulkarni: Sure. What we have disclosed is that we have partnered with Riverlane based in Cambridge, U.K. It's a company of probably our size, about 150 employees, excellent quality work they do in error correction software, and we have published some papers that anyone can take a look at. We showed some concepts of how real time error correction will work. We have shown a path to how their error correction hardware will closely integrate with our hardware. So they will be a core part of our stack, if you will, and how that will scale up as we go up to 100 and then 1,000 qubits and beyond 10,000 qubits. So our roadmaps are well aligned. We work very closely with their team. So effectively, we view the error correction as a key part of our stack going forward. Hopefully, that answers your question. Tyler Perry Anderson: Yes. Is there just any update on like number of qubits for one of their systems? Is there any change in that? Subodh Kulkarni: Not in that sense. I mean number of qubits and the raw fidelity, obviously, that all those things come from us. Where they start coming in, is error mitigation and error correction area. Obviously, that's the layer that is critical when you start talking about quantum advantage. So really, the benefit that our customers are going to see with Riverlane error correction is when we start approaching quantum advantage. Right now, they can test it. Riverlane will offer them their services. They have physical products to ship, if you will, and we can demonstrate that our systems are closely working well together. But clearly, we are not at a point of 1,000 qubits at 99.9% type fidelity where error correction can really be demonstrated to show practical benefits. So we need to get closer to quantum advantage before end users will start seeing the real value of error mitigation and error correction. Operator: Our next question comes from John McPeake with Rosenblatt Securities. John McPeake: Thanks, that's on getting to the error rate that you need to get to by the end of the quarter. Question on the 150-plus qubit system that you guys had originally planned for by the end of this year at 99.7% 2-qubit gate fidelity. Is that still on cards? Subodh Kulkarni: Yes, absolutely. That is our roadmap. We will deploy this 108-qubit system soon and then plan is to get to 150-plus qubit around the end of this year. We want to be careful. I mean, any time you say by the end of year, it always creates a challenge for December 31st and so on. I mean, these are extremely complex systems. These are extremely complicated technologies that we are developing. So what we have said is more than 150 qubit, about 99.7% median 2-qubit gate fidelity around the end of this year. That's our next milestone. The bigger one that we are really excited about, and we are focusing very much on that is more than 1,000 qubits, closer to 99.8% median 2-qubit gate fidelity, less than 50 nanosecond gate speed in about a couple of years. So that's where a lot of our work already has started. So we'll certainly get 150 plus delivered around the end of this year, but most of the effort right now has already started on the 1,000 plus qubit in a couple of years. And as I mentioned earlier, I mean, even 150 right now, there is no one our with 150-plus qubit system with the exception of IBM's old technology, where they had 156 qubit and certainly 1,000 is going to be a big milestone for the whole industry, certainly for us, but for the whole industry. We don't see how other modalities, even though they claim they will be there, you look around trapped ion or pure atoms or any other modalities, none of them, as far as I can see, have reached even 100 qubits or even anywhere close to that. So when they have the roadmaps talking about getting to 1,000 and tens of thousands, it's a roadmap. In the case because we are using chiplet technology and because we have semiconductor fabrication, and we know how to stack up the chips, we feel pretty good about our executability of our roadmap. So yes, to answer your question, absolutely, 150 plus around the end of this year and more than 1,000 around the end of next year. That's the plan. John McPeake: Great. So the issues you're resolving around the 108, are those critical to reaching these roadmap milestones? Is that -- is that the way I should think about it like once you resolve this tuneable coupler? Subodh Kulkarni: Yes, absolutely. I mean, the issue that we are resolving as we speak with the tuneable coupler and that's why we did the chip reiteration, it's critical to not only 108, but 150 and everything beyond that. So every time we advance to a certain level, we take advantage of all that when we go with the next systems. That's why, I mean, when we hear some companies talk about how they are going to get to 1 million qubits without demonstrating even 10 qubits, we are very skeptical of those kinds of claims. And frankly, I mean, even if you look at some companies trapped ion companies like IonQ, who acquired Oxford Ionics technology at a couple of qubits. And that's where they are right now, at a couple of qubits and to certainly say we'll be at 1 million qubits next year. We remain skeptical of those kinds of claims. I mean, unless you can demonstrate 10 and then 100, we just don't see how you can go from 2 qubits or 5 qubits to certainly a couple of million qubits in a year or 2 years. John McPeake: Okay. And then just last one, if I could. The 1,000 qubit machine by the end of 2027. Can you give us some kind of sense as to how many logical you might be able to squeeze out of that? I don't know if you're thinking about the Riverlane error correction solution or some other error correction? How should I think about that? Because it's a great physical number, certainly 99.8% on that one. Subodh Kulkarni: Yes. So really to start talking logical qubits, you need to get to closer to 99.9%, which is the quantum advantage point that I've talked about. In general, in the superconducting gate-based quantum computing technology space, we are in, typically, the number that we use is roughly 10 to 50 physical to logical qubit, depending on the exact fidelity and stuff like that. Maybe 10 to 100 in the worst case. But that's the ratio. So you have to divide that number by 10 to 100, to get the number of logical qubits. Once you approach 99.9% level. Now, I know that there's a confusion going around right now in the industry because, again, some trapped ion and pure atom companies have started reporting physical to logical qubit ratio of 2:1 and in some aggressive cases, 1:1, I just want to caution you that they are using a very weird definition of logical qubit in that case. They are not talking about the logical qubit as a perfect qubit. They're talking about logical qubit having a fidelity, and in some cases, their logical qubit fidelity is actually lower than the physical cubic gate fidelity. So it doesn't make any sense that they are using that language, but they are and that's unfortunately confusing a lot of people as to logical qubit and what does it mean and stuff like that. Hopefully, that answers your question, or maybe I confused you some more. Operator: Our next question comes from Brian Kinstlinger with Alliance Global Partners. Brian Kinstlinger: Well, my question was kind of answered. But I guess I'm curious, Subodh, if you can touch on or elaborate on either in Japan or India your customers, what the evaluation process was like. I think you said in Japan, maybe you weren't sure of the other modalities. But what was the competitive landscape in time? Subodh Kulkarni: Well, certainly, almost every national lab, university or any potential -- even commercial customers, they are fully aware of different modalities, the pros and cons. And once they decide to choose superconducting gate-based modality, and usually, the reason is for the obvious things that we have been saying, which are scalability and gate speed. Those are the huge benefits with superconducting modality. Everyone understands that fidelity is the main challenge in superconducting modality. So usually, that part, most customers that we talk to have done on their own. Usually when we talk to them, they have already gone through that process, but then they are starting to look at different competitors within superconducting gate modality. Obviously, IBM is always there in the fray. Sometimes we deal with companies like IQM from Finland or QuantWare from Holland or some other companies around the world. I mean, the main thing that differentiates Rigetti is our open modular architecture. We have this innovative way of incorporating third-party solutions that allow us to come up with innovative solutions faster. Examples being Quanta Computer for control system or NVIDIA for NVQLink or distribution layer software like CUDA Quantum or Riverlane for error correction. Most customers like that kind of an open approach because usually they have some ideas on what other things they would like to try with quantum computing because they're also doing research at this point. And the other part where we really outshine our competitors is chiplet. Everyone sees that chiplet is a very, very possible way to scale up long term. We allow our customers to upgrade as you can clearly see our current 2 orders that we are fulfilling are upgradable 9-qubit systems. So once they get 9-qubit up and running, we fully expect them to ask us to upgrade them to up to 108-qubit, sometime next year because of the same dilution refrigerator with some changes in cables and connectivity will be able to handle 108 qubits or even more in the future. So main differentiator, the reason they choose us are our open modular approach and our chiplet approach and a few other things, but those are the customers that end up choosing Rigetti. Hopefully, that answers your question. Operator: I would now like to turn the call back over to Dr. Subodh Kulkarni for any closing remarks. Subodh Kulkarni: Thank you for the thoughtful discussion today. We are excited about the momentum we are building across our technology roadmap, our partnerships and growing engagement from customers around the world. Our team is focused on executing with discipline and delivering systems that enable meaningful progress in quantum and hybrid computing. We appreciate your continued interest and look forward to sharing our progress in the quarters ahead. Thank you. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Intrepid Potash, Inc. Fourth Quarter 2025 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead. Evan Mapes: Good morning, everyone. Thank you for joining us to discuss Intrepid Potash, Inc.'s fourth quarter 2025 results. With me today is Intrepid's CEO, Kevin Crutchfield, and CFO, Matt Preston. During the Q&A session, VP of Sales and Marketing, Zachry Adams, and VP of Operations, Rick Kim, will also be available. Please be advised that comments we will make today include forward-looking statements as defined by U.S. securities laws. These are based upon information available to us today and are subject to risks and uncertainties as described in the reports we file with the SEC. These could cause our actual results to be different from those currently anticipated, and we assume no obligation to update them. During today's call, we will also refer to certain non-GAAP financial and operational measures. Reconciliations to the most directly comparable GAAP measures included in yesterday's press release, along with our SEC filings, are available at intrepidpotash.com. I will now turn the call over to our CEO, Kevin Crutchfield. Kevin Crutchfield: Thanks, Evan, and good morning, everyone. We appreciate your interest and attendance for today's earnings call. Intrepid again delivered strong results in the fourth quarter, with adjusted net income and adjusted EBITDA of $6.5 million and $18.1 million, respectively, both of which were significant improvements compared to last year. For 2025 as a whole, our adjusted EBITDA of $63 million is one of the best prints since 2016, and represents an almost 80% improvement compared to 2024. We are very proud of these results, which we also accomplished with best-in-class safety performance with just one recordable incident in 2025 across over 1.1 million hours worked. I would like to thank and congratulate our site and all of our team members for their hard work and dedication, and want to encourage them to continue to stay focused and continue to deliver good results in 2026. Our solid 2025 performance was driven by several factors. First, steady demand for our core fertilizer products drove strong sales volumes. In 2025, our combined potash and Trio sales volumes of just over 590,000 tons were 20% higher compared to 2024, with 303,000 tons of Trio sales being a company record. Second, we again delivered solid unit economics from higher overall production, with our 2025 potash COGS per ton improving by approximately 5% versus last year, and our Trio COGS per ton improving by over 10%. And third, we benefited from increasing pricing. This was most pronounced in Trio, where fourth quarter average realized price of $379 per ton was 20% higher than 2025. The solid sales volumes and pricing have continued into 2026 ahead of the spring application season, and agricultural markets have also shown signs of optimism. For corn, year-to-date domestic exports are up almost 50% versus last year. And for soybeans, recent trade deals have improved the outlook with futures for both crops up by about 15% since the August lows. Moreover, the $12 billion in government bridge payments to farmers are expected in the coming weeks, which should help further support solid fertilizer demand this spring. For the broader potash market, global supply and demand remain mostly balanced, where demand in key international markets has been resilient. In 2025, global potash shipments were estimated at roughly 75 million tons and 2026 is expected to see additional growth of about 1.5 million tons. Moreover, by the end of the decade, third parties are forecasting global potash demand to be about 6 million tons higher than it was in 2025, which should help absorb additional supply coming from some of the larger-scale potash projects like Jansen. Before passing the call to Matt, I will end my remarks with a couple key project and operational updates. In potash, we have deferred a decision on our Amex cavern into at least 2027 as we continue to evaluate the project. Since we have never mined this cavern, which still requires additional investment, we want to be very sure we completely understand the mineralogy and the geology and feel it is most prudent to continue to demonstrate strong capital discipline until this evaluation is complete. In addition, we feel confident we can sustain our HB production over the next several years even without Amex. For Trio, our operational performance continues to be very strong, and we recently placed another new continuous miner into service, which should further improve our mining rates and continue our trend of year-over-year production increases. For 2026, we expect our Trio production to be in the range of 285,000 to 300,000 tons, which represents a year-over-year increase of about 7% at the midpoint. This will help offset what should be flat to slightly down potash production in 2026, which is primarily due to the below-average evaporation at HB over the summer. Moving on to our lithium project in Wendover. We have published quite a bit of detail in recent press releases, but I will provide a quick summary. For those new to the story, one of our key byproducts after producing potash at Wendover is magnesium chloride brine. This brine also contains lithium, but requires a highly technical direct lithium extraction process. We have looked at various DLE options over the past several years, and just recently, new technologies have made significant strides which should now make the project viable at scale. As for project updates, in January, we announced that we have a joint development agreement in place with Aquatech and Adionics whereby our partners have already produced a sample of battery-grade lithium carbonate from our brine. As we noted in yesterday's press release, we will be providing an updated technical report summary for Wendover along with our 2025 10-K, which will include maiden resource estimates for lithium and will show a measured and indicated resource of approximately 119,000 tons of lithium carbonate equivalent. At the current estimated production capacity of 5,000 tons per year, this would support a project life of roughly 25 years. There is still plenty of work to be done, but we have high confidence in our partners and we are optimistic we can move quickly, with a goal for a definitive feasibility study later this year. Lastly, we are now under exclusivity with a potential buyer for the South Ranch. Negotiations are ongoing and subject to confidentiality provisions, but we are holding an $8 million deposit from the potential buyer, which demonstrates their very serious intent. Although we are still negotiating definitive agreements, we believe the potential deal will likely close sometime in 2026 and we will update the market as appropriate. Overall, it is an exciting time for Intrepid. We are delivering strong results and remain constructive on the outlook. With very strong support for critical minerals in the United States, there has probably been no better time to be a domestic producer of potash and Trio, while lithium provides significant potential upside. In addition, we want to highlight that our core products have long-term staying power, which is further enhanced by our multi-decade reserve lives, and we look forward to capitalizing on our unique positioning in 2026 and beyond. So with that, I will now turn the call over to Matt. Please go ahead. Matt Preston: Thank you, Kevin. To echo Kevin's remarks, 2025 was a great year for Intrepid, where our total fertilizer sales volumes of 592,000 tons were almost 100,000 tons higher than 2024 and reached a level not seen since 2018. Our number one focus is driving higher production to increase our revenues and improve our unit economics, and it is very encouraging to see our hard work pay off with strong results. For segment highlights, in potash, our fourth quarter gross margin of $4.6 million was in line with the prior year as a higher average net realized sales price of $387 per ton was offset by a slight decrease in sales volumes due to a compressed fall application season and limited engagement on spring potash needs in the latter part of the quarter. Full-year 2025 segment gross margin of $18.2 million was modestly higher compared to last year as the higher production that started in 2024 allowed us to sell 289,000 tons, a 20% increase from 2024, which offset a pricing decline of about $25 per ton. As we noted on our third quarter earnings call, our fourth quarter potash production was impacted by a delayed start-up at HB, which resulted in our full-year 2025 production coming in at 280,000 tons. For 2026, we expect our annual potash production to be in the range of 270,000 to 285,000 tons, and we do expect a slight degradation in our unit economics this year. That said, looking beyond 2026, we expect a recovery in our HB production and more tons out of our Wendover facility, and project our 2027 potash production will be in the range of 300,000 to 310,000 tons, which puts us back on track for our key potash production goal. Moving on to Trio. The very strong performance continued as our fourth quarter and 2025 production, sales volumes, and pricing were all higher compared to the respective prior-year periods due to strong operational execution, modest market share gains, and supportive sulfate values. This led to $10.5 million in gross margin in the fourth quarter, and $33.4 million in gross margin for 2025. Outside of the significantly elevated pricing in 2022, this is the best Trio performance in our history. In 2026, as Kevin mentioned, we expect to produce 285,000 to 300,000 tons of Trio and anticipate our cost of goods sold per ton to show modest improvements from 2025 as consistent production increases continue to improve our overall unit economics. Our forecasted Trio production, coupled with continued strong pricing due to both the expected solid nutrient demand for spring application and supportive Trio component valuations, should continue to result in strong Trio segment performance in 2026. Turning to first quarter guidance. In potash, we expect our sales volumes to be between 95,000 to 105,000 tons at an average net realized sales price in the range of $345 to $355 per ton. For Trio, we expect our sales volumes to be between 105,000 to 115,000 tons at an average net realized sales price in the range of $380 to $390 per ton. For our 2026 capital program, we expect our capital investment will be in the range of $40 million to $50 million with most of our spend related to sustaining capital, specifically at our East Mine, and for the beginning of a new primary pond at Wendover. We expect this will begin contributing to Wendover's production in 2028. In summary, 2025 was a great year for Intrepid, and we look forward to carrying this momentum into 2026. Overall fertilizer production and sales volumes look to be on par or slightly ahead of 2025, and pricing continues to be supportive. Production improvements in our Trio segment, going from 216,000 tons in 2023 to nearly 300,000 tons in 2026, are sustainable, and we see further upside as we continue to focus on improved mining and recovery rates. We will work through the recent weather and evaporation setbacks in potash during the 2026 spring season, and remain confident in eclipsing 300,000 tons of potash production in upcoming production years. Operator, we are now ready for the Q&A portion of our call. Operator: We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any key. To withdraw your question, please press star, then 1. We will pause for a moment as callers join the queue. The first question comes from Lucas Beaumont with UBS. Nicole Greenberg: Hi. This is Nicole Greenberg on for Lucas. Firstly, I was just wondering if you can walk us through current potash demand dynamics, how your order book is looking for 1Q. Have you seen any evidence of demand disruption due to affordability issues? Zachry Adams: Yes. Thank you for the question. This is Zachry. We are almost fully committed for first quarter right now on potash, and we have not seen any significant demand destruction at this time. Potash remains a very good value for the grower at the current price point, and we expect stable demand for the spring season amid strong acres of corn expected to be planted. Nicole Greenberg: Great. Thanks. Nicole Greenberg: And then just on the lithium project, can you walk through the unit economics there? What cash cost of production would you expect on a per-ton basis? Kevin Crutchfield: We are not prepared to address that at this stage. We will continue to provide updates to the marketplace as the engineering work progresses, and we will start laying those metrics out in the future. Nicole Greenberg: Got it. Yep. And then last one for me. So oil and fuel sales were down meaningfully in 2025. What is your outlook there going forward compared to this year? Are you expecting growth or further declines from here? Kevin Crutchfield: Given the nature of the asset and lots of inbounds and interest in the oilfield services business, we felt like testing the market for valuation of our asset was appropriate, which we did, which is why we entered a letter of intent with the prospective buyer. So I think any comment that I would have beyond that would be speculation and almost irrelevant, given that it is our intent to transact on this asset. Nicole Greenberg: Great. Thank you. Operator: Once again, if you have a question, please press star, then 1. Your next question comes from Vincent Andrews with Morgan Stanley. Justin Pellegrino: Good morning, everybody. This is Justin Pellegrino on for Vincent. Congratulations on the results. My first question is kind of around sulfur prices. Given the conflicts in the Middle East, we have seen a significant increase in sulfur prices there. And I know it is fairly recent, but could you just discuss any sort of increased interest you have had in Trio over the last few days? Any type of real-time update that you have seen there would be very helpful. And then likewise, can you just discuss expectations for prices relative to the potash products, how that will trend throughout the year? Thank you. Zachry Adams: Justin, on the sulfur component and what that has led to on Trio interest, we are right in the heat of our main Trio application season, so we are seeing a really good response. I would say, from the demand perspective for the rest of first quarter out into second quarter at this point, we have not seen those prices roll through on sulfate values just yet, but that is something we are watching closely as we move into the spring. And then as far as potash pricing throughout the rest of the year, I am not prepared to project what the second half looks like, but I think globally we are in a very balanced potash market, and particularly here in the U.S. The U.S. potash prices are trading at a discount to almost all global benchmarks, so we think that supports stable pricing here in the U.S. and certainly some room for upside to get in line with where other global markets are currently trading. Justin Pellegrino: Great. And then just one more from me. If the South Ranch deal does go through, can you give us an update on any capital allocation priorities? Any idea what you would do with the proceeds? Any thoughts there would be helpful. Thank you. Kevin Crutchfield: Sure. Thank you. Assuming the sale goes through, I think my answer would be the same whether the sale goes through or not that I have referenced on pretty much every call since I took the mantle of the CEO here 15 months ago. Our first priority is an intense focus on our core operations. We are restoring those back to a predictable, resilient state, making sure that they are generating consistent free cash flow and that we can appropriately capitalize them to continue that predictability and reliability into the future and perhaps even grow production volumes modestly over the coming years. From there, we obviously need to maintain sufficient liquidity to allocate capital internally to our operations and address any sustaining and growth capital requirements, and internally also to withstand any sort of body blow or shock that we take to the system on the pricing front. Then once we have satisfied those criteria, I think it is a very appropriate discussion for the board to begin to think about the capital allocations beyond that that just entail the internal needs. So to the extent that the sale does go through, you can rest assured that discussion is top of mind and top of the agenda with the board. I do not want to front-run our board any further than those comments, but that is our point of view on that. Justin Pellegrino: Great. Thank you for all the commentary. Operator: Thank you. Operator: This concludes the question and answer session. I would like to turn the conference back over to Kevin Crutchfield for any closing remarks. Kevin Crutchfield: Thanks to everybody again for attending today’s call, and I would like to again thank all of our employees across all of our sites for a really great year and especially thank them for just an outstanding safety performance, and we look forward to continuing to keep you updated in the coming quarters. Thanks for attending today. Operator: This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, everyone, and welcome to BBVA Argentina's 4Q '25 and Fiscal Year 2025 Results Conference Call. Today with us are Mrs. Belén Fourcade, Investor Relations Manager; Diego Cesarini, IRO; and Mrs. Carmen Morillo, CFO, who will be available for the Q&A session. This presentation and the 4Q '25 earnings release are available on BBVA's Investor Relations website, ir.bbva.com.ar, and will also be available for download in the chat. First of all, let me point out that some of the statements made during this conference call may be forward-looking statements within the meaning of the safe harbor provisions found in Section 27A of the Securities Act of 1933 under U.S. federal securities law. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information concerning these factors is contained in BBVA Argentina's annual report on Form 20-F for the fiscal year 2024 filed with the U.S. Securities and Exchange Commission. [Operator Instructions] I will now turn the call over to Mrs. Belén Fourcade. Please go ahead. María Belén Fourcade: Good morning, and thank you all for joining us today. After a third quarter that was marked by political instability with its consequent monetary and exchange rate tensions, the results of the midterm legislative elections reaffirmed support for the government's fiscal reform and order policy. This translated into a rapid normalization of financial variables, which returned to pre-event levels. BBVA Argentina continues to consolidate its growth strategy, reflecting its commitment to being a key player in Argentina's recovery of activity. This was achieved despite a year ultimately marked by interest rate volatility in the second half and the progressive deterioration of credit quality within specific segments of the retail portfolio. In this line, on December 22, 2025, the bank secured a credit line of up to $150 million from the International Finance Corporation. These funds allow BBVA to expand its financing capacity for small- and medium-sized enterprises, thereby reaffirming its commitment to the productive sector. BBVA Argentina's non-performing loan ratio on private loans reached 4.18% as of December 2025, a figure that remains below the system average of 5.29% for the same period. The bank stands out for having consistently lower delinquency ratios than the sector average, which reflects the quality of its credit risk management and its prudent approach to portfolio origination. Before diving into numbers, it is important to mention that on December 10, 2025, the transaction through which BBVA Argentina acquired 50% of the share capital of FCA Compañía Financiera has been closed. This had a ARS 1 billion impact in the P&L and all balance sheet figures include FCA, including loans and deposits. Nonetheless, market shares expressed in this report and on this call do not include FCA as the consolidation was made as of the last day of December. Moving to Slide 2 to 5 of the webcast presentation, I will now comment on the bank's fourth quarter 2025 and 2025 fiscal year financial results. BBVA Argentina's inflation adjusted net income in 2025 was ARS 267.4 billion, decreasing 43.2% versus 2024. This implies an accumulated ROE of 7.3% and accumulated ROA of 1.1%. The year-over-year decline in results is mainly explained by the deterioration of loan loss allowances in a context of high delinquency ratios in the financial system. Also, in spite of observing a 29.4% lower net interest income as a result of lower interest rates and inflation, this should be considered in comparison to lower losses from the net monetary position, which more than offset the lower NII. It is worth noting the 36.9% increase in net fee income, thanks to a proactive approach in improvements, and also in foreign currency and gold gains, the latter explained by an increase in activity after the partial lift in FX controls on April 14, 2025. In the fourth quarter of 2025, net income was ARS 59.3 billion, increasing 44.5% quarter-over-quarter. This implied a quarterly ROE of 6.5% and a quarterly ROA of 0.9%. Quarterly results were mainly explained by higher income along with lower expenses. The increase in income is mainly due to: one, better net interest income; and two, an increase in results from write-down of assets at amortized cost and OCI. The latter due to the sale of bonds classified in the OCI model. Expenses improved mainly on the side of personnel expenses and administrative expenses. These were negatively offset by, one, loan loss allowances; two, an increase in operating expenses mainly due to turnover tax; and three, lower net fee income in the quarter. Net income from the net monetary position was 32% higher quarter-over-quarter, explained by a higher quarterly inflation. Net interest income in the quarter was ARS 758.9 billion, increasing 20.2% quarter-over-quarter. After the uncertainty surrounding the midterm elections were off, average market interest rates declined. With the liabilities repricing at a faster pace than assets, we observed the reverse effect from the one seen in the third quarter of 2025, with income from public securities and loans increasing and expenses from funding increasing, but to a much lower extent. In the year, net interest income decreased 29.4%, as mentioned before, more than offset by the lower losses on the side of the net results from the net monetary position. Loan loss allowances increased 31.3% in the quarter and 181.2% accumulated year-over-year, explained by the deterioration of non-performing loans, in particular, on the retail book, which implied higher provisioning. The effect of loan loss allowances can be observed in the evolution of the cost of risk, which reached 8.11% in the fourth quarter of 2025 and 5.54% on an annual basis. During 2025, personnel and administrative expenses decreased by 11% and 12.6%, respectively. This was achieved, thanks to the active pursuit of efficiencies during the year. During the fourth quarter of 2025, in particular, total operating expenses were ARS 537.5 billion, remaining stable quarter-over-quarter. Both the efficiency ratio as well as the fee to expenses ratio evidence the stability and the improvements that are taking place on these lines of the income statement, and we expect them to improve even further for 2026. Going on to Slide 6 and 7. Private sector loans as of the fourth quarter of 2025 totaled ARS 14.8 trillion, increasing 7.6% in real terms quarter-over-quarter and 47.6% year-over-year. In the quarter, growth was mainly driven by an increase in loans in pesos. In total currency, the products that increased the most were mostly commercial loans such as financing of projects and exports and discounted instruments. On the peso portfolio, discounted instruments, pledged loans and credit cards stood out. Pledged loans are mainly affected by the introduction of FCA into the loan book. In the case of consumer loans, prudency policies taken in a context of higher deterioration of non-performing loans were noticeable on this line with a 2.2% quarter-over-quarter decline. BBVA Argentina's consolidated market share of private sector loans reached 11.91% as of the fourth quarter of 2025, improving 64 basis points from 11.27% a year ago. As for asset quality, the NPL ratio of BBVA Argentina on private loans reached 4.18% as of December 2025. As mentioned before, BBVA is renowned for presenting delinquency ratios spread consistently below the sector average, which reflects the quality of its credit risk management and its prudent approach to portfolio origination. By the end of 2025, total gross loans and other financing over deposit ratio was 88%, above the 78% in December 2024. Participation of total loans over assets is 57%, the highest since 2020 and above the 51% recovery in 2024. As of the fourth quarter of 2025, the total NIM was 17.5%, higher than the 15.2% in the third quarter of 2025 and below the 20.2% in the fourth quarter of 2024. While the NIM in pesos increased by 277 basis points to 20.2% quarter-over-quarter, the NIM in dollars fell 91 basis points to 4.8%. In the quarter, the increase in NIM is mainly explained by a better yield on public securities and loans in pesos, while the drop in dollar NIM is explained by a higher volume and rate of interest-bearing liabilities. In the accumulated annual comparison, although the total NIM presents a considerable drop, it should be understood that this is a consequence of the rapid decrease in inflation and therefore, the level of rates and is more than offset by the lower cost of inflation adjustment. This can be seen in the adjusted NIM, which dropped from 17.30% to 13.75%. On the funding side, as of the fourth quarter of 2025, total private deposits reached ARS 16.7 trillion, increasing 3.1% quarter-over-quarter, and 29.7% year-over-year. The bank's consolidated market share of private deposits as of the fourth quarter of 2025 reached 10.04% from 8.60% a year ago. Private non-financial sector deposits in pesos, totaled ARS 10.5 trillion, a decrease of 1.4% quarter-over-quarter, explained by a decrease in time deposits and in other deposits, including interest-bearing checking accounts. This effect was partially offset by an increase in savings accounts. Private non-financial sector deposits in foreign currency expressed in pesos increased by 11.6% quarter-over-quarter. This is mainly due to an increase in savings accounts and in time deposits. In hard currency, U.S. dollar loans increased 12.7% quarter-over-quarter and 26.6% year-over-year. As of the fourth quarter of 2025, capital ratio reached 18.3%. The quarterly increase in the ratio was due to a 9.4% increase in Common Equity Tier 1, mainly impacted by the recovery in the value of government bonds at fair value through OCI. Public sector exposure, excluding Central Bank totaled ARS 3.9 trillion, implying a 15.5% exposure, below the 16.4% recorded in the third quarter of 2025 and 17.9% in the fourth quarter of 2024. For the year, the drop in exposure is mainly explained by the increase in assets led by the growth of loans over that of financial instruments. It is important to highlight that more than 90% of the National Treasury's public debt portfolio in pesos is at TAMAR floating rate. These bonds represent approximately 65% of the bank's sovereign portfolio and in the context of higher real interest rates in the second half of the year added value to the financial margin. In the quarter, the liquidity ratio reached a level of 44.2%. The liquidity ratio in local and foreign currency reached 37.7% and 55.2%, respectively. In line with our commitment of generating value for our shareholders, the bank continued the payment of dividends corresponding to the 2024 fiscal year in 10 installments, having paid 9 of the 10 installments required by the Central Bank's regulation up to the date of this report. This concludes our prepared remarks. We will now take your questions. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Tito Labarta with Goldman Sachs. Daer Labarta: I guess my main question is really on asset quality and how that continues to evolve and what that could mean for loan growth for 2026. We kind of expected already that you're still not out of the credit cycle, but it seems provisions jumped a bit more than expected. NPLs went up a bit. I mean do you still think 1Q, 2Q should be the worst of it? Do you think that can get delayed and the credit cycle can last a bit longer? I just want to understand how comfortable you feel on credit quality stabilizing and potentially improving? And what could that mean for loan growth? You have pretty good loan growth in the quarter, but is there some risk to your ability to grow loans if credit quality does not improve? Carmen Arroyo: Tito, good morning. Hi, everyone. This is Carmen Morillo. Thank you for your question. Related to asset quality growth and yes, we think that these are the main questions for this year. So first of all, I would like to highlight that during 2025, we have been able to gain market share in a quite solid way, this 11.91% market share that means 60 basis points increase in market share is quite solid. And in terms of credit risk, we've been under the system ratios. Having said that, we believe that first quarter will be also a tough one. But from then on, what we believe is that credit indicators should go downwards. So for us, the peak should be in the first quarter in terms of NPLs for sure, and in terms of cost of risk also. In terms of growth, maybe it's too soon to answer this question. What we believe is that depending on what the financial system growth is. And what we still believe is that we are -- so our strategy is to gain market share. So we see the credits in the system growing around 18% in real terms. So we should be growing above that. So our guidance was to grow between 25% and 30% for the 2026. And we think it's too early to change our guidance. So we would maintain these figures. So yes, around -- so to grow faster than the system. And also in terms of deposits. So we believe that our strategy is the good one in that sense. We've been growing also in deposits during 2025. We've been able to gain -- to be more -- so to have a better participation in the transactionality of our clients. And in that sense, we will be also beating the system in deposits. So I hope I could have answered your question. Thank you. Daer Labarta: Yes. No, that's helpful, Carmen. I guess how do you think that then translates to profitability for 2026? I mean, do you think you can achieve a double-digit ROE? Can you start getting to like the low teens by the end of the year? Or does that also get delayed a bit and we could see some pressure on profitability? Carmen Arroyo: Okay. So I think we have been very consistent in our guidance in terms of ROE. We were talking about low to mid-teens for the last quarters. It's -- as I mentioned, and all of you know, the environment is not so easy to predict. But we think it's early to change this guidance. So we are confident we will be able to achieve a better profitability than the one we have done this year, which, by the way, is much better than the systems one and other peers. So we are happy with that performance in relative terms. Of course, we have faced a lot of difficulties this year. And I think it -- so the year is a very positive one in this environment. And for next year, we hope to be above, so low to mid-teens, it's too early to say low or mid-teens, but I believe we should be achieving this goal. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: Carmen, I wanted to maybe expand a bit on deposits because I think your market share gains were very relevant. You're above the double digit maybe for the first time in some time. So I think it's a very important point. Just wanted to see your strategy, right? Because I think given the conditions that are very tight, maybe the competition for funding intensified. So I just wanted to ask you what's your strategy here? And how do you prevent maybe a spike in the cost of funding? Diego Cesarini: Brian, this is Diego Cesarini. I will take this question. Well, it's true. We have been growing on deposits much faster than the system. Last year, we grew 32% in real terms, while the system grew around 12%. So our gains in market share have been huge. Here, we have been working on many fronts. On one side, we have seen a recovery on retail deposits. Retail term deposits, for example, represented a couple of years ago before Milei took cover. And below -- before the 2023 presidential elections represented around 30% of our deposits in pesos. And after 1.5 years, they just represented 10%. Last year, we started to see a recovery in the investors' appetite for bringing that kind of deposits. So we put a lot of focus on trying to make them grow faster. Now they represent around 15%. We have also been very active on companies on SMEs deposits. We were out of that market a couple of years ago because we didn't need that funding. So we are back on that market. We are putting a lot of aggressive targets to our work in our commercial forces. And we have also succeeded a lot in growing very fast on SMEs deposits. And the last -- I guess, that the last leg of this strategy wholesale deposits. Institution, as you know, they still represent a huge amount of Argentinian market. And again, 2 years ago, we didn't need those deposits after we started growing, well, we were going for them again. So we are on every front. And of course, in dollar deposits, we have also been growing market share. We are also active on that market. And we still think that we have room to keep growing there. Brian Flores: Super clear. And then a follow-up on Tito's question. Just to summarize, basically, you're envisioning growth as Carmen was saying, 25% to 30% in real terms, I don't know if you could elaborate a bit on the composition because I know you're a bit more on the commercial side in terms of the mix, right? The deposits, do you think they grow above or in line with loans? ROE, you mentioned already maybe low double digits. And then I have maybe another question on asset quality. Do you think cost of risk could be at some point, maybe at the end of 2026, closer to the end of 2024, which is closer to the 5% rather than the 7%, we are now? Diego Cesarini: Starting with your latest questions. Yes, we think that by the end of this year, it could be reaching the 2024 levels. Of course, it will start at levels that are similar to the end of last year, as Carmen said before. And regarding the composition of our portfolio, I think that maybe in general terms, it will be similar to the one that we have right now. But of course, at the beginning of the year, probably during the first semester, we will be much more focused on big corporations because for obvious reasons, that the retail market is still not recovering. So probably consumer loans or credit card loans could suffer a little during the first part of the year and probably in the second semester, things will return to normality. Carmen Arroyo: Yes. The point is when the situation in the retail side is safe enough to come back to credit cards and personal loans and all that. But having said that, we will be addressed -- we will be in mortgages, in pledged loans. So in the retail side, we see these products as the main ones in our strategy at the beginning of the year. Then, of course, as the situation gets better, we will be back in all products as we used to be. And in the commercial side, we are not expecting a higher deterioration, and that's why we think we will maintain, as we Diego was mentioning, in the mix we have nowadays. Brian Flores: Super clear. And on deposits, just to clarify, do you expect to grow above or below the loan growth? Carmen Arroyo: Below, so... Diego Cesarini: Below what? Carmen Arroyo: The loan growth? Diego Cesarini: No, I guess the below loan growth... Carmen Arroyo: Above the system. Diego Cesarini: Yes. Above the system, probably. But below loan growth just because, well, of course, equity also grows. There are other liabilities that also grow. So we need to grow less in percentage terms in deposits than in loans. That's just mathematics. But as I said before, we still think that we have room to grow. Even if deposits were behaving not so good this year, we still have liquid. We still have bonds in excess. We have a public sector portfolio in excess of what we need to comply with reserve requirements. So we still could use some liquidity in order to keep growing. Brian Flores: Perfect. So if I -- if we think of, let's say, a 20% real terms in deposits, that makes sense, right? Diego Cesarini: Yes, between 15% and 20% could make sense in a scenario where we grow in loans between 25% and 30%. Carmen Arroyo: And in both cases, gaining. So the strategy is to gain market share. So it will depend on what the system does. Operator: Next question from Carlos Gomez-Lopez with HSBC. Carlos Gomez-Lopez: Carmen, Diego, Belén. First, congratulations on the good result and the gains in market share, which is what you wanted to achieve and the stability of the results. So to ask a few things which are different. First, the dividend for 2025, do you expect it to be able to pay in a single or a discrete number of payments? Or will you still have these 10 different payments that you have had in 2024? And what level of payment are you thinking of doing? Second, on taxes. So when you look at the last 3 years, you've been paying about 34% on average over the last 3 years. Is that a level that you expect for the future? Or should we go back to the statutory rate around 30%? And finally, can you give us an update about when we might move away from inflation accounting? Is that 2028? Or do we have to wait longer? Carmen Arroyo: Carlos, thank you for your words. Then related to your question. So first one was dividends. So we still don't know what -- so how are we going to be able to pay the dividend. So I don't have an answer on that question. So we believe we need to have information in the following -- yes, during March, I would say. So we will know that soon. Related to the amount, as we -- so we ended in -- so this capital ratio of 18.3%, 2025. As I mentioned, we want to grow for the next years. So we prefer to pay a small -- so we will be paying dividend, but it will be something similar to what we did last year. So to maintain a lower payout ratio and grow faster. Then your second question... Carlos Gomez-Lopez: It was on the taxes and inflation. And by the way, what was the payout, in the end last year? Carmen Arroyo: Sorry? Carlos Gomez-Lopez: The payout, last year? Diego Cesarini: Last year payout was around 25% of our 2024 net income. Carlos Gomez-Lopez: 25%. Diego Cesarini: That was last year dividend. Carmen Arroyo: Yes. Then inflation. A couple of months ago, we were thinking about 2027, so by the end of 2027, to be the end of this adjustment. Now we changed a little bit our projections of inflation. So I think it would be prudent to say that 2028 should be the year to go out of this adjustment, but it will be, yes, in 2027, beginning of 2028, something like that. Diego Cesarini: Carlos, just to add a piece of information, according to the FX regulation that is in place, we could access in theory to the official FX market to pay dividends this year. Carmen Arroyo: Okay. And then in terms of taxes, you were asking. So I don't see a reason why they should come back to -- so other percentages. But I don't have here the information. So let me take a look on that and come back to you. Carlos Gomez-Lopez: Sure. Carmen Arroyo: Yes. So I believe -- so we should be at that levels but if -- so if we see something else, I will come to you. Carlos Gomez-Lopez: So at that level, meaning the 30% statutory? Because as I said, this year, almost every quarter, you have had 34% to 41% in my numbers, maybe I'm doing something wrong. Carmen Arroyo: No. I mean 35%. So around 35%, yes. Carlos Gomez-Lopez: Around 35%? Diego Cesarini: Correct. It should be around 35%. Operator: Next question from Pedro Offenhenden with Latin Securities. Pedro Offenhenden: I wanted to ask on cost, how should we think about personnel and administrative expenses during this year? Carmen Arroyo: Pedro, thank you for your question. This year, meaning 2026, I believe? Pedro Offenhenden: Yes. Carmen Arroyo: So the improvement we've seen during this year, we believe we will be also improving in 2026. So the trend should continue, not only in terms of being quite aggressive in not growing in expenses, but also due to our better net interest margin, fees and commissions and so on. So the efficiency ratio should go downwards. Pedro Offenhenden: Okay. Do you have a target on the efficiency ratio for the year? Carmen Arroyo: Around 46%. Operator: Our next question comes from Marcos Serú with Allaria. I believe you're having some technical issues. We're going to go ahead with the next person in the queue, which is Matías Cattaruzzi with Adcap. Matías Cattaruzzi: I have a question about the -- as we have seen in the first quarter, dollar liquidity in the system is improving. And government is signaling to probably changing regulation in dollar lending to non-dollar producing clients. How do you see [indiscernible] in this field, do you intend to lend in USD to non-dollar producing clients? And which sectors do you think would be best? Diego Cesarini: Matías, this is Diego. Well, first of all, I would like to say that in the case of BBVA, we are pretty comfortable with the amount of lending we are producing in dollars right now with the current regulation. We are growing. We have a lot of demand in our pipeline. So if you ask me, by the end of this quarter, even if we are growing a lot in deposits and other kind of dollar funding, we are -- we would really be short of liquidity. We are gaining market share in loans. And everything is being done under current regulation. So we are not in the need of a change in this regulation. Having said this, if regulation changes and opens to more sectors, of course, we have to evaluate very carefully the sectors. It's difficult to establish a general policy because we all have in mind what happened in Argentina 25 years ago where dollar lending was open for anyone. That kind of -- and hedge are very difficult to manage in case of devaluation. So this is basically our view of the situation. The regulation changes, we will analyze if there are any sectors specifically or special cases where we can relax a little our policy. But I think that the most important is that we are really lending at full with the current policy. We don't -- right now, we don't need a change in our case, we don't need a change in regulation. Besides, it's -- when you look at the loan-to-deposit ratios in foreign currency, you will see that in our case, it's around -- right now, it's around 55%, probably will be 60% in a couple of months. But then reserve requirements are really high in this currency at around 23%. We also have to keep some banknotes in our branches. We have faced -- of course, it's a public information that we have faced -- banks have faced a very sudden and deep runs on our deposits many years ago. So we still have to be very careful regarding our customers' behaviors in this kind of deposits. So we still have to keep important amounts of liquidity in dollar terms. Of course, Central Bank cannot lend dollars to banks in case of meat. So this is our approach to this subject. Matías Cattaruzzi: Okay. And a follow-up question. What's -- do you have a guidance in net interest margin for 2026? Diego Cesarini: We don't have a formal guidance on net interest margin, but we think that -- we like to measure this indicator in real terms, because, of course, if you compare 2024 to 2025, the net interest margin fell, but of course, because inflation fell and interest rates also decreased very sharply. But on the other side of our balance sheet, and our net income, you see that the cost of inflation also decreases a lot. So you have to see this in net terms. In general terms, we have seen that last year, we didn't lose -- we didn't lost margin. It was -- our net margins were similar to the previous year. And for next year, for 2026, we are seeing a similar situation. We are -- probably, our net interest margin will fall a little in real terms. That will be offset by growth in activity. So this is not an issue for now for the bank. Operator: Our next question comes from Marcos Serú with Allaria. Marcos Serú: Sorry, I was having trouble with my microphone before. I wanted to ask in first place about personnel expenses. How is -- explain the decrease in this quarter, while the headcount has increased? And then about your guidance. I wanted to know if you could share the assumptions behind that guidance about inflation, GDP growth in 2026 and effects. And the last one is, do you know about how much of the growth in loans and deposits is in pesos and in dollars? Carmen Arroyo: Okay. Thank you, Marcos, for the questions. Related to the first one, personnel expenses. Yes, so there are some provisions we decided to return. And that's why you see this is true, that you see a different evolution between headcount and expenses. So it's a one-off. This is the short answer for that. Then related to the guidance, I think... Diego Cesarini: Regarding inflation, we are expecting right now, our research department is expecting a 22%, regarding GDP, 3% growth, regarding FX, around 1,700. And regarding the mix in growth in loans, in pesos and dollars, we are still expecting dollar loans to grow a little above peso loans. Dollar loans right now represent around 23% of our book. Probably that will reach 25%, 27%. So dollar growth should be around 40% probably in real terms or a little more. Marcos Serú: Okay. Just one question. So do you think that the personnel expenses charged-off this quarter can be adjusted by inflation in order to project the followings or which number could be a normalized number? Carmen Arroyo: I'm not sure if I get your question right, Marcos, sorry. Marcos Serú: If you think that the personnel expense charge-off, this quarter in order to project it, will it growth as inflation growths or which growth do you expect for that charge? Carmen Arroyo: So I would say that you -- so first, efficiency ratio is going to be lower than this year. And second, the growth in expenses as a whole should be very linked to inflation. So with this couple of -- okay. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: I just wanted to ask you because everyone, I think, not only you, but other peers have been mentioning about the potential recovery of the consumer. Just wanted to ask you, in your view, what are the catalysts here for us to see a recovery and also for them to start, as you mentioned, recovering not only in the demand of credit, but also maybe on deposits, I think that would be a great color. Carmen Arroyo: So thank you for the question. So the short answer should be, so interest rates need to be stable and lower, that's one issue, which is important. And the other one is the micro, the stability. So macro policies are going in the right direction, and we believe that this is also in the right path, but we still need to see what happens with the companies, with the retail, with the salaries in real terms. So it's more complicated than only interest rates. So we believe something else needs to be happening in the country to go back to consumer loans. Brian Flores: Carmen, anything on the regulatory side that you think could really help on either side, either supply or demand of credit? Diego Cesarini: A lot of the bad regulations have already been addressed. But of course, everybody is aware that last year, Central Bank monetary policy was very restrictive. Our reserve requirements skyrocketed. So I think that what probably we will need some flexibility on that side from Central Bank in order to keep growing. And we think that, that will come with time. I think that right now, of course, the inflation has gone a little above the expected levels. But once that issue is again under track, I think that Central Bank is going to act and start to be less restricted. I think that's the main issue right now. Operator: Our next question from Ignacio with Invertir en Bolsa. Ignacio Sniechowski: Can you hear me? Operator: Yes. Ignacio Sniechowski: Okay. Carmen and Diego, well, my question was regarding reserve requirements, but Diego answered that. So it was -- if you are expecting or seeing the Central Bank lowering those that you mentioned that it will depend on the evolution of inflation. So sorry, it was already answered and... Diego Cesarini: Yes, I can elaborate a little more. Let me tell you that in the case of reserve requirements, what Central Bank did last year, they raised, of course, these levels, but we can comply those requirements in bonds. So it doesn't represent a cost for our NIM. It's not affecting our net income, of course. But of course, we need those funds in order to keep growing in loans if there is enough demand. Besides that, we need a little more -- we are asking for a little more flexibility because last August, we had to comply with those requirements on a daily basis. That was from the operational side, it was very difficult for us. They have relaxed somewhat those daily requirements. But still, there are some minor issues that we think that should be addressed. We are asking, but that doesn't have really an impact on net income. So that's the general view on the subject. Ignacio Sniechowski: Okay. And Diego, one more question. Do you think that wallets and fintechs that -- well, banks already won the battle of salaries and being deposits in banks. But do you think that they will eventually strike back to that -- to potentially reverse that? Diego Cesarini: Anything can happen, but I think that the main issue is that the biggest one, Mercado Pago has already asked for a banking license. So we should guess that in any time in the future, they will get that banking license and they will be able to offer the product. So we need to be ready, our products need to be competitive and have a good user experience in order to be in a good position to keep our share. We've been growing on wallet on pay per share. We have around 15% of the total market. And we have been growing consistently through the past year. So I think that we have a good offer for our customers. Operator: The Q&A session is over. And now I would like to pass the word back to BBVA's team for final remarks. Carmen Arroyo: Thank you. Thank you all for attending the conference. And just to highlight that despite the challenge of the environment, we've been going through this year. We believe BBVA Argentina has proven resilience and effective management in the year. So credit growth and non-performing loans levels below the system average and a very solid position in solvency and liquidity are the key issues of our strategy, and we are committed to keep growing in the following quarters and to maintain our efficiency and generate profitability for our shareholders. Operator: Thank you. This does conclude today's presentation. You may now disconnect, and have a nice day.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Group Full Year 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giorgio Medda, CEO of Azimut. Please go ahead, sir. Giorgio Medda: Thank you very much. Good afternoon, everyone, and thank you for joining us today for the Azimut Full Year 2025 results presentation. I'm Giorgio Medda, CEO of the group, and I'm pleased to be here with Alessandro Zambotti, CEO and Group CFO; and Alex Soppera, Head of Investor Relations. So this past year has been a truly defining one for Azimut and likewise, a very exciting one. As you know, it was a year marked by change in leadership, yet our growth not only continued, but actually accelerated. The defining step in our growth journey reflects both the strength of our business model and the dedication of our people across all our markets. So let's dive right into the presentation and move to Slide 3, please. So the year 2025 continued to be one where we executed a deliberate results, and we closed by achieving a record EUR 32 billion in net inflows and a net profit of EUR 526 million, both above the Street expectations. Most notably, our recurring net profit grew by an impressive 20%. That is a best-in-class result. During the year, we also anticipated some key guidelines for our Elevate 2030 strategic plan. This plan will drive the next stage of growth for Azimut, defining an even more ambitious trajectory that we showcase the full potential of our diversified global platform and reinforce our position as a leading global independent player. Beyond these exceptional operating numbers, we are thrilled to discuss our concrete commitment to creating shareholder value, including a proposed raised dividend of EUR 2 per share and a strategic capital allocation framework that aims to return roughly 25% of our current market cap over the next 18 months through dividends and share buybacks. Finally, while the process has taken longer than we originally envisaged, we continue to make progress on the TNB transaction. And let me tell you that this represents a transformational step for the group that will unlock significant value and, certainly Alessandro will discuss it more in detail later during the presentation. We are moving full steam ahead, carrying the strong momentum into our 2026 targets and the execution of our Elevate 2030 strategic plan. And with that, let us please move to Page 4, where we can look at the key financial and operating highlights for the full year. First of all, total assets reached an impressive EUR 145 billion at the end of January '26, marking an excess of 30% increase per year in terms of assets, a new absolute record for the group. This was fueled by a spectacular EUR 32 billion in net inflows during 2025, which represents the strongest annual performance in our company's history. More importantly, 66% of these flows came from our global operations. This clearly demonstrates how the continued expansion of our international platform is successfully driving growth beyond our core markets in Italy, which remains strong and continues to be the foundation of our success. Furthermore, looking at our current trading for 2026, we are off to a very strong start and continue to see excellent momentum across the board. On the financial side, at a very high level, revenues reached EUR 1.4 billion, supported by a solid 9% increase in recurring revenues, and that confirms the high quality and resilience of our business mix, while the operating profit stood at EUR 649 million with our recurring EBIT also up 9% year-over-year. Group net profit reached EUR 526 million, and the recurring net profit grew by a very strong 20% compared to last year. This reflects the steady expansion and scalability of our core business. Finally, let me highlight that net profit from our global operations reached EUR 101 million, which now represents 19% of our total net profit. This consistent growth across our regions confirms the effectiveness of our international strategy. And these figures, let me tell you, put us in a highly robust position to continue executing our long-term growth agenda and creating tangible value for our shareholders. Now turning to Slide 5. We want to put our exceptional performance into a clear perspective. And these numbers, I think, speak volumes. Our recurring net profit growth of 20% is not just strong. It completely dominates the sector when compared to our Italian peers. And the difference is quite striking. While our competitors reported profit growth ranging from negative 1% to a maximum of 11%, Azimut delivered a robust 20% increase. This significant outperformance directly reflects the resilience and high scalability of our diversified global model and a factor that, in our view, is not fully appreciated by the market. Moving to slide 6, we look at the as we normally do at the bridge between our 2024 and 2025 net profits. As I mentioned earlier, the group net profit reached EUR 526 million compared to EUR 568 million last year. However, as this chart clearly illustrates, the difference main reflects lower performance fees and capital gains below the operating profit line, while recurring profitability continued to grow strongly. Finally, under other items below EBIT, we see a negative variance of EUR 57 million and it's important to note that the 2024 baseline was significantly elevated by the capital gain from the sale of our stake in Kennedy Lewis. While in 2025, this block includes some non-recurring write-offs onto investments reflecting conservative valuation assumptions, which were partially offset by the growth of Nova, lower taxes, including a one-off tax refund and gains on our own investments. Because of this moving part below the operating line, the truest measure of our success is highlighted in the lighter blue columns, and the already mentioned 20% recurring net profit growth to a phenomenal EUR 479 million. Now, let us turn to slide 7 and 8, where we look at the economics behind our different business lines and regions. Because the underlying drivers of our business remain highly consistent with what we presented during our 9-month update, I will keep this section very brief. On slide 7, looking at our business line, you can see that Integrated Solutions continues to act as a powerhouse for the group. This core vertical commands superior stable recurring margins of 70 basis points. And at the same time, Global Wealth and our Institution and also divisions are experiencing strong commercial momentum and have become incredibly robust contributors to our net profit, making up about 20% of the overall net profit. And let me tell you that our strategic affiliates remain in a very active phase of growth and consolidation, with investments ramping up as planned to expand their platforms. Moving to Slide 8 and zooming in by region, the results really confirm the strength and diversification of our global strategy, with Italy that continue to show exceptionally robust earnings, maintaining obviously a stable operating development even when factoring in lower performance fees and some TNB-related costs. And obviously, globally, we are, you know, our underlying profitability is accelerating thanks to asset growth and strong operating leverage with a very strong and impressive momentum in the Americas, driven by the U.S. and Brazil. And when you look at the contribution of the global business, I mean, this is summing up to a very healthy recurring net profit margin of 41 basis points. Now moving to the next few slides, we are incredibly excited to share a new level of detail and transparency with all of you today. For the first time, we are providing a deeper look under the hoods of our key business verticals to truly showcase the underlying power of our platform. Let us start with Slide 9 and look at Integrated Solutions, which represent the DNA of the firm and remains a massive growth engine for the group. This core vertical is built on a powerful vertically integrated business model that combines our proprietary product factories with our exceptional network of top-tier financial advisors. This is what's made Azimut succeed in Italy out of a very pioneering business model. Today we have been able to say that we successfully exported the same model to key high growth markets such as Brazil, Mexico, Turkey, and Taiwan. Here, we are disclosing the average assets per advisors across our key countries. And as you can clearly see, our network is highly productive. In Italy, excluding the TNB perimeter, average assets per advisors stand at a very strong EUR 29 million. However, when you look at the global figures, I mean, these are even more striking. In Brazil, average assets per advisor reach EUR 32 million. And in Turkey, pretty impressive results of EUR 66 million per advisor. This proves that our model of combining proprietary product factories with top-tier financial advisors is highly scalable and remarkably effective across different global jurisdictions. Turning to slide 10, we want to spotlight our Global Wealth Solutions division and the productivity that we are seeing across our key international hubs. To give a brief overview of this business, Global Wealth Solutions connects our extensive network to deliver exceptional investment ideas and products worldwide, where we offer a true multi-asset proposition across both public and private markets, all supported by a unified custody set up with the world's leading banks. Our solutions range goes from personalized advisory and discretionary portfolio management services to highly customizable, actively managed certificates and bespoke structured products as we aim to cater to high-net-worth to ultra-net-worth individuals, families, and institutions around the world. In Monaco, for example, we combine a bespoke private banking heritage with sophisticated asset management solutions. In Switzerland, we leverage a unique local model to serve our clients. And our U.S.-based Azimut Investment advisers provide neutral client-focused advisory portfolio consolidation for both domestic and Latin American investors. And in Dubai, Singapore, and Hong Kong, we act as a premier global partner for individuals and institutions. A major competitive advantage for our high net worth clients is our capability to facilitate offshore investing as we leverage our Luxembourg idea factory as a central hub for product generation, as we provide a unified financial services offering with multi-booking capabilities across different jurisdictions. Our regional figures are truly exceptional. In the United States, our relationship managers oversee an average of $260 million individually. Monaco and Switzerland are also highly productive, managing $140 million and $138 million per adviser respectively. Also we are seeing fantastic scale in the UAE, Singapore and Hong Kong that are coming up and showing very high growth rate. The average book of business relationship manager globally has increased by a solid 8% year-over-year, reaching an impressive $104 million. And we grew our team with 12 new additions throughout the year. That obviously proves that as we expand our footprint and grow our team of relationship managers, we are just not adding headcount, but also productivity. When you look at slide 11, you see how our total assets for this division, for this distribution line reached $9.4 billion by the end of 2025. And You know, $1.3 billion was essentially addition during the year, the result of organic business development that is a very robust 18% growth rate, and we see this accelerating as we have started the year in a great fashion. We continue to attract new assets and scale our overall book of business, cross-selling our high-quality proprietary solutions to these existing portfolios, and we are incredibly excited for what, you know, lies ahead for us in the future. And finally, on slide 12, we detail our institutional and wholesale division. This segment has grown into a globally diversified platform, with now more than EUR 41 billion in total assets. And you know, the mix is exceptionally well-balanced, with 42% institutional clients and 58% wholesale. We wanted also to provide here more details about the institutional business by region to give more color about our activities that go beyond our domestic market. And certainly to note here is the weight and the significance of our U.S. business from a regional standpoint, and that is the result of certainly the consolidation of the recently acquired North Square Investments. And then turning to slide 13, we want to highlight a selection of our most significant client wins. I'm not gonna go through every single win, although each one is certainly a big testament to our ability to perform and to have now the credentials to grow beyond our home market, but you can see here that certainly we display the power of a very well-diversified product factory across both public and private markets. Now turning to slide 14, I think, you know, this is the best slide to perfectly translate everything that we just discussed in terms of our global platform into tangible bottom-line numbers. Historically, some market observers have been very skeptical about the true profitability and value of our international expansion, certainly over the last decade, where we have been very focused and committed to grow the business. But finally, we can see that these are very exceptional data that, you know, prove, in my view, in a very sort of indisputable way that those skeptics were very, very wrong. Over the years, we have strategically deployed approximately EUR 660 million in net M&A investments to build our international footprint. Today, this platform accounts more than EUR 73 billion of total assets and generates more than EUR 100 million of net profit. That itself translates on a 15% return on investment. That, you know, compared to any cost of capital you can estimate for the business, we believe our cost of capital is 10%, proves a very meaningful and sizable value creation that we see expanding in the short and long term. And as I said, it clearly demonstrates what has been the effectiveness of our capital allocation strategy. In slide 15 is just a very quick but powerful reminder of our ambitions through the Elevate 2030 targets that we already published in November. And just make one point very clear, our growth story is far from over, and our fundraising efforts of EUR 5 billion to EUR 8 billion a year will lead to effectively double our average total asset. It translates into a remarkable EUR 180 to million-EUR 280 million in net profits generated strictly from our global operation by the end of this decade. In the following slide, we just summarize what are the different product initiatives, you know, driving growth in the short term across public markets, our Luxembourg mutual fund range, our financial planning franchise with our life insurance solutions. Certainly here, we have been moving very, very aggressively when it comes to the launch of a brand-new product such as active ETFs in the U.S. market courtesy of the distribution reach of NSI. And the strong push that we are making for our Global Wealth Solutions business around the world. And then let me touch very briefly upon something that has been very, say important topic of interest in the market over the last few weeks, the state of, private credit and private markets in general, aside from the news flow that we see particularly overseas. I wanna just give a brief update on our 2026 product pipeline when it comes to private markets. First of all, we are in the market now with a significant number of funds that are currently raising a commitment. Overall, we have a target over the next 12 to 18 months for EUR 2.1 billion of commitment to be raised for a very wide range of strategies. As I mentioned, we already covered almost, you know, 30% of this target. But what is important to appreciate from slide 17 is the diversified offering that we have, certainly diversified in terms of investment verticals, and likewise in terms of geographies now with Europe, U.S., Latin America and Turkey, you know, showcasing a very strong product development activity in this respect. In page 18, we show where is for our Italian business, the exposure of our retail clients to illiquid strategies. Here what is remarkable is essentially, there are two things that actually they are probably noteworthy. The first one is that we started talking to our clients and, you know, explaining the merits of diversification across liquid assets well before many of our competitors did. Actually, this is an exercise that started 6 years ago in 2019. Today, we have achieved an exposure of almost 9%. That is remarkable in absolute. Certainly is the, you know, proof of the very hard work that we put and the trust of our clients into this investment diversification effort, but also proves how we are ahead looking at our global competition. We are using here data coming from a McKinsey report. But what is striking is that we have an average exposure that is 4x larger than what you have globally. And even when you look at the long-term target, there is a target forecasted and projected by McKinsey of 10% exposure of retail to private market investments, but we keep our long-term target of actually achieving 15% to 20%. And this can only be done with, as I mentioned, diversification. We have read a lot of things over the last couple of weeks, as I mentioned. What we want to show in slide 19 is the approach that we have, particularly when it comes to our Italian franchise. And here is just a deep dive into a subset of our Italian private market strategies that amounted to approximately EUR 5.5 billion overall. Here we are focusing on 3.1, and we are only focusing on private equity and direct lending strategies. And what we want to show here is the very high level of diversification, both in terms of assets and sectors, essentially reducing any geographic risk that comes from very large exposure to a single sector or to a very concentrated portfolio of investments. And in slide 20, and I think that is the most important of all these slides, you know, highlighting our success across private markets is, you know, the result, the performance that we are generating. There are a lot of figures in this slide, but let me focus on a few metrics. First of all, you see here what we have raised across the different verticals. Obviously, we are looking at different asset classes in a way. And let's look at some performance metrics such as total value to paying investments. That is a measure of the performance as it is accounted in our NAVs. Let me tell you that the NAV calculation rules are pretty tough in Europe, and we are not really allowed to assume or to take any sort of mark to market beyond what is really proven by the actual accounting of the businesses and what has been achieved. So these are very reflective measures of performance embedded into the funds and obviously when we come to these portfolios, we come to, you know, realization of the value out of exits, we will be able to distribute reasonably higher performance to our investors. Let's see, what is the average vintage of all these strategies, and certainly compare also to our, you know, to the benchmark. These are very remarkable, they say proof of our ability to generate even over a short period of time, value out of illiquid portfolios. And then last but not least, I mean, certainly, meaningful when you look at the news flow that I mentioned just now, what is the ratio of distributions to our investors that in certain instances for private equity, private debt and a number of club deals has achieved almost, you know, between 15% and 20% of capital being returned to our investors. That is certainly considered a very average young vintage, a very important element appreciated by clients who have started familiarizing with this illiquid investments only recently. I will now turn to Alessandro for a detailed review of our financials for 2025. Alessandro Zambotti: Yeah. Thank you, Giorgio, and good afternoon to everyone. Moving to slide 21, let us take a step back and look of the fantastic track record that we have built over the past 7 years. Since 2019, we have expanded our footprint and compounded our growth, driving our total asset to continuous new all-time high and growing at a remarkable 16% CAGR to about EUR 145 billion as of today. So over this time, over this same period, we captured EUR 94 billion in cumulative net inflows with an highly strategic EUR 10 billion flowing directly into private market. And our success goes hand-in-hand with the success of our clients as we generated a net performance for clients of about 28% after cost. And for our shareholders, the numbers are also speaking for themselves. The group generated EUR 3 billion in net profit, distributing EUR 1.3 billion to shareholder, including the actual this year proposed dividend of EUR 2, and fully repaid close to EUR 1 billion in debt and transforming to cash position of over EUR 800 million. So these are important numbers and are a direct reflection of our discipline, execution and the structural resilience of the entire Azimut Group. So then turning to slide 22, we want to highlight the exceptional quality of the revenues that are driving these record results. I mean, historically, some market observers question our reliance on performance fees, that this slide definitely demonstrates we have completely transformed our earnings profile. It's a clear strategic choice that has led us to have a P&L driven mainly by highly stable recurring revenue. And today, only a small fraction of our revenue base remains exposed to variability. With about 95% of our total revenue now coming from this stable income stream, and we have built a robust engine that delivers a highly predictable value year after year. So now moving to slide 23, we once again review our ability to generate value and recurring profit, confirming for 2025 the solidity of the recurring net profit margin. But above all, as you can clearly see from the chart, 2025 marks a new all-time high in the history of our firm. We deliver an outstanding EUR 479 million in recurring net profit, constantly growing year after year. And to put this, I mean, this into perspective, this figure is more than two and a half times larger than in 2019. Let's now also go into the details as we always do, in particular on slide 24, where we have the revenue breakdown. The revenue grow by a solid EUR 71 million thanks to the continuous growth of the recurring revenues, which offset the lower contribution from variable fees from both the open-ended and the insurance funds. Looking more closely to the components, so at the level of the recurring fees increased by EUR 82 million year-over-year. This was supported by the continuous expansion of global business. EUR 42 million is coming from our international business and mainly driven by the contribution from U.S., U.A.E., Brazil, Singapore and Monaco. In Italy, we deliver broad-based growth across all business lines, spanning mutual funds, alternative investment, pension funds, and also our Nova partnership is becoming more significant. Regarding also performance fees, we recorded a year-over-year decrease of EUR 17 million. However it is important to highlight the EUR 24 million positive global momentum, driven by Brazil, Turkey, Monaco, and Switzerland. In Italy, we sustain strong alpha in our domestic discretionary portfolio management, which help us to offset a negative fulcrum effect. Finally, looking at the insurance revenue, while the total was down at EUR 11 million compared to last year, the underlying quality of this revenue stream improved. We achieved a 5% increase, representing EUR 5 million in recurring insurance revenue due to the solid growth and the optimization of our product mix. The overall decrease was entirely driven by a EUR 60 million drop in the insurance performance fees, reflecting a softer, first half performance compared to the exceptionality, coming from the strong figures we saw in 2024. No less important, I mean, when looking to the first two months of 2026, we are off to a solid start. At the level of the other revenues increased by EUR 70 million, compared to last year, mainly driven by structuring fees related to our growing Brazilian private infrastructure business that we already commented for the previous quarter. So then we are back to, let's say, to a normal evolution of the, I mean, of this line. On the next slide, we analyze the cost, where we note an increase of EUR 55 million in total. Here, we try to give you so some more detail as well. At the level of the distribution cost, we have an increase of EUR 29 million compared to last year. This is partially explained by the direct correlation with recurring revenue growth in Italy and abroad, particularly in the areas of Singapore and Monaco. And it also reflects the higher provision for variable incentive to Italian FA, alongside the strategic marketing and TNB related costs that we already mentioned during the year 2025. Moving to personnel and SG&A, we recorded a EUR 25 million increase. This is primarily a perimeter effect driven by our successful M&A activities, and in particular I'm referring to Kennedy Capital and HighPost, while domestically we maintain cost discipline. A few words on the fourth quarter increase. This is strictly tied to performance linked compensation that align with the strong alpha and that our team and portfolio manager deliver. D&A and provision, I would define it as broadly flat. And in general, it is always important to emphasize that acquisition costs are mainly driven by the Italian business. You see about 90% contribution, while the administrative costs are split 60/40 between Italy and the international business. We close with the next slide, which instead tries to detail the results below our EBIT. First, thanks to the geographical diversification of the group, recurring EBIT grew by 9% to EUR 578 million. Moving below the operating line, finance income amounts to EUR 41 million for the year. This was primarily driven by a positive EUR 37 million contribution from our own investment and related portfolio performance, along with EUR 8 million in net interest earned, and another EUR 8 million in dividends from our GP stakes and strategic affiliates. It is worth noting that this line item was impacted during the quarter by EUR 25 million, non-recurring, write-off on specific investments. We are talking about VC proprietary investment. And achieving, I would say, looking also to the fantastic results, an extremely conservative approach, we define it as a better and conservative approach to make more, you know, confident on the future numbers of the group. Regarding our tax position, we're recording an adjusted tax rate of 21.5% for 2025 and excluding our EUR 27 million of one-off tax refund related to the infra-group foreign dividends. Looking ahead, we are guiding for a normalized tax rate of approximately 25% for the full year 2026. And then ultimately, this brings us to the bottom line and the recurring net profit of EUR 479 million as already mentioned, with an impressive 20% compared to last year. Moving to the slide 27. Here we have, as usual, our net financial position. Today, the group has no debt and the net financial position is, it's around EUR 813 million, with an increase compared to the previous year. The change of, I mean, the increase of EUR 63 million compared to last year is mainly due to the contribution, obviously, of the net profit before tax. So I'm referring to the EUR 673 million, then we have the contribution, the positive contribution coming from our proceeds from our disinvestment in Australia and the exit of RoundShield that is contributing EUR 121 million. And then let's say we have an observation of cash coming from the M&A for EUR 60 million, advanced taxes for EUR 275 million, dividend for EUR 323 million, and buyback of EUR 62 million. So this should reconcile the variation compared to previous year. Moving to slide 28. We highlighted our continual commitment to delivering substantial tangible returns to our shareholders based on our record recurring profitability and our highly resilient cash generation. The Board of Directors is proudly to propose a dividend of EUR 2 per share with an increase of 15% compared to the previous year and dividend yield of approximately 6%. This proposed dividend perfectly aligned with our stated capital return strategy that we will elaborate into more detail shortly. Moving to slide 29. We want to detail our capital return strategy, which reflects our concrete commitment to create value for our shareholders. So as you can see from the headline, we are targeting an optimal capital structure to allow us to distribute approximately EUR 1.3 billion in cash over the next 18 months. To put this into perspective, this represents roughly 25% of our current capitalization. Looking at the bridge chart, this plan is fully supported by our strong financial position. We start with EUR 379 million in distributable cash and EUR 434 million in committed equity at the end of 2025. A significant portion of this commitment is tied to our expansion in the United States, most notably our acquisition of NSI. And as you may recall, this strategic transaction involves a minimum purchase price of $110 million, which will be paid through a combination of cash and Azimut shares. Furthermore, this commitment equity covers our recent transaction in Brazil and includes provisions for future potential turnout, commitment, and options to increase our shares in transaction done across our global platform. We have set aside approximately 30% to cover our operating cash and net working capital needs. And then there is another 15% specifically reserved to meet our global regulatory capital requirements. Finally, the remaining 10% is deployed into our proprietary investment, as are referring to open-ended fund are included in the net financial position and are directly support our product generation and co-investment strategies and provide potentials for outside returns, such as the one we achieved with Kennedy Lewis in 2024. Looking ahead over full year, I mean, the year 2026 and 2027, we expect to generate approximately EUR 650 million in free cash flow available for distribution. And along with roughly EUR 250 million in proceeds from our strategic disinvestment, most notably the upfront cash from TNB transaction. This is basically give us about EUR 1.3 billion, as I mentioned at the beginning, to return to our shareholders. We plan to execute this return through two main channels. First, a share buyback program of up to EUR 500 million, which includes the full cancellation of the repurchase shares. Second, the distribution of between EUR 715 million and EUR 800 million in dividends during 2026 and 2027. To conclude on this slide, we want to reiterate that our capital return strategy is the ultimate testament to our ongoing value creation. With the comprehensive plan we have laid out today, we are decisively addressing and resolving any doubt regarding our use of cash and our capital allocation policies. So moving to slide 30, for a quick update on TNB project. The project is ongoing and the TNB division, with the support of the FSI, the fund is proceeding with a good growth result. Robust numbers for total asset growth, which at the end of January already exceed EUR 29 billion. Also at the level of the revenues and the net profit, they are continuing to expand. Although the net profit is penalized by directly affiliated marketing and project costs, that is as well mentioned at the beginning when we comment our evolution of the administrative costs. Regarding the transaction timeline, as you know, we are extending the agreement with FSI substantially until the end of the year, and we continue to work together on the IT separation and all the operational setup necessary to complete our migration and, you know, to conclude our important project. Finally, I want to provide a brief update regarding the Bank of Italy remediation plan of Azimut Capital Management. At the end of February, we successfully concluded the remediation activities. This has been completed also maintaining a constant alignment with the regulator. We are now entering the final phase, which involves the internal audit verification of all the implementation related to the remediation plan. This internal verification will conclude, we expect to conclude it at the end of March. So then concluding this phase, we expect then the regulator will formally validate the outcome. This keeps us fully on track on the officially complete the action plan by our target that was defined with the regulator at the end of April 2026. But as well as I mentioned, we are achieving it 1 month before. This we know that is 1 of the prerequisite steps to receiving the necessary regulatory approvals from the regulators for the overall TNB transaction. So we are confident that we will have conclude this project before the end of the year. With this, I hand over to Giorgio, thank you. Giorgio Medda: Thank you, Alessandro. So turning to the last slide, Slide 31. I'd like to conclude today's presentation by looking at our guidance for 2026. We are building on a fantastic commercial momentum that we have generated across our global platform. And we can only confirm our targets for the year that I remind you are as follows: under normal market conditions, we are targeting EUR 10 billion in total net inflows and a core net profit of EUR 550 million, excluding extraordinary items. I mentioned at the beginning of the call, we are already off to a very strong start. And as you can see on this slide, based on the preliminary February figures in just the first 2 months of the year, we have already achieved over EUR 3 billion in net inflows. And at the beginning of next week, we will provide a more detailed review of how we got there. This early momentum gives us a very solid foundation and the confidence in our ability to deliver another year of robust and profitable growth. So to sum it up, our platform is accelerating also in 2026, -- our growth path is clearly defined, and we remain entirely focused on executing our strategy, creating outstanding value for you, our shareholders. So thank you all for your time today, and we remain very excited about the future of Azimut, and we will now open the floor to your questions. Thank you. Operator: [Operator Instructions] First question is from Gian Luca Ferrari, Mediobanca. Gian Ferrari: Three for me. I would start with TNB. I understood that the first part of the process has almost been completed. I was wondering more on the second part of the process. Will be you guys in charge of it or FSI will step in and will, let's say, discuss with the regulators about the final approval of the project. The second is -- and the third actually are both on Page 29 on the new capital management policy, a couple of clarifications. The first one is the EUR 250 million proceeds divestments -- is this related to the first part of the upfront of TNB that if I recall correctly, was EUR 240 million. Are you referring to the distribution of that part of the cash you should receive? And secondly, going forward, after 2027, how should we think about this new capital management policy? Are you going to provide us with a dividend payout on the cash flows you generate plus are you still -- will you still go for a sizable big buyback program with cancellation or you will shift to annual buyback programs? And if you elaborate a bit on what will be over time the approach? Alessandro Zambotti: So I'm going to take the first 2, and then Giorgio will elaborate on the third one. So in relation to TNB and the other way around, we are running, let's say, both sides in the discussion with the regulator because, as you said, at the level of total capital management, we are running the remediation. And as I mentioned, we finalized the remediation at the end of February. And this is our main focus as Azimut, obviously. On the other way around, the fund, so FSI is dealing with the other division, I would say, of Bank of Italy responsible of the authorization or at least the preliminary presentation before it goes to the European Central Bank. So we are splitting the activity in 2 parts. And obviously, the fund is the main reference for Bank of Italy to finalize the regulatory process of the authorization on their side. For the EUR 250 million, it's like surrounding amount linked to the EUR 247 million of proceeds. So I'm absolutely referring to TNB just with the rounding to make the numbers easy to read it. Giorgio Medda: So Gian Luca, let me pick up your third question. Obviously, we are providing here visibility until the end of 2027, that is more than 18 months from now. And let me tell you that you can certainly tell how something will go by how it begins. So obviously, we set the tone for the next 18 months and the future, we will certainly stick to a principle of optimal capital structure. The reason why we are not saying anything more than what we are saying today, although it's pretty substantial, is that we still have the TNB transaction that is pending, and we would like to have any shareholder remuneration policy or capital allocation strategy to be elaborated within a very clear set of financial objectives for the group for the next 4 to 5 years. We have already, I think, covered a long distance over the last 6 months, pending the uncertainties related to TNB. But today, you see our capital allocation strategy, the way it defined as a very strong commitment to create value through as we called it an optimal capital structure. Operator: Next question is from Alberto Villa, Intermonte SIM. Alberto Villa: I have 3. One is back on Slide 14, where you show more details about the international business and you give us more details, and that's obviously very helpful. Can you maybe give us also an indication of revenues and operating costs related to this business in 2025 to have some more details there? And the second question is on the private markets. Thanks here again for giving us more visibility. At the same time, maybe you can elaborate a little bit on the amount of funds that will start to mature in the next, let's say, 2, 3 years and how it works if there are sort of grace periods or anything that can eventually accommodate any situation in which you -- the fund need more time or anything that could give more, let's say, details on that would be helpful. And finally, on one line item in the P&L, the financial income going forward, how should we look at it? Because maybe that's fueled by the investment of the liquidity you have in your balance sheet. So given that you are going to distribute, that's nice. But maybe -- is that fair to assume that financial income will be probably less supportive on the P&L side in the future? Giorgio Medda: Okay, Alberto, I'll take the first 2 questions. Regarding the breakdown of our, let's say, P&L by region or business line, I would encourage you to look at our Slide 7 and 8. I mean, I think we tried to summarize what are the key underlying drivers of our business at all levels, revenues, cost and certainly margins. Also with this presentation, we are providing a look-through in terms of KPIs such as advisers or assets under management by single distribution lines. I wouldn't probably bore you now with all the details. And certainly, we are available for a follow-up call to discuss more what has been driving the business country by country or business line by business line. But in general, the business has been growing, average assets per adviser increasing scale effect across businesses and now have become pretty sizable, and we are able to extract operating leverage benefits. And you see that in terms of margins on assets or margins on revenues. As far as the private markets business is concerned, let me tell you something. Funny enough, we were the very first to start promoting private markets investments with individual or private clients -- but we have really been very cautious when it comes to offering evergreen funds to the same clients. I think the market has been inundated by what I call effectively an evergreen washing in the offering of these products. People really try to entice clients with providing them the dream of liquidity when actually there's no liquidity in the underlying portfolios. If that liquidity is sort of possible, maybe it comes at the expense of lower returns because obviously, funds they need to retain a meaningful cash buffer to honor the call for redemptions. We have really started probably with the most complicated part with our clients, explaining them the merits of diversifying across illiquid strategy, the possibility to enjoy what is the so-called illiquidity premium, patient capitals and within a diversified portfolio, certainly seeing how to create, let's say, a segmentation or diversification of the portfolio using different time horizons. On that basis, we have not relied on evergreen funds. And I can tell you, considering what is our average vintage that we would expect the first liquidations of the funds that we have launched over the last few years to start in '28, '29. And our clients, they are waiting for '28, '29 to get their money back and portfolios have been built with that specific purpose. So we are not planning and we do not see any need whatsoever to ring-fence or to gate or to sort of promote continuation funds because things are being done the proper way. Alessandro Zambotti: Well, referring to your point on finance income, I mean, it's obviously, let's say, to take the point, considering, first of all, let's say, the different contributors on this finance income line. As I mentioned during the details of the evolution for referring to this year, we were talking about portfolio performance. We were talking about net interest turn, dividend from GP stakes. So there is a mix of things that they are contributing below EBIT. Obviously, compared it to last year where there was the benefit and the positive gain on Kennedy Lewis, we cannot compare the 2 here in a, let's say, fair like-for-like way. But at the same time, over the last 3 years, I would say that the finance income line is contributing on our net profit. Therefore, I would expect also for the next year to be at least in line with our EUR 40 million, but probably even more due to the fact that also there, we have the contribution of our partnerships our equity participation that are generating dividends. So again, a mix of things that make us confident to maintain a nice level of contribution on this line. Alberto Villa: If I can follow-up question on the net inflows target. You started very well the year. Of course, as you did in the past, maybe you will adjust the estimate later on during the year. Is there any particular flavor you can give us in terms of what is happening in terms of contribution? Any area of particularly strong indications coming from the net inflows of the early months of the year? Giorgio Medda: No, Alberto, we can tell you that it's a very balanced contribution from all the business lines, all the geographies. When you look at 2025, the global business was accounting for 66% of total net inflows, certainly and sign the U.S. took the lion's share for that. This year, we start 50-50 kind of balanced. And I think we are firing on all cylinders consistently across all the business lines and geographies. I mean, I think this is the beauty of the platform today. We see, particularly when it comes to emerging markets, what I call a synchronized growth, something that has not been always the case in the previous years where it can happen is a mixed bag. You have geographies doing very well, others slowing down. But now we see -- right now, we see really strong momentum across the board. Operator: Next question is from Hubert Lam, Bank of America. Hubert Lam: I've got a few questions. Firstly, on your excess capital, which you're focused on in terms of paying dividends and buyback, does this mean that in the near term over the next 18 months, you don't plan on doing any M&A? That's the first question. Second question is on private markets. Do you expect any slowdown in fundraising for the private markets, just given the noise in the sector, specifically on Slide 17. So will the rest of the fundraising target take longer than the first EUR 800 million that you've raised? And next question is also on private markets. I just want to double check what you said about redemptions. Do the funds actually have redemption features or not? And if they do have redemption features, can you remind us what the redemption profile is? And if I could squeeze in one more on your investment write-down that you had in Q4. I just -- sorry, maybe I missed it, but can you remind us or just elaborate what's related to? And any relation to any co-investments you may have with clients or not on the write-down? Giorgio Medda: I will take your question on private markets. First of all, we are not expecting a slowdown. As I mentioned, we have a number of strategies that are actively fundraising right now, EUR 2.1 billion overall. We are kind of almost 1/3 -- more than 1/3 of that target. And we don't see any slowdown. I have to tell you that although we have been expanding globally, this franchise Italy still remains the most important market. And most of the things that we read today in the press, they are very much geographically isolated apart from our investors reading what's happening in the U.S., but this is the U.S. is not Italy and people -- they are not concerned. Certainly, we have our advisers that is the value of the Azimut's business model. We sit down with clients and they explain the differences and provide all the comfort they need with constant updates on the portfolio and providing all the reasons why if more investments are, let's say, possible, then these are effectively and efficiently placed into other private market strategies. In terms of liquidation or let's say, realization of investments and distribution to clients, as I said, we are expecting now, particularly for our private credit strategies, the first liquidation starting '28, '29. By nature, these are closed-ended funds. When it comes to private credit, think about direct lending, these are loans that have a term that is consistent with the fund life or the fund terms. We do not have any cockroaches. We have been always implementing very tight and disciplined investment policies, and it's not always working for every single investment the way we want. But overall, we are delivering and you see that from the performance of the different verticals, in average, a better performance than we have sort of discussed with clients when they came -- when they have come to the portfolio. So in general, as I said, unaffected by what's happening away from Italy, clients are very well catered in terms of being informed and explained what's happening, and we are growing. That means that at the end of the day, people they understood the differences and they put more trust in us. Alessandro Zambotti: So I mean, looking to the capital structure, so probably going back to Slide 30, you can probably see where -- I mean that we put -- we put an amount of money that we commit for the '26 and '27 of EUR 300 million. This is -- I mean, it doesn't mean that we are going to do M&A with this amount. Obviously, it's a group that is growing. Therefore, we have to look back also again to regulatory requirements, look back to the operational cash needs because, again, we are present in 80 company. Therefore, we need to maintain the right level of the operating cash. As well, we are investing in general on the IT, on the AI. So we have a bulk of CapEx that we have to support to grow our business and to support internally, but also our financial adviser, our distribution network with the right instruments to proceed with the right way to meet and target the market. So all in all is an amount that as well as different view and different elements to consider. This cover, let's say, the portion of cash that we would expect to keep for this. Moving to the point of the investments, as I was referring during the explanation, again, we decide -- I mean, we evaluated the opportunity to be very conservative on 2 VC proprietary investments. Therefore, this approach help us to look again to the forward-looking of the numbers more confident on the future results. So we take advantages on that. Giorgio Medda: And just to add one thing about investments, Alessandro said it all, but just also to link to what we said in the past. As opposed to the past, we are really putting at a same level growth and shareholder remuneration. What we are targeting is an optimal capital structure. Azimut is and it will always be a growth company. We will certainly consider should anything come to our attention, external financing for a transaction. What we are putting here is a clear statement in terms of giving the right and the same importance to shareholders and to growth opportunities. But it's a pretty unique proposition that we want to promote in the market. And hopefully, the market will appreciate it. Operator: Next question is from Elena Perini Intesa Sanpaolo. Elena Perini: The first question is on Slide 30, again -- 29, sorry, again, on your capital distribution strategy. Because I read from the press release and then the slide also confirms it that you are going to distribute EUR 750 million to EUR 800 million in dividends over the next 18 months. So this, I suppose, also includes the dividend that you propose now and is going to be paid in May, just for a confirmation. And then you mentioned that the dividend starting from next year will be split in 2 tranches. But I was wondering whether this would imply an interim dividend already in November this year and then the balance in May next year? Or on the contrary, you will have the first tranche referring to '26 earnings in May '27 and then the second tranche in November, just to clarify. Then going to Slide #30 on TNB transaction. Considering that June now is quite close and you are still waiting for the approval of the Bank of Italy is on your -- on the effectiveness of the remediation measures that you have taken. I mean, is it more likely to see the finalization of the spin-off in the second half? Just to have some flavor about the potential time line. And then finally, I have a question on your tax rate for next year. As you mentioned recurrent taxation for this year at around 21.5%. But if I remember well, you mentioned in the past a higher level of taxation for the future, but just for a confirmation. Giorgio Medda: Elena, I will answer your question on the dividend. So 2026 dividend paid against the 2025 earnings will be fully paid at the end of May. And we will propose to the general assembly of shareholders to switch to installment dividend payment starting with 2027 against 2026 earnings. That is a transition to a new system that is in line with what now a very large number of financial services companies do, but has become now a standard. And I have to say that we see a strong merit to adopt the same policy as we have over the years, noted a behavior of the share price around the dividend payment that has been disturbing us creating unnecessary volatility. We want to offer very smooth and predictable cash flow generation for shareholders, hence, the decision to move to May and November payment against the previous year earnings. Alessandro Zambotti: Well, taking your point of TNB and the expectation, well, as you know, we built the renewal of the binding agreements and the exclusivity in a way that there will be no additional pressure in the market and as well to the regulator in a way that it automatically the date of June can be postponed to the end of December without any additional negotiation or whatever. So basically, our attention now is on the remediation, as I was saying before, the funds and the FSI -- so FSI is focused on the regulatory side. And I would say both of us are concentrated to be in the right way, the migration process of this transaction because as you probably remember when also we discussed together, it's something that we cannot do not consider because it's significant and it's important tomorrow when the client will migrate and operate correctly starting from day 1. So this is our focus for the 2026, considering also, obviously, the objective to get there within the end of the year. At the level of the tax rate, if you recall Slide 26, -- we have mentioned the benefits, so the lower tax rate for this year, but also we confirm our guidance at 25% for 2026. Operator: Gentlemen, there are no more questions registered at this time. Giorgio Medda: Well, great. Fantastic. Thank you, everyone. Hopefully, we will catch up in person soon. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Riley Exploration Permian, Inc. Fourth Quarter and Full Year 2025 Earnings Release and Conference Call. [Operator Instructions] I would now like to turn the conference over to Philip Riley, Chief Financial Officer. Please go ahead. Philip Riley: Good morning. Welcome to our conference call covering our fourth quarter 2025 and full year 2025 results. I'm Philip Riley, CFO. Joining me today are Bobby Riley, Chairman and CEO; and John Suter, COO. Yesterday, we published a variety of materials, which can be found on our website under the Investors section. These materials in today's conference call contains certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. We'll also reference certain non-GAAP measures. The reconciliations to the appropriate GAAP measures can be found in our supplemental disclosure on our website. I'll now turn the call over to Bobby. Bobby Riley: Thank you, Philip. 2025 was a transformation year for Riley Permian and we look forward to discussing our fourth quarter results and our 2026 plan this morning. Over the course of the year, we made significant progress across several strategic initiatives, positioning us for long-term value creation. Through our Silverback acquisition, which closed in July, we enhanced depth and duration of our undeveloped inventory in our portfolio. Combined with our previous acquisitions in New Mexico and our legacy Champions position, we have 7 to 8 years of high cash on cash return undeveloped inventory. In December, we sold our interest in our New Mexico Midstream project to Targa, a best-in-class Fortune 500 midstream infrastructure company with a premier integrated asset network for $123 million in cash, plus $60 million in future potential earnouts. The project will provide flow assurance for our New Mexico gas production and enable us more robust development of our New Mexico assets as originally intended. This transaction eliminates all liabilities and future construction costs associated with the project, allowing us to focus more capital into the drill bit and less into infrastructure. The project is underway and Targa expects the project to be operational in the second half of 2026. We reduced our debt by $120 million during the fourth quarter, reinforcing our financial flexibility and positioning the company to accelerate development in 2026. The disciplined groundwork late in 2025, portfolio expansion, infrastructure build-out and balance sheet improvement sets the stage for more active and value-enhancing development program in 2026 and the years ahead. We authorized a stock repurchase program of up to $100 million of currently outstanding shares of the company's common stock and began repurchasing outstanding shares in January of this year. We repurchased approximately 152,000 shares at a weighted average price of $26.54. The decision for accelerated growth is not in response to the recent increase in oil price levels, but rather the result of Riley Permian's multiyear positioning and our long-term view on value creation. For 2026, we forecast over 20% year-over-year oil volume growth. While we are excited about this growth potential, we will remain flexible and ready to moderate activity and spend appropriately should oil price environment deteriorate. I would like to thank our entire team for the success and transformation we realized in 2025. We're positioned for an exciting 2026 and beyond thanks to our strong financial position and asset base. With that, I'll turn the call over to John Suter, our COO, for operational highlights, followed by Philip Reilly, our CFO, and who will review financial performance. John Suter: Thank you, Bobby, and good morning. I'll briefly cover fourth quarter and full year results followed by 2026 development plans. Beginning with the fourth quarter, our development activity was focused in Texas. Activity levels match the ranges we provided in guidance with more drilling and completions than new wells turned to sales. wells drilled, but not turned to sales during the fourth quarter should come online over the first and second quarters of 2026. Oil production increased by more than 1,700 barrels of oil per day or 9% quarter-over-quarter. This was primarily from improving volumes from the new wells brought online earlier in 2025 that continued to increase as well as from the 3 new wells turned to sales during the fourth quarter. Comparing the fourth quarter of 2025 to 2024 and oil production increased by 26%. As for the full year 2025, I'd like to begin by highlighting another year of excellence in safety here at Riley Permian. We achieved a total recordable incident rate of 0 in 2025. We also achieved 95% safe days, a metric requiring no recordable incidents vehicle accidents or spills over 10 barrels. Full year oil production increased by 15% year-over-year while total equivalent production increased by 29%. The overwhelming majority of our full year production increase was from pre 2025 development with modest contributions from 2025 new wells and smaller contributions from the Silverback acquisition for the second half of the year, including the benefits of workover volumes as discussed last quarter. Full year development activity counts were relatively modest compared to 2024 levels as we reduced activity midyear last year, following the oil price decline and our Silverback acquisition. In total, we drilled 18 net wells in 2025 or 28% fewer than in 2024 and turned to sales 16.3 net wells or 23% fewer than in 2024. I highlight these metrics for a couple of reasons. First, we achieved impressive organic volume growth with relatively limited activity. This is a testament to our high-quality drilling portfolio. Volumes from the acquisition accounted for only 8% of total annual volumes. Second, this reinforces what Bobby discussed on framing our 2026 plans for significant increased activity relative to the lower activity in 2025 and readiness positioning with midstream and water takeaway projects. In Texas, we essentially held over 11,000 barrels of oil per day of oil production flat year-over-year with only 10 net wells turned to sales again, demonstrating the productivity and efficiency of our wells. In New Mexico, production has been more consistent and reliable. Since commissioning the expansion of the compressor station in December, we've been able to send more gas to the high-pressure system, increasing uptime and unburdening the low-pressure system by which the remainder of our gas is gathered. Overall, New Mexico oil production grew by 74% and or over 2,500 barrels of oil per day year-over-year, benefiting from just 6.3 net wells turned to sales and from the Silverback volumes. New Mexico represents a growing share of our total company oil production from 23% of the total in 2024 to 34% in 2025. That trend will continue into 2026 and beyond. The Silverback acquisition continues to surpass by case expectations, producing at a 65% higher oil rate at year-end than anticipated. This is primarily due to strategic workovers, including wellbore cleanouts, artificial lift optimization and return to production operations. As for drilling and completion operations, we're down 25% in cost per lateral foot in Red Lake year-over-year. Similar results were achieved in Texas with a 15% cost reduction per lateral foot in 2025. Both achievements were driven primarily by a focus on pad drilling and increase in time spent drilling and completion and optimization. It should be noted that while completion optimization helped on the cost reduction side, we're also seeing it result in an increase in productivity in both our Texas and New Mexico wells with both sets of wells generally beating internal forecasts. We're also optimistic about future optimization that could further drive costs down. including increasing completed lateral length and testing new completion methodology in New Mexico. Let's now discuss our plans for 2026. Our current plans call for significant increases in activity and volume with activity and spending being more concentrated during the first half of the year, while volumes may grow each successive quarter. On a full year basis, we're essentially running slightly more than an equivalent continuous 1-rig program. In actuality, we have 2 rigs running for approximately 3 months through May, back down to 1 rig for the summer, down to 0 potentially for the fall before picking 1 up again later in the year. We picked up the second drilling rig last month that began drilling in New Mexico to complement the rig already running in Texas that was put in service October of last year. This 2-rig program allows us the ability to continue to grow our Texas production base while also setting the stage for more New Mexico asset development when the long-haul high-pressure line to Targa is completed in Q3. We'll begin to build volumes, striving to meet our volume commitment payouts as per the terms of the sale of the midstream asset in Q4 2025. Both rigs have relatively short contract terms, allowing us to be flexible in the event market conditions change rapidly. We currently forecast drilling 46 to 53 gross wells, which may correspond to approximately 37% to 43% on a net basis. Net completions and wells turned to sales may be slightly higher as we have a small inventory of DUCs to draw from as I referenced during my commentary on fourth quarter activity. New wells turned to sales will focus in Texas during the first half of the year and transition to New Mexico for the second half. This is predicated on the Mexico gas infrastructure being completed and ready by that time, as Bobby described. Additionally, we've been working with partners to secure sufficient water disposal for this development plan. This will increase operating expenses, which we see impacted later in the year while we're also tackling initiatives elsewhere to offset this increase. Philip, I'll now turn the call back to you. Philip Riley: Thank you, John. I'll also cover both fourth quarter and full year 2025 results with a few additional notes on 2026 guidance. The company's financial results for the fourth quarter were favorable to all guidance levels. Fourth quarter prices after hedges were lower quarter-over-quarter across all 3 commodities, though total hedge revenue decreased by only $3.8 million or 3% quarter-over-quarter, benefiting from $8 million of positive hedge settlements. We experienced negative natural gas and NGL revenues after basis and fees. Like many other Permian operators who have reported this earnings cycle, pipeline maintenance constrained Permian gas egress and pressured Waha pricing during the quarter. We're monitoring the regional infrastructure build-out, which is forecast to improve by next year, absent delays. We have a material amount of Waha basis hedged next year at minus $1 to Henry Hub, which combined with higher index pricing and higher forecasted volumes, has the potential to translate to material positive revenue starting in 2027. Core cash operating costs being LOE, production taxes and G&A before stock compensation, decreased in total by 13% quarter-over-quarter. LOE also decreased by 13% quarter-over-quarter or by 21% on a dollar per BOE basis with cost savings across many categories. Workover expenses were the largest contributor coming off the third quarter with higher workover activity immediately following the Silverback closing. We hope to continue realizing some aspects of the cost savings, while other aspects were unique to the quarter and may not recur going forward. G&A before stock compensation decreased by 20% and G&A inclusive of stock compensation decreased by 18%, partly on account of coming off of an unusually high third quarter. A few items caused third quarter G&A to be materially higher, including the impact of a transition services agreement with Silverback immediately following the close, which was completed by the fourth quarter. Net income increased by $69 million quarter-over-quarter, benefiting from nonrecurring items such as the $72 million gain from the midstream sale and from $20 million of higher hedging gains, which were mostly noncash and partially offset by $16 million of higher income tax expense due to the midstream sale gain. Adjusted EBITDAX increased 3% quarter-over-quarter to $66 million as $5.8 million of lower costs more than offset lower hedge revenue, increasing margin from 59% to 63%. Cash flow from operations increased 2% quarter-over-quarter. Accrual capital expenditures for the quarter were $50 million, compared to $18 million in the third quarter. The CapEx increase represented a return to more normalized upstream activity compared to an exceptionally low level in the third quarter and an increase in midstream capital spend which is ultimately reimbursed with midstream sale. In aggregate, capital expenditures were at the low end of our fourth quarter guidance range, primarily due to a few new drills and smaller infrastructure projects that were deferred to 2026. We converted 27% of operating cash flow to $17 million of upstream free cash flow and $1 million of total free cash flow. Note, the proceeds of the midstream sale did not flow through total free cash flow, while the CapEx does reduce free cash flow. I'll point out again that the midstream CapEx was reimbursed as part of the sale so the free cash flow metric has a bit lower utility this quarter. Debt decreased by $120 million quarter-over-quarter due to proceeds from the midstream sale resulting in a fourth quarter 2025 balance of $255 million. As of 12/31, our credit facility was 28% utilized based on a $400 million borrowing base. Trailing debt to EBITDAX leverage was 1.0x on an as-reported EBITDAX basis or 0.9x on a pro forma basis, including first half 2025 Silverback EBITDAX. On a full year basis, to EBITDAX and free cash flow decreased by only 8% year-over-year despite 15% lower oil prices. Total free cash flow was 31% lower year-over-year driven by lower prices and higher midstream spend, which, of course, is nonrecurring. We allocated 41% of total free cash flow to dividends, up from 26% in 2024 as dividends increased and free cash flow declined. We had a very active year of acquisitions and divestitures, as you can see on our cash flow statement. Silverback is represented as the $118 million business combination. The $2.2 million of acquisitions of oil and gas properties represents a small acquisition of minerals underneath our New Mexico properties that we completed earlier in the year. We also had a good amount of success in 2025 with our land ground game reflected in a $1.3 million acquisition and effectively $3 million of new leasehold embedded in CapEx, which is labeled as the additions to oil and natural gas properties on the cash flow statement. In total, we estimate that we replaced about 2/3 of our completed locations from 2025 via new land, corresponding to a very attractive cost of entry of less than $300,000 per net undeveloped location. Moving on to 2026. We currently forecast a capital plan of $200 million, corresponding to the activity that Bobby and John described. As of today, we forecast more than 2/3 of the capital spent in the first half of the year, at least on an accrual basis with a particularly large second quarter, then falling in each of the third and fourth quarters while oil volumes may rise through the year given the lag effect of investments converting to production. We see this investment benefiting not only this year, but providing a tailwind to 2027 as well. In our investor presentation, we provide a 2-year outlook, illustrating 2026 and 2027 spending and production levels. Overall, we forecast a materially higher allocation rate of cash flow to CapEx this year. Of course, we'll monitor markets and aim to stay flexible throughout the year and will protect the dividend in lower price environments. We entered 2026 well hedged, partially on account of the midstream capital commitment we're occurring until mid-December and partially on account of universal calls for an oil surplus and weak pricing. And we've done some hedging over the past week. As of March 2, we had approximately 70% of forecasted oil volumes at midpoint guidance hedged at a weighted average downside price of approximately $60 per barrel with 36% of those hedges structured as collars, preserving upside participation. Thank you all for your support and attention. Operator, you may now turn it over for questions. Operator: [Operator Instructions] Our first question will come from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: Congrats on a strong year-end and also thanks for providing a multi-period outlook as well. Regarding 2026 and 2027, while I understand there could be off brands at a lower price environment. Could you help us shape production cadence for the year under the status quo plan as the implied average oil production for Q2 through Q4 is about 10% above the Street at present. And then additionally, as we kind of think about capital efficiency over this period of investment throughout 20 would you expect it to improve in 227 as you optimize D&C designs get for Repsineti? And as you back out some of the DUC impacts 2026. Philip Riley: Yes, sure, Derrick. This is Philip. So you're going to see the production increase each quarter this year. And I guess to clarify, you're going to see a dip in quarter 1 is what we're forecasting. John could follow here with a little more color. But we experienced some downtime and some deferred production this quarter. We had some shut-ins from our legacy midstream partner, which caused a little bit of a dip there in the first quarter, but then we hope to achieve a nice ramp in the second quarter and third quarter and fourth quarter. I hope that answered the first question. I'll go to the second and then pass to John. On '27, yes, depending on how you define capital efficiency, we've got a few different metrics. But yes, you could find that next year is more efficient and that's just the function of the delayed aspect of the investment converting to the production dim. So we hope to achieve another increase next year. It may not be the 25% increase like we hope to get this year, but maybe it's 10% or so based on, frankly, kind of flattish CapEx is what we're showing for now. 2027 is a long way, of course, but we did put that in there. I'm glad you appreciate it because it does show that kind of lag effect benefit there. John, do you want to say anything else on kind of the Red Lake shut-in? John Suter: Yes, sure. Yes, like Philip said, we did have some downtime in the -- due to some of the heavy weather freezing temperatures and then like you said, some issues with our pipeline. But all the more reason why we're really looking forward to Q3 when we'll have our new pipeline in place. We're excited about that. Like we -- several of us mentioned that there'll be heavy champions activity in the first half of the year. And then we're we kind of reduced in the third quarter and then in the fourth quarter, we're shifting to New Mexico again, we need that trunk line in place from Targa, and that's on schedule to happen. And so really excited about that. We'll start ramping up our completions still won't get the full impact of it in Q4 because a lot of things are being completed then and we'll have to dewater a little bit, but all the better for '27 as we should be able to start drilling more efficiently in Denver in New Mexico and completing those wells as we go. So should be more efficient without having to wait on some water infrastructure and some gas takeaway like we are this year. Derrick Whitfield: Great. And John, maybe staying with you, in your prepared remarks, you mentioned completion optimization. Could you elaborate on some of the notes that you're turning for completion optimization or D&C optimization? And what you're seeing in well performance versus past designs. John Suter: Sure. Well, we -- again, we've been mostly in champions. We're trying to do zipper fracs on pad drilling, zipper fracs on everything we do. We kind of think we found the optimal recipe there. We've reduced from say, 700 to 800 pounds per foot down to 250 to 300 pounds per foot of sand. And so that's a big change over time. goes against what we hear in the shale world. So we're getting a big cost savings from that. We also have found that 2040 works better than 40 70, which is often more readily used. But we've also -- the other thing is we've reduced our clusters, but still are using the same amount of sand, but we've -- it reduces our water volume and of course, less pump time, which is a cost benefit. In Mexico, there is upside there that we have tested a little bit. We plan to test more in 2026. The hepatic layer of the blindary is very similar to the San Andres over in Texas. And we would like to test more cross-link fracs there. We've done it once in 2025, I believe, and we've seen good outcome, but we have a lot more testing to do, but it could provide a significant financial benefit somewhere between $0.5 million plus per well. So we're excited to do some more testing there. Again, once we have that pipeline, we'll have the freedom to do a little bit larger scale drilling. Derrick Whitfield: Maybe, John, just to clarify on the optimization. It sounds like it's more cost and you're getting similar performance. Is that the right way to characterize it. John Suter: I would say in champions, that's probably true, albeit our wells are outperforming our general type curves right now. Some of that is due to, again, more child wells are being drilled in champions because again, we're later in the development stage there. those wells tend to reach peak oil faster. So that's another reason that's causing that in Champions. Operator: Our next question will come from the line of Neal Dingmann with William Blair. Neal Dingmann: Great update. Phil, maybe a question for you or Bob or John. Just again sticking with that Slide 10. I've always loved the flexibility. Again, it certainly seems like in past years, it hasn't been 1 rig that you've needed to have very material production growth that I'm just wondering, given now today in shoot, we're almost now back to $80 oil. How flexible is this plan? And I know a lot of larger companies, I would say, hey, we're just going to target flat and target free cash flow growth. But again, given your returns that you show on other slides, would you think about trying to capture this oil upside and even potentially grow quicker than just maybe talk about the flexibility of the plan, I guess, is the best way to ask it. John Suter: Yes. I might diverse some of that to Bobby for a longer-term view of that of increasing. But certainly, we're talking about drilling, what 45 to low 50s gross wells. The beauty of of our wells being so shallow that compared to the Delaware is that we can knock well out from spud to TD, maybe 4 or 5 days, certainly a week by the time you get everything wrapped up and then doing pad drilling, it's really quick sliding to the next one. So 1 rig can effectively drill let's just say, upper 40s to low 50s wells per year if you're able to not do a lot of regional moving. So it would not take much in deployment to be able to really drill quite a few wells. So we have the capability. I may star that back to Bobby to see what he thinks about drilling at a higher oil price. Bobby Riley: Thank you, Neal, for the comments you made. I'm going to say we're probably not in a position today to be reactive to a $5 increase or $4 increase in the price of oil. I think we have a solid plan laid out for 2026 with a pretty significant D&C capital spend that really we're looking into '27 and beyond and how that going to affect this company in any price environment, whether it be $55 or $85. We have the ability with the flexibility like John mentioned, we could either shut these rigs down if we needed to or keep the rig running for the entire year. We have that option ahead of us. It's just too early to immature to really say what we would do at this point. Neal Dingmann: Yes, that makes sense, Bobby, and love the flexibility. Second question, Phil, you know I can't help but ask on the powers. Obviously, there's positive on that. I know I was looking at Slide 16, you guys talked about, I think, now even on the second project, it's in the final stage. Could you talk maybe just update on that, where that second project sits? And have you considered even adding more power beyond project #2 because, again, obviously, I'm a fan of this. And again, I think as the market would love just to hear any more plans to be on Project 2. Philip Riley: Sure. Thanks. Yes. So the second project is this merchant project we have in ERCOT in which we take our lower-cost gas and convert that to electrons to sell to the ERCOT grid that project itself has 4 sites, and the first of the 4 sites is in the final stages of commissioning. With ERCOT that has a kind of 4-week process where you're testing with ERCOT demonstrating your ability and competency to reliably deliver that power we're getting ready for that. And then we should be in a position to enter effectively the day-ahead trading, which is the kind of power that we plan to provide and offer for the grid. It's not a long-term thing, but it's something that we then think is flexible. You can react. We -- our partner has a very active trading desk there that you can look at the dynamics, both gas and power and make decisions on that kind of basis. Ultimately, this is for it's for a few things, but one of the primary things is, frankly, to try to improve effective netbacks on our gas. Now that may not show up on our revenue, like I mentioned on our negative revenue we experienced in the fourth quarter. But basically, it's taking that same inherent energy that's embedded in that molecule, right, and turning it into something that maybe the market would value more. We'll see. We're excited for it. We think it can make some sense. We've seen some other companies sign up to do something like that as they also have challenges with in-basin gas realizations. As for doing more, man, how much has changed with power in the last 2 years, right? We announced this. And so what I'd say is, I mean, I think we'd like to see how this goes. These are very, very small sites, 10-megawatt compared to the gigawatt type of sites you're seeing now. Gigawatt plants and data centers are massive operations, incredibly capital intense. You got the hyperscalers now right, committed to what, $600 billion of CapEx combined with them. And then that's all the way up to the President, right? We said, okay, you guys now need to be in charge of your own power. So we're talking big, big, big scale. And then at the same time, that tends with that arena of infrastructure CapEx and investors tends to push down returns. And so I think for now, we're being cautious and we're waiting to see. We're opportunistic. I mean that's usually the way we treat things. I encourage you to think about it as like opportunistic projects. We did one with midstream. This is another type of project like that is how we're thinking about it for now. Neal Dingmann: Philip, again, fantastic deal also on the midstream project. Operator: [Operator Instructions] Our next question will come from the line of Nicholas Pope with Roth Capital. Nicholas Pope: There were some comments made about the New Mexico operations that I guess, in the fourth quarter, maybe even earlier in the third quarter, when the compressor system came online kind of helped boost production on top of artificial lift just downhole work on the wells that have really kind of yielded some real nice results there and kind of maintaining the production levels without a lot of drilling. I was curious like where -- I guess where that New Mexico side kind of is with your taking over operations and kind of some of that field production level optimization right now? And maybe is there -- do you all think you are fairly kind of through kind of integration of all those assets? Or do you think maybe there's more of that kind of quick hit, low-hanging fruit type production work that you got going to New Mexico? John Suter: Yes. I would say related to the fourth quarter, some of the -- there was a couple of early pads that we've drilled that were just outstanding performance, we're really excited about that we've done some testing on. Certainly, we have integrated the Silverback acquisition that's on the west side of our of the Red Lake asset we originally had. We have worked on a lot of integration there. We've combined our workforces got down to 1 office kind of benefited for some water handling optimization, reducing some costs again, just numerous things. But we do have that, I would say, fully integrated -- there has been some strong work overperformance, which is what we've concentrated on in the early stages of this. We found a lot of low-hanging fruit there wellbore cleanouts, -- we've been switching from some of their artificial lift methods, even from ESP to large pumping units and doing it earlier in their life, and we're saving up to $20,000 a month per installation as we've been able to find those. So we're kind of working through those that's what's been a big contributor to -- like I mentioned, just kind of the outperformance in the first 6 months of Silverback was fantastic, kind of keeping it way flatter than we thought we would, and it's from the strong workover performance. Nicholas Pope: Got it. And do you think there's -- I mean, are you still finding these opportunities in that area? I mean do you think -- I mean, it didn't seem like there was a big uptick in LOE in the fourth quarter despite kind of the positive number. So I was just curious, like, is that still ongoing? Is there still pretty hurdle ground there to optimize? John Suter: Yes, it is. There's certainly quite a few wells. I can't remember how many horizontals they had maybe 3-ish, if I remember right, I met a lot of verticals. But again, we're just prioritizing seeing what's the most effective way to start -- and then, yes, just working through just blocking and tackling with some of these wells, we've been able to restore to near initial production. So again, it's something that there's not hundreds of them. but we're certainly taking care of them, and that's allowing us to keep that steady and holding that while we develop our what we call kind of our Artesia West on our main Red Lake asset that we've had. So we'll kind of do this in phases from an inside-out approach as we are trying to be effective with Targa's infrastructure. They'll be laying to support this. But we're excited about the large number of upside type things there are here. Nicholas Pope: That's great. One housekeeping item. The divestiture they all made that non-Jukum County assets. Was there any production associated with that small divestiture. Bobby Riley: No, it's a very, very small amount. That was a legacy asset that we brought in. I think progress, if you can go in public, I don't know what the number will 200 barrels Yes, a couple of hundred barrels. Operator: Our next question comes from the line of Noel Parks with Tuohy Brothers. Noel Parks: Just wanted to ask a couple. I think I sort of caught everything from the various moving parts that you were talking about reserves and costs for the reserves for the year. But I -- just -- is there anything about the balance of in the costs incurred between what shows up as under the acquisition side versus the development side? Because the development CapEx is sequentially lower -- well, lower year-over-year by a good bit, of course. And just doing my calculation, it just looked like the 1-year drill bit F&D came out especially low, which is a good thing. But I just wondered if there was anything sort of unusual about the bookings this year, bringing new areas onto the books and I'm sure reallocating CapEx with the SEC 5-year rule and so forth. So any insight on that would be helpful. Philip Riley: Okay. Noel, I'll take a stab and follow up with you if you need to. The direct answer is that there's nothing nuanced or new going on with regard to how we're booking. I think it's primarily the fact of what Jon described, we had lower activity in '25. Go back to April, May, Liberation Day, prices fall. At the same time, we captured that acquisition, and we try to preserve capital for that. had a little bit of competition for the allocation given the midstream. So we work through the year like that. We're able to grow organically with modest activity like he described, 16.3 net wells put online. So I think a lot of it is that, combined with the cost savings on D&C. And so that probably translates to what you're seeing in the cash flow statement. When I convert that to reserves. I think we had about $13 a barrel cost to add proved developed reserves on a per barrel basis, not per barrel of oil. And so that was a positive, I think, roughly flat with last year. On reserves, just service announcement for everybody, we aim to take a pretty conservative philosophy of booking. I don't know that we booked a single PUD with Silverback, for example, just being the public company with the SEC in the 5-year rule, as you mentioned, we just find it's easier to book as you go at the kind of minimum. So we focus on predeveloped probably more so than total approved. John Suter: Yes, I think that's right, Philip, just with our relatively conservative pace, you could book most of champions as a PUD if you wanted to all but the very Eastern exterior wells, but we've chosen not to do that. New Mexico, until we start drilling more, then we'll be able to expand our PUD base as we start developing more, but we've been limited again with gas takeaway, water takeaway that now has been fixed. We do pad drilling and so that hurt you from being able to go out and drill 6 different areas instead of 6 wells on the same pad, you can certainly book more PUDs if you do that. But I would agree with Philip where we've taken a pretty conservative stance here, but we have a lot of optionality in the future to improve that. Noel Parks: Great. That does fill in a couple of gaps I had in my understanding. So that's great. And I was thinking just on the question before you were talking about the really nice low-hanging fruit that you have from maintenance, maintenance tasks, workovers, making wellbore cleanups and so forth. And I do recall just, I think, talking about both of your significant pieces of New Mexico acquisitions, especially with the most recent one, Silverback that the assets being in the hands of folks who really were coming from more of a private equity sort of financing background as opposed to being sort of just your typical operators. As you look around the other vintages of entries into the base in the conventional plays that various parties have done over the last 5-plus years or so. do you anticipate similarly -- I don't know if I call them neglected, but just similar packages out there that have low-hanging fruit that's similar I do recall you saying in the past that the issue is that there isn't really enough upside in a lot of what's been available. But I just wondered if deal something like some back is something that maybe over the next few years, you could replicate easily. John Suter: Yes. That's -- there's a lot of different things in there. I think various companies just focus their capital on different things, whether they're trying to drill and flip or if they want to develop it as a legacy asset. I do think our team is particularly good at it. I will say that of recognizing it and then acting on it. But that being said, various companies deal with that in different ways. I think that we can find a lot of fruit in most assets. But again, we bought Silver back for the most part for all of the drilling opportunity. The -- it's a ton of acreage, right along trend in the Yeso play. That's why we bought it. all of this other stuff with production optimization is just bonus in my book. Operator: Our next question comes from the line of Jeff Robertson with Water Tower Research. Jeffrey Robertson: Bobby, you talked about restarting the share repurchase program. Can you just talk about how that plan fits into your overall capital allocation with dividends, debt reduction potential for acquisitions? Bobby Riley: Yes. Thanks for the question, Jeff. It basically is just another tool in our tool test to where we look for being opportunistic. If we feel like the share price, which we do is undervalued, it may be behooves to continue more aggressively in a share buyback. Obviously, in these accelerated prices, the returns we get on the drill bit are extremely great for us. So that may not lend to buy back at that particular time. But the fact that we're flexible and can spend our money either to stock buyback or development that's where we want to be. You saw from the comments and from the falls, I think we averaged the buyback around $26.50 a share or something like that. When the share price is out, I'm definitely buying. So I don't know if I answered your question, but basically, it's there and it's ready when we need it. And if we feel like the return is better on the share buyback than drilling, then that's what we're going to do. Jeffrey Robertson: John, in your comments, I think you said -- or maybe, Philip, you said you replaced 2/3 of the 2025 drilled locations for -- I wrote down less than $300,000 per location. Can you provide any color as to where those locations fit in the chart you have on Slide 5, where you talk about locations by return on investment. And then secondly to that, do you have a goal or an objective to how many locations you would like to replace that you'll drill in the 26 program? Philip Riley: I will attempt to answer that. Yes. So the locations, I'd say, they fall in kind of the middle of the 2 to 3x DRI. You're looking at just referencing Page 5 of our presentation, right third, we've got a chart in there. The lower tier there just for the benefit is a small section kind of on the perimeters of Red Lake, but most of our stuff is great, and we're excited about it. This that we got was we think nice down the fairway type of locations, just under a dozen there. So we're thrilled to do that. This might be a Bobby answer, but I'll attempt it. Look, our goal is to would replace as much as we can. If we could replace 100%, then that's fantastic, right? And in a depletion business, you've got to have something like that, to some degree, the closer you can get to 1x or 100%, that's great. So we're thrilled with 60% last year. Now of course, it was easier coming off of putting on 18 wells versus 40, but we're always out there looking for things. You've seen us have an active A&D track record so far. We'll do the best we can. Bobby Riley: Yes. Let me add a little bit to that. we're focusing this year with our land group where we kind of restructured it to 1 of our key focus is going to be what we call the ground game, which is this is not going out and buy a competitor. This is actually just digging in and adding acreage in and around our existing footprint. And the goal would be to replace 100% of what we drill every year or more. And I think we have that opportunity in New Mexico. We're executing a few of those opportunities in our legacy Yokee this month as we speak. We're a little bit more limited there on where we think the rock creates opportunity than we are in New Mexico. But that's 1 of our big focuses this year is going to be what we call the ground game and executing that. replacing our drilling inventory at least 100% with the bolt-ons. Jeffrey Robertson: And Philip, you all Riley signed an agreement with WaterBridge, which I believe takes effect in September of 2026. Will that agreement with respect to saltwater disposal, lower your cost? Will it just improve efficiencies in the Red Lake area? Or how do you -- how should -- how do you characterize that the benefit of that. John Suter: Yes. This is John. It's going to increase our cost. But what it does is it allows for full-scale development the rest of the way for this field. So it's -- we did an agreement, I would say, at industry standard rates, and we're really pleased with it. But more than any kind of minor efficiency, it's just like the target is for gas. It's to allow full field development without having to worry if there's any capacity somewhere. Philip Riley: And let me just add on in that what we hope to achieve is that we're managing the costs over time and that we achieve, at the same time, as some of those water bridge costs are impacting us, we get overall efficiencies just with the scale as a larger percentage of the Red Lake production becomes horizontal, which is much higher margin, lower cost versus right now, you've got some component of that that's just, frankly, the vertical that was holding the land, it's how we got it from a seller, right? John Suter: Right. And we do have a lot of undedicated acreage at this point. So we still have flexibility for future options as well. Jeffrey Robertson: And lastly, Philip, you spoke about hedges for 2026. Given the shape of the curve today where you've got for 2027 prices, I think your oil are in the mid-60s. Can you just provide any color on how you're thinking about hedging in a volatile market. Philip Riley: Yes. So we talk about it approximately 27 times a day and then think about it through the night. We've been through years of volatility, right? We're trying to position ourselves and protect the program ahead. Our philosophy historically is when we've got higher capital obligations and debt loads, then we might benefit from the hedging. We had that as of December. We don't now. But since you hedge in advance, absent liquidating some of those, we have those on the books and I mentioned this in my prepared remarks, we also entered the year with everybody calling for a surplus and $50 or $55 WTI. So we're happy with where we are. We be happy to write a check to the hedge counterparties if oil is at 70% for many months. We're not holding our breath, and we don't need that to execute on our plan. Like I said, 2/3 of the hedges this year are in the form of swaps with the balance in collars, the callers kind of have a range of weighted average, call it, 58 to 72%. And so we feel good about that. There's plenty of room in there to make some margin. We -- last thing I'll say is we remember what it was like coming out of COVID in 2020 or coming out in 2021 with the prices rising, and we enjoyed that seeing the daylight and getting that, but we have to be careful to hedge too much as we monitor the cost environment and John's group has to react to potentially changing service costs. Now I think we're in a different environment, and we don't hope to see the same type of of inflation across the board like we did then, which I think was also related to the Fed printing money and so forth. But anyway, that's kind of a long answer of saying we're quite hedged. We feel fine about it. We've got a lot of volumes to work with. We can always do more. We could do less, but feeling good on the setup for now. Bobby Riley: Jeff, let me -- this is Bobby. Let me follow up, just to give you a little bit more color on your question on our kind of our ground game and our inventory. One of the things that we're doing here with our subsurface team is really looking at the way our completions in New Mexico through microseismic through different tracer surveys to where we optimize what our wine rack looks like, so to speak. I mean, right now, we have a very conservative approach of about 5 wells, 3 in 1 bench and 2 and another bench. But we're kind of going to where we're going to add a whole another bench in the San Andres and some of our acreage and then modifying possibly by adding a well or 2 per section in the wine rack that we have right now. So that's going to organically increase our well count considerably. When we get to finalizing that. I don't I do know there will be an increase. I don't know just how impactful it will be, but it will move the needle there. John Suter: Yes. And that spacing you were mentioning is 320. Jeffrey Robertson: Yes. Okay. Those would be locations added on existing acreage. So there's really no incremental cost. Bobby Riley: No incremental cost in the acreage, that's correct. Operator: This concludes the question-and-answer session and our call today. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Paulina, your Chorus Call operator. Welcome, and thank you for joining the Turkcell's conference call and live webcast to present and discuss the Turkcell Fourth Quarter and Full Year 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mrs. Ozlem Yardim, Investor Relations and Corporate Finance Director. Mrs. Yardim, you may now proceed. Ozlem Yardim: Thank you, Paulina. Hello, everyone, and welcome to Turkcell's 2025 year-end earnings call. On the call today, we have our CEO, Ali Taha Koc; and CFO, Kamil Kalyon. They will provide an overview of our operational and financial results for the quarter and the year, followed by a Q&A session. Before we begin, I would like to kindly remind you to review our safe harbor statement, which is available at the end of our presentation. With that, I will now turn the call over to Mr. Ali Taha Koc. Ali Koç: Thank you, Ozlem. Good afternoon, everyone, and thank you for joining us today. We closed 2025 with a strong finish, exceeding all of our expectations. Revenues increased by 11%, and we achieved an EBITDA margin of 43.1%. Net income from continuing operation reached TRY 17.8 billion, up 23% year-on-year. These outcomes reflect disciplined execution and strong momentum across the business. 2025 was pivotal for our long-term strategic positioning. We were awarded the largest spectrum in the 5G auction and secured our fiber footprint through the agreement with BOTAS. This will strengthen our network leadership and expand our capacity to capture 5G demand. We maintain a robust balance sheet through prudent financial management. This preserves flexibility and liquidity. We delivered shareholder returns through a solid dividend payment and launched a 3-year share buyback program. Turkcell is a technology company. We are reinforcing that identity through focused investments. In 2025, we allocated 15% of CapEx to strategic areas, primarily in data center, cloud infrastructure and renewables. These investments deepen our digital infrastructure, enhance energy resilience and support long-term value creation. A major milestone for Turkiye is our strategic partnership with Google Cloud. We are building a hyperscale cloud region in Turkiye. This cloud region will help enterprises accelerate cloud adoption to secure their data sovereignty as well as excess advanced capabilities in AI, cybersecurity and digital platforms. Turkcell is at the center of Turkey's digital transformation. With this partnership, Turkcell will have sustainable technology-led growth. Next page, please. Over the past 3 years, we have executed with discipline to show that Turkcell's leadership in connectivity and digital infrastructure. This transformation shapes how we operate today and how we allocate capital to deliver long-term value creation. Our capital allocation framework is built on 3 pillars. First one, investing in our business to sustain leadership and capture future growth. We continue to advance mobile rollout and expand our fiber footprint with 5G. Our fixed wireless access solution Superbox will extend our coverage beyond fiber. In parallel, we are investing in data centers and cloud, which will bring future growth. As we scale this business, we may also evaluate selective inorganic opportunities. Our expected CapEx intensity of around 25% reflects this investment cycle. The second one, delivering attractive shareholder returns. Last year, we distributed 72% of net income from continuing operations. This is our ninth consecutive year of dividend distribution, 9 consecutive years. We also launched a new share buyback program and repurchased $58 million of shares to date, reflecting our confidence in long-term value of our business. Thirdly, maintaining a strong balance sheet. We continue to diversify our funding sources from sustainable bond issuance to Islamic financing structures. We remain committed to maintaining net leverage below 1x, preserving flexibility to invest in growth while continuing to support shareholder returns. Overall, we have a crystal clear capital allocation plan to invest in strategic infrastructure, capture structural global opportunities and deliver sustainable shareholder value. Next page, please. We can now move to the quarterly performance. The fourth quarter marked another period of solid execution for Turkcell's leadership. Performance was driven by operational excellence and supported by our key growth engines. With outstanding performance across all core segments. In this quarter, revenues grew by 7% year-on-year to TRY 63 billion. Results were underpinned by ARPA expansion, continued subscriber momentum and scaling of our data center business. All of these reinforce the strength and resilience of our growth model. Group EBITDA increased 12% to TRY 26 billion, reaching a solid 41.2% margin. Margin expansion reflects continued cost discipline and as well as the operational efficiency. Focused financial management also supported our bottom line with net income from continuing operations increasing 11% to TRY 3.6 billion. We achieved 905,000 net postpaid additions in the fourth quarter. This is the strongest quarterly result in the last 6 years. This was driven by targeted value propositions as well as customer-focused strategy. Another good news, this growth also came with real ARPU expansion, reflecting balanced growth. On the other hand, our data center and cloud business continued to scale with revenues growing by 32%, renewable energy installed solar capacity reached 62.2 megawatts. Next, please. Let us turn to the key operational highlights that shape our great quarter. Competition remained elevated for much of the year, but it is moderately in the middle of the fourth quarter. 2025 was marked by record high mobile number portability. In this environment, our customer-centric approach and pricing strategy helped us strengthen our market leadership and expand our customer base. We had 2.4 million postpaid net additions for the year 2025, the highest level in the past 26 years. Rising share of the postpaid subscribers was a key driver of revenue growth. It increased by 4.7 percentage points year-on-year to reach 81%, strengthening the resilience and the visibility of our revenue base. Revenue quality also improved. Through our micro segmented pricing actions and AI-supported offers we migrated a significant portion of our subscribers to higher-tier packages. As a result, mobile ARPU real growth is 5.4%. Innovative offerings, including family plans and a new loyalty platform like Tumbara, increased engagement and supported retention. As a result, our churn improved year-on-year to 2.7%. Next, please. Turning now to our fixed broadband operations. Another strong year for Superonline, our fixed business as well. We expanded our base with net addition of 119,000 Turkcell fiber subscribers. Total fiber subscriber base reached 2.6 million. High-speed campaigns were instrumental in driving this growth. We expanded our offer to speeds of up to 1,000 megabits per second. Today, out of all of our customers, 1 in 5 customers subscribes to speeds above 500 megabit per second. This signals a clear shift toward premium connectivity with Turkcell Superonline only. Residential fiber ARPU increased by 10.3% year-on-year. We expanded our fiber home pass to 6.3 million home passes. While increasing the number of home passes, we achieved a phenomenal performance on take-up ratio of 42%. Next please. Our digital infrastructure strategy is central to Turkcell's long-term growth. We believe that cloud and AI infrastructure is structural, a must for every business in Turkiye. The Turkish cloud market is growing at 19% annually in dollar terms, supported by increasing digitization and rapid adoption of AI-driven workloads. Our partnership with Google Cloud marks a defining milestone. Establishing a Google Cloud region in Turkiye strengthens our country's digital ecosystem and enhances our position in the infrastructure value chain. This partnership diversifies Turkcell's revenue streams and reinforces our long-term growth profile. Today, we operate 50 megawatts of active data center capacity, and it will be doubled by 2032. Over the same period, we expect our data center and cloud revenues to grow at least sixfold in U.S. dollar terms. Beginning in 2026. We expect this segment to generate approximately $100 million in EBITDA. We are uniquely positioned to capture this technological breakthrough with our scale, network assets, market leadership and strategic partnership, we are ready to benefit from this structural growth. Next please. Digital Business Services delivered solid growth, with revenues increasing by 30% to TRY 7 billion, supported by stronger hardware sales. Our system integration backlog reached TRY 6 billion. Our data center and cloud revenues increased by 32% year-on-year. This outstanding growth was driven by capacity expansion. As this new capacity established a higher base, we expect growth rates to gradually normalize. Even so underlying demand remains robust and continues to support for further expansion. We expect to complete the final module of Ankara data center in this year, reaching the full capacity -- full technical capacity of our existing facilities. In the first half 2026 construction of our new data centers under Google Cloud partnership will start. This will be our next phase of capacity expansion strategy. Techfin is one of our core strategic growth engine. Our techfin business delivered solid performance in 2025 with revenues growing by 21% and once again outpacing group growth. Paycell was the main driver of this growth. In the fourth quarter, its revenues increased by 40% year-on-year, supported by POS solutions and Pay Later services. Paycell increased its non-group revenue share by 18 percentage points to 77%, reflecting its ability to scale beyond the Turkcell ecosystem. On the financial side, revenues declined by 6%, mainly reflecting the lower interest rate environment. The loan portfolio continued to expand despite tight regulatory conditions. Net interest margin improved to 6.3%, primarily driven by lower funding costs as well as disciplined risk management and better collection practices. Overall, techfin continues to enhance the diversification and quality of our revenue growth. Next page, please. Now a few words on our renewable energy footprint. We are so proud of it. In the fourth quarter, we commissioned our largest active facility to date. Active solar capacity increased from 8 megawatts at the end of the last year to 62 megawatts in 2025. In total, we reached 164 megawatts of installed capacity across 8 different cities. These investments are already delivering financial benefits. During the year, our solar energy portfolio generated TRY 156 million in OpEx savings. Stronger contribution is expected in 2026. We will continue to expand our portfolio to enhance cost efficiency, strengthening operational resilience and support our 2050 net 0 commitment. Next page, please. We exceeded our expectations in 2025. This underscores the resilience of our operating model and the consistency of our execution. Looking ahead to 2026, our focus remains on real profitable growth. We expect real revenue growth in the range of 5% to 7% with the strength of our core business and increasing contributions from strategic areas. We aim to deliver an EBITDA margin between 40% to 42%, reflecting ongoing operational efficiency while continuing to invest in growth. Our operational CapEx intensity is expected to be around 25%, consistent with our investment cycle in 5G rollout, digital infrastructure expansion and renewable energy projects. In our data center and cloud business, we anticipate revenue growth in the range of 18% to 20%. This reflects a normalization following the significant capacity expansions completed in 2025, while underlying demand remains healthy. Overall, we believe our guidance balances growth, continued investments and sustainable value creation. With that, I will now hand over to our CFO, Mr. Kamil Kalyon, to walk you through our financial highlights. Kamil Kalyon: Thank you very much, Ali Taha bey. Let me briefly walk you through our financial results. We delivered a strong performance for both the year and the quarter. Top line grew by 11% year-on-year, surpassing TRY 241 billion, quarterly growth was 7%. This performance reflects resilient execution in our core telecom business and continued scaling of our techfin platform. Turkcell Turkiye revenue increased by TRY 21 billion year-on-year. Growth was driven primarily by real ARPU expansion and sustained postpaid subscriber additions. Continued upselling and premium positioning further enhanced the quality of our revenue base. Techfin accounted for 6% of consolidated revenues contributed TRY 2.4 billion for the year. Performance was underpinned despite strong momentum in Paycell, particularly in POS solutions and Pay Later. Both verticals continue to expand transaction volumes and monetization. Next slide, please. Now EBITDA performance. Exceeding the top line growth, EBITDA increased by 14% year-on-year to TRY 104 billion, reflecting efficient cost management, EBITDA margin surpassed 43%. The main positive contributors were employee and energy expenses. While payment expenses scaled alongside strong POS expansion, Paycell's primary growth driver this year. Radio-related expenses reflect the acceleration of our 5G readiness and ongoing network modernization efforts. As a result, EBITDA margin expanded by 1.2 percentage points demonstrating disciplined execution while continuing to invest for future growth. We remain focused on balancing strategic growth investments with long-term profitability. Next slide, please. Profit from continuing operations increased by 23% year-on-year to TRY 17.8 billion, primarily driven by strong EBITDA growth. We maintained market leadership through solid execution and a diversified revenue mix supporting sustainable EBITDA generation. We had a larger debt position during the year. However, our proactive balance sheet management further supported bottom line performance by TRY 3.5 billion. Net finance income benefited from lower interest expenses, loan redemptions and reduced hedging costs amid stable FX conditions. In addition, maintaining a solid TL position allowed us to benefit from attractive local currency yields. Monetary adjustments continue to reflect moderating inflation dynamics and the residual impact of the Ukraine divestment in 2024. Looking ahead, the capitalization of 5G license is expected to support normalization in this line. TOGG contributed positively this year, supported by improved pricing dynamics and the launch of the new model. We see additional long-term value creation potential as 5G-driven technological transformation accelerates. Income tax expense increased mainly reflecting the deferral of inflation accounting application in statutory financials. Next slide, please. Let's take a closer look at our CapEx management. With a prudent CapEx approach, we closed the year at 22.6%, in line with guidance. We continue to advance both mobile and fixed infrastructure. Fixed investments accelerated adding 405,000 new while base station fiberization reached 47%. Excluding strategic areas, CapEx intensity remains stable at around 18% to 19% over the past 3 years reflecting consistency in our investment framework. Our investment profile reflects a focus on our strategic growth areas beyond traditional telecom. Operational CapEx intensity of 25% is aligned with our strategic priorities across 5G, data centers and renewable energy. We allocate capital with a clear focus on long-term value creation, favoring projects with strong return visibility and scalable cash generation. Next slide, please. Moving now to our balance sheet. Our balance sheet provides flexibility to execute our strategic objectives while preserving financial resilience. We closed 2025 with a cash position of TRY 92 billion after dividend payments, loan repayments and the Eurobond redemption in the fourth quarter. Our solid liquidity position fully covers upcoming 5G payments and debt service obligations over the next 2.5 years. Net debt was TRY 15 billion. Net leverage improved to 0.1x supported by strong EBITDA generation. We remain committed to maintaining leverage below 1x while comfortably funding 5G payments and broader strategic investments. The increase in lease obligations reflects the onetime accounting impact of a 15-year BOTAS infrastructure renewable agreement in the fixed side. We continue proactive debt management and actively evaluate diversified financing opportunities to support our long-term growth strategy. Next slide, please. Lastly on foreign currency risk management. We proactively monitored market conditions and swapped a portion of our U.S. dollar holdings into Turkish lira. As a result, 56% of our cash was held in TL at year-end. This allows us to benefit from higher local currency yields and supported net financial income. At the year-end, we had USD 3.4 billion in FX debt, USD 1.9 billion in FX-denominated financial assets and a derivative portfolio of USD 600 million. Derivative portfolio reflects our short-term FX swap transactions with volumes increasing towards year-end and fewer NDF transactions. The increase in our short-term FX position mainly reflects higher FX-denominated CapEx in the fourth quarter and a deliberate reduction of hedging instruments to avoid higher costs. We target managing our FX position around USD 1.5 billion to support investments and 5G license obligations. We may adjust this level proactively in line with market volatility. This concludes our presentation. We are now ready to take your questions. Thank you very much. Operator: [Operator Instructions] The first question is from the line of Bystrova Evgeniya with Barclays. Bystrova Evgeniya: Congrats on your results. I have just one question. I was kind of curious to know more about the data centers business. If you could please provide more color maybe on what are the EBITDA margins of this business? That would be very helpful. Ali Koç: So thank you very much for the question. It's our growth area, and we are expanding our data centers. AI and our cloud are expected to drive 14% CAGR in data centers from 2025 to 2030, lifting global capacity from 108 gigawatts to 200 gigawatts. So overall, what we can see is our results are getting better and better. AI is reshaping workloads all around the world. So there's a huge demand on the data center business. So currently, our expectation is that more than 2x increase in active data center capacity and 6x increase in the data center cloud revenues in dollar terms as of 2032. Share of the DC cloud revenue and total revenue is expected to increase around 8% to 10%. It is -- currently, it is around 2% and we are expecting that no dilutive impact is expected on our EBITDA margin. Operator: The next question is from the line of Demirtas Cemal with Ata Invest. Cemal Demirtas: Thank you for the presentation and congratulations for good results. My question is about your FX position. Maybe if could you further elaborate that. If I didn't understand wrong, you mentioned that you have short position now around $900 million. I couldn't understand the justification behind that any -- short position in U.S. dollar, maybe that will be more helpful because there's jump and you justify with some other things, I guess, investments that further evaluation could be helpful. And the other question is, again, the data center sites. We visited one of your -- the data center, and it was really helpful for us. Thank you once again, and you spent time with us, and it was very helpful to know where Turkcell is going ahead. But Ali Taha bey, I'm receiving questions about the size of the investments. Currently, is a simple calculation, maybe you can just give us a better color with the size, you have already have 50 megawatts. And you will add additional 50 megawatts. And -- but during that period, $1 billion will be invested you and $2 billion will be invested by Google. For some -- just we see that question from also investors, isn't the small number, small megawatts as a hyperscale scalers shouldn't be expected a bigger megawatt numbers also in the investment side, please just help us to understand better? Or should we assume that this is the starting point. Going forward, this megawatt number could be much higher. That would be very helpful again. Kamil Kalyon: Yes. Cemal, I will start from your first question. Our FX position is around USD 957 million sizes. As you know, fourth quarter is seasonality from the CapEx investments are very high in our site. Therefore, the one reason is coming from the high CapEx investments. The other side, as we mentioned in the presentation slide, we are monitoring the market conditions very closely and we swapped some portion of U.S. dollar holdings into Turkish lira. Therefore, we would -- currently our cash is -- 56% of the cash is Turkish lira position. This transaction in order to benefit from the higher local currency yields coming from the money funds, for example, in Turkiye, the money market funds. Therefore, we would like to benefit from this advantage, therefore, we swapped some portion of our U.S. dollar into Turkish lira. For the first question, I can say this at for the second and third question, I will hand over to Mr. Ali Taha. Cemal Demirtas: Kamil bey, related to this question. Doesn't it mean you are taking a position, if I understand correctly, it looks like if there is the pressure on Turkish Lira, do you have any hedge for that already as a structure -- is it hedged? I just try to understand that. Maybe it's a good strategy part of this, but doesn't need just for the benefit because Turkish lira -- things might change. There's a risk and it's not the main business of the company. So maybe further justification could be helpful. Kamil Kalyon: You're absolutely right. But as you know, in 2025, the FX policy of the Central Bank worked very well. Therefore, the hedging costs were very, very expensive in 2025. Therefore, we prefer to move a short position in the U.S. FX side in 2025. Yes, this policy worked very well in 2025. For example, if you do not have any war in the Iran or something like that, we believe that in 2026 this policy also will work. But currently, we are monitoring the conditions. Current conditions are a little bit different when you compare it with 2025. We are closely monitoring the markets and the environment right now. Therefore, we will decide how will we use this FX position. But as we mentioned in our presentation, our aim is, our policy is we would like to keep the short position in USD 1.5 billion levels. We still trust the policy of the Turkish Central Bank for 2026. Ali Koç: Okay. Let's come to the data center business. Yes, that's my favorite topic and favorite question. Let me tell you that. Let me give you a brief information about the Turkiye. Turkiye's total cloud consumption is around 150 to 200 megawatts. So if you look at the corporates, it's there out of 70 to 80 megawatts. So overall, what we need to do is most of the corporate domain in Turkey is still building their own data centers and they do internal consumption. So that's the reason that 50-megawatt number is not a huge number. The good thing about the 50-megawatt is. So previously, what we were doing is we were preparing the infrastructure for the colocation services. So our first 50 megawatts, most of the banks, most of the airline companies are bringing their own servers and they have their own hardware, and we colocate them in our data centers. But for the Google Cloud, it's going to be full-blown system. So we are going to build a data center. We are going to prepare for Google Cloud that infrastructure with electricity with cooling. But on top of it, Google will bring thousands, 10 thousands servers to Turkiye. So that's the reason that the investment is high. So they're going to have a full-blown system such a way that -- and so another thing is the space, 50 megawatts is good enough because these servers are going to be used by not only one company, hundreds of companies that are going to -- together, they are going to use it. That's the meaning of cloud actually. So they can utilize their service more and more. So that's the reason that 50 megawatts is a huge investment, and I'm pretty sure that our biggest target is to bring all of these companies or the industry players to move their old systems to this cloud -- state-of-the-art cloud regions. Operator: [Operator Instructions] The next question is from the line of Karagoz Yusuf with Ak Yatirim. Yusuf Karagoz: You ended the year with a 43% EBITDA margin for the next year, your guidance is around 40% to 42%. Do you expect any contraction in margins? Kamil Kalyon: Yusuf, normally, as you said, that the 2025 performance was very, very good regarding the EBITDA side, especially for the energy cost and the salary expense, salary wage expenses are -- does not increase over the inflation rate. It was very useful for 2025. In 2026, there are some -- we make a salary increase, average in 30 percentage levels is a little bit above the inflation side. And as you know, this is the 5G year. We will be starting from the April 1, the 5G issue. Therefore, we will be spending some money through the marketing expense, marketing activities and the sales activities for the 5G side. And we will closely monitor the energy prices because the war, current war might affect -- might have some effects, inflationary effects in the energy side and the other cost. Therefore, we would like to be a little bit conservative starting for the year for the EBITDA margin. We will look forward within the year. But this year is a little bit less when you compare it with the 2025. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you. Ali Koç: Thank you very much for listening. Hope to see you next time. Thank you. Kamil Kalyon: Thank you very much. Ozlem Yardim: Thank you, bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
Operator: Good day and a warm welcome to today's conference call of the PATRIZIA SE following the publication of the preliminary financial results of 2025. [Operator Instructions] Having said this, I hand over to PATRIZIA's Director, Investor Relations, Janina Rochell. Janina Rochell: Thank you, Sarah. Welcome, everyone, to our analyst and investor call for the full year 2025. This is Janina speaking and I'm pleased to have our CEO, Asoka Wohrmann; and our CFO, Martin Praum with us today. Asoka will start by presenting the highlights of the year 2025. Afterwards, Martin will guide you through our preliminary financial results for 2025 and provide an outlook for 2026. As mentioned by Sarah, the call will be followed by a Q&A session. During today's call, we will refer to our results presentation, which you can find on our website. If you have any questions, the IR team is more than happy to assist. As usual, this call will be recorded and made available on our website afterwards. We will also provide a call transcript for further reference. With that, I'd like to hand over to Asoka to start the presentation. Asoka, the floor is yours. Asoka Woehrmann: Thank you, Janina. Dear ladies and gentlemen, a warm welcome from my side as well. Let's start on Page 3 of the presentation. Our world is changing rapidly and uncertainty, volatility is the new geopolitical normal. The old world order based on the rule of law, open societies and free trade are facing existential threat. The new emerging world order is dominated by 3 major powers. The use of political and economic power to pursue national interest on a global scale is part of the new norm. And military conflict is back also on the agenda. In the light of the current global turbulences, investors are looking for safe havens of stability to protect their investments for the long term. We believe this is the right moment in the new cycle to invest in real assets in the right geographies. Why is that? Real asset investments offer strong long-term returns. And they are also an inflation hedge, provides stable cash flows while other asset classes are impacted by increased uncertainty. In this environment, the attractiveness of Europe as an investment destination becomes even more apparent. In addition, the stability of the euro supports investment performance for international capital. We believe this is the moment for Europe's awakening. Europe is a beacon of stability, offers unique investment opportunities. We, PATRIZIA, are well positioned to capture this shift, with deep expertise, strong local presence and proven track record and proven execution across resilient European real asset markets. That said, let's move to the next slide and take a look back at 2025. The first, let's talk about the market in 2025. After a weaker-than-expected 2025, we see that a new cycle has started. We believe this cycle is different to previous cycles. It will be a longer, slower and bumpier. Despite the current geopolitical turbulences, we are more optimistic than in previous years about the real asset industry. Market sentiment is already improving. Investors are becoming more optimistic. We see signs of stabilization with slightly improving valuations. Thus, we expect this recovery to gain stronger momentum in 2026. PATRIZIA remains well positioned for long-term growth, driven by the DUEL megatrends. These megatrends, digitalization, urbanization, energy transition and living transition continue to shape our economies and societies and we will continue to invest along the DUEL megatrends in 2026 and in the future. The creation of PATRIZIA's integrated investment platform, combined with strict cost discipline has made our business more resilient and less dependent on market-driven revenue streams. And you can see this very well in our earnings performance. Our profitability has significantly improved compared to last year. Importantly, this reflects a structural setup or step-up in our earnings profile. In 2025, our management fees fully covered by operating expenses for the first time. This means we can turn the market momentum into even stronger profitability in the new cycle. And this is an important step to strengthen our long-term profitability beyond 2026. We are seeing a clear upward trend in fundraising with higher equity raised in 2025 than in the prior 2 years. This demonstrates the growing investor appetite, renewed confidence in PATRIZIA's product offering and market position. Market -- the investment volumes gained momentum, reflecting a clear acceleration in transaction activity. This was fueled by our international business activities, underlying PATRIZIA's global footprint across real estate and infrastructure. With that, let's move on to the next slide. Let me briefly comment on our results for the financial year 2025, which we already published yesterday evening after markets closed. We significantly improved our EBITDA by 35%, up to EUR 63 million. We are improved or we also improved our EBITDA margin to close to 23%, well above last year's margin. Our earnings performance is a result of efficient operations, strict cost discipline and a stable portfolio. Our AUM remained almost stable at EUR 56 billion despite a slower and weaker market recovery and currency headwinds. On the positive side, we saw valuations improving gradually during the year. Let me now turn to our investment activity on the next slide. We already saw a small but encouraging increase in transaction activity in the second half of 2025. We signed more transactions and we also closed more transactions compared to last year. And PATRIZIA continued to be a clear net buyer in the market. We expect this positive momentum to continue in 2026. Valuations continue to improve. Transaction volumes are increasing. More clients are taking advantage of market opportunities in the new cycle, especially in real estate. And we believe this is the right moment to start investing in real estate again. That said, let me turn to our fundraising activity on the next slide. The increase of 22% in our equity raised compared to fiscal year 2024 shows the strong demand for real estate, especially in modern living but also in infrastructure. And our multi-manager platform, AIP, contributed to this positive development. The progress we are seeing in fundraising clearly support our long-term growth ambition. We continue to see strong demand for our DUEL-aligned investment strategies, particularly across our flagship products. Building on the progress we have seen in 2025, let me now turn to the market outlook for the coming year. Looking at the market sentiment for 2026, we see clear signs of improvement. Interest rates are expected to remain stable or trend lower. Inflation is also expected to stabilize. As we can see again, geopolitical uncertainty remains a factor and it will impact investment sentiment in different regions in a different way. Overall, this environment is expected to create structural tailwinds for us as PATRIZIA. The positive market development should lead to a higher equity raised and increased investment volumes. We continue to focus on targeted investment solutions across our key strategies, living, value-add and infrastructure. Living has been a strategic growth pillar for PATRIZIA for more than 40 years. We have a exceptional track record in living, both in our home market, Germany but also across Europe and recently also in Japan. Living will be a key investment focus for PATRIZIA in the new cycle as valuations improve and offer attractive long-term returns for our clients. And as we all know, housing, especially affordable housing is one of the most pressing challenges in our societies today. More than 23 households in Europe spent over 40% of their disposable income on housing and energy. But this challenge is also an opportunity and PATRIZIA wants to become a leading impact investor in Europe. We are currently building affordable homes for 7,500 people in Ireland, in the U.K., Spain and Belgium. Our ambition is to provide affordable housing for 40,000 people in the next couple of years across Europe. Likewise, infrastructure, remains a key investment focus for PATRIZIA in Europe and in Asia Pacific. Overall, we are well positioned to capture the opportunities in the new cycle. Thank you for your attention. I would now like to hand over to our CFO, Martin Praum. He will guide you through the fiscal year 2025 results and our outlook for 2026. Martin, please. Martin Praum: Thank you, Asoka, and welcome also from my side. Let's continue on Page 10 of the presentation. Let's have a look at the AUM development in 2025. As Asoka mentioned, virtually stable development. We've seen some good inflows in 2025, both in real estate and in infrastructure. But as Asoka mentioned, we've seen an increased transaction volume in the market and at PATRIZIA with inflows but also portfolio rotations and realizations. And this is a typical pattern for a market that recovers. It's time for asset allocation updates of our clients in the new cycle as the markets open up. We've seen valuation effects now turning slightly positive. This is also a sign for a market stabilization and improvement. And the real drag for our AUM this year were currency effect with minus EUR 0.7 billion, leading to the AUM of round about EUR 56 billion. Looking forward, at the same time, we still have open equity commitments that are available for investments of around EUR 1.3 billion waiting to be deployed in the market. Let's continue on Page 11 with the EBITDA composition. Key message here is, we've seen a strong increase in EBITDA to EUR 63 million, up 35%. And we've seen growth in management fees but market-driven revenues like transaction fees and performance fees were still down year-on-year, having bottomed out in this market cycle. So overall, total service fee income down 2% year-on-year. At the same time, our balance sheet investments had a higher return and had a higher contribution to our results. If you look at other income, then this has materially decreased to last year and is a reflection of a better earnings quality that we are delivering. Now if we look at total service fee income, around 90% of total service fee income and from fees are coming from recurring management fees. Let's move on to Page 12 with a little more details. I already talked about the management fee development. Transaction fees are still down because if you look at the transaction volume that we delivered, only a slight percentage of these transactions had a transaction fee arrangement attached. So this is why the higher transaction volume did not had an impact on the transaction fees. Performance fees are also slightly down year-on-year but this was in line with management's expectations. Let's have a look at the cost side on Page 13. You know that we actively adapted to the changed market environment over the last 3 years and we intensified our cost efficiency measures, which led to a significant improvement of the cost side. We see total costs down 10% year-on-year to around EUR 225 million, both driven by staff costs and other operating expenses. Now what have we achieved? We've made the platform more resilient to market cycles and we've increased the operating leverage once revenues come back in a more pronounced way. As an example of what this leads to, let's go to the next page on Page 14. Here, you'll see the split of management fees versus operating expenses. Key message here is that management fees alone for the first time, more than cover operating expenses. We've shown growth in EBITDA despite being at the bottom of the market in transaction and performance fees. Coming back, management fees as a most recurring item more than fully covering expenses. And this is a very good starting point for the next cycle and we think we're well positioned for growth in the new cycle, given we have a better resilience and we have a better scalability of the platform, increasing the operational leverage once revenues come back. Let's have a look at our segment reporting on the next page, on Page 15. You might remember, we described PATRIZIA as a 2-engine model. On the one hand, the asset-light investment management business and our balance sheet investments that we have deployed in strategic co-investments and seed investments. The asset-light part is up 29% in terms of EBITDA, again, driven by better efficiency of the platform. Balance sheet investments are slightly down year-on-year. But last year, we had an extraordinary positive effect. So underlyingly, also balance sheet investments have improved their contribution to our results. Consolidation and other effects are down materially year-on-year. So the negative effect has become smaller and this drives the overall 35% increase in EBITDA for PATRIZIA Group. Let's have a closer look at the balance sheet investments on Page 16. I think you are familiar with that graph showing our invested capital at cost and at fair value and the value that we have created over time with our balance sheet investments. We have used the market opportunity to also invest more in the real estate living sector and also in infrastructure in 2025. The positive long-term returns that are primarily driving the invested capital are certainly driven by living exposure that we have. And at the same time, we've seen foreign exchange positive valuation effects also on our balance sheet investments in 2025, again, a confirmation that the market is stabilizing and changing. If we now focus on the right pillar and the fair value capital of our real estate of around EUR 783 million, around 40% of that pillar are profit entitlements or you could call them exit carry entitlements, which we will harvest step by step in the next years. This will support our cash inflow by around EUR 50 million per annum and it's a sign that we actually crystallize the value that was created over the last 2 years to the benefit also of shareholders of the company. Let's have a look at the operating cash flow on Page 17. Also here, we've seen a significant improvement to last year. The operating cash flow is more than 4x the level we've seen in 2024. This was driven; a, by a better general profitability; secondly, more active working capital management; and thirdly, the quality of our income, which had a lower level of noncash items attached. The EUR 57.6 million more than cover our dividend payout for last year, which is around EUR 31 million. Also, if we look at the dividend payout in terms of net income, we have a net income after minorities of EUR 18 million this year. So on that basis, the dividend is not yet fully covered but we're on a clear path to have full coverage also on net income going forward. Let's move on to Page 18 of the presentation. Our own liquidity, our balance sheet liquidity has improved year-on-year to now EUR 175 million in total and EUR 115 million as available liquidity. The equity ratio was further strengthened to close to 74%. So we continue to run a solid and strong balance sheet and this will also be the backbone for our future activities. Let's go to Page 19 to look at the guidance for 2026. Asoka mentioned that the new cycle has started and it will be slower and bumpier but we see lots of signs for improvement and also lots of opportunities in the market. So while our people will work on growing equity raising, investments and AUM, we will continue to work on the further improvement of processes, of efficiencies and also the quality of EBITDA. And so basically, we expect a moderate improvement in the operating environment in terms of revenues and continued cost efficiency, driving our EBITDA up to a range of EUR 60 million to EUR 75 million. This would also have a positive impact subsequently on the EBITDA margin. In terms of AUM, we expect an increase to a range of EUR 55 billion to EUR 60 billion. Again, it is a relatively broad range depending on valuations of assets, organic growth but also as we've experienced on foreign exchange impact. Let's have a look at the dividend side of things on Page 20. We are proposing the eighth consecutive increase in dividends since we initiated payments in 2018. As I mentioned before, the dividend last year was covered 40% by net income. That has increased now to 53% coverage and we have a clear plan for full coverage going forward with as a next step based on our plans and guidance for this year, we would talk about depending on tax rate, coverage of over 70%. Don't forget, our operating cash flow is very, very strong. We have a very solid balance sheet to cover the dividend. And as a last statement, don't forget that this equals a dividend yield of around 4.6% at the moment and we will continue to deliver on the dividend policy that we've set in the past. With that, thank you for your attention. And now both Asoka and I are happy to take your questions. Operator: [Operator Instructions] And having said this, we will first start with Philipp Kaiser. So please go ahead with your questions. Philipp Kaiser: I have a couple of questions and I would like to go through them one by one, if I may, starting with the AUM. As far as I understood, you updated your AUM policy and now include also fee-generating commitments. Firstly, could you elaborate a bit more on this idea? And secondly, do you also adjust the 2024 numbers accordingly? Martin Praum: Thank you, Philipp. Yes, what we did is, we had a look at our AUM policy overall. And you might remember that our AUM policy should always be aligned to market standards and the industry standard. And as part of that, we updated the policy and included as many other players, the commitments where we already generate a fee. And this had a positive EUR 0.3 billion impact and we have highlighted that here and we'll make that very transparent also in the annual report. And we have not adjusted the previous year number. But again, given we mentioned the EUR 0.3 billion impact, you could adjust yourself in your model, if you like. Philipp Kaiser: Perfect. With regards to the AUM guidance, you mentioned earlier during the presentation that the investment market is slightly increasing and the market dynamics are improving. That said, your AUM guidance includes a downside scenario. What's the scenario for this case? Is it the macroeconomic upheaval we currently see or any other implications? Martin Praum: Yes. Thank you for the question, Philipp. It's actually just to cover for potential timing effects. I mentioned before, we are in a market phase where you also see portfolio rotation, where also investors might realize some performance. At the same time, we also want to cover for foreign exchange impacts. As you have seen, this had a relatively high impact on our AUM in 2025. And depending on AUM fluctuations, we just want to have a certain downside protection here in terms of the guidance range we're giving. But we would say you should focus on the midpoint. We expect further increase in equity raised in '26. We expect a modest increase in transaction activity. So organically, we are planning for growth in AUM. Philipp Kaiser: Okay. Perfect. Does the 2026 outlook exclude or include potential currency impacts? Martin Praum: The current outlook excludes -- I mean, it excludes currency impact. So we didn't make any specific currency assumptions in the planning. Philipp Kaiser: Okay. Perfect. Very, very helpful. And then let's move on to the operating cash flow. Cash flow improved significantly. So congrats to this development. And just for my understanding, the crystallization of the roughly EUR 50 million per annum Dawonia entitlement will further stabilize your operating cash flow in the coming years. Is that correct? Martin Praum: It is partially correct, Philipp, because it will come into the cash flow in the investing part of the cash flow, not the operating cash flow. Philipp Kaiser: Okay. Perfect. And then my last one with regards to net sales revenue and they were driven by rental income from warehoused assets. Will those assets stay on your balance sheet throughout the current fiscal year? Or do you have already concrete plans to transfer the entire assets or part of the assets into funds during the year? Martin Praum: No. If we look at the exposure we have here, we have assumed for the time being that they'll stay on the balance sheet for the year. If we see a market opening up in certain areas, there might be an exit earlier but assume in your model that they'll stay until the end of '26. And again, we'll see how the market develops. Philipp Kaiser: Perfect. Very helpful. Just one follow-up on the operating cash flow then. You already mentioned the 3 pillars, improved net profit, working capital management and other positive effects. Of the 2 -- last 2, how much could also accrue in 2026 of those positive effects? Martin Praum: Good question, Philipp. I think we've advanced already in our working capital management but there are still some fruits to be harvested. So I would expect at least a positive effect in the single-digit million euro area also in 2023 -- sorry, 2026, from more active working capital management. Operator: And then we will move on with the questions from Lars Vom-Cleff. Lars Vom Cleff: I would be interested in your growth aspirations. I mean, thank you for sharing the split of your '25 fundraising with us. Which asset classes do you expect to be strongest contributors to your growth this year? Will it be real estate or infrastructure again, or maybe AIP? Asoka Woehrmann: Look, thank you, Lars, for the question. Definitely, I can tell you without any doubt, real estate will be the -- the majority of assets will be generated this year along our expectations because as I outlined, affordable housing topic as well as value-add, living is the right macro moment for the long-term investors to harvest great returns. So therefore, I do think definitely, we are expecting this year living strategies to kick off where we have the best, in my opinion, track records, not because we have track records but I do think that's the right moment for the investors and that's the way we are advising also and have the conversations. But also, I think I can see, by the way, in logistic, in real estate area, the last mile logistic, this strategy will be -- will change. There is -- logistic become a very like RE-Infra, what we are calling convergence of real estate infrastructure because energy, how you building on logistics, the rooftop solar, battery techniques, charging stations, all that is, in my opinion, very much upcoming now in the demand of clients. And I do think this is a area what I'm really expecting to grow. But also, in my opinion, early signs that some value-add investors are on the street, are looking for, let me say that value-add opportunities in offices is not excludable. This year is the first time after 3.5 years, I would say, we can first time think is their interest. And then your question regarding infrastructure. I think, look, all the investment bills of these government bills, what they are now all announced that will come down mostly for infrastructure first, except of affordable housing or let me say, the bottleneck in housing in our societies. But I do think what we are seeing is all where we are today in the modern infrastructure, let me say, energy storage techniques or investments, roof sustainable energy, waste to -- energy to waste, all these strategies will be -- will come up now beside the very heating topic of data center. As you know, we entered last year into this consortium deal in the U.S. line data centers. By the way, we already capitalized and has been sold to a big asset manager and developer in the Middle East, very well get profited from that. I do think, we are expecting also, especially [ last ] in Asia, infrastructure to kick off. And I do think, especially last year, we can see we invested more than EUR 300 million in Philippines with partners, co-investment partners. I do think I am very, very positive on infrastructure in Asia. Also our new fund strategy, emerging market sustainable infrastructure strategy, what we are looking to place in Asia, what we are raising in a -- capital raising in a first round. We have a promising not only deal pipeline but also promising clients are coming in and have interest. So therefore, let me say, if you ask me, Asoka, what is exactly the portions, 50% to 70% in real estate, 30% in infrastructure, might be 10% in between and a little bit out of the infrastructure, I would say we can phrase that as a Re-Infra area. So this is a little bit the storyline what we are seeing in Europe as well as in Asia. Lars Vom Cleff: Crystal clear. And then I can't withstand to ask the question. And I think on the Q3 call, you said that illiquid assets would also look very attractive and that would -- you would be happy to elaborate on that in one of the following calls. Is today one of the following calls? Asoka Woehrmann: Yes. You asked the illiquid or liquid? Lars Vom Cleff: Illiquid. Asoka Woehrmann: Illiquid. Lars Vom Cleff: Illiquid. Yes. Asoka Woehrmann: Illiquid. Yes. We are in the illiquid. I have to say that illiquid assets, I do think to be honest, do not feel all -- we are all investors -- the gold is performing unbelievably well as fears of market participants are coming to a level decrease and also the world -- explosions in the market that people are going to protect theirself with these strategies. I think to be honest, nothing is, let me say, cash generating, no return generating. It is the time and also the correction from Bitcoins, all these nondigital currencies, this is a sign these areas are exhausted. I think gold will still get as a illiquid asset, by the way, illiquid asset for me because you have not the illiquidity, you can trade it every day. But again, it's not interest rate bearing. It's not interest rate generating. I think to be honest, if you have a stable grade in valuations, if you buy it today into real estate or infrastructure as a long-term investment, you had a fantastic returns front of you. I would take this part as a diversifier. So my conviction for illiquids, even now, not last time only I discussed, it is already I would say, if you not already look into that, you should. And that's the way we are advising. And we can see, by the way, more and more clients are looking into that. And I do think the geographies are not unimportant. Europe, people feel undervalued. And again, beside all the press releases talking down Europe, the unimportance of Europe compared to the 3 big players in the world with China, U.S. and in some way, Russia and some other ones. But I have to say I feel Europe is the right place to invest. Asia is the right place to play growth. And this is -- valuation-wise is a place to be, especially in the right sectors and the right place of growth and over returns is Asia. So in my opinion, we are in the right geographies and I do think -- I am very confident. And you know that I've been a long-time investor and a CIO in my former career. I have a very strong conviction Lars. Hopefully, it is now if you -- it's the right time. It's a macro moment, what I'm saying. This is a macro moment where you should -- it's -- most of our clients are shy sometimes to take risk. But I do think this is the right time to take risk in illiquids. Lars Vom Cleff: Perfect. And then you indicated increasing transaction activity. I guess, also listening to my real estate colleagues, it's something where momentum will build up over this year, right? It's starting but we should rather expect transactions to be a bit more back-end loaded this year. Asoka Woehrmann: You're right. I think the whole story of our industry is always back ended, back ended, back ended. I can't hear that anymore and I'm not also giving to any excuse to also to us. Yes, last year was a disappointment as Martin also -- already shown. We are transparent. I think, as you know, PATRIZIA has a fantastic transaction team around Europe and also in Asia in both asset classes. We can be, one point if you want, was a disappointment, not because our people are bad, there was a -- really the market has not played with us. You need to play -- you need a tango partner also in the market. Market were not the right tango partner for us. And I do think this year, I can see sizes are increasing. And the great thing is I feel that clients are asking, do you see now interesting transactions? Can you show us? Is there any good risk rewards you can show us? This is a good moment in my opinion. So is it still slow? As we are saying, this cycle is slower, bumpier. Is it very different from the last time? There is no, let me say, macroprudent policy supports in the sense of central banks are helping us, is more other way. But I do think this is what I'm seeing. I can see now the right time for all that to act and the transactions will -- we will see more transactions this year. And also more in -- by the way, in real estate because people, family offices, they're smaller tickets what I'm seeing and then the big packets -- packages. But you need deep pockets and a strong conviction and there's only very less players in the world can do these things. But I can see that it's coming. I'm confident. Lars Vom Cleff: Perfect. And then one last question, if I may. With business momentum picking up slightly and I love your picture of tango partners. What about new tango partners for you? We haven't seen some bolt-on M&A from you recently. So is there anything in the pipeline in order to speed up your assets under management growth? Asoka Woehrmann: Let me say that I'm always said bold acquisitions for lazy managers, we are not lazy. Lars Vom Cleff: I know you say that all the time. Asoka Woehrmann: That -- no, I'm saying that always, Lars. But I do think, joke aside, I think PATRIZIA has grown fantastically before I came in, unbelievable, they flew over the cycle, even with the great cycle, what we have seen, we go -- grew so exceptionally well. But this consolidation was needed and consolidate our platforms, creating global platforms, creating efficiency, as Martin said, there was a hard working of reorganization, platform building, all that. And we feel we are ready. Our core is stable. If you think about our balance sheet position, if you think about our operating business, how that improving, I am not shy to say that's a time to look around to partnerships, not only acquisition bolt-ons and all that. It is also partnerships. The world is going to build by partnerships. There's a big task there and big profit pools can be shared. I do think from that, I'm super confident with our resilience, what we have shown in the last 3 years. We've done our homework. We are showing what we -- again, you guys can all -- if you go back since what we are talking here, not promise too much that we're doing our efficiency work, that we are doing the cost cutting, we are doing the reshaping, we are putting our product shelf in the right to win in this cycle. All that is coming. We have a stable core now, resilient platform, great balance sheet. We are ready for all things, not only to build partnerships, bolt-ons, all that. It is -- is that fitting to us? It's great. But what I'm not going to agree to and with no one, not inside, outside, we are not buying because something is cheap and we are solving this problem, that they should solve theirself. If that fitting to our strategy is something what we are missing, we feel there's growth in, we are there. And we are looking. It is -- and your question is absolutely right and relevant. Many, many transaction has been offered to us. But good managers have to also say no, inside and outside and that's what we do. Operator: [Operator Instructions] Manuel Martin: Perfect. Manuel Martin from ODDO BHF. I have 2 questions from my side, if I may, please. Maybe one by one. First question is, as far as I understand, real estate might be the preferred -- one of the preferred asset classes this year, especially living strategies. When it comes to offices, maybe they're in value-add strategies that could be something. When it comes to offices, have you heard anything from your clients when it comes to the topic artificial intelligence and demand for office space, which might influence this asset class. I don't know if you have some insights to share here. Asoka Woehrmann: Yes. I think, look, PATRIZIA has a really a great portfolio in -- especially in Europe, not mostly, I can tell that in Europe, offices. We ourselves, I don't know if you have the chance ever to visit us physically. We are creating over 5 years since before COVID but also during the COVID and up to now, the real showcases how to invest in offices. We spent quite much money. I want to invite you, for example, to visit also our London office in London, in our international hub in London that just won by the way, PROP awards. And let me say that your AI question is a very valid one. I would not say AI but I think today, there's 3 things in offices are relevant. Beside now risk classes. It is important that you make your offices attractive for your employers. This is relevant because the home office tendencies has killed the offices, mostly if you think about U.S. and New York and the big cities. Europe is also very much impacted. The second -- what has led -- that has led to reduce offices because people only reduce the place, let's say, space to reduce costs. What we've done, we upgrade our offices. We are showing that our employees have a incentive to come over. There is a more, let me say, not only a brutal desk, there's areas to sit together, communicate, to build kind of community within the offices. I really invite you our Frankfurt office soonly in Augsburg and also in London, especially but also other places like Hamburg, what we have and especially in Europe. And again, that is one effect that has negatively impacted. But at the same time and you have to give a answer to employer and give a incentive to come back to offices that they like to work with -- and that's relevant in my opinion. You can command like in the U.S., the CEOs, we have also 3-2 rule, 3 days in the office, 2 days home with agreement within your -- with your teams. But again, at the same time, you can't command. You must give the incentive. So that's the first thing. And that means officers have to change in their conceptional setting. That's the one thing. The second thing is, in my view, is especially the digital sphere and what you are saying. Today, the tech part is absolutely relevant. We've shown our -- and that's -- that -- the London office won the PROP Award in 2025 in the U.K. as the best office building, let me say, turning into a office story that has really worked well. Tech played a key role there, key role. And I think this is relevant. AI is something different for me. AI is also now it's -- is coming to our big decision-making spaces but also back and middle offices. We are in the full of the process to use AI to become efficient, become modern, become time to market, become -- make us better also in reporting and reporting standards for our clients. And this is helping us and to enrich our people. And I think the efficiency win is something is front of us now, all that. So I would say that's not necessarily combined with the offices that you can -- this is -- but I think offices will play absolutely a new story, how they get structured. How important -- and I think, by the way, the real factor is also ESG that means the offices have to -- in the refurbishment have to follow special standards, all that. It's why the office market, you have to enter into a value-add area, not -- you can't -- I think, to be honest, as a core asset is at the moment difficult. And by the way, in the last remark, you have to be in core centers of cities. And that's what we have. Mostly if you are in the C areas, I think then the mixed-use is might be option to come out of that, but. That takes time, that takes resources that reduce your returns at the beginning and might be you are avoiding a stranded asset. Martin Praum: And if I can add to that, Asoka. Manuel, I want to second what Asoka just said, I would say that AI will have the first real impact, especially on process-driven work and on back-office work. And these are typically in secondary locations due to cost optimization and outsourcing and these locations will be impacted first. The human intelligence and the decision-makers, the analytical part of our work will want to continue to work in A locations in urban areas. And in our view, AI will actually intensify the flight to quality to A locations in the office sector. Manuel Martin: Yes, sounds logical. Sounds really logical. My second question and last question would be on -- again, on the clients and the macro environment. In your opinion, what is holding back the clients? They are still a bit shy as some people say? Is it that the prices are not yet at the correct level? Or is it the interest rates, which is shaky? What would be the start button in the sports car to let you drive again at high speed? Asoka Woehrmann: Yes, yes, it's also a great question. I think there's 2 -- I think let me say also 3 factors. First, don't forget -- we are forgetting and we are great market people. That's why we are always fascinated about markets. And -- but one thing we should not forget before COVID or during the COVID, the first 1.5 years, we have seen extremely low or negative interest rates. And people have been exposed, overexposed into illiquid to hunt a return, to withstand the negative rates and have long-term returns. And we've done, by the way, in this context some late cycle investments. That is not playing out well for them. And they have to take a long breath on that to solve out of -- they need solutions get out of their portfolio. But at the same time now, the sudden -- let me say that '22, '23 is a sudden death of illiquids. As Lars discussed earlier, I'm mentioning, I think there was a sudden death of illiquids. People don't want to invest and people want to go now all, more or less all their liquidity, the pension funds, the lifers, the -- also even sovereign wealth funds, they want to be in fixed income. They are the most favorite asset class, other fixed income and private credit. And now also with the inflation moderated and I think to be honest, also I would not -- I would really -- if I look the sovereign debt explosion in the world, all the AAA status, A and AAs, I'm questioning this ballooning of debt, if that's sustainable. And that means, by the way, that's -- the only good thing is that will lead us to a longer expectation -- long-term expectation that the rates have to be very low, not to overburden the fiscals -- fiscal budgets of states. So saying that fixed income was the most favorite asset class, still the favorite asset class, corporates, private debt, government bonds and there is other institutional factors in Europe. I think to be honest, the central banks and regulators with the solvencies and all that, also our -- we are mostly institutional clients. We have been in long-term bonds and that is underwater. So their risk limits to go into illiquids also low. So saying that all, at the moment, what is holding back, you're asking me. But what they can't hold any more back is because I think they want to be at one day now real assets. They are seeing the attractive risk returns in the value-add and core plus because at the moment, that is the easiest to say and that is nothing marketing you get for core plus risk, or let me say, core plus risk, value-add returns. This is exactly what a asset manager like us have to deliver asymmetric risk return profiles. That is, by the way, has not existed earlier. This is now. And also, I think if the office area also revalued stronger, I think U.S. happened and it's still not settled 100%. Europe are all devaluations are happening slower. If that is certainty there, people will go with both hands into these areas. And that's what I'm seeing. That is upcoming, starting with living, starting with also, in my opinion, kind of logistic. There is some retail portfolios underway in the market, all that giving you opportunities. So in my view, let us -- we have -- I'm patient in general but I do think I have the conviction the matrix for illiquids are going to change over the next 2 years. And that's where my hope is coming. Martin Praum: If I may add to that, Manuel, exactly what Asoka said, the market first had to digest the relative overallocation of real estate at the peak of the cycle. Then now the market has repriced. The expectations, I think, have changed and the market becomes more transparent with more transaction volume. The world seemed brighter in many other areas than Europe for quite a while. And now we have a reallocation and rotation back to Europe. And the refocus on generating cash flows, generating recurring income is also one thing that we think will drive investors and will kind of break up this situation where investors were hesitant to invest in real assets. Asoka Woehrmann: 100%. Manuel Martin: Okay. And where are we more or less, so the digestion might still hold on a little bit and then maybe people can move more freely? Or where do you think where we are right now? Martin Praum: I mean it's been a process really for 3, 4 years. And you know that we haven't seen a V-shaped recovery in the market. It was all slower and as Asoka said, bumpier. And when we talk to our clients and simply, we derive that from the feedback we get from our clients. They are more open to talk about real estate investments again. They are more open to talk about infrastructure. For some of them, the regulatory environment has also eased and changed. They have more flexibility to invest in infrastructure. And all these, if you put all that together, are signs and are confirmed in the way we discuss with our clients that there's a regained interest in the sector. Asoka Woehrmann: If you need also in a picture, again, we are not 5:00 in the investment clock, we are at 7:00. We passed the 6:00, trough is behind us. So that's important. And that's what long-term investors are seeing and that's why we are -- they are earning money. And with these views, are now coming more and more. And I do think Martin said a very important thing. The transaction makes the valuations visible for investors. That gives the confidence also. If you are doing in the [indiscernible] transaction, you don't know if that's still 5:00 or 7:00. It's important. Manuel Martin: Okay. Okay, I will try to put the clock in my office. Okay. That's a good example. Operator: Thank you so much for your questions. So in the meantime, we did receive not any further questions or virtual hands. So everything seems to be answered by now. Should further questions arise later, please get invited to get in touch with Janina and her team at any time. So thank you very much. And with this, I hand back to Martin for some final remarks, which concludes our call for today. Martin Praum: Yes. Thanks so much for your attention. Thanks so much for your very good questions. And we are very happy to continue the discussion both on IR team level and also during the next conferences that we have planned, for example, one in London and then there will be other venues where we have the ability to discuss our financials and the strategy. Stay healthy and speak soon. Thank you, everyone.