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KBH 2025 Q3 财报电话会议

Operator: Good afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2025 Third Quarter Earnings Conference Call. [Operator Instructions] This conference call is being recorded, and a replay will be accessible on the KB Home website until October 24, 2025. And I will now turn the call over to Jill Peters, Senior Vice President, Investor Relations. Thank you, Jill. You may now begin. Jill Peters: Thank you, John. Good afternoon, everyone, and thank you for joining us today to review our results for the third quarter of fiscal 2025. On the call are Jeff Mezger, Chairman and Chief Executive Officer; Rob McGibney, President and Chief Operating Officer; Rob Dillard, Executive Vice President and Chief Financial Officer; Bill Hollinger, Senior Vice President and Chief Accounting Officer; and Thad Johnson, Senior Vice President and Treasurer. During this call, items will be discussed that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results, and the company does not undertake any obligation to update them. Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission, actual results could be materially different from those stated or implied in the forward-looking statements. In addition, an explanation and/or reconciliation of the non-GAAP measure of adjusted housing gross profit margin, which excludes inventory-related charges and any other non-GAAP measure referenced during today's discussion to its most directly comparable GAAP measure can be found in today's press release and/or on the Investor Relations page of our website at kbhome.com. And with that, here is Jeff Mezger. Jeffrey Mezger: Thank you, Jill. Good afternoon, everyone. We are pleased with the solid financial results that we achieved in our third quarter, meeting or exceeding our guidance ranges across our key metrics as we continue to navigate the current environment. And with a healthy balance sheet and significant cash flow, our flexibility remains strong. While we continue to invest in new communities to position ourselves for future growth, we are also returning a significant amount of cash to our shareholders. We repurchased more than $188 million of our shares in the third quarter, near the high end of our guided range, contributing to total repurchases of roughly $440 million year-to-date. This total represents approximately 11% of our outstanding share count at the beginning of the fiscal year, which was repurchased at an average price that is below our current book value. We believe this is an excellent use of our cash and highly accretive to both our earnings and book value per share. Including dividends, we have now returned more than $490 million in capital to our shareholders this year. From an operational standpoint, we had some critical achievements in terms of materially reducing our build times, which helped to generate closings that were slightly above our expectations and also continuing to lower our direct costs. These accomplishments were realized while maintaining outstanding customer satisfaction levels. As for the details of our results, we produced total revenues of over $1.6 billion and diluted earnings per share of $1.61. We delivered higher profitability on our revenues than we had projected with a gross margin of 18.9%, excluding inventory-related charges, above the high end of our guided range. With a continued focus on prudently managing our costs and aligning our overhead structure with our delivery volume, we held SG&A expenses to 10% of our housing revenues. The outperformance of these two metrics relative to guidance drove an adjusted operating income margin of 8.8%. We grew our book value per share to over $60, an 11% year-over-year increase. Moving on to market conditions. The longer-term outlook for the housing market remains favorable, driven by demographics and the ongoing undersupply of homes. With respect to current conditions, we are pleased to see stability in demand in June, which continued as our third quarter progressed. We are encouraged by the decline in mortgage interest rates, which should support greater demand for homeownership. We produced 2,950 net orders in the third quarter, maintaining the pricing approach we implemented earlier this year. Our focus is on offering the most compelling value at a transparent price while limiting the use of incentives. When we discuss with buyers the alternative of the lower sales price we offer versus a much higher price that can be offset by incentives, buyers recognize that they have a better opportunity for building wealth through equity over time with our home that has the lower starting price point. We continue to focus on optimizing our assets to generate the highest returns, balancing pace and price on a community-by-community basis relative to local market conditions. We exceeded our community count guidance, which, together with a stable cancellation rate, contributed to a monthly absorption pace per community of 3.8 net orders. This pace was lower than our third quarter pace of the past couple of years. And as a result, our net orders were below our internal sales goal. Our fourth quarter sales approach will emphasize our built-to-order homes while continuing to sell through our inventory. As we discussed on our last earnings call, our goal is to steer our business back to our historical range of built-to-order homes, which has averaged close to 70% over more than a decade from around 50% currently. It is our core competency and a key competitive differentiator. And with the significant reduction in our build times, that has become a more compelling selling proposition. We offer buyers an attractive home at an affordable price with features we know they value based on our survey data. Our buyers can then meaningfully influence their final sales price in selecting their lot, floor plan and exterior elevation as well as personalized design studio selections, aligning their monthly payment with their budget. This choice model contributes to our high customer satisfaction scores as buyers draw value from our process and is a key driver of our monthly absorption pace, which is among the highest in our industry. As our build-to-order mix grows, we believe it will support a higher gross margin as these homes currently generate a gross margin that is 250 to 500 basis points higher than our inventory homes. In addition, increasing our built-to-order mix will help us establish a larger backlog, which provides greater visibility into future closing projections. As we have shared in past years, our fourth quarter is typically one in which we elect not to take aggressive steps to capture inventory sales as it is a seasonally slower period and discounting by the speculative home builders pursuing year-end deliveries tends to be elevated in the final months of their fiscal years. Our land positions are valuable, and there is merit to exhibiting discipline when incremental volume gains are low. We do not intend to sell at any price to make up for the shortfall in net orders in our third quarter. Taking this into consideration, we are projecting $1.65 billion in housing revenues in our 2025 fourth quarter and $6.15 billion in housing revenues for our 2025 fiscal year, both at the midpoints of our guidance ranges. Let me pause here for a moment and ask Rob McGibney to provide more details on market conditions as well as an operational update. Rob? Rob McGibney: Thank you, Jeff. One of the key operational themes of our third quarter was our strong execution. Our divisions continue to perform well on the fundamentals of our business, maintaining high customer satisfaction levels, consistently improving build times, further lowering direct cost and balancing pace and price to optimize each asset. In addition, we successfully opened 32 new communities during the quarter. The significant progress we made in continually reducing build times during the third quarter helped to drive better financial performance from capturing slightly more deliveries than we had planned. Traffic in our communities was steady, and our cancellation rate was stable at 17%, supporting net orders at an average absorption pace of 3.8 per month per community. We continue to utilize a simplified approach to sales, focused more on offering a transparent price rather than incentives to provide the most compelling value that is competitive with resale pricing. By advertising the true base price on our website, we let buyers know exactly what to expect before they ever visit a community without the need for back-and-forth negotiations to uncover the real deal. It is a clear upfront way of doing business that makes the home buying process easier and more straightforward. As a result, we believe we draw more traffic to our communities than we might otherwise attract if our pricing was dependent on incentives. In the third quarter, pricing in our communities was as stable as we've seen this fiscal year, with 70% of our communities experiencing steady or increased prices and the other 30% price reductions as we continue to balance pace and price to optimize our assets. We are encouraged by the stabilization and believe our communities are well positioned in the current market. In terms of affordability, it has improved compared to the start of our third quarter, driven by the decrease in mortgage interest rates, which have fallen roughly 60 basis points. This equates to approximately $30,000 of additional purchasing power at our average sales price, a significant boost for a first-time or first-time move-up buyer, which comprise about 70% of our homebuyers. I will add to Jeff's comments on our fourth quarter sales approach by reiterating our focus on optimizing our assets as we maintain an appropriate selling cadence in our communities, including sales of inventory homes. We do not need to chase incremental volume in a seasonally inelastic demand period where speculative builders are discounting heavily to close out their fiscal years. In those conditions, the additional sales produced tend to be limited and they come at a great cost to our margins. We have approximately 3,000 homes in backlog that can be delivered in our 2025 fourth quarter, leaving just over 500 same quarter sales and closings needed to achieve our implied fourth quarter delivery guidance. This is less than the number of homes that we sold and delivered in the fourth quarter of last year and equates to less than one sale per community per month. At quarter end, we had 264 active communities, up 4% year-over-year, contributing to an average of 259, an increase of 3% as compared to the prior year period. The third quarter marked our best performance in several years in opening communities and the number of communities we opened was the highest in any quarter in more than a year. We typically see an above-average sales pace in new communities and the sales performance of our third quarter openings was strong with an absorption pace that outperformed our overall average pace for the quarter. We expect to end our 2025 fiscal year with 260 active selling communities with a projected ramp-up in early 2026 in time for the spring selling season. We moderated our starts in the third quarter with 2,761 homes started as part of our effort to rotate our business back to a higher mix of built-to-order homes over time. We ended the quarter with 6,550 homes in production, including models, of which 52% were sold. Further improving our build times was another area of strong execution by our divisions in the third quarter with a 10-day reduction sequentially to 130 calendar days. Compared to our annual build times going back a decade, we are building homes at some of our best levels today. Although continuous improvement becomes more difficult as we move further away from the peak, our divisions have been producing results each quarter with a focus on returning to a company-wide average of 120 days or better from start to home completion. We are quickly approaching this point at 122 days for built-to-order homes, and some of our divisions are already below our target level. The benefits of lower build times are numerous, including a more compelling selling proposition for our customers purchasing a built-to-order home relative to the 60 days it typically takes to complete an existing or speculative home purchase, better inventory turns and monetizing our assets quicker. The focus from our divisions, together with our national purchasing team to drive lower cost as well as our value engineering and studio simplification efforts collectively contributed to direct costs that were about 2% lower sequentially and 3% lower year-over-year on our homes started during the third quarter helping to offset the impact of higher land cost. Before I wrap up, I will review the credit profile of our buyers who finance their mortgages through our joint venture, KBHS Home Loans. We maintained a high capture rate with 83% of buyers who finance their homes in the third quarter using KBHS. Higher capture rates help us manage our backlog more effectively and provide more certainty in closing dates, which benefits our company as well as our buyers. In addition, we see higher customer satisfaction levels from buyers who use our joint venture versus other lenders. The average cash down payment was stable, both sequentially and year-over-year at 16%, equating to over $76,000. On average, the household income of customers who use KBHS was more than $130,000, and they had a FICO score of 740. Even with 1/2 of our customers purchasing their first home, we are still attracting buyers with strong credit profiles who can qualify for their mortgage while making a significant down payment or pay in cash. 11% of our deliveries in the third quarter were to all cash buyers. In conclusion, we are focused on delivering results and our third quarter performance reflected strong operational execution across multiple dimensions. We believe our communities are well positioned in their submarkets, and we are approaching sales in a simple and transparent way, which we feel best serves our buyer. Our divisions are committed to achieving our projected fourth quarter results for a solid finish to fiscal 2025. And with that, I'll turn the call back over to Jeff. Jeffrey Mezger: Thanks, Rob. With respect to our lot position, we own or control over 65,000 lots, 42% of which are controlled. Our footprint is focused on markets that we believe are positioned for long-term economic and demographic growth, and we've been selective with our land positions in these markets. Our lot pipeline is healthy and at a sufficient level to support our community count growth targets. We regularly review the land deals in our pipeline to ensure that the rationale for each deal is still sound. During the third quarter, we canceled contracts to purchase approximately 6,800 lots, representing about 45 communities that no longer meet our underwriting criteria. We feel we have ample opportunity in our served markets to add to our controlled lot count with lots that have better economics and terms. And with our lot position at quarter end, we can wait until we find better prospects. One of the key benefits of our build-to-order approach is that it provides visibility into the need and timing for replacement communities based on each community's pace and expected sellout date, which is beneficial in our effort to be capital efficient. We are also developing lots in smaller phases wherever possible and balancing development with our starts pace to manage our inventory of finished lots. We remain consistent in our balanced approach toward allocating the healthy cash flow that our business generates. We are achieving our priorities of positioning our business for future growth, managing our leverage within our targeted range and rewarding our shareholders through share repurchases and our quarterly cash dividend. We are maintaining our land investments at a level that will support our current growth projections and invested $514 million in land acquisition and development in the third quarter with almost 80% going toward development and fees on the land we already own. We are beginning to see a more constructive land market as prices have softened somewhat, and we were able to obtain more favorable terms. As I mentioned earlier, we continue to view the long-term outlook for the housing market favorably and have the flexibility to resume a higher level of investment at any time. With the earnings that we have generated to date in fiscal '25, land acquisition and development spend that is 7% lower year-over-year and the improvement in our build times unlocking cash, we have returned more than $490 million in capital to our shareholders in the first 9 months of fiscal 2025. This includes approximately $440 million in share repurchases at an average price of $56.30 per share, which, as I noted earlier, is below our current book value. At these levels, the repurchases are an excellent use of capital and will enhance both our future earnings per share and our return on equity. In closing, I want to thank the entire KB Home team for their commitment to serving our homebuyers and driving the best possible performance from our business in the current market. We believe we have the most talented operators in the industry, and we were honored to be the only homebuilder named to Time Magazine's 2025 list of World's Best Companies. One of the three dimensions that define the companies recognized on this list was employee satisfaction based on anonymous survey data of a large sample of employees. For this reason, the recognition is particularly meaningful to us. Our divisions are executing well and producing results across some of the most impactful operational areas of our business by reducing build times and direct costs and opening new communities on time. We continue to approach our land opportunities through a thoughtful and selective lens with a healthy lot position that has our business primed for growth. Year-to-date, we've returned the highest level of capital to our shareholders for a nine-month period in our company's history. Over the past four years, our cumulative return of cash for share repurchase and dividends as a percent of market cap leads the industry. We plan to continue our share repurchase program in both our '25 fourth quarter and in fiscal 2026. Our balance sheet is strong. We have significant financial flexibility and an experienced team that is committed to producing results going forward. And now I will turn the call over to Rob Dillard for the financial review. Robert Dillard: Thanks, Jeff. I'm pleased to report on the third quarter 2025 results. As Jeff and Rob stated, we're managing the business with discipline in an effort to drive employee engagement, customer satisfaction and long-term shareholder value. We believe that we are well positioned to deliver solid results in the present operating environment with our dedicated customer focus, leading brand, transparent pricing strategy and differentiated built-to-order product. In the third quarter of 2025, we generated total revenues of $1.62 billion. Housing revenues exceeded the midpoint of our guidance range at $1.61 billion, an 8% decrease from the prior year. We delivered 3,393 homes in the quarter, which exceeded the midpoint of our implied guidance, largely due to reduced build times. While we experienced consistent traffic at our communities, net orders totaled 2,950, a 4% decline. Lower orders and improved build times, which reduced backlog more quickly and efficiently contributed to a 24% reduction in our ending backlog to about 4,300 homes. In the third quarter, our overall average selling price was relatively consistent on a year-over-year basis and decreased 1% to $475,700. Mix was a factor as lower average selling prices in the Central and Southeast regions were largely offset by increases in our West Coast and Southwest regions. Housing gross profit margin was 18.2% and adjusted housing gross profit margin, which excludes inventory-related charges, was 18.9%. This strong margin performance exceeded the high end of our guidance range, mainly due to our continued success at managing costs. Adjusted housing gross profit margin was 180 basis points lower than a year earlier due to pricing pressure, higher relative land cost and geographic mix, partially offset by lower construction costs. SG&A expenses as a percent of housing revenues were 10%, a 20 basis point increase from a year ago, primarily due to decreased operating leverage. We're actively managing SG&A for the current market environment and have reduced our headcount to align with volume levels. This focus led to a favorable result relative to our guidance range. Homebuilding operating income for the third quarter decreased to $131 million or 8.1% of homebuilding revenues and homebuilding operating income, excluding inventory-related charges, was $143 million or 8.8% of homebuilding revenues. Total pretax income was $143 million or 8.8% of total revenues. We reported net income of $110 million or $1.61 per diluted share, benefiting from solid operating performance and a 12% reduction in our weighted average diluted shares outstanding from the prior year. Consistent with our strategy to optimize every asset, we are maintaining discipline on price and pace and have adjusted our guidance for 2025 to reflect this priority. In the fourth quarter of 2025, we expect to generate housing revenues between $1.6 billion and $1.7 billion. For the full year, we now expect housing revenues between $6.1 billion and $6.2 billion. We expect a fourth quarter average selling price between $465,000 and $475,000 and a full-year 2025 average selling price of approximately $483,000. This variation in projected average selling price is primarily due to regional mix. Housing gross profit margin, assuming no inventory-related charges, is expected to be between 18% and 18.4% for the fourth quarter and between 19.2% and 19.3% for the full year. This expected year-over-year margin reduction is due to market conditions, higher land costs, including development and fees as well as mix variation which we expect to be partially offset by lower construction costs. The fourth quarter SG&A ratio is expected to be between 9.3% and 9.7% and the full year SG&A ratio is expected to be between 10.2% and 10.3%. We expect the fourth quarter homebuilding operating income margin of between 8.5% and 8.9%, and we expect the full year operating income margin of approximately 8.9%. These projections assume no inventory-related charges. Our effective tax rate for the fourth quarter and the full year is expected to be slightly above 23% as energy tax credits and other adjustments are expected to remain approximately at their current levels. Turning now to the balance sheet. Our balanced capital strategy is focused on minimizing the cost of capital, maximizing flexibility, optimizing returns from investment in land and returning capital to reward shareholders. We believe that we are well capitalized for the current market. We continue to invest in land to drive future growth with a continued focus on the highest return opportunities while also returning more capital to shareholders in the form of share repurchases. We had inventories consisting of land in various stages of development and home completed or under construction totaling $5.8 billion at the end of the third quarter. We invested over $514 million in land development and fees during the third quarter compared to $845 million in the third quarter of 2024. In the first nine months of 2025, we invested over $1.9 billion in land development and fees compared to $210 million in the corresponding period of 2024. With our inventory position, we own or control over 65,000 lots, including 27,000 lots that we have the option to purchase. We believe that we are well positioned to benefit from improving market conditions. At quarter end, we had total liquidity of $1.2 billion or $331 million of cash and $832 million available under our revolving credit facility. The current $250 million outstanding on the revolving credit facility is associated with seasonal working capital investment. Our strategy is to maintain our strong BB positive credit profile as we believe it facilitates reliable access to capital at low cost and significant flexibility. We'll continue to target a total debt-to-capital ratio in the neighborhood of 30% to support this rating, and we are comfortable with our current 33.2% ratio. This strong balance sheet enables us to provide shareholders with a healthy dividend, which currently has an approximately 1.6% yield as well as return capital to shareholders in the form of share repurchases. In the third quarter, we repurchased 3.3 million shares at an average price of $57.12 for a return of capital of more than $188 million, which combined with dividends, resulted in a total return of capital of $205 million. Over the first nine months of 2025, we have repurchased approximately 7.8 million shares or approximately 11% of outstanding shares at the beginning of the year. With this strategy and our solid earnings, we have increased our earning book value per share to $60.25, an 11% increase over the prior year. Over the past four years, we've returned over $1.8 billion to shareholders in the form of dividends and share repurchases. We have now repurchased over 34% of our outstanding common stock since implementing our share buyback program in late 2021. We believe that this is the highest percentage of shares repurchased based on market capitalization among our homebuilder peers over this period and is an indication of our shareholder-focused strategy. We expect to repurchase between $50 million and $150 million of common stock in the fourth quarter, subject to our outlook for operating environment, capital market conditions and land investment opportunities, among other factors. In conclusion, we're pleased with our solid results and disciplined operating strategy, and we expect to optimize shareholder value over the long term by augmenting these results with shareholder-focused capital strategy that balances investing for growth, optimizing returns and increasing returns to shareholders. With that, we'll now take your questions. John, would you please open the line? Operator: Yes. Thank you. We'll now conduct a question-and-answer session. [Operator Instructions] And the first question comes from the line of Stephen Kim with Evercore ISI. Stephen Kim: Appreciate all the commentary and guidance. Yes, and good results here in a tough environment. I did want to ask you a little bit about the order ASP, if I could. It was -- it's kind of been down pretty significantly sequentially. I know you've talked about the simple -- more transparent pricing model. But I was curious, I think you gave a comment that 70% of your communities had stable to increasing prices. And I wanted to square that with the 4% sequential decline in the order ASP. So maybe help us understand sort of maybe how we can reconcile that and what your outlook is for the order ASP as we get into the fourth quarter and into next year. Is this level of ASP a level you're generally comfortable with? Or do you still think it has downward movement? Rob McGibney: Well, a lot of where it's going to head is going to depend on market conditions and where things are headed. And we talked in our prepared remarks about optimizing each asset. We're going to continue to do that. We've also had success on moving costs down as well as some of this has been shifting down. But I think a lot of what you're seeing in the ASP is just mix driven. If you look at year-over-year, we've got more deliveries coming out of the Southeast and a lower percentage coming out of California. And then there's mix -- sorry, out of the West. And then there's even mix within the West, too, where we've got ramp-up in deliveries coming out of Boise and Seattle that have some lower ASPs generally than the rest of California. So, Steve, I think a lot of what you're seeing there is mix. And as far as comfort with the ASP, obviously, we're focused on the margin piece of that. So to the extent we can continue to drive cost down and offset any decreases that we've had to do, we'll be happy with that. Stephen Kim: Yes, that's helpful. I mean, I guess what I'm hearing you say, Rob, is that nobody should read into the sequential order price decline as a leading indicator of a step down in the margins. There's really more mix effects going on. So I appreciate that. Speaking about the demand, we've kind of had a number of weeks here where the mortgage rate has sort of moved down pretty meaningfully. I was wondering if you could comment on sort of what you've seen. We've heard that there's been a pickup in traffic pretty much across a lot of builders we speak to and people are kind of waiting for the conversion into sales. I was wondering if you could comment on what you are seeing with respect to the conversion of traffic and whether or not you would be more inclined at this point to push price if demand comes in stronger or if you would be more inclined at this point to maybe push volume given the fact that you've pulled your volume down a lot most recently? Rob McGibney: I guess the way that we would react to it really depends on the community. If it's a community, we've got a lot of runway in front of us, we see an opportunity to get higher volumes with more demand we'll probably be less aggressive on price and get a little more volume. If I contrast that with some of the, we call them jewel box communities we've got in California that are infill type communities that are difficult to replace. We're going to continue leaning on price and margin. As far as the way the buyers have reacted, I mentioned in my prepared remarks, it's a huge impact to the buyer in terms of affordability. I mean, $30,000 of purchasing power at our ASP is big. We've seen traffic stay steady. Orders have been good, but I wouldn't say that we've seen a big uptick yet or maybe the uptick that we would expect to see from such a change in mortgage rates. And I think to some extent, buyers are in maybe a bit of a wait-and-see mode. maybe waiting for rates to come down further. Maybe they were waiting around for the actual Fed event expecting that to have some immediate impact on rates. But the thing that we're focused on is really our messaging and the way that we're approaching this in the sales offices. And with our build-to-order model, we're really talking to all of our customers about their ability to buy a built-to-order home. And if they believe rates are coming down in the future, then it's perfect because we've got a onetime float down option for them. And if that happens, they can take advantage of that. And I think that's something that is unique to our approach, and we're leveraging that everywhere we can. Operator: Our next question comes from the line of John Lovallo with UBS. John Lovallo: The first one is, if we think about sort of the third quarter gross margin beat versus expectations and about 20 basis points on the high end and maybe a slightly lower-than-anticipated fourth quarter gross margin. I'm curious if there was some toggle on delivery timing or mix between the quarters relative to internal expectations, given the fact that the full year gross margin is maybe up a touch from where you had thought before. Robert Dillard: Yes, John, that's a good question. It's something we think about a lot, but it actually wasn't really in play there. I mean the real drivers there were -- there was some mix there, but it was really, really strong performance on the construction side and getting the right products sold. So we feel really good about how the third quarter ended from a margin perspective. we're being really thoughtful about what fourth quarter is going to do as we're still working through inventory and transitioning to more BTO. John Lovallo: Understood. And then maybe with that in mind, how should we sort of think about the year-over-year and sequential movement in stick and brick costs in land into the fourth quarter? And to the extent that you can comment on what you're expecting in 2026, that would be helpful. Robert Dillard: Yes. In fourth quarter, we're not expecting like a trend shift from the third quarter in terms of the year-over-year impact of land or sticks and bricks. Like I think that we've been able to offset most of that with construction productivity, but you're seeing that kind of having an impact on the margins for sure. I think going forward, we think that there's still opportunity to continue to offset that. And as Rob said, from a community-by-community perspective, there's a lot of play in price there as well. Operator: Our next question comes from the line of Rafe Jadrosich with Bank of America. Rafe Jadrosich: If we go back historically on this third quarter call, you've sort of given an outlook on the out year revenue, at least like a preliminary view. I understand that that's a pretty volatile environment. So it might be a little bit tougher right now. But can you maybe just help us and maybe puts and takes like kind of going into next year as you shift back to BTO, just how we might think about the revenue outlook for next year or if you're still providing that? Jeffrey Mezger: Rafe, and we're not going to give guidance on this call for next year. But directionally, we shared we're going to have an uptick in community count in time for the spring selling season. And with rates coming down and improving affordability at some point in time, that has to have a favorable impact, and we just don't know when or how strong it will be. So, our expectation is that as we look ahead to next year, affordability improves, community count is up. We'll be setting up a solid year again. And as we shift to more build-to-order and work through the last of the inventory, we expect that our margins will improve over time. Rafe Jadrosich: That's helpful. And then just on the fourth quarter, the guidance implies, I think, pretty good leverage on SG&A or at least better than normal seasonality. Can you talk about, one, do I have that right? And then maybe what's driving some of that improvement sequentially as you go into the fourth quarter? Jeffrey Mezger: Detail on that? Robert Dillard: Yes. It's not really leverage as much as it is actually the gross number is expected to be down 15% on a year-over-year basis quarterly. And a lot of that is just kind of the fixed costs we've taken out of the business and how the yearly kind of total compensation scheme is going to play through the SG&A profile. Operator: Our next question comes from the line of Alan Ratner with Zelman & Associates. Alan Ratner: Thanks for all the detail so far and nice performance in a tough market. I would love to chat a little bit about the goal or the target to get back to your more historical BTO share. I think this is a market where a lot of builders that have historically been more heavy on BTO have seen that share decline, and there's a lot of spec inventory out there that you're competing with. And I'm just curious, as you move towards that pivot, have you made any headway there yet either throughout this quarter or maybe even thus far in September in terms of the mix of your orders? Is it skewed a little bit more towards BTO? And I guess from a profitability perspective, can you talk about the current margin differentials between your BTO business and specs today? Jeffrey Mezger: I can make a few comments, Alan, then I'll pass it to Rob McGibney. We were 70% or more sold as recently as 2022. And if you look at what the industry has dealt with, starting in 2022, that's when the supply crunch hit, build times really extended. We got as high as 11 months to build in many cities. And it's hard to have a compelling build-to-order story when it's 11 months out, the buyer can't even lock a rate that long. So you can't tell them what their rate or their payment will be, and they're not going to hang around 11 months to get their personalized home. So we had to do something, and we opted to introduce more inventory into our WIP. And frankly, over the last couple of years, that's been the hardest houses for us to sell because our culture and our wiring as a sales team is to focus on the values of build-to-order. And past that then rates start to run up and it compounded the problem a little bit more for us. So rates have come back down. Our build times have come right back down to historical. It's a far more compelling value. And we're just not going to introduce a lot of inventory into the ground. We're going to focus on the build-to-order side. We've seen some incremental improvement in the build-to-order mix. And we're just -- we expect to see a lot more as we get into '26. So margin-wise, Rob, do you want to add any more comments or you want to get into the margin difference? Rob McGibney: Yes. We mentioned in our prepared remarks that the margin difference is some -- depending on the community and the plan, it can be from 250 to 400 basis points. So it's a significant difference. And today, as Jeff mentioned, we're in an environment where we have the inventory because we started it, and we've got to take a balanced approach to moving through that. But as we look forward, especially as we bring on new communities, we're focused solely on BTO. And so I think it's not going to be an overnight change, but over time, and I think we'll make really good progress towards that as we get into the early part of '26. We expect to shift back to that 70-30 or better ratio at higher margins. Alan Ratner: Got it. That's really helpful, Rob. And then in terms of the 4Q margin guide, I think if I'm doing the math, it's down about 70 bps sequentially. Given your comments about pricing being pretty stable through the quarter in the majority of your communities, should I interpret that sequential decline is more kind of flushing through some of the remaining spec you have and that mix headwind and then hopefully, as you get into '26, that reverses? Jeffrey Mezger: A couple of things, Alan. There's a lag effect from sale to when everything runs through into revenue. So a lot of the deliveries were on houses that were sold in the spring selling season when it got pretty competitive out there. So there is a lag, and you're seeing more of that than you are an assumption that we're going to go deeper on inventory. In fact, we stated in our prepared comments, we're not going to chase the units by "dumping inventory with a heavy discount. We'd rather be prudent with it and strategic and take our time and cover the inventory in the better selling season in January, February and March. So, I can't remember what the other part of his question was. I was going to kick it to you. Was it... Robert Dillard: The margin differential. Jeffrey Mezger: Yes. Robert Dillard: It is -- a fair amount of it is still mix, Alan. You're totally right. And some of it is like market conditions, but really a lot of it is just the mix. Operator: And our next question comes from the line of Matthew Bouley with Barclays. Elizabeth Langan: You have Elizabeth Langan on for Matt today. I was wondering if you could touch -- you mentioned that you've had success in lowering direct costs. I was wondering if you could touch on what those direct costs are and like if there are any categories that you would call out where you're having a little bit more success with that? Rob McGibney: It's really across the board. Clearly, lumber costs have come down. So that's been a tailwind for us. It's a fair lumber is a pretty large component of the overall construction cost, but it's certainly not just limited to the commodity side of it. across many -- I'd say probably most of our markets, we've seen starts come down pretty significantly over the last several months, and we're using that as an opportunity to work with our trade partners. And they're hungry for work, which gives us an opportunity to drive down costs lower as we feed starts into the system. So on the cost side, whether it's -- really, we're looking at all of the direct costs. When sales prices get pressured, we're looking for any opportunity we can to lower costs, whether that's direct or SG&A. But I'd say, overall, it's pretty broad-based across all of the direct cost components that go into our homes. And there's part of it that's just renegotiating because market conditions have changed and starts have come down and part of it is true value engineering and changing the product that we build. So I'd say it's probably a pretty even split between those components of the improvement that we've seen. Elizabeth Langan: Okay. And just to kind of follow up on the general dynamics of those negotiations. Is that something that would carry on into 2026 in terms of seeing those benefits? Or is it something where it's more real time and so you might see depending on the demand and if there's a recovery in starts next year? Rob McGibney: Yes. The more recent reductions we've seen in lumber, that's going to show up in our deliveries in early next year. The rest of it, I'd say we're -- it's not ever something that we stopped focusing on, but the market isn't always willing to accept that. A few years ago, we were going through labor and supply chain crunches, we were still trying to fight the lower direct costs, just weren't making much headway. But we've been able to have more success with that now. And it is somewhat dependent on market conditions. But while starts and volumes are down, we're going to keep working to leverage that into lower cost. If there's a really healthy spring selling season, I would expect that we're going to have less success. But at the same time, our house prices are going to be going up. So, that's how I view it. Operator: Our next question comes from the line of Mike Dahl with RBC Capital Markets. Michael Dahl: Just first, a follow-up on the recent demand dynamics. Just to kind of put a finer point on it, this is normally a time of year where you see some seasonal ebb in your absorption pace. So when you say that demand was steady through the quarter, you haven't necessarily seen an uptick in 4Q to date. Can you be more specific about what your -- maybe what your monthly sales pace cadence has been, including how you're tracking in September? Jeffrey Mezger: Yes. Mike, as we shared in the comments and you look back through the third quarter, it was pretty consistent for us. June was the best month, but July and August were close. So we would -- depending on timing of openings and sell-outs and all that, orders were pretty consistent. So, I would say it was stable for us through the quarter. We haven't seen much of a shift yet in September. So it's only two weeks for us. So, I don't want to make any comments on September, but it's more of the same. Michael Dahl: Okay. Got it. And then, Jeff, I guess, bigger picture, when you think about the timing of this shift in, hey, let's get back to the build-to-order and coupled with your comments around we don't know when the inflection will be, but we do think there's one out there. It seems like that strategy when you're going into next year with the backlog that in unit and dollar terms looks like it will be down pretty meaningful. It seems like that strategy is really reliant on there being some reasonably good inflection in demand next year. Otherwise, you might have kind of a pretty big gap out year in your revenues. So, I don't know if you want to address that a little bit more, but also then a specific question would be if mortgage rates don't come down because we have seen an uptick then over the past week or so. So, if you don't get the relief, would -- as you go into next year, do you pivot back? Or how do you think about that strategy if we don't actually get the type of relief you're looking for? Jeffrey Mezger: Yes. Well, there's a few components to your question, Mike, and it's a good one. Our backlog will be down at the end of the year. Fourth quarter sales and fourth quarter deliveries obviously influence that, but it will be down a similar range to how much our build time is down. So it actually positions us for similar pull-throughs based on the backlog heading into '26. Every year, as we go into the year, the spring selling season dictates how good or how poor your results may be for the year. And part of -- it's not like we just flip a switch and say we want to be built to order. With the inventory that we put out there, you create competition among yourself with the consumer and your sales teams when you're trying to sell inventory and build-to-order. And with the margin erosion to cover the inventory, it gets in the way of selling build-to-order. And we're already seeing communities where you rotate out of the aged inventory, you're just focused on your core value and your best value to the customer, and it works just fine. So we're really not expecting a trough, as you called it. I think you'll see pretty consistent performance. And depending on the spring, we'll share that with you in the spring time, but that's really what will drive the second half of next year. Operator: And our next question comes from the line of Michael Rehaut with JPMorgan. Andrew Azzi: This is Andrew Azzi on for Michael Rehaut. I just wanted to drill down a little bit in terms of the inventory charges and such, if you could comment on the land environment and your ability to find new lots for future growth, especially as the industry kind of developing a stronger appetite for the land-light model? Jeffrey Mezger: Well, as we shared, the land markets are rolling over a little bit. We're seeing some cities where prices have come down a little. You definitely can get more terms, meaning you can close with a better entitlement in place. so you can get to turning the dirt and developing the lots quicker. So that's a good thing. So that's helping us on the land market. Relative to what we shared in the quarter on the abandonments, we walked on deals that we've had tied up and with the ships in the market, they don't hit our underwriting hurdles. So we elected to abandon them and write off the entitlement and pursuit costs that we had incurred. And we know that in some cases, we could go back in and buy the same asset with better price and better terms. We've seen some of that already, but that's a future move. But it's our expectation with starts being way down and what went on in the market this year, we think that the land market will be a little friendlier as we look ahead. Andrew Azzi: That makes a lot of sense. I appreciate that. And are there any kind of markets where you're seeing -- I'd love to kind of drill down to see how things are progressing by markets, if you can make a few call-outs and if you're seeing any -- specifically any increased competition from resale or anything like that? Rob McGibney: It's a pretty broad question, but I'll do my best to give you a quick overview here. I'd say just in general, demand across the whole footprint of our business remains somewhat mixed. There's clear areas of strength, some that remain softer and other markets that seem to be improving or stabilizing faster. It's just -- it's difficult to paint any one metro or region with a broad brush in terms of demand, it's just nuanced based on the submarkets within that metro and then there's even another layer of nuance within those submarkets themselves. But in the quarter from a demand or sales perspective, some of our stronger markets were Inland Empire, Riverside and San Bernardino. North Bay and the Central Valley in California was strong. Las Vegas, Houston, Charlotte, all posted pretty solid demand during the quarter. A couple of the more challenged ones were some of our higher-priced communities, I would say, in coastal California. Seattle was a pretty difficult market for us in Q3, but that tends to follow a little different seasonal pattern, and we've seen demand improve there more recently. Denver is one of the markets that's more challenged. You just had home prices that surged big time with -- after COVID and the incomes didn't keep up, and you've got supply there meaningfully up. I think the good news there in other markets like that, we're seeing starts come down significantly, 15% to 20%. So I view that as positive as the industry in general, showing some discipline by not adding further supply to some of those weaker markets. You mentioned resale inventory in Florida and Texas, I think we were the first ones, just the states where we saw resale and new home inventory increase. And we responded to that with targeted price adjustments and then cost reductions that supported better absorption. And if you look at Florida, I think our orders in Q3 were actually higher than in Q2. So seeing some signs, I think, of stabilization there and the work that we've done has resulted in better absorption. So now we're focused on lifting price where we can. We've actually found, in some cases, we've gone above what we needed to. So in order to optimize those assets, we're now increasing price. Texas is pretty similar, but again, it's different by metro. Houston, it's remained relatively strong, really didn't have the run-up that we saw in San Antonio and Austin where prices moved up, and we've got more resale building -- the resale was building higher there. But I think Texas and Florida in general, I would say, are stabilizing markets, and that's a good sign for us, and we're seeing that as a result in our communities as well. Operator: Our next question comes from the line of Trevor Allinson with Wolfe Research. Trevor Allinson: I want to ask a question about the Southeast region specifically. Order prices were down almost 6% sequentially, but volumes were actually quite good. They're up about 7% quarter-over-quarter. Rob, I think you were just referring to some of that in Florida. That's quite a bit better than normal seasonality. You've talked about not chasing volume. But was the strategy different in the Southeast in the quarter, just to liquidate some inventory? Or what drove the order ramp there, but a pretty big ASP decline sequentially? Rob McGibney: Yes. It wasn't really chasing the inventory. I think that was a market that we saw the resale inventory and new home inventory start to accumulate and sales had really slowed for us in Q2, which was normally our best time of the year. So we took action, and we reduced price. I think that's what's showing up in the numbers that you're seeing. But I think the good news for us is that worked, which now you're seeing the orders come back up as a result of that. It's also, as I mentioned earlier, one of the markets where we've seen the biggest decline in starts. So we've had some of our best results in cost reductions there, too. And now as I'm calling that is starting to stabilize, we've got that combination. And I think we found that we found the market. We've driven cost down and now we're starting to take it back the other way. So I'm not necessarily calling it's an inflection point for the whole state of Florida, but we've been encouraged by what we've seen recently. Trevor Allinson: Okay. Makes a lot of sense. And then Jeff, I wanted to follow up on your comment about starting to see land prices soften. Can you just talk about how widespread that is? Any specific geographies where that's most common? And can you help us with some sort of number on the magnitude of declines that you're seeing in the markets where you are seeing it. Jeffrey Mezger: Well, I would say that there's a slight easing. We're not seeing rapid drops, but we are seeing some easing, and we're -- the power of no is working. We've had deals tied up where we've said no and walked and lo and behold, they come back at a lower price. So it tells you that the land sellers are recognizing it's a little less strong than it was for them, and they need to move their inventory too. And I'd say we're seeing that pretty much across the system. None of them are big magnitudes. They're not market movers, but they are incrementally starting to ease. So we're encouraged with that. Operator: And our final question will come from the line of Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on the design studios. As you think about the shift back to more BTO, can you talk about how you can position the design studios? Is there anything that you're focused on from that element of the business in order to help drive that shift and attract the consumer back to that side of the business relative to the specs that are out there? Rob McGibney: Yes. Good question. I don't think we need to change anything as far as our approach to the studio. It's just leveraging what we've always done. And we really use the studio as a tool to help us sell homes. And we want to start by offering the best base price we can with a quality home that's designed based on our market survey and the data that we have as kind of a starting point and then really use the studio to let people personalize their home there if they choose to. So I think that there's a lot of personalization options and choices that we offer, and we're always kind of rotating through that to make sure that they stay current and they're up to date with what people want. But I don't really see it as a shift in the way that we're approaching that business. We just want to drive more of the business to build-to-order and leveraging the studio. Susan Maklari: Yes. Okay. That's helpful. And then maybe turning to capital allocation. You mentioned the continued focus on shareholder returns, especially the share repurchases. Just any thoughts on how we should be thinking about the magnitude and what we can expect there as we finish up this year and look to the next year and how you're balancing that relative to the budget that you put out for land development and acquisitions? Robert Dillard: Yes, Susan, that's a good question. we're very thoughtful about kind of how we're allocating capital. You can see this year, we've been really thoughtful and responsive to ensuring that we can continue to fund growth, but do it in a smart way and ensure that we're rewarding shareholders as well. And the capital return and the cash flow that we're generating right now is really healthy. And so we feel like in the future, we'll be able to continue to reward shareholders at a similar rate, but we haven't quite yet figured out the magnitude. And I think that there's also a component of that, which is market driven by how attractive the land market is. So we feel really good about our land position going into next year and feel really good about how it's set us up for the next three to four years. And I think that, that's going to give us a lot of flexibility in terms of returning capital. Operator: Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect your lines.

Roland Carter: Good morning, everyone, and thank you for joining us. Today, I'll open with a reminder of our strategic actions that we announced in January and a few highlights of our fiscal year 2025 performance before handing over to Julian to walk through the numbers in more detail. I'll then come back to you to provide an update on our strategy. And as always, we'll have plenty of time for questions at the end. I would like to start by saying how pleased I am with the excellent progress we have made this year, operationally, financially and strategically. We are extending our track record of consistent financial performance and advancing the strategic plans we announced earlier this year to reposition Smiths and deliver significant value for all stakeholders. Turning to our strong financial performance, which came in ahead of our twice raised guidance. Fiscal year 2025 marks our fourth consecutive year of organic revenue growth, with group organic revenue up 8.9%, ahead of our 6% to 8% guidance. We expanded operating profit margins by 60 basis points at the top end of the guided range. We deployed capital in a disciplined and dynamic way with 3 accretive acquisitions and enhanced share buyback alongside a 5.1% dividend increase, marking 74 consecutive years of dividend payments. In January, we announced a number of strategic actions to unlock portfolio value and enhance returns. We are progressing the separation of Smiths Interconnect and Smiths Detection. And reflecting this, Smiths Interconnect is reported as discontinued operations in our full year results. The acceleration plan is progressing well. Initial benefits are being delivered, and we remain on track for the full benefits in fiscal year 2027. We are well positioned for fiscal year 2026 with a strong order book and expect 4% to 6% organic revenue growth with continuing margin expansion. We enter the next phase of our growth journey from both a position of financial strength and strategic clarity. The strategic actions we announced this year mark a pivotal moment for Smiths. We set out plans to be a focused industrial engineering company centered on high-performance technologies in flow management and thermal solutions. Our businesses are customer-centric, hold market-leading positions and operate in structurally growing markets. They have a high-quality financial profile with a strong through-cycle track record and with ample potential for above-market growth. This sharper focus, combined with disciplined capital allocation, positions us to deliver superior shareholder value through consistent execution, operational and financial performance and strategic delivery. Turning to fiscal year 2025 performance. Keeping our people safe is our #1 priority, and I'm pleased to see our safety record improved this year with our recordable incident rate being the lowest for several years. We delivered strong financial results with growth across all our key metrics. A great performance when one considers the impact of the cyber incident, particularly felt in John Crane, and the ongoing challenging macro and tariff backdrop. We invested organically as well, spending GBP 121 million on acquisitions to support and enhance future growth. We also increased returns to shareholders, and are now 80% through our GBP 0.5 billion share buyback program. Together with dividends, we have returned GBP 460 million to shareholders in the year, taking the total to GBP 1.7 billion over the past 4 years. With that, I'll now hand over to Julian to talk through the numbers in more detail. Julian Fagge: Thank you, Roland, and good morning. I'm pleased to present our fiscal year 2025 financial results, which extend our track record of consistent performance delivery. Organic revenue growth for the group comprising all 4 businesses was up 8.9%, ahead of the already twice raised guidance of 6% to 8% growth. Reported revenue increased 6.5%, including a 1.4% contribution from acquisitions in Flex-Tek, partly offset by adverse foreign exchange. Operating profit grew 13.1% on an organic basis and 10.3% on a reported basis. Operating profit margin expanded 60 basis points to 17.4% on both an organic and reported basis at the top end of our guidance of 40 to 60 basis points. Earnings per share increased 14.8%, driven by the strong operating profit performance, supplemented by acquisitions and the benefit of our enhanced share buyback program. Return on capital employed was up 170 basis points to 18.1%, driven by profit growth and our continuing focus on efficient capital allocation, and we achieved strong operating cash conversion of 99%. As a result of the planned separation, Smiths Interconnect is now reported as discontinued operations, with its assets and liabilities classified as held for sale. This means that on a continuing operations basis, organic revenue grew 7.2% and operating profit grew 8.5%, with an operating profit margin of 17.3%. In line with our progressive dividend policy, we are recommending a final dividend of 31.77p, resulting in a total full year dividend of 46p, a 5.1% increase. Now turning to the results in more detail and starting with organic revenue growth. Delivering consistent growth above our markets is a key focus for us, and we've now delivered 4 consecutive years of organic revenue growth, averaging over 7% per year across this time period. This growth has been underpinned by the strong performance of our portfolio of leading brands, our focus on commercial excellence and innovation and new product development. Strong revenue growth translated into even stronger operating profit growth with a 60 basis point margin expansion to 17.4%. Growth was driven by operating leverage, particularly in Smiths Interconnect and Smiths Detection, continued price discipline more than offsetting inflation, and efficiency and productivity savings, which delivered 20 basis points of margin improvement. This included benefits from the Smiths Excellence continuous improvement program and initial benefits from the acceleration plan. Offsetting this was a 50 basis point negative effect from mix with higher growth coming from Smiths Detection and some negative product mix mostly within Flex-Tek. Earnings per share grew very strongly at 14.8%, driven by the organic profit growth, accretive acquisitions, the share buyback and lower tax and interest charges. Constant currency earnings per share grew 19.6%. Cash generation was very strong at GBP 576 million, representing a 99% conversion, reflecting disciplined cash and working capital management. CapEx was GBP 80 million, GBP 12 million higher than depreciation and amortization, but lower than originally guided, with a good amount, reflecting higher investment in automation capacity and testing in John Crane. Finally, we generated GBP 336 million of free cash flow, a conversion rate of 58%. Generating free cash flow remains a key focus for us as we execute our strategic plan. Turning now to the businesses. John Crane delivered organic revenue growth of 3% against a strong prior year comparator of 9.8% growth. Growth was led by original equipment, whilst aftermarket having been more affected by the cyber incident, recovered in the fourth quarter. Second half growth was impacted by operational challenges associated with the upgrades to our machining and testing capabilities and exacerbated by a longer-than-anticipated recovery from the January cyber incident. However, we saw sequential quarterly improvement with fourth quarter growth of 3.9%. Notable contract wins in the second half included a large-scale retrofit energy project in the Middle East and a large managed reliability program in Asia. In June, John Crane launched its coaxial separation dry gas seal, helping customers cut emissions, boost reliability and lower costs. John Crane operating profit grew 6.3% on an organic basis, with margin expanding 80 basis points to 23.8%. This margin expansion reflected productivity and cost efficiency improvements, price and initial savings from the acceleration plan. Looking ahead, healthy market demand, strong order intake alongside improved execution, supports our positive outlook for fiscal year 2026. Now turning to Flex-Tek. Organic revenue grew 4.4%, with a marked strengthening in performance in the second half. The acquisitions of Modular Metal, Wattco and Duc-Pac added a further 5.4% to growth. Flex-Tek's Industrial segment grew 4% despite challenging conditions in U.S. construction, reflecting increased demand for heat kits and flexible ducting products and new customer acquisitions. Revenue in the industrial heat segment was flat year-on-year, reflecting the phasing of a large industrial contract, which is due to conclude in the first half of fiscal 2026. The business is well positioned for future wins, strengthened by the acquisition of Wattco. A recent highlight includes a contract to supply electric heaters for a low-carbon electro fuel project in North America. And aerospace grew 6.3%, supported by a strong order book, reflecting ongoing aircraft build programs and renewed long-term agreements that position the business well for the future. Operating margin was 19.5%, down versus the prior year's strong comparator, which benefited from higher-margin industrial heat contracts. This underlying performance reflected positive pricing and efficiency savings, a positive contribution from acquisitions of 20 basis points, offset by mix impact. In the fourth quarter, we identified a nonmaterial balance sheet overstatement at a stand-alone U.S. industrial site, which had an GBP 8 million in-year impact on headline operating profit and a GBP 15 million impact on statutory profit relating to prior years. This issue was isolated to a single site, has been independently investigated and is now fully resolved. Looking forward, the U.S. construction market remains subdued, although we are well positioned to take advantage from its recovery, should mortgage rates moderate and given the meaningful U.S. housing inventory deficit. For aerospace, the strong order book underpins a healthy demand for the coming year. Moving to Smiths Detection. Revenue increased 15.2% organically, and we successfully converted a strong order book into revenue in both original equipment and aftermarket. We delivered significant growth in aviation with strong demand for checkpoint CT scanners, where we continue to a good win rate. Smiths Detection has now sold around 1,800 CTiX products globally, and is the first to receive the up to 2 liters recertification in the U.K. and the EU. It is anticipated that the global upgrade program will continue with the current level of cabin baggage activity into fiscal year 2026, along with the associated longer-term aftermarket revenue stream. The business is well positioned for the next upgrade cycle in hold baggage screening supported by the first X-ray diffraction-based system in the aviation sector. With 4 units already in operation and regulatory certification underway, this innovation marks a significant step forward in detection technology and reinforces our leadership in the sector. Other Detection Systems delivered improved performance in the second half with growth of 5.2%, following a first half decline on a strong comparator. The business had significant contract wins, particularly in ports and borders, including for large mobile scanners for customs and road cargo in the Americas. Looking ahead, a growing focus on border security is expected to drive growth. Operating profit grew 23.3% and operating margin expanded 80 basis points, reflecting the good operating leverage, improved pricing, a positive mix effect and efficiency savings. Underscoring the business' commitment to innovation, our iCMORE Automated Prohibitive Items Detection System became the first AI-driven platform to receive regulatory approval for live deployment now implemented in Schiphol Airport. Looking ahead, our multiyear order book remains strong, supporting a positive outlook for fiscal year 2026. Growth will continue to be supported by the aviation upgrade program, albeit at a more moderated pace. Finally, Smiths Interconnect increased sales by 22.5% organically. All business units grew with particular strength in the semiconductor test business, where we achieved large wins, particularly in high-speed GPU and AI programs. This performance reflected the strength of our product innovation, most recently, the DaVinci Generation V high-speed test socket designed to test advanced chips used in AI, data centers and computer processing. Aerospace and defense revenue grew 15.1% with strong demand for our differentiated technology in fiber optic, radio frequency and connected products. Here, Smiths Interconnect launched the EZiCoax interposer connector for high-value aerospace and defense applications, enabling secure, precise and reliable communications in systems like satellites and advanced radar. Operating profit was up 57.2%, with margin expanding 390 basis points to 17.8% as a result of the notably higher volumes as well as pricing, positive mix and significant benefits from efficiency programs. As part of the drive to maximize value through the separation process of Smiths Interconnect, we have agreed the sale of its U.S. subsystem business, a noncash impairment on disposal of GBP 30 million was recorded. Strong market conditions combined with key program wins underpin our growth expectations for fiscal year 2026. We take a disciplined approach to our use of capital. In fiscal year 2025, we continue to demonstrate consistency in line with our framework. Organically, we invested GBP 219 million in CapEx and RD&E, which includes customer-related engineering. We invested GBP 121 million in value-accretive acquisitions in Flex-Tek at attractive multiples and higher margins. We increased our total dividend by 5.1% to 46p per share and we paid GBP 152 million in dividends in the year. And we've now executed GBP 398 million of our GBP 500 million enhanced buyback program, which is on track to complete by the end of the calendar year. Overall, we have returned GBP 1.7 billion to shareholders in the form of dividends and buybacks over the last 4 years. We did all of this whilst maintaining a strong balance sheet, with net debt to EBITDA ending the year at 0.6x. Our disciplined approach to capital allocation combined with a clear focus on sustainable value creation is designed to maximize long-term returns and drive shareholder value. We will continue to prioritize disciplined investment for organic and inorganic growth and deliver enhanced returns to shareholders whilst maintaining a strong and efficient balance sheet. First, we are committed to supporting innovation, and expect to invest 3% to 4% of revenue in RD&E, enabling new product development and commercialization. Second, value-accretive acquisitions. We will continue to pursue disciplined acquisitions in core and adjacent markets, augmenting our organic growth and strengthening our competitive position. Third, a progressive dividend policy. We balance the cash flow needs of the business with our commitment to deliver consistent and meaningful returns to shareholders. And fourth, returning excess cash to shareholders. Where we generate surplus cash, we will return it to shareholders through share buybacks or other appropriate mechanisms, ensuring capital is deployed efficiently. We intend to maintain an investment-grade credit rating, and we will balance this alongside our desire to have an efficient balance sheet. Our credit rating is underpinned by our strong and consistent financial track record, leading market positions and significant share of recurring revenue. As we progress the separation of Smiths Interconnect and Smiths Detection, we remain committed to returning a large portion of disposal proceeds to shareholders. The scale of this return will be determined once we have clarity on the timing and magnitude of the proceeds. Importantly, this decision will be made in the context of our broader capital allocation priorities, organic investment, acquisition pipeline, dividend policy and leverage. Finally, let me take you through our outlook for fiscal year 2026 before handing you back to Roland. We expect organic revenue growth on a continuing operations basis of 4% to 6%, noting the strong first quarter comparator. This outlook reflects the strength of our order book as well as the ongoing macro environment with tariffs and increased geopolitical risks causing market uncertainty. In John Crane, growth is supported by a strong order book, solid momentum and improving operational delivery. For Flex-Tek, our outlook reflects a continued subdued view on U.S. construction, balanced against a strong aerospace order book. Smiths Detection will continue to grow, albeit at a moderated pace, supported by the aviation upgrade program. We expect continuing margin expansion driven by operating leverage, benefits from the acceleration plan and ongoing efficiencies through Smiths Excellence. And finally, we expect cash conversion to be around the mid-90s percent, reflecting continued investment for growth and strong underlying cash generation. In summary, while the external environment is challenging, our strategic positioning, operational discipline and our strong order book give us confidence in delivering growth, margin expansion and robust cash flow in fiscal year '26. And with that, let me hand back to Roland. Roland Carter: Thank you, Julian. Firstly, I'll give a brief update on the separation processes. Then I'll turn to Smiths businesses and the opportunity for continued growth and margin expansion. And I'll end with our purpose, people and culture of high performance. We are fully focused on executing the strategic actions that will enhance returns to our shareholders and position Smiths for long-term success. We announced the separation of Smiths Interconnect and Smiths Detection earlier this year and are progressing these with pace and purpose, balancing value maximization with execution certainty. We continue to expect to announce a transaction in relation to Smiths Interconnect by the end of the calendar year, with completion anticipated in 2026. For Smiths Detection, we are progressing both the sale and demerger options ahead of a decision on the preferred route. Work streams are underway internally for both businesses to set them up for the separations. Following the separations, Smiths will be a focused industrial engineering company, specializing in high-performance technologies in flow management and thermal solutions with leading positions in these growing market segments, aligned with long-term structural megatrends. Our competitive advantage stems from our leading brands and engineering capabilities, our targeted investment in innovation and our product development and commercialization to meet customer needs. We have valued customer relationships based on our customized technologies, products and solutions with more than 70% aftermarket recurring or repeatable revenue. Our businesses have high-performance cultures centered on safety, our values, innovation and excellence. They have a strong financial profile of sustainable growth with high returns and good cash generation as well as organic and inorganic expansion opportunities. Empowered decision-making across our businesses ensure we remain focused on supporting customers to capture growth opportunities and deliver attractive and resilient growth with high returns. We operate a lean corporate center, delivering core competencies, including strategy, capital allocation, M&A and compliance. Here, we also present Smiths' pro forma financial metrics. Smiths generated GBP 1.95 billion in revenue in fiscal year 2025 with a pro forma operating profit margin of 19.6% and a 22.8% return on capital employed. We operate in the broad end markets of energy, industrial and construction, with 36% of revenue in energy, 38% in industrial and 26% in construction. With our strategic positions in these markets, we are aligned to some of the most powerful structural megatrends shaping the global economy, energy security and transition, resource efficiency and industrial productivity and sustainability that underpin long-term growth. These markets are expected to grow at a 4% to 5% CAGR over the next decade. Drilling down further into the subsegments of these markets, we are typically positioned in faster growth areas, including flow control, HVAC and industrial process heat. In energy, our mechanical seals enhance reliability across the oil and gas value chain, where we are seeing robust demand for traditional energy as well as increasing opportunities in new energy segments such as CCUS, hydrogen and biofuels. For industrial markets, the rising demand for process efficiency and emission reduction also supports growth in our flow control business. Aerospace continues to perform strongly with new aircraft build programs supporting demand for our fluid conveyance products. And investment in industrial heat electrification is providing significant potential upside for our process heat portfolio. The construction market growth fundamentals remain strong given the U.S. housing inventory deficit and our deep customer relationships and growing U.S. footprint, positioning us well to capture future demand in this highly fragmented market despite some short-term market challenges. Across all market segments, our solutions help customers reduce emissions, improve efficiency and use fewer raw materials, delivering both sustainability and performance. In summary, we are excited about the opportunities in our markets to deliver long-term consistent and sustainable growth. Our aim is to continue to deliver above-market growth over the medium term, underpinned by a resilient and recurring revenue base. This provides a strong foundation for sustainable performance. Our enhanced medium-term financial targets announced in March reflect our plans and strategic initiatives for above-market growth and include leveraging our installed base, brand reputation, customer intimacy and leading product expertise to deepen relationships with customers and expand our share of wallet. Commercial excellence, we will continue to enhance our operational processes to deliver exceptional customer service, enhancing customer value, incumbency and retention versus peers. Innovation. New product development and commercialization are key to sustaining growth. As examples, John Crane this year launched a new coaxial separation seal and is scaling digital solutions, including Sense Monitor and Turbo. Market adjacencies. We continue to target higher growth and higher-margin subsegments, geographies, products and customers, both organically and through targeted acquisitions. This multifaceted approach ensures that we remain well positioned to outperform in our markets over the medium term. Let's look at what we're doing in Flex-Tek, where we delivered robust growth in our construction business in fiscal year 2025 despite challenging U.S. market conditions. Building on the strength of our portfolio, we are leveraging our flexible duct product platform to drive deeper and wider penetration through our distribution channels and are adding new customers. We saw increased demand for heat kits with notable growth in key accounts, illustrating the importance of customer intimacy and higher-performing products. And our innovation remains a core growth driver. During the year, we launched the Blue Series, a redesigned sealed metal duct system that sets a new standard in performance and is already contributing to revenue. In our heat business, another launch this year supports ultra-low carbon emissions fuel with electric heaters that are being tailored for a cutting-edge electro fuel project. Both are great examples of how our innovative approach leads to new product design, which solves a key customer challenge. Our organic growth strategy is augmented by a disciplined and value-accretive approach to M&A. Acquisitions since 2018 supported a more than 13% CAGR in both revenue and operating profit at Flex-Tek alongside a 60 basis point margin uplift. This year's acquisitions, Wattco, Modular Metal and Duc-Pac strengthen our capabilities in heat transfer technologies and broaden our reach in U.S. construction. These acquisitions also allow us to scale into adjacent markets within our existing product portfolio. Adding new metal ducting businesses this year has increased our addressable market for our flexible ducting products by opening up new geographies and customers. So they are already contributing to growth and margin uplift, and we expect further benefits as we scale and integrate these businesses. For fiscal year 2026, we expect the construction market to remain subdued, although we will continue to drive the business forward to deliver against this backdrop. Turning to margin. Our journey to our medium-term target of 21% to 23% is supported by a series of structural and tactical initiatives, a combination of operational discipline, cost optimization and portfolio focus. First, operating leverage, actively driving a higher contribution margin as we grow revenue, for example, through price and product mix. Second, delivering efficiency savings and productivity improvements through Smiths Excellence. This year, through our Smiths Excellence Academy, we expanded our Lean and Six Sigma programs to reinforce our high-performance culture and scale operational best practice globally. Third, implementing our acceleration program, which is on track for GBP 40 million to GBP 45 million annualized benefits in fiscal year 2027 and beyond for a total of GBP 60 million to GBP 65 million of costs, whilst ensuring central costs remain at 1.5% to 1.7% of revenue. 2/3 of the costs and benefits relate to the retained businesses. And finally, evolving our product portfolio towards higher-margin products and market subsegments, including targeting a greater share of aftermarket, repeat or recurring revenue. Here, we show how operational excellence is supporting both revenue growth and margin expansion. Through our acceleration plan, we are simplifying, standardizing and automating core processes across engineering, manufacturing and supply chain functions in John Crane, including investment in advanced manufacturing technologies. We have upgraded automation and machining across multiple sites with a focus on high-precision applications. We have installed 72 new CNC machines and are adding 9 dry gas seal test rigs. These investments are enhancing throughput and quality, improving lead times, reducing waste and enhancing customer satisfaction. Our supply chain is being optimized to improve agility, resilience and cost competitiveness. We are consolidating manufacturing locations and centralizing transactional procurement and finance. These initiatives are delivering measurable benefits, including reduced lead times, improved pricing power and enhanced scalability and all contribute to growth and improving profitability for the business. Realizing these performance improvements underpin our confidence in the outlook for John Crane for fiscal year 2026 and beyond. As already mentioned, we set out new enhanced medium-term targets for fiscal year 2027 onwards. These targets are ambitious, yet achievable and reflect our confidence in our ability to deliver premium returns through the cycle and supports the superior rating for Smiths. At Smiths, our long-term success is built on enduring foundations, our purpose, people, values and commitment to excellence and sustainability. Our purpose is clear, engineering a better future and is embedded in our strategy, culture and decision-making. Our people are always at the heart of our business, and I would like to thank them for delivering the strong financial performance this year. Your dedication is very much appreciated. Our culture is built on our values and reflected in our high-performance mindset and commitment to delivering for our customers, communities and all stakeholders. We are making meaningful progress on sustainability. Our approach is informed by a double materiality assessment, ensuring our strategy reflects both financial and societal impact. These foundations are central to our pledge to create long-term value for all our stakeholders. So in summary, in fiscal year 2025, we delivered strong results, extending our track record of consistent financial performance. We have made great progress advancing our strategic plans to focus Smiths as a high-performance industrial engineering company. As a result, Smiths is very well positioned to deliver superior value over the medium and long term. We are growth and returns focused, highly cash generative and have a disciplined approach to capital allocation. We are confident that these strategic actions will unlock significant value and enhance returns to shareholders. Thank you for listening. Julian and I are now happy to take your questions. Operator: [Operator Instructions] And now we're going to take our first question. And the question comes from the line of Lush Mahendrarajah from JPMorgan. Lushanthan Mahendrarajah: I've got 3, if that works. The first is on John Crane. I think of the H2 organic growth is perhaps a bit lower than sort of the expectations at the Q3 point. I mean is that being driven by some of those operational issues being worse than expected? And then if so, I guess, where -- I know the Q4 has picked up, but I guess, how far are we from that returning to normal, I guess? And sort of how does that feed into sort of your confidence for growth in FY '26? It sounds like the orders are still positive there. So just how that all fits in, I guess, in terms of 2026. The second question is just on the margin guidance, obviously, continuing margin expansion is the sort of phrase you use. I guess can you help us just sort of quantify that a little bit and sort of what some of the puts and takes are? I think the acceleration plan should be quite a notable tailwind within that. But yes, just to help us sort of build that bridge, I guess. And then the third is on Detection. I think you're probably about 3 halves now sort of very strong growth on the OE side with the CT scanner upgrade. I think you said before it's over 2, 3 years of this. I guess where does the OE side peak in that sort of 2- to 3-year time frame? And then how should we think about sort of the aftermarket associated with those OE deliveries coming through over the next 2, 3 years? And I guess how that sort of plays into sort of the margin pickup in Detection over those years as well? Roland Carter: Okay. Thank you very much. I'll try and answer those questions. So from the point of view of John Crane, yes, we saw the John Crane half -- the second half in John Crane. What was comforting in that is Q3 was better than Q2 and Q4 was better than Q3. So that was very, very positive for us. The operational issues have been a challenge. We highlighted that with the cyber that exacerbated, as I said, 72 CNC machines were being put in place, and we're heading towards 9 new dry gas seals. So that was that was exacerbated by the cybersecurity issue. We have been monitoring the key performance indicators, though, within the business, that's machining hours, both external and internal machine hours. Those are improving. We've been monitoring the number of engineering hours that we need because these are highly engineered products, and that's also improving. We did surge those hours, and now they're back to a very manageable level. And we continue to monitor on-time delivery, lead times, supplier performance, and these are all moving in the right direction. So that's associated with that strong order book that we're bringing into the year and the fact that we've seen a positive book-to-bill, and we have quite a view out into the marketplace of the activity in the marketplace, we feel positive that we'll see improvement on John Crane in fiscal year 2026. So pleased with how that's moving forward. Yes, did it move forward slightly slower in the second half than we thought it would? Absolutely, but the long-term health is still there within the business. On the margin, yes, as we said, continuing, and we mean continuing margin expansion on that. So we're seeing that inflation has somewhat moderated, but we still see that we have price in our portfolio. We've learned a lot of lessons about price through the inflationary period. So we see that as very positive. We also saw the initial stages of the acceleration plan. And you'll recall, 2/3 of that acceleration plan is around the future of Smiths. So we saw the early stages of that acceleration plan coming through, which was gratifying. We'll see about half of that coming through in fiscal year 2026 as well. So that will continue to build. And not forgetting underlying all this, although we don't call out the number, the Smiths Excellence number was strong this year. That was good. It grew again. Smiths Excellence really is starting to bed into the organization. And so that will be another benefit going forward. There are headwinds, and we recognize that there are headwinds of the macroeconomic -- the broader macroeconomic environment and tariffs. Our guidance takes account of tariffs and our current understanding. So we have those mitigations around that as well. So you can see why we are confident in saying that continuing margin expansion. Coming on to your third question, which was about Detection. So Detection is in a very positive area. You saw that the growth that we recorded this year, we'll see that somewhat moderate going forward in fiscal year 2026 because it has been exceptional, as you point out. The program on CTiX, it's an important but not the only piece of business that Smiths Interconnect (sic) [ Smiths Detection ] does. So it's an important part of the business, but one shouldn't forget the rest of the business, which is also doing relatively well. So from that point of view is we're still in the midst of that program. It still continues. We -- I think last time we spoke, we shipped about 1,600 of those. Now we've shipped about 1,800 of those. The win rate is as good as we highlighted, at least as good as we highlighted. So that still has a way to run, as we pointed out, through '26 and into '27 is what we are seeing there. So we're pleased with that going forward. Obviously, aftermarket, we've never been shy about talking about the stability of aftermarket. We've never been shy about talking about the margin of aftermarket, which are both very positive for us. So we see the aftermarket will come through not only on the CTiX, but as we roll forward with all the products that we install. So hopefully, those answer your questions, Lush. Thank you. Operator: Now we're going to take our next question. And the question comes from the line of Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I want to start with Interconnect, if I can, 18.9% organic growth for the half. I think that was an acceleration from a low double-digit cadence in Q3. I just wonder if there's any change to note in the comp Q-on-Q or if that's all underlying? And then secondly, if I look all the way back to Page 85 of the report, APAC revenues for Interconnect have effectively doubled for the full year. That is -- is that all driven by the strength in semi test? And I guess, interested how we think about that regional dynamic for Interconnect, given the same table implies more than 90% of its assets sit in the Americas. Roland Carter: Yes. So thank you. So from the point of view of Interconnect, we were very pleased with the growth in Interconnect. And it continues to be a very strong and well-balanced business, in fact. I think we shouldn't forget, yes, the headline is semiconductor test and the leading position and the excellent sort of products that we have within that are helping us move with the market. Not forgetting that this is also an operational challenge and the fact that we've set ourselves up incredibly well for delivering this amount of growth, which one should understand. So that mixture between operational excellence and product excellence has really delivered for us on that. We continue to see strong orders in that area. But as I said, not forgetting that this business is exposed -- over half of it is exposed to aerospace and defense, and we're seeing broadly across the business that, that market is definitely being positive going forward on that. I will let Julian comment on Interconnect as he's close to the business having previously run it very recently. But the growth in APAC also does reflect growth in semiconductor, but we don't see that, that changes the shape of the business particularly. But Julian, perhaps you want to add some more color? Julian Fagge: Thanks, Roland. Not much to add. The -- we're particularly pleased with the semiconductor performance and particularly the strength of the business in AI, where we performed particularly strongly. It's true that a large portion of the business is in the Americas. We've had that strength in aerospace and defense, particularly coming through in the U.S. But no, very pleased with where Interconnect is as we go into the new year. Christian Hinderaker: Second one, maybe for Julian. I just want -- just clarifying the charges on the balance sheet restatement in Flex-Tek. If I'm reading that correctly, GBP 8 million of the charge is within the adjusted earnings line and a further GBP 15 million one-off that further reduces your reporting earnings for the business. I just want to understand a little bit the rationale for that split and whether I've got that well understood. Julian Fagge: Yes. So Christian, in quarter 4, we discovered what ended up being a nonmaterial balance sheet misstatement in one of our Flex-Tek businesses. When we dug into it, it was effectively covering multiple years, which guided our treatment with GBP 8 million, as you say, as a headline charge or indeed reflected in our reported numbers for 2025. And then we had the GBP 15 million charge to non-headline reflecting the balances for previous years. We thought that was the best presentation of the effect of this through our numbers so that we could show an appropriate organic performance in the year. I will just add that whilst unfortunate and something that we didn't want to have, this particular event has now been fully investigated. It is now fully resolved and the learnings from this have been taken forward into the rest of the business. Operator: Now we're going to take our next question. And it comes from the line of Mark Davies Jones from Stifel. Mark Jones: Can I just ask a bit more about the moving parts of Flex-Tek and the different end markets addressed? The risk of being picky, is 6% growth in aerospace relatively modest given the current trends in that industry? Is that related to the sort of supply chain issues we're hearing about in engines? Julian, I think you mentioned a big industrial electrical heat project coming to a conclusion in the first half of next year. Is that causing any kind of gap in the outlook for that aspect of the business? And then thirdly, I note that recent acquisitions have been weighted more to the construction end of the business despite the fact that, that market looks relatively soft short term anyway. Is that just availability in terms of where the opportunity to consolidate the market sits at the moment? Or do you think we should see acquisitions in other parts of the business, too? Roland Carter: Thank you for those. From the point of view of the aerospace business, we're actually very pleased with the growth rate we're seeing there. We are working through any sort of supply chain challenges that we have. They're not major for us at all. So we are pleased with the continuing growth rate there. We're pleased with those relationships with the customers. So we will -- as we said, we are coming into the year on aerospace with a very robust order book and a positive book-to-bill ratio. So we see that coming through very strongly, and that's reflected in that 6%, which we think is a good number to think about on that one. On the industrial engineering projects, yes, we have the large project, which we continue to execute against. And we have a funnel of other projects in that area. So this is the programmatic part of Flex-Tek. So we will continue to build those programs going through. And you can see that we've indicated for Flex-Tek, we anticipate growth going forward in the fiscal year 2026. So yes, is it programmatic? Yes, absolutely. Do we have other projects coming in through the process? Absolutely. And that leads on to sort of construction. I think much of the numbers might not call it out to such an extent. The standout performance is construction because we know the U.S. market is very muted. We know it continues to be muted. We're not predicting an upturn in how we've looked at our numbers for fiscal year 2026. We are recognizing the market for what it is. There might be some good news, but we're not baking that in from the point of view of the rates and the putative rate changes that might happen. However, we think that we're in a -- an advantaged position within that market. And why? Well, we've got some empirical evidence. We continue to grow in spite of the market. We've got the new products coming through, which we mentioned the Blue Series that, that will be a changer. We've got Python coming through as well. So we've got the new products. But just as important as the innovation, we've got the customer relationships and the alignment with the correct customers, end customers to really make sure that we continue to outperform that. As part of the acquisitions, there were acquisitions in construction. And I think we see the megatrend. There is a deficit. We know there's a substantial -- several million homes are missing in America. We know it's going to take them perhaps a decade to sort of fill that deficit from that point of view. So the megatrend is correct for us. So our strategy is aligned with the megatrend. We're advantaged because of the way we play in that market as we are the people who are consolidating, which gives us me comfort about the R&D spend that we've got there because of the new products as well. So you start to put those things together and now is a good time to continue our strategy because when it does turn, you'll see the exceptional performance coming through from that. So the strategy being essentially long term. One of the acquisitions that we recently announced wasn't in construction. It was in heat. Heat is also another market, which obviously we touched on with the larger programs there, but we're very keen to both develop our presence and our routes to market within heat, but also to fill in technology gaps that we see within that and either through organic investment, but in this case, through inorganic investment. Julian Fagge: I would just add to that, Mark, we do have a very active pipeline in Flex-Tek, and we continue to work that pipeline, and we do expect to see more acquisitions in this space as we go into the new year. Operator: Now we're going to take our next question. And the question comes from the line of Margaret Schooley from Redburn Atlantic. Margaret Schooley: I actually have 2, if you would. The first one, I'll just put up there. In terms of John Crane, again, organic growth, can you give us some indication of the split between what was volume and price? Roland Carter: Yes. So from the point of view of where we've been in the past to sort of contextualize it, essentially, we did experience a lot of price growth in the past. And that also helped us develop the skills and the disciplines we need for managing price growth. What was pleasing this year was actually this year was more about volume growth. And that, I think, is important to me to say, yes, we're managing pricing. Yes, it's not quite such an inflationary environment. However, people are willing to pay for the John Crane brand. But really, we're now driving through volume. So -- would you like to give us some guidance on the split? Julian Fagge: Yes, just to say that we've taken some additional price to reflect tariffs. But the -- as I say, as Roland said, the dynamic of volume and price has been positive this year. Margaret Schooley: Excellent. And then my just second one, you mentioned some -- several new products in Flex-Tek, which is driving through growth. And in the presentation, you also mentioned in John Crane, the coaxial separation dry steel. Can you just give us a little understanding on the John Crane new product introductions? What markets you're actually targeting to further exploit? Or what other new products and adjacencies we should look forward to in FY '25 to continue to support your growth expectations? Roland Carter: Yes. I think it was pleasing to see, and it does get a lot of focus from both Julian and myself because I think John Crane is an area where we can definitely improve the way we introduce products. We can improve what we're doing with our new product development pipeline. And I think I'm very keen on new product development, new technology development, new process development and new materials development. And I think John Crane, it will take time for these things to crystallize. But we can already see with the separation seal, the focus on getting products out there, getting products aligned with key customers and getting products aligned with key accounts to make sure they're adopted relatively quickly. I think there is that commercialization, which you'll see us focus on more and more about how do we improve the products that are already out there. So the products introducing new technologies, bringing them -- increasing their specifications and then these new products, which you saw in the separation seal. So you'll see that mixture coming through. Some of those -- the new products will be longer term. The upgraded products will be shorter term, more easily adopted, meeting customers' requirements. Underlying all that, what are the sort of broad fundamentals? Because the great thing about the John Crane seals is they're not necessarily an end market specific. Obviously, the end markets do drive it. But we're looking -- all these seals need similar characteristics and similar improvements in characteristics. What do I mean by that? I mean they need higher pressures. So we're developing the technologies that allow us to have higher pressures and the products that allow us to have higher pressures. They're looking towards higher temperatures. So we're developing the products and the platforms, I should really say that allow us to higher temperatures. And then the third one, which is very, very much a focus is high speeds. So -- and then if you mix those sort of 3 ingredients together, that can go for very traditional energy, that can go for hydrogen, that can go for LNG. So you can see all those markets, enjoy the benefits of those improvements. So I think we're becoming much more coherent on how we develop those products, which I think will benefit our customers ultimately. Margaret Schooley: One last one, if I may, which might be slightly difficult to answer given where you are. But since the announcement of your strategic actions, in particular, on Detection, has your thinking evolved at all as you go through this exercise in separating some of the assets? Can you give us any indication of the level of interest or how the market backdrop has changed or in any way changed your thinking since the point you announced the strategic actions on Detection specifically? Roland Carter: Detection, specifically. Yes. So on the broad approach, we're very pleased with the performance of those assets that we've highlighted for separation. So we knew it was a good time, and we knew they were performing well. We're pleased to see that continuing performance. So absolutely, the timing is working well for us on that. As we said, Interconnect, we will announce something at the end of the calendar year that we've seen -- we're continuing on that track, and we're working through that to announce something at the end of the calendar year. On Detection, again, we did a lot of the desktop and role playing on this to see how it would work. You saw the outcome of what that said, the clear sale of Interconnect, that was obvious. We wanted to make sure that we were value creating -- value creation is what this is about and surety of delivery. And that's where you see the demerger. We're running the twin track of demerger and sale process for that. The work that we're doing behind the scenes on separation is progressing as we anticipated. So I'm not going to give you a sort of blow-by-blow account, but that's essentially where we are. So yes, obviously, we're always thinking about the value creation and the surety. I wouldn't -- but the strategic direction was well set, and we're very sure that, that is the right strategic direction. Operator: Now we're going to take our next question, and it comes from the line of Alex O'Hanlon from Panmure Liberum. Alexandro da Silva O'Hanlon: Well done on a great set of results. Just 1 question from me. Could you give us an idea of the level of employee churn at Smiths and how that compares to recent history? I guess what I'm trying to get at is how are you managing the culture of the business during a time of transition? Is it a case that employees don't feel unsettled given that the businesses are already run very separately and maybe feel empowered, but just kind of any color you can give us on that would be greatly appreciated. Roland Carter: Thank you for the kind comment at the beginning. So this is something we look at very carefully because it is one of those questions which one has to ask in these situations. And what we've made sure is that we've been clear and transparent with people and explain to them what's happening. And that's not only within the businesses that have been separated, but also the businesses which are being retained as well as head office, which we've spoken quite extensively about this 1.5% to 1.7% that our target is for central costs. So we do recognize that this is a moment in time and a difficult moment. I think of it -- people talk about transformation. I think this is a continuing journey for us. We fully intend to be moving at pace and always with purpose. So we have made sure that we're talking to everybody who we work with on this and preparing people for the necessary sort of questions that would be answered, make sure that we have a unified position to things to make sure that we're dealing with people, with equity as well. At the moment, what we're seeing in the figures is probably where you'd like me to get to is we're actually seeing our attrition at a slightly lower level than we've been seeing previously. I won't give you the exact numbers. But at the moment, what we're doing seems to be the right thing. Obviously, it does affect individuals, and we are acutely aware that it is a person-by-person thing. But at the moment, in the broad, we're not seeing the uptick one might have anticipated. Operator: Now we're going to take our next question. And the question comes from the line of [ Stephan Klepp ] from BNP Paribas. Unknown Analyst: I hope you can hear me well. So I have 3 questions. So the first one is on John Crane. Can we just talk again on the execution? I mean I know that you have been very vocal about the fact that it has never been an order problem and execution, obviously, due to the cyber incident was impacted. Well, your peers, your peers have outgrown you. The question is, did you lose some market share? Are your clients patient? And should that not even mean that some pent-up demand in the area? And having said that, shouldn't the visibility in John Crane be larger than normal because you couldn't basically get the orders out [indiscernible] Roland Carter: Right. Struggled to hear that question, but I will repeat it to make sure I've got it and Julian, if you heard it better than me -- so you were asking about how the execution is affecting John Crane and particularly if we've lost market share and has that created pent-up demand, I think that was the question. And has that, therefore, created more visibility in John Crane. Yes, sorry, the line is bad. Unknown Analyst: Sorry, the line is probably bad. Sorry for that. Roland Carter: That's all right. So from the point of view of the delivery in John Crane, as I said, Q3 was better than Q2, Q4 was better than Q3. But we are ramping up. The cyber incident was definitely an issue for us around engineering, as I mentioned before, but more broadly for John Crane being the most integrated of our businesses. During that period, we obviously were talking to customers. We were obviously making sure that the customers were comforted with that. This is a very sticky business, as we know, although there are opportunities to gain market share as we've laid out. So we were very aware of that and made sure that we worked through that. Now we are on the path to recovery. As I said, our machining hours, both internal and external are up. Our engineering hours are now stabilized, having gone through a surge to do the deal with the heart of what was the issue, which was we locked down our drawings to protect them and then took time to release our drawings back. So leading indicators on lead time, on supplier delivery, those are all moving in the right direction. So we will see over time that developing. The answer to what about the order book and what about your visibility, what I pointed out through this period, we have a strong order book. So that was a positive. We also are starting to reduce our own lead times in this period, and we have a positive book-to-bill ratio. And as we've talked to previously, yes, there's a book-to-bill ratio that the orders actually coming in, but also we have visibility into our customers' programs, which are long-term multiyear programs. So we do have that visibility. So we believe if you think about where our guidance is on the 4% to 6%, I think it would be fair to say that John Crane will be at the top end of that guidance. Julian Fagge: Roland, I'll just add there that the aftermarket saw some slippage in Q3 around the cyber event. Of course, it's very difficult for anyone else to pick up our aftermarket. So what we're expecting to see is aftermarket returning as our operational improvement starts to come through. And we did see an improvement in aftermarket orders through Q4. Unknown Analyst: And the second question is Interconnect. I mean... Operator: Excuse me, Stephan. Please accept my apologies. Your line is very breaking up. I believe our speakers will be not able to hear your question. Please, can you adjust the volume. Unknown Analyst: One second. Can you hear me better now? Roland Carter: Let's try. Let's try. Unknown Analyst: Yes. I'm very sorry for that. I don't know what's going on. On Interconnect, I mean it is very good news that you are very far in the process and say that at the end of the year, we're going to see the divestment. Is it right from the capital allocation perspective that in this big transition that you're going through, larger deals on the M&A side are off the table? And should we mentally earmark the proceeds of Interconnect all to be deployed for share buybacks? Roland Carter: Do you want to take that one, Julian? Julian Fagge: Yes. Thanks, Stephan. So yes, just to repeat the point Roland made, the sale process for Interconnect is progressing well, and our plan to announce that by the end of the calendar remains in place. In terms of the use of proceeds, again, we've been clear that our intention is to return a significant portion of proceeds to shareholders, although we haven't yet determined or agreed the mechanic. In terms of our capital allocation, again, we've been pretty clear on this in that we allocate our capital to develop and generate the very best returns. And of course, that's illustrated in our very strong ROCE performance in '25. We'll continue with that. We'll allocate capital organically, and Roland has given us some insight into some of the organic R&D investments and programs that we're pushing forward with. We have the investment into the acceleration plan, which is delivering the returns that we expect to see next year. And then inorganically, we will continue to work an active pipeline of inorganic acquisitions. We will continue to see acquisitions as an important part of our story as we go into the future, particularly in higher value, high-return adjacencies in both John Crane and Flex-Tek. Operator: And now we're going to take our last question for today. And it comes from the line of Dylan Jones from Kepler Cheuvreux. Dylan Jones: Just a few quick follow-ups. The first one, just on the Flex-Tek restatement, the GBP 8 million that go through the headline number. So if this is a balance sheet restatement, can we expect to get all of this back in FY '26 and going forward? Or is it more of a realization of an accounting policy that was being applied appropriately and it's going to sort of remain in that sort of cost base in future years? And then just the second question, you obviously touched on some of the R&D and innovation qualitatively, what's sort of going on there. But I guess just given it's sort of more looking at future Smiths, it's sort of identified as one of those areas where you can get that sort of above-market growth. Just wondering how we should think about that, whether it's a step-up in sort of R&D in that Flex-Tek and John Crane business that would need to sort of capture that higher level of growth with the product innovation? Or is it more just a concentrated focus on those 2 businesses should enable a higher level of growth from the innovation piece? Roland Carter: Do you want to take the first? Julian Fagge: Yes. Thanks for the question. So of the GBP 8 million that was charged to this year's Flex-Tek profit, we expect some of that to come back next year, but not all of it. That's not necessarily because there's any repeat of the problem. Of course, what it really is, is getting to a point as to understand what is the fundamental underlying profitability of that business as we look out into the future, and the business is working through that as we speak. But some of it will come back, but we're not guiding on the absolute amount. Roland Carter: And then on the R&D, this will be very much a focus. So as some of you will know, my background is innovation and R&D. And I think with that focus and some of those points I was talking about, about enhancing the products within John Crane in that sort of product technology, process and materials approach. So really getting the products we have fit for the future and then developing the products, the long term, new products is important as well. So you'll see that focus, and it's very pleasing to see the separation seal come through, but you'll see that focus really start delivering. And it's not just about the new product development, it's about the new product commercialization, making sure that we've got the customers, those key opinion leaders, those key accounts ready for those products as well, almost co-collaborating in some cases, hopefully, with that. So we'll see that driving through on John Crane. And for me, Flex-Tek, the focus on Flex-Tek, the Blue Series is really the most recent. But really, there is a lot of innovation about Flex-Tek because Flex-Tek is so close to its customer. And I think there might be a little bit more -- I'd like to see a little bit more discipline driven through that capture of requirements. But yes, I think you'll see Flex-Tek. I mean you look at the numbers, you say they don't spend a lot on RD&E. But relative to the competition in absolute terms, they do spend and they -- I think they can turn into a real market leader on the innovation as well as the market leader where they already are. Just the same way we saw the effect of R&D on the growth rate that we see within Detection recently or the growth rate that we saw in -- we now see in Smiths Interconnect with that focus on semiconductor that they had, for example. So yes, I think expect more on the innovation side from us, but not necessarily spending more money on that. Operator: Dear speakers, there are no further questions for today. Thank you for joining the conference today. You may all disconnect. Have a nice day. Roland Carter: Thank you very much. Julian Fagge: Thank you.

36天前Insight Analytics约5分钟阅读

BREJY 2023 Q1 财报电话会议

Conversation: Karol Prazmo: Ladies and gentlemen, good morning, and welcome to the mBank Capital Markets Day. My name is Karol Prazmo, and I'm the Managing Director for Treasury and Investor Relations. Thank you for joining us here in the mBank Auditorium via remote, through your tablets, computers and TVs. This is a very important day for us. We will outline the strategy of mBank Group for the next 5 years. The CEO and members of the Management Board will outline their vision, aspirations and strategic goals for our future. The title of the strategy is Full Speed Ahead. [indiscernible] but with us for the next 2 hours as we outline the strategy that symbolizes the momentum and the strong [indiscernible]. Now let's begin. I would like to invite the President and CEO, Cezary Kocik to join the stage. Cezary Kocik: Thank you, Karol. Good morning, ladies and gentleman. Today's a very important day for us. Just in a few moments, we are going to present to you our strategy for the next 5 years. The strategy was developed by [indiscernible]. So let me introduce, Krzysztof Bratos, Head of Retail Division; Adam Pers, Head of Corporate Division; Krzysztof Dabrowski, IT and Operations; Pascal Ruhland, our CFO; Katarzyna Piwek, Deputy Head of our HR. Today Katarzyna is [indiscernible]; and Marek Lusztyn, our CRO. So let's get started. We stand in a povital moment in mBank's history. Over the [indiscernible]. Today, I'm proud to present our strategy for 2026, 2030. This was developed in line with our mBank's [indiscernible]. We have proven that we are able to grow organically. [Audio Gap] What powers our organization? It's our people, our brand and our technology. The digital world is our natural environment where we stay the course and set the pace. What is incredibly important is that we do this responsibly, ensuring our client safety. We are proud to have the strongest brand in Polish banking sector, not just in recognition, but in emotional connection. Our employee engagement score places us in a top quartile in Europe. And our digital-first mindset and Gen AI deployment are not just aspiration. They are a fact. This is the mBank DNA, agile, innovative and deeply human. We have overcome challenges that once constrain us. The legal risk related to FX mortgage loans has been largely mitigated. At the end of June, we had only 10,000 active Swiss franc loans, but now it declined to only 8,000. We are now ready to navigate at a full speed with the [indiscernible] wind lifting our ambitions. Our capital base is robust with a safe buffers, giving us room to grow dynamically. We have achieved it, thanks to our effort, securitization transaction, issuance of AT1 capital and retention of profits. And our profitability is among the highest in the sector with return on tangible equity at 21% in the first half of 2025 and as much as 38.5% in the core business, excluding the impact of FX mortgage loans. Thus, we are embarking on the next chapter of mBank's growth with strength, clarity and determination. Full speed ahead is our strategic motto. It means scaling with purpose, innovating with discipline and growing with our clients in a profitable way. It's about being smarter, more convenient and more connected in every market where we serve our clients. In the past, we have already shown our ability to dynamically extend our market shares and growing organically at the pace comparable to the one setting the strategy. In the 5-year period, before the peak of the Swiss franc saga in 2022, we increased our market shares in retail loans and deposits by 2 percentage points and in the corporate loans by nearly 1.5 percentage points. Maintaining a similar growth trajectory will be essential to delivering on our strategic ambitions by 2030. Our key strategic target is to exceed 10% market share in 2030 in loans and deposits across both Retail and Corporate segments. This is not just about number. It is about our ambitions to be a top-tier universal bank. We have already made a significant progress. And already, we are the Poland's most successful growth story in the banking sector. Now we are accelerating and positioning mBank for growth. We want to grow dynamically, but not only in volumes. Thus, efficiency will be our backbone. We will maintain a cost/income ratio below 35% and deliver competitive return on tangible equity above 22% during the strategic horizon. Starting from a net profit for 2026, we will resume dividend payments with a target payout ratio of 75% by 2030. Consequently, our net profit is set to triple until 2030 compared to 2024, which shows the magnitude of the future value for our shareholders. We are building a compelling investment case based on a profitable growth, resilience and shareholders' returns. Now let's explore the pillars and that defines our strategic direction. Our purpose is simple, yet powerful, simplifying finances, helping bring goals to life. We have always believed that simplicity is the ultimate sophistication. We have shown it by solving hard problems in a way that feels easy for our customers. This is not just about banking. It is about enabling dreams, whether it is a first home, high-performing company or a secure retirement. We are here to make those journeys easier, smarter and more human. mBank's strategy for 2026, 2030 will be based on 3 pillars. The first one is life cycle-based growth. We grow with our clients, adopting our value proposition to their life moments and evolving needs over time. The second one is customer excellence. We're simplifying financial journeys and deliver delightful experiences. The third pillar is our organizational excellence. We empower our people and leverage technology to scale impact. These 3 pillars are not isolated. They are interconnected to better drive our transformation. We integrated sustainability into everything we do, not as a checkbox, but as a core belief. Our employees are the engine of our growth. The commitment, creativity and culture make mBank exceptional. Karol Prazmo: Thank you, Cezary Kocik, for setting out the strategic version. Ladies and gentlemen, now it will be time to learn about the upcoming journey in detail. Before we go there, I wanted to tell you more about today's event. The presentation of the strategy will take about one hour. Then my co-host and mBank's Head of Investor Relations, Investor Relations, Joanna Filipkowska, will lead the demo session, during which we'll show you 5 examples of products and solutions that will be rolled out during the strategy and on which we have significant advancement. You will have the opportunity to ask questions, both here in the room and in front of your screens. And note to our online participants, please use the chat box within the live stream to submit your questions at any time during the event. And without further ado, it's time to learn about the upcoming journey in detail. I would like to invite Vice President of the Management Board for Retail Banking, Krzysztof Bratos, to the stage. Karol Prazmo: Krzysztof, mBank's client base has always been unique. What is so special about our client base and what's in store for them in product terms in this strategy? Krzysztof Dabrowski: Thank you, Karol. Thank you, Carl. Our CEO talked about favorable demographics. And indeed, it's the age of our clients that makes us very special on a Polish banking map. You see we've always been loved by younger generations. And luckily, this is still the case today. 74% of our clients are still below the age of 46, and that's a very important threshold. We estimate that in between the age of 46 and 55, that falls to the so-called the peak earning period. So this is when the retail clients accumulate the most of their assets, hold most of their products and together with their banks, generate the most of the revenue. One could say that revenue-wise, the future is still bright and is ahead of us for both of our clients and ourselves as a bank serving them. You could say that we already have clients that others need to chase. And for this very reason in this strategy, we're going to primarily focus on our existing clients. But focusing on your existing clients means that you need to serve them at different ages and serve their different needs and those needs evolve. And this is why in this strategy, we want to evolve from being an exceptional transactional bank that we are for sure today already into a long-life partner that helps our clients with the long-term goals. This new strategy will see an introduction of more of a long-term products like savings, digital mortgages and investments from day-to-day trading up to the planning for your pension. Karol Prazmo: Krzysztof, you spoke about the client base. You spoke about the products, but how will we support the financial well-being of our clients? Krzysztof Dabrowski: And this is a very important part for us, and we treat it with a huge responsibility. We believe that the products, even if digital, simple, intuitive are not enough by themselves. We want to help our clients navigate them all, but also use them wisely. We want to help our clients take care of their financial well-being, and it's going to be an important part of our strategy. And we're going to introduce it twofold. Firstly, we're going to help our clients take care of their day-to-day life, to make sure that they stay safe online, that they spend less than they earn, build financial cushion, keep loved ones safe and borrow responsibly. We're going to help them with that by introducing a financial health score, but also a set of contextual tips and communication and education to make sure their day-to-day life is in order. This will be a foundation of our financial health being. And once this foundation is set, we'll help our clients with the second part. That second part will be a set of digital financial planning tools, but also support of our experts that will help our clients plan holistically all of those complex products in one cohesive plan from planning for your pension to planning for your children education to saving for your first home. We aspire for the 50% of our clients to be financially healthy in 2030. Karol Prazmo: We now understand the focus on financial health and the product offering for every stage of life. What will this mean for the growth in the number of active clients? Krzysztof Bratos: So here is where I need to mention our demographic premium once again. 78% of our 35 years old clients have a junior age child, but also 1.5 million of our clients, those aged 35 and 50, will soon be guiding financial decision of their parents. This creates a tremendous and valuable ecosystem, the one that we want to build on. We wanted to pay off for our clients to be here at mBank together with their children, their partners, their parents and even their friends. We want to grow through our clients and not chasing sometimes very expensive external acquisition. We believe that this will strengthen the loyalty of our clients, but also allow us to grow in a very, very efficient way. Karol Prazmo: Krzysztof, you've given us a lot of insight about the priorities for Poland. What are the strategic objectives for operations in Czechia and Slovakia? Krzysztof Bratos: We've created One mBank strategy, and this means we'll be doing a lot more together with Czechia and Slovakia. We believe that only an aligned platform approach is the way to build things in a scalable and efficient way, but also set a foundation for potential expansion into other foreign countries in the future. In this strategy, we'll bring to Czechia and Slovakia solutions that already exist in Poland, especially for the affluent and SMEs. What will make this Czechia and Slovakia strategy is slightly distinctive will be a bit more focused on external acquisition. As in here, we want to catch up and be the market share wise at the same stage that we are already in Poland. This should convert into having 1 million of active customers in 2030 and through them doubling our loan volumes and almost doubling our deposit volume. We believe that this approach will not only accelerate the growth of those foreign markets, but also we bring tremendous benefits as an innovation for the whole group. Karol Prazmo: You talked about the product offering for affluent and SME clients in Czechia and Slovakia. Can you tell us more about these 2 segments in Poland? Krzysztof Bratos: I started my presentation today talking about the younger people joining mBank. But truth to be told, they joined us 10, 15 or 20 years ago, and we meet them here in Poland every day. And since then, they grew, their little student account is now an affluent account. Their little start-up is the well-prospering enterprise. But then the most beautiful thing is they actually grew with us and they stayed. And we have proof for that. 73% of our affluent clients have been with us for more than 10 years. Also on the SME side, 71% of our high potential business clients have started with us as a little startup. But best of them all, 70% of our business clients are also our individual clients. It's a tremendous and valuable 2 segments that we call the super segments. There is more number standing behind it. Our affluent clients are responsible -- or not responsible. Our affluent clients constitute only 27% of our client base, but yet generate 70% of individual revenue. The high potential business clients, we call the clients who generate EUR 1 million annual turnover, they constitute only 30% of our clients, but generate half of the SME revenue. They're valuable, loyal and high potential clients that with a little extra care, with a little appreciation that they absolutely deserve and with a little bit of additional products can flourish even further together with us. And this is why this new strategy will see the significant focus on the affluent and on the SMEs in their upper levels. Karol Prazmo: Now that we know more about these 2 segments, can you tell us about how you want to deepen the relationships with affluent and SME clients? Krzysztof Bratos: We strive to create the best-in-class value proposition for the modern affluent, starting with daily banking excellence through global traveler benefits, but also your lifestyle benefits that you can use here in Poland. But maybe most of all, we want to elevate their service. We want to show them that they're appreciated and they can have a fast access and fast track to some of our services. In some cases, we will even go as far as introducing a dedicated adviser to our clients. This will be new for mBank. We believe that once you get to the more complex stages of your life, you do need to speak to a person regardless of how sophisticated your digital solutions are. We want our clients, our affluent clients to feel like in a private banking, but of course, in a very digital, a very modern and a very mBank way. We strive to serve 1.4 million of those affluent clients at the end of our strategic horizon. And we're going to do exactly the same for our SMEs, so SME plus, how we call them. We want to expand our financing solutions as their needs grew over those last 10 years. We will also introduce additional products known mostly from our corporations world like mLeasing, but then with a fully integrated version with our banking app. And similarly to affluence, we'll go as far, in some cases, introducing also dedicated advisers who will help them flourish and develop. This should convert into serving 120,000 of those high potential firms at mBank. And obviously, that is naturally before we will help them transition to the full corporations world. Karol Prazmo: Thank you, Krzysztof Bratos. Karol Prazmo: Ladies and gentlemen, now that we know the plan for the Retail segment, let's talk about our exceptional Corporate and Investment Banking business. I would like to invite Vice President of the Management Board, Adam Pers, to the stage. Adam Pers: Good morning. Karol Prazmo: Adam, can you tell us about the growth aspirations for your business? Adam Pers: Of course, thank you. Good morning once again. Today, I will be talking about the Corporate Banking strategy, but let me start shortly with the reference to our CEO, Cezary Kocik. He said that most of our bank is full speed ahead. And we decided with our team that we will translate it into Corporate Banking language, which is what you see on the slide, this is long-term business growth. And it's going to be the most important sentence in our strategy. And the question is how we're going to deliver that. And we decided jointly with our risk colleagues that we will grow in the sustainable transition and sustainable finance. But what is important, we defined 6 perspective industries. We'll talk about that later. But we cannot forget about strengths. Strength, which means structured finance, investment banking and international banking. But what we need to deliver this growth, which at the end of the strategy should let us reach that market share in the amount of 10%, which translates into PLN 20 billion net growth. We need something that we call exceptional unique hybrid model. We need organization excellence, which is built on digitalization. But going forward with the strategy, we will add the AI component. And sorry, I used the word last but not least, is our people. Our people created the strategy and our people joining with us with the Board will deliver the strategy. So we need them motivated and highly qualified. Karol Prazmo: Adam, you referred to the best unique hybrid model, what exactly is behind this concept? Adam Pers: Yes. It requires explanation indeed because here, we talk about 3 pillars. The first pillar is we call them -- we call it remote but digital. The second pillar is remote, but human, and the third one is offline. This remote digital, I will talk also later on during the strategy, the presentation. We're talking about the new mBank CompanyNet, so our main gateway to the customers. And we're talking about the fine-tuning of mobile banking. And this will create something which we call virtual branch. But customers also sometimes need the contact with the person. So if, for some reasons, the customer will not be able to self-service the digital channel, then we have dedicated contact center, which is only for corporate business. And why we are doing so? We are doing some because we want our offline channel, which means relationship manager to have enough time to talk to people, to talk about the business, talk about the transactions, et cetera. And they will be supported by top best-in-class product specialists. These all 3 pillars constitute the what we call best unique hybrid model. Karol Prazmo: Adam, and going beyond the service model and into the client base, can you tell us about the specific growth strategies for each of the 3 corporate client segments? Adam Pers: This slide requires a little bit of explanation because as you heard, we're a universal bank. You already listened to Krzysztof's strategy where we have different type of customers. And within the Corporate Banking, we also have relatively small and not sophisticated customers, which is the K3, and we have also large corporate, which is K1. And let me start with the latter one. So K1 customers, this is the segment that, for some reasons, in a couple of last years, we were not so active. Now we want to come back to something, which we called bigger tickets. So we will be more present in this segment. But definitely, we offer them more sophisticated products like M&A, structured finance and all these complex products. But if you talk about the biggest engine from the volume perspective, it's definitely going to be K2, which is our midsized corporate segment. And here, we have a combination of complex product like investment banking, sustainable finance. But at the same time, we know that a significant part of the financing in this segment is relatively small ticket. That's why we will offer so-called fast-track credit process. But as I said, this is going to be the biggest engine from the volume perspective. But from the, I would say, biggest change, it will happen in K3 segment, which is our corporate SME segment. And here are the challenges or targets. First of all, we would like to double number of active customers. Here we're talking about the active customers, not just open accounts, and it is going to be credit customers. Second thing, we want to offer them -- we call it semi-automated credit path. And if you allow me, I will, in a few sentences, elaborate how it's going to work in real terms. Our aim is that customers start the journey in the CompanyNet system. So the application for the loan will be done in the system, then the loan will be done on a semi-automated way. And finally, signed agreement and disbursing the money will be done also in the CompanyNet system. And at the end, we are taking our end-to-end process, which means that the managing the loan going forward will be done also in this process. And what is our ambition? We are starting from 0. I think we are transparent here. And we want to reach 40% of the double number of credit customers at the end of the strategy horizon. Karol Prazmo: Thank you, Adam Pers. We'll be back with you in a moment. So please don't go anywhere. And ladies and gentlemen, I would now like to go into corporate credit risk and the industries that we want to focus on. And this, I would like to discuss with our Chief Risk Officer, Marek Lusztyn. Marek Lusztyn: Good morning, everyone. Karol Prazmo: Marek, where should we expect growth in the corporate portfolio as we roll out this strategy? Marek Lusztyn: So as Adam said, we have asked ourselves what will make Polish economy tick over the next 5 years. We have asked ourselves what our clients will face, how we can help them in benefiting from those trends. And we have identified 6 big trends, 6, how we call it, big shifts that Polish economy will face until 2030. And we want to support our clients in that specific shift to make sure that they are benefiting from those. First of all, and that is not surprise to anybody, it's energy transition. Second of all, it's green economy and sustainable finance. Then we have identified localization of production, automation and robotization of production as the next big shift that Polish economy is going to face. [indiscernible] were alluding to the demographic shifts in our retail base, but these demographic shifts are not only related to our retail base, it is also something that our corporate clients are going to face, and we want to help them in that shift as well. So the help in financing, free time economy and health care is the next one that we will zoom into. And finally, I guess this is also not a surprise to anybody, defense. I would like to highlight that it is not a new area for mBank. We are going to capitalize on existing expertise and sometimes even on us being already a clear market leader in some of those segments. When we think about quantitative KPIs that we have put in front of ourselves for our corporate portfolio, the first one is an increase of sustainable financing in an overall corporate portfolio from 11% in 2024 to 15% by 2030. And as it comes to our ambitions in supporting those big shifts, in supporting our clients in benefiting from those big shifts in the Polish economy, we would like to increase the share of financing of those from 20% at the end of last year to 40% by the end of strategy horizon. Karol Prazmo: Thank you, Marek Lusztyn. Now let's return to the strategic plans for Corporate and Investment Banking. Adam Pers, back to you. Poland is the fifth largest economy in the EU, and we're part of Commerzbank Group. What does this mean for us in terms of cross-border opportunities? Adam Pers: Thank you for this question, but let me top up 3 facts. First of all, Poland is the fifth biggest economy in European Union, and we probably exceed EUR 1 trillion nominal GDP. This is a very important fact. And if you look at mBank and Commerzbank, mBank is a very strong player in the Polish market. Luckily, we have a foreign investor who is very active in the most developed economy in Europe, which is Germany, but is also present internationally. I hope that you see that on the map. And when we want to develop the growth in more sophisticated products, let me start with the presence in Poland. mBank in Corporate Banking is famous for its competence in the structured finance, both on the corporate sales side and risk area. And our aim is the following: to be market leader in structured finance, to be the bank of the first choice for the private equity, which was the case over the past few years, and finally, we want to constantly deliver new products to more sophistic customers, like we did in the past years. But going abroad and going to the cooperation with the Commerzbank, our plan is to help our customers to go internationally. And we're going to support customers in 2 dimensions. The first dimension is the opening account and, let's say, working operationally in the foreign market using Commerzbank network. But we see that and we read in the press that going forward, our customers are more and more active buying the competitors even in the western part of Europe. And in this journey, we would like to be active, and we would like to be bank of the first choice for the customers. The opposite direction, we would like to continue and even further strengthen the cooperation in which we invite foreign customers to Poland and we have to be, let's say, the biggest gateway for the customers that have accounts with Commerzbank, but also for the customers that are entering Polish market and want to set up the relationship with the bank. And finally, Recently, we started quite actively the journey with Commerzbank on the treasury bond market. And in this respect, we want to grow going forward over the strategic horizon. Karol Prazmo: Thank you, Adam Pers. Adam Pers: Thank you. Karol Prazmo: Ladies and gentlemen, this concludes the first strategic pillar life cycle-based growth and now we move to the second strategic pillar, customer excellence. And we will again start with Retail Banking, Krzysztof Bratos, welcome back to the stage. Krzysztof, what innovations are we planning to make mobile banking feel even more effortless and intuitive? Krzysztof Bratos: We believe that mBank has been setting standards in the mobile banking and digital banking for quite some time already. But truth to be told, the world doesn't stop. It changes. It evolves, not only in the banking ecosystem, but also in the fintechs that are already in Poland. Also, around 10 years ago, average banking app was providing just a few, maybe 15 products in the banking ecosystem. Today, it's actually tens of products and tens of services. It takes a fresh look on how you navigate them all and how you use them all. And we've decided to take that fresh look. And we've decided to do another just tiny uplift, but a significant upgrade on how we use our application. We're going to introduce the 3 major innovations. Firstly, we're going to put a new application architecture, the way you find your services, the way you find your products and how you navigate it all. We'll also add high personalization. Me, my wife, my kids and my parents, we use mBank app in a completely different way as we need different products and different solutions and will allow our clients to customize it. Secondly, we will provide more of an instant feedback by automating more of our sales processes, but also those post sales and give that client a sense of control that whatever their click is happening instantly. And then thirdly, we're going to introduce a redesigned communication system with a new graphics, emotions, even videos or even haptics, the solutions that you have seen already in the different industries and you happily use. So why not in banking? We believe those 3 innovations will contribute to creating and still having a very simple and very intuitive app, but yet the one that can handle the complex world's needs while staying modern and fresh. But what if all of that was not enough, and you actually needed to go a step further in today's world. What if you all could actually talk to it? Ask it, how much I spent for my last trip in Barcelona? Or what is the status of my complaint? Or perhaps what can I do with my PLN 10,000? What if you could do it all in a natural language, maybe sometimes even with spelling mistakes, of course, while staying in your safe banking environment. Would that be another chatbot, assistant 2.0 or something a little bit more than that. And here, I would love Krzysztof Dabrowski to share a few words about it. Krzysztof Dabrowski: I will be happy to do so, but I would like to also enlist a little bit of help from our guests, if I may. I will not ask you if you ever use a banking app because I can safely assume you did. But may I ask you, who of you ever used any banking chatbot or assistant? Raise your hand, please. Okay, and -- quite a bit. And who of you think this assistant was not particularly smart? Raise your hand, please. Thank you even more. That's a bit surprising. But thank you for your support. And it will not be a surprise to you probably that we do share your view. So with the help of generative AI, we would like to take this experience in mBank to another level. So first, we -- there are 100 ways of asking for the same thing, and we don't want our customers to guess the correct question. It's our task to guess the correct answer. Second, most of those assistants that you do not find very smart are just a giant knowledge basis and not particularly even good at answering the questions. We would like to teach our assistant a lot of verbs, More than 200 of them actually, to make it very, very helpful and providing services to our customers, not only answers to the questions. And last but not least, we will combine it with all of the data we have about our customers to provide a personalized experience. So this will not feel generic. This will feel like the assistant is there just for you to serve your needs and knowing a lot about you. Krzysztof Bratos: Thank you very much, Krzysztof. So not just simple questions, but definitely actions. Over 200 of them also executed through the voice. We believe that this is not another assistant, not another chatbot, but the very beginning of a new channel of how you can use your app and how you can use our bank. We believe that this is the very beginning of a conversational banking. Thank you. Karol Prazmo: Thank you, Krzysztof Bratos. Thank you, Krzysztof Dabrowski. And now I would like to invite Adam Pers back to the stage, please. Adam, what can you tell us about what will change in the way that you interact with customers in the Corporate and Investment Banking area? Adam Pers: Thank you. I have the impression that while I was describing the hybrid model, I already promised a lot. So now I will be talking about how we deliver that. And let me start with the CompanyMobile, which is definitely the application for relatively small customers. And here, we will focus on base modules, which is FX, payment, BLIK and all this, I would say, that we need on a daily basis. But what is extremely important is, we gave -- we received the feedback from our customers that in case of CompanyMobile, apart from feature, also security is as important as those features. So definitely, the second part of our, I would say, development of CompanyMobile will be the security of this application. But the main change will happen to the CompanyNet system, so our core gateway in the digital world. And here, we will implement new modules or we modify the modules. Let me start with the so-called personal dashboard, personalized workspace. Why we are talking about this solution at first? Because as I said that we have different kind of customers, relatively small and relatively complex. And my personal experience that when I have application, not necessarily banking, but any other, and I can adjust the application going through 100 or 50 questions, it's relatively difficult to go through this. And here, we would like to build a system that almost automatically adjust to the company and adjust to the so-called personas or to the person working with the application. So it's going to be convenient, and this is the most important word. Second thing is we'll be working on the payments module. But what is important, we will build new, we call it, liquidity module. This is something that will truly use the AI because it will be analyzing the history. It will be analyzing the current situation of liquidity of our customer, and it will give some advice. And let's imagine that the customer may need some loan in the future. I hope that having the next module, which is the expanded loan module, the customers will be able to apply for a loan and potentially sign and disburse also in the component system. I already mentioned that what we are cooperating with Commerzbank and we want to go abroad with customer and invite foreign customers to Poland. That's why we will pay special attention to FX model. And last but not least, here, you can see our ambitious target, which is 80% of every interaction with customers done in the digital world. And what is important, this is end to end. So it is for the customer digital, but also finally, in Krzysztof Dabrowski area, operation also end up in a digital way. And we would like to deliver that by enhancing the so-called self-service via virtual branch. And the last thing, which is very important that our current CompanyNet system, which as I said, we have to rebuild, because the customer needs more perception of top 3 on the market. And our ambition target is to be at least #3 from the perspective of our customers, how they see this application. Karol Prazmo: Thank you, Adam Pers. Krzysztof Dabrowski, Adam Pers spoke about all the enhancements to mBank CompanyNet and mBank CompanyMobile. Can you tell us about what is happening on the back end to make all of this possible? Krzysztof Dabrowski: Yes. I'll be happy to say. But before I will tell you what we just did because I think a bit of a history is important here, and it is a good history. I'm actually very blessed with the business colleagues that you've just seen in action who are very ambitious. They have -- they set themselves very high targets and they have this tendency of actually delivering them. So IT has not to be the road block, IT has to be an enabler and a helper. And one of the very important aspects of IT in banks are the core systems. And I've been on the AKF, this is the Polish gathering of all of the banking industry last year. And there was a large roundtable, around 12 participants from all of the major banks in Poland. And the question was, what do you do about the modernization of your core system? And I was lucky because I was sitting, like, I was like the 9th. And they were -- the answers were like, we are not touching it. We are thinking. We're analyzing. That's too complex. And my answer in June was, we are going to finish it this year. And you are first to hear it that as of today, both of our core systems, the Corporate and the Retail are modernized, are taken to the modern technologies. And all of our customers are right now on the new platforms without even noticing that because we did it in parallel with the normal business growth, and we did it without stopping the bank. Why we did it? We did it in order to do the next steps. We wanted to get rid of the legacy that we have. We are a relatively young bank in the grand scheme of things, but we also had our legacy because I would say, majority or vast majority of our employees were not even around when we implemented those core systems. But now when we migrated to the better solutions, we can do the things that we plan to ourselves in the strategy. So the most important program in IT has a very short name. And in the spirit of saying not a lot but doing quite a bit, we are going to make our bank 24/7. In Retail, it may sound easy because Retail in our case, is already running 24/7, but the remaining problem are the technical breaks. And it will take a bit of heavy engineering to reduce it down to almost 0. But for the Corporate Banking, it's a bit of a different challenge in mBank because our Corporate Banking is not working 24/7. It's not working over the weekends, and it's not working during the night. So we are using the opportunity that we get from the fact that we have to support European instant payments, but we want to take it to the next level in an mBank fashion. So we want to give access to our corporate customers to the majority of the important products 24/7 and to extend the availability of the rest through the weekend. We think that this will be the great basis for our business to grow further. The other important aspect that I'm responsible in the bank is the security. And to tell you about the security is a bit harder than to tell you about the IT because we just don't have this one grand project. In fact, we have really a couple of dozens of projects that we want to do in the time frame of the strategy, and we group them into 3 pillars. And actually, they don't change. So these are the same pillars that we were having so far. So the first one is the cybersecurity. Obviously, substantial part of the trust that customers put on us is coming from the fact that we are offering them a security. So cybersecurity in the sense of defending the bank, but also helping customers defending themselves, this is a crucial aspect, and we are going to continue investing in this area. The other part, which is no less important, is antifraud. The fraud is, let's say, ongoing daily burden for our customers. The trends are not actually good. It's actually getting worse from the customer's perspective. So mBank is here to protect them. We will extend our anti-fraud systems, but also we will deliver more self-service to the customers. So if actually something bad happens, the customers will be able to help themselves. And last but not least, we strongly believe that humans are the best firewall for all kind of bad things. And we are probably the first bank that's really invested in the broad communication to the Polish society about security. We've been running public campaigns aimed not only at our customers, but at all citizens of Poland because we believe that the customers who are aware of the security risks are the customers that can better protect themselves. On the other hand, we are also investing in our own employees because they can protect the bank, but they could also protect both the customers but also their friends and their neighbors. And those 3 pillars form together our security strategy. Karol Prazmo: Krzysztof, and with that, you've brought us to the end of the second strategic pillar, which is customer excellence. And now we go into the third strategic pillar, organizational excellence. And I want to stay with you, and you spoke about AI and conversational banking earlier during the presentation. And can you tell us about the other places where you and your team will be deploying AI? Krzysztof Dabrowski: Okay. So you've heard a bit about AI from my colleague's presentation. These are the, let's say, the large business applications of the AI that we are doing together. But we are treating this concept very seriously. And on top of everything, we are also running our own incubator for those solutions because we believe that we need a deep focus and a lot of acceleration to really make it happen on a daily basis here in mBank. I'm not going to be able to take you through all of the things that we are working on. And on the other hand, I'm not going to tell you what are we going to do 3 years down the road because on one hand, I probably don't know actually. But on the other hand, we wouldn't like to reveal too much to our competition. So I will just explain you and show you 3 solutions, and they are at the stage that either they are already in production in mBank or they will be very soon. So I'm not going to spoil the market success. So the first one is what we call the deep customer understanding. The banks have a lot of data about customers. And historically, we've been all very, very good in analyzing this. All of the structured data we have about customers, the transactions, the financial data, the products they are using, even how they are using the products. All of the banks know it, all of the banks analyze it, hopefully, and all of the banks know how to deal with this kind of data. But there is a whole ocean of the data that is not structured. These are the interactions that we are having with our customers. It's voice interactions, video interactions, but even simple chat interactions. We have a lot of those. And historically, they were very hard to actually analyze. We've been analyzing them in a very, let's say, focused way, for instance, to do quality control of our conversations. But it was not really possible to do it at scale. As of today in mBank, we are analyzing all of the interactions we have with our customers. Thanks to the generative AI, we can process all of them. We can process voice, we can process text. And on a mass scale, we can draw the conclusions. On one hand, what the customers want from us, which is very important. But on the other hand, how do we serve the customers? What is the quality of our interactions? What is the quality of our conversations? And we no longer have to sample, we can analyze all of them. The other example is maybe very niche and technical, but it also shows the power of the technology. We call this -- internally, we call this product, Talk to Your Data. We have a lot of data in mBank. But on top of the actual size of the data, our data models are very, very large. And there is no living human being in mBank who knows it all. So our analysts, they spend quite a lot of time before they actually start to work with the data. They spend a lot of time finding the data in our systems. So we created a tool for them that we can use and ask the questions in the natural language. So you could ask, for instance, where can I find the information about all of the retail customers, who gave the marketing consent, but didn't have the mortgage with us for the last 20 years, but are making more than 3 transactions per month. And this tool will create a database query, and we show to the analysts where this data is in our system and how to get it. And last but not least, this is probably the toughest nut that we are trying to crack. These are the customer complaints. And why customer complaints are very tough? It's the definition of unstructured. The customers are writing us a letter, and I'm always saying this is not always a love letter to the bank. And this letter is just the pros. It describes the problem in the way the customers see fit. So we have to analyze these pros. We have to extract what is the problem. Then based on this, we need to find out what should be the solution for this problem and create steps for the person in the bank to solve the problem. And then at the end of the day, we need to actually write the response to the customers. And this response has to maybe make sense, be written according to our standards and solve the customer problem. So all of it together creates probably the toughest automation problem, I, in my career, had to deal with. And we are solving it already with the help of generative AI, and part of the customer claims already in mBank are being processed with the help of this solution. Karol Prazmo: Krzysztof Dabrowski, thank you very much. Ladies and gentlemen, now let's shift focus from technology to people. Katarzyna Piwek is our Deputy Director, responsible for Human Resources. Katarzyna, what makes mBank's teams exceptional? Katarzyna Piwek: Well, 2 factors. Our employees are highly engaged and driven, and there are numbers that demonstrate these qualities. First, it's our engagement score. We achieved 68% of engagement during the past 2 years, while top quartile in Poland stands -- starts at 64%. Second number speaks more to our employees' motivation to grow. Our staff completed over 20,000 future skills initiatives, not to mention all the others during the past 4 years. On the HR side, we actively support this engagement. We invest heavily in skills-based development. We care about our employees' well-being, just as Krzysztof Bratos mentioned, we care about our customers' well-being. So we provide a variety of well-being programs as well as top-tier hybrid environment. We offer competitive and transparent pay. And on the equity side, we are in a strong position. Last year, in gender pay gap, we stood at 2.9%, and we are committed to reduce it to 2.5%. With gender balance on managerial positions, we are currently at 40%, and we aim to reach the balanced distribution between 40% and 60%. What I want to emphasize is that today, we are proud to have one of the strongest employer brands in Poland. Karol Prazmo: You spoke about our highly engaged teams. What else will we do to retain and attract the best and the brightest? Katarzyna Piwek: Well, we aim to be the employer of choice by building on 3 strategic pillars. First, ahead of others, through our unique culture, mBank culture really is something special. It's so special that we decided to give it a special brand, mKULTURA and culture. This culture is highly attractive to people as we are top place for those who want to develop and grow, top place for people that are willing to take responsibility and take decisions. And finally, top place for those who are -- who practice dialogue and are empathetic towards the clients and each other. Second pillar, ahead of others through best talent. Given the demographic structure you mentioned, Krzysztof, in Poland, it's not only to attract the best, but also to retain them. In order to retain the best, we are investing in skills, but also make sure that our knowledge is at the forefront of innovation and at the highest standards of industry. We know that best talent naturally require an appropriate employee experience reflected in good working conditions and inclusive environment. Third pillar, the digital HR, which is taking decisions based on data. We embrace logic. We base our decisions on data when it comes to remuneration, recruitment, skills and competencies. We believe that being data-driven and therefore, logic and predictable creates a secure space for our employees. We also improved our internal processes using AI in all possible use cases. For example, performance, development, recruitment. Three pillars, but all 3 serve one purpose: to have the best team to deliver on mBank's growth. Karol Prazmo: Thank you, Katarzyna Piwek. Ladies and gentlemen, now that we have discussed the 2 business lines, technology and human resources, let's move to finance. And I would like to invite our Chief Financial Officer, Pascal Ruhland, to the stage. Pascal, welcome. And Pascal. How will the strategic goals translate into financial performance? What do they mean in terms of balance sheet volumes, revenues and costs? Pascal Ruhland: Thank you very much, Karol. And it's my pleasure to present you now our financial frame of the strategy. And let me start with our growth aspirations. Cezary Kocik was saying it at the beginning. We are back in a growing mode. We want to exceed 10% market share in every single of our core products. That means we need to grow faster than our competitors. What you see here is our loan volume development. And in 2024 and in 2025, we have already proven that we are capable of growing faster than the competition. And now the big question is, why do we believe this will continue? And my colleagues in the presentations beforehand gave you the answer because we, as mBank, are set up as an organic growth institution by clients, by our culture and by our infrastructure. In Retail, we can call our clients the most attractive client group of any bank in Poland by age, by purchasing power and by loan demand. To give you one fact, our clients demand for around 25% of the overall mortgage loan market in Poland. This, together with a seamless process, is the foundation for a 12% CAGR. Coming to the Corporate side. You know us as sector experts. We are focusing on sectors which are growing faster than the average. And Marek and Adam explained to you now we're following trends, trends like the energy transition, again, faster growing. This plus an additional investment in our lending infrastructure build our basis for a 7% CAGR. Let's move now from our loan sides to the deposit side. And here's one thing very visible. The main engine is Retail, with a 10% CAGR. And Krzysztof Bratos was in the strategy explaining how we do it. We focus on our clients. We want to remain with them. We want to increase loyalty and grow with them. In Corporate, we have a 4% CAGR on an already elevated market share as we already have in enterprises a market share of around 10%. Now let's have a look how this turns into our P&L. What you see here is that we expect revenues to grow between 7% and 8% on a CAGR level. What you don't see is that we expect that every single year in our strategy, we will increase our revenues. NII is fueled by the volumes which we have shown. We will have a strict focus to maintain discipline in deposit management and will overcome a dropping interest rate environment. Net fees, you see it currently in our P&L, are on a rise, and this is expected to continue. We have a broader product spectrum and we maintain growing with our clients. But obviously, there's one factor where we're decisive nowadays in banking, it's the external reference rate. We expect the NBP reference rate to drop as early as 2026 to 4%. And while I explained that we have an increased balance sheet and the rates are dropping, of course, margins are under pressure. We account for that. We expect the net interest margin to go slightly down step-by-step to 3.5% by the end of the strategy cycle. But let me tell you one thing. We are well prepared for a dropping interest rate environment. If you look into our data NII, we have barely moved since the beginning of the year. A 100 basis point rate cut currently costs us between 6.5% to 7% of total NII. And if you compare it to 2 years ago, 2023, it's 2 percentage points less sensitive. So we did our homework from a treasury perspective to stabilize our NII and increase volumes, went into fixed rate bonds and also swaps. Now going from the revenue side to our cost side. What you see is we expect a CAGR of 4% to 5% in the strategy cycle. The main driver is IT-related. And here, we increase the spending across all you have heard, digitization, automation, but also AI-related use cases. And as we know that you are interested in how we do that actually, we came up with the idea of the second part of today to show you the client look into our kitchen, the real use cases. And I just can encourage you to stay, it's worth it. In 2026, you see a steeper cost growth of 11%. There are 2 main drivers. The first one is we invest further in our people. We will grow by FTEs and also, we increased wages. And we do that with a smile, as you have heard, because this is everything we can deliver is out of our people. The second topic is regulatory cost increase. We expect that the BFG contribution and also our support fund will increase or normalize, if you want to call it like that. Now summing it up. You know us as mBank as the most efficient bank in this market, and we will maintain that with a cost-to-income ratio of at or below 35%. And this brings us in every single year in the top 3 of the country. Karol Prazmo: Pascal, allow me to briefly shift to the risk perspective, and to our Chief Risk Officer, Marek Lusztyn. What does this strategy mean in terms of expected cost of risk and risk appetite? Marek Lusztyn: That's clearly a question that many of you in the audience ask yourself, how much risk does it take to deliver our strategic objectives? And let me assure you that we are going to deliver them without changing our risk appetite. And now let me explain you how we are going to do it. Our risk excellence is based on 3 pillars. First of all, we want to grow intelligently, and colleagues from business lines already elaborated on the potential that mBank client franchise has for us doing so. First of all, on Retail side, Krzysztof explained the demographics of our customer base, and that demographic is not only beneficial in terms of our revenue growth, but it's also beneficial in terms of supporting us in lending growth and supporting us in our retail credit risk. Second of all, Adam explained at length the trends that we see in the economy. And those big shifts are going to be wins that will support us sailing to much higher growth in the Corporate space without taking unnecessary risk in the books. Second of all, it's resilience. Over the last 5 years, mBank has proven that we are an extraordinarily resilient bank, not only by local standards, but with all that we have gone through, we are super resilient by any international standards. We are going to capitalize on that, not only leveraging on excellent liquidity position, but also on our improving capital position that will serve not only as a cushion for safety, but also that -- as we have explained at length that will support us going back into dividend payouts. We have been exposed to the growing regulatory constraints since we are in the regulated industry. We would like to turn it into our advantage and proactively manage all the regulatory pressures that are coming in the strategic horizon. And finally, on the resilience, we are going to improve our ability to respond to nonfinancial risks since all those novel risks are the big risks that all the industry is facing. And finally, third pillar, which is efficiency. Our CEO, in his introductory speech, said that simplification is ultimate sophistication. Krzysztof explained at length what we are going to do using AI tools. And in terms of efficiency, we would like our clients to benefit from the simplified fast credit processes. And we will make sure that credit process greatly contributes to the efficiency of the mBank overall. So finally, this brings me to our strategic goal in terms of the risk management. We aspire our cost of risk to be around 80 basis points in the strategy horizon. And we are going to achieve this without changes to our risk appetite. Karol Prazmo: Marek Lusztyn, thank you. And returning to Pascal Ruhland. Marek spoke about the trajectory for cost of risk. You spoke about the trajectory for revenues and costs. What does all of this mean for our capital return strategy? Pascal Ruhland: Yes. Before I'm going into the capital return strategy, I want to remind us all that in Poland, we have the reintroduction of the countercyclical buffer. That means 2 percentage points, 1 this year, 1 next year, which will increase the minimum requirements. And while you keep that in mind, I would like to have all your attention now to the bar chart. What you see there is our net profit expected growth rate, so the dividend potential. What we balance there is the reinvestment and the dividend distribution. The basis of it is our high profitability. We aim for exceeding in every single year of the strategy, 22% of return on tangible equity. And we're really proud to say that we want to be back as a regular dividend payer. We start with 30%, and we go up as high as 75%. But of course, we are not working isolated. Therefore, I want now to speak about what the Minister of Finance has issued on the 21st of August, that the banking taxation would change. And yes, indeed, if you think about that, our net profit will be under pressure because if we simulate it for the next year for 2026, we would talk about an effective tax rate at mBank of around 40%, and that is massive. But while you let that sink in, please follow me once more. Look at the bar chart because what we show you here, we expect to exceed PLN 6 billion net profit. And that should give you a good sense how resilient the strategy is set up of any external change. Now going from one strategy, the capital return strategy to our balance sheet strategy. You know us, especially from an investor perspective as the bank, which is most active in the capital markets. We are pioneers. We have issued the first AT1. We have issued first Tier 2. And also, we have made the securitization market in Poland vibrant. But why have we done that? To most efficiently manage also regulatory environments. So we are used to leverage the full potential of our balance sheet to stay effective. And also in this strategy, we will do that. Therefore, we will more than double our issuance volumes. We will be active across the full stack from AT1 to securitizations. And also, while we see a growing mortgage loan book, we will return to covered bonds and make use of it. But that's not the only thing which will grow. Our capital today is around PLN 20 billion. And in the due course of the strategy, we will double that. And while we carefully also listen to our investors' feedback to run the bank prudently, to have a strong capital position, we give ourselves the target of at least 2.5 percentage points on CET1 ratio as a capital buffer to show you the strength of our capital position. Karol Prazmo: Pascal, given the breadth and depth of what you have covered, can I ask you to summarize the strategic priorities for the '26 through 2030 period? Pascal Ruhland: Of course, that's my pleasure. Our 6 key financial KPIs for the strategy. First, we are back in a growing mode. We will exceed 10% market share in every single of our core products. Second, we remain highly profitable and exceeded a 22% return on tangible equity in every single year. Third, you know us as one of the most efficient banks in the market, and this will stay like that for a cost-to-income ratio of at or below 35%. And this brings us in the top 3 in every single year. Fourth, a cost of risk of around 80 basis points shows a prudent credit control. Fifth, with our strong capital position, we maintain a buffer of 2.5 percentage points above the CET1 ratio minimum requirements. And sixth, we will be a regular dividend payer. We will start with 30%, and it will go up as high as 75%. Karol Prazmo: Thank you, Pascal Ruhland. And now I would like to invite our President and CEO back to the stage for the closing remarks. Cezary Kocik, the floor is yours. Cezary Kocik: I would like to highlight 3 of the most important things. First, we have overcome equity constraints mainly related to Swiss francs. And now we are ready to go ahead with a full speed gaining market share. Second one is that we are going to deliver to our shareholders exceptional profitability and efficiency, together with increasing dividend payment. And finally, demographic structure of our client and the engagement of our employees make mBank exceptional. Thank you very much. Karol Prazmo: Ladies and gentlemen, this fulfills the first of our 4 agenda points for today. And now we will move to the Q&A session, and I'll take questions both from the room and from online. Unknown Attendee: [ Joanna Kosik from CSC ]. Excellent presentation. I have one question kind of slightly obvious, you've mentioned the 10% market share increase in loan and deposits. Question to probably the CEO or whoever would like to answer. There's a lot of other banks in the market that have talked about growth prospects in Poland. Just kind of curious, who do you expect to take that market share from? Cezary Kocik: We are not competing with any specific bank. We're just competing with the whole market. And we track very carefully strategies of our competitors. And -- but just to make you a little bit more sure that it will happen, I can say that we are probably the one bank in the whole Polish market, which has grown fully in an organic way. So the Corporate started with a white paper in 1986 and the Retail in 2000. And from that time, we're permanently gaining market share, not by acquisition, just pure organic growth. And on top of that, what I highlighted in my introduction speech is that before these problems with Swiss franc, because without equity, you can't grow, you are counting risk-weighted assets every day just to be on the safe side. But before to that time, before these constraints start to be so severe for our bank, we managed to grow in retail, as I mentioned, 2% in a 5-years horizon in Retail, in deposit and loans, and in Corporate in loans, 1.5%. This is exactly missing gap, which we need to fulfill our strategy and gain 10% market share. So it is not just a promise, which is not covered by fact, but we proved in the past that we are able to grow with such dynamic. I don't know if it's... Karol Prazmo: Thank you, Cezary Kocik. Unknown Attendee: [indiscernible] My question is about the Corporate income tax rate. Can you quantify the impact of the higher rate for banks on your strategic goals, specifically on ROTE, net profit and dividend payout. Karol Prazmo: Pascal, I will direct this one to you. Pascal Ruhland: Yes. I gave in the presentation an indication where we will lay -- if the tax currently as it was announced on the 21st of August. And in '26, we would assume an effective tax rate of 40%. And just let me explain why it's 40% and not 30%, which was in the Corporate income tax name because we, as a banking sector, have quite significant costs, which are not tax deductible. This is the balance sheet costs we are having, but also other regulatory contribution. Therefore, you see an elevation. We are not precisely naming how much impact it would be, but I want to direct you to a few of the colleagues. The analyst did a very good job. And if I'm reading the reports, they currently come up that this could cost around PLN 800 million to PLN 900 million, and we are now taking this 2026 as the most severe. And this is a good ballpark figure. Karol Prazmo: Fantastic. Thank you, Pascal Ruhland. I'll take one question from online. There is numerous questions online. They pertain to our international presence and potential M&A. So I'll actually start with Czechia and Slovakia, and Krzysztof Bratos, with you. Can you summarize again the strategic objectives in terms of growing the Czech and the Slovak business? And the next question, Cezary Kocik, to yourself. In terms of the second part of that question, what can investors expect in terms of potential M&A? And are we looking at M&A opportunities? But Krzysztof Bratos, the floor is yours. Krzysztof Bratos: Okay. Thank you. So I think what we've shown is the ambition for Czech and Slovakia. This is absolutely the organic growth path. And in here, we are estimating to have 1 million of active clients and doubling our loans and nearly doubling our deposits. And the main engine of that growth and the source will be this aligned platform approach that we've mentioned. So the numbers you've seen, this is the assumption on the organic growth in Czech and Slovakia through the corporation in Poland. And I'll hand over for the second part to Cezary. Cezary Kocik: Of course, as a Management Board, we have very carefully observed the market. But for all of you who knows very well Polish market, the situation is quite complicated because almost 50% is -- there are banks with a significant stake of government. So that are rather -- and they are also big banks, so they are not potential target. And the rest have a very big financial investors. So honestly, I believe that if they are mergers in Poland, they rather trigger by the agreement between the major shareholders, not by the Management Board. But still, we are observing it very carefully. And if we believe that something fits to our model because we also need to remember that some merger destroy value. We need somebody or a bank with a similar customer profile, a similar distribution channel that the synergy will come to life, not -- we will be stuck in a permanent integration. So we will take a decision. But as I said, there is many obstacles. It's not very probable. And this is the reason why our strategy is based on organic growth, not on mergers and acquisitions. Karol Prazmo: Thank you, Cezary Kocik. Yes, go ahead. Kamil Stolarski: Kamil Stolarski, Santander Bank Polska. Congratulations on the strategy, especially of the market gains aims. My question is on the other side of the P&L about the cost in 2026. And I wonder if you could share some comments because it seems that the cost will outgrow revenues? And how do you justify this in 2026? And then the other question is about CapEx. Does this strategy involves also higher CapEx? Pascal Ruhland: Thank you for the question. I alluded in the presentation that the 11% increase on the cost side are driven especially twofold. First of all, by investing in our people. And why we grow in FTE, we are doing that twofold. First of all, business orientated, IT orientated, therefore, because we are serving our customers. And secondly, it's also compliance related. For instance, DORA as a regulation demands more from us. That is one part of the pillar. The second part of the pillar is regulatory costs, which we also expect to increase. And that is the second driver. And if you -- because you alluded to that costs are growing faster than revenues, our expectation is that the interest rate will go down to 4% on the NBP as fast as 2026. So you will have to overcome that. We also sent the signal, I said it, that we will grow revenues despite this interest rate drop. And the cost will be adjusted. Long term, you see that our revenues from the 7% to 8% CAGR very much outperformed the 4% to 5% CAGR on the cost side. On the CapEx, Yes, of course, we will increase our CapEx level because in the future, as the colleagues were explaining it, it's about IT capabilities. How smart can you really apply and how fast to especially increase effectiveness for your clients. So it's not about -- and we, therefore, invite you for the second session today. It's not about just applying AI, it really needs to be useful. Our CapEx is expected to grow by more than 16% in the due course of the strategy. Karol Prazmo: Thank you, Pascal Ruhland. Now I'll take another question from our online participants, and I'll direct it to Krzysztof Dabrowski. Krzysztof, the question relates to artificial intelligence. And can you give us examples of how AI will translate into operational efficiency? And can it potentially lead to lower costs? Krzysztof Dabrowski: Okay. So one of the examples of using AI to have some operational efficiency would be what we are doing in the AML area. This is a particular cost area that is growing rapidly because of the requirements that we have to fulfill. And in particular concern that we have is the analysis of the customer transactions from the perspective of money laundering. And in that area, the costs have been growing so far because we had to build the team and we had to do our obligations. But what we've been able to do with the help of AI was to significantly mitigate this growth. So what we initially assumed would be the FTEs necessary to just cover the retail transaction monitoring, thanks to our AI solution, we've been able to also cover Corporate Banking. We have been able to cover international money transfers in SWIFT and also our Czech and Slovak branch. So that was a significant investment and significant reduction in the effort. So this is what we are doing. We are removing the effort from the system. Because the bank is growing very fast, we need also to handle the organic growth. I think the word organic was used many times in our presentation. So our ambitious target is to keep up with this growth without increasing the cost on the operational side, and this is how we apply the AI. In many other places, the AI can be used for the things that were so far not easy target to automate. It's not the best tool to do things in a repeatable manner. If something can be done in a repeatable manner, you can do it with traditional method and you get predictability. AI is much more suited in our opinion to the things that are not easy subject to those things like, just to give you an example, comparing 2 documents, 2 scans of documents, which for the moment, require human beings and can be right now done with the AI. So you can expect us investing in this area. This is factoring in our cost base at the moment, certain assumption about the productivity gains. Karol Prazmo: Thank you, Krzysztof Dabrowski. Pascal Ruhland, I'll take one more question from online. And I want to direct it to you. The question relates to what is embedded in our forecast with respect to GDP and interest rate forecast. And also with respect to the growth expected for total revenues, can you break it more down into NII and NFC? Pascal Ruhland: Okay. So the GDP forecast, which I didn't mention specifically, but you will find it in our paper deck, which is uploaded right now, is between 3.6 and 3.8, and we expect to have GDP growth year-on-year throughout the strategy. And as I said on the interest rate, we expect that the interest rate is dropping down to 4% as early as 2026 and has then a stable state. When we then think about the revenues, and here I explained that we are growing from a CAGR level between 7% and 8%, and from today's split between NII and NFC, which is an 80-20 split, we expect that net fee and commission income is slightly faster growing than NII, but just slightly. And in the end, it will be a bit shifting the 80-20 split, but not massively. Karol Prazmo: Thank you, Pascal Ruhland. And I'll take one final question from the room here. Is there any? Okay. Then in that case, we will -- we conclude with the Q&A session, and I pass the voice over to mBank's Head of Investor Relations, Joanna Filipkowska, who will now lead the demo session. Joanna, over to you. Joanna Filipkowska: Good morning, ladies and gentlemen. The purpose of this demo session is to provide you with concrete examples of some of our exciting solutions that we are implementing as part of this strategy. Today, we will show you 5 use cases in which we already have significant advancement. First, you will see a short video, and then one of our Board members will provide further details. The session will last 20 to 25 minutes. After the end of the session, we will again have 10 minutes for Q&A. So please get your questions ready, both here in the room and online. The session will be led by our 3 Board Members: Mr. Krzysztof Dabrowski, Mr. Adam Pers and Mr. Krzysztof Bratos. We will start with our Gen AI program. Krzysztof Dabrowski, Vice President of the Management Board for IT and Operations, the floor is yours. Krzysztof Dabrowski: So I've been talking about 3 of the solutions that came out of our incubator, and we prepared for you a demonstration of those 3 plus 1 more as a bonus. So let's start. [Presentation] Krzysztof Dabrowski: Okay. I hope you like what you just saw. And also, as I mentioned, this is just the things that we either already have in production or will soon have. We have so much more in the store. So keep watching us. Joanna Filipkowska: Thank you very much, Krzysztof. Now we will turn to our Corporate Banking. Adam Pers, Vice President of the Management Board for Corporate and Investment Banking. Let's start. Adam Pers: Thank you so much. I was talking about the tools that we will see in a second in a movie, that will be a true movie. But our ambition is not just to show technology, show the tools that can bank. I think the word banking, bank as a word is something like old fashion. We like to implement the tools that will help our customers and our employees as well to use in their daily, routine daily operations, to help also to build a competitive advantage to our customers. So please enjoy. [Presentation] Adam Pers: Yes. And I will not repeat what was on the movie. Just 2 closing comments. The first one is that, what Krzysztof said that some of them are already in production. The second thing is that for the time being, we are, I would say, producing only what we receive from customers, the feedback and the expectations. Thank you. Joanna Filipkowska: Thank you, Adam. We've shown you 2 exciting use cases from our technology and corporate banking areas. Now let's turn to Retail Banking area, where we have 3 use cases to share with you. Krzysztof Bratos, Vice President of the Management Board for Retail Banking, the floor is yours. Krzysztof Bratos: Thank you. In our strategy, we plan to evolve from being an exceptional transaction bank. And in that, we promised to take care of those more complex products for our clients. But while doing so, we want to stay true to our purpose, simplifying finances, bringing goals to life. Emerging complex products in simplicity is not that easy, but we took on that challenge. And this is how we reimagine the mortgage experience. [Presentation] Krzysztof Bratos: And I can say that this is definitely not just a vision. It's a solution of which first stage went live already 2 weeks ago for one of our scenarios. And that 15 minutes that we promise, we've actually managed to issue a full credit decision last week in 6 minutes and 31 seconds. That is including credit worthiness check, legal checks and the valuation of the property for the real client in the real life and most stages will follow. Now moving to the second video. We believe that transitioning and taking care of the more complex scenarios doesn't mean that we'll forget about what is core. And in there, not everything is simplified and not everything yet is made truly, truly easy. And here is what we took on in one of our super segments, in SME, something that probably doesn't exist on the market yet. [Presentation] Krzysztof Bratos: And finally, the very heart of mobile banking. Let the video speak for itself. [Presentation] Joanna Filipkowska: Thank you very much, Krzysztof. Ladies and gentlemen, this completes this demo session. And at this point, I would like to open the Q&A session, which will be hosted again by Karol Prazmo. Karol Prazmo: Thank you, Joanna. So we're opening up to the questions. Please get those questions ready, and please put your hands up. And while you do that, I'll actually start with the first question from one of our online users. Krzysztof Bratos, the question is directed to you. In terms of the digital mortgage, is this for one borrower? Is this for several borrowers? And if it's not available for several borrowers, when do you think that functionality will be available? Krzysztof Bratos: Okay. So I think there are digital mortgages and there are digital mortgages. There are companies that will create a mobile interface that will allow you to file a mortgage application, and that can be called digitally. We went a different path. We decided that in order to keep our efficiency operations and our costs, we invested firstly heavily in our backbone. In AI-supported valuation models for the real estate, the automated legal checks, the automated credit worthiness. And this is something that took us quite a while to build. And thanks to that, as I said, we can do that now in 6 minutes and 31 seconds. And now we are now expanding and building on that foundation to the more and more scenarios. The scenario that we went live with is just the refinancing for the ones -- for the single borrower. But as soon as still this year, we are planning to add the new mortgages for the single borrower and the more complex scenarios like the more than one borrower are planned for 2026. So I would say most of the agenda, we should explore and most of the key scenarios in the next year to come. But the first, the foundation is there, and the first scenario is there and is fully operational. Karol Prazmo: Thank you, Krzysztof Bratos. And do I see any hands up in the room with respect to questions? Then I'll take another question from online. And Krzysztof Bratos, in terms of the phone acting as a payment terminal, is this already available to everybody today? Krzysztof Bratos: No. But it will be and it still be as early as this year. And we are sure that it's going to change the experience of a lot of our customers. Now when building and when thinking about the solution, the first idea actually was to try to embed our app and connect our app today external point-of-sale devices or software point-of-sale devices because those 2 exist on the market. But then we thought, while integrating, why wouldn't we can turn our app into something that is a true point of sale in one go with a fully integration of our accounting system. And therefore, this is something that we believe is very, very new. It's in a very advanced stage of development and is expected still this year. Karol Prazmo: Thank you, Krzysztof. Is there any questions here in the room? Okay. In that case, ladies and gentlemen, this concludes today's event. We thank you very much for joining us here in the room. We also thank you very much for joining us online. And now for the participants here in the room, we invite you to lunch. Our Board members will be available for another hour. So please take the opportunity to have all those informal conversations. Thank you, and have a great day.

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