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Leonardo Rosa: Good morning. Welcome to the conference call of Usiminas in which the results of the Third Quarter of 2025 will be discussed. I'm Leonardo Karam, Investor Relations Officer at Usiminas. [Operator Instructions] This conference call is being recorded and simultaneously broadcast on the Usiminas YouTube channel. We would like to remind you that this conference call is exclusively for investors and market analysts. [Operator Instructions] We also request that any questions from journalists be directed to the Media Relations team at Usiminas via e-mail in imprensa@usiminas.com. Before proceeding, we would like to clarify that any forward-looking statements that may be made during this conference call regarding the prospects of the company's business as well as projections, operational and financial goals related to its growth potential constitute forecasts based on the management's expectations regarding the future of Usiminas. These expectations are highly dependent on the performance of the steel sector, the country's economic situation and the situation of the market at the international level, so they are subject to change. With us today is our President, Marcelo Chara; the Vice President of Finance and Investor Relations, Thiago Rodrigues; and our Commercial Vice President, Miguel Homes. First, Marcelo will make a few remarks, then Thiago will present the results. Afterwards, the question asked in the Q&A section will be answered. Now I give the floor to Marcelo. Please, Marcelo. Marcelo Chara: Thank you. Thank you very much. Thank you very much, everyone. Good morning, ladies and gentlemen. It's a pleasure to be here with you to share the results for the third quarter of 2025. This quarter was marked by important advances in our management with the consolidation of our operational stability, continuity of the cost reduction plan and the evolution of our priority CapEx project. These initiatives reinforce our strategy of ensuring competitiveness and sustainability for the business in the long term. In this quarter, we achieved an adjusted EBITDA of BRL 434 million, with a margin of 7%, representing growth compared to the previous period. I would like to highlight the following: the 3% reduction in COGS per ton in the steel business unit compared to the second quarter as a result of the expense and cost reduction plan. We posted growth in sales volume in Steel business unit despite the increasing pressure from imports under unfair conditions. We reported higher prices and volumes in mining, strong cash generation exceeding BRL 600 million in the period and reduced leverage, mainly due to the control and efficient management of raw material inventories. In the market environment, we remain vigilant and concerned about the increase in subsidized imports due to the excess global production capacity, particularly in China, which continues to negatively impact the entire domestic industry. Imports increased by 33% in the first 9 months of 2025 as to flat steel compared to the same period of the previous year. And we do not clearly see the effect of the tariff quota system on import penetration. The antidumping cases of heavy plates that has been extended for 5 years as a measure against China and South Korea as well as the one for metal sheets, where the duty was also applied against China and the one for prepaint and steel, which is at an advanced stage, give us confidence in the technical capacity of the authorities of the ministry department and industry to recommend effective measures against the serious damage that affects the entire steel value chain in Brazil. The challenging conditions are also impacting industrial goods that include steel components. Data from ANFAVEA shows that compared to 2024, there was an 11% growth in the registration of imported light vehicles and only 2% of domestic light vehicles. In the machinery and equipment sector, data from the National Industry Association, ABIMAQ show an accumulated annual increase of 9% in imports with a trade deficit of the sector totaling USD 13 billion this year alone. Due to this imbalance in international trade, we have seen important movements such as that of the United States, which raised its tariff on imported steel in Europe, which proposes to tighten current safeguard measures, proposing a tariff quota system with a sharp reduction in volumes and an increase in tariffs with the aim of protecting jobs and the local industry in Europe. For the fourth quarter of 2025, we expect to continue reducing costs due to efficiency and raw material prices, stable net revenues per ton and lower volumes due to the typical seasonality of the period at the end of the year. As for mining, volumes are expected to be slightly lower, but to remain higher in 2025 than in 2024, consistent with our planning. I would like to point out that despite the challenges of the external environment and the pressures on the domestic industry, we remain confident in our ability to adapt and deliver sustainable value to our customers and shareholders. We believe that with discipline, strategic focus and the commitment of our entire team, we will continue to advance and consolidate our leading position in the sector. I thank everyone for their trust and partnership and we continue together building the future of Usiminas in the Brazilian industry. Thank you. Thiago Rodrigues: Thank you, Marcelo. Good morning, everyone. So we are now going to start with our presentation about the results for the quarter. We would like to start that we showed improvements in the main performance indicators in the third quarter of 2025, even considering the complex scenario that we are facing in Brazil and abroad, as mentioned by Marcelo. Sales volume increased in steel and for mining 2%, consolidated EBITDA had an increase of 6% in relation to the previous quarter. And the highlight is the strong cash -- free cash generation of BRL 613 million is in a drop of our net debt and our leverage ratio. We can see the consolidated results on the next slide. Net revenue was BRL 6.6 million, slightly lower than the previous period, and the impact was the lower prices in the steel segment. And the revenue was higher than last year and was driven by mining, in particular. Adjusted EBITDA was BRL 434 million, 7% of margin and slightly higher than the previous quarter as a result of the best operational performance in the steel area. Accumulated EBITDA in the 9 months of 2025 amounts to BRL 1.6 billion, 45% when compared to the same period of 2024. Net income did not reflect the best operational results of the quarter, as we mentioned, due to the accounting effect of BRL 3.6 billion related to impairment of assets as well as deferred taxes. Those effects are accountable for accounting effects and generate no effects on the cash of the company. Otherwise, the net record would be BRL 10.8 billion in the quarter. Next slide, we have seen the steel sales volume was higher, 1.1 million tons, a bit higher than the previous quarter, showing the resilience of the demand of our main segments. The accumulated volume is above what we posted in 2024, but it's important to mention that in the same period, the apparent demand of steel increased by 6%. In other words, this increase of demand was captured by subsidized imports reinforms the need of implementing antidumping measures as Marcelo has previously mentioned. Moving to net revenue, the unfair competition that we mentioned affected the prices in the period. We had reductions in the quarter, especially in the sector of distribution. Exports were impacted by the mix except for high-grade steel, and there was a 3.5% drop, reaching BRL 5.8 billion. In spite of the complex market scenario, we offset the drop in revenue with a reduction in cost and expenses, reaching 7% higher result and EBITDA of 30.8%. EBITDA amounted to BRL 1.1 billion, 44% when compared to 2024. On the next slide, we show the main variations of the quarterly results. And here, we can see the drop of 3.5% of net income per ton, generated a loss in our results and the offset came through the reduction of cost in sales that generated an increase of BRL 164 million, which was expected. And this was also driven by the appreciation of the real and also the drop in the price of raw material, but also with the gain in efficiency in our operations. We have a positive effect due to lower SG&A expenses and contingencies. In the next quarter, we continue reducing costs and our expenses are expected to remain stable. As for mining, the production volume was 4% higher when compared to the second quarter due to the operational yield, which was higher and sales had an increase of 2% with 2.5 million per ton, which was the highest volume of the quarter since 2021. Net revenue was 4% higher when compared to previous periods with better reference prices and lower discounts related to quality, but it was partially offset by the devaluation of the dollar. Net revenue amounts to BRL 2.8 billion and 27% higher than the accumulated revenue of 2024. The cost per ton for the quarter had an increase, especially due to the freight tariff hike and EBITDA was -- of the third quarter was BRL 130 million, slightly higher when compared to the previous quarter and accumulated was stood 60% higher than 2024. And now talking about the financial indicators. This quarter, we had a strong cash generation with important generation of working capital due to the reduction of raw materials, which stands at a normalized level nowadays after an increase that we had in the first quarter, one-off effect. The CapEx was BRL 266 million, and we keep advancing with the main projects that are going to generate gains for Usiminas, especially the PCI plant that is going to be completed in the beginning of next year. And [ auto repair ] and coke plants that are going to finish, completed in 2028 and 2029. And we ended with free cash flow of BRL 613 million. In relation to working capital, we can see a reduction in -- at a lower volume, but we can see a reduction, especially due to the lower volumes that was estimated for sales in the steel business unit. As for CapEx, the expectation is to follow our guidance close to the lower limit of BRL 1.2 billion. Next slide. we can see the strong cash generation has made the debt to be reduced as commented before, closing -- close to BRL 300 million and reduced the leverage to 0.16x. In this quarter, we also ended the repurchase of the bonds that are going to mature in 2026. And we also took the opportunity of the favorable conditions to anticipate BRL 160 million of the new debenture issuance. And with this, we continue with a very solid financial position and with the scheduled elongated debt that will make us focus on our operating performance and continue with our investment plan. I will turn back to Leo so that we can start the Q&A session. leo, please? Leonardo Rosa: Thank you, Thiago. So we are going to start with the session of the Q&A. Our first question is to Marcelo and Miguel. And this is the most asked question about antidumping. There are many questions come from Marcio Farid, Caio Greiner from UBS, Caio Ribeiro from BofA, Marcelo Arazi of BTG, Raj Kanjani, Igor Guedes of -- from Genial, Lucas Laghi from XP, Daniel Sasson from Itaú BBA. All of them are asking about anti-dumping, and I'm going to try to concentrate on the following topics. Are you confident in the implementation of antidumping measures. And what's your vision? What changes since the preliminary decision? Are the deadlines being maintained? Are there delays likely to happen to February? Is there a possibility that even if the antidumping measure is adopted, the market will continue being pressured. Can other countries being involved. And if there is the antidumping implementation, is there any chance of going back to going -- getting the blast furnace #1 back into operation? Marcelo Chara: Thank you, Leo, for all the questions. This is a very relevant topic. And we have been mentioning all of this in the previous calls about the measures for the steel segment and the industry in Brazil. We are confident, of course, because these are processes which are very solid from the technical view point as to dumping. And this was confirmed in the preliminary decisions that was published by the ministry. In case of dumping, you analyze 2 factors mainly. What is the margin of dumping that was being confirmed by the preliminary valuation by the technicians of the ministry, with tariffs above $500 per ton, both for coated and cold. And another important factor is the impact of the imports of the gain in the local industry. So if this -- all this is confirmed, and if this is confirmed after the preliminary decision where the imports continue to increase, prices continue to be pressurized in the margin of the industry, both the local industry and international industry. And this allows us to feel this confidence of -- on the final determination that should come next month. In relation to the deadline, it's important to clarify the following: As for dumping, there are deadlines for the final determination after each case has been filed. As for the cold area, the opening of the case happened in August 2024. After that date, the maximum deadline for the final decision is February 2026, okay? The ministry has been publishing different schedules according to the capacity for the technicians to analyze of each case, considering the technical capacity of the ministry. In the last publication, however, the last schedule that was published by the ministry, the date was November 2025. This is not likely to be completed. So our expectation is that the final documentation will reach the final deadline, which is February '26. As for coated product, so it's going to be 30 days after the cold item case is solved. So we expect that the final decisions to be made in February and March. As for the hot items, they will continue with the original schedule, and we are going to continue monitoring all the advances. And the other question was related to the possibility of having more countries involved and the pressure. Of course, in the -- we are living a very important commercial work, especially for the manufactured product that comes from the overcapacity that comes from China that is pressurizing not only the Brazilian market, but the European market and global market. But we have seen that commercial measures have been implemented in the United States, in Mexico and Europe. And of course, we should expect that the market should continue being pressurized by this commercial work. And it's very important for us to continue monitoring even after the measures of anti-dumping. And we have to monitor the potential impacts that we can have after the results come in. As mentioned by Miguel in our industry, an important percentage of the cost, more than 50% of the ore and coke and coal and there are -- there is a formula which is applied to calculate, say, what is the difference of prices that are adopted. And when we see the prices, especially the products coming from China, and we can see that the margins are negative. These are not fair competition conditions. This is not fair. And of course, it generates a significant imbalance. At the moment, we can -- we have confidence in what Brazil is doing and my friends who are part of the Board. And we have been -- we are visiting the authorities of the federal government, and we have also been in talks with government of the states, and we are sharing our concern. And we see that there is a strong challenge, a strong threat to our industry when we think about the GDP of the country. And an important factor that when we see this kind of competition, we understand that it affects the employment possibilities. And this also affected the qualifications of the jobs in Brazil. There is another question that was asked. If the implementation of the measures could increase the capacity at Usiminas. For example, the beginning of the blast furnace #1. As we mentioned before, we trust the Brazilian authorities. In the initial speech, we mentioned that. And there were some measures that I have already mentioned. And we understand that there is the importance of implementing technical measures and antidumping is a technical measure. And we believe in the capacity for us to have more light in what is happening to the industry. In relation to the added capacity, I would like to say that we have made investments of $600 million in the modernization of blast furnace #3 which is operational. And we're also looking at the efficiency of those furnace. And with the blast furnace 2 and 3, we have managed to reach efficiency levels similar to what we had with the 3 blast furnaces in operation. So today, we have idle capacity in all industry. And then I would say that we are prepared to absorb higher demand. We are prepared to absorb the unfair competition that we see in the Brazilian market in a very efficient way. Leonardo Rosa: Thank you, Marcelo, Miguel. We have a session about prices. I'm going to select some questions. First, about price in the distribution, and then we can talk about the carmakers. Prices, this is what we have. What is the transfer of prices for distribution. So what is Usiminas opinion in relation to this transfer? Is there any possibility of higher prices? What's the expectation of prices in the short term? Miguel, could you answer those? Miguel Angel Camejo: Thank you, Leo. Usiminas increased the increases in the prices, spot businesses as of October, the prices depending on the product varies from 7%, 4% or 5% depending on the product. And this is a result of the strong pressure from the unfair competition with negative margins. When we reach the price scenario, the spot price, which was not sustainable to our Brazilian market. So that was the -- we felt the need of increasing the prices. We are returning to positive margins to the sector. And obviously, we are going to continue monitoring this possibility of new increases to the future. It's important to clarify, Leo, and everyone that as we suffered the pressure from the fair competition, and we also saw a strong drop in the spot prices, an adjustment was very low considering the inflation so much so that we did not feel this drop in price in the spot price. And we do not expect any increase in the fuel in the steel sector can impact the IPCA or the inflation rate in Brazil. Leonardo Rosa: Thank you, Miguel. I forgot to mention the names of the people of those who were asking about prices at first. So it was a Caio Greiner, UBS; Caio Ribeiro of BofA; [indiscernible] Goldman Sachs; Matheus Moreira with Bradesco BBI and Carlos from Morgan Stanley. Now continuing for prices in the industry, and then we are going to talk about the automotive sector. [indiscernible] asks about the prices. And when are we likely to have a positive impact according to the recent increases? And what is the lag between the movement of the industry and movements in distribution? How could we compare those? Miguel Angel Camejo: Thank you, Leo. As we always explained in our call, the dynamics of pricing at the industry has -- is associated with the spot prices. In the industrial [actually], depending on the client and the sector, we have [indiscernible] increases, quarterly increases. So these are the movements. And this is what we can observe this in the future. So the adjustments that are being made right now as of October in the spot sector, are likely to be reflected in when the industry renovated agreement as of January next year, especially in this period. Leonardo Rosa: And now about automakers. We have some questions by Caio Greiner; Ricardo Monegaglia, Safra; Igor Guedes, Genial; Lucas Laghi of XP; and Daniel Sasson, Itau BBA. Marcelo Chara: In case of carmakers, as you all know, we have 2 periods of negotiations. In January, when we update the agreements, we have the period of January, December and April and March, about 30% of car makers in Brazil and those installed in the region have a start negotiations at a very preliminary stage. So we are not sure of when the negotiations are going to be completed that are likely to advance up to December this year. As for the agreements that update the conditions as of April, they will start negotiations as of January and February next year. We'd like to remind you that the dynamics of agreement is very different, from the conditions that we apply in spot prices. The case of spot prices, well, it's important to clarify that what happened along '26 is -- '25 is not sustainable so much so that the result of the scenario is the different processes or cases -- the lawsuits of dumping. And we expect that the authorities are going to recognize considering the negative impact on the local industry. Leonardo Rosa: Maybe just a follow-up. Still talking about the automakers because there's an additional question. How an anti-dumping measure can influence the negotiations within the automotive area? Marcelo Chara: Now there is no influence, as I mentioned before. The dumping scenario is a result of the strong pressure from imports. In the case of automotive agreements, it's another logic. We are associated with the competition, but we also have to consider the variable of costs of raw materials and the agreements are maintained in the local currency. Leonardo Rosa: Miguel, to end the session about prices, Gabriel Barra with Citi asks the following. In relation to steel prices, could you talk about the carryover of prices of September to understand what will be the carryover for the next quarter. Miguel Angel Camejo: Gabriel, the price of September was the average price in the domestic market was about 12.5% that was impacted by the drop -- continuous drop that we observed in the spot price and the worst mix of product in September compared to -- for the quarter. Leonardo Rosa: Okay. Miguel, another question for you. And now about imports. Daniel Sasson with Itau BBA. What's -- how do you see the volume of imported product reaching Brazil in the next months? And the premium versus the imported prices lower for the next months reflected in a lower order for you? Miguel Angel Camejo: Daniel, let's separate your question. Your question is very interesting. Of course, the local steel unit reacted to the pressure of the strong imports, and we made adjustments, the price in the spot price in order to protect and to respond to this international pressure that led to a lower level of imports that we observed in 12 last months. But as I mentioned before, this scenario of domestic prices was not sustainable. So on the other -- on the side, the steel industry reacted strongly because we would have the possibility of lower the production. So because of the unfair competition, we have to go to the spot sector and defend the position of the steel industry at the local level. Imports reported and they lowered the volume of imports in the last few months. And we expect the same dynamic to be implemented up to the end of the year. Another factor is that you can see there's a cooling in different sectors of the economy. And this generates lower expectations, and we expect lower volume of imports because of the lower activity expected for the end of the year. And up to the end of the third quarter, we expect imports to -- lower imports, and that generated the drop at the imports that we observed in the last months. So we are likely to observe a reduction -- a sequential reduction in imports, but it's very relevant to continue advancing with the final measures for the decisions related to dumping so that we can go back to the regular levels after all those unfair competition that we have been suffering in the past 2 years. Leonardo Rosa: Thank you, Miguel. Now Marcelo, we have a question about the compact mining, [indiscernible], Caio Greiner asked at what moment we can have the decision? And do we have any update on the decision? Marcelo, please? Marcelo Chara: Thank You, Leo. As we mentioned before, in all previous calls. And we continue making headway with the preparation of the engineering that we have a clear adjustment in the project. But basically, the process of permitting is within the deadlines. As I mentioned before, in 2026, we will be able to define which would be the next steps. Leonardo Rosa: Our next question is directed to Thiago about capital allocation, Caio Greiner, BTG; Gabriel Barra from Citi. He said capital allocation in a favorable scenario of antidumping that will elevate margins and cash generation of the company, how the capital allocation would be changed for the next years? Would that accelerate the dividends, accelerate investments or buyback or payment of dividends? And he says, what's the level of leverage that would be ideal for the company, Thiago, please. Thiago Rodrigues: Thank you, Leo. Thank you, Caio. It's very difficult for us to estimate what's going to happen in the future, especially in relation to anti-dumping measures and how this can impact the result and the cash generation of the company. So I'm going to limit myself to talking about the present moment. First is it's in relation to prioritizing investments and payment to shareholders. You can observe that we have a plan, a robust plan of investments that have already been approved that are going to lead to the disbursement of relevant volume of cash. As we announced in the last call, an investment of -- for the Coke plant. And we also have the hardware repair of the Coke plant, and this would amount to more than BRL 2 billion. Marcelo has just mentioned the investment at MUSA. So we have a robust pipeline of investment for the future. That doesn't mean, however, that we do not evaluate the payment for the shareholders. This evaluation will depend on a number of indicators, cash generation, liquidity level and the investments that we have already planned in the pipeline for the future. In relation to the current situation, we have not made any decision. In this regard, we're still evaluating the possibility of distributing dividends this year, but we still haven't made a definite decision. Of course, this -- we have a proposal that it's going to take to the Board for approval. In relation to the leverage level, you have seen that in the last 2 or 3 years, we have been maintaining the leverage level below 1x the EBITDA. And this is a ratio that we feel comfortable to go through a stability period in the market and also going through periods of higher investments. And answering your question, the leverage level is the level that we understand to be a comfortable level so that we can be prepared to those kinds of future situations. Today is below 1. So between what we have today and 1 point of the EBITDA as the leverage level, that would be a comfortable level where we feel safe and comfortable. As to the future, let's wait and see if anything changes in relation to an improvement in the market situation and how this can be reflected in cash generation. We're going to continue monitoring the possibility of payment dividends to shareholders. But we are always going to focus on our investments so that we can generate competitiveness for the company in the future. Leonardo Rosa: Thank you, Thiago. Still for you, there are many questions here. They're asking for an explanation about impairment and deferred items. Caio Greiner of UBS; Ricardo Monegaglia, Safra; Igor Guedes, Genial and Morgan Stanley. They ask you to explain the impairment and deferred items, why higher? And right now, is there any adjustments that we can expect for the future? Is there an impairment impact after the assets have been reviewed? Thiago Rodrigues: Well, as you know, this is an accounting topic where companies have to evaluate the impairment of their assets at the routine frequency. So this is an evaluation based on premises. Interest rate, foreign exchange rate, demand, raw material prices and et cetera. All those premises are based on the macroeconomic environment in the market at present. And the update of those premises made us register the impairment. So there is no change in relation to the quality or the result generation of our assets, but we changed the premises that would change the situation of the market, the macroeconomic situation that were impacted by those evaluations. There are no expectations of a new evaluation in the short term, except if the macroeconomic situation and the market situation changes in a significant manner. And then we could make the evaluation that would all -- could mean a reversal of this provision. So we can revert the provision that was just being made and this provision was not allocated at any asset specific. This is just a provision without any specific allocation in any assets of the company. Leonardo Rosa: Thank you, Thiago. Miguel, a section about demand. We have questions about Ricardo Monegaglia, Safra; Raj Kanjani from JPMorgan, Lucas Laghi from XP and Matheus Moreira with Bradesco BBI. So we put the questions together, and this is what we have. We noticed that the domestic market was weaker than the steel, flat steel prices, Usiminas increased 2%, as Brazil presented a 4% growth. Was there any change in the commercial strategy or any rationality from the competitors? The planned demand was dropped and the industry dropped -- falling quarter-over-quarter and year-over-year, is there a deacceleration? And as for 2026, what do you expect? And what factors presented the worst scenarios? Miguel Angel Camejo: Thank you, Leo. Thank you, everyone. Let's make a comparison of the internal volumes and as Brazil's reports. We can -- it's important to say that short-term comparisons can lead to bad wrong occlusions. Because in short terms, you have -- we see, as case for Usiminas, we are focused on maintaining our leadership, and we are going to strengthen our leadership in added value, both in products as in -- as to value. And that are different sectors in the industry, and we take part in the commercial sector as well with automakers. And we also have to consider the civil construction and we take part in this less than other steel companies, and that can result in different movement of sales when compared to the previous quarter. As for the highlight of the quarter, we can see that there was a 10% increase, and we are likely to maintaining this recovery. But it's important to mention that the automaker sector is the only sector that still hasn't recovered the values prepandemic period. So it's important to maintain this movement, but the automaker is the only one which is still below the value of 2019. The industrial sector, we can mention the machinery for agriculture and the agriculture sector were at very low levels compared to the previous periods, but the quarter was very good and the road machinery had important improvements. And these are sectors that we can mention that they have had a performance lower than expectation. Another one is the sector of renewable energy. And there are other sectors that we have to consider. And the other sectors are performing according to the indicators of the economy. Of course, on the one hand, we have a negative impact on consumption. And client of Usiminas are being impacted by the imports of manufactured product as we saw from ANFAVEA data. But this strong pressure is also being felt by what comes from the imports. But the government has to incentivize policies that can help this area. For 2026, we can -- there is an estimate that apparent consumption will increase by 1% in -- for the Brazilian market. Of course, potential additional low levels of the interest rates and some aspects of the economy could improve the situation, but we are going to continue monitoring the interest rates and the consumption capacity in addition to industrial policy that can come from the public area. I don't know if I missed anything, Leo. Did I forget any question? Leonardo Rosa: No, I think you addressed all of them. There is another one, which are the sectors that had a lower performance? Miguel Angel Camejo: Well, I would say that sectors that were impacted in the period was renewable energies. That are -- have some important projects that have come to a stop, and they were projects that were very important in the previous year. Leonardo Rosa: Miguel, about demand in the international market, Raj Kanjani from JPMorgan asks about sales to Argentina. Argentina demand was weaker, so can we go to the levels of the second quarter? Is this what we can expect for the fourth quarter and what we can expect from Argentina and from the external market? Miguel Angel Camejo: What happened in the third quarter is that we were delivering the projects of oil and gas, and they were very strong in the second quarter. The sector of oil and gas continue to be striving and that could improve the mix and sales in the fourth quarter, especially for new projects of oil and gas in Argentina. The automotive sector continues to present positive results. And we expect to continue this trend up to the end of the year. So we could observe a better mix of sales, especially driven by the deliveries of oil and gas projects. Leonardo Rosa: Thank you, Miguel. Thiago, we have a question about cash flow Ricardo Monegaglia with Safra asks the following. What's the perspective of cash flow for the fourth quarter of 2025, considering that working capital is stronger, CapEx is weaker in the third quarter? Yes, Thiago? Thiago Rodrigues: Ricardo, the expectation for the fourth quarter is still of having some free up in the working capital. We are likely to have a normal variation in the inventory levels, but the reduction in receivables accounts because of the volumes of sales that usually happen in the fourth quarter, typically. So as for working capital, we are likely to see a good generation, positive generation and with stable results and with the CapEx that should be between BRL 400 million and BRL 500 million in the quarter for us to reach our guidance. We are still likely to see a positive working capital for cash generation. We have some questions about cost outlook that we provided in our results release. These are questions from Ricardo Monegaglia, Igor Guedes with Genial, Gabriel Barra with Citi. We put the questions together, and this is what we have. We expected the best outlook in costs. What were the variables considered? The international reference price of coal and ore reduced, but the COGS reduced. Following the same logic, should those commodities increase the COGS for the fourth quarter of 2025. And lastly, if the magnitude of COGS of the fourth quarter of 2025 would be the same magnitude that we see dropping in the previous quarter. To reinforce what we have already mentioned, we have confidence there will be another cost reduction for the fourth quarter, both in the raw material as for the gains in efficiency that we have been observing continuously at a gradual level. So we have been observing this in our operations. It's always important to clarify that the market indicators of coal, ore, et cetera, are good indicators of what's going to happen to our costs. However, they have a little bit different dynamics. They have different turnovers. So they would impact our COGS at different moments. The ore has a quicker turnover. So we see the impact in prices, impact in COGS. And this does not happen to the coal at present, considering that we purchased a relevant volume of coke in the market. So the Coke index is more relevant than the coal. So the -- it takes longer to reach the COGS and to make things even more complicated, we have different types of cokes, which are used in production at different times. So market indicator would be a good reference. However, obviously, since we know what we have in our inventories and what's being used in the production, we can have a clearer view of what's going to happen to the COGS. So again, there's an expectation of cost reduction in the next quarter in relation to the magnitude, if it's going to be similar as to the reduction that we saw in this quarter, which was 3%. It's hard to say. I would say that it will be something lower than that, but still that will depend on what's about to happen along the quarter. Leonardo Rosa: Thiago, now the question is about mining costs. Yuri Pereira with Santander and Matheus Moreira with Bradesco, they ask the following. Could you provide us more details about the high costs in mining unit? Do you have an outlook for this line for the fourth quarter? Basically, this is the question. Thiago Rodrigues: Okay. The increase in the mining cost came as a result of the international freight costs. So the sales that we make in the mining unit with the freight already included in the cost would impact the amount and the revenue. But with the increase in the tariff, we noticed this increase in the COGS. There was also a one-off increase in the material handling service, this is not likely to happen, but we see that there's a high tariff of an international freight. So this is likely to repeat in the next quarter. And that would lead us to a cost at the same level or at a similar level than what we saw in the third quarter when we compare the 2 quarters for MUSA -- at MUSA. Leonardo Rosa: We still have 3 questions. We're moving towards the end of our call. The first one is about -- to Marcelo, Yuri Pereira asked about mining, our Friable reserves. What's the strategy to maintain the feed of the furnaces? Does it make sense that we are going to purchase from the local market. Yes, Marcelo? Marcelo Chara: In the past 2 years, as we have been mentioning. Our main focus has been in the development of the operational excellence in all segments where we operate at Usiminas. So we integrated MUSA with steel production and optimizing the activities. So we have this reserve of Friable that we didn't used to have in the past. So we are making some mixes in order to expand this. So we have been able to develop alternatives at MUSA that would allow us to extend the life of the Friable items. And we have also been evaluating options that would allow us to use the sintering machines that we have in Ipatinga and we have incorporated a higher content of fines that would make us able to use or to use the reserves that we have. I would say that we are optimistic when we think about optimizing this. And depending on the definitions that we define in the compact projects, we are going to have synergies that would make allow us -- that will allow us to use those reserves so that we can use for the feeding of the furnaces. I would say that we have a good planning going on. We have good perspectives for the next years -- in relation to the supply of ore. Leonardo Rosa: Thank you, Marcelo. Now we have a question about working capital with -- from Igor Guedes, Genial; [indiscernible] the driver of cash generation was the working capital. Is there a space for further reductions? Igor asked the following the level of working capital was higher than we expected. So there was a reduction in the forfeit and the accounts payable. Is it possible to see the current level of current payables? Was it a negotiation so that we could extend the supplier deadlines with the suppliers? Thiago Rodrigues: The first question I think I have already answered. So in relation to the inventory levels, so the turnover of the inventories are normalized. So what we are likely to see in the future are regular variations. And although, obviously, it's going to depend on the production level at which we are operating. We expect to reduce the accounting receivables for the next quarter. In relation to the second quarter, second question, I don't know if I understood well. But usually, when you have a strong reduction in the inventory levels, this also means a reduction of the suppliers since you already acquire fewer raw materials. So this is a natural effect. We had a reduction of about BRL 1.1 billion in the inventory account. And we had a reduction in the suppliers' accounts. And the match was about BRL 500 million, if I'm not mistaken. This is just a natural movement. There was no -- different negotiation going on. If we had negotiated extended deadline, we wouldn't have the reduction in the supplier account, but it would increase. There was no regular impact -- a big impact in the negotiation with the suppliers. This was a natural impact since we reduced the inventory levels. Leonardo Rosa: Thank you, Thiago. So let's move on to our last section, which are some questions about the operation. They come from Gabriel Barra; Marcio Farid, Goldman Sachs; Marcelo Arazi of BTG. Marcelo, people asked the following. Could you make some comments about the status of the new PCI plant? What are the expectations in terms of cost improvement coming from this project? How the blast furnace 3 has been running? Is there a space for improvement? And we expect a stable EBITDA considering the efforts that the company has been making. So what has the company been making along those lines? Marcelo Chara: I will start with the first question. The investments are according to the plan. In the beginning of 2026, we are going to start the operating tasks. In the first half of the year, we are going to be in the right regimen. And then we are going to improve the efficiency of fuels and reducing the coke fuel use. And there is going to be a significant improvement in costs in addition to reducing the emissions of GHG. In general lines and making a summary of the questions asked, it's important to mention that we have been developing along the 2 years, important projects to complement the $600 million that we have invested in the blast furnaces in such a way that the lines that feed the blast furnaces have been receiving important reinforcement in terms of OpEx and important works to -- of improvement making it possible to change the metal grade of the furnaces and we have been reducing the load of costs, and we have already been capitalizing those effects. And we are making a lot of effort on this focus, especially on the environmental areas so that we can reduce the particle emissions and reducing by more than 90% of all those events, whenever we had any potential for reduction. Another aspect, which is very important is the coal and coke mix. And this is directly connected to the working capital. We developed a special team to control our inventories and all the supply system, and we have been able to simplify the number of suppliers as well as the quality of those suppliers, and we made a valuation and we made the reduction of the inventories. And we also improved the operational performance of the use of this raw material. Another important topic is related to the battery, which is being advancing according to the plan. And we have good expectations about this plan. Since we have reconfigured and we have been noticing an improvement in the execution of the project, since we have an expertise in execution that allow us to execute this plan in a more efficient way. And together, we have another project complementary, which is the Gasometer that will also improve the process. We have also made imported OpEx and CapEx investments to promote improvement in the utilities of the company. And we have reduced the natural gas consumption. We have been making other improvements in the utilities to make the proper monitoring of the costs. As we mentioned, as we mentioned previously, in all the previous calls, of the previous quarters, this is a process that has already been installed at Usiminas, and it's been successful. We have a strongly focused and engaged team. Antonio one of our main shareholders has been helping us so much in those areas. And thanks to this, we are confident that this improvement process will continue. And this will continue at a systemic level. All the changes are going to be sustainable and progressive. Leonardo Rosa: Thank you, Marcelo. So we ended our Q&A session. We would like to thank you so much for your participation. We would like to remind you that if you have any questions, our IR team is available to take any questions you might have. Thank you very much. Have a nice day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Leonardo Rosa: Good morning. Welcome to the conference call of Usiminas in which the results of the Third Quarter of 2025 will be discussed. I'm Leonardo Karam, Investor Relations Officer at Usiminas. [Operator Instructions] This conference call is being recorded and simultaneously broadcast on the Usiminas YouTube channel. We would like to remind you that this conference call is exclusively for investors and market analysts. [Operator Instructions] We also request that any questions from journalists be directed to the Media Relations team at Usiminas via e-mail in imprensa@usiminas.com. Before proceeding, we would like to clarify that any forward-looking statements that may be made during this conference call regarding the prospects of the company's business as well as projections, operational and financial goals related to its growth potential constitute forecasts based on the management's expectations regarding the future of Usiminas. These expectations are highly dependent on the performance of the steel sector, the country's economic situation and the situation of the market at the international level, so they are subject to change. With us today is our President, Marcelo Chara; the Vice President of Finance and Investor Relations, Thiago Rodrigues; and our Commercial Vice President, Miguel Homes. First, Marcelo will make a few remarks, then Thiago will present the results. Afterwards, the question asked in the Q&A section will be answered. Now I give the floor to Marcelo. Please, Marcelo. Marcelo Chara: Thank you. Thank you very much. Thank you very much, everyone. Good morning, ladies and gentlemen. It's a pleasure to be here with you to share the results for the third quarter of 2025. This quarter was marked by important advances in our management with the consolidation of our operational stability, continuity of the cost reduction plan and the evolution of our priority CapEx project. These initiatives reinforce our strategy of ensuring competitiveness and sustainability for the business in the long term. In this quarter, we achieved an adjusted EBITDA of BRL 434 million, with a margin of 7%, representing growth compared to the previous period. I would like to highlight the following: the 3% reduction in COGS per ton in the steel business unit compared to the second quarter as a result of the expense and cost reduction plan. We posted growth in sales volume in Steel business unit despite the increasing pressure from imports under unfair conditions. We reported higher prices and volumes in mining, strong cash generation exceeding BRL 600 million in the period and reduced leverage, mainly due to the control and efficient management of raw material inventories. In the market environment, we remain vigilant and concerned about the increase in subsidized imports due to the excess global production capacity, particularly in China, which continues to negatively impact the entire domestic industry. Imports increased by 33% in the first 9 months of 2025 as to flat steel compared to the same period of the previous year. And we do not clearly see the effect of the tariff quota system on import penetration. The antidumping cases of heavy plates that has been extended for 5 years as a measure against China and South Korea as well as the one for metal sheets, where the duty was also applied against China and the one for prepaint and steel, which is at an advanced stage, give us confidence in the technical capacity of the authorities of the ministry department and industry to recommend effective measures against the serious damage that affects the entire steel value chain in Brazil. The challenging conditions are also impacting industrial goods that include steel components. Data from ANFAVEA shows that compared to 2024, there was an 11% growth in the registration of imported light vehicles and only 2% of domestic light vehicles. In the machinery and equipment sector, data from the National Industry Association, ABIMAQ show an accumulated annual increase of 9% in imports with a trade deficit of the sector totaling USD 13 billion this year alone. Due to this imbalance in international trade, we have seen important movements such as that of the United States, which raised its tariff on imported steel in Europe, which proposes to tighten current safeguard measures, proposing a tariff quota system with a sharp reduction in volumes and an increase in tariffs with the aim of protecting jobs and the local industry in Europe. For the fourth quarter of 2025, we expect to continue reducing costs due to efficiency and raw material prices, stable net revenues per ton and lower volumes due to the typical seasonality of the period at the end of the year. As for mining, volumes are expected to be slightly lower, but to remain higher in 2025 than in 2024, consistent with our planning. I would like to point out that despite the challenges of the external environment and the pressures on the domestic industry, we remain confident in our ability to adapt and deliver sustainable value to our customers and shareholders. We believe that with discipline, strategic focus and the commitment of our entire team, we will continue to advance and consolidate our leading position in the sector. I thank everyone for their trust and partnership and we continue together building the future of Usiminas in the Brazilian industry. Thank you. Thiago Rodrigues: Thank you, Marcelo. Good morning, everyone. So we are now going to start with our presentation about the results for the quarter. We would like to start that we showed improvements in the main performance indicators in the third quarter of 2025, even considering the complex scenario that we are facing in Brazil and abroad, as mentioned by Marcelo. Sales volume increased in steel and for mining 2%, consolidated EBITDA had an increase of 6% in relation to the previous quarter. And the highlight is the strong cash -- free cash generation of BRL 613 million is in a drop of our net debt and our leverage ratio. We can see the consolidated results on the next slide. Net revenue was BRL 6.6 million, slightly lower than the previous period, and the impact was the lower prices in the steel segment. And the revenue was higher than last year and was driven by mining, in particular. Adjusted EBITDA was BRL 434 million, 7% of margin and slightly higher than the previous quarter as a result of the best operational performance in the steel area. Accumulated EBITDA in the 9 months of 2025 amounts to BRL 1.6 billion, 45% when compared to the same period of 2024. Net income did not reflect the best operational results of the quarter, as we mentioned, due to the accounting effect of BRL 3.6 billion related to impairment of assets as well as deferred taxes. Those effects are accountable for accounting effects and generate no effects on the cash of the company. Otherwise, the net record would be BRL 10.8 billion in the quarter. Next slide, we have seen the steel sales volume was higher, 1.1 million tons, a bit higher than the previous quarter, showing the resilience of the demand of our main segments. The accumulated volume is above what we posted in 2024, but it's important to mention that in the same period, the apparent demand of steel increased by 6%. In other words, this increase of demand was captured by subsidized imports reinforms the need of implementing antidumping measures as Marcelo has previously mentioned. Moving to net revenue, the unfair competition that we mentioned affected the prices in the period. We had reductions in the quarter, especially in the sector of distribution. Exports were impacted by the mix except for high-grade steel, and there was a 3.5% drop, reaching BRL 5.8 billion. In spite of the complex market scenario, we offset the drop in revenue with a reduction in cost and expenses, reaching 7% higher result and EBITDA of 30.8%. EBITDA amounted to BRL 1.1 billion, 44% when compared to 2024. On the next slide, we show the main variations of the quarterly results. And here, we can see the drop of 3.5% of net income per ton, generated a loss in our results and the offset came through the reduction of cost in sales that generated an increase of BRL 164 million, which was expected. And this was also driven by the appreciation of the real and also the drop in the price of raw material, but also with the gain in efficiency in our operations. We have a positive effect due to lower SG&A expenses and contingencies. In the next quarter, we continue reducing costs and our expenses are expected to remain stable. As for mining, the production volume was 4% higher when compared to the second quarter due to the operational yield, which was higher and sales had an increase of 2% with 2.5 million per ton, which was the highest volume of the quarter since 2021. Net revenue was 4% higher when compared to previous periods with better reference prices and lower discounts related to quality, but it was partially offset by the devaluation of the dollar. Net revenue amounts to BRL 2.8 billion and 27% higher than the accumulated revenue of 2024. The cost per ton for the quarter had an increase, especially due to the freight tariff hike and EBITDA was -- of the third quarter was BRL 130 million, slightly higher when compared to the previous quarter and accumulated was stood 60% higher than 2024. And now talking about the financial indicators. This quarter, we had a strong cash generation with important generation of working capital due to the reduction of raw materials, which stands at a normalized level nowadays after an increase that we had in the first quarter, one-off effect. The CapEx was BRL 266 million, and we keep advancing with the main projects that are going to generate gains for Usiminas, especially the PCI plant that is going to be completed in the beginning of next year. And [ auto repair ] and coke plants that are going to finish, completed in 2028 and 2029. And we ended with free cash flow of BRL 613 million. In relation to working capital, we can see a reduction in -- at a lower volume, but we can see a reduction, especially due to the lower volumes that was estimated for sales in the steel business unit. As for CapEx, the expectation is to follow our guidance close to the lower limit of BRL 1.2 billion. Next slide. we can see the strong cash generation has made the debt to be reduced as commented before, closing -- close to BRL 300 million and reduced the leverage to 0.16x. In this quarter, we also ended the repurchase of the bonds that are going to mature in 2026. And we also took the opportunity of the favorable conditions to anticipate BRL 160 million of the new debenture issuance. And with this, we continue with a very solid financial position and with the scheduled elongated debt that will make us focus on our operating performance and continue with our investment plan. I will turn back to Leo so that we can start the Q&A session. leo, please? Leonardo Rosa: Thank you, Thiago. So we are going to start with the session of the Q&A. Our first question is to Marcelo and Miguel. And this is the most asked question about antidumping. There are many questions come from Marcio Farid, Caio Greiner from UBS, Caio Ribeiro from BofA, Marcelo Arazi of BTG, Raj Kanjani, Igor Guedes of -- from Genial, Lucas Laghi from XP, Daniel Sasson from Itaú BBA. All of them are asking about anti-dumping, and I'm going to try to concentrate on the following topics. Are you confident in the implementation of antidumping measures. And what's your vision? What changes since the preliminary decision? Are the deadlines being maintained? Are there delays likely to happen to February? Is there a possibility that even if the antidumping measure is adopted, the market will continue being pressured. Can other countries being involved. And if there is the antidumping implementation, is there any chance of going back to going -- getting the blast furnace #1 back into operation? Marcelo Chara: Thank you, Leo, for all the questions. This is a very relevant topic. And we have been mentioning all of this in the previous calls about the measures for the steel segment and the industry in Brazil. We are confident, of course, because these are processes which are very solid from the technical view point as to dumping. And this was confirmed in the preliminary decisions that was published by the ministry. In case of dumping, you analyze 2 factors mainly. What is the margin of dumping that was being confirmed by the preliminary valuation by the technicians of the ministry, with tariffs above $500 per ton, both for coated and cold. And another important factor is the impact of the imports of the gain in the local industry. So if this -- all this is confirmed, and if this is confirmed after the preliminary decision where the imports continue to increase, prices continue to be pressurized in the margin of the industry, both the local industry and international industry. And this allows us to feel this confidence of -- on the final determination that should come next month. In relation to the deadline, it's important to clarify the following: As for dumping, there are deadlines for the final determination after each case has been filed. As for the cold area, the opening of the case happened in August 2024. After that date, the maximum deadline for the final decision is February 2026, okay? The ministry has been publishing different schedules according to the capacity for the technicians to analyze of each case, considering the technical capacity of the ministry. In the last publication, however, the last schedule that was published by the ministry, the date was November 2025. This is not likely to be completed. So our expectation is that the final documentation will reach the final deadline, which is February '26. As for coated product, so it's going to be 30 days after the cold item case is solved. So we expect that the final decisions to be made in February and March. As for the hot items, they will continue with the original schedule, and we are going to continue monitoring all the advances. And the other question was related to the possibility of having more countries involved and the pressure. Of course, in the -- we are living a very important commercial work, especially for the manufactured product that comes from the overcapacity that comes from China that is pressurizing not only the Brazilian market, but the European market and global market. But we have seen that commercial measures have been implemented in the United States, in Mexico and Europe. And of course, we should expect that the market should continue being pressurized by this commercial work. And it's very important for us to continue monitoring even after the measures of anti-dumping. And we have to monitor the potential impacts that we can have after the results come in. As mentioned by Miguel in our industry, an important percentage of the cost, more than 50% of the ore and coke and coal and there are -- there is a formula which is applied to calculate, say, what is the difference of prices that are adopted. And when we see the prices, especially the products coming from China, and we can see that the margins are negative. These are not fair competition conditions. This is not fair. And of course, it generates a significant imbalance. At the moment, we can -- we have confidence in what Brazil is doing and my friends who are part of the Board. And we have been -- we are visiting the authorities of the federal government, and we have also been in talks with government of the states, and we are sharing our concern. And we see that there is a strong challenge, a strong threat to our industry when we think about the GDP of the country. And an important factor that when we see this kind of competition, we understand that it affects the employment possibilities. And this also affected the qualifications of the jobs in Brazil. There is another question that was asked. If the implementation of the measures could increase the capacity at Usiminas. For example, the beginning of the blast furnace #1. As we mentioned before, we trust the Brazilian authorities. In the initial speech, we mentioned that. And there were some measures that I have already mentioned. And we understand that there is the importance of implementing technical measures and antidumping is a technical measure. And we believe in the capacity for us to have more light in what is happening to the industry. In relation to the added capacity, I would like to say that we have made investments of $600 million in the modernization of blast furnace #3 which is operational. And we're also looking at the efficiency of those furnace. And with the blast furnace 2 and 3, we have managed to reach efficiency levels similar to what we had with the 3 blast furnaces in operation. So today, we have idle capacity in all industry. And then I would say that we are prepared to absorb higher demand. We are prepared to absorb the unfair competition that we see in the Brazilian market in a very efficient way. Leonardo Rosa: Thank you, Marcelo, Miguel. We have a session about prices. I'm going to select some questions. First, about price in the distribution, and then we can talk about the carmakers. Prices, this is what we have. What is the transfer of prices for distribution. So what is Usiminas opinion in relation to this transfer? Is there any possibility of higher prices? What's the expectation of prices in the short term? Miguel, could you answer those? Miguel Angel Camejo: Thank you, Leo. Usiminas increased the increases in the prices, spot businesses as of October, the prices depending on the product varies from 7%, 4% or 5% depending on the product. And this is a result of the strong pressure from the unfair competition with negative margins. When we reach the price scenario, the spot price, which was not sustainable to our Brazilian market. So that was the -- we felt the need of increasing the prices. We are returning to positive margins to the sector. And obviously, we are going to continue monitoring this possibility of new increases to the future. It's important to clarify, Leo, and everyone that as we suffered the pressure from the fair competition, and we also saw a strong drop in the spot prices, an adjustment was very low considering the inflation so much so that we did not feel this drop in price in the spot price. And we do not expect any increase in the fuel in the steel sector can impact the IPCA or the inflation rate in Brazil. Leonardo Rosa: Thank you, Miguel. I forgot to mention the names of the people of those who were asking about prices at first. So it was a Caio Greiner, UBS; Caio Ribeiro of BofA; [indiscernible] Goldman Sachs; Matheus Moreira with Bradesco BBI and Carlos from Morgan Stanley. Now continuing for prices in the industry, and then we are going to talk about the automotive sector. [indiscernible] asks about the prices. And when are we likely to have a positive impact according to the recent increases? And what is the lag between the movement of the industry and movements in distribution? How could we compare those? Miguel Angel Camejo: Thank you, Leo. As we always explained in our call, the dynamics of pricing at the industry has -- is associated with the spot prices. In the industrial [actually], depending on the client and the sector, we have [indiscernible] increases, quarterly increases. So these are the movements. And this is what we can observe this in the future. So the adjustments that are being made right now as of October in the spot sector, are likely to be reflected in when the industry renovated agreement as of January next year, especially in this period. Leonardo Rosa: And now about automakers. We have some questions by Caio Greiner; Ricardo Monegaglia, Safra; Igor Guedes, Genial; Lucas Laghi of XP; and Daniel Sasson, Itau BBA. Marcelo Chara: In case of carmakers, as you all know, we have 2 periods of negotiations. In January, when we update the agreements, we have the period of January, December and April and March, about 30% of car makers in Brazil and those installed in the region have a start negotiations at a very preliminary stage. So we are not sure of when the negotiations are going to be completed that are likely to advance up to December this year. As for the agreements that update the conditions as of April, they will start negotiations as of January and February next year. We'd like to remind you that the dynamics of agreement is very different, from the conditions that we apply in spot prices. The case of spot prices, well, it's important to clarify that what happened along '26 is -- '25 is not sustainable so much so that the result of the scenario is the different processes or cases -- the lawsuits of dumping. And we expect that the authorities are going to recognize considering the negative impact on the local industry. Leonardo Rosa: Maybe just a follow-up. Still talking about the automakers because there's an additional question. How an anti-dumping measure can influence the negotiations within the automotive area? Marcelo Chara: Now there is no influence, as I mentioned before. The dumping scenario is a result of the strong pressure from imports. In the case of automotive agreements, it's another logic. We are associated with the competition, but we also have to consider the variable of costs of raw materials and the agreements are maintained in the local currency. Leonardo Rosa: Miguel, to end the session about prices, Gabriel Barra with Citi asks the following. In relation to steel prices, could you talk about the carryover of prices of September to understand what will be the carryover for the next quarter. Miguel Angel Camejo: Gabriel, the price of September was the average price in the domestic market was about 12.5% that was impacted by the drop -- continuous drop that we observed in the spot price and the worst mix of product in September compared to -- for the quarter. Leonardo Rosa: Okay. Miguel, another question for you. And now about imports. Daniel Sasson with Itau BBA. What's -- how do you see the volume of imported product reaching Brazil in the next months? And the premium versus the imported prices lower for the next months reflected in a lower order for you? Miguel Angel Camejo: Daniel, let's separate your question. Your question is very interesting. Of course, the local steel unit reacted to the pressure of the strong imports, and we made adjustments, the price in the spot price in order to protect and to respond to this international pressure that led to a lower level of imports that we observed in 12 last months. But as I mentioned before, this scenario of domestic prices was not sustainable. So on the other -- on the side, the steel industry reacted strongly because we would have the possibility of lower the production. So because of the unfair competition, we have to go to the spot sector and defend the position of the steel industry at the local level. Imports reported and they lowered the volume of imports in the last few months. And we expect the same dynamic to be implemented up to the end of the year. Another factor is that you can see there's a cooling in different sectors of the economy. And this generates lower expectations, and we expect lower volume of imports because of the lower activity expected for the end of the year. And up to the end of the third quarter, we expect imports to -- lower imports, and that generated the drop at the imports that we observed in the last months. So we are likely to observe a reduction -- a sequential reduction in imports, but it's very relevant to continue advancing with the final measures for the decisions related to dumping so that we can go back to the regular levels after all those unfair competition that we have been suffering in the past 2 years. Leonardo Rosa: Thank you, Miguel. Now Marcelo, we have a question about the compact mining, [indiscernible], Caio Greiner asked at what moment we can have the decision? And do we have any update on the decision? Marcelo, please? Marcelo Chara: Thank You, Leo. As we mentioned before, in all previous calls. And we continue making headway with the preparation of the engineering that we have a clear adjustment in the project. But basically, the process of permitting is within the deadlines. As I mentioned before, in 2026, we will be able to define which would be the next steps. Leonardo Rosa: Our next question is directed to Thiago about capital allocation, Caio Greiner, BTG; Gabriel Barra from Citi. He said capital allocation in a favorable scenario of antidumping that will elevate margins and cash generation of the company, how the capital allocation would be changed for the next years? Would that accelerate the dividends, accelerate investments or buyback or payment of dividends? And he says, what's the level of leverage that would be ideal for the company, Thiago, please. Thiago Rodrigues: Thank you, Leo. Thank you, Caio. It's very difficult for us to estimate what's going to happen in the future, especially in relation to anti-dumping measures and how this can impact the result and the cash generation of the company. So I'm going to limit myself to talking about the present moment. First is it's in relation to prioritizing investments and payment to shareholders. You can observe that we have a plan, a robust plan of investments that have already been approved that are going to lead to the disbursement of relevant volume of cash. As we announced in the last call, an investment of -- for the Coke plant. And we also have the hardware repair of the Coke plant, and this would amount to more than BRL 2 billion. Marcelo has just mentioned the investment at MUSA. So we have a robust pipeline of investment for the future. That doesn't mean, however, that we do not evaluate the payment for the shareholders. This evaluation will depend on a number of indicators, cash generation, liquidity level and the investments that we have already planned in the pipeline for the future. In relation to the current situation, we have not made any decision. In this regard, we're still evaluating the possibility of distributing dividends this year, but we still haven't made a definite decision. Of course, this -- we have a proposal that it's going to take to the Board for approval. In relation to the leverage level, you have seen that in the last 2 or 3 years, we have been maintaining the leverage level below 1x the EBITDA. And this is a ratio that we feel comfortable to go through a stability period in the market and also going through periods of higher investments. And answering your question, the leverage level is the level that we understand to be a comfortable level so that we can be prepared to those kinds of future situations. Today is below 1. So between what we have today and 1 point of the EBITDA as the leverage level, that would be a comfortable level where we feel safe and comfortable. As to the future, let's wait and see if anything changes in relation to an improvement in the market situation and how this can be reflected in cash generation. We're going to continue monitoring the possibility of payment dividends to shareholders. But we are always going to focus on our investments so that we can generate competitiveness for the company in the future. Leonardo Rosa: Thank you, Thiago. Still for you, there are many questions here. They're asking for an explanation about impairment and deferred items. Caio Greiner of UBS; Ricardo Monegaglia, Safra; Igor Guedes, Genial and Morgan Stanley. They ask you to explain the impairment and deferred items, why higher? And right now, is there any adjustments that we can expect for the future? Is there an impairment impact after the assets have been reviewed? Thiago Rodrigues: Well, as you know, this is an accounting topic where companies have to evaluate the impairment of their assets at the routine frequency. So this is an evaluation based on premises. Interest rate, foreign exchange rate, demand, raw material prices and et cetera. All those premises are based on the macroeconomic environment in the market at present. And the update of those premises made us register the impairment. So there is no change in relation to the quality or the result generation of our assets, but we changed the premises that would change the situation of the market, the macroeconomic situation that were impacted by those evaluations. There are no expectations of a new evaluation in the short term, except if the macroeconomic situation and the market situation changes in a significant manner. And then we could make the evaluation that would all -- could mean a reversal of this provision. So we can revert the provision that was just being made and this provision was not allocated at any asset specific. This is just a provision without any specific allocation in any assets of the company. Leonardo Rosa: Thank you, Thiago. Miguel, a section about demand. We have questions about Ricardo Monegaglia, Safra; Raj Kanjani from JPMorgan, Lucas Laghi from XP and Matheus Moreira with Bradesco BBI. So we put the questions together, and this is what we have. We noticed that the domestic market was weaker than the steel, flat steel prices, Usiminas increased 2%, as Brazil presented a 4% growth. Was there any change in the commercial strategy or any rationality from the competitors? The planned demand was dropped and the industry dropped -- falling quarter-over-quarter and year-over-year, is there a deacceleration? And as for 2026, what do you expect? And what factors presented the worst scenarios? Miguel Angel Camejo: Thank you, Leo. Thank you, everyone. Let's make a comparison of the internal volumes and as Brazil's reports. We can -- it's important to say that short-term comparisons can lead to bad wrong occlusions. Because in short terms, you have -- we see, as case for Usiminas, we are focused on maintaining our leadership, and we are going to strengthen our leadership in added value, both in products as in -- as to value. And that are different sectors in the industry, and we take part in the commercial sector as well with automakers. And we also have to consider the civil construction and we take part in this less than other steel companies, and that can result in different movement of sales when compared to the previous quarter. As for the highlight of the quarter, we can see that there was a 10% increase, and we are likely to maintaining this recovery. But it's important to mention that the automaker sector is the only sector that still hasn't recovered the values prepandemic period. So it's important to maintain this movement, but the automaker is the only one which is still below the value of 2019. The industrial sector, we can mention the machinery for agriculture and the agriculture sector were at very low levels compared to the previous periods, but the quarter was very good and the road machinery had important improvements. And these are sectors that we can mention that they have had a performance lower than expectation. Another one is the sector of renewable energy. And there are other sectors that we have to consider. And the other sectors are performing according to the indicators of the economy. Of course, on the one hand, we have a negative impact on consumption. And client of Usiminas are being impacted by the imports of manufactured product as we saw from ANFAVEA data. But this strong pressure is also being felt by what comes from the imports. But the government has to incentivize policies that can help this area. For 2026, we can -- there is an estimate that apparent consumption will increase by 1% in -- for the Brazilian market. Of course, potential additional low levels of the interest rates and some aspects of the economy could improve the situation, but we are going to continue monitoring the interest rates and the consumption capacity in addition to industrial policy that can come from the public area. I don't know if I missed anything, Leo. Did I forget any question? Leonardo Rosa: No, I think you addressed all of them. There is another one, which are the sectors that had a lower performance? Miguel Angel Camejo: Well, I would say that sectors that were impacted in the period was renewable energies. That are -- have some important projects that have come to a stop, and they were projects that were very important in the previous year. Leonardo Rosa: Miguel, about demand in the international market, Raj Kanjani from JPMorgan asks about sales to Argentina. Argentina demand was weaker, so can we go to the levels of the second quarter? Is this what we can expect for the fourth quarter and what we can expect from Argentina and from the external market? Miguel Angel Camejo: What happened in the third quarter is that we were delivering the projects of oil and gas, and they were very strong in the second quarter. The sector of oil and gas continue to be striving and that could improve the mix and sales in the fourth quarter, especially for new projects of oil and gas in Argentina. The automotive sector continues to present positive results. And we expect to continue this trend up to the end of the year. So we could observe a better mix of sales, especially driven by the deliveries of oil and gas projects. Leonardo Rosa: Thank you, Miguel. Thiago, we have a question about cash flow Ricardo Monegaglia with Safra asks the following. What's the perspective of cash flow for the fourth quarter of 2025, considering that working capital is stronger, CapEx is weaker in the third quarter? Yes, Thiago? Thiago Rodrigues: Ricardo, the expectation for the fourth quarter is still of having some free up in the working capital. We are likely to have a normal variation in the inventory levels, but the reduction in receivables accounts because of the volumes of sales that usually happen in the fourth quarter, typically. So as for working capital, we are likely to see a good generation, positive generation and with stable results and with the CapEx that should be between BRL 400 million and BRL 500 million in the quarter for us to reach our guidance. We are still likely to see a positive working capital for cash generation. We have some questions about cost outlook that we provided in our results release. These are questions from Ricardo Monegaglia, Igor Guedes with Genial, Gabriel Barra with Citi. We put the questions together, and this is what we have. We expected the best outlook in costs. What were the variables considered? The international reference price of coal and ore reduced, but the COGS reduced. Following the same logic, should those commodities increase the COGS for the fourth quarter of 2025. And lastly, if the magnitude of COGS of the fourth quarter of 2025 would be the same magnitude that we see dropping in the previous quarter. To reinforce what we have already mentioned, we have confidence there will be another cost reduction for the fourth quarter, both in the raw material as for the gains in efficiency that we have been observing continuously at a gradual level. So we have been observing this in our operations. It's always important to clarify that the market indicators of coal, ore, et cetera, are good indicators of what's going to happen to our costs. However, they have a little bit different dynamics. They have different turnovers. So they would impact our COGS at different moments. The ore has a quicker turnover. So we see the impact in prices, impact in COGS. And this does not happen to the coal at present, considering that we purchased a relevant volume of coke in the market. So the Coke index is more relevant than the coal. So the -- it takes longer to reach the COGS and to make things even more complicated, we have different types of cokes, which are used in production at different times. So market indicator would be a good reference. However, obviously, since we know what we have in our inventories and what's being used in the production, we can have a clearer view of what's going to happen to the COGS. So again, there's an expectation of cost reduction in the next quarter in relation to the magnitude, if it's going to be similar as to the reduction that we saw in this quarter, which was 3%. It's hard to say. I would say that it will be something lower than that, but still that will depend on what's about to happen along the quarter. Leonardo Rosa: Thiago, now the question is about mining costs. Yuri Pereira with Santander and Matheus Moreira with Bradesco, they ask the following. Could you provide us more details about the high costs in mining unit? Do you have an outlook for this line for the fourth quarter? Basically, this is the question. Thiago Rodrigues: Okay. The increase in the mining cost came as a result of the international freight costs. So the sales that we make in the mining unit with the freight already included in the cost would impact the amount and the revenue. But with the increase in the tariff, we noticed this increase in the COGS. There was also a one-off increase in the material handling service, this is not likely to happen, but we see that there's a high tariff of an international freight. So this is likely to repeat in the next quarter. And that would lead us to a cost at the same level or at a similar level than what we saw in the third quarter when we compare the 2 quarters for MUSA -- at MUSA. Leonardo Rosa: We still have 3 questions. We're moving towards the end of our call. The first one is about -- to Marcelo, Yuri Pereira asked about mining, our Friable reserves. What's the strategy to maintain the feed of the furnaces? Does it make sense that we are going to purchase from the local market. Yes, Marcelo? Marcelo Chara: In the past 2 years, as we have been mentioning. Our main focus has been in the development of the operational excellence in all segments where we operate at Usiminas. So we integrated MUSA with steel production and optimizing the activities. So we have this reserve of Friable that we didn't used to have in the past. So we are making some mixes in order to expand this. So we have been able to develop alternatives at MUSA that would allow us to extend the life of the Friable items. And we have also been evaluating options that would allow us to use the sintering machines that we have in Ipatinga and we have incorporated a higher content of fines that would make us able to use or to use the reserves that we have. I would say that we are optimistic when we think about optimizing this. And depending on the definitions that we define in the compact projects, we are going to have synergies that would make allow us -- that will allow us to use those reserves so that we can use for the feeding of the furnaces. I would say that we have a good planning going on. We have good perspectives for the next years -- in relation to the supply of ore. Leonardo Rosa: Thank you, Marcelo. Now we have a question about working capital with -- from Igor Guedes, Genial; [indiscernible] the driver of cash generation was the working capital. Is there a space for further reductions? Igor asked the following the level of working capital was higher than we expected. So there was a reduction in the forfeit and the accounts payable. Is it possible to see the current level of current payables? Was it a negotiation so that we could extend the supplier deadlines with the suppliers? Thiago Rodrigues: The first question I think I have already answered. So in relation to the inventory levels, so the turnover of the inventories are normalized. So what we are likely to see in the future are regular variations. And although, obviously, it's going to depend on the production level at which we are operating. We expect to reduce the accounting receivables for the next quarter. In relation to the second quarter, second question, I don't know if I understood well. But usually, when you have a strong reduction in the inventory levels, this also means a reduction of the suppliers since you already acquire fewer raw materials. So this is a natural effect. We had a reduction of about BRL 1.1 billion in the inventory account. And we had a reduction in the suppliers' accounts. And the match was about BRL 500 million, if I'm not mistaken. This is just a natural movement. There was no -- different negotiation going on. If we had negotiated extended deadline, we wouldn't have the reduction in the supplier account, but it would increase. There was no regular impact -- a big impact in the negotiation with the suppliers. This was a natural impact since we reduced the inventory levels. Leonardo Rosa: Thank you, Thiago. So let's move on to our last section, which are some questions about the operation. They come from Gabriel Barra; Marcio Farid, Goldman Sachs; Marcelo Arazi of BTG. Marcelo, people asked the following. Could you make some comments about the status of the new PCI plant? What are the expectations in terms of cost improvement coming from this project? How the blast furnace 3 has been running? Is there a space for improvement? And we expect a stable EBITDA considering the efforts that the company has been making. So what has the company been making along those lines? Marcelo Chara: I will start with the first question. The investments are according to the plan. In the beginning of 2026, we are going to start the operating tasks. In the first half of the year, we are going to be in the right regimen. And then we are going to improve the efficiency of fuels and reducing the coke fuel use. And there is going to be a significant improvement in costs in addition to reducing the emissions of GHG. In general lines and making a summary of the questions asked, it's important to mention that we have been developing along the 2 years, important projects to complement the $600 million that we have invested in the blast furnaces in such a way that the lines that feed the blast furnaces have been receiving important reinforcement in terms of OpEx and important works to -- of improvement making it possible to change the metal grade of the furnaces and we have been reducing the load of costs, and we have already been capitalizing those effects. And we are making a lot of effort on this focus, especially on the environmental areas so that we can reduce the particle emissions and reducing by more than 90% of all those events, whenever we had any potential for reduction. Another aspect, which is very important is the coal and coke mix. And this is directly connected to the working capital. We developed a special team to control our inventories and all the supply system, and we have been able to simplify the number of suppliers as well as the quality of those suppliers, and we made a valuation and we made the reduction of the inventories. And we also improved the operational performance of the use of this raw material. Another important topic is related to the battery, which is being advancing according to the plan. And we have good expectations about this plan. Since we have reconfigured and we have been noticing an improvement in the execution of the project, since we have an expertise in execution that allow us to execute this plan in a more efficient way. And together, we have another project complementary, which is the Gasometer that will also improve the process. We have also made imported OpEx and CapEx investments to promote improvement in the utilities of the company. And we have reduced the natural gas consumption. We have been making other improvements in the utilities to make the proper monitoring of the costs. As we mentioned, as we mentioned previously, in all the previous calls, of the previous quarters, this is a process that has already been installed at Usiminas, and it's been successful. We have a strongly focused and engaged team. Antonio one of our main shareholders has been helping us so much in those areas. And thanks to this, we are confident that this improvement process will continue. And this will continue at a systemic level. All the changes are going to be sustainable and progressive. Leonardo Rosa: Thank you, Marcelo. So we ended our Q&A session. We would like to thank you so much for your participation. We would like to remind you that if you have any questions, our IR team is available to take any questions you might have. Thank you very much. Have a nice day, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Judy Tan: Good morning, everyone. My name is Judy, the Head of Investor Relations for Frasers Centrepoint Trust. Welcome to FCT's Second Half and Full Year Financial Results for the Financial Year 2025. With me today, we have got our senior management team, Mr. Richard Ng, our CEO; Ms. Annie Khung, our CFO; and Ms. Pauline Lim, the Managing Director for Investment and Asset Management. Without further ado, I'll pass it on to Richard to kick off today's briefing. Richard Ng: Thanks, Judy, and a very good morning to all of you. Thanks for joining us in this call. Okay. Just to start off with, maybe we can give all of you a quick recap of what happened for the full year financial FY '25. Of course, one of the key aspects is the acquisition of Northpoint City South Wing, which we announced in March of this year. And coupled with the divestment of Y10, that kind of helped us again to proactively reconstitute our portfolio. As we have shared before, the idea is for us to grow, but at the same time, to continue to strengthen the portfolio that we have, and we have done exactly that, right? As part of that acquisition, we also did EFR fundraising. We raised about over $420 million. It was a very successful EFR. And at the same time, we raised another $200 million via the perpetual securities. Financial position, very healthy at 39.6%, and cost of debt has come down on a quarter-on-quarter basis. For this quarter, it's at 3.5%. And later on, we'll talk a little bit more about cost of fund and also our refinancing plan. The operating performance continued to be very strong as demonstrated in the positive rental reversion, shopper traffic and also tenant sales. Hougang Mall AEI Is ongoing, and it's actually on track in terms of timing, in terms of cost. And happy to say that over 80% of the entire AEI spaces has already been pre-committed. Next slide, please. Okay. So again, very high-level numbers. DPU came in at $0.12113. That is 0.6% higher compared to full year FY '24 at $0.12042. Our aggregate leverage is below 40% at 39.6%. Cost of debt overall for the full year is at 3.8%. And if you compare that to FY '24 of 4.1%, so you have seen a downward trajectory for overall cost of debt. Net asset value came in at $2.23 compared to $2.29, a slight drop from FY '24. Okay. Operating highlights. Just wanted to stress a little bit in terms of the committed occupancy. Overall, the asset is again performing very well in terms of occupancy, but you could see on the slide there or the chart there shows a 1.8% gap, and that is partly contributed by the 2 -- or it's contributed by the 2 spaces that we have taken back from Cathay. That accounts to the 1.8% that you are seeing there. Otherwise, occupancy rate would have been at 99.9% again. Shopper traffic and tenant sales, you can see the next chart. Shopper traffic has gone up for the full year, year-on-year at 1.6%. And tenant sales, we grew by 3.7%. Again, quite a strong sales that is -- strong performance from our retailers as well. Rental reversion came in pretty strong at 7.8% versus 7.7% that you saw in FY '24. And as I mentioned just now, Hougang AEI is very much on track to complete by September 2026. Targeting an ROI of 7% based on $51 million CapEx, we are still again on track to achieve that. More than 80% of the spaces has already been pre-committed, as I indicated upfront just now. A little bit on the big picture, general macroeconomics. The advance estimates for Singapore economy came in at 2.9%. Of course, if you compare to the 4.5% in previous quarter, you could see a drop in that. But actually, the numbers came in higher than the market estimates. So actually, it's a positive note. What is also interesting is the inflation continuing to ease, down to 0.5% year-on-year in August. Again, this is helpful for us because easing of inflation is also helpful in terms of the cost perspective for our operation as well as also for our retailers. Overall market for retail sales seems to have kind of rebounded even from the overall RSI perspective. So for August, it's a 4.6% growth year-on-year, pretty strong. And if we take the RSI year-to-date from January to August, because they always release the numbers 1 month later. So we only have up to August. So we can only measure January to August. For RSI, the overall number came in at about 1.2% growth year-on-year. And if we were to take the same period for FCT's portfolio from January to August, our growth is actually at 4%. So we are ahead of the general market performance. Rental (sic) [ retail ] rents continue to track positively. Suburban prime rents grew by 0.5% quarter-on-quarter and 1.7% year-on-year. So this actually kind of bring us to the next slide also looking at the supply side of things. So overall, again, very limited stock that's coming on stream. From now to 2028, we are looking at about 1.2 million square feet of total spaces that's coming up. But if you just focus strictly on suburban, we are looking at about slightly over 340,000 square feet of space. And even for that matter, it's not looking at any significant mall. For example, you have Lentor Modern Mall coming up next year, 90,000 square feet; another one, Parc Point Neighbourhood Centre in Tengah, it's about 75,000 square feet. So there are pockets of neighborhood malls coming up. So nothing significant on this list at this point in time. Next slide, please. So this is the overall picture. Very limited supply, strong occupancy, and that's the reason why for CBRE in their forecast of rental trajectory is still on an upward trend or whether it be suburban or Orchard Road and of course, on an island-wide perspective. The next segment is going to -- we are going to go into the financial highlights. I'll hand over to Annie. Annie, please. Shyang Lee Khung: Thank you, Richard. Good morning, everyone. Let me take you through the financial highlights. Gross revenue for the second half is 14.3% as compared to corresponding period last year. This is mainly because of the Northpoint City South Wing acquisition, completion of the AEI at Tampines 1, partially offset by the Hougang AEI, which commenced in April 2025. If you exclude the effect of these 3 malls, gross revenue is about 2.1% higher, mainly due to the higher occupancy and a higher rent across all malls -- most malls. Property expenses for the second half is about 20.1% higher compared to same period last year. Excluding the 3 malls, property expenses is about 5.1% higher due to the higher property tax. The second half, the NPI is about 12% higher compared to last -- same period last year. If you exclude the effect of the 3 malls, it is about 1% higher, okay? Distribution from investment is 3.5% higher mainly because of the better performance from Waterway Point and NEX. DPU for the second half is 0.6% at $0.06059. Next slide, please. On a full year basis, the gross revenue is also higher mainly because of the same reason as previous slides. If you exclude the effect of the 3 malls, gross revenue is about 2.4% higher, mainly because of the higher pricing rent across most malls. Property expenses is about 13.5% higher compared to last year. If you exclude the effect of the 3 malls, it is about 4.7% due to the higher property tax, marketing as well as the higher net allowance of doubtful debt. NPI is about 9.7% higher than last year, and it's about 1.6% higher if you exclude the effect of the 3 malls. We recorded a higher distribution from investment by 37.1%, mainly due to the full year contribution from NEX, which was completed in March 2024 as well as some inclusion of the one-off distribution from JV during the year. With the 2 half DPU of $0.06059, it brings us a total of $0.12113, which is 0.6% higher than last year. Next slide, please. The higher balance in the total assets and liabilities as at 30th September 2025 is mainly because of the inclusion of the Northpoint City South Wing. Net asset value is lower at $0.0223, mainly because of the enlarged unit base following the equity fundraising during the year as well as the effects of the mark-to-market recognizing the derivative financial instruments. Next slide, please. Okay. As briefly mentioned by Richard, as at 30th September 2025, aggregate leverage is 39.6%, which is 3.2 percentage points lower than last quarter. This is mainly due to the repayment of loans from the proceeds from the issuance of the [ perps ] as well as the divestment proceeds from the Yishun 10 in the last quarter. The interest coverage ratio is healthy at 3.46x. And average cost of debt for full year is at 3.8%, but on a quarter basis, it has dropped to 3.5%. Average debt maturity stood at about 3.16 years. And the hedge ratio for the -- as at year-end is higher compared to last quarter at 83.4% due to the repayment of variable borrowings during the quarter. Credit rating remained unchanged at Baa2 stable from Moody's. Next slide, please. Okay. For the capital management front, we have diversified sources of funding where we issued a 7-year $80 million bond as well as the $200 million perpetual securities during the year. For the debt that is maturing in FY 2026, borrowings is in Q2 2026, and we are in the advanced stage of refinancing of these loans. Next slide, please. Aggregate appraised value for the total portfolio, including the 50% of NEX and Waterway Point increased by 16.8% as driven by the acquisition of Northpoint City South Wing as well as stronger performance. The cap rates adopted by the valuers remain unchanged as compared to last financial year, which is in the range of 3.75% to 4.75%. Next slide, please. DPU of $0.05963 will be paid on the 28th November 2025, and this is for the distribution period from 4th April to 30th September 2025. Yes. I will now hand over to Pauline for portfolio highlights. Thank you. Pauline Lim: Thank you, Annie. Good morning, everyone. I will just do a deep dive into the various performance metrics that Richard touched on earlier. So in terms of committed occupancy, the portfolio stands at 98.1%. It would have been 99.9%, if not for the re-entry of the 2 cinemas at Century Square and Causeway Point, right? And if we actually take into consideration the cinema space, the 2 assets, Causeway Point and Century Square, would actually be reporting at 100% occupancy as well. And we are in advanced negotiations and planning for the repurposing of this space, right, okay? And I think one of the observations is for the cinema space, because of the lower-than-average rent, it does give us certain opportunities to reposition the mall better. Next slide, please. All right. In terms of NPI, I think one of the key observations is that the NPI actually generally increased or improved on a year-on-year basis for all the assets. And that's with the exception of Century Square and Causeway Point, which maintained largely neutral compared to last year. And that's notwithstanding the fact that we had that vacancy as well as the arrears from the cinema space in these 2 properties. So very strong top line growth across the portfolio. And this is reflective of the strong operating performance in terms of footfall, in terms of sales, which allows us to achieve very good healthy reversion. Okay. Next slide, please. Okay. So now we cover reversions at 7.8%, which is a good reversion for the entire FY '25. I think one of the observations is that this reversion has actually maintained at the strong level over the 2 consecutive years. We do see reversions coming in at this level for FY '24 as well. The other observation is that we have achieved positive rental reversion across all our malls within the portfolio. Next slide, please. Okay. This slide shows the trending of the portfolio occupancy. I think a couple of observations. You will note that the occupancy cost of our portfolio at 16.1% for FY '25 is below the pre-COVID levels. And this is reflective of the fact that sales growth for our portfolio has been strong. And that enables us to maintain the healthy EOC and trading performance of our retailers, notwithstanding the good rental reversion that we have negotiated from our leases. And in a way, this is reflective of the success of our focus on driving footfall as well as sales conversion. Next slide, please. I think Richard touched on this earlier. So on a quarter-on-quarter basis as well as year-on-year basis, we do see the strong growth in the traffic, the footfall coming to our malls as well as the conversion into healthy tenant sales growth as well. Next slide, please. All right. Observations from this slide, we do not see any tall towers going forward over the next 3 years. So as you are aware, our average lease tenor is 3 years. So for the next 3 years, no concentration in terms of lease expiries. So this bodes well in terms of the cash flow from our portfolio. Next slide, please. Yes. Again, coming back to the resilience of our income and valuation. By AUM across the assets within the portfolio, we do not see any significant concentration risk, right? And also at the mall level in terms of the trade mix, there is no concentration or rather that we do see a higher proportion of essential services at 54% GRI. And I think over the course of the past few years, we've seen the resilience from the suburban retail sector, and that is largely due to the fact that it has a large component of essential services, which caters to the daily needs as well as the necessities of the population that we serve. So we see a resilience at both the balance sheet as well as the P&L level. Next slide, please. Okay. In addition to achieving good rents for our portfolio, we are also very cognizant of the sustainability of our retail offering. So there is a focus on refreshing our trade mix to delight and also to keep up with the latest retail trends. On average, we are looking at about 20% refresh rate for leases that comes up. And over the course of FY '25, we have brought 76 new-to-portfolio tenancies. The other observations are that this refresh is actually across all our malls, and it's a variety of trade. So no concentration -- no particular concentration in one particular sector, right? So it's, of course, F&B and the various retail offering. Next slide, please. Okay. For this slide, we wanted to showcase some of the promotions, events and placemaking activities that we had undertaken over the course of this year and in particular, the last quarter. So on the left-hand side, you see some of the promotions as well as the activities during -- for SG60 during the National Day celebration. And a large part of our focus is to actually work hand-in-hand with our retailers to magnify the outreach to our shoppers, right? And we are positioning our malls given its strategic location within the heart of the heartlands as the social hub within that particular catchment. And this is to build that loyalty and sense of place with our shoppers. Next slide, please. Okay. Update on Hougang Mall AEI. I'm very pleased to update that the progress of the AEI has been good in terms of timing, in terms of meeting the financial underwriting. So like what Richard mentioned earlier, 80% of the overall AEI spaces have been pre-committed to date. And if we look at Phase 1, which has just TOP and spaces are being handled over to the new tenants, we've achieved a pre-commitment level of close to 100%. So in terms of downtime, that has been mitigated. And also the focus on refresh is seen in the new-to-Hougang concepts that we have actually brought into. So out of the pre-commitment, we have brought in about -- this 40% represents about 30 new-to-Hougang concepts that we are bringing to HM post AEI, okay? And the other focus for the AEI would be refreshing some of the amenities. The mall is new. So part of updating the retail experience will also be refreshing some of the key touch points like the lobbies as well as the restroom. Okay. Next slide, please. So with this, I will hand over to Judy to take us through the ESG. Judy Tan: Yes. Thanks, Pauline. On the ESG front, we are pleased to share that in recognition of FCT's progress towards sustainability, we have been recognized as the Regional Sector Leader (Listed) in the Asia, Retail category in the 2025 GRESB Assessment, right? And this is also the fifth year in which we have attained a 5-star rating, and we have also increased our score from 91 to 93, okay. This slide showcases 2 of the initiatives that we have implemented actually in FY '24, both first of its kind, including the Singapore's largest single solarization for retail malls. And right now, we have got this program implemented across 8 malls, producing over 1,400 megawatt per hour of renewable energy, translating to, of course, savings as well as carbon emission reductions for us. And of course, on the Singapore's first-of-its-kind food valorization program as well, we have actually reduced about over 258,000 kg of food waste reduced. So all initiatives that contributes towards carbon emissions reduction. On the community engagement front, of course, Frasers Property is all about inspiring experiences and creating places for good. And this slide basically just shows my read of all the different activities, placemaking initiatives that we had during the year to engage and reach and excite our shoppers as well as the communities. And in particular, for the SG60 community campaign, we actually donated a total of $200,000, working hand-in-hand with our shoppers as well as tenants. We also wanted to highlight this initiative that we had where we actually ran a dive into sustainability campaign in our malls to actually encourage shoppers to come forth, donate their bottles, their used bottles. And we actually rewarded shoppers $2 FRx gift vouchers for every 5 bottles recycled. And during this period, not only did we do good, we also saw an increased traffic to our malls by over 20%, right? So for this initiative, that actually got the Frasers Property Singapore to be recognized as a Runner-Up by the Singapore Retailers Association Retail Awards under the Green Initiative Award of the Year. Next up, I will hand it over to Richard to give his concluding remarks, looking forward. Richard Ng: All right. Thanks, Judy. Next slide. Yes. Okay. So again, we have shared with you the set of results and how do we get there? Of course, from the perspective of our portfolio itself, both organically, AEI and also in terms of acquisition, we have done a lot of good work this year, and that, by itself, actually helps in giving us a boost in terms of our overall performance and also the DPU. The market has continued to be very strong, very resilient because of tight supply and at the same time, strong demand. And this is something that we continue to see, and we believe that the positive trajectory will carry us through to the FY '26 as well. We spent a lot of time sharing about placemaking, ESG and so on. And this is fundamental for us because our malls are located in strong catchment area with a very strong community feel, right? So we want to make sure that this is a place where we can continue to drive traffic, bring in more people, more shoppers into our malls. And ultimately, this will then help to result in a better sales performance for retailers and by itself will then give us a better performance for our overall portfolio, right? With that, I'll end my presentation and happy to take questions from you guys. Thanks. Back to you, Judy. Judy Tan: Thanks, Richard. Okay. Right now, we'll go on to question and answers. And then, of course, we've got a couple of analysts already raising up their hands. First up, can I invite Yew Kiang from CLSA to unmute himself and post his questions, please? Yew Kiang Wong: Can you hear me? Judy Tan: Yes. Yew Kiang Wong: Richard, can you share the tenant sales for this FY and this quarter for Causeway Point and Northpoint? Richard Ng: For Causeway Point and Northpoint specifically, okay, I will not be able to give you specific, but what I can share with you is perhaps I'm not sure, but maybe you're alluding to the impact and so on of people going to JV. But what we have seen is over the last -- from 2019 to now, both malls have actually -- in terms of sales has delivered more than double digit, right? For Causeway Point, I'm looking at slightly over the middle double digit, more than 10%. For Northpoint City, it's more than 20% from 2019 to this period. And if you look at the annual growth rate, it's about 3% to 4%. Yew Kiang Wong: Okay. So the double digit is over that since COVID, is it from 2019? Richard Ng: Yes, from 2019 to now, right? Yes, so despite -- there's a lot of talks about people -- more people shopping in JV, et cetera, but what we have observed at our most modern malls, they -- the sales continue to improve, right, between 3% to 4% annually. Yew Kiang Wong: Okay. Okay. And then any plans on Central Plaza? Richard Ng: Okay. Central Plaza is something that we have been talking about for a very long time. A couple of reasons, right? One reason is, firstly, it's an integrated development part of Tiong Bahru, right? It actually fits into Tiong Bahru very nicely, providing access for the people in the office to support the retail. And we get to control the type of tenants that comes into the office as well. That's one key aspect of having it as an integrated development. Secondly, we also recognize that there are still some potential for us to look at decanting some space, better utilization of space, right? So there's still some GFA that we probably could harness as part of an integrated development. Once you sell it off, you will lose some of this. Thirdly is, again, the management of the entire asset is important for us. If you do look at selling out Central Plaza, you lose control of the carpark because that is actually, again, a MCST -- it becomes an MCST asset, right? So certain component, we feel it's important for us to put it together as an asset -- an ongoing asset performance. On the other hand, we also recognize that Central Plaza is an office building, not really our core asset. But if you look at the asset itself, it's performing well, but we still feel that there's opportunity for us to continue to push the performance a little bit better, right? So we look -- we will always be looking at the possibilities of what do we do with the asset. But as of now, I would say that there's still room for us to further improve the performance, both in terms of occupancy and in terms of the rent. Yew Kiang Wong: Can you sell this to the sponsor and then technically, it's still under the family. So MCST issues and all, so we're more stricter then. Richard Ng: I can't speak for the sponsor whether this is an asset that they will consider. But we are always open. We are always exploring possibilities, alternatives, use and so on. But as of this time, we don't see this as something that is right on top of our agenda. Yew Kiang Wong: Okay. Last question. FY '26, what's your focus going to be? Richard Ng: Focus, of course, we acquired South Wing, right? We also mentioned there are certain things we want to do at South Wing. We want to improve the performance organically while we continue to look out for some AEI opportunities. So that's one, right, because we acquired this asset this year, we want to make sure that it delivers what we have set out to do. Secondly, there's actually a lot of opportunities in terms of AEI. One is the big one is NEX that's coming up. We have obtained the written permission. So we are still targeting our June, July commencement of AEI. That's a big one, right? It's talking about massive 50,000 type of square NLA square footage. That will take us for 2 years. The other one is, of course, focusing on repurposing or backfilling the cinema space as soon as we can, if possible. If not, then we look at the best alternative use for that space, and there could be some level of AEI required in order for us to repurpose the space. Yew Kiang Wong: So fair to say for FY '26, you are focusing on organic improvement operational rather than M&A? Richard Ng: Acquisition M&A is always opportunistic, right? It's something that we can't control what comes out to the market, what's available in the market. And even if whatever that's available in the market, whether it fits our portfolio structure, the type of assets that we want, whether the pricing is something that we can afford, right? But what we can always focus is something controllable, and those are the controllable aspects. Pauline Lim: Richard, can I supplement your response to Yew Kiang's first question in terms of sales growth. So Yew Kiang, if I may refer you to the circular or the presentation that was done for the acquisition of South Wing. So we did have a slide that actually shows the growth in the retail sales, the retail sales index of South Wing versus some of our dominant malls, which includes Waterway Point as well as Causeway Point. From there, you see that the growth trajectory, right, since 2019 to 2024 has been very strong, right? And 2024 can be taken as a reference point, right? I think Malaysia -- Singaporeans have been going through across the border all this time, right, and when the exchange rate was very favorable and so forth. So that's one point. I'll be happy to send you that slide for your reference, right? Yew Kiang Wong: Okay. I'll look for it. If I can't find, get Judy. Pauline Lim: Sure, sure. I think the other point is also if you look at the performance metrics, right, of Causeway Point and Northpoint City in terms of occupancy and all that, that has been -- that's at 100%, right? So in a way, it ties back to the sales performance. I think retailers would not be renewing or so keen to take up space if they are not trading at a healthy level. So I'll leave these thoughts with you. Judy Tan: Next up, we've got Geraldine from DBS. Geraldine Wong: Maybe just following on to Yew Kiang's question, strategy for 2026 is organic. But if the right asset comes along in the market that you like and thinking about how your share price has done really well to trade 10% above book, would you then want to be a bit more aggressive in taking on an acquisition at this point in time or still too early? Richard Ng: Okay. Geraldine, I think, again, going back to acquisition, there are many components to consider when we look at a specific acquisition. Of course, firstly, it's opportunistic, right, if there's opportunity available in the market. And then we have to evaluate the asset, whether we think that the asset is something that can improve the portfolio further. We look at the bottom line, whether there's opportunity to further improve the performance of the asset or if the asset has really been significantly optimized. And definitely, in terms of the pricing, I mean, we do note that there are instances where a seller bids very aggressively, right? I mean if you look back, for example, at Seletar Mall, nobody really knew what's the final price because it's not publicly available. Of course, you hear in the market and so on. But if those numbers were true, it was very, very aggressive, something that I think would be very difficult for ourselves to be part of it because we believe if we buy something, I mean, there must be value. It may not be immediate, but at least, over time, the performance of the mall must be commensurate with the pricing that we go into. So those are all the considerations. So there isn't a short answer to it and say, yes, we will do it or no, we wouldn't do it. But if all those factors, having taken into consideration, are favorable to what we have today and something that we believe is going to be positive for our shareholders, of course, we will be interested to look at it. Geraldine Wong: Okay. Everyone is taking a look at the current mall. Maybe a second question, if I may. The AEI opportunities at Northpoint as well as NEX, the increased NLA, so if you are thinking about ROI margins, are they going to be much meatier than the 7% that you have at Hougang Mall? Richard Ng: I think typically, we try to at least target that range, 7% to 8%. When it's meatier, it also comes with a meatier cost as well, right? So it's a balance about both. And when we upgrade the malls, we take the opportunity to also improve a certain component of the mall as well, right? So for NEX, it's a very big AEI. Not only we see it as an opportunity for us to improve the performance on a near term, but whatever that we are doing, we believe is going to be good for us on a longer term as well, improving circulation, making space available -- bigger space available for us to do other activities in the mall, et cetera. So by and large, we will still look around the between 7% to 8% kind of return. Geraldine Wong: Okay. Maybe just squeezing in a very quick last one. In terms of occupancy cost for Causeway Point, Northpoint City, our portfolio average is at 16%. But for these 2 malls, are we above at or lower than the portfolio average? Richard Ng: Okay. If I can remember, Causeway Point is below. I think Northpoint City is also below, if I remember correctly, but definitely not higher than what we have on the average. Geraldine Wong: Okay. So a very good place to do business. I hope the market dynamics will run its course. Judy Tan: Next up, we've got Terence from JPMorgan. M. Khi: Richard, congrats on the good set of numbers. I just wanted to ask on Cathay. I understand that on a year-on-year basis, actually, the NPI has been quite flattish for the 2 malls impacted by Cathay, Causeway Point and Century Square. But on sort of looking at the second half, we saw maybe like a 2% drop versus second half last year. So can I just get understanding that Cathay was not contributing to NPI in second half? Or was it only -- or was it for the full FY '25? Richard Ng: Okay. Cathay's contribution, I would say, kind of pretty much reduced significantly as we progressed through the year, right? When the first round when we came out with the -- serving the notice, et cetera, right, this is -- that's when they really stopped paying the base rent, but they were still paying some contribution. But that kind of slowed down and trickled down significantly. So by and large, I would say the contribution, it's very minimal, if any, towards the second half. And you're right, the drop that you saw is mainly contributed by Cathay. M. Khi: Okay. That's actually very -- that's a very good number to start with for second half NPI. I think it's not a very significant drop. I think it's -- most of the other malls will be able to carry it. Also asking about Cathay, I wanted to understand what are you looking at? Are you trying to bring in another cinema tenant? Or are you trying to repurpose for other users? Could you give us a sense? Richard Ng: Okay. I would say that we are currently exploring various options. If there are operators today that are prepared to consider the space and they can come in and operate very fast, that's one alternative that we could consider. But at the same time, that if we feel that certain -- okay, there are 2 spaces we are looking at, right? If the spaces presents a very strong opportunity for us to kind of repurpose the space and then can bring in a strong tenant, a strong anchor tenant to kind of anchor that space and that gives us a longer runway in terms of sustainability of the traffic, the mall and so on, then that's another consideration. So I would say, at this point in time, we are actually very excited with a few options that we have on hand. Some of them, because of the repurposing requirement, will take a bit longer because you need to engage authorities, et cetera, and so on. And we should be able to come back and give some sensing definitely by the first quarter in terms of the direction we are heading. And if, let's say, there's any opportunity to probably replace with an existing tenant on a one-on-one basis or that somebody can kick in faster, that will be even better for 1 or 2 of the space. M. Khi: Okay. That's great. Also, I noticed or I understand that there was a one-off distribution from JV this year, FY. Could you share on the amount of the one-off? Richard Ng: JV, I would hand over to Annie to give a little bit more color on that. Shyang Lee Khung: Yes. Terence, yes, the one-off distribution is from NEX is due to the excess cash at the entity level, which we assess that is no longer required and it is distributed as a dividend. M. Khi: And can you share the value? How much? And this came into DPU, right? Shyang Lee Khung: Yes, it's about $9 million, the one-off distribution. M. Khi: $9 million. And was that in second half or in first half? Shyang Lee Khung: Yes. I think most of it is in the first half. Some came in the second half. M. Khi: Okay. That's great. And maybe a final question for me, 3.5% fourth quarter funding costs, what's the expectation for next year, FY '26? Shyang Lee Khung: Yes. At the current rate level, we are looking at about 3.3%, 3.4% for the next year. Judy Tan: Next up, we've got Rachel from Macquarie. Lih Rui Tan: Can you all hear me? Richard Ng: Yes, Rachel. Lih Rui Tan: Congrats on this good set of results. Maybe just firstly, in terms of reversions, I saw that actually second half probably moderated a little bit. So if you could guide us what you're looking at on reversions for next year? Richard Ng: Okay. We did share that this number, again, is a very strong number that you could see. And first half was stronger compared to second half, partly due to the constituent of the leases up for renewal, right? Sometimes when you have more specialty, for example, that leases comes up in the quarter itself, probably the reversion could be a little bit more aggressive because smaller spaces and so on. So it's a combination of the profile of the expiry that we have between first half and second half. So going forward, and this is something that we shared before, we believe that going forward, on a more sustainable basis, we are probably looking at about mid-single-digit positive rental reversion. Lih Rui Tan: Okay. And can I just ask on -- in terms of the tenant sales, I think it's been very strong in the fourth quarter. But is there any impact from the Tampines Mall being included? If we were to still exclude Tampines, what kind of tenant sales will we be looking at? And what's your opinion? I know this year, we have a lot of government vouchers, but if government vouchers was to taper off, what's your view on tenant sales moving forward? Richard Ng: Okay. I -- first and foremost, I think definitely, Tampines 1 has also helped to contribute towards the strong sales that you saw. But even if we strip out Tampines 1, the sales were still positive for the rest of the portfolio. You're right, to some extent, this year, we had a lot of goodies, a lot of handouts, SG60, CDCs and so on. And we believe that even come, I believe, end of the year or January, there's another tranche right, CDC voucher that's not been distributed. And probably some of these so-called handouts or incentive goodies may last a little bit longer because I don't think it's easy for them to just wean off or cut off immediately. They probably have to wean off over time. But fundamentally, I think what's important, Rachel, is also looking at the big picture, right? So those one-offs and others, yes, you get it, it's fine. It's a bonus. But what's more important is the underlying macro perspective. What we are seeing is, firstly, it's increased population base, right? So -- and that actually is a fundamental, right? You have bigger numbers and also the income level of our people are growing, right? And this is largely supported by, again, your -- what do you call that, Judy, the progressive wage model. Judy Tan: Progressive wage model, yes. Richard Ng: Progressive wage model. So that, to me, is actually more significant and more sustainable, right? Because if you look at how the progressive wage model works is, there is a kind of minimum starting point and there is a fixed growth for the different sector of worker, right, that you see, whether it be cleaning, security, retail worker, F&B operators, landscaping, M&E engineers for the lift and escalators. So -- but if you just take an example, right, you just take an example of a general cleaner, from 2023 to 2029, the same person will likely almost double the salary, right, for this period itself. So to us, this is actually a very important aspect that is going to kind of underpin the growth that we expect from our suburban malls because, by and large, most of this progressive wage are targeted at the mass market, and that's the market that we are serving. So while we get the one-off, the goodies, that's good. It's helpful. But I believe the growth in population and also the growth in this ability to spend, that will again be the one that underpins the performance of our malls. Lih Rui Tan: Okay. And my next question really is on Isetan. I think we saw that they are exiting Tampines Mall. Could you give us -- remind us again when is the Isetan lease expiring in NEX? And has negotiations been going on? Are they talking about exiting or downsizing? Richard Ng: Yes. So for this, maybe I would ask Pauline to share some color. Pauline Lim: Rachel, I think because of some privy details, I cannot say much, right? But what I can say is we do have plans for this space, and it's positive plans. And you are aware that we are doing the AEI, right, for NEX as well. Lih Rui Tan: Even the lease, when they are expiring, like 1 year or 2 years? Pauline Lim: The lease will be coming up next year, next calendar year, yes. Judy Tan: Next up, we've got Terence from UBS. Terence Lee: Terence from UBS. Just using the closure of Gong Cha as an example, and I'm going to presume for FCT that any bad debt exposure is probably quite low. But more broadly, my question is, have we hit the point of saturation for certain trade categories, be it bubble tea, the coffees or even potentially even some of the Chinese restaurant chains? Richard Ng: Okay. Yes. Okay. The first part of the question, Terence, our actually arrears is very minimal, except -- the exception is cafe for a different reason and perspective. But by and large, we follow pretty strict guideline and processes, whereby if the tenants do not pay up within a certain period, we will actually engage them, send them certain notice and we will repossess the unit within a certain period of time. So that's how we managed to keep our arrears actually on a very thin level. If you look at Gong Cha or many other news that you have seen in the market of closure, people exiting and so on, I think this is part and parcel of F&BC, right? You do get certain products, certain brands that have been here for a while. And Gong Cha, in particular, I -- what I read was more because the brand itself -- I mean, the owner of the brand itself wanted to exit and then potentially come back again at some point in time, but that's news. But in terms of F&B operator, I think you see there are certain brands, certain products, they are probably very trendy at certain point in time, and that set can run out -- run its cost, and then they are no longer here. But then you see another new concept will pop up. And that's the beauty of F&B, right? Something that it's changing because the tastes change, the preference change, and competition is also there, right? So the stronger one, the better ones come in, and then you see those who are not able to keep up or their products are deemed less exciting or maybe in terms of taste and so on is not as good, they will then be the ones that has to review their product or they may exit the market. But then the new ones will come. So be it bubble tea is not new, we used to have -- back then, I used to say that Waterway Point has the most bubble tea operator. We have about 6 operators. But now you reduce to about maybe 3. That's one example. Coffee chains, similarly, you have different types of coffee, different operator, different type of taste that appeals to different shopper, right, a different customer. Again, is it too many? The market will dictate whether there is too many or they still see opportunity to grow new offerings. And that is no different, right? So the long and short of this is that what we see is a lot of movement, a lot of churn, but the demand for F&B space continue to be very strong. And that is from our own perspective as an operator, we see that is, again, a sector that has continued to develop, continued to evolve, but we see very strong demand. Terence Lee: Got it. And just circling back to the question on acquisitions. I mean now that Northpoint City is, I guess, underway, is it then reasonable to expect that FCT will have to start looking overseas to acquire? Richard Ng: Not really. We still have joint ventures partners in 2 assets, right, Waterway Point and NEX. So we'll continue to cultivate the relationship with our partners. And hopefully, at some point in time, they may look at redeploying their capital. They may look at exiting the malls at some point in time. And if you add those 2 together, it's close to $2 billion. So significant size opportunity that's still available for us in mid- to longer term. But what we are focusing a lot is just now they're talking about what do we focus on '26, FY '26, what's the main focus and concentration. There's a lot of areas that we think we can still harness a lot of value we can still create based on our existing portfolio. So there's actually a lot of work for the team on the ground. AEI, it's one big area that we are focusing on. And AEI is one that we believe will continue to, again, give us value. Tampines 1 has been proven to be very successful. Again, for Hougang Mall, Pauline has shared the performance in terms of the leasing commitment, very strong, which we will see contribution once it's fully completed. NEX is going to be the next one to go. And we are now looking at also plans for the other malls in the portfolio. So we are continuing to work on it. So we are actually kept very busy while at the same time, looking out, if there's any opportunity that comes to the market, we'll evaluate it and see if it makes sense. So the long and short of it is, we will stay pretty focused on what we have today. Terence Lee: Got it. And earlier, there was the guidance on where funding costs would trend towards, 3.3% to 3.4%. I just want to understand the thinking behind the fixed hedge profile. Is it a plan to keep it at a relatively high level such that the flow-through is rather, I guess, muted? Why is it this thinking? Richard Ng: Okay. Maybe I'll just give you a color, then Annie can chip in as well. I mean you are seeing a little bit of elevation in terms of hedge portion now at this point in time because when we bought over South Wing -- Northpoint City South Wing, we took over the debt for the asset, right? But we do have a refi coming out in January, February for the FY '26. Once that is done, we will probably review the hedging again and it is likely to come down from this level. Judy Tan: Next up, we've got Derek from DBS. Derek, would you like to unmute yourself. We can't hear you for now. Geraldine Wong: Judy, I think there's a problem with Derek's mic. So maybe I can ask his questions on behalf. So I think first is on tenant sales. If you can give us some color what is lagging? Richard Ng: You mean what trade is lagging, is it? Geraldine Wong: Yes, yes, the trades that are lagging. Richard Ng: Okay. Pretty much most of the sectors are actually performing positively with a few exceptions. Maybe to just give a little bit of color. Department store, I think it's a little bit of a drag. Books and gifts, it's a bit of a drag. Infocom, a little bit. Fashion accessories, it's seasonal. So by and large, I think these are the few sectors that we saw a little bit of a drag. But the rest seems to be pretty positive. Geraldine Wong: Okay. I understand. Yes. Maybe, Richard, the second part, maybe some idea on Metro, what to expect and when is the expiry? Richard Ng: Okay. Metro, again, it's a case of we are evaluating the options. We are working with the tenants to see what are some of the ideas, concepts that they could be able to introduce. I think there's a lot of news articles on the collaboration with Shinsegae and others, retailers in Korea. So we would like to find out what is it that they are able to bring to the market. And specifically, if we continue to work with them, what can they bring to Causeway Point. So it's an ongoing conversation. But at the same time, we also recognize that they take up a significant space. So it's a question it's about having Metro, not having Metro; having Metro, but maybe rightsizing Metro. So those are the possibilities that we are exploring. That's not a finality at this point in time. Geraldine Wong: Okay. Just one quick last one. For your leases expiring in 2026, where will it be and which malls? Richard Ng: It's pretty much cutting across all malls because our leases are on 3 years basis, right? So just now when we shared the lease expiry profile, it's quite evenly spread. So we do have expiry across the whole portfolio. Judy Tan: Next up, can I invite Brandon to unmute himself to ask the questions, please? Brandon Lee: Richard, I just want to ask you on the tenant sales growth, right, if you were to exclude the T1 and all the cinema, everything, what's the net growth for FY '25? Richard Ng: Okay. It's slightly below 2%. Brandon Lee: Slightly below 2%? Richard Ng: Yes. Pauline Lim: So that includes the drag from the cinema because we haven't taken out that. Richard Ng: Yes, yes, yes. When taken out the cinema. Pauline Lim: So probably about 2-ish. Richard Ng: Yes. Okay. Yes. Brandon Lee: So it's 2-ish percent? Richard Ng: Yes. Brandon Lee: Because if you are looking at your forecast on this reversion going to next year, right, and looking at your occupancy cost relatively flat, right, so basically, your outlook on tenant sales growth is quite muted. Is it -- can I sort of get a forecast on that, implied? Richard Ng: No, not really. I think we still continue to expect positive sales coming in from our retailers. But it's a case of, again, depending on the composition of your type of leases that's coming up for expiry. And of course, I would also like to say we typically will build in a little bit of conservatism when we look at the expiry or the reversion for next year, right? So which is why we say it's about mid-single. We have been doing 7.7%, 7.8% for the last 2 years, right? Pauline Lim: So Richard, maybe I'll supplement that point, right? So Brandon, I think we are not relying solely on organic growth, per se, right? There's a lot of proactive tenancy management, if I may say, right? Proactive tenancy management in terms of working with the tenants, existing tenants to drive their sales, right? I spoke about the refresh rate, which means that we are constantly looking at weeding out or changing out some of these weaker performances and bring in the more trendy and more sought-after brands, right? So that is also part of the active management as well. It's not so much just relying on the organic growth of our existing pool of tenants, right? And with the AEI, it gives us that opportunity to actually do more of that refresh, right? So I think we should take all of this into consideration. Brandon Lee: Okay. And just on the revaluation, I realize this second half, we didn't provide the cap rate. So what's the trajectory from FY '24? And also what's the revaluation loss of the $11.1 million due to? Richard Ng: Okay. You're talking about trajectory from FY '24 in terms of the cap rate or... Brandon Lee: Yes. Richard Ng: The cap rate stayed constant. Brandon Lee: Okay. So -- and I think all the malls saw partial [ wither out ], but then you still recognized a loss, right? So what's driving that? Richard Ng: Yes. Okay. Maybe Annie could give a bit of color on that. Shyang Lee Khung: Yes. Okay. Brandon, you can see that there's $11 million loss, but actually included in this $11 million loss is an accounting fair value loss of about $41 million, which arose from the acquisition of Northpoint City South Wing because of the accounting treatment of it treated as acquisition. So if you exclude that accounting item, there's actually a fair value gain from the investment property of $30.7 million. Maybe I should also add to say that the fair value loss accounting includes the transaction cost that was also capitalized. Yes. So you should strip out the accounting loss and look at the true fair value gain of the investment property, which is about $30.7 million. Brandon Lee: Okay. Okay. So basically transaction costs of Northpoint. Okay. And just last one, right, which I think if you look at your portfolio today, right, just looking at it from a divestment and acquisition standpoint, right, would you be open to still owning or acquiring more or divesting malls where the size is like below sort of a 200,000 square feet kind of range? Richard Ng: Okay. By and large, our preference is definitely moving towards stronger, bigger, more dominant mall as what we have been doing for the last couple of years. So today, we have 4 of the top 10 largest mall in Singapore. But those opportunities comes far and few in between, right? Then the next level we look at is probably the likes of our 200 over 1,000 square feet malls. And then the last category will be the 100 over 1,000 square feet malls. So again, if we have an opportunity to reconstitute, to replace something stronger, of course, that is something that we would seriously look at as part of the overall reconstitution and strengthening of our portfolio. Judy Tan: We've got Jonathan from UOB Kay Hian, who has got a question. Jonathan Koh: Congrats on the good results. Could you touch on AEI for Northpoint City? In the past, you've talked about a holistic AEI. Could you touch on some of the key enhancement that you are planning? Next, right next to it, Yishun 10, would that be redeveloped into residential? And how does that impact your AEI and give us some sense of timing? Richard Ng: Okay. So maybe we can look at the 2 questions there. The first one is probably easier to explain that Yishun 10. Yishun 10, we have divested to Frasers FPL. So they did have some announcement in terms of their plans on that. You can look that up. We are not sure exactly what will be undertaken. What we know is that in the past, we have kind of engaged the authorities before. It's not going to be another mall that's coming out. So it's not going to be a fully new mall that's going to be developed. So that's one thing we know. But beyond that, we do not really know what ultimately will come out there, right? So that's for Y10. And it will not affect any of our decision as to what are we going to do with South Wing. So for South Wing, when we did the acquisition, we spoke about a couple of pockets of opportunities that we saw and something that we're going to take -- undertake over a period of time. So one of them, which is organic, something that we feel that we could improve in terms of the performance at the mall level, whether it be OpEx or revenue. So this is something that is work in progress. We also identified some opportunities for maybe re-leasing about 5,000 square feet of NLA. That is work in progress because in order to do that, we need to go through several rounds of approvals and getting agreement and consensus from the various authorities. So that's work in progress. So that will take a little bit longer, but the work in progress now really is to tighten up any bulk purchase arrangement and getting the best outcome in terms of the mall performance at this point in time. Jonathan Koh: I presume timing-wise, more likely FY '27? Richard Ng: For the AEI itself, the 5,000 square feet we talk about? Yes, slightly. I don't think we will get everything through in FY '26. Jonathan Koh: Okay. And just... Richard Ng: It will commence probably in FY '27. Jonathan Koh: And just a brief follow-up. Isetan, what is the square footage that they occupy at Tampines 1? Richard Ng: Isetan is not in Tampines 1. Isetan is in Tampines Mall, which we don't own. Jonathan Koh: Okay then. So I thought -- it was mentioned, I thought maybe related. Okay. No worries. Thank you. Judy Tan: We've got from Rayson from HSBC, who's got questions. Rayson Khoo: Just a few questions. Firstly, just looking at the Hougang Mall AEI, more than 80% committed. I think it probably moved about like 6% or so versus the last quarter. And then if I recall correctly, for Tampines 1's AEI, you were actually more than 90% committed before the works commencement. Just comparing this to pre-commitment rates, is sentiment getting a little bit weaker for the Hougang space? Are you reserving some of the space tactically for like certain trades? And then just on top of this, if you can just share how your tenant curation strategy takes into consideration the upcoming mall beside it? Richard Ng: Okay. So maybe I'll share my perspective and then Pauline can also jump in. So if you look at the overall pre-commitment, I think it's very strong because we kind of have different phases, right? So the first phase that's going to be opening at the end of this year is actually almost 100% short of one small lease that's currently under negotiation, which I think probably negotiation is really done, probably documentation. So the first phase is fully committed. The second phase is going to go on until towards the later part of FY '26. We still have a bit of time. So the question is sometimes you want to make sure that you also get in the type of trade that you want, and that negotiation can take a little bit longer than usual. But getting over 80% pre-commitment, I think it is still a very healthy, strong kind of indication in terms of demand for the mall, right? The second question you have is in terms of what is going to come up. We don't really know what the final form product that's going to come out in the new GLS. But what we can do is look at ourselves and how we can, in a way, strengthen Hougang Mall. And that's part of the reason why we are doing this AEI. We have expanded one of our key anchor that's a library. We brought them up to the highest floor. We gave them more space because for library to stay, it's an important component because library, despite whatever people talk about reading and so on, they actually bring in a lot of traffic. They also help us in terms of placemaking activities and so on. So it's a very ideal case for us to strengthen our positioning by also locking in some of our anchor tenants. We are also working with another anchor, our supermarket operator to see how we can improve the supermarket itself. So those are various components that we look at positioning ourselves with to complement whatever that's going to come out in the future on the GLS side. Rayson Khoo: Okay. And right. Just another question on the management fees in units because I think it's about 50% for this FY. And then if we're just looking at FY '26, which is going to be very AEI focused, should we expect the management fees in units to exceed 70%, which was when T1 was undergoing the AEI? Or would you like prefer to just phase out the AEI instead? Richard Ng: Okay. I don't think it will reach that level. Probably it will be higher. We could expect it to be higher than this year, but maybe not that level. But then again, it depends on, again, at which point in time we're going to commence our next AEI, right? Say, for example, at NEX, that will bring into play again in terms of our requirement to use some of our AM fee in unit. Where we can, we, of course, try to spread it out, but sometimes because of timing, because we believe that we want to capitalize on the opportunity faster as well. So there could be an overlap, right? Because the faster you complete, the faster you can also generate the income, right? And especially when there are strong demand of retailers wanting to come to a mall like NEX, we want to get it done. We want to start fast because we see a lot of opportunities coming up there. So -- but by and large, I think it's likely to be slightly higher than what it is for FY '25, but may not reach the level -- may not reach that level that you mentioned. Judy Tan: Okay. Next up, we have Vijay from RHB. Vijay, if you like the ask the questions? Vijay Natarajan: A couple of quick questions from me. Can I know what is the outstanding rental arrears from Cathay at this point of time? And should we have to assume that this won't be recovered? Also, earlier, you mentioned in the plans of repurposing the space, if somebody can take it up as it is, then it would be a faster way to recover the space. So are you looking at a cinema operator to replace the Cathay? Richard Ng: Okay. Maybe I will tend to answer the first part first. I think it's something that it's out in the market that we actually sent in an SD probably about 2 months ago. Pauline, was it 2 months ago? Pauline Lim: About July. Richard Ng: Yes. Okay. Yes. So about maybe slightly over 2 months ago. And the SD amount amounted to $3.3 million, if I get the number correctly. Pauline Lim: $3.3 million. Richard Ng: That is official. So we are going through a legal process, a legal proceeding to recover that amount. We have to let the process run its course before we could comment as to if we could recover the amount? Or if we could recover, how much of the amount? Is it partial? Fully? Or what's the amount, right? So we don't have that response for you today. But definitely, we are going through the legal process to recover as much as we could, right? Pauline Lim: Richard, if I may add on to that, right? So the quantum $3.3 million also includes a portion that relates to the outstanding security deposit from this tenant. So what is really owing is actually lower than that $3.3 million that's out there in the market, right? So that's one point. I think the other thing is we are also -- we have other various -- or we have other legal recourse, right? So to answer your question, Vijay, are we writing off this amount? At this point in time, no, we are still pursuing the various legal recourse that we have. Vijay Natarajan: Okay. Okay. I mean repositioning the space, are you looking at a cinema operator? Or if not, what other types of segments you are looking at, at this point of time? Richard Ng: We are looking at various options on the table right now. We have cinemas, we have non-cinema operators. So there are a few options that's available to us to consider. Vijay Natarajan: Okay. But what would be a preference at this point of time? Richard Ng: It depends on what is the offer and also what is likely contribution that the tenants can bring, right, whether it be -- we think that a certain trade may be able to bring in more or drive stronger shopper traffic as opposed to the other. So those are considerations, and of course, the economics as well. Vijay Natarajan: Got it. Second question is, what is the proportion of variable rent as a percentage of total rents in your portfolio at this point of time? And is there a change in terms of variable rent mix, especially for sectors like F&B, which are facing a bit more challenges at this point of time? Richard Ng: Not really. GTO is about 5% of our total revenue. So it's still a very small proportion of our overall rental structure. I have not seen really a significant change in terms of the overall GTO proportion, whether it be F&B or the other trades. Judy Tan: We'll just accept one last one from Derek from Morgan Stanley. Derek, can you unmute yourself? Richard Ng: Hey, Derek, hi. Judy Tan: Hi, Derek? Otherwise, we'll take one question from the chat as well. There's a question coming from one of them. It appears cost pressures have built in 2025, while other SG REITs saw utility cost decline. Why is there this difference? Richard Ng: Okay. Again, it depends on the base, right? So some of the other operators, they actually had a higher cost base before that, but we have been quite active in hedging our utilities over time, right? So if you look at -- we have managed to bring it down in the previous year. So that movement may not be as significant because for the last 12 months, 15 months, it has been quite steady. The rates has been quite steady. So when we hedged it, we hedged forward, right? So we capitalize on that as well to make sure that we are not exposed to any significant risk because you don't know there's a lot of dynamics that's going around, whether Middle East, Russia, Ukraine and so on, right? So there's a lot of uncertainty. So we took that position. But you have to look at the starting point, right? Did they come off from a higher base or they were already lower than us and they got lower. So that's the question. Judy Tan: Thanks, Richard. Derek, are you able to ask your question? Okay. Maybe some issues with his sound system. But anyways, I think we are out of time. So thank you so much, everyone, again for joining us in FCT's results briefing. If there are any further questions to follow up, please feel free to reach out to me. And thank you so much again for joining us today. I'll end the call right now. Thank you. Richard Ng: Thank you. Judy Tan: Thanks, Richard and team as well. Shyang Lee Khung: Thank you.
Operator: Greetings, ladies and gentlemen. Welcome to the Vesta Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, this call is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Vesta's Investor Relations Officer. Please go ahead. Fernanda Bettinger: Good morning, everyone, and welcome to our review of third quarter 2025 earnings results. Presenting today with me is Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, our Chief Financial Officer. The earnings release detailing our third quarter 2025 results was released yesterday after market closed and is available on Vesta's IR website, along with our supplemental package. It's important to note that on today's call, management remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ. For more information on these risk factors, please review our public filings. Vesta assumes no obligation to update any forward-looking statements in the future. Additionally, note that all figures were prepared in accordance with IFRS, which differs in certain significant respects from U.S. GAAP. All information should be read in conjunction with and is qualified in its entirety by reference to our financial statements. Including the notes thereto and are stated in U.S. dollars unless otherwise noted. I'll now turn the call over to Lorenzo Berho. Lorenzo Dominique Berho Carranza: Good morning, everyone, and thank you for joining us today. While we entered the year facing macro uncertainty and slower market activity, I'm pleased to note we're now seeing encouraging signs of improvement as clients start to make decisions. Leasing momentum is returning. Tenant demand is intensifying and the fundamentals behind Mexico's industrial real estate market remain intact. We are particularly encouraged by the uptick we're seeing in leasing absorption, a signal that companies are regaining confidence and moving forward with their long-term commitments. Third quarter was a solid quarter for Vesta. We delivered strong operational execution in a market which has begun to normalize from earlier year softness, as I have described. Vesta's rental revenues increased, supported in part by the rent-generating buildings we delivered last quarter and will continue to drive revenue growth through the end of the year. Our retention rate remains high and rents on rollovers continue to trend upward, demonstrating both the quality of our assets and the strength of our tenant relationships. Meanwhile, our stabilized portfolio continues to perform well. Total income for the third quarter reached $72.4 million, which is a 13.7% year-over-year increase. And total income, excluding energy, reached $69.9 million, a 14.5% increase. We delivered an adjusted NOI margin and adjusted EBITDA margin of 94.4% and 85.3%, respectively, for the third quarter 2025. Let me now walk you through leasing activity and market conditions across our core regions. Total leasing activity for third quarter 2025 reached 1.7 million square feet, 597,000 square feet in new leases with new and existing tenants and 1.1 million square feet represented renewals with an average age of 6 years and a trailing last 12 months weighted average spread of 12.4%. Vesta's third quarter 2025 total portfolio occupancy, therefore, reached 89.7%, while stabilized and same-store occupancy reached 94.3% and 94.8%, respectively. As expected, our overall portfolio occupancy dipped slightly during the third quarter, primarily due to the delivery of new buildings currently in the lease-up phase as a result of the robust development pipeline we executed throughout the year. We're confident that absorption will follow, and this positions us exceptionally well to capture the demand we anticipate later this year and into 2026, given improving demand indicators, which I'll touch upon today. Let me share some color on what we're seeing across our markets. In Monterrey, we completed construction of our Apodaca park with 3 new state-of-the-art facilities now in the marketing phase. We're seeing strong interest, particularly from advanced manufacturing and logistics companies. We will be highly selective in determining our future tenants given the quality of our parks and Monterrey's role as a key near-shoring destination. Apodaca stands out as Monterrey's most strategic submarket, offering direct access to major industrial corridors and proximity to the Monterrey International Airport. And after the quarter closed on October 2025, we announced that we have acquired 330 acres of land in Monterrey in the high-demand Monterrey-Apodaca Airport Highway corridor. The site benefits from strategic location next to the Monterrey International Airport and Nuevo León’s Research and Technology Innovation Park, offering exceptional connectivity and direct access to a highly skilled labor pool. The deal included attractive 24-month seller financing, providing flexible capital deployment. And importantly, with this acquisition, Vesta's land bank is nearly complete to deliver on the Vesta Route 2030. In Ciudad Juarez, we saw early signs of a market turnaround in the third quarter. According to CBRE, overall vacancy contracted by 130 basis points and Class A vacancy retreated by 190 basis points for this market. This was underpinned by 1.3 million square feet of net absorption during the quarter. Vesta secured a lease with a global electronics company of 500,000 square feet during the quarter, a transaction which boosted third quarter absorption and reinforced the vacancy decline in this market. Juarez continues to draw international manufacturers, especially in electronics and high-precision goods. We believe the third quarter marks an inflection point in Juarez's industrial recovery and Vesta is well positioned to capture the next cycle of demand. In Tijuana, we're seeing slower recovery with market dynamics still adjusting to a recent influx of supply in this market. High vacancy is a result of a wave of spec deliveries that enter the Tijuana market. That said, there are early signs of reactivation. CBRE highlights that 67% of leasing demand continues to come from manufacturing users, which reinforces Tijuana's ongoing strategic relevance in the broader nearshoring landscape. Vesta has been actively engaging with a strong pipeline of tenants in the region, which give us confidence that dynamics are improving. Tijuana is a constrained market with limited land availability and physical barriers that make long-term overbuilding less likely. These fundamentals, combined with recovering demand should gradually support rebalancing as the year progresses. And while Tijuana's pace of recovery is lower than in markets like Juarez or Monterrey, Vesta's competitive position remains strong. Our portfolio benefits from institutional grade quality, reliable infrastructure and access to key logistic corridors. As always, we will approach this market with discipline and a long-term view grounded in data and in a deep local understanding of our markets. We have seen sustained strength in Guadalajara and Mexico City. Both markets stand out not only for their debt in scale, but for the diverse tenant basis and consistently high retention, which is underpinning our overall portfolio. CBRE reports that the Guadalajara industrial market maintained a healthy 2.8% vacancy rate in the third quarter. Despite new deliveries, importantly, Guadalajara, is a key recipient of foreign direct investment, particularly in advanced manufacturing sectors like electronics, automotive and aerospace. In Mexico City, industrial fundamentals have remained remarkably strong as can be expected. CBRE reports record absorption year-to-date at the highest absorption in the last 5 years, driven by pre-leasing and long-term renewals. Vacancy remains low at just 2%, supported by steady demand from logistics and e-commerce tenants. More broadly, we're seeing that activity has stabilized in the automotive sector, and our tenants in the sector have continued to renew leases and deepen their long-term commitments. Mexico is deeply integrated into the supply chain that supports the North American automotive industry. We believe it's virtually impossible to decouple. In fact, we're seeing continued and growing integration across the region as manufacturers double down on resilient near proximity production strategies. At the same time, we're seeing a shift in momentum toward other high-value manufacturing segments with strength in electronics, scientific equipment and industrial machinery. Mexico has now overtaken China as the largest exporter of electrical and electronic equipment to the United States. Companies are investing ahead of current demand, which reinforces the importance of being ready when they're ready through land acquisitions, as I have described, but also energy supply. The Mexican Association of Industrial Parks recently announced that the federal government is advancing targeted initiatives to support industrial parks, particularly to meet the growing energy needs of new facilities and industries. We're confident in our ongoing collaboration with both federal authorities and energy regulators. As new energy legislation takes shape, we believe industrial parks, in particular, will stand to benefit. The proposed framework includes provisions for energy generation through public-private collaboration, which we see as a positive step toward enhancing reliability and long-term capacity for industrial users. This enables us to serve even energy-constrained regions without compromising on service or delivery. Juan will discuss our financial strategy and related capital deployment, but let me make just a few related comments. During the third quarter, we successfully completed a senior unsecured notes offering that enhances our liquidity position, extends our maturity profile and gives us the financial flexibility to fund future growth under attractive conditions. This also enables us to refinance upcoming maturities without disruption, supporting both stability and expansion. Vesta's capital allocation has remained conservative and focused. We currently have only one project under construction, a direct result of our cautious approach at the start of the year in response to low absorption. That discipline is now enabling us to move with confidence as we prepare for new development starts for the end of 2025 and beginning of 2026. We are prioritizing markets where tenant demand is most visible, and we'll continue to direct capital toward land and infrastructure readiness, ensuring our growth is tied to quality, timing and market visibility. Asset recycling is a key part of our capital allocation strategy, enabling us to monetize stabilized assets and reinvest in higher growth opportunities. During the third quarter, Vesta sold an 80,604 square feet building in Ciudad Juarez for $5.5 million, an approximately 10% premium to appraised value aligned with Vesta's strategy to opportunistically recycle assets. Considering our progress this quarter, we revised Vesta's full year 2025 guidance. Juan will discuss in more detail. In closing, our third quarter results underscore a clear and consistent message for Vesta. Resilience and solid fundamentals ensure Vesta is well positioned for what's ahead. This quarter also reaffirms our ability to execute on Route 2030, our long-term vision to build a scaled, diversified industrial platform serving the most important corridors in Mexico. With that, let me turn our conversation over to Juan to review Vesta's financial results in more detail. Juan? Juan Felipe Sottil Achuttegui: Thank you, Lorenzo. Good day, everyone. Let me begin by highlighting our strong financial results for the third quarter. As a result, Vesta has revised our full 2025 guidance. We now expect our EBITDA margin to reach 84.5% by year's end, up from our prior guidance of 83.5%, underscoring our continuous focus on expense control and on delivering strong results. We expect to solidly achieve revenue growth between 10% and 11% for our full year with an adjusted NOI margin of around 94.5%. Now let me walk you through our third quarter results. Starting with our top line, total revenues were up 13.7% year-over-year, reaching $72.4 million, primarily driven by rental income from new leases and inflationary adjustments across our rented portfolio. As per our current mix, 89.4% of third quarter rental revenues were denominated in U.S. dollars, slightly up from 89.2% in the third quarter of 2024. On the profitability front, adjusted net operating income increased 14.7% to $66.1 million. Our adjusted NOI margin remains strong at 94.4%, up 16 basis points from the prior year, reflecting higher operating leverage as revenue growth outpaced costs. Adjusted EBITDA totaled $59.7 million, a 15% increase year-over-year with a margin expansion of 34 basis points to 85.3%, driven by a lower proportion of administrative expenses in relation to revenue during the third quarter 2025. Vesta's FFO, excluding current tax, increased 16.5% year-over-year to $47.4 million compared to $40.7 million in the third quarter 2024, while FFO increased 20.1% to $0.055. We closed the quarter with pretax income of $52.4 million compared to $62.7 million in 2024. The decrease was primarily due to lower gains on revaluation of investment properties as well as lower interest income, reflecting a reduced cash position during the period. Turning to our capital structure. On September 30, 2025, we successfully completed a $500 million senior unsecured notes at a 5.5% interest rate due in 2033, further strengthening our balance sheet, enhancing financial flexibility and advancing our goal for a fully unsecured capital structure. The notes received a BBB-/Positive rating from both Standard & Poor's Global Ratings and Fitch Ratings. The proceeds were used to prepay the existing debt and shortly after quarter's end, on October 9, we repaid in full our Metlife II credit facility and related incremental facility for $150 million and $26.6 million, respectively. As a result, we ended the quarter with $587 million in cash and cash equivalents and a total debt of $1.45 billion as of September 30, 2025. Our net debt-to-EBITDA ratio increased to 4x, and our loan-to-value ratio was 31%, which temporarily reflects the outstanding balance of the facilities that were repaid shortly after quarter's end. On capital allocation, Loren has noted that we sold an 80,000 square foot building at a 10% premium to appraisal value in Ciudad Juarez during the quarter, consistent with our strategy of opportunistically recycling of assets. At the same time, we continue to strengthen our land results, as Loren mentioned before, with the acquisition of 330 acres of land in Monterrey. Moreover, reflecting our balanced approach to capital allocation, on October 15, 2025, we paid a cash dividend for the third quarter of $0.38 per ordinary shares. This concludes our third quarter 2025 review. Operator, could you please open the floor for questions. Operator: [Operator Instructions] Our first question comes from the line of Juan Ponce with Bradesco BBI. Juan Ponce: It seems clear that demand signals are going in the right direction. When do you think -- when you think about your long-term development pipeline, are you comfortable accelerating Route 2030 projects in the first half of 2026? Or do you think it is prudent to move slower ahead of the USMCA review in June? I ask because although vacancies have declined a bit in some of the northern markets, Tijuana still remains elevated. So I just want to get your thoughts on how you're thinking about this growth. Lorenzo Dominique Berho Carranza: Thank you, Juan, very much for your question. Definitely, we have seen positive demand signals pretty much across most of the markets. I would probably like to highlight that Mexico City and Guadalajara have remained very solid throughout the whole year with vacancy rates at record low levels and still strong demand, mainly coming from sectors such as logistics, e-commerce and electronics, but also other markets have also shown some positive signals. Now how does that translate into our long-term plan? Well, as you know, we analyze carefully market-by-market, and that's when we analyze internally at the investment committee, where do we want to resume and start new operations and new development. As you could see this quarter, even that we have had a slower year on construction starts, we were able to start -- we did resume in Guadalajara with one building. And over the rest of the year, 2025, we will continue to start in other markets where we have recently acquired land and when we think there's already strong demand so that we can continue developing. I wouldn't think -- I think that we should still focus on the mid- to long-term plan for the 2030 Route. And we will be analyzing carefully the progress on demand from next year. We will analyze carefully the trends on different sectors. We definitely think that in relative terms, Mexico is still very well positioned for many global companies. But as you stated, we'll have the USMCA review next year where other countries are getting tariffs. So we will analyze carefully. And with that, I think that we will resume whenever needed. Juan Ponce: And just as a follow-up, these positive demand signals, are they coming from existing tenants or companies that already have operations in Mexico? Or are you seeing this already from new tenants? Lorenzo Dominique Berho Carranza: That's a good question. I think it's both. I think it's existing tenants, but also new tenants. And we've seen more visits from companies from all over, from North America, from Asia, from Europe. And actually -- and interestingly, it's coming from -- also from different industries, not only the traditional industries such as auto industry, but also -- which is strong and integrating supply chains, but also coming particularly from industries like electronic sector, which is growing rapidly. It's also coming in the aerospace sector, for example, and of course, logistics, which continues to be quite strong. Operator: Your next question comes from the line of Pablo Ricalde with Itaú Pablo Ricalde Martinez: Congrats on the results. I have 2 questions, maybe one for [indiscernible] the first one is on the leasing activity that have been seen in October. I don't know if you can provide an update if you have leased some of the industrial parks that were vacant in September. That's my first question. And the other one is coming on the balance sheet. I don't know if you can provide what are you thinking in terms of net debt to EBITDA by year-end given all the lands which you are acquiring. Lorenzo Dominique Berho Carranza: Pablo, thank you. Juan, why don't you -- okay, let me elaborate on the first question and then you give more detail on the net debt to EBITDA for the year-end. I didn't understand quite the question from -- we're getting a little bit of back noise, Pablo, but I think it was related to leasing. We were able to lease up a few buildings, one of them for our logistics operation for the electronic sector in Ciudad Juarez. Also, we were able to lease up in the Bajio region as well as Tijuana in food and beverage, logistics and auto industry. We think that this is -- we think that eventually, over the next quarters, we will continue to see this particular industry striving, and we're getting more absorption for -- in different -- actually in different regions. Again, we see the pipeline picking up pretty much across the board. And I think that Vesta has good quality buildings in the right locations, brand-new buildings. And I think that's key when it comes to clients looking for space. Remember that many of our buildings already have energy, which is another key advantage. And for that reason, even that there might be also some competition, we think that Vesta is very well positioned in the right locations, brand-new buildings and the right utilities and infrastructure required to establish operations in light manufacturing and logistics. So we are very positive on the next quarter, end of the year, and we hope to see a good recovery for 2026, too. Juan Felipe Sottil Achuttegui: Okay. As for the balance sheet, let me say that what you see in our leverage today is just a result of the issuance of the bond and the interim period between the issuance and the payment of the liabilities. So leverage will come down as we pay down the -- as the Metlife liabilities are reflected on our balance sheet. And then net debt to EBITDA as well as leverage will come down to what our good objectives, not that the ratios that we show right now are particularly worrisome. I mean we are exactly where we need to be. We have a strong balance sheet, and we can continue to -- I mean, we have ample borrowing capacity. So... Lorenzo Dominique Berho Carranza: For end of the year, Juan, are -- is it -- are we going to be a net debt to EBITDA close to, what, 25% loan-to-value and net debt to EBITDA below 4.6 maybe? Juan Felipe Sottil Achuttegui: 4% -- around 4x. Operator: Your next question comes from the line of Francisco Chávez with BBVA. Francisco Chávez Martínez: Question is regarding the improvement in guidance for EBITDA margin. How sustainable is this new margin? And what can we expect once you resume the start-up of new projects? Juan Felipe Sottil Achuttegui: Well, look, we have been -- this year -- as we have pointed out beforehand, this year have -- we have focused a lot in maintaining a low-cost base and of course, the growth in our revenues have helped us a lot maintaining quite an attractive EBITDA margin. As we continue to grow the company, EBITDA will continue to be strong. And I think that EBITDA will continue to be in the 83%, 85% level as we continue to grow. Lorenzo Dominique Berho Carranza: And maybe related to the development question, I think that we have the appropriate -- remember that we are a vertically integrated company with -- where we have -- management is internalized. So we have the right headcount to run the operations for the existing portfolio as well as the development part of the portfolio. So since we are in -- developing in the same markets where we already have presence, we do not foresee any major increases in costs. Actually, the opposite. I think that going forward, we will become even more efficient and benefit from being an internally managed company and vertically integrated. And for that reason, we even think that operational margins will continue to be playing in our favor. Operator: Your next question comes from the line of Adrian Huerta with JPMorgan. Adrian Huerta: Congrats on the results and also on the land acquisitions. Just going back to the first question on demand. What else can you share with us in terms of how quick the recovery could come, meaning tenants looking and willing to sign contracts. Is there a backlog or is there a backlog of companies that you've been talking to that they basically have said that once there's more clarity on the USMCA, they will be coming. Anything else that you can share with us on that to give us an understanding of how quick these companies could start signing new contracts? Lorenzo Dominique Berho Carranza: Thank you for your question. And I think that -- I mean this has been a very -- this has been a transition year. And as you remember, early in the year, we see a major slowdown in terms of new absorption and many of the companies were pencils down, not only in Mexico, but also in the U.S., for example. There was a lot of uncertainty. And for that reason, we understand that companies were just not making any decisions. However, the year has evolved differently, and we are definitely seeing a major backlog on companies that want to establish operations in the North American region. And for that reason, we're in constant communication with potential clients. We're actually making -- we're traveling to other regions of the world. We've had people currently in the U.S., in Canada, in Europe, even in Asia, in China and in Taiwan, been participating in conferences and trying to understand what -- how companies are analyzing their manufacturing global footprint. However, all of the companies make decisions based on different drivers. Some of them are making them based on the technology -- the new technology revolution based on AI, and that's why we've seen electronic sector jumping so rapidly, even despite of uncertainty on tariffs. But there might be others, for example, auto industry that are just waiting to see what the final end game might be. However, I think, that companies want to be still in the most dynamic economic region in the world, and Mexico is playing a very important role in North America. We just -- we're seeing every quarter and every year just new numbers regarding exports to the U.S., our trade balances with the U.S., particularly some countries diminishing their positioning and trade participation with the U.S. So for that reason, we are confident that -- we think that we will continue to thrive as a main partner to the U.S. And for that reason, many of the industries that we already have had since NAFTA will continue to be well positioned. Adrian Huerta: Understood, Loren. And if I may add just another quick question. So we should expect some new construction to start over the next 2 quarters. And regarding the land acquisitions, we shouldn't expect much to happen in the next 2 to 4 quarters? Lorenzo Dominique Berho Carranza: Sure. Well, we are -- as we have stated before, when we need to accelerate the development, we do, but when we need to slow down, we also do. So right now, I think that we're just being very cautious on where we start. We will continue to monitor demand in each of the markets. So yes, we'll have some starts for the end of the year. And next year, we'll analyze carefully. And the good thing is that we currently have been able to acquire land throughout the year that will position us very well for the mid- to long term. We were able to buy land throughout this year in the strategic markets, and I will repeat the land that we have recently acquired, which was in Guadalajara where we started the building next to our site. We bought a second site in Guadalajara, which will be helpful for the Route 2030 strategy. We also bought land in Ciudad Juarez, in Mexico City, in Monterrey, in San Nicolás which is -- has more attributes for last mile and e-commerce. And recently, the one in Apodaca, which is going to position us with probably the best piece of land in Monterrey. And I think that's going to be incredibly helpful for the Route 2030 strategy, and that will continue positioning Vesta as a leader developer in the market of Monterrey. So with the land that we have already acquired that we will start doing improve -- and also in Tijuana, sorry for that. We're doing the improvements. We're doing the earthworks, putting the utilities, energy and everything so that eventually we can resume and develop whenever we see demand getting stronger. So we already have, as of today, let's say, approximately 90% of the land required to fulfill the 2030 strategy. Operator: Your next question comes from the line of Alejandra Obregon with Morgan Stanley. Alejandra Obregon: Congratulations on the numbers. My question is on the energy front. You have now the land and you were talking about the utilities. I was just wondering if you can talk about how the electricity part is playing out. The new government announced 5 packages for industrial real estate, utilities, plants. So I was wondering if you think that will help your plans going forward? And then also your investment in associates line appears to be gaining traction. So just wondering if you can talk about this energy investment and how should we be thinking of it forward -- going forward? Lorenzo Dominique Berho Carranza: Alejandra, thank you very much for your question. Definitely, being able to anticipate to the energy requirements for our clients has been key. And that's why we have followed very carefully the different alternatives that we can provide for our clients in the different regions. We think that the government is in the right track -- on the right track to keep on supporting investment or foreign investment in manufacturing, and they are -- and we have been working close by with them so that together with the association of industrial parks, so that industrial parks can have the right packages, the right incentives and the right amount of energy so that we can continue attracting investments. So we're very positive on the work that the government has done with providing these packages and the support. And I think Vesta is a key example on how things can be established in order for companies to -- in order to anticipate we start the feasibilities and the processes to engage on energy when -- as soon as we start to buy the land. So when we develop the parks and the buildings, at the same time, we are investing in the energy infrastructure so that when companies do the ramp-up of operations, there's already some energy in place. We know it takes time, but I think that we have had great results by getting some energy, and that's why our parks have already the energy, and we are very -- we're confident that, that's going to be a huge benefit now that demand will continue to pick up. Regarding -- and regarding your question on associates and energy, that's basically some renewable energy investments that we have recently done. We just closed one in Monterrey, and I think that's going to be also key to continue focusing on solar panels, renewable energies in all of the buildings that we have had in line with our 2030 Route to comply with a certain amount of renewable energies in our portfolio. Operator: Your next question comes from the line of Jorel Guilloty with Goldman Sachs. Wilfredo Jorel Guilloty: I have 2 quick ones. So I don't want to belabor the point on development, but just I wanted to get a sense of what are the more quantitative indicators that you look at when you make a decision to launch a development. So I mean is it the occupancy trends you see in your own portfolio? Is it the occupancy or net absorption trends you see in the market? Is it an increase in leads that you might get from external brokers or your own internal commercial team? So I just wanted to get a sense just like put numbers to this, like what exactly do you look at when you make a decision of going forward with a new project like what you announced with Guadalajara? And then the other question is around leasing spreads. So looking at the LTM leasing spreads, we saw that there was a slight decline. So it was 13.7% in 2Q '25. It was 12.4% in 3Q '25. So I just want to get a sense of what drove this? What -- is it lower rents in a certain market in order to drive occupancy. So I just wanted to get a sense of where these lower leasing spreads or leasing spread trends are coming from. Lorenzo Dominique Berho Carranza: Thank you, Jorel, and thank you very much for being on the call. I think that Vesta has a very unique investment approach. First of all, we already have more than 43 million square feet of industrial buildings that we have developed in the last 25 years. And that, together with outstanding clients where, as mentioned before, we have -- we do not rely on external brokers for our property management, we do it internally. So we have firsthand information from our clients. We have firsthand information from the sector. And remember that also as part of our strategy to have a local leadership and regional marketing officers in each of the markets where we operate. So that's why we have, again, firsthand information of what's going on, what are the main drivers of demand. And that's why we rely on our own data and analysis when it comes to making a decision on how to invest and when to invest. Of course, sometimes we listen to third parties, but I think that it's more -- the secret sauce is pretty much inside of the Vesta offices as to when to start and where to start, and it has been quite successful. Guadalajara -- the example in Guadalajara, well, this is the third expansion we do to the Guadalajara Vesta Park. As a reminder, we have as clients, Amazon, we have Mercado Libre, we have O'Reilly, we have DSV Logistics, and we have Foxconn as our main clients inside of that park. So we have a close connection with them. And by being close to them, we understand where the trends are heading. And that's why we believe that starting new buildings when you're close to great companies that tend to grow, we think that it's -- that's kind of the bread and butter of Vesta, and I think we're going to be very successful, and we will continue to follow that trend in other projects in other regions where we have recently acquired land. And regarding your leasing spread question on the last 12 months, it's -- I think that it's not a material drop. I think that eventually going forward, it's more maybe on the -- they should be hovering. I think that the trend is actually upwards if you look at the last 4 quarters. And I think that as long as we continue to see the spreads being on an upward trend in the low teens, high double digit or double-digit numbers, I think that, that's going to be quite attractive and appealing. The important thing is to have this as a sustainable number going forward, which is exactly we think. Vesta's current portfolio is -- has a good opportunity to catch up in terms of leasing spreads, and that's what we can see even with a 12% spread on the trailing 12 months, which is way higher than inflation. And remember that most of our leases are -- is above inflation and most -- and all of our leases are linked to inflation, which adjust annually. And in many cases, we're able to catch up. That's why if you look at today's CPI numbers close to 3%, considering a 12.4%, that's material. Wilfredo Jorel Guilloty: A quick follow-up, if I may. So just based on the development pipeline and how you get to the decision to launch, you mentioned conversations with existing tenants. Does that imply that future launches could be for these existing tenants for them to expand? Or is it more that you get color on the demand from them and that gives you the confidence to go forward with a new development? Lorenzo Dominique Berho Carranza: Well, I can only tell you that more than 60% of our growth comes from existing tenants. So we like to grow with existing tenants, particularly because they are outstanding companies. So that's why we continue to develop close to them. And if there's an opportunity to grow with them, it's fine. But if we continue to find other great companies that need to open up operations in Mexico, we will continue to do so. And I think that for that reason, we focus a lot in trying to be close with good companies and keep and support their growth and become the real estate partner in Mexico. And I think that has played out well in the past, and we think that, that will continue playing out well in the future. Operator: Your next question comes from the line of André Mazini with Citi. And since we have no response from Mr. Mazini, we are moving on to the next question from Francisco Suarez with Scotiabank. No response again, moving on to the next question. Next question is from Anton Mortenkotter with GBM. Ernst Mortenkotter: Congrats on the results. We've been hearing that some private developers under pressure to deploy committed capital are starting to buy stabilized assets rather than take on new spec projects given the softer demand backdrop. Are you seeing that trend as well? And would you think that this environment actually plays to your advantage, I mean, being able to preserve liquidity and deploy when demand dynamics are more favorable? Lorenzo Dominique Berho Carranza: Anton, thank you very much for your questions. Well, I think that one of the greatest benefits of this industry is that there's still plenty of liquidity in the market. And that plays very well to our favor, and we are seeing players in the private markets that are willing to take acquisitions of stabilized assets. We recently made an asset sale, for example. It's not very large, but I think it signals that there's appetite also for owners to get buildings and also from -- on the institutional front. However, I think that our focus will continue to be on the development front, particularly because at the cost that we are buying land, we are investing in infrastructure, and we invest on brand new buildings. We think that development yields that continue to be in the 10% ranges vis-a-vis building cap rates or acquisition cap rates in the 6% to 7%, there are still huge spread investment opportunities, and that's why we will continue to focus on -- in terms of capital allocation to the highest returns, the ones that create the most value. And I think liquidity, it generates value for all of us. We have seen that not only coming from private markets. We recently saw a transaction being an IPO of FIBRA in the industrial sector being launched at -- also at compelling cap rates. And we think that, that sets the -- it sets valuation standards, and it sets a tone into what we might be expecting going forward in terms of valuation, Vesta -- so -- for Vesta, that's why we think that there has a good opportunity to reprice, particularly given the major discount we are still trading to net asset value. So those are great references and that gives us also the opportunity in some cases that if we want to buyback stock, we have a buyback program in place. So when we have -- when we see that there's a major discount to net asset value, we will continue to be using it, as we have done in the past and create value for shareholders. Operator: [Operator Instructions] The next question comes from the line of [indiscernible]. Unknown Analyst: Congratulations on the results. I have a couple of questions. The first one is a follow-up on lease spreads. I mean we did see like a small decline quarter-on-quarter, but they're still really above 2024 levels where they were around like 7%, 8%. Do you think like going forward into the fourth quarter and next year, you will be able to sustain this double-digit increase? And the second question is on same-store portfolio occupancy. Could you give us like a little bit of color on why the occupancy in Tijuana dropped from like 97% in the second quarter to 85.6%? Lorenzo Dominique Berho Carranza: Great. Thank you, [ Elena, ] for your question. Yes, and I will start maybe with the second one. The second one, we saw a slight drop in the same-store occupancy given the fact that we addition new buildings to the same store. And actually, these were buildings that are currently -- we're in the marketing stage. They're still vacant. These are 2 buildings in Tijuana mega region, which are large and one of them in -- I think, in Ciudad Juarez. But I think that's why we saw that major -- that slight drop. However, since these are new buildings and we are in marketing stage, we are confident that, that particular decrease might not affect or it's something that will -- eventually will be able to recover. And then on your -- on your first question, well, I think that we will continue to see a sustained growth in terms of leasing spreads in the double digits, probably. I think so, particularly because we've seen that market rents have held steady in most of the markets, which is very positive. And that's why renewals have come at a major increase in -- and leasing spread in most of the markets, and we've been able to capture value from that. And that will be -- that will continue to be the trend going forward to capture leasing spreads on top of inflation. And that we're very optimistic on that. Operator: Your next question comes from the line of Alan Macias with Bank of America. Alan Macias: Just can you share the cap rate of the building you sold recently? And are you seeing more demand or more offers for -- to buy buildings? And the second question is, what are you seeing in the trend in real estate taxes and insurance costs? Any indication what the government will be looking for tax increases next year? Lorenzo Dominique Berho Carranza: Thank you, Alan. Let me work first on your second question. So currently, we have secured our insurance costs for the next, I think, it's a couple of years or 18 months. So we have not seen any major adjustments for the moment. Eventually, when we get back to renegotiate that, we will eventually see. And we have not seen any major adjustments in real estate taxes. Now more importantly, even that we burden part of the cost, remember that we transfer part of that cost to our tenants. These are -- in most of the cases, we have triple net leases, and that's a cost that can be absorbed by tenants. And even with that, we believe that it's not a major cost still to their total production cost to many of our tenants. So the rent together with some of the operation costs, it's still very competitive vis-a-vis other regions. In some of the cases, rent and some of the real estate-related costs represent only 7% to 9% of total production costs or in terms of logistics, total operation cost. That's still a very competitive number. So even that we will continue to look into reducing costs. I think that all-in-all, that could well be absorbed by tenants, and they will continue to be competitive. Secondly, to your third question regarding I'm sorry, the cap rate. Sorry, yes. Well, first, yes, we will continue to do asset sales. And this is a good example of an asset, which was a vintage asset that we acquired, I think it was more than 15 years ago. This was not developed by Vesta. And I think -- and the cap rate to in-place rent was 6.2%. And it was a $68 per square foot as a sale and a premium to a price of almost 10% but again, I think this is a good example because we -- there are some vintage assets that eventually we would like to sell and crystallize value from asset sales, sell at a premium and focus on capital allocation and allocate that capital to higher return investments, new buildings, for example, in terms of development and through that close the cycle on investment. Operator: The next question comes from the line of Francisco Suarez with Scotiabank. Francisco Suarez: Congrats on the great quarter. The question that I have is on Mexico City, it's -- why La Villa has taken so long to lease up? Is there any difference compared to what we saw on Punta Norte? And the second question that I have is related with the overall trend behind, for instance, concessions in the market, say, 3 months of rent or step-up considerations or any CapEx. Has anything changed when you renew leases or offer new leases to new clients to what has been the case in... Lorenzo Dominique Berho Carranza: Thank you very much for being on the call. La Villa, it's an outstanding project. It's a smaller building compared to Punta Norte. Punta Norte is a major fulfillment center for e-commerce. And I think on that one, it was a very unique opportunity for a larger e-commerce player to -- and for us to have a long-term lease in U.S. dollars. And I think that that's why that one was very, very particular. La Villa, it's the last mile. It's smaller. We have been having some potential clients. However, as maybe we are -- we have waited to finalize and find the right tenant to it. Even that it takes -- it took -- it has taken maybe a bit longer even than expected. The positive to that is that we have seen rents grow in the region. So even some downtime in terms of rents, we are going to be able to capitalize through a better rent going forward with a better client. So we're positive that -- we're optimistic about being able to lease that building up. And I think that eventually, at some point coming into next year, we are -- I'm pretty sure that that's going to be well leased. Actually, we are -- we -- Mexico City has had very strong dynamics. And actually, we recently acquired land last quarter, second quarter. And hopefully, we can start construction again soon. And then regarding concessions, well, I think this one plays out differently market-by-market, tenant-by-tenant. Remember that we do have -- when we establish a lease, we establish a relationship with the tenant. So our focus continues to be long-term leases in U.S. dollars with investment-grade, high-grade companies that we believe can add value to the buildings. And that's why there's always things to negotiate. There could be some concessions sometimes for -- in terms of rent. But in other cases, we get things in exchange to that. So I think that on that, we will continue to be creative but trying to collect rent as soon as possible and keep on focusing on the total return of the asset, not necessarily an immediate income. One of the things that we have stated in the past, and I think plays out even more today is that we rather have a vacant building than a lousy client just because they will be paying out rent. And I think we will maintain that discipline even if it takes a bit longer. Francisco Suarez: Yes, I love that. So no changes in your underwriting policies. Good to hear. Operator: Your next question comes from the line of André Mazini with Citigroup. André Mazini: Sorry for my connection issue. So my question is around your land strategy on a high-level basis, of course, now you have probably more than 90% of the land to reach the 2030 growth plan. So how do you think about maybe a trade-off, if there is one, a risk return trade-off. On the one hand, I think you don't want to have like a huge land bank because, of course, land does not generate cash flows, right, by definition. But on the other hand, if it's too little of a land bank, your growth plan would be jeopardized. So how do you think about that trade-off of having the exact -- the kind of the optimal land bank in order to not jeopardize cash flows, but not to jeopardize growth plans as well? Lorenzo Dominique Berho Carranza: Thank you, André. And that's -- I think that's a key question to Vesta's overall strategy, and that's why for us, it's key to have a strategy going forward. And we are pretty much relying on how successful we have been in the past. Remember that when we established Level 3 strategy, we focus also on investing in certain regions and certain markets. We were able to invest over the Level 3 strategy, approximately $1.1 billion in development in Guadalajara, Monterrey, Mexico City, Tijuana, Juarez and some other markets in the Bajio. And it was very successful. And -- but the only way -- and we were able to achieve on that period returns in excess of 10% in U.S. dollars. And that -- you can see all of that in our Investor Day presentation, and I'm actually looking at Page 22, where we were able to make returns of 10% in Mexico City, 10.1% in Monterrey, 10.5% in Guadalajara vis-a-vis relevant transactions in those markets between 6% and 6.7%, which we believe that will continue to be a huge opportunity for -- in our investment strategy going forward, where we, again, anticipate on buying land, focus on the right markets and eventually we will be able to develop a -- we identified $1.7 billion investment for the Route 2030 strategy. And the markets where we will continue to focus is, the 3 main markets being Monterrey, Guadalajara, Mexico City, Juarez, Tijuana and Querétaro. So I think that there's really very few companies that have a strategy going forward that have the land -- the right amount of land. I agree with you, it's more an art than a science how much land we should use. But I think that today being well capitalized and being global in the market [Technical Difficulty] Monterrey, recent land acquisition, it's the right approach so that we can secure land, put infrastructure in place and be ready when demand might comeback. These are going to be very successful projects and [Technical Difficulty] so that you can see [Technical Difficulty] yourself. And again, I think that is unique in the type of [Technical Difficulty]. Operator: And it seems that we have no further questions for today. I would now like to turn the call back over to Mr. Berho for closing remarks. Lorenzo Dominique Berho Carranza: Thank you, everyone, for joining us today. Vesta's focus has been on ensuring we're well positioned to capture resurging demand. We are entering the final quarter of 2025 with a strong balance sheet, high-value operating portfolio and the strategic priority to continue executing on our long-term Route 2030 growth plan ahead of what we expect to be a strong 2026. Thank you. Operator: Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines. We thank you for your participation.
Operator: Good day, and welcome our quarter 2 fiscal year 2026 [indiscernible] Limited. I'm Aishwarya Sitharam and I'm part of the Dr. Reddy's Investor Relations team. [Operator Instructions] I now hand over the conference to Richa Periwal. Richa Periwal: Thanks, Aishwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebrations with your loved ones. Thank you for joining us for Dr. Reddy's Laboratories Q2 FY '26 Earnings Conference Call. We truly value your time and participation. Joining us today are members of the leadership team. Mr. Erez Israeli, CEO; Mr. MVN, our CFO; and the Investor Relations team. Earlier today, we released our quarterly financial results. These are now available on your website for your reference. We will begin today's session with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Dr. Reddy's Laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded, and both the audio and the transcript will be made available on our website shortly. All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. Finally, a reminder that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during the call. With that, let me now hand it over to MVN to present the financial highlights for the quarter. Over to you, MVN. Mannam Venkatanarasimham: Thank you, Richa, and Aishwarya, good evening, and a warm welcome to all. Thank you for joining us on our Q2 FY '26 earnings call. I'm delighted to take you through our financial performance for the quarter. We delivered a steady performance in Q2, achieving near double-digit growth despite lower Lenalidomide renamed sales. The acquired consumer health care business supported the top line momentum. EBITDA margin stood at 26.7% for the quarter. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 88.78, the exchange rate prevailing as of September 30, 2025. Consolidated revenue for the quarter stood at INR 8,805 crores which is USD 992 million, a growth of 9.8% year-over-year and 3% on sequential basis. While U.S generics faced product specific price erosion and lower Lenalidomide sales, overall growth was supported by the integration of consumer health care business and double-digit growth delivery across other markets aided by favorable ForEx. Consolidated gross profit margin for the quarter was 54.7%, a decrease of 492 basis points year-over-year and 223 basis points sequentially. The decrease in margins during the quarter was due to lower Lenalidomide sales and product-specific price erosion in the U.S. generics. Onetime inventory provisions from the discontinuation of the certain pipeline products due to technical challenges in the lower operating leverage in PSAI business. Gross margin was 59.1% for global generics and 18% for PSAI. The SG&A spend for the quarter was INR 2,644 crores, which is USD 298 million, an increase of 15% on year-over-year and 3% on a sequential basis. The year-over-year increase was primarily driven by focused investments in the acquired NRT consumer healthcare business and in branded generics, which are key to driving sustainable growth. SG&A for the quarter includes a onetime provision of INR 70 crores for a VAT liability in one of our subsidiaries and charges related to a discontinued pipeline product. SG&A spend accounted for 30% of revenues during the quarter and was higher by 132 basis points year-over-year and similar levels on a sequential basis. Excluding the one-offs related to VAT provision, SG&A expense as a percentage of revenues was at 29.2% in Q2 FY '26. The R&D spend for the quarter was INR 620 crores, which is USD 70 million, a decline of 15% year-over-year. And broadly, flat sequentially. The decrease was due to reduced development spend on biosimilars during the quarter as major investments for abatacept have already been completed. We continue to make focused R&D investments in complex generics, APIs and biosimilar pipeline while pursuing strategic collaborations to bring innovative assets that support sustainable long-term growth. The R&D spend was 7% of revenues for the quarter, lower by 203 basis points year-over-year and 26 basis points on a sequential basis. Other operating income for the quarter was INR 267 crores, higher than INR 98 crores in the corresponding quarter last year. This was mainly on account of product-related IP settlement income in the United States and onetime reversal of INR 88 crores in liabilities related to discontinuation of the pipeline product. EBITDA for the quarter, inclusive of other income, stood at INR 2,351 crores which is USD 265 million, an increase of 3% on year-over-year and a sequential basis. The EBITDA margin stood at 26.7%, lowered by 174 basis points on year-over-year and flat sequentially. Adjusting for the onetime VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Impairment charge was INR 66 crores, including INR 54 crores for property, plant and equipment at our Middleburg facility following the discontinuation of the pipeline product, conjugated estrogen. The remaining charge pertains to product related to intangibles impacted by adverse market conditions. The net finance income for the quarter was lower at INR 77 crores as compared to INR 156 crores for the same quarter last year. The decline in net finance income reflects lower returns from financial investment following the deployment of cash reserves towards acquisition of consumer health care business and other intangible assets in line with our capital allocation strategy. As a result, profit before tax for the quarter stood at INR 1,835 crores, that is USD 207 million. PBT as a percentage revenues was at 20.8% on an adjusted basis, excluding the onetime VAT provision, the PBT margin was at 21.6%. The effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2 FY '26 was lower primarily due to favorable jurisdictional mix for the quarter. The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax assets related to land indexation following amendments introduced through the Finance Act 2024 to Income-Tax Act 1961. Profit after tax attributable to the equity holders of the parent for the quarter stood at INR 1,437 crores, which is USD 162 million, a growth of 14% on a year-over-year, flat on Q-o-Q basis. This is at 16.3% of revenues, Diluted EPS for the quarter is INR 17.25. Operating working capital as of 30th September 2025 was INR 13,331 crores, which is in USD 1.5 billion, an increase of INR 3 crores, which is like USD 0.4 million over 30th June 2025. CapEx cash outflow for the quarter stood at INR 511 crores, which is INR 58 million. Free cash flow generated during the quarter was INR 1,046 crores, which is USD 118 million. As of September 30, we have a net cash surplus of INR 2,751 crores which is like USD 310 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 502 million hedged using combination of forward structured derivative contracts scheduled to mature through December 2026. These contracts are hedged at the rate of INR 86.9 per U.S. dollar, RUB 4.28 billion hedged at a fixed rate of 1.03 per Russian ruble with maturity falling within next 4 months. With this, I request Erez to take us through the... Erez Israeli: Thank you, MVN. Good day, everyone, and thank you for joining us today. We are pleased to report a consistent performance in Q2 FY '26, marked by a double-digit growth and steady profitability. This performance was driven by contributions across all key markets except for the U.S. generic business. During the quarter, we continued to make a meaningful progress across our strategic priorities namely growing the base, scaling our presence in consumer health care, innovative therapies and biosimilars. We advanced our key pipeline programs, including semaglutide and abatacept. In addition, we have been driving initiatives to enhance cost efficiencies across our operations while simultaneously pursuing business development activity to support sustainable growth in the coming quarters. Let me now walk you through some of the key highlights of the quarter. Revenue grew by 10% year-on-year driven by broad-based growth across businesses, benefiting from acquired consumer health care and supported by a favorable ForEx. Growth was partially offset by lower contribution from Lenalidomide and some price erosion in the U.S. in some select products. The EBITDA margin stood at 26.7%. The ROCE for the quarter was around 22%. The cash flow from operation was utilized to our plant expansions and acquisition of strategic brands and securing rights for distribution in defined markets. We closed the quarter with net cash surplus of $310 million reinforcing the strength of our balance sheet. We strengthened our innovation-led portfolio to strategic collaboration and launches. We entered the anti-vertigo segment with the acquisition of Stugeron and related brands across 18 markets in APAC and EMEA from Janssen Pharmaceutica. In India, we strengthened our gastrointestinal portfolio with the launch of 2 novel drugs Tegoprazan under the brand name of PCAB and Linaclotide under the brand name of Colozo. In partnership with Unitaid, Clinton Health Access Initiative & Wits RHI, we are working to make Lenacapavir, a long-acting HIV prevention tool accessible and affordable in low and middle-income countries. We continue to make progress on our key pipeline products. The subject expert committee, the SEC under Central Drug Standard Control Organization has recommended approval for semaglutide injection in India. We received a positive opinion from European Medicines Agency Committee for medicinal products for human use for denosumab biosimilar candidate. The U.S. FDA accepted our investigational new drug's IND application for COYA 302, a partner novel drug for the treatment patients with ALS. We also made a steady progress on integrating the acquired nicotine replacement therapy business. We have successfully integrated 2/3 of the business by value, including Canada, Australia and selected key Western European markets. The next phase will include Southern Europe, Israel and Taiwan. On the regulatory front, several inspections were completed across our global facilities. In September 2025, the U.S. FDA conducted a pre-approval inspection on our Bachupally biologics facility and issued a Form 483 with 5 observations. The agency recently issued a complete response letter in reference to the ongoing resolution of observation pertaining to the biologic license application, the BLA of our rituximab biosimilar candidate. We are actively working to address these observations. The U.S. FDA conclude a GMP inspection at our Mirfield API facility in the U.K., resulting in issuing a Form 483 containing 7 observations. Additionally, our API site CTO-5 in Miryalaguda, in Telangana as well as our Middleburgh facility in New York were classified as VAI following successful GMP inspection by the U.S. FDA. The GMP and pre-approval inspection PAI conducted by the U.S. FDA in July 2025, at our formulation manufacturing facility, FTO-11 has been formally closed. We have received the EIR establishment inspection report with the inspection outcome categorized as VAI. We continue to be recognized for our industry-leading performance in sustainability. We retained our MSCI ESG Rating for A for the second consecutive year. Our ESG Risk Rating from Morningstar Sustainalytics improved from 23.6% to 18.4%, representing a lower ESG risk profile. Our waste management practices were recognized with the Diamond Standard for achieving 99.9% of waste diversion from landfills. Further our formulation facilities at Srikakulam FTO-11 became India's first pharmaceutical facility to receive a Leadership in Energy and Environmental Design, Platinum Certification for existing buildings from U.S. Green Building Council. Let me take -- let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies. Our North American generic business generated revenues of $373 million for the quarter, a decline of 16% year-on-year and 7% sequentially. The performance was impacted by price erosion in selected key products, primarily Lenalidomide. During the quarter, we launched 7 new products and expect launch momentum to continue in the second half of the fiscal. Our European business reported revenue of $135 million for the quarter, growth of 150% on a year-to-year basis and 3% on quarter-on-quarter. The year-on-year performance was primarily driven by contribution from the acquired nicotine replacement therapy portfolio and new product launches, which offset the price erosion pressure -- the pricing pressure. Excluding the NRT, the growth was 6% year-on-year and quarter-on-quarter. During the quarter, we launched 8 new generic products across European markets, further strengthening our portfolio. Our emerging market business delivered revenue of INR 1,655 crores in Q2 reflecting a growth of 14% year-on-year and 18% sequentially. Growth was primarily driven by new product launches across markets and aided by favorable ForEx. During the quarter, we introduced 24 new products across multiple countries, reinforcing our commitment to expanding access and strengthening our market presence. Within this segment, our Russia business delivered a growth of 13% year-on-year and 18% sequentially in constant currency terms despite prevailing macroeconomic challenges. Our India business reported revenues of INR 1,578 crores in Q2, delivering a double-digit year-on-year growth of 13% and 7% increase sequentially. This performance was driven by contribution from new product launches, improved pricing and higher volumes. According to IQVIA, we have moved up one place to the 9th position in India pharmaceutical market for the month of September and continued to outpace market growth. With moving annual total MAT growth of 9.4% compared to IPM 7.8% growth. During the quarter, we launched 11 new brands in addition to the acquired Stugeron portfolio, further strengthening our domestic franchise. Our PSAI business reported revenue of $108 million in Q2 FY '26, registering growth of 8% year-over-year and 13% sequentially. During the quarter, we filed 37 Drug Master Files globally. We have further sharpened our R&D focus on programs that offer clear differentiation and strong commercial potential in alignment with our strategic priorities. We have rationalized few pipeline products that face extended regulatory uncertainty limited market opportunity or increasing competitive intensity. Our focus is anchored around company generic GLP-1 molecules and biosimilar. In addition, we are actively pursuing strategic collaboration and partnership to enhance our innovation ecosystem, accelerate development time lines and expand our capabilities in emerging therapeutic areas. During the quarter, we completed 43 global generic filings. For the quarters ahead, we are focused on robust execution to deliver on our strategic priority, meaning grow our base business, focus on our key pipeline assets like semaglutide and abatacept improving operational efficiency and productivity across the value chain. And we continue to actively explore partnership and value-accretive acquisitions that support our strategic vision and innovation momentum while enhancing our capabilities. These efforts are aimed to driving sustainable growth and delivering long-term value for our stakeholders. And with that, I will welcome your thoughts and questions as we move into the QA session. Operator: [Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America. Neha Manpuria: My first question is on the U.S. business. While I know you talked about product specific erosion and REVLIMID quarter-on-quarter. One, should we expect any REVLIMID all in the third quarter? And second question on the U.S. business. You've seen a product discontinuation this year. Last year, we saw NuvaRing being discontinued. You continue to spend a fair bit on R&D. How should we think about the U.S. product pipeline? Because if I look at Reddy's approval history while we have got a fair bit of approvals, we haven't really got any meaningful large launch approval outside of REVLIMID and probably Vascepa was the last one that I can think about. So I just wanted your thoughts on how we should look at some of these more meaningful launches coming through now that conjugated estrogen has been discontinued. How do you think about the U.S. growth. Erez Israeli: So just, Neha, I think there was some thing with the voice. Just the beginning of your question, I got the rest of it. Since the beginning of the question, I could not hear it sorry about it. Neha Manpuria: Yes. No problem. I was asking that, is it fair to assume that there would be no REVLIMID limit in the third quarter? Or would we still see some bits of REVLIMID as a part of the settlement in the third quarter? Erez Israeli: So we should assume that we will have and -- but less than what was in this quarter. So -- and likely that it's either going to be the last quarter or maybe some tail that will go into Q4. But by and large, Q3 will still have REVLIMID in it. On the R&D question, first, I agree with you. We -- there were certain products that we tried for a while to get an approval. And as we did not get, we kind of pull the trigger on them. We kind of gave ourselves a certain time lines that if we don't we just move on. As we speak, the main products in the United States as related to R&D will be the biosimilars I think the main products in terms of significant growth in the United, which will be abatacept. On the small molecules, we do have meaningful products that are coming primarily peptides, long-acting peptides. Some of them we missed the first to file, but they are still meaningful. The overall pipeline is about 100 products as we speak, we will tick in the pipeline. And out of that about, I would say, around 20 that will be considered what we call the complex generics. But as we discussed many times in the past, it's hard to predict on this product. So your observation is correct. What we absolutely did is that we're relooking our portfolio, and we are focusing on products that we believe that we have a good chance to be first to market as time will come. Neha Manpuria: Understood, Erez. Erez, if I were to just extend this question then to, let's say, a sema filing or abatacept filing. What gives you confidence on getting approvals on those filings? Even in case of abatacept, now that Bachupally, we have got a CRL on rituximab. I'm just wondering if -- I know there's always risk to approval, but how should we think about management's confidence in getting approval for sema in Canada or next year as we think about the abatacept? Erez Israeli: So on abatacept, let's go with abatacept and I'll go to sema after. On abatacept, we are supposed to submit the BLA, and I'm very confident about it in the end of December of this year -- calendar year, end of end of December 2025, which is exactly the date that we aim to. Here, I have a high level of confidence. It's also important to us because it will open the door for us to launch also the subcu, which is the more important SKU at the beginning of 2028, subject to settlement, of course, of the IP. The confidence comes that we are not doing only with Bachupally, but we increased the chance because we will have also for the United States, CMO that will make it, the product. I'm less concerned about the European approval because Bachupally was already approved by European, but not yet by the U.S. FDA. And also, in the case of the U.S., we don't yet know what will happen with the tariff on biologics, while we feel now more comfortable giving all the press that likely there will be no tariff. We need to see when the guidelines will come. But as a balance sheet, we don't know, and we felt the need to have a backup also there. So we will -- if we will not be able to launch from Bachupally we'll be able to launch from the United States. And this will enable us also a potential challenge, if will happen on tariff. On the sema, we are expecting the feedback from Health Canada in the next few weeks. It can be any day, but it can be within the next few weeks. And we know if we get that efficiency or not. I'm certain that we will launch all the 12 million pens that I discussed with you last time, obviously, if it will not be in Canada, it will be in other places. So the launch is going to happen. The question, of course, if we get a CRL or we'll get something in Canada, obviously, the pricing may be different. But I'm confident that we will sell the product. The question is which market they would come. Can I guarantee that we'll not get the CRL, though I cannot, I wish. Operator: The next question is from the line of Damayanti Kerai from HSBC. Damayanti Kerai: My first question is again on semaglutide. So Erez, can you remind us the legal status, which was underway in India, litigation with Novo on semaglutide? Erez Israeli: Sure. We are challenging the patents in India. And it's in the -- currently in the high court in Delhi. All the hearings were done, and we are waiting for the decision of the judge. We don't know exactly when she will submit her decisions. And likely that we ever will not like the decision will appeal. So likely that it will continue after but at this stage, the hearing are done, and we are waiting for the outcome of the decision of the judge. Damayanti Kerai: Sure. And just to clarify, this outcome should not be impacting your plans in the ex-India market, right? The markets outside of India? Erez Israeli: Depends what will be the decision of the judge. What we are seeking, we believe that the patent is invalid. And in any case, as we speak today, by the decision that was done in May, we are -- we can produce an export, not to do it in India, but the court in the decision back in May on the -- allowed us to continue to make the product and to export it. In terms of -- in the current state, we can launch in India only at patent expiration, which is right now dated to March '26. Damayanti Kerai: Okay. That's clear. My second question is going back to abatacept. So just clarifying earlier discussions. So did you mention you have a CMO in place to manufacture that product in case Bachupally takes some time to get the clearance from the FDA? Or what is the arrangement? Like what kind of risk mitigation strategies are in place? Erez Israeli: Sure, correct. So we will have -- I did mention that we will have a CMO in the United States to produce abatacept, in addition to our capacity that is built in Bachupally, India and it's mitigating 3 risks. Damayanti Kerai: Hello. Erez Israeli: Can you hear me now? Damayanti Kerai: Yes, I can hear you now. Erez Israeli: So it's addressing 3 risks. One is in a case that it will be again, CRL or any regulatory challenges that we will be able to launch from already approved FDA sites in America. Second, if there will be any tariff or any other potential restriction or regulatory burden assets related to make or sell biosimilar in the United States. And number three, to increase capacity. It's allowing us more capacity in the case that we will get nice market share. So we're absolutely going with the CMO option in the United States. Damayanti Kerai: Okay. That's helpful. And my last question is for semaglutide, I understand you're working on your in-house fill and finish capacity. So can you share the update on that project? Erez Israeli: It's going on. It will not impact the launches in the next 12 months because by the time that we will have to submit and qualify it, it will be post approval in all the countries. So the -- working with the partner that we have today. This is the famous 12 million units that we discussed in the past. This is still relevant and maybe with some upside. But right now, I think we are about the same range. And this will happen with the current partners, but we will have two cartridge lines in FTO-11. And this will be significantly expanded capacity to many, many more millions. But let's see that we let's say, in that respect, it can go to even up to $50 million, but it's all theoretical at this stage. It will be relevant not for the next 12 months, but for the period after that. Operator: The next question is from the line of Dr. Bino Pathiparampil from Elara Capital. Bino Pathiparampil: First question on the India market, India business had a strong growth in the quarter. Is there anything in particular that helped you? And was there any impact related to the GST disruption in the quarter? Erez Israeli: Yes. So we manage well the GST. So the GST was not a significant obstacle for us. We manage that well. It's just execution of our strategy, the way we discussed it for many quarters. We identify the therapeutic areas that we want to focus on. And we made several inorganic moves to buy brands that allow us relevant access. So as well as licensing of innovative products. and just working well and it's likely to continue. We said all along that we believe that innovation will allow us to outpace the market, and we feel very, very comfortable now about that strategy. I think more and more people see that now. Bino Pathiparampil: Understood. You have recently done this acquisition of the Stugeron brand from Janssen. Can you give some idea about what sort of revenues does that business have in its acquired form. Erez Israeli: So it's 100 plus in terms of size, something like that. Bino Pathiparampil: $100 million? Erez Israeli: No, INR 100 Cr, this is in India. Richa Periwal: In Delhi, in India. Erez Israeli: Yes, India. Bino Pathiparampil: That is India. Richa Periwal: Bino, India and emerging markets put together. Bino Pathiparampil: Is INR 100 Cr. And for that, if I'm right, you paid USD 15 million. Erez Israeli: Correct. Bino Pathiparampil: Okay. Understood. And any benefit of that in the growth for the quarter is some 20 days of that part of India business? Mannam Venkatanarasimham: Not much. Erez Israeli: No, no, it was very... Mannam Venkatanarasimham: Insignificant. Erez Israeli: Yes. You can take it as no real impact. Bino Pathiparampil: Got it. And my last question on the margin outlook beyond REVLIMID. Of course, we keep asking this every quarter. But if you look at current quarter, even with Lenalidomide, if we remove the other income from the EBITDA margin, it is below 23% and with Lenalidomide further coming down in the next quarters, it may fall even further. So do you still fully stick that for full year FY '27, you will get back to 25% EBITDA margin? Erez Israeli: I'm not sure how did you get to the 23%. I'm aware of 26.7%. But nevermind. Yes, absolutely. Lenalidomide is with higher margin, everybody knows that. And naturally, it's impacting and anticipating that we are discussing for 4 years. We knew exactly when Lena is going to go. And it's happening exactly as we discussed. We are addressing it with a lever that I mentioned, growing the base, contain the cost of BD and focus on these key products. I absolutely believe and I'm maintaining it that in the next 2 years we will absolutely get back to the growth and to the margins. The question is, what will be the journey in this point of time. The more sema we will have, the more growth we'll have, the more BD we'll have, we can actually do it much, much faster. So we are maintaining our commitment for the margins, we are maintaining our commitment for growth. The question is what will be the scenarios between sema, abatacept and BD primarily. And of course, because on the levers that we can control better, we are very confident that this is the base and the cost. Operator: The next question is from the line of Saion Mukherjee from Nomura. Saion Mukherjee: My first question is on the U.S.-based business. There has been a lot of price erosion over the last 3, 4 years since you have launched REVLIMID how is the base today versus, let's say, before REVLIMID? Is it up, down? If you can give some color so that we get a sense where we should assume the number post-REVLIMID? Erez Israeli: Sure. So it went down. It went down primarily not so much on volume. There were some products, about I think 5 that faced competition and price erosion, and that's what took it down. It's not significantly down. Most of the decline that you see is Lena, Lenalidomide but if you want to compare, it is done. Saion Mukherjee: And do you see it sort of stabilizing now from the current level? Or do you think there is scope for further price erosion. And if you can just give some color on the pricing dynamics in the U.S. at this point? Anything has changed? Erez Israeli: No, no change. I think it's stabilized. And I believe that it stabilized also for a while. We saw the products here and there but yes, I don't foresee additional trends like that in the coming quarters. On the base products. The erosion that will be will be on some of the launch products, the products that we launched, those can still face erosion because not all of them, what we call exhausted their potential erosion but it's insignificant as we speak. Saion Mukherjee: Okay. My second question is on sema, this $12 million that you mentioned, you feel confident about selling. So if not in Canada, where will this volume be absorbed in your view, which market. Erez Israeli: Sure. So we are going to either directly or to partners going to obtain approval in the next, let's say, 12 to 15 months in 87 countries, most of them are very small. The notable countries besides Canada will be India, Brazil, Turkey. And then we have partners that are selling in several countries of Latin America. So I cannot highlight a particular market and also in Asia. We have also B2B partners that also preparing their own launches, and we have partners on both the API as well as [indiscernible]. So I believe that the main markets that I mentioned can take, let's say, the lion's share of this quantity. Depends, of course, on the success and how -- and the date that we will actually launch. And the rest will be taken by the B2B parties. Also, the markets that I mentioned are divided to 2 types of countries. The COPP countries and the non-COPP countries. So it will be a certain sequence in which it will come to play. So far, and the demands that we have, we have already just the orders that we are discussing and gives me confidence that if the approvals will come that we'll be able to sell that, yes. Saion Mukherjee: Erez, if I can just add, like this is for 2026. Now what about 2027, how does this 12 million move up in 2027 in your estimate? Erez Israeli: So it can move up even to -- for sure to 15, but it can move up even further than that. It depends on the evolution of the product. and the qualification of FTO-11, which will significantly ramp up the capacity will be towards the second half of 2027. I'm talking about calendar not FY. Operator: The next question is from the line of Madhav Marda from Fidelity International. Madhav Marda: I wanted to understand a bit on the -- I think we've delivered double-digit growth in the ex-U.S. markets. Are we confident of maintaining this trajectory over the next 1 or 2 years? That's my first question. Erez Israeli: Yes, very much. Madhav Marda: Okay. And could you highlight any key drivers? Like do we have like new launches lined up, what can help that steady growth? Because India especially 13% was quite a good number, so ahead of market. So just wanted to understand what could drive it. Erez Israeli: So each one of the markets, we have different drivers. So if you want, I can highlight the markets for you the main markets. In Europe, it's primarily a combination of the NRT business, the leverage of the U.S. portfolio in which the pipeline is coming up and the launch of biosimilar rituximab, denosumab and bevacizumab that we had in the U.K. In the case of India, it's obviously the -- it's primarily our inorganic move that we made on innovation and the acquisitions of brands that we did in addition to a normal growth that we had on the legacy pipeline. So I always mentioned that in India, our legacy pipeline will be like the market and what we are adding value is in the places in which we are bringing products better than the standard of care. This is the strategy and now that we are accumulating enough of those is starting to be shown. It took us, I say, I'm sure we all remember quite a few years to build that. In the emerging markets, it's primarily again leverage of the generic business, especially on injectable and oncology as well as biologics, all of our biologics is going to emerging markets. And in each one of them, we have SLA depends on the market, selective innovation that we also licensed as part of our deal with India. In the case of Russia, it's primarily our legacy brands as well as some licensing and acquisition that we made in Russia on both the OTC as well as the as the Rx. API is primarily the focus on peptides. And on both -- there is also a lot of demand for the peptides on the API side. I hope I covered the markets for you if I forgot something, please... Madhav Marda: Make sense, and my second question is just on abatacept, you said we can submit the BLA by end of calendar year '25. So the Phase III trial, I'm assuming is complete now, and we're expecting sort of an update on that in terms of whether that's completed successfully? Or how should we think about the progress on the trial itself. Erez Israeli: It should be completed very, very soon and so far so good. Madhav Marda: Okay. Okay. Understood. Got it. And if you file on time and so basically, the approval will be in line with the expiry in early calendar year '27. That's how we should think about it. Erez Israeli: That's the idea, yes. Operator: The next question is from the line of Dr. Kunal Dhamesha from Macquarie Capital. Kunal Dhamesha: Just the first one on abatacept. So basically, the first filing that we'll do would be for IB version, right? Erez Israeli: Correct. Kunal Dhamesha: And what kind of the further development, the subcutaneous version would require? Erez Israeli: Can you repeat, sorry? Kunal Dhamesha: For the subcutaneous version what further developments... Erez Israeli: There is another set of tests that allow us to submit the subcu, but it doesn't require additional study. Kunal Dhamesha: Okay. So no Phase III, but some form of characterization, et cetera. Erez Israeli: Correct. Kunal Dhamesha: And the first filing that we'll do by December 2025. Would that include Bachupally as a manufacturing source or the CMO as a manufacturing source? Erez Israeli: Bachupally will start. And the CMO will be a tech transfer from Bachupally. Kunal Dhamesha: Okay. So then it might -- so Bachupally would be still the keystone for us in a way. Erez Israeli: Yes. But in the United States, I absolutely building that we will be able to be, especially for the subcu, the CMO will be enabled as day 1 launch. The mitigation that we discussed before. Kunal Dhamesha: Sure. And the second one on semaglutide Canada. So basically, let's say, over the last -- since we talked in the earlier Q1 earnings call. Your expectation about the market formation has that changed now on the day of patent expiry? Or how should we think about it given that there are more filers whose filings have been accepted by the regulatory authority in Canada? Erez Israeli: No. So nothing changed, at least in my perspective, just to make sure that, that we are expecting in the market to be competitive. There will be multiple players. The question is just the day they will get approval. So it's all about that. That did not change. I believe that the market formation will be as expected. Will -- once there is an approval, there is an application for reimbursement. And according to the rules in Canada of the pricing, that's how the market will play. So nothing changed in the way I think the game will be played is now it's about obtaining approval and obtaining a good outcome from the litigation in India. Kunal Dhamesha: Sure. And lastly, on India for sema, when I look at -- we have basically conducted trial for Ozempic and Rybelsus. So does that enable us to launch the weight loss version, which is Wegovy generic as well? Erez Israeli: For Wegovy we'll have to have an application by itself. We'll have to... Kunal Dhamesha: It would be a separate application? Erez Israeli: It will be a separate. Operator: The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Tushar Manudhane: Sir, just on a steady, robust traction of biologics across European markets and Indian market, if you could just highlight how much has been the total biologic sales across different markets on an annualized basis to date. Erez Israeli: I'm sorry, It's something and your voices is too low. Just to make sure you asked how our sales evolve in India and Europe, that's what they asked, the question is. Tushar Manudhane: Biologic sales, cumulative biologic sales across different markets. Erez Israeli: The market or us, I'm sorry.[indiscernible] so we launched in Europe Hopefully, I'm answering it correctly. We launched in the Europe bevacizumab and recently rituximab in multiple countries, and we will increase the numbers of the countries as time goes by. And this is after we got the approval, the recent approval for rituximab for Europe. In India and emerging markets, we were always there. So it is going well. In the main program that we will launch in Europe will be denosumab and abatacept. This is the main pipeline. The same product, obviously, will be launched in India and emerging markets. But in India, we'll also have pembro as well as nivo. So that's right now the plans in those countries. Tushar Manudhane: And sir, with respect to rituximab, now that we are thinking of having a CMO, will that require let's say, at least the stability data from CMO side and hence maybe more time to sort of get through the regulatory process. Erez Israeli: The CMO that I mentioned is for abatacept, primarily for the subcu and it will require a tech transfer as well as stability. But we believe that we will be able to be ready for the big quantities, which will be in the beginning of calendar '28. So we should be good by then. Tushar Manudhane: Understood. And just lastly, on the PSAI segment, where there has been improvement in the gross margin quarter-over-quarter, while we are still lower than the historical gross margin but if you can just help understand in terms of the current gross margin and how to think about it over the next 1 to 2 years? Mannam Venkatanarasimham: So we expect, I think, going forward, PSA gross margin range of 20% to 25%. Tushar Manudhane: Compared to 15% currently, right? Mannam Venkatanarasimham: No, this quarter is at 18%. And because I think here, based on the product mix and then I think leverage of the all the overheads and everywhere. I think the range you can expect then going forward, 20%, 25% PSA gross margin. Tushar Manudhane: Got it. And you -- there was an earlier comment of peptide sales within PSA. So if you could quantify how much has that been? Erez Israeli: We build a capacity of up to 800 kg. Naturally, we are not even close right now to this level and right now, it's very small, but it will grow as it will come it. Operator: The next question is from the Kunal Randeria from Axis Capital. Kunal Randeria: So firstly, I would like to understand how your R&D will take shape given that you're developing a few biosimilars like pembrolizumab and daratumumab and of your R&D budget, how much you would be earmarking for biosimilars and Aurigene. So basically, your non-generic business. Erez Israeli: So just to clarify, daratumumab, we are now developing. It's a product that we license from Helios from a Chinese company. Denosumab was developed by Alvotech, and we have a partnership with them. And so in that respect, the main products that are done internally is still abatacept that we basically finished the clinic of it. As you can see, the R&D is about 7% right now of the sales and likely that it will stay in this range for now. Kunal Randeria: Sure, sure. And secondly, again on semaglutide. So do you foresee a situation where the market may not turn out to be as favorable as you think in Canada because besides the number of filers, which are increasing by the day, there are perhaps risks. Let's say, from a compounding pharmacy, which is intending to enter Canada and even the innovator has seen volume pressure in several markets. So there might be a situation where they are aggressive on pricing. So -- is there a risk of the market deterioration? Erez Israeli: First of all, I mentioned all along, I think that Canada market will be competitive with multiple players. So I also now in 33 years within pharmaceuticals, I learned not to forecast launch. I always mentioned that it can range from 0 to many, many millions of dollars. So -- but yes, the answer is I anticipate that Canada is going to be very, very competitive. I anticipate that Canada will be very, very competitive. As players will get an approval. Kunal Randeria: Right. And if I can, if you don't mind, ask is there -- I mean, any particular price erosion that we can see from the current levels, maybe 80%, 85% kind of price erosion that will eventually settle down to? Erez Israeli: I have no clue. I wish I do. Operator: [Operator Instructions] The next question is from the line of Vivek Agrawal from Citi. Vivek Agrawal: My question is related to NRT and branded markets like India, EM. So the growth was quite decent across the board and really a commendable job. So just want to understand how to look at the investment that you are making behind these markets? Or are these are sustainable investments or, let's say, it can be cut down in future? Erez Israeli: First of all, I don't think you see the investment in emerging markets. As we speak, we got the market in certain waves. And the markets that we did not get, we are still managed by Haleon, and we are paying them a fee for doing that for us. So naturally, as market is coming to us, the fee for Haleon is going. And therefore, it's -- the margins are going up because we don't need to pay them. And we are starting to invest in the market that we invest are the only markets that we've got the beginning, meaning U.K. and Scandinavia. So that's -- so we -- right now, my base is not yet -- it's absolutely not a steady state. We have 2 more waves to go and before we go. What I can tell that so far, it's exceeding our expectation both on the pace of growth as well as on the margin. In both cases, it's much better than what we presented internally when we approved the project. So it's a kind of a good start, I would call it. Vivek Agrawal: I understand, Erez. And just a related question here. It's on OpEx basically. So on absolute basis, how we should look at the OpEx in FY '27. So can it continue to increase, let's say, from '26 level, maybe relatively at a lower pace? Or is there any possibility of absolute decline in OpEx, let's say, in '27 compared to FY '26. Mannam Venkatanarasimham: So Vivek, if you look this quarter, we have at 30%. And then if you adjust the one-off, I think we are close to 29.1% at somewhere and then for any modeling, I think we'll be in the zone of like 28% to 30%. Operator: The next question is from the line of Dr. Harith Ahamed from Avendus Spark. Harith Mohammed: Just on rituximab again. So given this is the second successful PAI and CRL that we've had, are there any specific challenges related to the speciality? I'm asking also because this is a biologics facility and our track record, otherwise on compliance has been quite excellent in recent years. Erez Israeli: So there is nothing specific per se. We -- it's all obviously, as this is a sterile plant, we have -- we've got queries that are related to the nature of the site. We believe it's addressable. In a case that they will come with another set of questions. What we will do is that we will submit. We have an alternate line as a backup, which is FFF 2 that we feel that FFF 2 is a fill and finish or for those that are on the line. So we may need to move the product from 1 line to another in a case that it will not come well on the first one. So it's primarily related to the fact that the first line that we have FFF 1 is some of the design of it raised those queries and also last time we are addressing it. But if it will not work, we'll have to move to FFM 2. I'm not worried on the not getting approval. I'm certain that we get approval. Just to remind all of us, rituximab for us was deliberately chosen in order to start the regulatory process on time to make sure that by the time that abatacept will come, Bachupally will face those kind of stuff. And this is -- it's serving its purpose and hopefully, we can absorb it soon. Harith Mohammed: Okay. A quick one on tocilizumab biosimilar. It's been a while since we got an update on that one. Can you share the status of that program? Erez Israeli: We don't -- we are not planning to have it as a global product. We will have it only for India. Harith Mohammed: Yes. And then one quick follow-up on the previous question. The cost reductions that we have alluded to in the past, 500, 600 basis points of reductions. Are these reflecting to a small extent in the first half numbers? Or should we wait for the coming quarters for this to actually the numbers. Erez Israeli: Yes, I believe so. You can see that despite the fact that Lena is going down. We are maintaining our reasonable numbers. So it's absolutely a reflection of those mitigations. Of course, the full force of it will come as quarters will come. And we have also shared the numbers. So we believe that with SG&A of around 28% and R&D of around 7%. It comes to the famous 5% to 7% that we set, and there is even opportunity for more if we need to. So we maintain that we will -- we are very, very sensitive to the margins. And naturally, we're discussing it every time, and we will absolutely be really disciplined on those. Operator: [Operator Instructions] Next is Gautam from Leo Capital. Unknown Analyst: My question was on the GLP-1. Do you only plan to do fill and finish or do you also manufacture API drug substances. How much manufacturing capacity do you have? And which markets are we targeting for this? Erez Israeli: So we have CTO-6 making the API. I mentioned that the overall potential of all the investments that we put can reach even 800 Kg, but we are very, very far from this output at this stage. We've don't need also. Just that -- but we are preparing it not just for semaglutide, liraglutide, but also for 40-something peptides that we identified and we are going to develop either by ourself or with the partners in the next coming years. So right now, we will have sufficient capacity for the demand that we'll have for the liraglutide semaglutide in the submissions to the relevant authorities of all the peptides that will be of patents, including tirzepatide that will be obviously an R&D project, but it's very important to submit it in relevant markets. And we are also making the product, we are planning to make it in FTO-11 and also with the partners. In general, the approach will be that we will have for every important product in-house capabilities as well as partnership capabilities for all kinds of risk mitigations. Unknown Analyst: Okay. So can you just like expand on the fill and finish also what's the capacity we have and the status on that and the markets we are supplying for that? Erez Israeli: I think we discussed it. We have 12 million pens for the semaglutide with the partner. We can -- and we have 2 lines of cartridge that will be an FTO-11, they can reach even 50 million, but right now it's Theoretical. The cartridge lines are on the way and they will be assembled and will be ready, not for these 12 months, but after. Operator: The last question for today comes from Sumit Gupta from Centrum Capital. Suma, please go ahead. Sumit Gupta: Yes. So just one question on the Indian business. So sir, can you segregate the volume and price growth? Erez Israeli: The volume and the price. Mannam Venkatanarasimham: So Sumit, the price is like in the range of normal 5%, and then the balance growth is like mainly from the new products and volumes. Sumit Gupta: Okay. So going forward, like should we expect this to continue? Or can we expect any significant growth in volumes also? Erez Israeli: You should expect to continue, we will have new products volume, and the price will be in that range that MVN shared with you. Operator: We reached the end of the call. I now hand the call over to Richa for the closing comments. Richa Periwal: Thank you all for joining us today. We truly appreciate your continued interest in Dr. Reddy's Laboratories and the time you've taken to engage with our Q2 FY '26 results. If you have any further questions or need any additional information, please do not hesitate to contact the Investor Relations team. Have a great day. Stay safe and take care. Erez Israeli: Thank you.
Operator: Good day, and welcome our quarter 2 fiscal year 2026 [indiscernible] Limited. I'm Aishwarya Sitharam and I'm part of the Dr. Reddy's Investor Relations team. [Operator Instructions] I now hand over the conference to Richa Periwal. Richa Periwal: Thanks, Aishwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebrations with your loved ones. Thank you for joining us for Dr. Reddy's Laboratories Q2 FY '26 Earnings Conference Call. We truly value your time and participation. Joining us today are members of the leadership team. Mr. Erez Israeli, CEO; Mr. MVN, our CFO; and the Investor Relations team. Earlier today, we released our quarterly financial results. These are now available on your website for your reference. We will begin today's session with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Dr. Reddy's Laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded, and both the audio and the transcript will be made available on our website shortly. All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. Finally, a reminder that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during the call. With that, let me now hand it over to MVN to present the financial highlights for the quarter. Over to you, MVN. Mannam Venkatanarasimham: Thank you, Richa, and Aishwarya, good evening, and a warm welcome to all. Thank you for joining us on our Q2 FY '26 earnings call. I'm delighted to take you through our financial performance for the quarter. We delivered a steady performance in Q2, achieving near double-digit growth despite lower Lenalidomide renamed sales. The acquired consumer health care business supported the top line momentum. EBITDA margin stood at 26.7% for the quarter. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 88.78, the exchange rate prevailing as of September 30, 2025. Consolidated revenue for the quarter stood at INR 8,805 crores which is USD 992 million, a growth of 9.8% year-over-year and 3% on sequential basis. While U.S generics faced product specific price erosion and lower Lenalidomide sales, overall growth was supported by the integration of consumer health care business and double-digit growth delivery across other markets aided by favorable ForEx. Consolidated gross profit margin for the quarter was 54.7%, a decrease of 492 basis points year-over-year and 223 basis points sequentially. The decrease in margins during the quarter was due to lower Lenalidomide sales and product-specific price erosion in the U.S. generics. Onetime inventory provisions from the discontinuation of the certain pipeline products due to technical challenges in the lower operating leverage in PSAI business. Gross margin was 59.1% for global generics and 18% for PSAI. The SG&A spend for the quarter was INR 2,644 crores, which is USD 298 million, an increase of 15% on year-over-year and 3% on a sequential basis. The year-over-year increase was primarily driven by focused investments in the acquired NRT consumer healthcare business and in branded generics, which are key to driving sustainable growth. SG&A for the quarter includes a onetime provision of INR 70 crores for a VAT liability in one of our subsidiaries and charges related to a discontinued pipeline product. SG&A spend accounted for 30% of revenues during the quarter and was higher by 132 basis points year-over-year and similar levels on a sequential basis. Excluding the one-offs related to VAT provision, SG&A expense as a percentage of revenues was at 29.2% in Q2 FY '26. The R&D spend for the quarter was INR 620 crores, which is USD 70 million, a decline of 15% year-over-year. And broadly, flat sequentially. The decrease was due to reduced development spend on biosimilars during the quarter as major investments for abatacept have already been completed. We continue to make focused R&D investments in complex generics, APIs and biosimilar pipeline while pursuing strategic collaborations to bring innovative assets that support sustainable long-term growth. The R&D spend was 7% of revenues for the quarter, lower by 203 basis points year-over-year and 26 basis points on a sequential basis. Other operating income for the quarter was INR 267 crores, higher than INR 98 crores in the corresponding quarter last year. This was mainly on account of product-related IP settlement income in the United States and onetime reversal of INR 88 crores in liabilities related to discontinuation of the pipeline product. EBITDA for the quarter, inclusive of other income, stood at INR 2,351 crores which is USD 265 million, an increase of 3% on year-over-year and a sequential basis. The EBITDA margin stood at 26.7%, lowered by 174 basis points on year-over-year and flat sequentially. Adjusting for the onetime VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Impairment charge was INR 66 crores, including INR 54 crores for property, plant and equipment at our Middleburg facility following the discontinuation of the pipeline product, conjugated estrogen. The remaining charge pertains to product related to intangibles impacted by adverse market conditions. The net finance income for the quarter was lower at INR 77 crores as compared to INR 156 crores for the same quarter last year. The decline in net finance income reflects lower returns from financial investment following the deployment of cash reserves towards acquisition of consumer health care business and other intangible assets in line with our capital allocation strategy. As a result, profit before tax for the quarter stood at INR 1,835 crores, that is USD 207 million. PBT as a percentage revenues was at 20.8% on an adjusted basis, excluding the onetime VAT provision, the PBT margin was at 21.6%. The effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2 FY '26 was lower primarily due to favorable jurisdictional mix for the quarter. The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax assets related to land indexation following amendments introduced through the Finance Act 2024 to Income-Tax Act 1961. Profit after tax attributable to the equity holders of the parent for the quarter stood at INR 1,437 crores, which is USD 162 million, a growth of 14% on a year-over-year, flat on Q-o-Q basis. This is at 16.3% of revenues, Diluted EPS for the quarter is INR 17.25. Operating working capital as of 30th September 2025 was INR 13,331 crores, which is in USD 1.5 billion, an increase of INR 3 crores, which is like USD 0.4 million over 30th June 2025. CapEx cash outflow for the quarter stood at INR 511 crores, which is INR 58 million. Free cash flow generated during the quarter was INR 1,046 crores, which is USD 118 million. As of September 30, we have a net cash surplus of INR 2,751 crores which is like USD 310 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 502 million hedged using combination of forward structured derivative contracts scheduled to mature through December 2026. These contracts are hedged at the rate of INR 86.9 per U.S. dollar, RUB 4.28 billion hedged at a fixed rate of 1.03 per Russian ruble with maturity falling within next 4 months. With this, I request Erez to take us through the... Erez Israeli: Thank you, MVN. Good day, everyone, and thank you for joining us today. We are pleased to report a consistent performance in Q2 FY '26, marked by a double-digit growth and steady profitability. This performance was driven by contributions across all key markets except for the U.S. generic business. During the quarter, we continued to make a meaningful progress across our strategic priorities namely growing the base, scaling our presence in consumer health care, innovative therapies and biosimilars. We advanced our key pipeline programs, including semaglutide and abatacept. In addition, we have been driving initiatives to enhance cost efficiencies across our operations while simultaneously pursuing business development activity to support sustainable growth in the coming quarters. Let me now walk you through some of the key highlights of the quarter. Revenue grew by 10% year-on-year driven by broad-based growth across businesses, benefiting from acquired consumer health care and supported by a favorable ForEx. Growth was partially offset by lower contribution from Lenalidomide and some price erosion in the U.S. in some select products. The EBITDA margin stood at 26.7%. The ROCE for the quarter was around 22%. The cash flow from operation was utilized to our plant expansions and acquisition of strategic brands and securing rights for distribution in defined markets. We closed the quarter with net cash surplus of $310 million reinforcing the strength of our balance sheet. We strengthened our innovation-led portfolio to strategic collaboration and launches. We entered the anti-vertigo segment with the acquisition of Stugeron and related brands across 18 markets in APAC and EMEA from Janssen Pharmaceutica. In India, we strengthened our gastrointestinal portfolio with the launch of 2 novel drugs Tegoprazan under the brand name of PCAB and Linaclotide under the brand name of Colozo. In partnership with Unitaid, Clinton Health Access Initiative & Wits RHI, we are working to make Lenacapavir, a long-acting HIV prevention tool accessible and affordable in low and middle-income countries. We continue to make progress on our key pipeline products. The subject expert committee, the SEC under Central Drug Standard Control Organization has recommended approval for semaglutide injection in India. We received a positive opinion from European Medicines Agency Committee for medicinal products for human use for denosumab biosimilar candidate. The U.S. FDA accepted our investigational new drug's IND application for COYA 302, a partner novel drug for the treatment patients with ALS. We also made a steady progress on integrating the acquired nicotine replacement therapy business. We have successfully integrated 2/3 of the business by value, including Canada, Australia and selected key Western European markets. The next phase will include Southern Europe, Israel and Taiwan. On the regulatory front, several inspections were completed across our global facilities. In September 2025, the U.S. FDA conducted a pre-approval inspection on our Bachupally biologics facility and issued a Form 483 with 5 observations. The agency recently issued a complete response letter in reference to the ongoing resolution of observation pertaining to the biologic license application, the BLA of our rituximab biosimilar candidate. We are actively working to address these observations. The U.S. FDA conclude a GMP inspection at our Mirfield API facility in the U.K., resulting in issuing a Form 483 containing 7 observations. Additionally, our API site CTO-5 in Miryalaguda, in Telangana as well as our Middleburgh facility in New York were classified as VAI following successful GMP inspection by the U.S. FDA. The GMP and pre-approval inspection PAI conducted by the U.S. FDA in July 2025, at our formulation manufacturing facility, FTO-11 has been formally closed. We have received the EIR establishment inspection report with the inspection outcome categorized as VAI. We continue to be recognized for our industry-leading performance in sustainability. We retained our MSCI ESG Rating for A for the second consecutive year. Our ESG Risk Rating from Morningstar Sustainalytics improved from 23.6% to 18.4%, representing a lower ESG risk profile. Our waste management practices were recognized with the Diamond Standard for achieving 99.9% of waste diversion from landfills. Further our formulation facilities at Srikakulam FTO-11 became India's first pharmaceutical facility to receive a Leadership in Energy and Environmental Design, Platinum Certification for existing buildings from U.S. Green Building Council. Let me take -- let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies. Our North American generic business generated revenues of $373 million for the quarter, a decline of 16% year-on-year and 7% sequentially. The performance was impacted by price erosion in selected key products, primarily Lenalidomide. During the quarter, we launched 7 new products and expect launch momentum to continue in the second half of the fiscal. Our European business reported revenue of $135 million for the quarter, growth of 150% on a year-to-year basis and 3% on quarter-on-quarter. The year-on-year performance was primarily driven by contribution from the acquired nicotine replacement therapy portfolio and new product launches, which offset the price erosion pressure -- the pricing pressure. Excluding the NRT, the growth was 6% year-on-year and quarter-on-quarter. During the quarter, we launched 8 new generic products across European markets, further strengthening our portfolio. Our emerging market business delivered revenue of INR 1,655 crores in Q2 reflecting a growth of 14% year-on-year and 18% sequentially. Growth was primarily driven by new product launches across markets and aided by favorable ForEx. During the quarter, we introduced 24 new products across multiple countries, reinforcing our commitment to expanding access and strengthening our market presence. Within this segment, our Russia business delivered a growth of 13% year-on-year and 18% sequentially in constant currency terms despite prevailing macroeconomic challenges. Our India business reported revenues of INR 1,578 crores in Q2, delivering a double-digit year-on-year growth of 13% and 7% increase sequentially. This performance was driven by contribution from new product launches, improved pricing and higher volumes. According to IQVIA, we have moved up one place to the 9th position in India pharmaceutical market for the month of September and continued to outpace market growth. With moving annual total MAT growth of 9.4% compared to IPM 7.8% growth. During the quarter, we launched 11 new brands in addition to the acquired Stugeron portfolio, further strengthening our domestic franchise. Our PSAI business reported revenue of $108 million in Q2 FY '26, registering growth of 8% year-over-year and 13% sequentially. During the quarter, we filed 37 Drug Master Files globally. We have further sharpened our R&D focus on programs that offer clear differentiation and strong commercial potential in alignment with our strategic priorities. We have rationalized few pipeline products that face extended regulatory uncertainty limited market opportunity or increasing competitive intensity. Our focus is anchored around company generic GLP-1 molecules and biosimilar. In addition, we are actively pursuing strategic collaboration and partnership to enhance our innovation ecosystem, accelerate development time lines and expand our capabilities in emerging therapeutic areas. During the quarter, we completed 43 global generic filings. For the quarters ahead, we are focused on robust execution to deliver on our strategic priority, meaning grow our base business, focus on our key pipeline assets like semaglutide and abatacept improving operational efficiency and productivity across the value chain. And we continue to actively explore partnership and value-accretive acquisitions that support our strategic vision and innovation momentum while enhancing our capabilities. These efforts are aimed to driving sustainable growth and delivering long-term value for our stakeholders. And with that, I will welcome your thoughts and questions as we move into the QA session. Operator: [Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America. Neha Manpuria: My first question is on the U.S. business. While I know you talked about product specific erosion and REVLIMID quarter-on-quarter. One, should we expect any REVLIMID all in the third quarter? And second question on the U.S. business. You've seen a product discontinuation this year. Last year, we saw NuvaRing being discontinued. You continue to spend a fair bit on R&D. How should we think about the U.S. product pipeline? Because if I look at Reddy's approval history while we have got a fair bit of approvals, we haven't really got any meaningful large launch approval outside of REVLIMID and probably Vascepa was the last one that I can think about. So I just wanted your thoughts on how we should look at some of these more meaningful launches coming through now that conjugated estrogen has been discontinued. How do you think about the U.S. growth. Erez Israeli: So just, Neha, I think there was some thing with the voice. Just the beginning of your question, I got the rest of it. Since the beginning of the question, I could not hear it sorry about it. Neha Manpuria: Yes. No problem. I was asking that, is it fair to assume that there would be no REVLIMID limit in the third quarter? Or would we still see some bits of REVLIMID as a part of the settlement in the third quarter? Erez Israeli: So we should assume that we will have and -- but less than what was in this quarter. So -- and likely that it's either going to be the last quarter or maybe some tail that will go into Q4. But by and large, Q3 will still have REVLIMID in it. On the R&D question, first, I agree with you. We -- there were certain products that we tried for a while to get an approval. And as we did not get, we kind of pull the trigger on them. We kind of gave ourselves a certain time lines that if we don't we just move on. As we speak, the main products in the United States as related to R&D will be the biosimilars I think the main products in terms of significant growth in the United, which will be abatacept. On the small molecules, we do have meaningful products that are coming primarily peptides, long-acting peptides. Some of them we missed the first to file, but they are still meaningful. The overall pipeline is about 100 products as we speak, we will tick in the pipeline. And out of that about, I would say, around 20 that will be considered what we call the complex generics. But as we discussed many times in the past, it's hard to predict on this product. So your observation is correct. What we absolutely did is that we're relooking our portfolio, and we are focusing on products that we believe that we have a good chance to be first to market as time will come. Neha Manpuria: Understood, Erez. Erez, if I were to just extend this question then to, let's say, a sema filing or abatacept filing. What gives you confidence on getting approvals on those filings? Even in case of abatacept, now that Bachupally, we have got a CRL on rituximab. I'm just wondering if -- I know there's always risk to approval, but how should we think about management's confidence in getting approval for sema in Canada or next year as we think about the abatacept? Erez Israeli: So on abatacept, let's go with abatacept and I'll go to sema after. On abatacept, we are supposed to submit the BLA, and I'm very confident about it in the end of December of this year -- calendar year, end of end of December 2025, which is exactly the date that we aim to. Here, I have a high level of confidence. It's also important to us because it will open the door for us to launch also the subcu, which is the more important SKU at the beginning of 2028, subject to settlement, of course, of the IP. The confidence comes that we are not doing only with Bachupally, but we increased the chance because we will have also for the United States, CMO that will make it, the product. I'm less concerned about the European approval because Bachupally was already approved by European, but not yet by the U.S. FDA. And also, in the case of the U.S., we don't yet know what will happen with the tariff on biologics, while we feel now more comfortable giving all the press that likely there will be no tariff. We need to see when the guidelines will come. But as a balance sheet, we don't know, and we felt the need to have a backup also there. So we will -- if we will not be able to launch from Bachupally we'll be able to launch from the United States. And this will enable us also a potential challenge, if will happen on tariff. On the sema, we are expecting the feedback from Health Canada in the next few weeks. It can be any day, but it can be within the next few weeks. And we know if we get that efficiency or not. I'm certain that we will launch all the 12 million pens that I discussed with you last time, obviously, if it will not be in Canada, it will be in other places. So the launch is going to happen. The question, of course, if we get a CRL or we'll get something in Canada, obviously, the pricing may be different. But I'm confident that we will sell the product. The question is which market they would come. Can I guarantee that we'll not get the CRL, though I cannot, I wish. Operator: The next question is from the line of Damayanti Kerai from HSBC. Damayanti Kerai: My first question is again on semaglutide. So Erez, can you remind us the legal status, which was underway in India, litigation with Novo on semaglutide? Erez Israeli: Sure. We are challenging the patents in India. And it's in the -- currently in the high court in Delhi. All the hearings were done, and we are waiting for the decision of the judge. We don't know exactly when she will submit her decisions. And likely that we ever will not like the decision will appeal. So likely that it will continue after but at this stage, the hearing are done, and we are waiting for the outcome of the decision of the judge. Damayanti Kerai: Sure. And just to clarify, this outcome should not be impacting your plans in the ex-India market, right? The markets outside of India? Erez Israeli: Depends what will be the decision of the judge. What we are seeking, we believe that the patent is invalid. And in any case, as we speak today, by the decision that was done in May, we are -- we can produce an export, not to do it in India, but the court in the decision back in May on the -- allowed us to continue to make the product and to export it. In terms of -- in the current state, we can launch in India only at patent expiration, which is right now dated to March '26. Damayanti Kerai: Okay. That's clear. My second question is going back to abatacept. So just clarifying earlier discussions. So did you mention you have a CMO in place to manufacture that product in case Bachupally takes some time to get the clearance from the FDA? Or what is the arrangement? Like what kind of risk mitigation strategies are in place? Erez Israeli: Sure, correct. So we will have -- I did mention that we will have a CMO in the United States to produce abatacept, in addition to our capacity that is built in Bachupally, India and it's mitigating 3 risks. Damayanti Kerai: Hello. Erez Israeli: Can you hear me now? Damayanti Kerai: Yes, I can hear you now. Erez Israeli: So it's addressing 3 risks. One is in a case that it will be again, CRL or any regulatory challenges that we will be able to launch from already approved FDA sites in America. Second, if there will be any tariff or any other potential restriction or regulatory burden assets related to make or sell biosimilar in the United States. And number three, to increase capacity. It's allowing us more capacity in the case that we will get nice market share. So we're absolutely going with the CMO option in the United States. Damayanti Kerai: Okay. That's helpful. And my last question is for semaglutide, I understand you're working on your in-house fill and finish capacity. So can you share the update on that project? Erez Israeli: It's going on. It will not impact the launches in the next 12 months because by the time that we will have to submit and qualify it, it will be post approval in all the countries. So the -- working with the partner that we have today. This is the famous 12 million units that we discussed in the past. This is still relevant and maybe with some upside. But right now, I think we are about the same range. And this will happen with the current partners, but we will have two cartridge lines in FTO-11. And this will be significantly expanded capacity to many, many more millions. But let's see that we let's say, in that respect, it can go to even up to $50 million, but it's all theoretical at this stage. It will be relevant not for the next 12 months, but for the period after that. Operator: The next question is from the line of Dr. Bino Pathiparampil from Elara Capital. Bino Pathiparampil: First question on the India market, India business had a strong growth in the quarter. Is there anything in particular that helped you? And was there any impact related to the GST disruption in the quarter? Erez Israeli: Yes. So we manage well the GST. So the GST was not a significant obstacle for us. We manage that well. It's just execution of our strategy, the way we discussed it for many quarters. We identify the therapeutic areas that we want to focus on. And we made several inorganic moves to buy brands that allow us relevant access. So as well as licensing of innovative products. and just working well and it's likely to continue. We said all along that we believe that innovation will allow us to outpace the market, and we feel very, very comfortable now about that strategy. I think more and more people see that now. Bino Pathiparampil: Understood. You have recently done this acquisition of the Stugeron brand from Janssen. Can you give some idea about what sort of revenues does that business have in its acquired form. Erez Israeli: So it's 100 plus in terms of size, something like that. Bino Pathiparampil: $100 million? Erez Israeli: No, INR 100 Cr, this is in India. Richa Periwal: In Delhi, in India. Erez Israeli: Yes, India. Bino Pathiparampil: That is India. Richa Periwal: Bino, India and emerging markets put together. Bino Pathiparampil: Is INR 100 Cr. And for that, if I'm right, you paid USD 15 million. Erez Israeli: Correct. Bino Pathiparampil: Okay. Understood. And any benefit of that in the growth for the quarter is some 20 days of that part of India business? Mannam Venkatanarasimham: Not much. Erez Israeli: No, no, it was very... Mannam Venkatanarasimham: Insignificant. Erez Israeli: Yes. You can take it as no real impact. Bino Pathiparampil: Got it. And my last question on the margin outlook beyond REVLIMID. Of course, we keep asking this every quarter. But if you look at current quarter, even with Lenalidomide, if we remove the other income from the EBITDA margin, it is below 23% and with Lenalidomide further coming down in the next quarters, it may fall even further. So do you still fully stick that for full year FY '27, you will get back to 25% EBITDA margin? Erez Israeli: I'm not sure how did you get to the 23%. I'm aware of 26.7%. But nevermind. Yes, absolutely. Lenalidomide is with higher margin, everybody knows that. And naturally, it's impacting and anticipating that we are discussing for 4 years. We knew exactly when Lena is going to go. And it's happening exactly as we discussed. We are addressing it with a lever that I mentioned, growing the base, contain the cost of BD and focus on these key products. I absolutely believe and I'm maintaining it that in the next 2 years we will absolutely get back to the growth and to the margins. The question is, what will be the journey in this point of time. The more sema we will have, the more growth we'll have, the more BD we'll have, we can actually do it much, much faster. So we are maintaining our commitment for the margins, we are maintaining our commitment for growth. The question is what will be the scenarios between sema, abatacept and BD primarily. And of course, because on the levers that we can control better, we are very confident that this is the base and the cost. Operator: The next question is from the line of Saion Mukherjee from Nomura. Saion Mukherjee: My first question is on the U.S.-based business. There has been a lot of price erosion over the last 3, 4 years since you have launched REVLIMID how is the base today versus, let's say, before REVLIMID? Is it up, down? If you can give some color so that we get a sense where we should assume the number post-REVLIMID? Erez Israeli: Sure. So it went down. It went down primarily not so much on volume. There were some products, about I think 5 that faced competition and price erosion, and that's what took it down. It's not significantly down. Most of the decline that you see is Lena, Lenalidomide but if you want to compare, it is done. Saion Mukherjee: And do you see it sort of stabilizing now from the current level? Or do you think there is scope for further price erosion. And if you can just give some color on the pricing dynamics in the U.S. at this point? Anything has changed? Erez Israeli: No, no change. I think it's stabilized. And I believe that it stabilized also for a while. We saw the products here and there but yes, I don't foresee additional trends like that in the coming quarters. On the base products. The erosion that will be will be on some of the launch products, the products that we launched, those can still face erosion because not all of them, what we call exhausted their potential erosion but it's insignificant as we speak. Saion Mukherjee: Okay. My second question is on sema, this $12 million that you mentioned, you feel confident about selling. So if not in Canada, where will this volume be absorbed in your view, which market. Erez Israeli: Sure. So we are going to either directly or to partners going to obtain approval in the next, let's say, 12 to 15 months in 87 countries, most of them are very small. The notable countries besides Canada will be India, Brazil, Turkey. And then we have partners that are selling in several countries of Latin America. So I cannot highlight a particular market and also in Asia. We have also B2B partners that also preparing their own launches, and we have partners on both the API as well as [indiscernible]. So I believe that the main markets that I mentioned can take, let's say, the lion's share of this quantity. Depends, of course, on the success and how -- and the date that we will actually launch. And the rest will be taken by the B2B parties. Also, the markets that I mentioned are divided to 2 types of countries. The COPP countries and the non-COPP countries. So it will be a certain sequence in which it will come to play. So far, and the demands that we have, we have already just the orders that we are discussing and gives me confidence that if the approvals will come that we'll be able to sell that, yes. Saion Mukherjee: Erez, if I can just add, like this is for 2026. Now what about 2027, how does this 12 million move up in 2027 in your estimate? Erez Israeli: So it can move up even to -- for sure to 15, but it can move up even further than that. It depends on the evolution of the product. and the qualification of FTO-11, which will significantly ramp up the capacity will be towards the second half of 2027. I'm talking about calendar not FY. Operator: The next question is from the line of Madhav Marda from Fidelity International. Madhav Marda: I wanted to understand a bit on the -- I think we've delivered double-digit growth in the ex-U.S. markets. Are we confident of maintaining this trajectory over the next 1 or 2 years? That's my first question. Erez Israeli: Yes, very much. Madhav Marda: Okay. And could you highlight any key drivers? Like do we have like new launches lined up, what can help that steady growth? Because India especially 13% was quite a good number, so ahead of market. So just wanted to understand what could drive it. Erez Israeli: So each one of the markets, we have different drivers. So if you want, I can highlight the markets for you the main markets. In Europe, it's primarily a combination of the NRT business, the leverage of the U.S. portfolio in which the pipeline is coming up and the launch of biosimilar rituximab, denosumab and bevacizumab that we had in the U.K. In the case of India, it's obviously the -- it's primarily our inorganic move that we made on innovation and the acquisitions of brands that we did in addition to a normal growth that we had on the legacy pipeline. So I always mentioned that in India, our legacy pipeline will be like the market and what we are adding value is in the places in which we are bringing products better than the standard of care. This is the strategy and now that we are accumulating enough of those is starting to be shown. It took us, I say, I'm sure we all remember quite a few years to build that. In the emerging markets, it's primarily again leverage of the generic business, especially on injectable and oncology as well as biologics, all of our biologics is going to emerging markets. And in each one of them, we have SLA depends on the market, selective innovation that we also licensed as part of our deal with India. In the case of Russia, it's primarily our legacy brands as well as some licensing and acquisition that we made in Russia on both the OTC as well as the as the Rx. API is primarily the focus on peptides. And on both -- there is also a lot of demand for the peptides on the API side. I hope I covered the markets for you if I forgot something, please... Madhav Marda: Make sense, and my second question is just on abatacept, you said we can submit the BLA by end of calendar year '25. So the Phase III trial, I'm assuming is complete now, and we're expecting sort of an update on that in terms of whether that's completed successfully? Or how should we think about the progress on the trial itself. Erez Israeli: It should be completed very, very soon and so far so good. Madhav Marda: Okay. Okay. Understood. Got it. And if you file on time and so basically, the approval will be in line with the expiry in early calendar year '27. That's how we should think about it. Erez Israeli: That's the idea, yes. Operator: The next question is from the line of Dr. Kunal Dhamesha from Macquarie Capital. Kunal Dhamesha: Just the first one on abatacept. So basically, the first filing that we'll do would be for IB version, right? Erez Israeli: Correct. Kunal Dhamesha: And what kind of the further development, the subcutaneous version would require? Erez Israeli: Can you repeat, sorry? Kunal Dhamesha: For the subcutaneous version what further developments... Erez Israeli: There is another set of tests that allow us to submit the subcu, but it doesn't require additional study. Kunal Dhamesha: Okay. So no Phase III, but some form of characterization, et cetera. Erez Israeli: Correct. Kunal Dhamesha: And the first filing that we'll do by December 2025. Would that include Bachupally as a manufacturing source or the CMO as a manufacturing source? Erez Israeli: Bachupally will start. And the CMO will be a tech transfer from Bachupally. Kunal Dhamesha: Okay. So then it might -- so Bachupally would be still the keystone for us in a way. Erez Israeli: Yes. But in the United States, I absolutely building that we will be able to be, especially for the subcu, the CMO will be enabled as day 1 launch. The mitigation that we discussed before. Kunal Dhamesha: Sure. And the second one on semaglutide Canada. So basically, let's say, over the last -- since we talked in the earlier Q1 earnings call. Your expectation about the market formation has that changed now on the day of patent expiry? Or how should we think about it given that there are more filers whose filings have been accepted by the regulatory authority in Canada? Erez Israeli: No. So nothing changed, at least in my perspective, just to make sure that, that we are expecting in the market to be competitive. There will be multiple players. The question is just the day they will get approval. So it's all about that. That did not change. I believe that the market formation will be as expected. Will -- once there is an approval, there is an application for reimbursement. And according to the rules in Canada of the pricing, that's how the market will play. So nothing changed in the way I think the game will be played is now it's about obtaining approval and obtaining a good outcome from the litigation in India. Kunal Dhamesha: Sure. And lastly, on India for sema, when I look at -- we have basically conducted trial for Ozempic and Rybelsus. So does that enable us to launch the weight loss version, which is Wegovy generic as well? Erez Israeli: For Wegovy we'll have to have an application by itself. We'll have to... Kunal Dhamesha: It would be a separate application? Erez Israeli: It will be a separate. Operator: The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Tushar Manudhane: Sir, just on a steady, robust traction of biologics across European markets and Indian market, if you could just highlight how much has been the total biologic sales across different markets on an annualized basis to date. Erez Israeli: I'm sorry, It's something and your voices is too low. Just to make sure you asked how our sales evolve in India and Europe, that's what they asked, the question is. Tushar Manudhane: Biologic sales, cumulative biologic sales across different markets. Erez Israeli: The market or us, I'm sorry.[indiscernible] so we launched in Europe Hopefully, I'm answering it correctly. We launched in the Europe bevacizumab and recently rituximab in multiple countries, and we will increase the numbers of the countries as time goes by. And this is after we got the approval, the recent approval for rituximab for Europe. In India and emerging markets, we were always there. So it is going well. In the main program that we will launch in Europe will be denosumab and abatacept. This is the main pipeline. The same product, obviously, will be launched in India and emerging markets. But in India, we'll also have pembro as well as nivo. So that's right now the plans in those countries. Tushar Manudhane: And sir, with respect to rituximab, now that we are thinking of having a CMO, will that require let's say, at least the stability data from CMO side and hence maybe more time to sort of get through the regulatory process. Erez Israeli: The CMO that I mentioned is for abatacept, primarily for the subcu and it will require a tech transfer as well as stability. But we believe that we will be able to be ready for the big quantities, which will be in the beginning of calendar '28. So we should be good by then. Tushar Manudhane: Understood. And just lastly, on the PSAI segment, where there has been improvement in the gross margin quarter-over-quarter, while we are still lower than the historical gross margin but if you can just help understand in terms of the current gross margin and how to think about it over the next 1 to 2 years? Mannam Venkatanarasimham: So we expect, I think, going forward, PSA gross margin range of 20% to 25%. Tushar Manudhane: Compared to 15% currently, right? Mannam Venkatanarasimham: No, this quarter is at 18%. And because I think here, based on the product mix and then I think leverage of the all the overheads and everywhere. I think the range you can expect then going forward, 20%, 25% PSA gross margin. Tushar Manudhane: Got it. And you -- there was an earlier comment of peptide sales within PSA. So if you could quantify how much has that been? Erez Israeli: We build a capacity of up to 800 kg. Naturally, we are not even close right now to this level and right now, it's very small, but it will grow as it will come it. Operator: The next question is from the Kunal Randeria from Axis Capital. Kunal Randeria: So firstly, I would like to understand how your R&D will take shape given that you're developing a few biosimilars like pembrolizumab and daratumumab and of your R&D budget, how much you would be earmarking for biosimilars and Aurigene. So basically, your non-generic business. Erez Israeli: So just to clarify, daratumumab, we are now developing. It's a product that we license from Helios from a Chinese company. Denosumab was developed by Alvotech, and we have a partnership with them. And so in that respect, the main products that are done internally is still abatacept that we basically finished the clinic of it. As you can see, the R&D is about 7% right now of the sales and likely that it will stay in this range for now. Kunal Randeria: Sure, sure. And secondly, again on semaglutide. So do you foresee a situation where the market may not turn out to be as favorable as you think in Canada because besides the number of filers, which are increasing by the day, there are perhaps risks. Let's say, from a compounding pharmacy, which is intending to enter Canada and even the innovator has seen volume pressure in several markets. So there might be a situation where they are aggressive on pricing. So -- is there a risk of the market deterioration? Erez Israeli: First of all, I mentioned all along, I think that Canada market will be competitive with multiple players. So I also now in 33 years within pharmaceuticals, I learned not to forecast launch. I always mentioned that it can range from 0 to many, many millions of dollars. So -- but yes, the answer is I anticipate that Canada is going to be very, very competitive. I anticipate that Canada will be very, very competitive. As players will get an approval. Kunal Randeria: Right. And if I can, if you don't mind, ask is there -- I mean, any particular price erosion that we can see from the current levels, maybe 80%, 85% kind of price erosion that will eventually settle down to? Erez Israeli: I have no clue. I wish I do. Operator: [Operator Instructions] The next question is from the line of Vivek Agrawal from Citi. Vivek Agrawal: My question is related to NRT and branded markets like India, EM. So the growth was quite decent across the board and really a commendable job. So just want to understand how to look at the investment that you are making behind these markets? Or are these are sustainable investments or, let's say, it can be cut down in future? Erez Israeli: First of all, I don't think you see the investment in emerging markets. As we speak, we got the market in certain waves. And the markets that we did not get, we are still managed by Haleon, and we are paying them a fee for doing that for us. So naturally, as market is coming to us, the fee for Haleon is going. And therefore, it's -- the margins are going up because we don't need to pay them. And we are starting to invest in the market that we invest are the only markets that we've got the beginning, meaning U.K. and Scandinavia. So that's -- so we -- right now, my base is not yet -- it's absolutely not a steady state. We have 2 more waves to go and before we go. What I can tell that so far, it's exceeding our expectation both on the pace of growth as well as on the margin. In both cases, it's much better than what we presented internally when we approved the project. So it's a kind of a good start, I would call it. Vivek Agrawal: I understand, Erez. And just a related question here. It's on OpEx basically. So on absolute basis, how we should look at the OpEx in FY '27. So can it continue to increase, let's say, from '26 level, maybe relatively at a lower pace? Or is there any possibility of absolute decline in OpEx, let's say, in '27 compared to FY '26. Mannam Venkatanarasimham: So Vivek, if you look this quarter, we have at 30%. And then if you adjust the one-off, I think we are close to 29.1% at somewhere and then for any modeling, I think we'll be in the zone of like 28% to 30%. Operator: The next question is from the line of Dr. Harith Ahamed from Avendus Spark. Harith Mohammed: Just on rituximab again. So given this is the second successful PAI and CRL that we've had, are there any specific challenges related to the speciality? I'm asking also because this is a biologics facility and our track record, otherwise on compliance has been quite excellent in recent years. Erez Israeli: So there is nothing specific per se. We -- it's all obviously, as this is a sterile plant, we have -- we've got queries that are related to the nature of the site. We believe it's addressable. In a case that they will come with another set of questions. What we will do is that we will submit. We have an alternate line as a backup, which is FFF 2 that we feel that FFF 2 is a fill and finish or for those that are on the line. So we may need to move the product from 1 line to another in a case that it will not come well on the first one. So it's primarily related to the fact that the first line that we have FFF 1 is some of the design of it raised those queries and also last time we are addressing it. But if it will not work, we'll have to move to FFM 2. I'm not worried on the not getting approval. I'm certain that we get approval. Just to remind all of us, rituximab for us was deliberately chosen in order to start the regulatory process on time to make sure that by the time that abatacept will come, Bachupally will face those kind of stuff. And this is -- it's serving its purpose and hopefully, we can absorb it soon. Harith Mohammed: Okay. A quick one on tocilizumab biosimilar. It's been a while since we got an update on that one. Can you share the status of that program? Erez Israeli: We don't -- we are not planning to have it as a global product. We will have it only for India. Harith Mohammed: Yes. And then one quick follow-up on the previous question. The cost reductions that we have alluded to in the past, 500, 600 basis points of reductions. Are these reflecting to a small extent in the first half numbers? Or should we wait for the coming quarters for this to actually the numbers. Erez Israeli: Yes, I believe so. You can see that despite the fact that Lena is going down. We are maintaining our reasonable numbers. So it's absolutely a reflection of those mitigations. Of course, the full force of it will come as quarters will come. And we have also shared the numbers. So we believe that with SG&A of around 28% and R&D of around 7%. It comes to the famous 5% to 7% that we set, and there is even opportunity for more if we need to. So we maintain that we will -- we are very, very sensitive to the margins. And naturally, we're discussing it every time, and we will absolutely be really disciplined on those. Operator: [Operator Instructions] Next is Gautam from Leo Capital. Unknown Analyst: My question was on the GLP-1. Do you only plan to do fill and finish or do you also manufacture API drug substances. How much manufacturing capacity do you have? And which markets are we targeting for this? Erez Israeli: So we have CTO-6 making the API. I mentioned that the overall potential of all the investments that we put can reach even 800 Kg, but we are very, very far from this output at this stage. We've don't need also. Just that -- but we are preparing it not just for semaglutide, liraglutide, but also for 40-something peptides that we identified and we are going to develop either by ourself or with the partners in the next coming years. So right now, we will have sufficient capacity for the demand that we'll have for the liraglutide semaglutide in the submissions to the relevant authorities of all the peptides that will be of patents, including tirzepatide that will be obviously an R&D project, but it's very important to submit it in relevant markets. And we are also making the product, we are planning to make it in FTO-11 and also with the partners. In general, the approach will be that we will have for every important product in-house capabilities as well as partnership capabilities for all kinds of risk mitigations. Unknown Analyst: Okay. So can you just like expand on the fill and finish also what's the capacity we have and the status on that and the markets we are supplying for that? Erez Israeli: I think we discussed it. We have 12 million pens for the semaglutide with the partner. We can -- and we have 2 lines of cartridge that will be an FTO-11, they can reach even 50 million, but right now it's Theoretical. The cartridge lines are on the way and they will be assembled and will be ready, not for these 12 months, but after. Operator: The last question for today comes from Sumit Gupta from Centrum Capital. Suma, please go ahead. Sumit Gupta: Yes. So just one question on the Indian business. So sir, can you segregate the volume and price growth? Erez Israeli: The volume and the price. Mannam Venkatanarasimham: So Sumit, the price is like in the range of normal 5%, and then the balance growth is like mainly from the new products and volumes. Sumit Gupta: Okay. So going forward, like should we expect this to continue? Or can we expect any significant growth in volumes also? Erez Israeli: You should expect to continue, we will have new products volume, and the price will be in that range that MVN shared with you. Operator: We reached the end of the call. I now hand the call over to Richa for the closing comments. Richa Periwal: Thank you all for joining us today. We truly appreciate your continued interest in Dr. Reddy's Laboratories and the time you've taken to engage with our Q2 FY '26 results. If you have any further questions or need any additional information, please do not hesitate to contact the Investor Relations team. Have a great day. Stay safe and take care. Erez Israeli: Thank you.
Judy Tan: Good morning, everyone. My name is Judy, the Head of Investor Relations for Frasers Centrepoint Trust. Welcome to FCT's Second Half and Full Year Financial Results for the Financial Year 2025. With me today, we have got our senior management team, Mr. Richard Ng, our CEO; Ms. Annie Khung, our CFO; and Ms. Pauline Lim, the Managing Director for Investment and Asset Management. Without further ado, I'll pass it on to Richard to kick off today's briefing. Richard Ng: Thanks, Judy, and a very good morning to all of you. Thanks for joining us in this call. Okay. Just to start off with, maybe we can give all of you a quick recap of what happened for the full year financial FY '25. Of course, one of the key aspects is the acquisition of Northpoint City South Wing, which we announced in March of this year. And coupled with the divestment of Y10, that kind of helped us again to proactively reconstitute our portfolio. As we have shared before, the idea is for us to grow, but at the same time, to continue to strengthen the portfolio that we have, and we have done exactly that, right? As part of that acquisition, we also did EFR fundraising. We raised about over $420 million. It was a very successful EFR. And at the same time, we raised another $200 million via the perpetual securities. Financial position, very healthy at 39.6%, and cost of debt has come down on a quarter-on-quarter basis. For this quarter, it's at 3.5%. And later on, we'll talk a little bit more about cost of fund and also our refinancing plan. The operating performance continued to be very strong as demonstrated in the positive rental reversion, shopper traffic and also tenant sales. Hougang Mall AEI Is ongoing, and it's actually on track in terms of timing, in terms of cost. And happy to say that over 80% of the entire AEI spaces has already been pre-committed. Next slide, please. Okay. So again, very high-level numbers. DPU came in at $0.12113. That is 0.6% higher compared to full year FY '24 at $0.12042. Our aggregate leverage is below 40% at 39.6%. Cost of debt overall for the full year is at 3.8%. And if you compare that to FY '24 of 4.1%, so you have seen a downward trajectory for overall cost of debt. Net asset value came in at $2.23 compared to $2.29, a slight drop from FY '24. Okay. Operating highlights. Just wanted to stress a little bit in terms of the committed occupancy. Overall, the asset is again performing very well in terms of occupancy, but you could see on the slide there or the chart there shows a 1.8% gap, and that is partly contributed by the 2 -- or it's contributed by the 2 spaces that we have taken back from Cathay. That accounts to the 1.8% that you are seeing there. Otherwise, occupancy rate would have been at 99.9% again. Shopper traffic and tenant sales, you can see the next chart. Shopper traffic has gone up for the full year, year-on-year at 1.6%. And tenant sales, we grew by 3.7%. Again, quite a strong sales that is -- strong performance from our retailers as well. Rental reversion came in pretty strong at 7.8% versus 7.7% that you saw in FY '24. And as I mentioned just now, Hougang AEI is very much on track to complete by September 2026. Targeting an ROI of 7% based on $51 million CapEx, we are still again on track to achieve that. More than 80% of the spaces has already been pre-committed, as I indicated upfront just now. A little bit on the big picture, general macroeconomics. The advance estimates for Singapore economy came in at 2.9%. Of course, if you compare to the 4.5% in previous quarter, you could see a drop in that. But actually, the numbers came in higher than the market estimates. So actually, it's a positive note. What is also interesting is the inflation continuing to ease, down to 0.5% year-on-year in August. Again, this is helpful for us because easing of inflation is also helpful in terms of the cost perspective for our operation as well as also for our retailers. Overall market for retail sales seems to have kind of rebounded even from the overall RSI perspective. So for August, it's a 4.6% growth year-on-year, pretty strong. And if we take the RSI year-to-date from January to August, because they always release the numbers 1 month later. So we only have up to August. So we can only measure January to August. For RSI, the overall number came in at about 1.2% growth year-on-year. And if we were to take the same period for FCT's portfolio from January to August, our growth is actually at 4%. So we are ahead of the general market performance. Rental (sic) [ retail ] rents continue to track positively. Suburban prime rents grew by 0.5% quarter-on-quarter and 1.7% year-on-year. So this actually kind of bring us to the next slide also looking at the supply side of things. So overall, again, very limited stock that's coming on stream. From now to 2028, we are looking at about 1.2 million square feet of total spaces that's coming up. But if you just focus strictly on suburban, we are looking at about slightly over 340,000 square feet of space. And even for that matter, it's not looking at any significant mall. For example, you have Lentor Modern Mall coming up next year, 90,000 square feet; another one, Parc Point Neighbourhood Centre in Tengah, it's about 75,000 square feet. So there are pockets of neighborhood malls coming up. So nothing significant on this list at this point in time. Next slide, please. So this is the overall picture. Very limited supply, strong occupancy, and that's the reason why for CBRE in their forecast of rental trajectory is still on an upward trend or whether it be suburban or Orchard Road and of course, on an island-wide perspective. The next segment is going to -- we are going to go into the financial highlights. I'll hand over to Annie. Annie, please. Shyang Lee Khung: Thank you, Richard. Good morning, everyone. Let me take you through the financial highlights. Gross revenue for the second half is 14.3% as compared to corresponding period last year. This is mainly because of the Northpoint City South Wing acquisition, completion of the AEI at Tampines 1, partially offset by the Hougang AEI, which commenced in April 2025. If you exclude the effect of these 3 malls, gross revenue is about 2.1% higher, mainly due to the higher occupancy and a higher rent across all malls -- most malls. Property expenses for the second half is about 20.1% higher compared to same period last year. Excluding the 3 malls, property expenses is about 5.1% higher due to the higher property tax. The second half, the NPI is about 12% higher compared to last -- same period last year. If you exclude the effect of the 3 malls, it is about 1% higher, okay? Distribution from investment is 3.5% higher mainly because of the better performance from Waterway Point and NEX. DPU for the second half is 0.6% at $0.06059. Next slide, please. On a full year basis, the gross revenue is also higher mainly because of the same reason as previous slides. If you exclude the effect of the 3 malls, gross revenue is about 2.4% higher, mainly because of the higher pricing rent across most malls. Property expenses is about 13.5% higher compared to last year. If you exclude the effect of the 3 malls, it is about 4.7% due to the higher property tax, marketing as well as the higher net allowance of doubtful debt. NPI is about 9.7% higher than last year, and it's about 1.6% higher if you exclude the effect of the 3 malls. We recorded a higher distribution from investment by 37.1%, mainly due to the full year contribution from NEX, which was completed in March 2024 as well as some inclusion of the one-off distribution from JV during the year. With the 2 half DPU of $0.06059, it brings us a total of $0.12113, which is 0.6% higher than last year. Next slide, please. The higher balance in the total assets and liabilities as at 30th September 2025 is mainly because of the inclusion of the Northpoint City South Wing. Net asset value is lower at $0.0223, mainly because of the enlarged unit base following the equity fundraising during the year as well as the effects of the mark-to-market recognizing the derivative financial instruments. Next slide, please. Okay. As briefly mentioned by Richard, as at 30th September 2025, aggregate leverage is 39.6%, which is 3.2 percentage points lower than last quarter. This is mainly due to the repayment of loans from the proceeds from the issuance of the [ perps ] as well as the divestment proceeds from the Yishun 10 in the last quarter. The interest coverage ratio is healthy at 3.46x. And average cost of debt for full year is at 3.8%, but on a quarter basis, it has dropped to 3.5%. Average debt maturity stood at about 3.16 years. And the hedge ratio for the -- as at year-end is higher compared to last quarter at 83.4% due to the repayment of variable borrowings during the quarter. Credit rating remained unchanged at Baa2 stable from Moody's. Next slide, please. Okay. For the capital management front, we have diversified sources of funding where we issued a 7-year $80 million bond as well as the $200 million perpetual securities during the year. For the debt that is maturing in FY 2026, borrowings is in Q2 2026, and we are in the advanced stage of refinancing of these loans. Next slide, please. Aggregate appraised value for the total portfolio, including the 50% of NEX and Waterway Point increased by 16.8% as driven by the acquisition of Northpoint City South Wing as well as stronger performance. The cap rates adopted by the valuers remain unchanged as compared to last financial year, which is in the range of 3.75% to 4.75%. Next slide, please. DPU of $0.05963 will be paid on the 28th November 2025, and this is for the distribution period from 4th April to 30th September 2025. Yes. I will now hand over to Pauline for portfolio highlights. Thank you. Pauline Lim: Thank you, Annie. Good morning, everyone. I will just do a deep dive into the various performance metrics that Richard touched on earlier. So in terms of committed occupancy, the portfolio stands at 98.1%. It would have been 99.9%, if not for the re-entry of the 2 cinemas at Century Square and Causeway Point, right? And if we actually take into consideration the cinema space, the 2 assets, Causeway Point and Century Square, would actually be reporting at 100% occupancy as well. And we are in advanced negotiations and planning for the repurposing of this space, right, okay? And I think one of the observations is for the cinema space, because of the lower-than-average rent, it does give us certain opportunities to reposition the mall better. Next slide, please. All right. In terms of NPI, I think one of the key observations is that the NPI actually generally increased or improved on a year-on-year basis for all the assets. And that's with the exception of Century Square and Causeway Point, which maintained largely neutral compared to last year. And that's notwithstanding the fact that we had that vacancy as well as the arrears from the cinema space in these 2 properties. So very strong top line growth across the portfolio. And this is reflective of the strong operating performance in terms of footfall, in terms of sales, which allows us to achieve very good healthy reversion. Okay. Next slide, please. Okay. So now we cover reversions at 7.8%, which is a good reversion for the entire FY '25. I think one of the observations is that this reversion has actually maintained at the strong level over the 2 consecutive years. We do see reversions coming in at this level for FY '24 as well. The other observation is that we have achieved positive rental reversion across all our malls within the portfolio. Next slide, please. Okay. This slide shows the trending of the portfolio occupancy. I think a couple of observations. You will note that the occupancy cost of our portfolio at 16.1% for FY '25 is below the pre-COVID levels. And this is reflective of the fact that sales growth for our portfolio has been strong. And that enables us to maintain the healthy EOC and trading performance of our retailers, notwithstanding the good rental reversion that we have negotiated from our leases. And in a way, this is reflective of the success of our focus on driving footfall as well as sales conversion. Next slide, please. I think Richard touched on this earlier. So on a quarter-on-quarter basis as well as year-on-year basis, we do see the strong growth in the traffic, the footfall coming to our malls as well as the conversion into healthy tenant sales growth as well. Next slide, please. All right. Observations from this slide, we do not see any tall towers going forward over the next 3 years. So as you are aware, our average lease tenor is 3 years. So for the next 3 years, no concentration in terms of lease expiries. So this bodes well in terms of the cash flow from our portfolio. Next slide, please. Yes. Again, coming back to the resilience of our income and valuation. By AUM across the assets within the portfolio, we do not see any significant concentration risk, right? And also at the mall level in terms of the trade mix, there is no concentration or rather that we do see a higher proportion of essential services at 54% GRI. And I think over the course of the past few years, we've seen the resilience from the suburban retail sector, and that is largely due to the fact that it has a large component of essential services, which caters to the daily needs as well as the necessities of the population that we serve. So we see a resilience at both the balance sheet as well as the P&L level. Next slide, please. Okay. In addition to achieving good rents for our portfolio, we are also very cognizant of the sustainability of our retail offering. So there is a focus on refreshing our trade mix to delight and also to keep up with the latest retail trends. On average, we are looking at about 20% refresh rate for leases that comes up. And over the course of FY '25, we have brought 76 new-to-portfolio tenancies. The other observations are that this refresh is actually across all our malls, and it's a variety of trade. So no concentration -- no particular concentration in one particular sector, right? So it's, of course, F&B and the various retail offering. Next slide, please. Okay. For this slide, we wanted to showcase some of the promotions, events and placemaking activities that we had undertaken over the course of this year and in particular, the last quarter. So on the left-hand side, you see some of the promotions as well as the activities during -- for SG60 during the National Day celebration. And a large part of our focus is to actually work hand-in-hand with our retailers to magnify the outreach to our shoppers, right? And we are positioning our malls given its strategic location within the heart of the heartlands as the social hub within that particular catchment. And this is to build that loyalty and sense of place with our shoppers. Next slide, please. Okay. Update on Hougang Mall AEI. I'm very pleased to update that the progress of the AEI has been good in terms of timing, in terms of meeting the financial underwriting. So like what Richard mentioned earlier, 80% of the overall AEI spaces have been pre-committed to date. And if we look at Phase 1, which has just TOP and spaces are being handled over to the new tenants, we've achieved a pre-commitment level of close to 100%. So in terms of downtime, that has been mitigated. And also the focus on refresh is seen in the new-to-Hougang concepts that we have actually brought into. So out of the pre-commitment, we have brought in about -- this 40% represents about 30 new-to-Hougang concepts that we are bringing to HM post AEI, okay? And the other focus for the AEI would be refreshing some of the amenities. The mall is new. So part of updating the retail experience will also be refreshing some of the key touch points like the lobbies as well as the restroom. Okay. Next slide, please. So with this, I will hand over to Judy to take us through the ESG. Judy Tan: Yes. Thanks, Pauline. On the ESG front, we are pleased to share that in recognition of FCT's progress towards sustainability, we have been recognized as the Regional Sector Leader (Listed) in the Asia, Retail category in the 2025 GRESB Assessment, right? And this is also the fifth year in which we have attained a 5-star rating, and we have also increased our score from 91 to 93, okay. This slide showcases 2 of the initiatives that we have implemented actually in FY '24, both first of its kind, including the Singapore's largest single solarization for retail malls. And right now, we have got this program implemented across 8 malls, producing over 1,400 megawatt per hour of renewable energy, translating to, of course, savings as well as carbon emission reductions for us. And of course, on the Singapore's first-of-its-kind food valorization program as well, we have actually reduced about over 258,000 kg of food waste reduced. So all initiatives that contributes towards carbon emissions reduction. On the community engagement front, of course, Frasers Property is all about inspiring experiences and creating places for good. And this slide basically just shows my read of all the different activities, placemaking initiatives that we had during the year to engage and reach and excite our shoppers as well as the communities. And in particular, for the SG60 community campaign, we actually donated a total of $200,000, working hand-in-hand with our shoppers as well as tenants. We also wanted to highlight this initiative that we had where we actually ran a dive into sustainability campaign in our malls to actually encourage shoppers to come forth, donate their bottles, their used bottles. And we actually rewarded shoppers $2 FRx gift vouchers for every 5 bottles recycled. And during this period, not only did we do good, we also saw an increased traffic to our malls by over 20%, right? So for this initiative, that actually got the Frasers Property Singapore to be recognized as a Runner-Up by the Singapore Retailers Association Retail Awards under the Green Initiative Award of the Year. Next up, I will hand it over to Richard to give his concluding remarks, looking forward. Richard Ng: All right. Thanks, Judy. Next slide. Yes. Okay. So again, we have shared with you the set of results and how do we get there? Of course, from the perspective of our portfolio itself, both organically, AEI and also in terms of acquisition, we have done a lot of good work this year, and that, by itself, actually helps in giving us a boost in terms of our overall performance and also the DPU. The market has continued to be very strong, very resilient because of tight supply and at the same time, strong demand. And this is something that we continue to see, and we believe that the positive trajectory will carry us through to the FY '26 as well. We spent a lot of time sharing about placemaking, ESG and so on. And this is fundamental for us because our malls are located in strong catchment area with a very strong community feel, right? So we want to make sure that this is a place where we can continue to drive traffic, bring in more people, more shoppers into our malls. And ultimately, this will then help to result in a better sales performance for retailers and by itself will then give us a better performance for our overall portfolio, right? With that, I'll end my presentation and happy to take questions from you guys. Thanks. Back to you, Judy. Judy Tan: Thanks, Richard. Okay. Right now, we'll go on to question and answers. And then, of course, we've got a couple of analysts already raising up their hands. First up, can I invite Yew Kiang from CLSA to unmute himself and post his questions, please? Yew Kiang Wong: Can you hear me? Judy Tan: Yes. Yew Kiang Wong: Richard, can you share the tenant sales for this FY and this quarter for Causeway Point and Northpoint? Richard Ng: For Causeway Point and Northpoint specifically, okay, I will not be able to give you specific, but what I can share with you is perhaps I'm not sure, but maybe you're alluding to the impact and so on of people going to JV. But what we have seen is over the last -- from 2019 to now, both malls have actually -- in terms of sales has delivered more than double digit, right? For Causeway Point, I'm looking at slightly over the middle double digit, more than 10%. For Northpoint City, it's more than 20% from 2019 to this period. And if you look at the annual growth rate, it's about 3% to 4%. Yew Kiang Wong: Okay. So the double digit is over that since COVID, is it from 2019? Richard Ng: Yes, from 2019 to now, right? Yes, so despite -- there's a lot of talks about people -- more people shopping in JV, et cetera, but what we have observed at our most modern malls, they -- the sales continue to improve, right, between 3% to 4% annually. Yew Kiang Wong: Okay. Okay. And then any plans on Central Plaza? Richard Ng: Okay. Central Plaza is something that we have been talking about for a very long time. A couple of reasons, right? One reason is, firstly, it's an integrated development part of Tiong Bahru, right? It actually fits into Tiong Bahru very nicely, providing access for the people in the office to support the retail. And we get to control the type of tenants that comes into the office as well. That's one key aspect of having it as an integrated development. Secondly, we also recognize that there are still some potential for us to look at decanting some space, better utilization of space, right? So there's still some GFA that we probably could harness as part of an integrated development. Once you sell it off, you will lose some of this. Thirdly is, again, the management of the entire asset is important for us. If you do look at selling out Central Plaza, you lose control of the carpark because that is actually, again, a MCST -- it becomes an MCST asset, right? So certain component, we feel it's important for us to put it together as an asset -- an ongoing asset performance. On the other hand, we also recognize that Central Plaza is an office building, not really our core asset. But if you look at the asset itself, it's performing well, but we still feel that there's opportunity for us to continue to push the performance a little bit better, right? So we look -- we will always be looking at the possibilities of what do we do with the asset. But as of now, I would say that there's still room for us to further improve the performance, both in terms of occupancy and in terms of the rent. Yew Kiang Wong: Can you sell this to the sponsor and then technically, it's still under the family. So MCST issues and all, so we're more stricter then. Richard Ng: I can't speak for the sponsor whether this is an asset that they will consider. But we are always open. We are always exploring possibilities, alternatives, use and so on. But as of this time, we don't see this as something that is right on top of our agenda. Yew Kiang Wong: Okay. Last question. FY '26, what's your focus going to be? Richard Ng: Focus, of course, we acquired South Wing, right? We also mentioned there are certain things we want to do at South Wing. We want to improve the performance organically while we continue to look out for some AEI opportunities. So that's one, right, because we acquired this asset this year, we want to make sure that it delivers what we have set out to do. Secondly, there's actually a lot of opportunities in terms of AEI. One is the big one is NEX that's coming up. We have obtained the written permission. So we are still targeting our June, July commencement of AEI. That's a big one, right? It's talking about massive 50,000 type of square NLA square footage. That will take us for 2 years. The other one is, of course, focusing on repurposing or backfilling the cinema space as soon as we can, if possible. If not, then we look at the best alternative use for that space, and there could be some level of AEI required in order for us to repurpose the space. Yew Kiang Wong: So fair to say for FY '26, you are focusing on organic improvement operational rather than M&A? Richard Ng: Acquisition M&A is always opportunistic, right? It's something that we can't control what comes out to the market, what's available in the market. And even if whatever that's available in the market, whether it fits our portfolio structure, the type of assets that we want, whether the pricing is something that we can afford, right? But what we can always focus is something controllable, and those are the controllable aspects. Pauline Lim: Richard, can I supplement your response to Yew Kiang's first question in terms of sales growth. So Yew Kiang, if I may refer you to the circular or the presentation that was done for the acquisition of South Wing. So we did have a slide that actually shows the growth in the retail sales, the retail sales index of South Wing versus some of our dominant malls, which includes Waterway Point as well as Causeway Point. From there, you see that the growth trajectory, right, since 2019 to 2024 has been very strong, right? And 2024 can be taken as a reference point, right? I think Malaysia -- Singaporeans have been going through across the border all this time, right, and when the exchange rate was very favorable and so forth. So that's one point. I'll be happy to send you that slide for your reference, right? Yew Kiang Wong: Okay. I'll look for it. If I can't find, get Judy. Pauline Lim: Sure, sure. I think the other point is also if you look at the performance metrics, right, of Causeway Point and Northpoint City in terms of occupancy and all that, that has been -- that's at 100%, right? So in a way, it ties back to the sales performance. I think retailers would not be renewing or so keen to take up space if they are not trading at a healthy level. So I'll leave these thoughts with you. Judy Tan: Next up, we've got Geraldine from DBS. Geraldine Wong: Maybe just following on to Yew Kiang's question, strategy for 2026 is organic. But if the right asset comes along in the market that you like and thinking about how your share price has done really well to trade 10% above book, would you then want to be a bit more aggressive in taking on an acquisition at this point in time or still too early? Richard Ng: Okay. Geraldine, I think, again, going back to acquisition, there are many components to consider when we look at a specific acquisition. Of course, firstly, it's opportunistic, right, if there's opportunity available in the market. And then we have to evaluate the asset, whether we think that the asset is something that can improve the portfolio further. We look at the bottom line, whether there's opportunity to further improve the performance of the asset or if the asset has really been significantly optimized. And definitely, in terms of the pricing, I mean, we do note that there are instances where a seller bids very aggressively, right? I mean if you look back, for example, at Seletar Mall, nobody really knew what's the final price because it's not publicly available. Of course, you hear in the market and so on. But if those numbers were true, it was very, very aggressive, something that I think would be very difficult for ourselves to be part of it because we believe if we buy something, I mean, there must be value. It may not be immediate, but at least, over time, the performance of the mall must be commensurate with the pricing that we go into. So those are all the considerations. So there isn't a short answer to it and say, yes, we will do it or no, we wouldn't do it. But if all those factors, having taken into consideration, are favorable to what we have today and something that we believe is going to be positive for our shareholders, of course, we will be interested to look at it. Geraldine Wong: Okay. Everyone is taking a look at the current mall. Maybe a second question, if I may. The AEI opportunities at Northpoint as well as NEX, the increased NLA, so if you are thinking about ROI margins, are they going to be much meatier than the 7% that you have at Hougang Mall? Richard Ng: I think typically, we try to at least target that range, 7% to 8%. When it's meatier, it also comes with a meatier cost as well, right? So it's a balance about both. And when we upgrade the malls, we take the opportunity to also improve a certain component of the mall as well, right? So for NEX, it's a very big AEI. Not only we see it as an opportunity for us to improve the performance on a near term, but whatever that we are doing, we believe is going to be good for us on a longer term as well, improving circulation, making space available -- bigger space available for us to do other activities in the mall, et cetera. So by and large, we will still look around the between 7% to 8% kind of return. Geraldine Wong: Okay. Maybe just squeezing in a very quick last one. In terms of occupancy cost for Causeway Point, Northpoint City, our portfolio average is at 16%. But for these 2 malls, are we above at or lower than the portfolio average? Richard Ng: Okay. If I can remember, Causeway Point is below. I think Northpoint City is also below, if I remember correctly, but definitely not higher than what we have on the average. Geraldine Wong: Okay. So a very good place to do business. I hope the market dynamics will run its course. Judy Tan: Next up, we've got Terence from JPMorgan. M. Khi: Richard, congrats on the good set of numbers. I just wanted to ask on Cathay. I understand that on a year-on-year basis, actually, the NPI has been quite flattish for the 2 malls impacted by Cathay, Causeway Point and Century Square. But on sort of looking at the second half, we saw maybe like a 2% drop versus second half last year. So can I just get understanding that Cathay was not contributing to NPI in second half? Or was it only -- or was it for the full FY '25? Richard Ng: Okay. Cathay's contribution, I would say, kind of pretty much reduced significantly as we progressed through the year, right? When the first round when we came out with the -- serving the notice, et cetera, right, this is -- that's when they really stopped paying the base rent, but they were still paying some contribution. But that kind of slowed down and trickled down significantly. So by and large, I would say the contribution, it's very minimal, if any, towards the second half. And you're right, the drop that you saw is mainly contributed by Cathay. M. Khi: Okay. That's actually very -- that's a very good number to start with for second half NPI. I think it's not a very significant drop. I think it's -- most of the other malls will be able to carry it. Also asking about Cathay, I wanted to understand what are you looking at? Are you trying to bring in another cinema tenant? Or are you trying to repurpose for other users? Could you give us a sense? Richard Ng: Okay. I would say that we are currently exploring various options. If there are operators today that are prepared to consider the space and they can come in and operate very fast, that's one alternative that we could consider. But at the same time, that if we feel that certain -- okay, there are 2 spaces we are looking at, right? If the spaces presents a very strong opportunity for us to kind of repurpose the space and then can bring in a strong tenant, a strong anchor tenant to kind of anchor that space and that gives us a longer runway in terms of sustainability of the traffic, the mall and so on, then that's another consideration. So I would say, at this point in time, we are actually very excited with a few options that we have on hand. Some of them, because of the repurposing requirement, will take a bit longer because you need to engage authorities, et cetera, and so on. And we should be able to come back and give some sensing definitely by the first quarter in terms of the direction we are heading. And if, let's say, there's any opportunity to probably replace with an existing tenant on a one-on-one basis or that somebody can kick in faster, that will be even better for 1 or 2 of the space. M. Khi: Okay. That's great. Also, I noticed or I understand that there was a one-off distribution from JV this year, FY. Could you share on the amount of the one-off? Richard Ng: JV, I would hand over to Annie to give a little bit more color on that. Shyang Lee Khung: Yes. Terence, yes, the one-off distribution is from NEX is due to the excess cash at the entity level, which we assess that is no longer required and it is distributed as a dividend. M. Khi: And can you share the value? How much? And this came into DPU, right? Shyang Lee Khung: Yes, it's about $9 million, the one-off distribution. M. Khi: $9 million. And was that in second half or in first half? Shyang Lee Khung: Yes. I think most of it is in the first half. Some came in the second half. M. Khi: Okay. That's great. And maybe a final question for me, 3.5% fourth quarter funding costs, what's the expectation for next year, FY '26? Shyang Lee Khung: Yes. At the current rate level, we are looking at about 3.3%, 3.4% for the next year. Judy Tan: Next up, we've got Rachel from Macquarie. Lih Rui Tan: Can you all hear me? Richard Ng: Yes, Rachel. Lih Rui Tan: Congrats on this good set of results. Maybe just firstly, in terms of reversions, I saw that actually second half probably moderated a little bit. So if you could guide us what you're looking at on reversions for next year? Richard Ng: Okay. We did share that this number, again, is a very strong number that you could see. And first half was stronger compared to second half, partly due to the constituent of the leases up for renewal, right? Sometimes when you have more specialty, for example, that leases comes up in the quarter itself, probably the reversion could be a little bit more aggressive because smaller spaces and so on. So it's a combination of the profile of the expiry that we have between first half and second half. So going forward, and this is something that we shared before, we believe that going forward, on a more sustainable basis, we are probably looking at about mid-single-digit positive rental reversion. Lih Rui Tan: Okay. And can I just ask on -- in terms of the tenant sales, I think it's been very strong in the fourth quarter. But is there any impact from the Tampines Mall being included? If we were to still exclude Tampines, what kind of tenant sales will we be looking at? And what's your opinion? I know this year, we have a lot of government vouchers, but if government vouchers was to taper off, what's your view on tenant sales moving forward? Richard Ng: Okay. I -- first and foremost, I think definitely, Tampines 1 has also helped to contribute towards the strong sales that you saw. But even if we strip out Tampines 1, the sales were still positive for the rest of the portfolio. You're right, to some extent, this year, we had a lot of goodies, a lot of handouts, SG60, CDCs and so on. And we believe that even come, I believe, end of the year or January, there's another tranche right, CDC voucher that's not been distributed. And probably some of these so-called handouts or incentive goodies may last a little bit longer because I don't think it's easy for them to just wean off or cut off immediately. They probably have to wean off over time. But fundamentally, I think what's important, Rachel, is also looking at the big picture, right? So those one-offs and others, yes, you get it, it's fine. It's a bonus. But what's more important is the underlying macro perspective. What we are seeing is, firstly, it's increased population base, right? So -- and that actually is a fundamental, right? You have bigger numbers and also the income level of our people are growing, right? And this is largely supported by, again, your -- what do you call that, Judy, the progressive wage model. Judy Tan: Progressive wage model, yes. Richard Ng: Progressive wage model. So that, to me, is actually more significant and more sustainable, right? Because if you look at how the progressive wage model works is, there is a kind of minimum starting point and there is a fixed growth for the different sector of worker, right, that you see, whether it be cleaning, security, retail worker, F&B operators, landscaping, M&E engineers for the lift and escalators. So -- but if you just take an example, right, you just take an example of a general cleaner, from 2023 to 2029, the same person will likely almost double the salary, right, for this period itself. So to us, this is actually a very important aspect that is going to kind of underpin the growth that we expect from our suburban malls because, by and large, most of this progressive wage are targeted at the mass market, and that's the market that we are serving. So while we get the one-off, the goodies, that's good. It's helpful. But I believe the growth in population and also the growth in this ability to spend, that will again be the one that underpins the performance of our malls. Lih Rui Tan: Okay. And my next question really is on Isetan. I think we saw that they are exiting Tampines Mall. Could you give us -- remind us again when is the Isetan lease expiring in NEX? And has negotiations been going on? Are they talking about exiting or downsizing? Richard Ng: Yes. So for this, maybe I would ask Pauline to share some color. Pauline Lim: Rachel, I think because of some privy details, I cannot say much, right? But what I can say is we do have plans for this space, and it's positive plans. And you are aware that we are doing the AEI, right, for NEX as well. Lih Rui Tan: Even the lease, when they are expiring, like 1 year or 2 years? Pauline Lim: The lease will be coming up next year, next calendar year, yes. Judy Tan: Next up, we've got Terence from UBS. Terence Lee: Terence from UBS. Just using the closure of Gong Cha as an example, and I'm going to presume for FCT that any bad debt exposure is probably quite low. But more broadly, my question is, have we hit the point of saturation for certain trade categories, be it bubble tea, the coffees or even potentially even some of the Chinese restaurant chains? Richard Ng: Okay. Yes. Okay. The first part of the question, Terence, our actually arrears is very minimal, except -- the exception is cafe for a different reason and perspective. But by and large, we follow pretty strict guideline and processes, whereby if the tenants do not pay up within a certain period, we will actually engage them, send them certain notice and we will repossess the unit within a certain period of time. So that's how we managed to keep our arrears actually on a very thin level. If you look at Gong Cha or many other news that you have seen in the market of closure, people exiting and so on, I think this is part and parcel of F&BC, right? You do get certain products, certain brands that have been here for a while. And Gong Cha, in particular, I -- what I read was more because the brand itself -- I mean, the owner of the brand itself wanted to exit and then potentially come back again at some point in time, but that's news. But in terms of F&B operator, I think you see there are certain brands, certain products, they are probably very trendy at certain point in time, and that set can run out -- run its cost, and then they are no longer here. But then you see another new concept will pop up. And that's the beauty of F&B, right? Something that it's changing because the tastes change, the preference change, and competition is also there, right? So the stronger one, the better ones come in, and then you see those who are not able to keep up or their products are deemed less exciting or maybe in terms of taste and so on is not as good, they will then be the ones that has to review their product or they may exit the market. But then the new ones will come. So be it bubble tea is not new, we used to have -- back then, I used to say that Waterway Point has the most bubble tea operator. We have about 6 operators. But now you reduce to about maybe 3. That's one example. Coffee chains, similarly, you have different types of coffee, different operator, different type of taste that appeals to different shopper, right, a different customer. Again, is it too many? The market will dictate whether there is too many or they still see opportunity to grow new offerings. And that is no different, right? So the long and short of this is that what we see is a lot of movement, a lot of churn, but the demand for F&B space continue to be very strong. And that is from our own perspective as an operator, we see that is, again, a sector that has continued to develop, continued to evolve, but we see very strong demand. Terence Lee: Got it. And just circling back to the question on acquisitions. I mean now that Northpoint City is, I guess, underway, is it then reasonable to expect that FCT will have to start looking overseas to acquire? Richard Ng: Not really. We still have joint ventures partners in 2 assets, right, Waterway Point and NEX. So we'll continue to cultivate the relationship with our partners. And hopefully, at some point in time, they may look at redeploying their capital. They may look at exiting the malls at some point in time. And if you add those 2 together, it's close to $2 billion. So significant size opportunity that's still available for us in mid- to longer term. But what we are focusing a lot is just now they're talking about what do we focus on '26, FY '26, what's the main focus and concentration. There's a lot of areas that we think we can still harness a lot of value we can still create based on our existing portfolio. So there's actually a lot of work for the team on the ground. AEI, it's one big area that we are focusing on. And AEI is one that we believe will continue to, again, give us value. Tampines 1 has been proven to be very successful. Again, for Hougang Mall, Pauline has shared the performance in terms of the leasing commitment, very strong, which we will see contribution once it's fully completed. NEX is going to be the next one to go. And we are now looking at also plans for the other malls in the portfolio. So we are continuing to work on it. So we are actually kept very busy while at the same time, looking out, if there's any opportunity that comes to the market, we'll evaluate it and see if it makes sense. So the long and short of it is, we will stay pretty focused on what we have today. Terence Lee: Got it. And earlier, there was the guidance on where funding costs would trend towards, 3.3% to 3.4%. I just want to understand the thinking behind the fixed hedge profile. Is it a plan to keep it at a relatively high level such that the flow-through is rather, I guess, muted? Why is it this thinking? Richard Ng: Okay. Maybe I'll just give you a color, then Annie can chip in as well. I mean you are seeing a little bit of elevation in terms of hedge portion now at this point in time because when we bought over South Wing -- Northpoint City South Wing, we took over the debt for the asset, right? But we do have a refi coming out in January, February for the FY '26. Once that is done, we will probably review the hedging again and it is likely to come down from this level. Judy Tan: Next up, we've got Derek from DBS. Derek, would you like to unmute yourself. We can't hear you for now. Geraldine Wong: Judy, I think there's a problem with Derek's mic. So maybe I can ask his questions on behalf. So I think first is on tenant sales. If you can give us some color what is lagging? Richard Ng: You mean what trade is lagging, is it? Geraldine Wong: Yes, yes, the trades that are lagging. Richard Ng: Okay. Pretty much most of the sectors are actually performing positively with a few exceptions. Maybe to just give a little bit of color. Department store, I think it's a little bit of a drag. Books and gifts, it's a bit of a drag. Infocom, a little bit. Fashion accessories, it's seasonal. So by and large, I think these are the few sectors that we saw a little bit of a drag. But the rest seems to be pretty positive. Geraldine Wong: Okay. I understand. Yes. Maybe, Richard, the second part, maybe some idea on Metro, what to expect and when is the expiry? Richard Ng: Okay. Metro, again, it's a case of we are evaluating the options. We are working with the tenants to see what are some of the ideas, concepts that they could be able to introduce. I think there's a lot of news articles on the collaboration with Shinsegae and others, retailers in Korea. So we would like to find out what is it that they are able to bring to the market. And specifically, if we continue to work with them, what can they bring to Causeway Point. So it's an ongoing conversation. But at the same time, we also recognize that they take up a significant space. So it's a question it's about having Metro, not having Metro; having Metro, but maybe rightsizing Metro. So those are the possibilities that we are exploring. That's not a finality at this point in time. Geraldine Wong: Okay. Just one quick last one. For your leases expiring in 2026, where will it be and which malls? Richard Ng: It's pretty much cutting across all malls because our leases are on 3 years basis, right? So just now when we shared the lease expiry profile, it's quite evenly spread. So we do have expiry across the whole portfolio. Judy Tan: Next up, can I invite Brandon to unmute himself to ask the questions, please? Brandon Lee: Richard, I just want to ask you on the tenant sales growth, right, if you were to exclude the T1 and all the cinema, everything, what's the net growth for FY '25? Richard Ng: Okay. It's slightly below 2%. Brandon Lee: Slightly below 2%? Richard Ng: Yes. Pauline Lim: So that includes the drag from the cinema because we haven't taken out that. Richard Ng: Yes, yes, yes. When taken out the cinema. Pauline Lim: So probably about 2-ish. Richard Ng: Yes. Okay. Yes. Brandon Lee: So it's 2-ish percent? Richard Ng: Yes. Brandon Lee: Because if you are looking at your forecast on this reversion going to next year, right, and looking at your occupancy cost relatively flat, right, so basically, your outlook on tenant sales growth is quite muted. Is it -- can I sort of get a forecast on that, implied? Richard Ng: No, not really. I think we still continue to expect positive sales coming in from our retailers. But it's a case of, again, depending on the composition of your type of leases that's coming up for expiry. And of course, I would also like to say we typically will build in a little bit of conservatism when we look at the expiry or the reversion for next year, right? So which is why we say it's about mid-single. We have been doing 7.7%, 7.8% for the last 2 years, right? Pauline Lim: So Richard, maybe I'll supplement that point, right? So Brandon, I think we are not relying solely on organic growth, per se, right? There's a lot of proactive tenancy management, if I may say, right? Proactive tenancy management in terms of working with the tenants, existing tenants to drive their sales, right? I spoke about the refresh rate, which means that we are constantly looking at weeding out or changing out some of these weaker performances and bring in the more trendy and more sought-after brands, right? So that is also part of the active management as well. It's not so much just relying on the organic growth of our existing pool of tenants, right? And with the AEI, it gives us that opportunity to actually do more of that refresh, right? So I think we should take all of this into consideration. Brandon Lee: Okay. And just on the revaluation, I realize this second half, we didn't provide the cap rate. So what's the trajectory from FY '24? And also what's the revaluation loss of the $11.1 million due to? Richard Ng: Okay. You're talking about trajectory from FY '24 in terms of the cap rate or... Brandon Lee: Yes. Richard Ng: The cap rate stayed constant. Brandon Lee: Okay. So -- and I think all the malls saw partial [ wither out ], but then you still recognized a loss, right? So what's driving that? Richard Ng: Yes. Okay. Maybe Annie could give a bit of color on that. Shyang Lee Khung: Yes. Okay. Brandon, you can see that there's $11 million loss, but actually included in this $11 million loss is an accounting fair value loss of about $41 million, which arose from the acquisition of Northpoint City South Wing because of the accounting treatment of it treated as acquisition. So if you exclude that accounting item, there's actually a fair value gain from the investment property of $30.7 million. Maybe I should also add to say that the fair value loss accounting includes the transaction cost that was also capitalized. Yes. So you should strip out the accounting loss and look at the true fair value gain of the investment property, which is about $30.7 million. Brandon Lee: Okay. Okay. So basically transaction costs of Northpoint. Okay. And just last one, right, which I think if you look at your portfolio today, right, just looking at it from a divestment and acquisition standpoint, right, would you be open to still owning or acquiring more or divesting malls where the size is like below sort of a 200,000 square feet kind of range? Richard Ng: Okay. By and large, our preference is definitely moving towards stronger, bigger, more dominant mall as what we have been doing for the last couple of years. So today, we have 4 of the top 10 largest mall in Singapore. But those opportunities comes far and few in between, right? Then the next level we look at is probably the likes of our 200 over 1,000 square feet malls. And then the last category will be the 100 over 1,000 square feet malls. So again, if we have an opportunity to reconstitute, to replace something stronger, of course, that is something that we would seriously look at as part of the overall reconstitution and strengthening of our portfolio. Judy Tan: We've got Jonathan from UOB Kay Hian, who has got a question. Jonathan Koh: Congrats on the good results. Could you touch on AEI for Northpoint City? In the past, you've talked about a holistic AEI. Could you touch on some of the key enhancement that you are planning? Next, right next to it, Yishun 10, would that be redeveloped into residential? And how does that impact your AEI and give us some sense of timing? Richard Ng: Okay. So maybe we can look at the 2 questions there. The first one is probably easier to explain that Yishun 10. Yishun 10, we have divested to Frasers FPL. So they did have some announcement in terms of their plans on that. You can look that up. We are not sure exactly what will be undertaken. What we know is that in the past, we have kind of engaged the authorities before. It's not going to be another mall that's coming out. So it's not going to be a fully new mall that's going to be developed. So that's one thing we know. But beyond that, we do not really know what ultimately will come out there, right? So that's for Y10. And it will not affect any of our decision as to what are we going to do with South Wing. So for South Wing, when we did the acquisition, we spoke about a couple of pockets of opportunities that we saw and something that we're going to take -- undertake over a period of time. So one of them, which is organic, something that we feel that we could improve in terms of the performance at the mall level, whether it be OpEx or revenue. So this is something that is work in progress. We also identified some opportunities for maybe re-leasing about 5,000 square feet of NLA. That is work in progress because in order to do that, we need to go through several rounds of approvals and getting agreement and consensus from the various authorities. So that's work in progress. So that will take a little bit longer, but the work in progress now really is to tighten up any bulk purchase arrangement and getting the best outcome in terms of the mall performance at this point in time. Jonathan Koh: I presume timing-wise, more likely FY '27? Richard Ng: For the AEI itself, the 5,000 square feet we talk about? Yes, slightly. I don't think we will get everything through in FY '26. Jonathan Koh: Okay. And just... Richard Ng: It will commence probably in FY '27. Jonathan Koh: And just a brief follow-up. Isetan, what is the square footage that they occupy at Tampines 1? Richard Ng: Isetan is not in Tampines 1. Isetan is in Tampines Mall, which we don't own. Jonathan Koh: Okay then. So I thought -- it was mentioned, I thought maybe related. Okay. No worries. Thank you. Judy Tan: We've got from Rayson from HSBC, who's got questions. Rayson Khoo: Just a few questions. Firstly, just looking at the Hougang Mall AEI, more than 80% committed. I think it probably moved about like 6% or so versus the last quarter. And then if I recall correctly, for Tampines 1's AEI, you were actually more than 90% committed before the works commencement. Just comparing this to pre-commitment rates, is sentiment getting a little bit weaker for the Hougang space? Are you reserving some of the space tactically for like certain trades? And then just on top of this, if you can just share how your tenant curation strategy takes into consideration the upcoming mall beside it? Richard Ng: Okay. So maybe I'll share my perspective and then Pauline can also jump in. So if you look at the overall pre-commitment, I think it's very strong because we kind of have different phases, right? So the first phase that's going to be opening at the end of this year is actually almost 100% short of one small lease that's currently under negotiation, which I think probably negotiation is really done, probably documentation. So the first phase is fully committed. The second phase is going to go on until towards the later part of FY '26. We still have a bit of time. So the question is sometimes you want to make sure that you also get in the type of trade that you want, and that negotiation can take a little bit longer than usual. But getting over 80% pre-commitment, I think it is still a very healthy, strong kind of indication in terms of demand for the mall, right? The second question you have is in terms of what is going to come up. We don't really know what the final form product that's going to come out in the new GLS. But what we can do is look at ourselves and how we can, in a way, strengthen Hougang Mall. And that's part of the reason why we are doing this AEI. We have expanded one of our key anchor that's a library. We brought them up to the highest floor. We gave them more space because for library to stay, it's an important component because library, despite whatever people talk about reading and so on, they actually bring in a lot of traffic. They also help us in terms of placemaking activities and so on. So it's a very ideal case for us to strengthen our positioning by also locking in some of our anchor tenants. We are also working with another anchor, our supermarket operator to see how we can improve the supermarket itself. So those are various components that we look at positioning ourselves with to complement whatever that's going to come out in the future on the GLS side. Rayson Khoo: Okay. And right. Just another question on the management fees in units because I think it's about 50% for this FY. And then if we're just looking at FY '26, which is going to be very AEI focused, should we expect the management fees in units to exceed 70%, which was when T1 was undergoing the AEI? Or would you like prefer to just phase out the AEI instead? Richard Ng: Okay. I don't think it will reach that level. Probably it will be higher. We could expect it to be higher than this year, but maybe not that level. But then again, it depends on, again, at which point in time we're going to commence our next AEI, right? Say, for example, at NEX, that will bring into play again in terms of our requirement to use some of our AM fee in unit. Where we can, we, of course, try to spread it out, but sometimes because of timing, because we believe that we want to capitalize on the opportunity faster as well. So there could be an overlap, right? Because the faster you complete, the faster you can also generate the income, right? And especially when there are strong demand of retailers wanting to come to a mall like NEX, we want to get it done. We want to start fast because we see a lot of opportunities coming up there. So -- but by and large, I think it's likely to be slightly higher than what it is for FY '25, but may not reach the level -- may not reach that level that you mentioned. Judy Tan: Okay. Next up, we have Vijay from RHB. Vijay, if you like the ask the questions? Vijay Natarajan: A couple of quick questions from me. Can I know what is the outstanding rental arrears from Cathay at this point of time? And should we have to assume that this won't be recovered? Also, earlier, you mentioned in the plans of repurposing the space, if somebody can take it up as it is, then it would be a faster way to recover the space. So are you looking at a cinema operator to replace the Cathay? Richard Ng: Okay. Maybe I will tend to answer the first part first. I think it's something that it's out in the market that we actually sent in an SD probably about 2 months ago. Pauline, was it 2 months ago? Pauline Lim: About July. Richard Ng: Yes. Okay. Yes. So about maybe slightly over 2 months ago. And the SD amount amounted to $3.3 million, if I get the number correctly. Pauline Lim: $3.3 million. Richard Ng: That is official. So we are going through a legal process, a legal proceeding to recover that amount. We have to let the process run its course before we could comment as to if we could recover the amount? Or if we could recover, how much of the amount? Is it partial? Fully? Or what's the amount, right? So we don't have that response for you today. But definitely, we are going through the legal process to recover as much as we could, right? Pauline Lim: Richard, if I may add on to that, right? So the quantum $3.3 million also includes a portion that relates to the outstanding security deposit from this tenant. So what is really owing is actually lower than that $3.3 million that's out there in the market, right? So that's one point. I think the other thing is we are also -- we have other various -- or we have other legal recourse, right? So to answer your question, Vijay, are we writing off this amount? At this point in time, no, we are still pursuing the various legal recourse that we have. Vijay Natarajan: Okay. Okay. I mean repositioning the space, are you looking at a cinema operator? Or if not, what other types of segments you are looking at, at this point of time? Richard Ng: We are looking at various options on the table right now. We have cinemas, we have non-cinema operators. So there are a few options that's available to us to consider. Vijay Natarajan: Okay. But what would be a preference at this point of time? Richard Ng: It depends on what is the offer and also what is likely contribution that the tenants can bring, right, whether it be -- we think that a certain trade may be able to bring in more or drive stronger shopper traffic as opposed to the other. So those are considerations, and of course, the economics as well. Vijay Natarajan: Got it. Second question is, what is the proportion of variable rent as a percentage of total rents in your portfolio at this point of time? And is there a change in terms of variable rent mix, especially for sectors like F&B, which are facing a bit more challenges at this point of time? Richard Ng: Not really. GTO is about 5% of our total revenue. So it's still a very small proportion of our overall rental structure. I have not seen really a significant change in terms of the overall GTO proportion, whether it be F&B or the other trades. Judy Tan: We'll just accept one last one from Derek from Morgan Stanley. Derek, can you unmute yourself? Richard Ng: Hey, Derek, hi. Judy Tan: Hi, Derek? Otherwise, we'll take one question from the chat as well. There's a question coming from one of them. It appears cost pressures have built in 2025, while other SG REITs saw utility cost decline. Why is there this difference? Richard Ng: Okay. Again, it depends on the base, right? So some of the other operators, they actually had a higher cost base before that, but we have been quite active in hedging our utilities over time, right? So if you look at -- we have managed to bring it down in the previous year. So that movement may not be as significant because for the last 12 months, 15 months, it has been quite steady. The rates has been quite steady. So when we hedged it, we hedged forward, right? So we capitalize on that as well to make sure that we are not exposed to any significant risk because you don't know there's a lot of dynamics that's going around, whether Middle East, Russia, Ukraine and so on, right? So there's a lot of uncertainty. So we took that position. But you have to look at the starting point, right? Did they come off from a higher base or they were already lower than us and they got lower. So that's the question. Judy Tan: Thanks, Richard. Derek, are you able to ask your question? Okay. Maybe some issues with his sound system. But anyways, I think we are out of time. So thank you so much, everyone, again for joining us in FCT's results briefing. If there are any further questions to follow up, please feel free to reach out to me. And thank you so much again for joining us today. I'll end the call right now. Thank you. Richard Ng: Thank you. Judy Tan: Thanks, Richard and team as well. Shyang Lee Khung: Thank you.
Wu Yu: [Audio Gap] we continue to stabilize the business. You can say that now, besides the price, we can also see that value has already become a key focus of majority of the consumers, whereas you can see that we also continue to see the emerging of the new consumption scenario, which is accelerating the evolution of the consumption structure to some extent. We believe that good products need compelling stories to support them. We also need effective presentation method and the life cycle management to truly convene the value of the brands and products. Currently, industry opportunities still exist, but seizing those opportunities has become more challenging than before. Against this backdrop, Topsports has remained committed in advancing our core strategy and actively adapting to changes in market conditions and consumer demands. Externally speaking, we continue to expand our brand partnership ecosystem and evolve our capacity metrics. Internally, we persistently refine our omnichannel retail agility as well as operational efficiency. Despite the challenging external environment, we'll still be able to achieve our planned performance in H1 of this year. Look ahead, of the second year, we will remain a product business approach while keeping a resolutely optimistic attitude. We will gain market insights from core diverse perspectives, respond to external challenges with great agility and continued to enrich Topsports role and value within the industrial ecosystem. Next, I will hand over the floor to Rebecca, please. Rebecca Zhang: Thank you. Please allow me to update you on the financial performance for H1 of this year. Overall speaking, we achieved our planned performance as expected, which has been mentioned by Mr. Yu, which also exceeds the market expectations we observed from the capital market. Well, from the revenue perspective, affected by the weak consumer demand and offline traffic fluctuations, overall revenue declined 5.8% to RMB 12.3 billion. By category, retail business declined by 3% Y-o-Y in H1 of this year. Wholesale business declined by 20.3%. By brand, core brand sales revenue decreased by 4.8%, reaching RMB 10.8 billion, where other brand sales revenue declined by 12.2%, reaching RMB 1.4 billion. The performance of other brands was primarily affected by lifestyle sports brands. Though overall performance of the specialized vertical brands remain the best, comprehensive sports and live sports category. At the GP margin level, specific affecting factors including, one negative factors and two positive factors. Regarding the negative factors, we have a deeper discount rate Y-o-Y, which have a negative impact on the GP margin, which is also indeed the same as what we mentioned to you. There are a few factors leading to the interaction. As you can see, that still, we have an ever-increasing number of the business. And especially in China, the online sales discount is more than what we have for the offline channel. So that's the reason the online channel sales continue to go up, which will indeed have a negative impact over the GP margin as a whole. Well, at the same time, as we have already mentioned, the deeper discount is being further ramped up, but still compared with the second half of fiscal year 2025, there's a narrow down. Meanwhile, we can see the revenue from the retail business contribution started to go up, whereas you can also see that the brand partner support that can also be supportive to our GP margin with the 2 positive factors to some extent, is diluted the negative factors burden. So in other words, resulting in the overall GP margin declined only by 0.1 percentage, reaching 41%. At a percentage ratio perspective, during the period, revenue declined by 5.8%. Total expenses decreased by 5.5%, with expense ratio only increasing slightly by 0.1%, reaching 33.2%. In the challenging environment, we hope to alleviate offline operating expenses pressure through the omnichannel deployment and the refined cost efficiency management. Overall estimated rental expenses from the value perspective, is being decreased by 12.1% on a Y-o-Y basis. Rental expense ratio declined by 0.8 percentage points, which was the biggest contributor to the overall expense ratio control. First of all, for the offline channel, we continue the structured optimization in offline channels to reduce losses and improve efficiency, where with operating as well as openings and renovation efficiency improved on a Y-o-Y basis. The second point is channel mix changes. The online and offline channel indeed performed different for GP margin and cost. Online channel has a lower expense ratio, where we have more revenue from the online channel. It also helped to further lower the overall expense ratio. Well, regarding the employment, we maintained a staffing line with omnichannel deployment needs, building an agile and efficient Thailand supply to consolidate our cost efficiency advantage. Overall, employee head count decreased by 16% Y-o-Y. Total employee cost decreased by 5.2%. The expense ratio has been quite stable, only increasing 0.1 percentage reaching 10.5%. They are mainly due to 2 reasons. First of all, we aim to provide long-term development support to quality talents where average productivity improved during this period, while at the same time, we also made organizational efficiency optimization work in H1 of this year, which will be demonstrated in cost efficiency going forward. Other expenses increased by 1.6% on a Y-o-Y basis, mainly including property, plant equipment depreciation, platform service fees, logistic service fees, where you can see that with rapid online business sales growth during the fiscal year, the corresponding platform operating expenses also increased. From an overall business progress perspective, negative factors mainly include operating negative leverage impact from the offline traffic situation, where this impact was partially offset by continued optimization of the offline network and increased proportion of the online rental business. Let's also take a look at the net profit changes. The trajectory from the net profit trend chart on the left, you can see the main factor affecting the net profit are decline in GP margin and impact of other income. Well, the remaining items, including total expenses, the net financing cost and the tax expenses provided a positive contribution. Well, you can also see on the right side of this slide, the GP margin deduction along with the decline in GP margin, a slight increase in the expenses ratio and the decline in other incomes were negative factors, where net financing costs and tax expenses provided positive contributions. Excluding the impact of other income, net profit declined by 6% over Y-o-Y basis. Consistent with 5.8% Y-o-Y basis, while our net GP -- our net profit rate was only being reduced by 0.3%, reaching 6.4%. And continue to further improve the negative leverage that may impact our overall business operation. Coming next, let me just discuss our working capital efficiency. During the fiscal year, inventory management has been our key focus. We adhere to the principle of maximizing merchandise efficiency, conducting omnichannel inventory circulation management. Inventory amount decreased by 4.7% with increased turnover days increased slightly from 1.7 days to 100 -- reaching 150 days. Trade receivable reduced by 1.5%. Turnover days declined by 3.5 days, reaching 12.6 days. Trade payable decreased by 64%. Turnover days declined 6.5 days, reaching 8.2 days. Payable related to the merchandise procurement reduced, which will also lead to the inventory reduction at the end of August. Regarding the working capital efficiency, the revenue decline continued to be seen, but average working capital as a percentage to revenue remained flat. We continue to maintain essential efficient working capital management. Let's now move to the cash generation capacities. Net operating cash flow was RMB 1.35 billion, down by 48.2% due to a few factors. So let me just share with you those factors. There are 2 reasons. The change was mainly due to the different -- the Chinese New Year timing between the 2 years, which actually have RMB 1 billion of the receivables and tradeables. And first of all, let me see, regarding the receivables. In H1 of this year, we need to calculate the Y-o-Y difference from February to August of this year regarding the operational capital. So it's actually a 6 months comparison. So performance in February has been essential, but at the same time, for February, the performance will be impacted by the Chinese Spring Festival. In 2024, the Spring Festival was in February. So the peak sales reason, the cash collection happened in March of 2024, but actually in 2025, the Spring Festival was in January. So the peak cash collection happens in February of 2025. So that's the reason the month-on-month perspective, you can see that receivables by the end of 2025 February is lower than what we have for the same period of 2024. So indeed, for receivables, different Chinese New Year timing between the 2 years, affecting the Y-o-Y comparison of the sequential changes in receivables, while at the same time, we also see impact from different procurement cadence on payable changes. Payable changes has everything to do with products we procured, we have reduced inventories, so as the payables. The second point is regarding the brand support and collaboration. It's more like a synergy between brands and us, including the rebates and also payment period and product refund. As we can see for the past few years, all those factors are not going to perform the same on a yearly basis, where we always continue to maintain good communication with the brand company to have collaborations to make strategies according to the landscape we have by them. So I was talking about the 2 factors impacting our operation cash flow. Free cash flow was RMB 1.22 billion. During the period, dividend payments were RMB 868 million, representing 34% of the beginning cash. Period end cash was RMB 2.538 billion, down by 1.9%, essentially flat. Net cash was RMB 1.27 billion. During the period, we maintained robust cash generation capacity. Last but not least, I'd like to talk about our dividend payout ratio. Based upon our cash generation capacity, there are 3 ways for capital allocation. First of all, supporting organic business growth; second, investing in scale expansion opportunity; third, excellent shareholder cash returns. We have constantly maintained this approach based upon the actual cash position of the fiscal year after funding requirement for the first 2 items, we still remain substantial cash reserve to support future business growth. During the period, our free cash flow was RMB 1.22 billion, representing 1.5x of the net profit for the same period, which provide a solid foundation of our dividend payment. Therefore, the Board has resolved to decline the interim dividend of RMB flat or consistent, maintain the same with last year. We hope we can leverage our high-efficiency operations and continue to provide a positive cash return through our efficient operation, creating sustainable shareholder return value. Coming next, let me just welcome Rebecca Zhang to -- Mr. Zhang to walk you through the business review section. Qiang Zhang: Thank you very much. Review H1 of this year. Micro retail market demand fluctuate. Social retail data show that textile and power industry grew by 2.5%, slightly faster than last year, but recovery pace was lower than the growth rate of the total social consumer goods retail sales. Industrial growth is no longer universal. It extend from the specific scenario and the demographic. In omnichannel retail, we now have instant retail, the broader and deeper channel deployments. The experience economy has risen with consumer purchasing not only product, but also service, content and emotional connections. Technology innovation also play a crucial enabling role in both back-end operation and front-end interactions. Where for sports industry, consumer segmentation has been more subdivided and be more diverse, shifting from general sports population to specialized vertical interest communities. Professional functionality has become the key direction for product upgrades with consumer pursuing high performance and scientific support. Meanwhile, while domains have been deeply integrated, sports has been connected to lifestyle, social interactions and the technologies. Facing such environment, industrial leading company generally focus on core strategies, invest in product R&D to build technology barriers, capture segmented demand through brand and category metrics expansion, advanced operational lean management, improving resources conversion efficiency. We are facing the external challenges. Topsports adapts to trends, refine internal capacity and enhancing our corporate resilience through forward-looking strategy positioning and agile execution. Against the backdrop of coexisting opportunities and challenges, we have made 2 reinforcement, reinforcing expansion into emerging scenarios and high potential area. Our brand metrics covers the comprehensive sports, lifestyle sports, professional sports and IP culture, and we continue to expand the brand deployment in running and outdoor. Committed to become an omnichannel one-stop operational partners for more partners in China's market on the diversified sports landscape. We also have 3 major iterations. In omnichannel retail, we comprehensively focus on continuous lean improvement of the offline and online efficiency. In talent strategy, we have released Topsports talent philosophy of ambitious, self-driven, disruptive, self-reflective, responsible and mutually achieving, focusing on building a growth-oriented team with both innovation and practical capacity. In technology upgrades, we continue to advance our digital intelligence strategy, optimize and expanding application of diversified tools, improving multichannel digital operational efficiency. During the period, facing continued evolving consumer habits and scenario demands, we expanded and optimized our omnichannel retail capacities based upon the offline and online synergy plus differentiated channel operations. We proactively drove traditional stores to breakthrough single growth to comprehensively deploy one plus and diversified operating models. While physical store as a core, extending to online consumption scenarios through the middle school expansion, embracing new platforms and method of connecting with consumers. By period end, our offline store has extended to online operational touch points covering multichannels, including constant e-commerce, private domain operations, local lifestyle and instant retail, leveraging the multipoint deployment and merchandise advantage. With coordinated support from merchandise management, user service and digital intelligence, we will be able to capture differentiated demand across various consumption contacts, building a flexible and efficient online operational system to support the high-quality growth of the online business. Where in terms of the store layout, facing the market environment with fluctuating offline traffic, we use operational efficiency as our core anchor, prudently advancing optimization of underperforming stores, adapting to the demand changes through flexible layout adjustment. We adhere to the optimize plus principle, optimizing and deploying one brand, one strategy retail store structural adjustment strategy based upon brand partners differentiated characteristics, target consumer profile and product attributes. More importantly, by building an integrated omnichannel retail network, Topsports has provided consumers with seamless connected full scenario service experience. At the end of August 2025, we operated 4,688 directly operated stores with store count down by 19.4%, sales area down by 14.1%. Compared with February 28 of 2025, store count down by 6.6%, total sale area down by 4.6%. Average sales are per store increased by 6.5%, consistent with 4.8% trend from the same period last year. Due to our more focused resources allocation, capital expenditure decreased by 36%, selling and distribution expenses ratio decreased by 0.2 percentage. Frankly speaking, we recognize the essential role a physical store play in sports industry. We upgrade the store with potential value. We're also actively expanding offline store online capacity, seeking ideal alignment between experimental value presentation and the store performance. Against the backdrop of complex and the variable retail markets and consumer behavior, Topsports remain strategic foresight, continue to work with our upstream and downstream partners to explore diversified offline value, providing Chinese consumers with rich experience and good product recommendation across all scenarios. This year, we jointly let and implemented NBA Star China tour activity with major brand partners covering the key CBD in Shenzhen, Chengdu and other cities. Fan enthusiasm was high at the event value, further highlighting our value as an active co-contributor of the diverse culture. Meanwhile, we launched new concept stores with multiple brand partners. Serving as exclusive collaborator and leading facilitator, we're working with brands on localization strategy creating fresher and more cutting-edge product and the store experience for young consumer groups. We also deeply practice sustainability concept, partnering with emerging pet brand [indiscernible] to launch the used closing recycling charity initiatives in stores, advocating circular economy principle and engaging more than 10,000 consumers. Regarding the online business, we advanced refined channel operation, optimizing overall metric strategy based upon the scenario characteristics. During the period, retail online business sales, including both public and private domain achieved a double-digit growth Y-o-Y. Let's take a look at operational factors for each channel. For e-commerce platform, we focus on store cluster metrics, omnichannel expansion, leveraging multi-brand advantage to enhance efficiencies through merchandise support. In content e-commerce, we use account metrics and building product synergy, and to build a heat product to penetrate into target demographics through interest-based approach. Private domain operation deepen user connections through precise and customized community service. The newly added instant retail during the period leverage our store network to provide instant need, instant purchase and instant fulfillment consumer experience. By period end, we have 800 Douyin and WeChat video accounts, more than 2,300 Xiaohongshu accounts with more than 3,600 mini program stores and 3,700 stores participating in instant retail. During the period, we continue to maintain first place on Douyin Sports and outdoor ranking. Our private domain mini program also maintained first place on Tencent official WeChat popular mini program sports and outdoor category rankings. Through the above deployment, Topsports online business can now comprehensively cover consumer 4 major purchase scenario as brand interest-based, recommendation based and instant need purchase achieving effective extension and the systematic organization of the online business. That concludes my sharing. Let me just pass on the floor to Ms. Zhang Huijing to review our initiatives and achievements in user operation and digitalization. Huijing Zhang: As many of you can already see, Topsports is committed to building a diversified user value system. We're deeply mining user potential value to form a virtuous circle development ecosystem to continue to deepen the user relationship. Where in user acquisition, we have a very targeted focus. We focus on omnichannel expansion, combining the omnichannel scenario-based interactions, engaging marketing and cross-industry collaboration to engage new users. While at the same time, we also drive multi-platform user information integration and consolidation, improving omnichannel user profile to ensure users enjoying consistent benefits across all scenarios. In existing user operations, we upgraded and refreshed the naming and benefits of Topsports membership tier system, deepening emotional connections with users. Meanwhile, we also built an omnichannel integrated operational closed loop using product, content and coupons as entry points to continuously enrich and cultivate user value. Whether users are in-store or after visit, we maintain omnichannel operation thinking, closely following characteristics of each stage in user life circle, achieve success reach and efficient conversion, further enhancing user belongings and brand affinity. Well, till now Topsports user base has steadily grown to 89 million. We focus on refined deployment managing and continue to give my user value. We deeply integrated our original membership IP, TOP Run Free into city scenarios like travel shopping and Q&A. During the May Day holiday, online active activities awakened more than 1 million private domain users, contribute more than RMB 100 million in sales beyond regular membership activities. We launched money-saving season cards for high-frequency members addressing their high-frequency consumption effectiveness pain points. Results show that card purchase a significant repurchase rate than regular users. Those above initiatives can allow the user to maintain consistent high stickiness and loyalty across all scenarios. Total member accounts reaching 92.9% of the sales in offline store and WeChat mini programs with repeated purchase member contributing to 60%. We also achieved positive result in high-value member operation, though they only represent a mid- and single-digit percentage of the total consuming member, but their value contribution is approaching 35%. High-value member average order value constantly and significantly exceeds the membership average, reaching 6x of the average member order value, demonstrating strong consumption potential and user stickiness. While at the same time, we also build a digital platform as our key strategy. In H1 of this year, our digital platform evolved towards a more intelligent strategy. We constantly guided by precision plus efficient inking combined with business strategy to focus on scale expansion and cost reduction and efficiency improvement across omnichannel dimensions. We refine and strengthen efforts across 3 themes, including omnichannel integration intelligence and panoramic view, building Topsports smart retail ecosystem. To be specific, omni-channel integration comprehensively connects business processes across 5 dimensions, including product members, marketing, service and data. In product dimension, we focus on building a system that can maximize inventory sharing, ensuring omni-merchandise visibility, stability and fulfillment capacity. In members, we drive universality and value maximization of the traffic acquisition and operation, enabling members to achieve consistent and quality service across different touch points. In marketing, we actually provide strong momentum into business development through diversified coupon and combination, supporting user value mining and sales conversion. In service, we achieved the consistent efficiency in consumer service tickets, significantly improved the user service response speed and quality. We achieved our mid-wall upgrades and migration, improving system utilization and operating speed while delivering efficiency optimization. While at the same time, we are also improving our sales efficiency. As you can see, in omnichannel intelligence, we continue to further improve the on-shelf efficiency, while at the same time, we will be able to continue to improve the inventory listing and utilizing of efficiency through end-to-end supply chain timeless control. Intelligent marketing and sales, we drive dynamic upgrades in product delisting while forming automatic process communications with AIGC content creation and copy AI-assisted product selection recommendation. At the intelligent operation and the decision-making, we complete the leap from the passive analysis to proactive intelligence, advancing store operations towards automation and precision. In omnichannel ergonomic views, we rely on digital intelligence capacity to achieve deep constructions of the user ecosystem and value enhancement on the AI-powered ecosystem. By building user operational model support that match user value growth curve, we support the development of the user ecosystem across all time period scenario and life cycles. Meanwhile, accelerated AI technology penetration also bring new momentum to -- the Chinese consumer cautious where consumption motivation shifted from a purely practical to pursuing emotional value and on the multidimensional aspects -- combined with the rising running enthusiasm, consumer demand for sports equipment has been upgraded to dual requirements of professional and quality, value in both segmented scenario enhancement experience and resonate with brand value, making the vertical segmented sports brands more favored. Based upon this, we can seize market opportunities by further expanding our freight cycle with a focus on deepening deployment in running and outdoor. We have successfully launched a partnership with running brands, including Norda, Soar, Ciele and outdoor brand Norrøna, to meet differentiated vertical demands. Additionally, we expand our own capacity circle as exclusive operational partners of those brands in Chinese market. Topsports is responsible for end-to-end operations, including brand strategy, content, communication, omnichannel operation and community cultivation, working with brand partners to tap the market potential, achieve effective connections with the target user and sustainable healthy brand environment. Currently, those brands are proceeding with orderly expansion based upon their distinctive features through a differentiated approach and plans. They attract new users through the major events and circle activities building social media metrics with leading style products to achieve cross-scenario brand mature cultivation and process demographic service. In channel, they adopt a multichannel development strategy, successfully opening the offshore online flagship stores. We're also flexibly utilizing the offline pop-up stores and buy stores to meet the Chinese consumers. In deploying those brands, we continue to explore to bring consumer with more diverse and distinctive experiential value across all domains. During the period, the Norda brand operated by Topsports debuted at the 2025 Yunqiu Mountain Trial race, creating a scenario-based independent retail space, emphasizing on try-on experience featuring with minimalist artistic and a strong design, attracting numerous runners for the on-site inductions. Sequentially, Norda successfully held the first brand event in China at Aranya, Jinshanling, the Mountain Breeze as Escort, Wild Trails into Zen, connecting with domestic running communities to accelerate their presence in China market. As an innovative attempt to invest in more heavily in running shoes and retail formats. We help to connect the runner brands and cultures through running lifestyle brands. Recently, we actually have our running concept store, Ektos in Shanghai, reconnecting the traditional offline retail language with runner needs as a core, emphasizing our integration into community and runner lives to increase user stickiness. The store social infrastructure provides runner with one-stop services. In product selection, we emphasize on professional logic using professionalism to resolve consumer pain points. We're introducing the unique product to maintain user freshness, where we focus on the community operations and content co-creation, transforming the store positioning from a single run equipment sales venue to become Ektos, a platform or spreading running culture and promote exchange and growth among the running enthusiasts. We hope to achieve good products and service through Ektos building reputation and influence in domestic and international running industry, making Ektos an independent operational platform for understanding Chinese running culture, therefore, engaging more brands to open their new stores in China. Going forward, we are optimistic about the running subdivision, and we'll have more deployments in this regard. Currently, the sports consumption industry are facing the opportunities and the challenges amid the intensified competition. Facing such situation, we will actively adapt to the trends and confront market challenges. We refine our competitiveness in sports retail industries through forward-looking strategy as well as ensure execution. Looking to the second half of the fiscal year, we're going to focus on the 4 parts. Focus on omnichannel scenarios, user innovative formats and service positioning for long-term growth. Continued focus on consolidating efficiency, forging fundamental resilience of the retail platform, optimize precise plus efficient digital intelligence empowerment support, practice ESG principle, building sustainable pathways for ecological co-construction and value co-winning. So that's all for the presentation. We're now happy to start the Q&A session. We welcome the online investors to ask questions. Thank you. Operator: [Operator Instructions] Coming next, let's welcome Wei Xiaopo from Citi. Xiaopo Wei: Can all of you hear me? Unknown Executive: Yes, please. Xiaopo Wei: I have 2 questions. My first question is regarding your key partners. A few weeks ago, your U.S. partner, Nike, has make some very interesting comments of the China market in their quarterly report. They specifically emphasized they're going to have a major investment in China market. Mr. Zhang, in your presentation, you already mentioned, Topsports continue to actually refine our omnichannel operation and also to help to tap into the online value of the offline stores. Just as was being mentioned by Nike, for Nike global directed e-commerce, the Chinese partner dilemma facing the offline operation dilemma. So Nike's online retail business is not 100% aligned with the China market needs. So in other words, as far as I believe that Nike is going to invest more for the offline channel, is it possible for the Topsports management team to comment on what would be the future of the Nike in China? Or what about the partnership strategies? What about the order and the product you see from Nike? But at the same time, my second question, in your interim report, your GP margin residence is much better than what we expected. You have already mentioned, part of the reason is because of the brand support, but how sustainable the brand support would be? This is my first question. Unknown Executive: Thank you, Mr. Wei. I clearly noticed for Nike Global, it has already disclosed its comment for Chinese market. It was measuring its business structure product in China. Its business recovery in China is much slower than its business development in other countries. In Nike's statement, it was mentioning the online platform and online business in China has been quite chaotic. People are all competing over the price. So that's the reason that Nike started to roll out its management and plan for online channel, and they are going to further reduce discounted product for e-commerce sales, which has been mentioned by Nike, where we are being supportive to Nike's initiative. We are helping them. We are, at the same time -- and it also mentioned it's going to invest for the offline channel, because sometimes if you operate a single brand store, the churn would be pretty long, including store selections, GFA decisions, the shelving, listings and product presentations, all the offline store operations be further challenges with more adjustments being needed. We are in the process with Nike for negotiation. Some has already generated a good further results or some are still in negotiation. Let me just give an example based upon the existing sales and the market landscape. Topsports already narrowed down the GFA for many of our own stores because you can clearly see the offline traffic has been changing. So that's the reason we are actually narrowed the GFA for many of our stores, which would also be aligned for the future new openings and renovations we have for our stores. While at the same time, we also continue to further reduce the accretion cost. Let me just give you an example. For Category 1 Jordan store, for a single store, the traditional -- the decoration criteria cost being reduced by 45%, where for STORE 750, actually, the decoration cost being further reduced by 42%, which can also help to further reduce offline store operation expenses, which can further improve the operation of the physical stores, where there's another improvement on the product or merchandise by embracing the sports brands, we already see 2 significant improvement on 2 categories. The first 1 is a running category. And you can see that our product continue to perform above industry average. Starting from Q3, we invested in [indiscernible] and its single month sellout is close to 50% to 60%. In other words, it has already been taken as the best-selling products, which actually further improved the selling rate of the new product. In winter, we actually have the [indiscernible] with just 3 months after the product debut, the authorization is already more than 40% or the sell rate is already more than 40%. We do see for the running shoes, some of the new products and functional products are actually having very good sales performance. For the basketball category, copy product sales rate was also outstanding. So you can see for the functional product sellers, no matter for running or for basketball, the key flagship sales all see very nice selling performance of the new product and highlight of the new product, while at the same time for Topsports in order to make sure we can respond to consumer needs in a more efficient way. As we are working with Nike for their next highlight of flagship product and that is outdoor ACG product. For outdoor ACG product, its independent brand. For Topsports, we are also an important partner of the independent outdoor brand, ACG for Nike. Till now, we have already nailed down the first 5 stores. The first 1 is the Beijing Sanlitun store. It's being operated by Nike, but the top 2 to top 5 stores were all being operated by Topsports. Stores being located in Nanjing, Chengdu, Guangzhou and Changchun. The location has already been selected. And the commence time has already been confirmed. We are actually working with the brand to further explore their offline potentials. Xiaopo Wei: I have the second question regarding your brand metrics. Especially for the past 1 year, we say your brand metrics being further expanded with accelerated pace. For example, the management mentioned you are engaging more brands for partnership and the cooperation was being more innovative, for example, Norda. So I really would like to know with those new models, for the emerging brands besides Nike and Adidas, for example, like Norda, Soar, Ciele and Norrøna, what would be your future target? Do you have any qualitative or quantitative target that can share with us? Unknown Executive: Thank you, Mr. Wei. This is also a very good question. Let me just respond to your question from different perspectives. If you have any ongoing questions, please send me more message. First of all, for the past 1 year, as many of the friends already see, we are accelerating our pace for brand metrics expansion. You see it from the results we shared with you, but actually, it's not a short-term action. It's been a long-term commitment. Many of the brands, especially the emerging brands, we have already engaged with them for 2.5 or even 3 years. It happened just been released within the past 12 months. We have already have a long engagement and commitment or negotiation with those brands many years ago. For my second point, let me just share with you how I comment on the brand metrics and the brand family. If -- you are the one follow our company for many years. You probably still remember when we go for IPO roadshows, we tell people we are more like a combination fund or just like the portfolio that you may have. For many of the ETF shows, we're going to talk about tracking error. Tracking error can actually reflect whether you can effectively tell the market changes. We are also bringing the tracking error thinking to see whether our brand metrics would be able to tell the brand, the future development, market dynamics or showcasing the segment with new potentials. By having such a thinking in our mind, we continue to think about and review what are those brands we can work sustainably to bring them into our brand metrics. So generally, for our brand deployment, to a great extent, it also shows the changes we have to the market dynamics, our focus on segmented areas with new highlights. If we believe there's any segment with good short-term, long-term development value, we'll continue to add into this segment to make a continued investment to showcase our confidence. To be more specific, for example, in the secondary market, you may actually have the circulations, no matter for consumables or industrial products or technologies. We hope that in the areas, we're supposed to have our presence, we then would like to have more leadership in that segment. Especially for Topsports, we are a platform having the omnichannel presence. We need to continue to leverage our advantage. We indeed have the platform and scale up capacities to work with different brands for partnership. So that's the reason from this perspective, it can also help you to truly understand why we continue to expand our brand metrics. Mr. Wei, I remember, you also have the second part of your question regarding our vision and our targets. Well, for vision, you probably have been already inspired by what I mentioned, how you understand our brand metrics and the market development. What we do now is to leveraging our partnership with brands to continue to support them. Besides retail operations, we also provide brand management support and initiatives to the brand. I hope that the capital market could be more patient because at a new stage, we'd like to take baby steps to make every step counted to consolidate our business. For any new business transformation, we also keep an eye on the new model besides transitional retail operations, truly hope to have a more refined product or business model. A new business model provides more promising opportunities to us and to brands to tap into more market potentials. So 3 points from a response. You can understand our brand combination and the product portfolio, which showcase the market dynamics, our confidence and our investment of the market. Secondly, we hope that by having the ownership and leadership in our key areas, the brand we're working with is also emphasizing our business shift from traditional retail operations to brand management. But still, we are focused on the product, making the business model right to lay a solid foundation for our future sustainable growth. Hope I helped to answer your questions. Wu Yu: Thank you. Thanks, Mr. Wei. I find out, there are 2 questions you may need some answer from me. So let me just share with you how sustainable the brand support is going to be, and then what about the order. Let me see for support sustainability. The market is not performing well. We get more support from the brand partners. We're looking into the future. I truly believe as the largest and the best partners with the brands, we're surely going to have more support more than others get. Regarding the product order for the past 2 quarters, you can see that the order has been decreased on a Y-o-Y basis. Majority of our brands are adapting the flexible supply chain. In flexible supply chain, there are opportunities for us to have more order placement. You can see in the actual seasonal sales, our actual sales or product arrival is actually higher than the order were placed. So that is my answer to your question. Operator: Coming next, let's welcome Ding Shijie from Guosen Securities. Shijie Ding: Thanks for giving me the chance to raise a question. I'd like to ask the company, what would be the outlook you have for H2 of this fiscal year or even next fiscal year? And we also noticed the wholesale revenue for Nike in China market was declining for the past few quarters, but the decline has been further narrowed down. So as someone ordered from Nike, will Topsports share with us what would be the breakdown of the new product or the old product you ordered from Nate? Whether any updates you may have on the discount or product sales from Nike? My third question was supplementary Ektos project. We see that we have more consumers who's been deeply engaged in running. But still, there are some pain points for shopping, for example, the brand preference and know-how of the salesperson, we are very interested in Ektos. Is it possible for you to share more the product Ektos, how is future developments being planned? Unknown Executive: Let me just respond to your question regarding H2 of this fiscal year. Well, as you can see from our presentation, communication or what you can see from the industry. You noticed, the industry still faced challenges even in recent weeks. In such a challenging macro environment, in this fiscal year, what we are committed to is to fulfill our full year guidelines that we provided in May of this year. In other words, in fiscal year 2026, we hope the net profit could be flat. Net profit rate could be improved on a Y-o-Y basis. This is also the commitment, we still outlook now. Well, regarding fiscal year 2027, as many of you know, we only give the outlook when we hold the annual release. So it's too early to provide the fiscal year 2027 outlook. Let me just ask Mr. Zhang to respond to the inventory metrics to you. Qiang Zhang: Thank you for Nike products, around 70% to 80% of the products on the new product, which is healthy and which is also the level we are keeping now. We're going to keep it in the near future. Where for the key brands, what the key brand is doing now is that they are actually leveraging 3 strategies. For example, we control the volumes to maintain the discount rate. So actually, the discount rate has been quite stabilized. Where you can also see that the sales of the running-related products will continue to go up, which is indeed supporting the new product sales, which can also benefit our GP margin to some extent. This is what we are having now. Wu Yu: Thank you. Thanks for the questions. All the questions are quite professional and well targeted. That really makes me truly inspired. Those questions are quite good. So please allow me to share with you some of my ideas by responding to the questions. Let me just try to give a few comments on the questions I heard before. For Ektos. Ektos indeed is a business or a more accurate manifestations we have for our commitment into this business. So Topsports' investment or commitment in running has been further manifested by Ektos. For Ektos stores, what is happening for the project and to our stores? What are those content business going to be presented by Ektos? Well, from the physical format, Ektos is more like a multi-brand retail space in the physical channel. But when we started the trial operation from the 1st of October to now, it's around more than 20 days. So besides selling the exclusive product ready to be seen by the market, Ektos has already become and evolved into a hub that can connecting the people who are in love of running. For example, we have KOLs who come to the store for visit. We have the runners who come to the store to talk to us. In our Ektos, we call ourselves as a social infrastructure. It's a social infrastructure concept. What do we mean by saying social infrastructure? For example, there's 1 corner in the Ektos store, they are going to open to our membership. In Zhongshan parks in Changning district, we do have a coastal running pathway. Our store can provide the storage locker and the 24/7 vesting service to our runner, hoping that we'll be able to have direct reach to the runners for more communication and interactions. But at the same time, for Ektos, we also have some top runner from Shanghai. They are not coming to Ektos for store visit or shopping. They just take Ektos as a place for their appointment or engagement, just like the social space, we have in Europe, just what Starbucks presented to the community, is actually a connection hub of the community. I think for Ektos not only bring more product sales, engaging more brands. For the past 2 to 3 weeks, there are more sports brands connecting us, hoping that we can have some co-branded events or running their brand communities in Ektos. We're helping them to show more content. So actually, Ektos is a diversified harbor rather than being limited on the physical space. It's already go beyond its physical format. Then how Ektos is going to develop in the near future? I think it was not contradictory with what we have already mentioned. When Mr. Wei was reading the question, I have already shared with you, we're not only going to limit ourselves for the retail operation or omnichannel deployment. We are now shifting into brand management, too. So all those initiatives when we combine together, we are, in other words, continue to embracing brand management with a physical platform and ready-to-go strategies. So in other words, Ektos is indeed our store, a physical store or manifestation of our commitment for the branding sector, where it's going to be parallel to our single brand business and more emerging business or more connection service would be available at Ektos. In other words, let me just use 1 sentence to summarize my comments. Ektos is not only a new store of shopping the new brands or new products. If you have any further questions, I welcome you to raise the questions now or after the meeting. Thank you. Operator: Coming next, let's welcome Dustin Wei from Morgan Stanley, please. Dustin Wei: Recently, trend update would be my first question. Double 11 has already been started, and I know you have many good online sales. Do you have any trend to update us? My second question is a long-term question. For retail market in China, offline and online has been changing all the time. Right after COVID-19 in 2023, offline traffic has been recovered. But in 2014, 2025, offline traffic has been kept at a very low level. I know you closed some underperforming stores, but still the offline traffic continue to go down. I see it's actually structural changes of the consumer behavior. I'm not sure whether I'm making the right statement. Now your online sales is already 40% to 45% in 3 to 5 years, it's going to be 70% of your overall sales. From our membership data, can you indeed see that majority of the young consumers on the age of 30 still purchase online rather than go for offline store. If such thing happen in the next 3 to 5 years, then for Topsports, where we already taking the right strategy to improve our digital capacity, whether this is going to generate some good opportunities or setbacks to our GP margin or business model? My third question is regarding your new business models. For example, you have exclusive partnership from a few nice emerging brands. Let me just ask you, for example, like Norda, Norrøna, are you contracting those brands for exclusive partnerships or may within that agreement term, you help them to take care of all the commercials in China, for example, distributions self-directed stores. Does exclusive partnership look like this? I know that the company has a very strong cash flow capacity. If you really would like to engage those brands in long run, did you consider JV or equity investment as a way of being part of the emerging brand operation? Wu Yu: Thank you, Dustin. Let me respond to your questions. The first question is regarding the market landscape now, where you can see the market data or market sentiment. I think you can already observe that as a consumer or even you talk to other peer company, you probably already feel what the market may look like. I see there are more challenges are in the market, where from Topsports, especially from our fiscal year Q3 to mid of October. In other words, from the beginning of September to the mid of October, in just 6 weeks, the sales is very much in line with the Q2 performance of the previous fiscal year. I mean, from June to August. Online offline performance are also quite consistent with before. I was talking about the sales. Well, regarding the discount and inventories. Let me see that for inventories. Topsports still maintained a very stringent control over inventory. The inventory level is pretty healthy and controllable, which has already been mentioned by Mr. Zhang in his presentation. Regarding the discount rate, for the past 6 weeks in Q3, discount rate has still been deepened. The attitude of the deepening has been narrowed down compared with what we saw in Q2. So these are the latest observation updates. Well, regarding the overall market, still we see the challenges. But for Topsports, we always maintain our own cadence in H2 of fiscal year, we're going to be more priority-oriented, right after moving into H2 of the fiscal year. Our business or the actions we take are still going to be in line with our overall road map and the expectation. Let me just ask Mr. Zhang to respond to your question regarding the evolving landscape of online and offline business. Qiang Zhang: Thank you, Dustin. I noticed the observation you mentioned in your question. We see the challenge for the offline channel is truly huge. This is how we comment on the online opportunity. First of all, the traditional channel expansion used to only focus on the store number, but now we focus on the omnichannel operation. For example, one physical store going to have a 10 online stores. So for one store, it has 1 physical store and 10 online stores. That is to make sure the offline store can develop their online capacity, especially when we have the traffic drainage for the offline channel, we have to find a self-rescue strategies. First of all, we need to build our private domain. By having a private domain to engage the traffic, we will be able to find a way for the offsetting the traffic drainage in the offline channel, retain the consumer, continue to enrich touch points and conversion. Besides the private domain, we also have the content e-commerce. That is basically restored with Douyin and Little Red Book. And we are also going to have the key stores and the flagship stores on the social platform, engaging more public traffic to this opportunity for sales. And the third part is Dianping.com or TikTok localized, and then they can actually direct the traffic to the stores. We also have our store presence, sales coupon, interaction with consumers, supporting them to come to our physical store for consumption. The fourth part, or should I say the most emerging and also 1 of the most important part, that is the instant retail. Instant retail can actually leverage the offline discount, providing more convenience to the online consumers. It's just like the food takeaway service of delivering Topsports product to consumer hands, which can have a fast fulfillment by providing the localized solution. Those are all indeed the strategies we have in order to support our offline stores to divide their online store capacity to offset the traffic drainage in the physical channel. Those are indeed the initiatives we are adopting now. Wu Yu: Okay. Dustin, let me just respond to your final question. I think you have already made a very few important points. Same as you mentioned, for the contracting relationship within certain geographic regions, for some brands are partnering with us in Greater China or even in Chinese Mainland area that is exclusive partnership we reached with the brands. But just 1 more comment I'd like to make on that. We never excluded the possibility of having some equity cooperations with those brands. But let me just point it out, being an equity investor is just a tour rather than the final objective. What we are going to do is to share the interest with the brand to have a deep collaboration. We hope that when we were working with different brands, each brand has a very different background, the history, development milestones. If equity investment would be a way to deepen such a partnership, if other parties stay open for negotiation, then for sure, we are happy to have the negotiation. But if the timing is not right, we are still quite patient and be fully committed of supporting the brands to prove to each other, we are the right partners for long and sustainable growth. Operator: Ladies and gentlemen, due to time constraints, let's welcome the final question. Let's welcome Samuel Wang from UBS to raise the final question, please. Samuel Wang: I'm Samuel Wang from UBS. I have a question for the management team. The sales revenue decline is kind of significant in H1 of this year. Would you mind to elaborate on the reason? My second question, you now have 89 million users. You must have generated some good insights from the user. Did you see any new trends? For example, outdoor and running categories still registered fast growth, where for other categories, whether basketball has been pressured or is it being remitted or for other sports, for example, like tennis, like badminton or like golf, do you have any trends or dynamics updates with us? My final question is regarding the new brands. What about their sales contribution to your overall sales? And what about their profit or even the net profit contribution to our overall business? Wu Yu: Thank you, Samuel. Let me just try to answer your question. I mean the first 2 questions. I will then ask my colleague to respond to a final question regarding new brands. My first response to your first question, wholesale revenue decline in H1 of this year. First of all, has been planned for the full year. This is also within our expectations. You know that for wholesale users, they are in the top-tier cities or Tier 1 cities. From the management perspective, I mean, if we consider efficiency, if the efficiency is not in the right timing, we may have some wholesale users or consumers. You know that for wholesale, the offline are the key for wholesale. Majority of our wholesale consumers, they have many offline stores. The offline traffic has been heavily impacted for this year. So our wholesale partner, I think their revenue is being heavily impacted. When we are dealing or handling with the wholesale customers, we would like to focus on the sustainable and healthy development. This is the strategy we have with our wholesale partners. Let me just complement on that because the overall micro environment is not looking right. Wholesale consumer confidence being impacted, order continue to go down, where there's another reason we have to notice, the market is facing various competition. The online product price and the sport product price has been quite chaotic. I mean the pricing system. For some of the wholesalers, they actually order less from the wholesale channel. They believe they will be able to get a better discount by having temporary small batch orders. So that's the reason the wholesale business was going down. Samuel, I didn't get your question very clear. You were asking about the insights from the membership to new brands. Are you asking me to comment on the new brands? Or are you asking me to talk about new brands deployment and the strategy? Would you mind to repeat the question again? Samuel Wang: No problem. My question is that you have 89 million users. You might have some user insights data. Did you see that the category difference, for example, running outdoors, the growth rate was looking pretty right. Basketball used to be pressured, whether the pressure is being elevated or for some of the niche sports like badminton, like tennis, like gold, do you see there's any brand who have a promising future with nice growth or any category who may have similar performance as outdoor in the near future? My second question -- third question regarding new brands. What about the new brand sales contribution and profit contribution or the net profit rate? Wu Yu: Thank you. Actually, first of all, sales contribution from new brands or niche brand, you see Topsports is a large company. So here now, the niche brands contributed less to the profit. You can almost neglect that. But running those niche brands or emerging brands is our strategy or our business pilots for future growth opportunities. Well, regarding profitability, you can see all the brands we are working with are having exclusive partnership with us. For those niche brands, we hope we can help them to have a good and high quality debut in China, consolidate their future growth opportunities in China. So profit and the discount control over those emerging brands being -- will by done by Topsports. So those are the 2 response I have regarding your new brands question. Well, let me just be brave in showcasing the promising verticals or the categories. I will ask my colleagues to give you more comments. First of all, as we can see, sports industry is being highly integrated, no matter from sports or from brands. While with these preconditions for the past 1 decade, you can see that we have domestic and international brands continue to show up. But to some extent, it was showcasing differentiation, people's interest and the preference being further sparked. This is actually 1 thing for your reference. Well, based upon that, you ask me what are the categories, what are those niche sports can grow? First of all, some of the so-called non-niche segment may not be niche in the near future. It may engage in more consumers in the near future. Well, based upon that, you see what would be the category that may likely to become the outdoor category. Just like the secondary market, you need to have the alpha and beta. Alpha shows the sports developments. And beta actually means the market dynamics that may lead to the brand growth in short run. You have to consider both factors together. Well, regarding the alpha, there are some niche market or sports, who have a very strong momentum for future growth. We have already made the corresponding resources allocation. Where for data, it's more like marketing campaigns, you just follow that, keep it on eye and be a part of that. That's my response. Let me welcome Mr. Zhang to say a few words. Qiang Zhang: Thank you. Responding to your question on category. In the category we are operating now, we see demographics and the consumption data is truly aligned. The largest category is still running. Running is still the best and still growing segment we see. It's also a category that all brands in competing with. For running shoes now, I mean for the light-weighted running shoes, people just want to make it less than 200 grams. Adidas made a running shoes weighted less than 200 grams. It's going to be a onetime marathon running shoes. Performance being extreme. The surface is quite breathable and thin and making sure it have very good elasticity. So in other words, all brands have been competing over technology innovation and material progress. So all brands have been working for running market. It's still the largest application with every growing market momentum. It's still a place with a new product on a daily basis. All brands are actually taking running as a focus area of development. Well, let's talk about outdoor segment. Outdoor category is more like a high rising -- and even if it was rising fast, but still this market is still a vertical market with focused demographics. No matter like North Face or other brands, they actually made a substantial growth in the outdoor categories, which is truly well demonstrated with very nice growth. There are other segments, including basketball. Basketball is more like the inventory market. For basketball, we actually focus on the junior high school and the senior high school or even sometimes primary school students. Many of those target users are the on-campus students. The brand allocation in the basketball won't change that much. Nike probably be the trial taker where other brands are taking the corresponding shares. So it's actually a relatively fixed market with nice inventories led by Nike. Mainly the basketball market is being led by Nike and other brands just take of the rest part of the market shares. For the niche market, tennis registered very nice growth, especially Nike tennis series, where Nike sponsored Jannik Sinner, were in the tennis global competition, we have many new rising stars from China, which actually be a great momentum among the public. We see such growth momentum from Tennis, but the contribution and volume is quite limited. I see the growth momentum from tennis is looking good. Well, for football. Football don't have too much promising potential for the professional product lines. For viewers of the football or the people who play football, in other words, we have more people watch football games rather than play football. But the football lifestyle products do register nice growth for the past 2 years. That would be the category dynamics, I'm happy to share with you. Operator: Okay. Due to the time constraint, ladies and gentlemen, here comes to the end of our presentation. Our management and IR team will continue to engage our friends from the capital market. Thanks for your time, and thanks for supporting Topsports.
Operator: Greetings, ladies and gentlemen. Welcome to the Vesta Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, this call is being recorded. It is now my pleasure to introduce your host, Fernanda Bettinger, Vesta's Investor Relations Officer. Please go ahead. Fernanda Bettinger: Good morning, everyone, and welcome to our review of third quarter 2025 earnings results. Presenting today with me is Lorenzo Dominique Berho, Chief Executive Officer; and Juan Sottil, our Chief Financial Officer. The earnings release detailing our third quarter 2025 results was released yesterday after market closed and is available on Vesta's IR website, along with our supplemental package. It's important to note that on today's call, management remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ. For more information on these risk factors, please review our public filings. Vesta assumes no obligation to update any forward-looking statements in the future. Additionally, note that all figures were prepared in accordance with IFRS, which differs in certain significant respects from U.S. GAAP. All information should be read in conjunction with and is qualified in its entirety by reference to our financial statements. Including the notes thereto and are stated in U.S. dollars unless otherwise noted. I'll now turn the call over to Lorenzo Berho. Lorenzo Dominique Berho Carranza: Good morning, everyone, and thank you for joining us today. While we entered the year facing macro uncertainty and slower market activity, I'm pleased to note we're now seeing encouraging signs of improvement as clients start to make decisions. Leasing momentum is returning. Tenant demand is intensifying and the fundamentals behind Mexico's industrial real estate market remain intact. We are particularly encouraged by the uptick we're seeing in leasing absorption, a signal that companies are regaining confidence and moving forward with their long-term commitments. Third quarter was a solid quarter for Vesta. We delivered strong operational execution in a market which has begun to normalize from earlier year softness, as I have described. Vesta's rental revenues increased, supported in part by the rent-generating buildings we delivered last quarter and will continue to drive revenue growth through the end of the year. Our retention rate remains high and rents on rollovers continue to trend upward, demonstrating both the quality of our assets and the strength of our tenant relationships. Meanwhile, our stabilized portfolio continues to perform well. Total income for the third quarter reached $72.4 million, which is a 13.7% year-over-year increase. And total income, excluding energy, reached $69.9 million, a 14.5% increase. We delivered an adjusted NOI margin and adjusted EBITDA margin of 94.4% and 85.3%, respectively, for the third quarter 2025. Let me now walk you through leasing activity and market conditions across our core regions. Total leasing activity for third quarter 2025 reached 1.7 million square feet, 597,000 square feet in new leases with new and existing tenants and 1.1 million square feet represented renewals with an average age of 6 years and a trailing last 12 months weighted average spread of 12.4%. Vesta's third quarter 2025 total portfolio occupancy, therefore, reached 89.7%, while stabilized and same-store occupancy reached 94.3% and 94.8%, respectively. As expected, our overall portfolio occupancy dipped slightly during the third quarter, primarily due to the delivery of new buildings currently in the lease-up phase as a result of the robust development pipeline we executed throughout the year. We're confident that absorption will follow, and this positions us exceptionally well to capture the demand we anticipate later this year and into 2026, given improving demand indicators, which I'll touch upon today. Let me share some color on what we're seeing across our markets. In Monterrey, we completed construction of our Apodaca park with 3 new state-of-the-art facilities now in the marketing phase. We're seeing strong interest, particularly from advanced manufacturing and logistics companies. We will be highly selective in determining our future tenants given the quality of our parks and Monterrey's role as a key near-shoring destination. Apodaca stands out as Monterrey's most strategic submarket, offering direct access to major industrial corridors and proximity to the Monterrey International Airport. And after the quarter closed on October 2025, we announced that we have acquired 330 acres of land in Monterrey in the high-demand Monterrey-Apodaca Airport Highway corridor. The site benefits from strategic location next to the Monterrey International Airport and Nuevo León’s Research and Technology Innovation Park, offering exceptional connectivity and direct access to a highly skilled labor pool. The deal included attractive 24-month seller financing, providing flexible capital deployment. And importantly, with this acquisition, Vesta's land bank is nearly complete to deliver on the Vesta Route 2030. In Ciudad Juarez, we saw early signs of a market turnaround in the third quarter. According to CBRE, overall vacancy contracted by 130 basis points and Class A vacancy retreated by 190 basis points for this market. This was underpinned by 1.3 million square feet of net absorption during the quarter. Vesta secured a lease with a global electronics company of 500,000 square feet during the quarter, a transaction which boosted third quarter absorption and reinforced the vacancy decline in this market. Juarez continues to draw international manufacturers, especially in electronics and high-precision goods. We believe the third quarter marks an inflection point in Juarez's industrial recovery and Vesta is well positioned to capture the next cycle of demand. In Tijuana, we're seeing slower recovery with market dynamics still adjusting to a recent influx of supply in this market. High vacancy is a result of a wave of spec deliveries that enter the Tijuana market. That said, there are early signs of reactivation. CBRE highlights that 67% of leasing demand continues to come from manufacturing users, which reinforces Tijuana's ongoing strategic relevance in the broader nearshoring landscape. Vesta has been actively engaging with a strong pipeline of tenants in the region, which give us confidence that dynamics are improving. Tijuana is a constrained market with limited land availability and physical barriers that make long-term overbuilding less likely. These fundamentals, combined with recovering demand should gradually support rebalancing as the year progresses. And while Tijuana's pace of recovery is lower than in markets like Juarez or Monterrey, Vesta's competitive position remains strong. Our portfolio benefits from institutional grade quality, reliable infrastructure and access to key logistic corridors. As always, we will approach this market with discipline and a long-term view grounded in data and in a deep local understanding of our markets. We have seen sustained strength in Guadalajara and Mexico City. Both markets stand out not only for their debt in scale, but for the diverse tenant basis and consistently high retention, which is underpinning our overall portfolio. CBRE reports that the Guadalajara industrial market maintained a healthy 2.8% vacancy rate in the third quarter. Despite new deliveries, importantly, Guadalajara, is a key recipient of foreign direct investment, particularly in advanced manufacturing sectors like electronics, automotive and aerospace. In Mexico City, industrial fundamentals have remained remarkably strong as can be expected. CBRE reports record absorption year-to-date at the highest absorption in the last 5 years, driven by pre-leasing and long-term renewals. Vacancy remains low at just 2%, supported by steady demand from logistics and e-commerce tenants. More broadly, we're seeing that activity has stabilized in the automotive sector, and our tenants in the sector have continued to renew leases and deepen their long-term commitments. Mexico is deeply integrated into the supply chain that supports the North American automotive industry. We believe it's virtually impossible to decouple. In fact, we're seeing continued and growing integration across the region as manufacturers double down on resilient near proximity production strategies. At the same time, we're seeing a shift in momentum toward other high-value manufacturing segments with strength in electronics, scientific equipment and industrial machinery. Mexico has now overtaken China as the largest exporter of electrical and electronic equipment to the United States. Companies are investing ahead of current demand, which reinforces the importance of being ready when they're ready through land acquisitions, as I have described, but also energy supply. The Mexican Association of Industrial Parks recently announced that the federal government is advancing targeted initiatives to support industrial parks, particularly to meet the growing energy needs of new facilities and industries. We're confident in our ongoing collaboration with both federal authorities and energy regulators. As new energy legislation takes shape, we believe industrial parks, in particular, will stand to benefit. The proposed framework includes provisions for energy generation through public-private collaboration, which we see as a positive step toward enhancing reliability and long-term capacity for industrial users. This enables us to serve even energy-constrained regions without compromising on service or delivery. Juan will discuss our financial strategy and related capital deployment, but let me make just a few related comments. During the third quarter, we successfully completed a senior unsecured notes offering that enhances our liquidity position, extends our maturity profile and gives us the financial flexibility to fund future growth under attractive conditions. This also enables us to refinance upcoming maturities without disruption, supporting both stability and expansion. Vesta's capital allocation has remained conservative and focused. We currently have only one project under construction, a direct result of our cautious approach at the start of the year in response to low absorption. That discipline is now enabling us to move with confidence as we prepare for new development starts for the end of 2025 and beginning of 2026. We are prioritizing markets where tenant demand is most visible, and we'll continue to direct capital toward land and infrastructure readiness, ensuring our growth is tied to quality, timing and market visibility. Asset recycling is a key part of our capital allocation strategy, enabling us to monetize stabilized assets and reinvest in higher growth opportunities. During the third quarter, Vesta sold an 80,604 square feet building in Ciudad Juarez for $5.5 million, an approximately 10% premium to appraised value aligned with Vesta's strategy to opportunistically recycle assets. Considering our progress this quarter, we revised Vesta's full year 2025 guidance. Juan will discuss in more detail. In closing, our third quarter results underscore a clear and consistent message for Vesta. Resilience and solid fundamentals ensure Vesta is well positioned for what's ahead. This quarter also reaffirms our ability to execute on Route 2030, our long-term vision to build a scaled, diversified industrial platform serving the most important corridors in Mexico. With that, let me turn our conversation over to Juan to review Vesta's financial results in more detail. Juan? Juan Felipe Sottil Achuttegui: Thank you, Lorenzo. Good day, everyone. Let me begin by highlighting our strong financial results for the third quarter. As a result, Vesta has revised our full 2025 guidance. We now expect our EBITDA margin to reach 84.5% by year's end, up from our prior guidance of 83.5%, underscoring our continuous focus on expense control and on delivering strong results. We expect to solidly achieve revenue growth between 10% and 11% for our full year with an adjusted NOI margin of around 94.5%. Now let me walk you through our third quarter results. Starting with our top line, total revenues were up 13.7% year-over-year, reaching $72.4 million, primarily driven by rental income from new leases and inflationary adjustments across our rented portfolio. As per our current mix, 89.4% of third quarter rental revenues were denominated in U.S. dollars, slightly up from 89.2% in the third quarter of 2024. On the profitability front, adjusted net operating income increased 14.7% to $66.1 million. Our adjusted NOI margin remains strong at 94.4%, up 16 basis points from the prior year, reflecting higher operating leverage as revenue growth outpaced costs. Adjusted EBITDA totaled $59.7 million, a 15% increase year-over-year with a margin expansion of 34 basis points to 85.3%, driven by a lower proportion of administrative expenses in relation to revenue during the third quarter 2025. Vesta's FFO, excluding current tax, increased 16.5% year-over-year to $47.4 million compared to $40.7 million in the third quarter 2024, while FFO increased 20.1% to $0.055. We closed the quarter with pretax income of $52.4 million compared to $62.7 million in 2024. The decrease was primarily due to lower gains on revaluation of investment properties as well as lower interest income, reflecting a reduced cash position during the period. Turning to our capital structure. On September 30, 2025, we successfully completed a $500 million senior unsecured notes at a 5.5% interest rate due in 2033, further strengthening our balance sheet, enhancing financial flexibility and advancing our goal for a fully unsecured capital structure. The notes received a BBB-/Positive rating from both Standard & Poor's Global Ratings and Fitch Ratings. The proceeds were used to prepay the existing debt and shortly after quarter's end, on October 9, we repaid in full our Metlife II credit facility and related incremental facility for $150 million and $26.6 million, respectively. As a result, we ended the quarter with $587 million in cash and cash equivalents and a total debt of $1.45 billion as of September 30, 2025. Our net debt-to-EBITDA ratio increased to 4x, and our loan-to-value ratio was 31%, which temporarily reflects the outstanding balance of the facilities that were repaid shortly after quarter's end. On capital allocation, Loren has noted that we sold an 80,000 square foot building at a 10% premium to appraisal value in Ciudad Juarez during the quarter, consistent with our strategy of opportunistically recycling of assets. At the same time, we continue to strengthen our land results, as Loren mentioned before, with the acquisition of 330 acres of land in Monterrey. Moreover, reflecting our balanced approach to capital allocation, on October 15, 2025, we paid a cash dividend for the third quarter of $0.38 per ordinary shares. This concludes our third quarter 2025 review. Operator, could you please open the floor for questions. Operator: [Operator Instructions] Our first question comes from the line of Juan Ponce with Bradesco BBI. Juan Ponce: It seems clear that demand signals are going in the right direction. When do you think -- when you think about your long-term development pipeline, are you comfortable accelerating Route 2030 projects in the first half of 2026? Or do you think it is prudent to move slower ahead of the USMCA review in June? I ask because although vacancies have declined a bit in some of the northern markets, Tijuana still remains elevated. So I just want to get your thoughts on how you're thinking about this growth. Lorenzo Dominique Berho Carranza: Thank you, Juan, very much for your question. Definitely, we have seen positive demand signals pretty much across most of the markets. I would probably like to highlight that Mexico City and Guadalajara have remained very solid throughout the whole year with vacancy rates at record low levels and still strong demand, mainly coming from sectors such as logistics, e-commerce and electronics, but also other markets have also shown some positive signals. Now how does that translate into our long-term plan? Well, as you know, we analyze carefully market-by-market, and that's when we analyze internally at the investment committee, where do we want to resume and start new operations and new development. As you could see this quarter, even that we have had a slower year on construction starts, we were able to start -- we did resume in Guadalajara with one building. And over the rest of the year, 2025, we will continue to start in other markets where we have recently acquired land and when we think there's already strong demand so that we can continue developing. I wouldn't think -- I think that we should still focus on the mid- to long-term plan for the 2030 Route. And we will be analyzing carefully the progress on demand from next year. We will analyze carefully the trends on different sectors. We definitely think that in relative terms, Mexico is still very well positioned for many global companies. But as you stated, we'll have the USMCA review next year where other countries are getting tariffs. So we will analyze carefully. And with that, I think that we will resume whenever needed. Juan Ponce: And just as a follow-up, these positive demand signals, are they coming from existing tenants or companies that already have operations in Mexico? Or are you seeing this already from new tenants? Lorenzo Dominique Berho Carranza: That's a good question. I think it's both. I think it's existing tenants, but also new tenants. And we've seen more visits from companies from all over, from North America, from Asia, from Europe. And actually -- and interestingly, it's coming from -- also from different industries, not only the traditional industries such as auto industry, but also -- which is strong and integrating supply chains, but also coming particularly from industries like electronic sector, which is growing rapidly. It's also coming in the aerospace sector, for example, and of course, logistics, which continues to be quite strong. Operator: Your next question comes from the line of Pablo Ricalde with Itaú Pablo Ricalde Martinez: Congrats on the results. I have 2 questions, maybe one for [indiscernible] the first one is on the leasing activity that have been seen in October. I don't know if you can provide an update if you have leased some of the industrial parks that were vacant in September. That's my first question. And the other one is coming on the balance sheet. I don't know if you can provide what are you thinking in terms of net debt to EBITDA by year-end given all the lands which you are acquiring. Lorenzo Dominique Berho Carranza: Pablo, thank you. Juan, why don't you -- okay, let me elaborate on the first question and then you give more detail on the net debt to EBITDA for the year-end. I didn't understand quite the question from -- we're getting a little bit of back noise, Pablo, but I think it was related to leasing. We were able to lease up a few buildings, one of them for our logistics operation for the electronic sector in Ciudad Juarez. Also, we were able to lease up in the Bajio region as well as Tijuana in food and beverage, logistics and auto industry. We think that this is -- we think that eventually, over the next quarters, we will continue to see this particular industry striving, and we're getting more absorption for -- in different -- actually in different regions. Again, we see the pipeline picking up pretty much across the board. And I think that Vesta has good quality buildings in the right locations, brand-new buildings. And I think that's key when it comes to clients looking for space. Remember that many of our buildings already have energy, which is another key advantage. And for that reason, even that there might be also some competition, we think that Vesta is very well positioned in the right locations, brand-new buildings and the right utilities and infrastructure required to establish operations in light manufacturing and logistics. So we are very positive on the next quarter, end of the year, and we hope to see a good recovery for 2026, too. Juan Felipe Sottil Achuttegui: Okay. As for the balance sheet, let me say that what you see in our leverage today is just a result of the issuance of the bond and the interim period between the issuance and the payment of the liabilities. So leverage will come down as we pay down the -- as the Metlife liabilities are reflected on our balance sheet. And then net debt to EBITDA as well as leverage will come down to what our good objectives, not that the ratios that we show right now are particularly worrisome. I mean we are exactly where we need to be. We have a strong balance sheet, and we can continue to -- I mean, we have ample borrowing capacity. So... Lorenzo Dominique Berho Carranza: For end of the year, Juan, are -- is it -- are we going to be a net debt to EBITDA close to, what, 25% loan-to-value and net debt to EBITDA below 4.6 maybe? Juan Felipe Sottil Achuttegui: 4% -- around 4x. Operator: Your next question comes from the line of Francisco Chávez with BBVA. Francisco Chávez Martínez: Question is regarding the improvement in guidance for EBITDA margin. How sustainable is this new margin? And what can we expect once you resume the start-up of new projects? Juan Felipe Sottil Achuttegui: Well, look, we have been -- this year -- as we have pointed out beforehand, this year have -- we have focused a lot in maintaining a low-cost base and of course, the growth in our revenues have helped us a lot maintaining quite an attractive EBITDA margin. As we continue to grow the company, EBITDA will continue to be strong. And I think that EBITDA will continue to be in the 83%, 85% level as we continue to grow. Lorenzo Dominique Berho Carranza: And maybe related to the development question, I think that we have the appropriate -- remember that we are a vertically integrated company with -- where we have -- management is internalized. So we have the right headcount to run the operations for the existing portfolio as well as the development part of the portfolio. So since we are in -- developing in the same markets where we already have presence, we do not foresee any major increases in costs. Actually, the opposite. I think that going forward, we will become even more efficient and benefit from being an internally managed company and vertically integrated. And for that reason, we even think that operational margins will continue to be playing in our favor. Operator: Your next question comes from the line of Adrian Huerta with JPMorgan. Adrian Huerta: Congrats on the results and also on the land acquisitions. Just going back to the first question on demand. What else can you share with us in terms of how quick the recovery could come, meaning tenants looking and willing to sign contracts. Is there a backlog or is there a backlog of companies that you've been talking to that they basically have said that once there's more clarity on the USMCA, they will be coming. Anything else that you can share with us on that to give us an understanding of how quick these companies could start signing new contracts? Lorenzo Dominique Berho Carranza: Thank you for your question. And I think that -- I mean this has been a very -- this has been a transition year. And as you remember, early in the year, we see a major slowdown in terms of new absorption and many of the companies were pencils down, not only in Mexico, but also in the U.S., for example. There was a lot of uncertainty. And for that reason, we understand that companies were just not making any decisions. However, the year has evolved differently, and we are definitely seeing a major backlog on companies that want to establish operations in the North American region. And for that reason, we're in constant communication with potential clients. We're actually making -- we're traveling to other regions of the world. We've had people currently in the U.S., in Canada, in Europe, even in Asia, in China and in Taiwan, been participating in conferences and trying to understand what -- how companies are analyzing their manufacturing global footprint. However, all of the companies make decisions based on different drivers. Some of them are making them based on the technology -- the new technology revolution based on AI, and that's why we've seen electronic sector jumping so rapidly, even despite of uncertainty on tariffs. But there might be others, for example, auto industry that are just waiting to see what the final end game might be. However, I think, that companies want to be still in the most dynamic economic region in the world, and Mexico is playing a very important role in North America. We just -- we're seeing every quarter and every year just new numbers regarding exports to the U.S., our trade balances with the U.S., particularly some countries diminishing their positioning and trade participation with the U.S. So for that reason, we are confident that -- we think that we will continue to thrive as a main partner to the U.S. And for that reason, many of the industries that we already have had since NAFTA will continue to be well positioned. Adrian Huerta: Understood, Loren. And if I may add just another quick question. So we should expect some new construction to start over the next 2 quarters. And regarding the land acquisitions, we shouldn't expect much to happen in the next 2 to 4 quarters? Lorenzo Dominique Berho Carranza: Sure. Well, we are -- as we have stated before, when we need to accelerate the development, we do, but when we need to slow down, we also do. So right now, I think that we're just being very cautious on where we start. We will continue to monitor demand in each of the markets. So yes, we'll have some starts for the end of the year. And next year, we'll analyze carefully. And the good thing is that we currently have been able to acquire land throughout the year that will position us very well for the mid- to long term. We were able to buy land throughout this year in the strategic markets, and I will repeat the land that we have recently acquired, which was in Guadalajara where we started the building next to our site. We bought a second site in Guadalajara, which will be helpful for the Route 2030 strategy. We also bought land in Ciudad Juarez, in Mexico City, in Monterrey, in San Nicolás which is -- has more attributes for last mile and e-commerce. And recently, the one in Apodaca, which is going to position us with probably the best piece of land in Monterrey. And I think that's going to be incredibly helpful for the Route 2030 strategy, and that will continue positioning Vesta as a leader developer in the market of Monterrey. So with the land that we have already acquired that we will start doing improve -- and also in Tijuana, sorry for that. We're doing the improvements. We're doing the earthworks, putting the utilities, energy and everything so that eventually we can resume and develop whenever we see demand getting stronger. So we already have, as of today, let's say, approximately 90% of the land required to fulfill the 2030 strategy. Operator: Your next question comes from the line of Alejandra Obregon with Morgan Stanley. Alejandra Obregon: Congratulations on the numbers. My question is on the energy front. You have now the land and you were talking about the utilities. I was just wondering if you can talk about how the electricity part is playing out. The new government announced 5 packages for industrial real estate, utilities, plants. So I was wondering if you think that will help your plans going forward? And then also your investment in associates line appears to be gaining traction. So just wondering if you can talk about this energy investment and how should we be thinking of it forward -- going forward? Lorenzo Dominique Berho Carranza: Alejandra, thank you very much for your question. Definitely, being able to anticipate to the energy requirements for our clients has been key. And that's why we have followed very carefully the different alternatives that we can provide for our clients in the different regions. We think that the government is in the right track -- on the right track to keep on supporting investment or foreign investment in manufacturing, and they are -- and we have been working close by with them so that together with the association of industrial parks, so that industrial parks can have the right packages, the right incentives and the right amount of energy so that we can continue attracting investments. So we're very positive on the work that the government has done with providing these packages and the support. And I think Vesta is a key example on how things can be established in order for companies to -- in order to anticipate we start the feasibilities and the processes to engage on energy when -- as soon as we start to buy the land. So when we develop the parks and the buildings, at the same time, we are investing in the energy infrastructure so that when companies do the ramp-up of operations, there's already some energy in place. We know it takes time, but I think that we have had great results by getting some energy, and that's why our parks have already the energy, and we are very -- we're confident that, that's going to be a huge benefit now that demand will continue to pick up. Regarding -- and regarding your question on associates and energy, that's basically some renewable energy investments that we have recently done. We just closed one in Monterrey, and I think that's going to be also key to continue focusing on solar panels, renewable energies in all of the buildings that we have had in line with our 2030 Route to comply with a certain amount of renewable energies in our portfolio. Operator: Your next question comes from the line of Jorel Guilloty with Goldman Sachs. Wilfredo Jorel Guilloty: I have 2 quick ones. So I don't want to belabor the point on development, but just I wanted to get a sense of what are the more quantitative indicators that you look at when you make a decision to launch a development. So I mean is it the occupancy trends you see in your own portfolio? Is it the occupancy or net absorption trends you see in the market? Is it an increase in leads that you might get from external brokers or your own internal commercial team? So I just wanted to get a sense just like put numbers to this, like what exactly do you look at when you make a decision of going forward with a new project like what you announced with Guadalajara? And then the other question is around leasing spreads. So looking at the LTM leasing spreads, we saw that there was a slight decline. So it was 13.7% in 2Q '25. It was 12.4% in 3Q '25. So I just want to get a sense of what drove this? What -- is it lower rents in a certain market in order to drive occupancy. So I just wanted to get a sense of where these lower leasing spreads or leasing spread trends are coming from. Lorenzo Dominique Berho Carranza: Thank you, Jorel, and thank you very much for being on the call. I think that Vesta has a very unique investment approach. First of all, we already have more than 43 million square feet of industrial buildings that we have developed in the last 25 years. And that, together with outstanding clients where, as mentioned before, we have -- we do not rely on external brokers for our property management, we do it internally. So we have firsthand information from our clients. We have firsthand information from the sector. And remember that also as part of our strategy to have a local leadership and regional marketing officers in each of the markets where we operate. So that's why we have, again, firsthand information of what's going on, what are the main drivers of demand. And that's why we rely on our own data and analysis when it comes to making a decision on how to invest and when to invest. Of course, sometimes we listen to third parties, but I think that it's more -- the secret sauce is pretty much inside of the Vesta offices as to when to start and where to start, and it has been quite successful. Guadalajara -- the example in Guadalajara, well, this is the third expansion we do to the Guadalajara Vesta Park. As a reminder, we have as clients, Amazon, we have Mercado Libre, we have O'Reilly, we have DSV Logistics, and we have Foxconn as our main clients inside of that park. So we have a close connection with them. And by being close to them, we understand where the trends are heading. And that's why we believe that starting new buildings when you're close to great companies that tend to grow, we think that it's -- that's kind of the bread and butter of Vesta, and I think we're going to be very successful, and we will continue to follow that trend in other projects in other regions where we have recently acquired land. And regarding your leasing spread question on the last 12 months, it's -- I think that it's not a material drop. I think that eventually going forward, it's more maybe on the -- they should be hovering. I think that the trend is actually upwards if you look at the last 4 quarters. And I think that as long as we continue to see the spreads being on an upward trend in the low teens, high double digit or double-digit numbers, I think that, that's going to be quite attractive and appealing. The important thing is to have this as a sustainable number going forward, which is exactly we think. Vesta's current portfolio is -- has a good opportunity to catch up in terms of leasing spreads, and that's what we can see even with a 12% spread on the trailing 12 months, which is way higher than inflation. And remember that most of our leases are -- is above inflation and most -- and all of our leases are linked to inflation, which adjust annually. And in many cases, we're able to catch up. That's why if you look at today's CPI numbers close to 3%, considering a 12.4%, that's material. Wilfredo Jorel Guilloty: A quick follow-up, if I may. So just based on the development pipeline and how you get to the decision to launch, you mentioned conversations with existing tenants. Does that imply that future launches could be for these existing tenants for them to expand? Or is it more that you get color on the demand from them and that gives you the confidence to go forward with a new development? Lorenzo Dominique Berho Carranza: Well, I can only tell you that more than 60% of our growth comes from existing tenants. So we like to grow with existing tenants, particularly because they are outstanding companies. So that's why we continue to develop close to them. And if there's an opportunity to grow with them, it's fine. But if we continue to find other great companies that need to open up operations in Mexico, we will continue to do so. And I think that for that reason, we focus a lot in trying to be close with good companies and keep and support their growth and become the real estate partner in Mexico. And I think that has played out well in the past, and we think that, that will continue playing out well in the future. Operator: Your next question comes from the line of André Mazini with Citi. And since we have no response from Mr. Mazini, we are moving on to the next question from Francisco Suarez with Scotiabank. No response again, moving on to the next question. Next question is from Anton Mortenkotter with GBM. Ernst Mortenkotter: Congrats on the results. We've been hearing that some private developers under pressure to deploy committed capital are starting to buy stabilized assets rather than take on new spec projects given the softer demand backdrop. Are you seeing that trend as well? And would you think that this environment actually plays to your advantage, I mean, being able to preserve liquidity and deploy when demand dynamics are more favorable? Lorenzo Dominique Berho Carranza: Anton, thank you very much for your questions. Well, I think that one of the greatest benefits of this industry is that there's still plenty of liquidity in the market. And that plays very well to our favor, and we are seeing players in the private markets that are willing to take acquisitions of stabilized assets. We recently made an asset sale, for example. It's not very large, but I think it signals that there's appetite also for owners to get buildings and also from -- on the institutional front. However, I think that our focus will continue to be on the development front, particularly because at the cost that we are buying land, we are investing in infrastructure, and we invest on brand new buildings. We think that development yields that continue to be in the 10% ranges vis-a-vis building cap rates or acquisition cap rates in the 6% to 7%, there are still huge spread investment opportunities, and that's why we will continue to focus on -- in terms of capital allocation to the highest returns, the ones that create the most value. And I think liquidity, it generates value for all of us. We have seen that not only coming from private markets. We recently saw a transaction being an IPO of FIBRA in the industrial sector being launched at -- also at compelling cap rates. And we think that, that sets the -- it sets valuation standards, and it sets a tone into what we might be expecting going forward in terms of valuation, Vesta -- so -- for Vesta, that's why we think that there has a good opportunity to reprice, particularly given the major discount we are still trading to net asset value. So those are great references and that gives us also the opportunity in some cases that if we want to buyback stock, we have a buyback program in place. So when we have -- when we see that there's a major discount to net asset value, we will continue to be using it, as we have done in the past and create value for shareholders. Operator: [Operator Instructions] The next question comes from the line of [indiscernible]. Unknown Analyst: Congratulations on the results. I have a couple of questions. The first one is a follow-up on lease spreads. I mean we did see like a small decline quarter-on-quarter, but they're still really above 2024 levels where they were around like 7%, 8%. Do you think like going forward into the fourth quarter and next year, you will be able to sustain this double-digit increase? And the second question is on same-store portfolio occupancy. Could you give us like a little bit of color on why the occupancy in Tijuana dropped from like 97% in the second quarter to 85.6%? Lorenzo Dominique Berho Carranza: Great. Thank you, [ Elena, ] for your question. Yes, and I will start maybe with the second one. The second one, we saw a slight drop in the same-store occupancy given the fact that we addition new buildings to the same store. And actually, these were buildings that are currently -- we're in the marketing stage. They're still vacant. These are 2 buildings in Tijuana mega region, which are large and one of them in -- I think, in Ciudad Juarez. But I think that's why we saw that major -- that slight drop. However, since these are new buildings and we are in marketing stage, we are confident that, that particular decrease might not affect or it's something that will -- eventually will be able to recover. And then on your -- on your first question, well, I think that we will continue to see a sustained growth in terms of leasing spreads in the double digits, probably. I think so, particularly because we've seen that market rents have held steady in most of the markets, which is very positive. And that's why renewals have come at a major increase in -- and leasing spread in most of the markets, and we've been able to capture value from that. And that will be -- that will continue to be the trend going forward to capture leasing spreads on top of inflation. And that we're very optimistic on that. Operator: Your next question comes from the line of Alan Macias with Bank of America. Alan Macias: Just can you share the cap rate of the building you sold recently? And are you seeing more demand or more offers for -- to buy buildings? And the second question is, what are you seeing in the trend in real estate taxes and insurance costs? Any indication what the government will be looking for tax increases next year? Lorenzo Dominique Berho Carranza: Thank you, Alan. Let me work first on your second question. So currently, we have secured our insurance costs for the next, I think, it's a couple of years or 18 months. So we have not seen any major adjustments for the moment. Eventually, when we get back to renegotiate that, we will eventually see. And we have not seen any major adjustments in real estate taxes. Now more importantly, even that we burden part of the cost, remember that we transfer part of that cost to our tenants. These are -- in most of the cases, we have triple net leases, and that's a cost that can be absorbed by tenants. And even with that, we believe that it's not a major cost still to their total production cost to many of our tenants. So the rent together with some of the operation costs, it's still very competitive vis-a-vis other regions. In some of the cases, rent and some of the real estate-related costs represent only 7% to 9% of total production costs or in terms of logistics, total operation cost. That's still a very competitive number. So even that we will continue to look into reducing costs. I think that all-in-all, that could well be absorbed by tenants, and they will continue to be competitive. Secondly, to your third question regarding I'm sorry, the cap rate. Sorry, yes. Well, first, yes, we will continue to do asset sales. And this is a good example of an asset, which was a vintage asset that we acquired, I think it was more than 15 years ago. This was not developed by Vesta. And I think -- and the cap rate to in-place rent was 6.2%. And it was a $68 per square foot as a sale and a premium to a price of almost 10% but again, I think this is a good example because we -- there are some vintage assets that eventually we would like to sell and crystallize value from asset sales, sell at a premium and focus on capital allocation and allocate that capital to higher return investments, new buildings, for example, in terms of development and through that close the cycle on investment. Operator: The next question comes from the line of Francisco Suarez with Scotiabank. Francisco Suarez: Congrats on the great quarter. The question that I have is on Mexico City, it's -- why La Villa has taken so long to lease up? Is there any difference compared to what we saw on Punta Norte? And the second question that I have is related with the overall trend behind, for instance, concessions in the market, say, 3 months of rent or step-up considerations or any CapEx. Has anything changed when you renew leases or offer new leases to new clients to what has been the case in... Lorenzo Dominique Berho Carranza: Thank you very much for being on the call. La Villa, it's an outstanding project. It's a smaller building compared to Punta Norte. Punta Norte is a major fulfillment center for e-commerce. And I think on that one, it was a very unique opportunity for a larger e-commerce player to -- and for us to have a long-term lease in U.S. dollars. And I think that that's why that one was very, very particular. La Villa, it's the last mile. It's smaller. We have been having some potential clients. However, as maybe we are -- we have waited to finalize and find the right tenant to it. Even that it takes -- it took -- it has taken maybe a bit longer even than expected. The positive to that is that we have seen rents grow in the region. So even some downtime in terms of rents, we are going to be able to capitalize through a better rent going forward with a better client. So we're positive that -- we're optimistic about being able to lease that building up. And I think that eventually, at some point coming into next year, we are -- I'm pretty sure that that's going to be well leased. Actually, we are -- we -- Mexico City has had very strong dynamics. And actually, we recently acquired land last quarter, second quarter. And hopefully, we can start construction again soon. And then regarding concessions, well, I think this one plays out differently market-by-market, tenant-by-tenant. Remember that we do have -- when we establish a lease, we establish a relationship with the tenant. So our focus continues to be long-term leases in U.S. dollars with investment-grade, high-grade companies that we believe can add value to the buildings. And that's why there's always things to negotiate. There could be some concessions sometimes for -- in terms of rent. But in other cases, we get things in exchange to that. So I think that on that, we will continue to be creative but trying to collect rent as soon as possible and keep on focusing on the total return of the asset, not necessarily an immediate income. One of the things that we have stated in the past, and I think plays out even more today is that we rather have a vacant building than a lousy client just because they will be paying out rent. And I think we will maintain that discipline even if it takes a bit longer. Francisco Suarez: Yes, I love that. So no changes in your underwriting policies. Good to hear. Operator: Your next question comes from the line of André Mazini with Citigroup. André Mazini: Sorry for my connection issue. So my question is around your land strategy on a high-level basis, of course, now you have probably more than 90% of the land to reach the 2030 growth plan. So how do you think about maybe a trade-off, if there is one, a risk return trade-off. On the one hand, I think you don't want to have like a huge land bank because, of course, land does not generate cash flows, right, by definition. But on the other hand, if it's too little of a land bank, your growth plan would be jeopardized. So how do you think about that trade-off of having the exact -- the kind of the optimal land bank in order to not jeopardize cash flows, but not to jeopardize growth plans as well? Lorenzo Dominique Berho Carranza: Thank you, André. And that's -- I think that's a key question to Vesta's overall strategy, and that's why for us, it's key to have a strategy going forward. And we are pretty much relying on how successful we have been in the past. Remember that when we established Level 3 strategy, we focus also on investing in certain regions and certain markets. We were able to invest over the Level 3 strategy, approximately $1.1 billion in development in Guadalajara, Monterrey, Mexico City, Tijuana, Juarez and some other markets in the Bajio. And it was very successful. And -- but the only way -- and we were able to achieve on that period returns in excess of 10% in U.S. dollars. And that -- you can see all of that in our Investor Day presentation, and I'm actually looking at Page 22, where we were able to make returns of 10% in Mexico City, 10.1% in Monterrey, 10.5% in Guadalajara vis-a-vis relevant transactions in those markets between 6% and 6.7%, which we believe that will continue to be a huge opportunity for -- in our investment strategy going forward, where we, again, anticipate on buying land, focus on the right markets and eventually we will be able to develop a -- we identified $1.7 billion investment for the Route 2030 strategy. And the markets where we will continue to focus is, the 3 main markets being Monterrey, Guadalajara, Mexico City, Juarez, Tijuana and Querétaro. So I think that there's really very few companies that have a strategy going forward that have the land -- the right amount of land. I agree with you, it's more an art than a science how much land we should use. But I think that today being well capitalized and being global in the market [Technical Difficulty] Monterrey, recent land acquisition, it's the right approach so that we can secure land, put infrastructure in place and be ready when demand might comeback. These are going to be very successful projects and [Technical Difficulty] so that you can see [Technical Difficulty] yourself. And again, I think that is unique in the type of [Technical Difficulty]. Operator: And it seems that we have no further questions for today. I would now like to turn the call back over to Mr. Berho for closing remarks. Lorenzo Dominique Berho Carranza: Thank you, everyone, for joining us today. Vesta's focus has been on ensuring we're well positioned to capture resurging demand. We are entering the final quarter of 2025 with a strong balance sheet, high-value operating portfolio and the strategic priority to continue executing on our long-term Route 2030 growth plan ahead of what we expect to be a strong 2026. Thank you. Operator: Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines. We thank you for your participation.
Operator: Hello and welcome to the Coca-Cola FEMSA Third Quarter 2025 Conference Call. My name is Sophia and I'll be your moderator for today's event. Please note that this conference is being recorded. [Operator Instructions] I would now like to hand the call over to Jorge Colazzo, Investor Relations Director at Coca-Cola FEMSA. Jorge, please go ahead. Jorge Alejandro Pereda: Good morning and welcome to this webinar to review our third quarter 2025 results. Joining me this morning are Ian Craig, our Chief Executive Officer; Gerardo Cruz, our Chief Financial Officer; and the rest of the Investor Relations team. Before I hand the call over to Ian, let me remind all participants that this conference call may include forward-looking statements and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties that can materially impact the company's performance. For more details, please refer to the full disclaimer in the earnings release that went out this morning. As previously mentioned, after our management's prepared remarks, we will open the call for Q&A. [Operator Instructions] With that, let me turn the call over to our CEO to begin our presentation. Ian, please go ahead. Ian Marcel Craig García: Thank you, Jorge. Good morning, everyone. Thank you for joining us today. Before reviewing our third quarter results, I would like to take a moment to express our sincere support for all of those affected by the recent storms in Mexico. This year's Tropical Storm Raymond brought torrential rain during the first weeks of October, impacting Central and Northeast Mexico. In accordance with our principles and protocols, we're taking action to prioritize the well-being of our teams and their families while also supporting local communities. We're working hand-in-hand with FEMSA and the Coca-Cola Company on several community relief initiatives as we always do during these unfortunate natural disasters. We are hopeful that with everyone's support, the affected communities may soon be back on their feet. Also, we are deeply saddened by the recent passing of our esteemed Board member, Ricardo Guajardo Touché. Ricardo was a member of Coca-Cola FEMSA's Board since 1993, sharing his valued insights in its finance committee and was committed to advancing economic, educational and social development in his community and throughout the country. We offer our condolences and prayers to the Guajardo family. Now moving on to discuss our results. During the third quarter, Mexico continued facing a soft macro background, impacting consumer preferences and demand. On the other hand, South America enjoyed a more resilient macro and consumer environment, which supported positive volume performance. Despite this environment, our consolidated results improved sequentially as we implemented cost control and productivity initiatives. As we look beyond this year, we will leverage Coca-Cola FEMSA's ability to adapt to challenging operating conditions, including the impact of the recent beverage excise tax increase in Mexico. We are confident that focusing on our sustainable growth model, combined with RGM affordability initiatives, short-term productivity and cost control measures and the revised CapEx investment level is the best way to navigate these conditions, while maximizing value for our stakeholders. Now let me expand on our consolidated results for the third quarter. Our consolidated volume declined 0.6% to reach 1.04 billion unit cases, a sequential improvement versus the second quarter, which is partially explained by a softer comparison base in Mexico than the one we faced during the first half of the year. In particular, the quarterly volume decline was driven by contractions in Mexico and Panama that were partially offset by the growth achieved in the rest of our territories. Total revenues for the quarter grew 3.3% to MXN 71.9 billion, led by revenue management initiatives that were partially offset by a volume decline, promotional activity and unfavorable currency translation effects from the depreciation of the Argentine peso and most currencies in Central America. On a currency-neutral basis, our total revenues increased 4.7%. Gross profit increased 0.9% to MXN 32.4 billion, leading to a margin contraction of 100 basis points to 45.1%. This margin performance was driven mainly by an unfavorable mix, increased promotional activity and fixed costs such as labor and depreciation, partially offset by a better sweetener and PET cost. Our operating income increased 6.8% to reach MXN 10.3 billion, with operating margin expanding 50 basis points to 14.3%. This operating margin expansion is explained by expense efficiencies such as freight and marketing across our operations, coupled with an operating foreign exchange gain. These effects were partially offset by higher depreciation, labor and IT expenses. It is important to consider the recognition of a onetime income of MXN 218 million of insurance claims recovered in Brazil, net of expenses during the third quarter of 2025. Adjusted EBITDA for the quarter increased 3.2% to MXN 14.4 billion, and EBITDA margin remained flat at 20.1%. Finally, our majority net income increased slightly to reach MXN 5.9 billion, driven mainly by operating income growth that was partially offset by an increase in our comprehensive financial results. Now diving deeper on our key markets performance for the quarter. In Mexico, our volumes declined 3.7% as we continued facing a soft macroeconomic backdrop. For instance, consumption drivers such as remittances and formal job creation have declined year-on-year. In this environment, consumers are looking for the best value equation and our strategy remains clear, implement top line initiatives to incentivize demand by focusing on providing affordability and attractive price points, allowing us to capture share opportunities. To achieve this, we have made adjustments throughout the year to our promotional grid and [Technical Difficulty] across formats and channels. As I mentioned during our previous call, these initiatives have led us not only to recover share in the modern channel but also to surpass previous year's levels, achieving now more than 6 percentage points of recovery, which positions us at a record level in this important modern channel. In the traditional trade, promotions and execution are also contributing to share recovery, especially by leveraging refillable multi-serve packs. The adjustments we have made to our price pack architecture in multi-serve refillable packs from July to September are showing encouraging initial results, reversing volume declines in this segment of the portfolio. Moreover, Coca-Cola Zero continues delivering positive results, growing 23% versus previous year, [indiscernible] plans increased connect with consumers with the right communication and execution. Indeed, Coca-Cola Zero has grown more than 40% as compared with 2022. In addition, our flavor sparkling portfolio is also ahead of previous year's share levels, driven by the recovery achieved in the modern and on-premise channels. To achieve this, we are combining global strategies in core brands such as Fanta and Sprite with local heroes such as Mundet and other heritage regional brands. These top line initiatives are supported by our ambition to install a new record of 125,000 coolers during the year. In digital, we are encouraged to share that we are now rolling out our state-of-the-art salesforce tool, Juntos+ Advisor in Mexico. This digital tool has been fundamental in supporting share improvements and service levels in Brazil and we expect to see its positive impact in Mexico in the upcoming quarters as adoption matures. Now I would like to discuss recent developments in Mexico. As you know, last week, the House of Representatives approved a federal revenue law presented by the executive branch, including a significant 87% increase in the excise tax on soft drinks, taking it from MXN 1.64 per liter to MXN 3.08 per liter and installing a new excise tax on noncaloric formulas of MXN 1.5 per liter. The federal revenue law is currently pending approval by the Senate and once approved, it would take effect on January 2026. During the past month, we engaged with the government in conversations regarding the proposed excise taxes. As a result of these interactions, the Coca-Cola system in Mexico reaffirmed its commitment to continue incentivizing low and noncalaloric products as well as to maintain an open and constructive dialogue with the health authorities in Mexico. As we look to 2026, we expect another challenging year for volume performance in Mexico, with our customers and consumers dealing with the impact of the excise tax increase together with an economy that is expected to grow a modest 1.5%. However, we anticipate a positive impact on brand equity due to the World Cup as has been the case in host countries for these incredible assets. Taking all of these factors into consideration, we believe that the best course of action for our business in Mexico is to continue focusing on our sustainable long-term growth model while addressing the short-term headwinds with RGM initiatives, productivity and cost control measures and a revised CapEx investment. Now moving on to Guatemala, where our volumes increased 3.2% to reach 50.8 million unit cases. In this important market, we continue seeing a higher propensity from consumers to save. Amid this background, we continue outperforming the industry by gaining share in key categories such as sparkling beverages, water and energy. Notably, Coca-Cola Zero Sugar grew 16.9% year-on-year, while additional capacity is allowing us to strengthen our performance in flavors with Fanta and Sprite growing 8.8% and 3.8%, respectively. Commercial enablers are another area of focus, and I'm encouraged to report that Juntos+ and Juntos+ Premia continue growing at a fast pace. During the quarter, we surpassed 100,000 digital monthly active users in Juntos+, 25,000 more than the previous year, with more than 73% of these users active on the app. This is 23 percentage points more than in the first quarter of the year, underscoring our customers' fast adoption. Finally, in Juntos+ Premia, we have more than 46,000 clients redeeming points, which is more than double what we had in 2024. As we look towards the end of the year, we are adjusting our initiatives to continue optimizing our portfolio, capturing white spaces in key categories and executing rigorous cost control and productivity initiatives to grow sustainably and profitably. Now moving on to our South America division. In Brazil, despite lower average temperatures than the previous year and size of slower growth, we were able to increase our volumes 2.6% year-on-year, driven by share gains. As has been the case throughout the year, additional capacity, coupled with the reopening of our plant in Porto Alegre is supporting share gains in the nonalcoholic ready-to-drink segment. Notably, in the sparkling category, regions like Minas Gerais and São Paulo are more than 1 percentage points ahead of the previous year. And in Rio Grande do Sul, we have recovered approximately 5 percentage points of the total 8 points that were lost due to the temporary closure of our plant. Another highlight from our operation in Brazil remains the continuous growth from Coca-Cola Zero, which during the quarter grew volumes by 38%, supported by the Star Wars campaign that began last September in both Coca-Cola Original and Coke Zero. Regarding still beverages, we saw double-digit growth in juices and energy. In the case of Monster, last month, we launched a new flavor with a local Brazilian appeal, Monster Rio Punch, underscoring continuous innovation across the portfolio. On digital enablers, our monthly active user base in Juntos+ continues expanding with 18,000 additional customers and a 15.8% increase in average ticket size. Importantly, the Juntos+ Premia loyalty customer base increased 40% year-on-year. We remain encouraged by the results we are seeing from the nationwide rollout of Juntos+ Advisor, which, as I have mentioned in previous calls, is a game changer for our sales force and is supporting Brazil's positive share performance. Finally, in Brazil, we continue showing strong improvements in the supply chain front, which translate to increased customer satisfaction. For instance, order fulfillment during the quarter improved 1.9 percentage points as compared with the previous year to reach 94.5%. Similarly, our delivery service metrics improved 1 percentage point to reach 94.6%, supported by declines in product unavailability. For the remainder of the year in Brazil, we will continue striving to outperform the industry, leveraging our digital initiatives and our customer-centric culture as we aim to continue improving our profitability by controlling expenses and increasing productivity. In Colombia, our volumes grew 2.9%, reflecting a gradually recovering economy, driven by improving sectors such as commerce, services and agriculture. Notably, the consumption basket for fast-moving consumer goods has gradually recovered over the past 5 months, driven mainly by an increase in the average ticket. Our positive volume performance is supported by share gains in brand Coca-Cola, flavors and water with clear opportunities for us to reverse the trend in stills. Regarding brand Coca-Cola's category growth, we are leveraging affordability initiatives and managing price gaps in both multi-serve and single-serve, while supporting the growth of Coca-Cola Zero Sugar. Additionally, in flavors, we're encouraged that for the first time in our Colombia franchise's history, Quatro, our great fruit flavor brand, is the #1 flavored sparkling beverage in the country. On the digital front, we are enhancing adoption with monthly active buyers growing 27% year-on-year. We expect to continue leveraging the capabilities of our Premia loyalty plan to drive adoption and generate additional frequency. Finally, we're encouraged by the fact that the CapEx investments behind our supply chain have addressed key logistical pain points, allowing us to improve our cost-to-serve by reductions in primary freight costs and third-party warehouse expenses. Finally, despite facing what is still a complex environment in Argentina, our volumes increased 2.9%. Our strategy during 2025 can be summarized in 4 key elements: enhancing the affordability of plans we implemented since 2024 during the sharp macro adjustment; two, accelerating single-serve mix; three, leveraging digital with the rollout of Juntos+; and four, maintaining a lean and flexible cost structure. During the quarter, we continued delivering positive results across these elements of the strategy. For instance, we have consolidated the execution of what we call [ Sección de Ahorros ] sections or savings home section, which are attractive promotions and price points for our consumers. [ Sección de Ahorros ] is now present in more than 87% of our customers and growing. Regarding our single-serve mix, we reached 25.8%, which represents a 1.8 percentage point increase as compared to the previous year, driven by an 11% recovery in the number of on-premise clients. In digital, we began the rollout of Juntos+ last June. And thanks to its rapid adoption, more than 40% of our client base are now monthly active buyers. Amid Argentina's complex context, we have and will continue emphasizing responsiveness in managing a flexible and lean cost and expense structure. As we look to the last chapter of 2025 and adjust our plan for 2026, we feel encouraged to be a part of a resilient beverage industry. We have a clear long-term strategy, supportive shareholders in FEMSA and the Coca-Cola Company and a committed team focused on continuing to make Coca-Cola FEMSA a stronger and more adaptable organization. With that, I will hand the call over to Jerry. Gerardo Celaya: Thank you, Ian and good morning, everyone. I will begin by summarizing our divisions' results for the quarter. In Mexico and Central America, volumes declined 2.7% to 612.1 million unit cases, driven by volume declines in Mexico and Panama that were partially offset by growth in Guatemala, Nicaragua and Costa Rica. Revenues decreased 0.2% to MXP 42.5 billion, driven mainly by volume decline, unfavorable mix effects and promotional activity. These effects were partially offset by our revenue management initiatives. On a currency-neutral basis, revenues remained flat. Gross profit decreased 2.6% to reach MXN 20.2 billion, resulting in a gross margin of 47.5%, a 110 basis point contraction year-on-year. This margin contraction was driven mainly by unfavorable mix effects and promotional activity, coupled with higher fixed costs such as labor. These effects were partially offset by lower sweetener costs and the appreciation of the Mexican peso as applied to our U.S. dollar-denominated raw material costs. Operating income increased 1.1% to MXN 6.8 billion and our operating margin expanded 20 basis points to 16%. This expansion was driven mainly by a decrease in freight expenses and an operative foreign exchange gain on MXN 159 million as compared to a loss of MXN 298 million during the same period of the previous year. These effects were partially offset by an increase in expenses such as labor, IT and depreciation. Finally, our adjusted EBITDA in the division declined 1.4% with a 20 basis point margin contraction to reach 21.9%. Moving on to South America. Volumes increased 2.6% to 423 million unit cases. This increase was driven by positive volumes across the division. Our revenues in South America increased 8.7% to MXN 29.4 billion, driven mainly by our revenue management initiatives and favorable mix. These effects were partially offset by unfavorable currency translation effects into Mexican pesos. On a currency-neutral basis, total revenues in South America increased 12.5%. Gross profit in the division increased 7.2% and gross margin contracted by 50 basis points to 41.6%, mainly driven by labor, restructuring and maintenance costs. On a currency-neutral basis, gross profit increased 10.4%. Operating income in South America rose 19.7% to MXN 3.5 billion, with operating margin up 110 basis points to 11.9%. This improvement was driven by expenses -- expense efficiencies such as freight, marketing and the recognition of onetime income, net of expenses of MXN 218 million related to insurance claims from the floods that impacted Brazil in May of 2024. Finally, adjusted EBITDA in the division increased 12.6% to MXN 5.1 billion for a margin expansion of 60 basis points to 17.6%. Now let me expand on our comprehensive financial results, which recorded an expense of MXN 1.2 billion as compared to an expense of MXN 823 million during the same period of the previous year. This increase was driven mainly by, first, a reduction in interest income as a result of a lower cash position and interest rates in Mexico and Argentina. Second, we recorded a foreign exchange loss of MXN 65 million as compared to a gain of MXN 49 million recorded during the same period of the previous year. And third, a loss in financial instruments of MXN 39 million as compared to a gain of MXN 86 million in the third quarter of 2024. These effects were partially offset by a higher gain in monetary positions and inflationary subsidiaries. Finally, I would like to take a moment to expand on the cost environment and commodity hedging strategies for the remainder of the year and into 2026. We feel confident about our ability to manage costs effectively. Although the trade environment may continue to generate some ongoing volatility, especially in aluminum prices, we are seeing more stability in the rest of our key commodities than in prior years, especially regarding sweeteners and PET. Additionally, our teams continue to focus on efficiency, productivity and disciplined procurement, which should continue to help mitigate pressures to our margins. On the hedging side, our approach remains disciplined and proactive. For the remainder of the year, we have already locked in a solid portion of our main commodities, including more than 90% for sweeteners, 75% for PET resin and 65% for aluminum, which gives us good visibility and comfort for the fourth quarter. As we move into 2026, we will keep a flexible stance, protecting against potential volatility while taking advantage of favorable market conditions in raw materials such as sweeteners and PET. For instance, given current market conditions, we have already hedged more than 90% of our needs for the year in sweeteners and 40% for PET. Regarding currencies for 2026, we have hedged approximately 70% in Colombia, 40% in Mexico and 20% in Brazil at levels that are below 2025. Finally, I am pleased to report that our supply chain team has reached our savings commitment for the year ahead of time, generating $90 million year-to-date, approximately $43 million coming from primary distribution, $32.5 million from cost-to-serve and $14.5 million from cost-to-make. With that, operator, we're ready to take questions. Operator: [Operator Instructions] Our first question comes from Ricardo Alves with Morgan Stanley. Ricardo Alves: A couple of questions. I think that on our side, the main surprise of the quarter came on Mexico and Central America profitability. When we try to calculate the adjusted margin, so taking out the insurance gains from last year, we actually see Mexico and Central America margins up about 50, 60 basis points, if I'm not mistaken. So clearly, a big improvement from the 200 basis points decline that we saw in the second quarter. So to us, that's a remarkable improvement, obviously. But when I look forward, I'm interested in -- is this something that was mostly driven by a better operational leverage because volumes improved on a sequential basis? Or is it much more about internal initiatives and cost-cutting initiatives that you may have put in place to adapt to a new reality of volumes? So I just wanted to go a little deeper on eventual efficiencies that you are looking within KOF in Mexico and maybe Central America because we don't have the breakdown exactly. So that would be my first question to explore a bit more the improvement on profitability. My second question -- it's -- I do have another one in South America but I'll jump on the line again. But I wanted to explore this time Central America, Argentina and Colombia because typically, we spend a lot of time on Mexico and Brazil. And I think that after a while, it would be helpful, Ian, if we could explore again these markets. I remember, for example, a couple of years ago, we were talking about per caps in Guatemala, the opportunities that you saw when you took over in improving per caps. Given that Argentina has surprised us to the upside, I think that Coke FEMSA is outperforming a couple of other bottlers in the region. Colombia is getting back on track and it's been a while that we don't discuss Guatemala in more details. I wanted to see with you, when you take a step back and you reflect on this past couple of years on the lead of the company, what were the strategies that worked for these 3 main markets outside of Brazil and Mexico? What are the things that didn't work that you still see an opportunity? So I just wanted to take a step back and take the opportunity to talk to you to see if -- it seems that there is something coming. Things are improving. So I just wanted to revisit the strategy for these, let's call it, secondary markets outside of Brazil and Mexico. Gerardo Celaya: Thank you, Ricardo. I'll jump on the first one, first on profitability on Mexico and Central America. And there's a few parts to this question. So starting first on gross profit. We are continuing to see pressure on gross profit, even though we see volumes performing better versus last year, that's mostly related to having a lower base from the third quarter of last year. But we are seeing some gross profit pressures coming from mix that are affecting at the gross profit level. But going further down the P&L, the main reason for us turning around our profitability are savings initiatives. We're working all across our P&L to identify and execute savings initiatives starting from raw materials cost and expenses that has been a tailwind for us this quarter. We're optimizing marketing spending. We went through also restructuring in our teams to adapt to our current volume conditions, also preparing for what we're expecting for next year and the supply chain initiatives and other smaller savings initiatives that we are working on. And also, there's a virtual effect that you see in EBIT margins also that we are benefiting from. This is related to operating expenses, accounts payable denominated in foreign currency with a peso -- with a strong peso that is providing also relief to our EBIT margin as well. Ian Marcel Craig García: Jerry gave a very detailed explanation. But in terms of the strategy, it really was bringing our productivity back in line, Ricardo, the main driver. So like I had mentioned, this is such a resilient business that even if you have challenging volumes, you can still deliver on results, positive results, if you have your structure aligned for that sort of environment, which was our big miss in the first and second quarter where I could say it was tough to read because of the consumer backlash. But by the time we got around to having the real sense of what was going on in April, then in May, we started adjusting very quickly. And now our productivity is back in line and we have a much more lean structure. So that's what explains the turnaround in Mexico. In the 3 markets that you mentioned outside of Mexico, Argentina, Colombia and Guatemala, it all follows under the same umbrella but with different recipes. And what do I mean? As I mentioned, our strategy is to have a sustainable long-term growth model. And why? Because this is a scale business, and it is critical that we continue to improve our relative competitive position because when you don't do so, then it becomes very complicated. Price gaps are stickier with competitors, you give them scale and you end up in a bad place. The way that played out in Argentina, which was the first one you asked about, was knowing that we were going to go into a very deep recession, we did not want to leave Argentine households. So we wanted to maintain household penetration. So we did not pass along all of the increase in inflation in the initial shock. And that obviously implied to us a hit on the P&L. But when the bounce -- the recovery came, we were much better positioned. And that's why when you compare the system, for example, versus 2 years before the crisis, our volumes and our results are much better. And it has been a more resilient strategy to have not lost that relative scale. It was just -- all strategies are valid but I think ours played out well in the end. In terms of Colombia, it's a big learning for us in Mexico because in Colombia, we faced a large tax increase such as the one that we're going to have to face in Mexico starting January. And what that essentially does is it shifts your volume 2 years out. So the growth that we were -- we had planned for '26, now instead of that growth in Mexico, we're going to have, like we had in Colombia, a volume decline to be followed by a recovery in the following year. So in essence, it shifts your curve 2 years out. And what we've done in Colombia is a full review of our OBPPC, focusing on key price points, focusing on key flavors leverages. And in Colombia, you see that year-over-year, we continue to gain share. And now that we've cycled the impact of the tax, we should be continuing to have, I wouldn't say easier comps but comparable comps without the effect of a tax. So now it's -- we're on a comparable basis going forward in Colombia and we entered out of that tax disruption in a more favorable competitive position. And in Guatemala, as we have mentioned, it's just a jewel of a market with a very young population becoming more urban with more disposable income. We hit a short-term turbulence there because with all of this risk on remittances, even though it has been more perceived than real because remittances haven't actually declined but they have slowed there. That anxiety, I would say, has trickled into consumers saving more. So we see nothing more in Guatemala other than a short-term adjustment to consumers saving more under the risk of them -- their family members losing the remittance sending capacity. But everything else being said, I would say this was an adjustment here there. We've also adjusted our structure, become more lean and are ready to resume growth there in Guatemala, where, by the way, our elasticities continue to work very favorably because of our share position. So there's still plenty of headroom there. I hope that was a good overview, Ricardo. Operator: Next question from Alejandro Fuchs with Itaú. Alejandro Fuchs: Congratulations on the results. I have just one very brief one related to CapEx. I saw the comments Ian here and on the release about kind of rethinking CapEx a little bit for next year. We have seen at least 3 years of high investments. I wanted to see if you can share a little more color what are the initial thoughts, right? Where would be kind of the savings in CapEx coming from? And this is -- is this just a delaying of the CapEx, as you were saying with volume recovery probably 2027. So if you could give us a little bit more detail, that would be very helpful. Ian Marcel Craig García: It's exactly that, Alex. So let me give you an example. And it's mostly in Mexico but it's in a couple of other countries where volumes weren't as high as we expected, for example, Guatemala. Let me give you the example of Mexico. We were putting in a couple of new lines, 3 new CDs. The lines are going ahead as planned but the distribution centers, for example, we've taken the land site but we're not going ahead with the construction. Because the worst thing that we can do is if we're going to have a low to mid-single digits volume decline next year due to the tax is to put in 3 new distribution centers and have those distribution centers be unproductive. You just get the extra depreciation, labor cost and you don't need it if our volumes are going to be facing that contraction from the tax. So it's really pushing out Mexico 2 years out. That's basically it. Operator: Next question from Lucas Ferreira with JPMorgan. Lucas Ferreira: Ian, first of all, a follow-up on your comment now. You mentioned low single digits decline in Mexico. Was this just sort of to illustrate or this is the number you are working with for Mexico next year? That wasn't exactly my question. My follow-up on the tax story. If -- well, first of all, the transition towards that around 30% reduction in the calories for the sugary drinks, how fast you guys are thinking on getting there? And if you think there could be any sort of impact on the flavor, on the consumer adoption, anything like this you can comment on sort of the risk of going towards that 30% reduction? And then the other question I have is, if this adjustments towards a sort of a new more leaner structure for Mexico right now, if it's -- how far we are from getting there? So you mentioned the CapEx. Is there anything else to be done still on the expenses side, cost side that you can help us understand to better model Mexico next year? And if I may, a second point is on Brazil, another clarification. If you look at your operations, let's say, in regions outside Rio Grande do Sul with the ramp-up of the plants, how the business is working? I mean you mentioned market share gains. Is this like sort of a better go-to-market strategies? Or is there anything related to pricing there, execution? So just to understand a bit how the operations, let's say, excluding the effect of the ramp-up of Rio Grande do Sul is going, if you're seeing sort of a bad weather, consumer dynamics? I'm asking because we see a lot of other consumer companies complaining right about the consumption in Brazil kind of slowing down. So wondering if you also noticed this happening in Brazil. Ian Marcel Craig García: So let me -- there were several points there, Lucas and I'll ask Jorge to help me on some of those. But just in general, in Mexico, the big thing was, like we mentioned, starting May, downsizing to what needed to be done in terms of our operational structure. And there is some remaining adjustment there to be done in terms of productivity in line with the volume impact that we expect from the tax increase. You have to -- when you look at the 2026 numbers, you have to normalize internally what the effect was of the backlash. So the effect of the increase in the tax per se is a little worse but it gets masked or it doesn't look as large because we don't no longer have the backlash that we left after the first -- that we also ended around May of last year. So that's sort of taking all of those effects into account, that's why we were saying low to mid-single digits is what we expect. And there's a lot of uncertainty on that. So we have to see what the impact is in the first quarter to see if we have to do further adjustments and what depth of adjustments. We do have a shock plan in terms of savings in all sorts of instances of that. And it's a large plan to go and accompany this tough tax -- excise tax impact. In terms of how we move consumers gradually to low or noncaloric options, that -- it's something that we'll do with our promotional grill -- grid with adjustments to some of our formulas, always taking care to make sure that we are the best choice out there and giving the consumers choice. We don't expect in that sense, really material savings from sweeteners or such. That is not the case. We don't expect that. And we have to be very respectful to consumer space and what they want and how the mix evolves naturally. We can't be too forceful on that. It's just something that we need to be working and it will be gradual. Going back into Brazil, in Brazil, we do see consumption softening. We have the advantage of a really tough base last year with the closure of the plant. So when we normalize what's going on there, that's why we mentioned the type of share gains that we're getting outside of the Southern region. And that's really what has been the differential for us. That's what's been driving our growth there. It's really share gains because you're right, we do see softer consumption. That being said, remember that next year, we're going into an election cycle in Brazil. So I don't think, at least for the remaining of the year and 2026 that we expect anything other -- you know that, still a resilient Brazil. I think the big risk in Brazil is more relating to 2027. We have mentioned that. At that point in time, the selective tax on soft drinks should be coming into effect. And also, there may be as historically has been the case in certain elections, a post-election hangover, for example, like what we saw in Mexico. So I would say, Brazil, we see a softer consumer but it's not a contraction for us and we are not worried of 2026. We have to keep an eye out though on 2027. I don't know, Jorge, if there's anything you'd like to complement. Jorge Alejandro Pereda: Perhaps the only thing I would add, Lucas, the first part of your question, you referred to Ian's comment on volume outlook for next year. So of course, this is a very preliminary early take. Now we have to put everything into consideration. We have to think about the implications, of course, of the excise tax. So this is, I would say, like a very early preliminary take on that, where we expect volumes to decline in the low to mid-single digits range -- for Mexico, of course, yes. Operator: Next question from Benjamin Theurer with Barclays. Benjamin Theurer: Just coming back to that point on the volume outlook. And obviously, you tend to have a lot of flexibility as it relates to like packaging mix and trying to offset and help profitability. So I would like to understand, in first place, what has been driving over the last couple of quarters, actually in Mexico but to a degree as well in Central America in contrast to South America transactions being somewhat even weaker than volume. So kind of like that relationship would like to dig into that. And as we look into next year, the way to offset maybe some of that with different packaging or trying to drive transactions, what strategies can you implement to kind of like boost the transactions at least into next year, even if volume might be under pressure, as you've just said, low to mid-single digits? Ian Marcel Craig García: Well, I'll let Jorge dive into the details on that, Ben. But I would say the main point is whenever you see a more challenging economic environment or disposable income for consumers and things get tight, usually single-serve mix suffers and you move into multi-serve. And within multi-serve, you move into multi-serve returnables. And that's just a natural mathematical result of looking for lower price per liter, okay? And that correlates a lot with transactions. So that's the main directional point. What we do then is, focus a lot on the magic price points. And if you take that -- I mean, I think transaction, like you said, is important. But really the biggest, biggest thing is maintaining our volume base and our household penetration. So for us, the main focus that we have now in Mexico, when we look at our relative competitive position, the biggest gap is in traditional channel, refillables and that's what we are addressing. And what we're addressing that is with the 1.25 liter glass at the MXN 20 price points, which competes with Pepsi 1.75 liter and 2-liter Red Cola at that same price point. So we didn't have anything there. And now we're having the 1.25 liter glass there and that's a very big and important price point. It also drives transactions when you look at multi-serve per se. And then upsizing our 2.5 liters [indiscernible] PET to 3 liters and that's around the MXN 33, MXN 34 price point, which competes with 3 liters [ one way ] of Pepsi and Red Cola. So obviously, we have a very good brand that commands a brand equity lead and that allows us to be able to inconvenience our consumers with a returnable presentation that they have to carry to and from the point of sale but that really is the way that we're able to have that revenue management initiative there. That's our big focus per se. You see all of the transaction growth, for example, the biggest example is Argentina, will recover naturally with single-serve mix as the economy improves. So I would say the biggest and most important question for us with the excise tax increase looming is maintaining our household penetration and volume base really more than the transactions. Benjamin Theurer: And real quick on pricing. I mean, obviously, you need to pass through the tax. Are you planning to anticipate some of the pricing already in the fourth quarter to kind of like get the consumer kind of like used to a new price point because of that? Or are you simply just going to wait and do the regular pricing as we move into next year, coupled with the tax as it might has to be applied? Ian Marcel Craig García: The base plan basically is maybe at the very end of the curve but it's really preparing and passing through the excise tax that will commence in January. It's how -- there are certain time that you have to give, especially the modern trade to process that change in the pricing lists. So it's basically going to be that. It's the pass-through of the excise tax, getting ready by giving the modern channel enough time to have that ready to start in January. Operator: Next question from Ulises Argote with Santander. Ulises Argote Bolio: Sorry, I was having some technical issues here. This is kind of a follow-up question that I had on the pricing side of the equation. But given those changes in taxes and the differentiation there between sugar and nonsugar products, we wanted to get some color on how you're thinking about the price gaps on the 2 kind of going forward, right? Any color there on how you're thinking on the strategy? And maybe if there's any major shift there happening on pricing on one versus the other, that would be really helpful. Ian Marcel Craig García: Well, one of the things that we've committed to is to incentivize a move towards noncalalorics. And in that sense, be it through differentials in baseline prices on the aisle or through a more intense promotional grid or both, a combination of both, we expect in the end to have that sort of differential above the size of the tax between those 2 to try to incentivize a move on -- in the mix. That being said, like I said, we are very respectful of being pro choice, offering the consumers what they want and we'll always have the full original formulas and the zero-calorie formulas and we'll let the consumer choose. It's just how do we nudge them with either increased promotional grids or different baseline prices, okay? We do expect, in the end, a lower effective price by either of those 2 measures. Ulises Argote Bolio: Okay. No, that's super clear. Yes. And maybe a quick follow-up, if I may, just looking there a little bit on the capital structure side of things. I mean net debt-to-EBITDA is below 0.8x. Obviously, you've made those comments on lowering the CapEx. You don't have any major debt commitments in the short term. So how should we think about the capital allocation priorities kind of for the next couple of years? Gerardo Celaya: Ulises, as we've been talking to the market throughout the past few quarters, we certainly are aware of our inefficient capital structure and are looking to address it. In 2026, obviously, with the excise tax coming to play, we will put -- evaluate how we start the year and what implications it has. As Ian mentioned in regarding our previous question, this results in a delay of a couple of years to cycle the impact of the tax in Mexico, which in turn will have some impact in our cash flow projections for the year. So we'll evaluate that further and let you know of any news during -- starting next year. Operator: Next question from Thiago Bortoluci with Goldman Sachs. Thiago Bortoluci: I have also 2, right. And those are follow-ups in Mexico. The first one and I think this is for Ian. Just to understand, Ian, how you see your company position versus the state of the consumers, right? If I can summarize what we saw in the quarter, you obviously declined volumes a little bit more than apparently where the industry is, while you keep pricing growing with inflation but decelerating the pace versus the first 6 months of the year, right? In your comments, you alluded to the need of promotional activity to keep demand somehow healthy. But going forward and imagining that macro shouldn't improve that much in the near term, at least, how you think about the fit of your pricing on a like-for-like basis versus the demand sentiment that you're getting from consumers? So how you're seeing your average price list and effective pricing to accommodate the current situation? I think this is the first question. And then the second one related to this topic but now on the excise tax, to the extent that you can comment, how much and, or how at all would the new rate fit in your discussions with Coca-Cola Corporation for the concentrate prices going forward? Ian Marcel Craig García: Thank you, Thiago. Let me put things into perspective. Remember that this year, January started strong. And then in February, we had the backlash, which we exited by the end of May, June. So Mexico is a very big country, not as big as Brazil or the U.S. but it's a very big country and it has different economic performance in different regions, by the remittances impact and different depth in the backlash that we face was different along the regions, mostly impacting our region, which is where most migrants have family members in the U.S. So I think when you look at and break that -- break out that effect, you see our share, if you look at our monthly chart, taking a big hit in February and then recovering month over month over month. Well, today, if you look at September, for example, the point data in share of value versus September of last year, in flavors, stills, fruit drinks, teas, water, energy, sports drinks, ARTDs, we're above last year. So we had a value and we're above last year. In colas, we still have about 0.6 points to recover. And that has -- is really what explains the increased promotional grid. And really, the point that we have missing is, like I said, traditional trade multi-serve refillables. That's the share point that we have left. And with the latest adjustments that we've done, eventually, we're hoping or thinking that we should get to cover that gap and we'll be above last year and having cycled everything. So I would caution that we are doing well versus the industry. But like I said, we took a big impact that other competitors didn't take in February, right, Thiago? So you have to normalize with that. So we took that impact but we're every month getting back to where we need to be. And we're back in every single segment and only missing 0.6 points in colas still. So that's the context. I think your question is very pertinent going forward because when you have a region that is with soft macros and now we have a large excise tax increase, obviously, our pricing power, we believe, is going to be limited. So we're not expecting anything above inflation because our customers, it's also a big impact for customers and consumers are going to be dealing with that excise tax. So to assume that we're going to have real pricing above that, I don't think is very realistic. It's already going to be a lot for customers and consumers to digest just with the excise tax impact, okay? Does that help? Thiago Bortoluci: It certainly does. Anything you could share on the relation between Coke under the new excise tax? Ian Marcel Craig García: Yes. Well, the way our model works, like I said is, we look at how the system profits behave and then divide those profits. Obviously, when you have an impact such as a tax, well, it's going to have an impact in our profitability and that's taken into account in the model. So it remains to be seen because you have to look at both companies' relative performance on what that trickles to and whether it's some sort of support or cost avoidance. We don't have enough visibility on that yet. But what I can say is that, that is included as well as when we do very well, that's also included in the model. So yes, that effect will be captured but it's too early to tell -- to see if there's going to be really an impact for us on that. It's -- we don't know yet. We'll have to see in the first quarter how customers and consumers deal with this excise tax pass-through. Operator: Next question from Rodrigo Alcantara with UBS. Rodrigo Alcantara: As a means of just staying a bit out of the tax discussion, I would like to explore on some interesting commentary we heard a couple of days ago in [indiscernible] conference call regarding their dairy category, right? They already mentioning the Coke system already a market share leader in terms of value, right? Volumes growing 13% in the third quarter, right? So my question would be here how this figures or how this category is shaping for you guys specifically, right? And what is really driving this good performance and the relevance of overall the Santa Clara brand for -- and the dairy category for you guys? That would be one question. And the other one very quickly, I mean, unfortunately, right, we saw what's happening in Costa Rica, Veracruz, right? In addition to that, weather is not improving and macro is still weak, right? So any preliminary read on Mexico volumes ahead of the fourth quarter? And kind of like a similar question would say to, to Brazil, right, where you somehow mentioned about the share gain momentum, et cetera but also some commentary on volumes on the 4Q would be also very, very helpful. Those would be my 2 questions. Gerardo Celaya: Rodrigo, thank you very much for your question. I'll start with the dairy question. And indeed, Coke mentioned that we're now leaders in value-added dairy, which is great news. This is the main focus for us with Santa Clara. As you know, this is a great brand, a brand that we're very proud of that has grown amazingly when it was brought into the system. This year, as you mentioned, dairy has been an outperformer for us in the still business. Stills business growing at a rate of 20% for the year, year-to-date. So this is great growth, especially when you look at it in the context of macro weakness overall. So we expect dairy to continue to be an outperformer. This is something that we're very excited about and that we can leverage the brand, the umbrella of the brand of Santa Clara to bring innovation and do all sorts of interesting things in this space. So that's good news for us. In terms of our fourth quarter, we -- I think a good thing that we are seeing is, we see patterns of improvement in weather that certainly we expect to continue to help. And we expect to see a little bit of an uptrend in volume performance for the remainder of the year as compared to what we've seen in the year-to-date. This is Mexico. Jorge Alejandro Pereda: Yes. This is Jorge. On the comments about the fourth quarter and weather as well expectations for Brazil, I think something that we certainly saw in the early weeks of October in parts of the South Cone and especially Brazil was a little bit of unfavorable weather. That seems also, as Jerry mentioned, it seems that it's going finally to end. It seems that weather is finally improving. Throughout the third quarter in Brazil, we saw about 1 degree Celsius on average below the previous year. But I think the good part is that it, that seems to be out of the road for us. And you mentioned about the unfortunate events also going back to Mexico, in Veracruz. That's definitely very -- as Ian mentioned during the prepared remarks, we are working hand-in-hand with FEMSA and with the Coca-Cola Company on several community support relief efforts. Specifically for the business, we have taken into consideration also support to our teams on the ground. I wouldn't say that the region represents a big material part of the big Coca-Cola FEMSA Mexico volumes. So we think in terms of -- if you are asking about a specific impact about that, you can think maybe around 350,000 unit cases over the first 8 days of the disaster there. So not material. And as I said, I think the most important part is that we're working on community and support relief efforts there. Ian Marcel Craig García: Yes. This difference to last year -- year before last, where we had either lost a plant or equipment, in this case, our infrastructure was not impacted other than a couple of vehicles and routes but not really large infrastructure. Our clients, however, were very impacted. So we have around 1,600, 2,000 clients that we're sensing to see if our coolers still work, if they got damaged, we'll replace them. And we did have, unfortunately, for us, for the first time, some loss of life in our collaborators' families. So that was the worst part. And obviously, we're supporting our collaborators that were impacted in these unfortunate floods. Operator: Next question from Renata Cabral with Citi. Renata Fonseca Cabral Sturani: I have 2 quick follow-ups here. The first one on Mexico. You are discussing right now about the weather that's going better. And it's possible to try to have an evaluation on how much of the current performance, I mean, from the year is more related to weather and/or the economic situation. I know it's super difficult to make the assumptions but a best guess. Or if you also could give some color of the performance per month, so we can try to make here some correlations related to the weather, it would be really helpful. And another follow-up is related to Argentina because we saw an improvement for the company in terms of volumes and margins, I mean, compared to last year, naturally. So for now on, we know that stability is great but at the same time, we are seeing also a slowdown in terms of overall consumption in Argentina. So the outlook for -- to conserve the current improvement or even continue to improve in the country. Gerardo Celaya: Thank you, Renata, for your question. I'll start with weather patterns in Mexico. I think in this third quarter, weather was less -- significantly less relevant as a comp effect versus last year. Even though we didn't have good weather, it wasn't consumption promoting weather, we had bad weather during the third quarter of last year as well. So when you see weather compared to this same period last year, it seems to be less of a factor. What has been playing out to be an important impact for consumption certainly has been overall macro development. I think for the first time this quarter, we saw the whole Nielsen basket underperforming or decreasing altogether. We had in previous moments seen consumption in certain industries underperforming versus others. But this quarter, we did see an outright underperformance in all consumption products. So I mean, macro has been, I think, the main driver of underperformance during the third quarter. Looking a little bit forward, I think we do see a little bit of better macro performance next year, although nothing exciting but certainly a marginal improvement from the base that we have in 2025. Ian Marcel Craig García: Moving to Argentina, Renata, I think there -- it's very clear that things have started to slow down especially since the Buenos Aires province election. And remember, we have very important legislative elections this weekend. So consumption really took a -- slowed down going into this election. What we're seeing from our advisers in Argentina is there's a lot riding on the outcome of this weekend's legislative elections in the sense of whether the government's position, how much will it be strengthened and will they be able to avoid logjams in the legislative branch regarding reforms. So Argentina, I would say, let's wait and see what happens this weekend and that will give us a guide. That doesn't mean we expect a recession next year. That's not in the cards, at least from what our advisers tell us but there could be a case of sluggish growth next year instead of continuous recovery. So that's really what we're going to look at. Will it be a scenario of sluggish growth next year, or will we continue and reaccelerate as the government has a more favorable position that will allow it to push through reforms? So it's a bit early to tell, Renata. But like I said, we think this slowdown has a lot to do with the elections this weekend and we'll see what happens. Operator: Next question from Antonio Hernandez with Actinver. Antonio Hernandez: This is Antonio. Just following up on those beverages sweetened with noncaloric sweeteners. I mean you've already mentioned a couple of times during the call that there's not going to be a specific push from you towards the consumer. But just wanted to get a sense if you have a type of a target going forward of maybe how much they can represent as a percentage of total sales? And also, how do you see competition specifically in that segment? Ian Marcel Craig García: Antonio, we don't have a specific target per se. But like I said, even before the excise tax, to us, Coke Zero is a big, big silver bullet. It's great for the health of the category. It does fantastic for the Coca-Cola trademark brand umbrella. And we were already focused on growing Coke Zero and this type of alternatives. So when you think of what we've been able to do in Brazil, where we've taken the mix of Coke Zero all the way to 28% and it's still growing high double digits. There's plenty, plenty of headroom in Mexico. We don't have a target yet but we're around [ 4% ] mix in Mexico. So there's plenty to grow our Coke Zero and other noncaloric alternatives, Sprite Zero, so another fantastic product. So I don't have a -- we don't have a target per se, Antonio. But that more or less gives you a sense of the difference on the market that has already developed Coke Zero getting to 28 percentage points versus a market where we're starting to crack the code such as in Mexico, where we're around 4%. So there's plenty of headroom there. Antonio Hernandez: Okay. And in terms of competition in that space? Ian Marcel Craig García: I would say we have a leadership position there. It's not that much that will come out of share gains there. Really, it's more a portion of growing the mix and growing the total category. We -- there are some share gains opportunities there but that's not the big driver at all. Operator: Next question from Felipe Ucros with Scotiabank. Felipe Ucros Nunez: Most of my questions were asked, but I had a few smaller ones. So Ian, you talked about Coke Zero in recent quarters and you talked about being able to break the code finally in Mexico. So just wondering how your perception has changed, if at all, since obviously, there's an expectation that it's going to accelerate from the trend that it already had. Still feeling very confident about cracking that code? And the other 2 questions. One, on the World Cup, what kind of historical impacts have you guys seen in the portfolio when the World Cup is going on? And obviously, the occasions increase. Just to get a sense of what we expect for 2026 when it comes to KOF. And then in Brazil, obviously, your plant is back up and running and back up at capacity. Wanted to see if you could give us a sense of where the competition stands with regards to their capacity in that region. Are they also back up and running? Or did they not have disruptions? Just any color you can give us on that side would be great. Ian Marcel Craig García: Thank you, Felipe. So I would say on Coke Zero, we're very confident that we're on the right track. I think the biggest measure of that was that during the consumer backlash in the beginning of the year, Coke Zero grew double digits and continued to grow double digits. And it's even under this softer macro environment, it's still growing double digits. So Coke Zero is doing nicely. It's going to get a boost also from the World Cup. It's going to be a hero product there. It's going to be highlighted in all of our publicity and marketing campaigns. So I think our confidence on Coke Zero and our care towards making sure we keep that ball rolling and we keep all of the 5 elements from the Brazil playbook that we call for Coke Zero being there is a huge source of focus. Like I said, we think of Coke Zero as a silver bullet for us and we're taking great care with that. Regarding the World Cup, it really -- when you look at historical effects, I think it's like a 5% uplift in volumes -- relative volumes during the World Cup months. It's not a big volume thing per se but it's huge in terms of brand equity. I was there in Brazil during the World Cup and I remember clearly that the most recalled and remembered favorable brand post the World Cup was Coca-Cola. It's an incredible asset and we're going to leverage it fully for both Coke brand, including Coke Zero and for Powerade. And finally, your final point on Brazil capacity in the South, I would say that during the floods, only Coca-Cola FEMSA was impacted. So we were the only ones to lose a production facility, which was also our biggest distribution center. So that's why we lost 8 points of share, Felipe. It was only a Coke FEMSA impact thing. We're back on track, like I said, since midyear. So we're producing at full capacity now and we've recovered 500 basis points of those 800 basis points that we lost. Obviously, the last remaining points of share are going to be the hardest but we have plans to recover them fully. So no, the rest of the competitors did not receive the impact. And we're starting also on the way -- by the way, on the remediation plan, meaning the containment walls and pumps to be ready to face any future natural disaster. So that has -- we're back on track producing. We are not yet finished with the remediation to face a future flood and that should be done by next year. Felipe Ucros Nunez: No, great color on that. If I can do a very small follow-up on that World Cup. When you talked about the low single digit -- low to mid-single-digit volume decline expectation in Mexico due to the tax, is that purely containing the effect of the tax? Or is that net of everything else that you have going on? So for example, is the World Cup impact included in that number [indiscernible]? Ian Marcel Craig García: It's net of everything else. Just the tax, it's a higher impact. But we are cycling a backlash that we no longer have and we're including the World Cup. So that includes everything. Operator: Thank you. This concludes the question-and-answer section. I would now like to hand the floor back to Coca-Cola's team for closing remarks. Jorge Alejandro Pereda: Thank you very much for your interest in Coca-Cola FEMSA and for joining us on today's call. As always, we are available to answer any of your remaining questions. Thank you and we wish you a great weekend. Operator: Thank you. This does conclude today's presentation. You may disconnect now and have a nice day. Jorge Alejandro Pereda: Thank you, Sophia. Thank you, team.
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