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Operator: Welcome to Lennar's Third Quarter Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to David Collins for the reading of the forward-looking statements. David Collins: Thank you, and good morning, everyone. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in our earnings release and our SEC filings, including those under the caption Risk Factors contained in Lennar's annual report on Form 10-K, most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements. Operator: I would like to introduce your host, Mr. Stuart Miller, Executive Chairman and Co-CEO. Sir, you may begin. Stuart Miller: Very good. Good morning, everybody, and thank you for joining us today. I'm in Miami today, together with Jon Jaffe, our Co-CEO and President; Diane Bessette, our Chief Financial Officer; David Collins, who you just heard from, our Controller and Vice President; Katherine Martin is here. She's our new Chief Legal Officer. Welcome, Katherine; and Bruce Gross, CEO of Lennar Financial Services, along with a few others as well. I do want to note that Mark Sustana, our 20-year General Counsel, is not here today, and he's sorely missed. I don't believe that Mark has missed an earnings call in his 20 years with the company and his service to and with the company has been truly remarkable. While Mark recently retired, and we have Katherine here as our Chief Legal Officer, Mark will remain a strategic adviser and consultant to the company, and we're sure that Mark can't help but listen today. So Mark, you're definitely here in spirit. As usual, I'm going to give a macro and strategic overview of the company. After my introductory remarks, Jon is going to give an operational overview, updating construction costs, cycle time, some of our land strategy and positions. As usual, Diane is going to give a detailed financial highlight along with some guidance for the fourth quarter. And then, of course, we'll have our question-and-answer period. And as usual, I'd like to ask that you please limit yourself to one follow-up so that we can accommodate as many as possible. So let me begin. We are pleased to review Lennar's third quarter 2025 results against the backdrop of what might be the beginnings of an improving economic landscape for the housing market. With that said, our third quarter results reflect the continued softening of market conditions and affordability through our third quarter. Sales volume was difficult to maintain and required additional incentives in order to achieve our expected pace and to avoid building excess inventory. While our deliveries were just below our goal for the quarter and while we sold more homes than expected during the quarter, these accomplishments came at the expense of further deterioration of margin, which came down to 17.5%. Accordingly, we're going to begin to ease back our delivery expectations for the fourth quarter and full year in order to relieve the pressure on sales and deliveries and help establish a floor on margin. We will reduce our delivery expectations for the fourth quarter to 22,000 to 23,000 homes, and we will reduce our full year expectation to 18,500 to -- I'm sorry, 81,500 to 82,500 for the full year. For Lennar, this is an opportune time to pause and let the market catch up a little bit. Even though mortgage rates began to trend downward towards the end of the quarter, stronger sales have not yet followed. We have certainly begun to see early signs of greater customer interest and stronger traffic entering the market. With lower mortgage rates, purchasers are showing greater interest in considering their home purchase, and this is generally an early signal of stronger sales activity to follow, assuming rates remain lower. And if interest rates continue to fall, we're quite optimistic that this all will happen soon. The extended period of higher interest rates for longer than expected forced us, however, to adjust construction costs in order to enable sales in difficult market conditions. Our lower construction cost structure, together with reduced margin, enabled us to meet affordability and support the supply and demand balance. We drove sales pace to match production pace and we as we fortified our market share and position in each of our strategic markets. We are now situated with a lower cost structure, efficient product offerings and strong market positions to accommodate pent-up demand as rates moderate and confidence ultimately returns. As I said before, this is the right time. This is just the right time for us to pull back just a little bit. We believe that we've gotten ahead of the current market realities, and we have built what we believe is a stronger long-term margin-driving platform. We know that this has taken some time as the market has remained weaker for longer, but we also know that our strategy has helped build a healthier housing market and has positioned Lennar for strong cash flow and bottom-line growth in the future. We are optimistic that if mortgage rates approach the 6% level or even lower, we will soon see some firming in the market, and we will benefit from stronger affordability and, therefore, demand. Accordingly, we'll remain focused on volume and even flow production, although at just a little slower pace. We will maintain a responsible volume to maintain an affordable cost structure, and we will find the floor and rebuild our margin as the overall housing market continues to remain short on supply. So let me turn quickly to a quick macro-overview of the housing market. Consistent with last quarter's earnings call, the macro economy remained challenging throughout our third quarter. Mortgage interest rates remained higher and consumer confidence remained challenged by a wide range of uncertainties, both domestic and global. Across the housing landscape, actionable demand remained diminished by both affordability and consumer confidence, and therefore, the market continued to soften as we moved through the quarter. Nevertheless, as we came to the back half of the quarter, interest rates began to drift downward and that drift began to accelerate as we came to the end of the quarter and into the fourth. Today, we are possibly getting closer to 6% mortgage rate that's fluctuating a little bit, and we're just beginning to see consumers return to the market. Against that backdrop, supply remains constrained in most markets, driven by years of underproduction. New construction has slowed as builders have pulled back on production due to slow sales and affordability concerns, therefore, exacerbating the chronic supply shortage. Demand is still high as people want and need homes, but affordability and waning confidence around buying now have been constraining that demand. This has been a difficult cycle as low supply fuels high prices and high prices lock out many of our buyers. As I've said before, mayors and governors around the country continue to list the housing shortage as a priority concern and point to affordability or attainability as a priority. I do suggest that if you want to better understand the conundrum of the housing market, read the book Abundance by Ezra Klein to better understand that housing has a long-term future defined by both structurally short supply and not just growing demand but growing need for housing as well. The current environment is all about recognizing that short supply is keeping prices higher and that only lower prices enabled by lower cost structures will achieve affordability. Turning to our results. In our third quarter, we started approximately 21,500 homes. We delivered approximately 21,500 homes and sold just over 23,000 homes. While we were just short of delivery expectations, we exceeded our sales expectations, and we were able to grow our community count, positioning us better for the remainder of the year. As mortgage interest rates remained higher and consumer confidence declined, we continue to drive volume with our starts, while we incentivize sales to enable affordability and limit inventory build. We have successfully focused on maintaining inventory within our 2 completed unsold homes per community level that has been reflected historically. As a result, during the third quarter, sales incentives rose to 14.3%, reducing our gross margin to 17.5%, which was lower than expected on a lower-than-expected average sales price of $383,000. Our SG&A came in at 8.2%, which produced a net margin of 9.2%. As we look ahead to the fourth quarter, we expect that our margins will come in at approximately 17.5%, consistent with our last quarter, of course, depending on market conditions. We expect to sell between 20,000 and 21,000 homes and deliver between 22,000 and 23,000 homes. We expect our average sales price to be between $380,000 and $390,000 as we expect to continue -- as we expect to somewhat alleviate pricing pressure on homes that will be sold during the quarter as a result of taking some pressure off of our sales base. And as I noted earlier, we expect to deliver between 81,500 and 82,500 homes for the year 2025. We expect our overhead in the fourth quarter to continue to run between 7.8% and 8% as we continue to invest in and evolve various Lennar technology solutions that will define our future. These initiatives, as I've said before, have been and will continue to add to SG&A as well as corporate G&A for some time to come as they represent a significant investment in our differentiated future. So in conclusion, let me say that while this has been another difficult quarter in the housing market, it is another constructive quarter for Lennar. While the short-term road ahead might seem a little choppy, we are very optimistic about our future. We are well aware that our numbers aren't where we would like them to be, but neither are market conditions. We are well situated with a strong and growing national footprint, growing community count and growing volume. We have continued to drive production to meet the housing shortage that we all know persists across our markets. And as we have driven growth, production and volume, we have positioned our company to evolve and create efficiencies and technologies that will make us a better company built for the future. Perhaps most importantly, our strong balance sheet and even stronger land banking relations afford us flexibility and advantaged opportunity to consider and execute on strategic growth for the future as well. In that regard, we will focus on our manufacturing model and continue to use our land partnerships to grow, and we will lean into reshaping our business by developing and using modern technologies with a focus on cash flow and high returns on capital in order to drive long-term shareholder value. So before I end, I can't help but note how inspired I am by the resurgence of a technology company that Lennar has supported for many years. We are quite confident that Opendoor with its new CEO, Kaz, that's how he's referred to, will be a contributing force and partner in Lennar's technology journey and evolution. Kaz joined Opendoor after 6 years at Shopify, where he is mission-driven as he takes the helm of a company that has the ability and the ambition now to bring modern technology to change the homeownership market forever. I have always said that the Opendoor platform functioning properly will add significant bottom line to Lennar while creating convenience and joy for our customers. As Kaz took the CEO position, he sent out a note on why he joined Opendoor and left a flourishing career behind at Shopify. This is what he said in part. It is incredibly important that we use all of our energy and modern tools at our disposal to build products that make homeownership easier. We must make the process of buying and selling a home less frictionful so more people do it. Homeownership isn't about a house. It's about families and community. And that is why I am so incredibly proud that I get to support this team in our mission to use every tool at our disposal to make selling, buying and owning a home easier. AI gives -- he goes on, AI gives us the chance to accelerate this work in ways never before thought possible. From simplifying the process of buying and selling to unlocking personalized pathways to ownership, AI can help millions of families access homes more efficiently, more affordably and more transparently than ever before. This is a once-in-a-lifetime opportunity to redefine what's possible in real estate. That is the message from Kaz. We can all do better, we can all be better, our mission is worthy. Lennar is on that same mission, and we are connected to the success of Opendoor as well. We are extremely well-positioned for our future, and we look forward to keeping you up to date on our progress. And with that, let me turn it over to Jon. Jonathan Jaffe: Good morning, everyone. As Stuart described, we remain intensely focused on executing our core strategy, maintaining consistent high-volume production by leveraging advanced technology throughout our homebuilding operations. This is all about driving efficiencies to position us as the leading technology-enabled, low-cost homebuilding manufacturer. Our ongoing strategy has resulted in greater efficiencies, evidenced by improvements in our cycle time, inventory turn and overall cost. In this update, I will discuss our third quarter performance concerning sales pace, cost reduction, cycle time improvements and the execution of our asset-light plan strategy. For the third quarter, we achieved a sales pace of 4.7 homes per community per month, which aligns with our sales plan. To reach this goal, we utilize the Lennar machine, beginning with attracting qualified leads through our digital funnel. We then focus on a rapid response with each customer along with the quality engagement. Notably, our average response time to leads improved by 53% from our second quarter, reducing it to just 46 seconds. This means that when a lead submits a request for information, they typically receive a call or text within 46 seconds. Supporting our sales process, our Internet sales consultants benefit from real-time analytics for coaching immediately after each interaction, thanks to proprietary software. This technology-driven approach results in an 8% quarter-over-quarter increase in appointments. Additionally, we utilize our dynamic pricing tool that matches home prices to real-time supply and demand inputs, helping us reach our targeted sales goals. Our pricing technology continues to evolve using the feedback and data from our results. The successful execution of the Lennar machine has enabled us to sell the right homes at current market prices, keeping our inventory well-positioned with an average of under only 2 unsold homes per community -- completed homes per community. Affordability continued to challenge customers throughout all of our markets in the quarter as incentives increased by approximately 100 basis points to achieve our sales targets. It is this ongoing affordability challenge that drives our focus on a production-first strategy. As the foundation to this strategy, we delivered a consistent start pace of 4.4 homes per community per month in the quarter. This sustained volume benefits the supply chain, allowing us to leverage volume to reduce both cost and cycle times. Consistent volume supports ongoing negotiations with our trade partners, resulting in lower cost. Over the last 11 quarters, we have achieved cost reductions in 10 of them. The average decrease for each of the 11 quarters is $1.50 per square foot. Direct construction costs for the third quarter were down approximately 1% from the second quarter and about 3% year-over-year, reaching the lowest construction cost for our company since the third quarter of 2021. This trend of decreasing direct construction costs will continue into our fourth quarter. We have now achieved cycle time reductions for 11 consecutive quarters with a 6-day sequential decrease from Q2, bringing the average cycle time for single-family detached homes down to 126 calendar days. This represents a 14-day or 10% year-over-year reduction and marks -- the lowest cycle time in our company's history. Technology continues to drive these improvements by providing our construction teams with real-time information displayed in user-friendly dashboards, facilitating better scheduling and field problem-solving. Improved cycle times and technology-driven quality assurance processes have also contributed to higher home quality, evidenced by fewer work orders and a reduced warranty spend, down about 35% year-over-year. Our focus on efficiency and cost reduction extends to land development, where we apply similar volume-based strategies to negotiate lower costs with trade partners in a slowing land market. In the third quarter, we began to see meaningful progress in these efforts and expect further improvements in the coming quarters. Land acquisitions are strategically structured to be just in time, utilizing our land bank relationships and phased takedowns to minimize carrying costs. Regarding our asset-light strategy, we concluded the quarter with improved metrics. Our supply of owned homesites decreased to 0.1 years from 1.1 years a year ago, and the percentage of controlled homesites increased to 98% from 81% a year ago. Together, these operational improvements have led to an increased inventory churn in the third quarter, now at 1.9 versus 1.6 last year, representing a 19% improvement. In the fourth quarter, our team will continue to focus on executing the strategy of maximizing efficiencies to drive down costs across our operating platform. And now I'll turn it over to Diane. Diane Bessette: Thank you, Jon, and good morning, everyone. Stuart and Jon have provided a great deal of color regarding our homebuilding operations. So therefore, I'm going to provide a quick summary of our financial services operations, summarize our balance sheet highlights and then provide guidance for the fourth quarter. So starting with Financial Services. For the third quarter, our Financial Services team had operating earnings of $177 million. The strong earnings were primarily driven from our mortgage business and were driven by a higher profit per loan as a result of higher secondary margins. Once again, our financial services team worked in partnership with our homebuilding teams with the goal of providing a great customer experience for each homebuyer. Turning to our balance sheet. This quarter, once again, we were highly focused on generating cash by pricing homes to market conditions. The result of these actions was that we ended the quarter with $1.4 billion of cash and total liquidity of $5.1 billion. As Jon noted, consistent with our land-light lower-risk manufacturing model, our year supply of owned homesites was 0.1 years and our homesites controlled percentage was 98%. We ended the quarter owning 11,000 homesites and controlling 512,000 homesites for a total of 523,000 homesites. We believe this portfolio of homesites provides us with a strong competitive position to continue to grow market share and scale in a capital-efficient way. With our focus on turning inventory, our inventory turn increased to 1.9x, and our return on inventory was 24%. During the quarter, we started about 21,500 homes and ended the quarter with approximately 42,500 homes in inventory. As Stuart mentioned, we carefully manage our inventory levels, ending the quarter with fewer than 2 completed unsold homes per community, which is within our historical range. And then turning to our debt position. We ended the quarter with $1.1 billion outstanding on our revolving credit facility, and our homebuilding debt to total cap was 13.5%. We had no redemption or repurchases of senior notes this quarter. Our next debt maturity of $400 million is not due until June of 2026. Consistent with our commitment to increasing total shareholder returns, we repurchased 4.1 million of our outstanding shares for $507 million, and we paid dividends totaling $129 million. Our stockholders' equity was just under $23 billion, and our book value per share was about $89. In summary, the strength of our balance sheet provides us with confidence and financial flexibility as we progress through the remainder of 2025. So with that brief overview, I'd like to turn to Q4 and provide some guidance estimates, starting with new orders. We expect Q4 new orders to be in the range of 20,000 to 21,000 homes as we match production and sales paces. We anticipate our Q4 deliveries to be in the range of 22,000 to 23,000 homes with a continued focus on turning inventory into cash. Our Q4 average sales price on those deliveries should be about $300,000 to $390,000 and gross margin should be approximately 17.5%, consistent with the prior year. And our SG&A percentage should be in the range of 7.8% to 8%. All these metrics, of course, are dependent on market conditions. For the combined homebuilding joint venture, land sales and other categories, we expect earnings of approximately $50 million. We anticipate our Financial Services earnings to be approximately $130 million to $135 million. For our multifamily business, we expect a loss of about $30 million as we continue to strategically monetize assets to generate higher returns. Turning to Lennar Other. We expect a loss of $35 million, excluding the impact of any potential mark-to-market adjustments to our public technology investments. Our Q4 corporate G&A should be about 1.9% of total revenues, and our foundation contribution will be based on $1,000 per home delivered. We expect our Q4 tax rate to be approximately 23.5% and the weighted average share count should be approximately 253 million shares. And so on a combined basis, these estimates should produce an EPS range of approximately $2.10 to $2.30 per share for the quarter. With that, let me turn it over to the operator. Operator: [Operator Instructions] Our first question comes from Alan Ratner from Zelman & Associates. Alan Ratner: Stuart, obviously, I think a lot of people want to dig into the pivot here on strategy a little bit and understand whether this is a little bit more short-term in nature or just a change in the way maybe you're thinking about the longer term. I guess from an incentive standpoint, I'm just curious, have you already started to dial back some of the incentives? And if so, what has the response been in terms of order pace or margin or any color you can give there? Stuart Miller: So I wouldn't really look at it as a change in strategy. I would look at it more that we are making adjustments as we go forward. We're still very focused on volume. We're maintaining a very, very strong volume. I think we're taking the edge off as the market has continued to become a little bit more stressed. And I think that as we went through our third quarter and interest rates were trending more towards the 7% range than what ultimately took place at the end of the quarter and into the fourth. We just felt that it was an opportune time to take a step back, particularly as perhaps interest rates are starting to moderate a little bit. They're a little up and down still. We thought it was a good time to let the market catch up a little bit. In terms of have we already started, the answer is no. That is something that Jon will be directing and focusing on over the next few weeks. But we're just recalibrating to make sure that we're not pushing too hard on a market that really doesn't want to be pushed. Alan Ratner: Got it. That's helpful color. Second question relates to the land strategy in relation to this. This isn't my view, but it's one I hear from investors that given the spin to Millrose and given the fact that now you're 100% off balance sheet with option contracts that are tied to some certain takedown schedule. I know there's been some concern that maybe you don't have the flexibility to meaningfully change the start pace or the takedown pace. So I'm curious, I know this is a fairly modest pullback in start activity, so it probably doesn't affect things too much. But is there any adjustment that's also going on, on the land side to account for this slower start pace, meaning have you adjusted the takedown schedules or paused in any cases? Or on the flip side, would land begin to then accumulate on the balance sheet potentially if you don't accelerate those starts in '26? Stuart Miller: Thanks, Alan. I've heard that question a number of times. The answer is we are not constrained in any way by our land relationships or the reconfiguration of land. To the contrary, we were very deliberate about injecting the ability to pause as market conditions change and adjust. And additionally, we have the ability, though it is expensive, to walk away from programs that we have in place. So it is not the constraint of our land relationships that define our strategy at all. To the contrary, it is much more about the recognition that we're going to have to find, frankly, as an industry, a way to build and deliver homes at a more affordable level, and that is all going to derive from cost structure, all the way from land to land finance costs, all the way through to vertical construction, horizontal restructuring and SG&A. It's why we are so focused on a differentiated way forward relative to modern technologies. We have to get more efficient and effective. And unfortunately, the road to get there is one of volume [Audio Gap] the system and working with our trade partners to deal with logistics and cost structures and also building new technologies that are expensive to do. The SG&A goes up before it goes down. But to bring this back to land -- it would be a mistake. Because land was carefully crafted to not be a factor in strategy, but instead to be a steppingstone of the strategy for going forward. Operator: Next, we'll go to the line of Stephen Kim from Evercore ISI. Stephen Kim: Thanks for that commentary, Stuart. I was going to follow on Alan's question there with respect to the duration of this pause. Could you give us a sense or do you see this planned slowdown in your sales production as maybe like a 1- to 2-quarter pause, several months kind of thing ahead of what is hopefully a better spring selling season? Or do you see this as a more lasting recalibration of your Lennar machine to a lower level of volume -- and I guess you could say address that both in terms of the housing production as well as the land. Stuart Miller: So our strategy remains very focused on volume and delivering supply to markets that need it. It is very focused on how do we -- and we're working on it every day, Steve, how do we bring our cost structure down so that we can drive margin even in a slowing market. it's not an easy thing to do. It's not a linear kind of program. This is how you get there. It's a rocky road. So the answer to your direct question is, is this a change in strategy or a slowdown that's more permanent? We don't see it that way at all. The focus of our strategy is to maintain volume, to use volume to enable us, our trade partners, even our land partners to find ways to be more efficient and effective as we try to meet the growing need of our communities, of our population that needs more affordable housing. Stephen Kim: Okay. But you have indicated that you are looking to slow your volume versus, let's say, maybe what you had thought or thought about 3 months ago. And I guess the nature of my question is, is this slowdown, however you characterize it or this adjustment, is it something that you see as a measured in a few months? And then you're on the other side of that, there's going to be sort of a reacceleration. Are you sort of like pushing things off? Or is this something where you are sort of just lowering your overall or recalibrating to an overall lower level of volume than what you may have thought 3 to 4 months ago, let's say? Stuart Miller: So look, I think we're living in a fluid world right now. We're going to have to see how the market evolves. But the way that I would think about what we're doing is we're running a marathon and partway through, we're just taking a moment to take a breath, let our body catch up to where we are, and we're on a mission to move forward and to keep pursuing the strategy that we have in place. Stephen Kim: Got you. Okay. That's helpful. And then I was wondering if you could help me with -- just -- I wanted to run some math by you a little bit on the margin. I mean, just very simplistically, if we were to say that mortgage rates stay around 40 basis points or so lower than they were earlier in this year, then I'm guessing that the cost of a rate buydown should basically go down or add 100 basis points or maybe even a little bit more to your gross margins, just given what I think the cost of a rate buydown is. And then on top of that, if you're slowing your volume while rates drop, I would think that, that would improve the supply and demand relationship and thus improve your pricing power. And so that would be additionally additive to your gross margin. So I'm wondering, is this a reasonable framework to think about the kind of or the magnitude of margin leverage that we might be able to see going forward? Or is there something that you would -- you think needs to be corrected in that? Stuart Miller: I think that the pieces are correct and the timing is not going to be directly translatable. It will be somewhat of a rocky road to get there, too. But I think the pieces and the way that you're thinking about it are correct. Operator: Next, we'll go to the line of Michael Rehaut from JPMorgan. Michael Rehaut: I don't -- certainly don't want to beat a dead horse here, but I just wanted to try and put maybe perhaps a finer point on this kind of shorter-term adjustment in approach given the challenging market. And I'm wondering on kind of a bottom-line basis, if you guys just felt like you didn't want to go below 17.5% margin and the cost was too high to drive that volume where you hoped it was where you wanted it 3 months ago? Or is there also, in your view, sort of an elasticity of demand issue where part of the problem here is that even if you were to drop margins or raise incentives to keep that, you really wouldn't ultimately even be successful in what you needed from a volume perspective. And so with that maybe demand becoming more inelastic, just a lack of demand in the marketplace, it just didn't make sense to drop that gross margin below where you're looking in the back half of this year currently. Stuart Miller: I'm not sure that we've gotten quite that philosophical, but I think that we are responding real time to what we see as market conditions -- and we just felt, and I said it clearly, Michael, that we just felt it was a good time to take a little pressure off. We have some tremendous athletes that are working on our marketing and sales programs across the company, and they've just done terrific work to pull us through some really challenging times. We felt that this was a good moment for us to take a little pressure off of that part of our program and recalibrate as we go forward, think about what is our next step. But our base strategy remains the same. We're focused on building volume. supplying the market with an affordable, attainable product. Jon, do you want to weigh in on that? Jonathan Jaffe: Yes, I would agree, Stuart. And it's really hard to answer your question, Michael, because it's market by market and even community by community. So it is just, as Stuart said, it's taking some of that hedge off so we can better fine-tune exactly how we price in that market-by-market analysis and community-by-community analysis. Michael Rehaut: I appreciate that. And I understand it's probably a bottoms-up analysis to really fully answer that question, I suppose. But I think ultimately, though, this idea around elasticity is really important. And maybe just as a second question, follow-up question, we did see rates come down, mortgage rates that is maybe 20, 30 basis points in August and so far in September, another 20 or 30 basis points. I'm curious, amid that type of -- that's a net 50 basis points roughly, but kind of gradually seeping into the market. I'm curious if you could comment on if you did see any impact on demand trends across your markets, perhaps which ones, if that's the case? And all else equal, would this potentially reduce pressure on gross margins or incentives? Or are you just at a point right now where, given what you've done during the quarter, you expect the incentives that you've laid out to effectively remain in place throughout the fourth quarter? Jonathan Jaffe: I think, Michael, as Steve laid out, it does help reduce the cost of those mortgage rate buydowns. But as Stuart responded, it's not exactly linear. It's each market, it's each community, how they're used and what the buyer demand is and the affordability stresses that exist. Stuart Miller: I think the way that I would think about it, Michael, is when we think about elasticity, I think that's more of a news report looking backwards. And when we think about what we're doing, it is, as you described, a bottoms-up approach. I think Jon has said, it is community by community, and we're responding and pulling the levers as a company to be reflective of what we see our best and brightest doing in each market across the country. And I think that in terms of 30 basis points in August, 20 to 30 in September, there are fluctuations in the 10-year right now, maybe it's migrating up a little bit. We'll have to see. I think the volatility in it impacts consumer confidence. So we're going to have to see how it plays out. At the end of the day, when we look back at our third quarter, and as I noted in my remarks, we did not yet see sales impact, but we did see a little bit of pick in the consumers' engagement. And as we've gone into the fourth quarter, we generally don't comment on what we're seeing so far in this quarter, but I will and say that as we've come into the fourth quarter, we've seen a little bit more interest -- but we're pretty confident that if interest rates really do go down and stay down as you get to 6%, closer to 6%, as you go below 6%, we think you're going to see some real optimism in the marketplace and people who have need really activating because they can afford to. Operator: Next, we'll go to the line of Susan Maklari from Goldman Sachs. Susan Maklari: My first question is on the inventory turns. Can you talk through how some of these company-specific efforts are continuing to come through even as you moderate or adjust the strategy? And how we should think about the upside to those inventory turns in this kind of an environment and long term, the ability to get to 3x as you do think about the setup on the ground? Stuart Miller: So I will tell you that I -- so Jon and I, at the end of each quarter, we go out and we do what we call operations reviews, and we sit with our division management teams and really go through their operations and strategies. And what has been fascinating to me is to sit and watch our divisions focus on their inventory turn, which to me, and I think -- and to Jon as well, is really an indication of are we're focusing on effectiveness and efficiencies and really working on using the things that we're doing to become more efficient and drive costs down to build affordability. The answer to your question is I was sitting in one of those ops reviews this week with a team that is actually getting closer to exactly that 3x inventory turn. As a company, it we'll be adding together all the divisions, and you'll see averages. But at the local level, that kind of North Star is very much a part of the discussion as we get cycle times down, Jon talked about the fact that these are the lowest cycle times as an average that we've seen as a company. That is directionally where we're headed. But don't measure us against 3x because that's a pretty hard hurdle to get to. Go ahead, Jon. Jonathan Jaffe: I would just add, Stuart, is as we've discussed and discussed in prior quarters as well, this ongoing focus on efficiency. So just in time into our land banks, just in time out of our land banks where we're ready to start production, all of this is a constant tweaking and refinement of processes to do just that is to continue to drive that metric, which, as you've seen, is that we're making good progress on. Stuart Miller: And every one of these programs, thinking processes, now Jon talks about land into the land bank, land out of the land bank and those efficiencies, all of these tied to modern technologies that are partners of what we're trying to do. And as we get those technologies working, those efficiencies are going to amp up. Susan Maklari: Yes. Okay. That's very helpful color. And then maybe taking that one step further, as we do think about the inventory turns and these efforts coming through, can you talk about the cash generation of the business? And how you're thinking about the uses of that cash, especially in this sort of an environment that we're in? And any updates on the M&A environment, those kinds of strategic efforts? Stuart Miller: Well, as far as we're concerned, everything is on the table. We are certainly focused on total shareholder return. That is sometimes defined by how we grow and what kind of M&A strategy we might inject into our business as we go forward. We are looking at everything. And as I've said, the use of our land banking program is something that enables more of that focus. At the same time, we're focused on returning capital to shareholders. You've seen that we've had a pretty steady program of doing exactly that. And we are very, very focused on driving cash flow. Now there's been an adjustment period in the wake of Millrose and getting the pieces working exactly together takes a little bit of time, but our program is laser-focused on how do we get to that total shareholder return, how do we use cash effectively? How do we drive growth effectively? And look, at the end of the day, the focus of this company is how do we become something different in the future from what we've been in the past and a big [Audio Gap] capital allocation. Dan, do you want to say anything on that? Diane Bessette: No, I was going to just -- really, I agree with Stuart. I think that there's no change in our strategy from quarter-to-quarter, given the incentive because of our push on volume, cash flow was down a little bit, and this was an unusual year with Millrose. But the trajectory is to really keep the focus on cash generation, which is definitely benefited by the efficiencies that we're focused on. Operator: Next, we'll go to the line of John Lovallo from UBS. John Lovallo: The first question is orders were obviously very solid and a little bit ahead of expectations. You guys are working at the lowest cycle times in a very long time, if not in history. What caused sort of the slight miss in the third quarter deliveries given those factors? Jonathan Jaffe: It really is just timing and relative to when sales occur getting through the mortgage approval process, nothing more than that. John Lovallo: Okay. Understood. And I guess we've heard from several of your peers and from some other companies through the value chain that Florida inventory levels are beginning to stabilize, maybe even improve a bit. Obviously, there's a lot of markets in Florida. But in some of the key markets, maybe the I-4 Corridor, if you could talk about, I mean, is this consistent with what you're seeing on the ground? Jonathan Jaffe: Tampa, Orlando markets along I-4 as I commented, we have always remained very laser-focused on inventory levels. It's part of our strategy, even flow production, sales pace with respect to other builders, we did see some buildup, but I would agree with that in general, starting to see some stabilization. Stuart Miller: Yes. And remember that the size of inventories across the competitive landscape, meaning existing homes and new homes is a big part of what defines the stress on the sales process. And in Florida, that has been a factor. Inventories have been high, both across existing and the new home market. They have been moderating, and that has started to build a more stable environment, which we sell. Operator: Next, we'll go to the line of Matthew Bouley from Barclays. Matthew Bouley: One on incentives. I guess sort of another philosophical question. But I mean, I guess, going forward, depending on where the rate environment goes, I mean, do you anticipate kind of maintaining some level of these buydowns as kind of a competitive advantage sort of structurally versus the resale market? Or as you do get to -- if we do get to 6% or lower, I mean, is there some level where you really do foresee a kind of a more material pullback on those incentives? Stuart Miller: So interesting question. A number of people have asked why are you're focused on interest rates coming down, you're buying them down anyway. And so the market has access to the lower interest rate. The reality is it is the stall that's embedded in the existing home market that is relevant because as the existing home market starts to unlock a little bit, it enables people to activate the process of going from a first-time home to a move-up home and a move-up home to a second move-up home, it just unlocks an awful lot in and around the ability of people to engage in the housing market. So that -- yes, the homebuilders are generally providing that lower interest rate by buying down, and it is impactful to margin. But unlocking the rest of the housing market as a flywheel kind of approach or effect -- and that effect unlocks a lot of activity for the entirety of the ecosystem. Matthew Bouley: Okay. Fair enough. Yes. Secondly, the -- I guess sort of following on John's question, I think what he was alluding to around orders and deliveries into the next quarter. I'm just curious if you can update us on the cancellations environment a little bit. And I guess, whatever the trend was, kind of what you're reading into what you're seeing in cancellations today? Jonathan Jaffe: I'd say it's really remained pretty consistent from second quarter through third quarter in terms of order pace, cancellation pace. As we said, we really didn't see any effect in the third quarter relative to interest rates coming down at the end of the quarter. And it directly ties in on a community-by-community basis of what do we need to do to support our customer as they're challenged by affordability. So bottom line is it's remaining pretty consistent. Stuart Miller: Okay. Why don't we take one more? Operator: Perfect. Our final question comes from Jade Rahmani from KBW. Jade Rahmani: Can you say what quantity or percentage of year-to-date deliveries have come from Millrose? Jonathan Jaffe: Dan? Diane Bessette: Yes, I want to say it's been about -- Dave, correct me if I'm wrong, but 25%-ish in that zone. Jade Rahmani: And so in terms of the gross margin outlook, looking beyond the fourth quarter, should we still expect the remaining 75% once you're at a steady cadence with Millrose to come through that interest cost on gross margins? Diane Bessette: Yes, staying the obvious with the low cost that Millrose offers us, the more that we have deliveries from that vehicle, it's benefiting our margins. Stuart Miller: But realistically, across our land banking environment, we're focused on managing the option costs of those communities. And one of the things that benefits -- and this is an interesting flywheel within the land banking world is our ability to build certainty within the land banking structures, and that is certainty of close, certainty of execution enables us to maintain a more moderated cost structure within those systems and to actually bring down costs. And therefore, when we talk about does land banking drive our business, -- in one sense, we have the ability to walk away from deals if we need to. But the reality is we are highly, highly incentivized to keep each of our structures, whether it's vertical construction, horizontal construction or whether it's land banking, operating in a smooth, effective way because that's how we get to the best cost structure and therefore, produce affordability. And all of this kind of ties together as to why our strategy relative to volume. Jonathan Jaffe: I think that's well said, Stuart. For us, it's a manufacturing approach, meaning even flow from beginning to end. So it starts with land into our land banks, as I said, just in time coming out predictably just in time from the land banks. to a production team that's focused on bringing cycle time and cost down. And it's an ecosystem that's all the way through. So the more effective we are in doing that, as we've noted, we bring down our construction costs. But as Stuart is highlighting now, the more effective we are creating stability and reliability in the land bank world, the more the that capital costs come down. So they all have our laser focus on how do we become more efficient, more durable and bring value to our partners. Stuart Miller: So even while we might have the ability to -- as a risk mitigator to walk away or to do something else, our whole strategy is focused on building certainty and across our land banking system, bring down cost and option costs in each of our land banks to help with the affordability factor. I'm not sure if that's answered your question, but I think that's what you're getting at is when you talk about 25% for Millrose and advantage cost. The question is, can we get more advantage costs across the whole spectrum? Jade Rahmani: Okay. I was trying to understand, as the 25% grows toward 100%, shouldn't that -- I think the market is assuming that would be a negative an incremental headwind because that $560 million of annual interest cost is not yet fully reflected in gross margin. Stuart Miller: While I have tremendous affection for Millrose and Darren and the group there, and we want to do a lot of business with them. We think that our business is best configured with a range of participants that are providing low-cost capital to enable us to be the best version of ourselves. With that diversity of engagement, I think we get the best out of everybody, and we really have been migrating towards building, enabling, participating in an industry solution, not just a myopic one for Lennar. Thank you. With that said, I want to thank everybody for joining us, and we look forward to reporting back on consistent and focused progress as we go forward. Thanks, everybody. Operator: That concludes Lennar's third-quarter earnings conference call. Thank you all for participating. You may disconnect your line, and please enjoy the rest of your day.
Operator: Welcome, everyone, to the half year -- Welcome, and thank you for joining Exor's Half Year 2025 Results Conference Call. Please note that the presentation materials and the related press release are available for download on Exor's website, www.exor.com under the Investor and Media Financial Results section and any forward-looking statements made during this call are covered by the safe harbor statement included in the presentation material. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to turn the conference to Exor's Chief Financial Officer, Guido de Boer. Sir, you may now begin. Guido de Boer: Fantastic. Thank you for this introduction, and happy to have this half year results call. And as you'll see in the new format of our half year report. I hope that gave good insights, and I want to take you through the highlights in this presentation. So our NAV per share outperformed the MSCI World Index by about 5%, largely aided by the EUR 1 billion buyback. Companies did well, but a mixed bag of performance across the different companies, which we'll address a bit later. We're particularly pleased with the performance of Lingotto performing with an 11% increase, mainly from the public investment part in the backdrop of the declining market. And this half year saw us monetizing EUR 3 billion of Ferrari stake as well as some other items leaving us with good firepower to monetize, to invest in the future. And it leaves us with a very healthy debt ratio at 5.5% of our GAV. So moving to the key figures at the half year. Our gross asset value went down by EUR 2.5 billion, partly from value changes, partly from the buyback and our NAV moved in line with that, while our NAV per share saw an increase and our loan-to-value, as mentioned, is more or less half than what it was at the end of 2024. So our NAV per share growth went up by 0.9%, and 3.2% of that growth is attributed to our buyback, given that we buy back our own shares at a discount the positive impact on NAV compared to the number of shares that we reduce is delivering this growth. So even ex buyback, our portfolio has done better than the MSCI World index. And this is an important measure because we want to outperform relative to the index. We also want to show absolute returns. And in that sense, obviously, we're disappointed that our TSR, even though better than the market is negative, and we aim to improve that in the coming period. So if we move to the overview, I first would like to present to you a new classification. And rest assured, I don't want to make a habit of this so that you need to change your models all the time. This was actually intended to provide you further insight and probably also ease for building your models. Given that Exor Ventures is now managed by an external investor. We moved that to the other funds moved by third parties into others. And you really see separately the performance of Lingotto, which are the funds operating under our own management. And we thought it's useful not to group cash and cash equivalents under others but show separately also, if you want to look at a net debt basis to facilitate your analysis. So hope it's helpful. And if you have any comments or suggestions or requests for historical data, please feel free to reach out to the Investor Relations team. So if we then move to the drivers of change in gross asset value in this new format and maybe starting on the right-hand side, you see the change that I mentioned previously of a GAV of EUR 42.5 billion to EUR 40 billion, which split in EUR 1.1 billion of shareholder distributions, around EUR 100 million of dividends and EUR 1 billion of buybacks. So it's a decrease of GAV, but not necessarily reflective of performance, adjusted capital distribution. And you see EUR 1.4 billion decrease in value, which is the real metric of our performance on GAV. If we then move one column to the left, cash and cash equivalents. Here, you can see well the movement in our cash flow, where we've invested EUR 1 billion in new investments. We realized EUR 3.5 billion of disposals and obviously, the EUR 1.1 billion in distributions. So if we take the EUR 1 billion in investments, you'll see and we'll go into more detail later. EUR 4378 million went into listed companies, principally Philips and a minor part in Juventus and then a bit in commitments on Lingotto and EUR 428 million in others, which we invested in bioMérieux. The disposals line for EUR 3.5 billion breaks up quite simply in EUR 3 billion for Ferrari and almost EUR 0.5 million of proceeds from the reinsurance fee costs that we invested in as part of the sale of PartnerRe. Now we have the line change in value, which I propose we address in a bit more detail in the following slides. So performance of listed companies. I mentioned already the investments behind Philips, Juventus and the disposal of Ferrari. If you then look in the change in value, you basically see that the change in value of Ferrari is marginal, where it started on the first of January and where it landed on the 30th of June. We were quite lucky in our timing that we did the trade at the all-time high in that period, but a very flat movement in between start and the end of the period. CNH, a similar story, and we measure our returns in euros and in euros, it was flat, notwithstanding a strong movement between the dollar and the euro. The big driver of the decrease in value was the disappointing share price movement of Stellantis as well as that of Philips, which started the year a bit above EUR 24 was at the half year at EUR 20 and now ranges around EUR 24 again. So the good thing is the EUR 700 million of loss has rebounded in the year-to-date, large. And then obviously, the positive news in the half year was also the strategic transaction on Iveco which in the run-up to that transaction led to a significant increase in the share price. And that is a monetization for Exor at a very attractive price, as well as a good home for Iveco for the future is that the pending transaction will complete in 2026. So those are the key moves in listed companies. If we then move to unlisted companies. We had some smaller investments between -- behind Via Transportation where there was some shares available ahead of the IPO. And I'm happy to say that following the successful IPO on NYSE last week, we'll move Via to the listed companies in the following reporting and some existing commitments we have on TagEnergy and ShangXia. And you'll see the movement in value, where the largest ones Institut Mérieux on the back of the increase in share price of bioMérieux, Via Transportation based on its strong performance. Welltec and The Economist actually largely FX movements and the other amounts are relatively smaller. So if we then move to Lingotto and others. You see we invested in private strategies around EUR 166 million. And you see a very strong performance of the public investments, notwithstanding the equity capital markets in general, declining. So we're very happy with how the Lingotto funds deliver returns, which are less correlated to the rest of the portfolio and outperforming the market. We then move to others. There, you see funds managed by third parties. So that also now includes Exor Ventures. And it was also including the reinsurance vehicles where you see the half billion of disposals. So we're quite positive. The funds are doing quite well. The minus EUR 72 million is actually EUR 427 million negative FX and both Exor Ventures as well as the reinsurance vehicles in local currency have been performing well. In listed securities, you see, again, the investment of EUR 317 million in bioMérieux and the change in value is largely due to the decline in share price of Neumora and smaller investment that we've done in the past. And I think those are the main items to highlight in Others. So Cash and Cash Equivalents, I largely mentioned this previously, we had strong dividend inflows of EUR 624 million, of which we distributed again EUR 1.1 billion to our shareholders. We raised disposals between EUR 0.5 billion, which we reinvested for EUR 1 billion, and we repaid bank debt for EUR 547 million and a bit of a bond, which leads us to a cash position now of EUR 1.5 billion, which is obviously very, very healthy. And that's in line with gross debt that, as I mentioned, with the reduction in bank debt and the bonds now stands at EUR 3.5 billion rather than the EUR 4.1 billion at year-end. And as you know of us, we try to have a very stable maturity profile. So we have no cliff payments and on the short-term obligations that we have here can easily be filled out of our cash positions. So with that brief summary, I would like to open the floor to Q&A. So over to you at the operator. Operator: [Operator Instructions]. We will now take the first question from the line of Monica Bosio from Intesa Sanpaolo. Monica Bosio: I have three. First of all, on the future investments. My perception is that maybe the group priorities are more on the health care side. Or do you see real true opportunities in the luxury segments? I'm just wondering because in the last conference, the company didn't see real opportunities in the luxury segment. And the second question is on the size of the potential acquisitions. The press speculated a lot on this. Any comment from you on this side? And do you have any time horizon for the completion of the new investments? And the very last is not only investments but mainly on disposal, should we expect in the coming future, some other disposal on top of [ Lifenet ]? Guido de Boer: Fantastic. Thank you, Monica. Good questions as usual. So in terms of priorities for us when evaluating a potential acquisition, we look at fundamentals. Does it have the right strategic fit our financial fundamentals, cultural alignment with us as an owner, what our leadership strength with us their governance proposals. And we base this on analysis of each individual company. So it can be health care. It can be luxury. These are in particular industries where we have domain knowledge within the team, but it could even be outside that, if the investment opportunity is sufficiently attractive for us. So there is no priority preference of health care over luxury. In terms of size, we basically have said that we are considering to do transactions, which are meaningful in the perspective of our total GAV and 5% is a percentage where this is -- becomes meaningful. But again, we look at every individual opportunity to decide if it's attractive or not. And on disposals, we continuously evaluate our portfolio to decide whether we should increase our stake like we've done on Philips in the period or whether it's a good time to dispose. If there's anything to update, obviously, you will be the first one to know. But for now, there's nothing further to mention. So Monica, I hope this answers your questions. Operator: We will now take the next question from the line of Martino De Ambroggi from Equita. Martino De Ambroggi: The first question is on the financial flexibility because once you divest Iveco stake, you will have another EUR 1.3 billion cash in. So would you prefer to look for one more big ticket, as you mentioned, 5% of GAV or buyback could be another priority. And specifically on the buyback, you don't need any divestiture to continue to buy back shares. You already finalized EUR 1 billion buyback in one shot, but why you are not starting additional buyback considering the high discount to net asset value. And the third question is on the -- well, sorry to be more specific on the name, but Armani is I don't know, up for sale, probably not shortly and so on. But just from a theoretical point of view, so just theoretically, could it be an interesting asset for you or you're absolutely out of the game, even if today, it's too early to talk about it? And very last on Ferrari, when you sold the stake, you mentioned there was an excessive concentration in terms of asset value. Today, Ferrari is roughly 90% of the net asset value. So the issue of too high concentration could come back. But what's your way of thinking about it for future in case the concentration further increases? Guido de Boer: Yes. Thank you, Martino, and good to have you on the call again. So on buybacks, they are part of our resource allocation process. And in a sense, the buyback, the discount is also an opportunity for Exor to reinvest capital. And for investors that want to remain on to benefit from a NAV per share increase from that, which you've seen in this half year. We've just done EUR 1 billion of capital return. So in terms of our market cap that is something that's very, very sizable. But -- as I mentioned, every time we do our portfolio review, we consider to increase or reduce the holdings in existing companies. We consider new investment opportunities that we have and we consider buybacks, and we decide on what we feel is the most attractive choice or multiple choices between those. So we'll continue to do that and consider buybacks as part of the process. Armani, don't really have anything to comment on the individual transaction as we obviously never do that. And Ferrari, the concentration has nicely reduced. It was 43% when we did the transaction, we're now at 39% of our gross asset value, which is the way we look at it. Indeed, if you look at it as our market cap, you probably meant 90% of market cap rather than net asset value. That is high, but then you could almost see Exor as buying Ferrari and getting the rest for free. So in that sense, I would see this as a great opportunity for investors to buy into the extra stock. And concentration, maybe to have that as a general point, we like concentration because our belief is that if we buy 1 share of every stock in the index, we perform like the index, and we want to outperform. So we invest in companies where we have conviction. And Ferrari is absolutely one where that holds true. So I hope this addresses the point you raised, Martino. Martino De Ambroggi: Yes. Thank you, Guido. And you are right. I mentioned as a percentage of NAV, but it was on market cap. One more follow-up on Lingotto which made a great job because the performance was very strong. Could you remind us what were the main drivers for this performance? And in terms of strategy, are you planning to open the doors or to accelerate on third parties asset? Or this is something that is not in your -- on your table? Guido de Boer: So one for us to invest more or less behind Lingotto strategies is part of the portfolio review process, as I mentioned. And if we would invest more behind existing strategies or if there's new ones, we'll obviously announce that to the market. For us, our strategy is not to grow assets under management and gain management fees. Lingotto was created to deliver performance to us. So I think that is critical. We want to grow our assets under management through performance rather than capital inflows. And as you see, we are delighted by the performance at it, showed in this half year, which it has been showing over a longer period now. So the quality of investors that we've been able to attract makes us obviously very pleased with having put the funds behind Lingotto. Martino De Ambroggi: And about the first half performance, is there any specific driver leading to such a good performance? Guido de Boer: I think they're great investors that know how to find the stock that perform well. Operator: We will now take the next question from the line of Joren Van Aken from Degroof Petercam. Joren Van Aken: A lot of great questions have already been asked. But just one from my side. I remember Mr. Elkann saying a while ago that private valuations were higher than listed assets and not long after that you bought the Philips stake. Today, I'm hearing that high-quality assets in the private market still have very high valuations. Do you think that the bid-ask spread has narrowed sufficiently on the private side? Or do you think that listed is still more attractive today? Guido de Boer: I'm not sure if I've seen too much reduction in price expectations from private assets. So I don't think that much has changed on private asset valuations and public market valuations, I think that's your day job. So you know much better than me, but also there, I would say there is a big disparity between certain type of companies like the large tech companies versus some slower-growing companies or companies that have 1 quarter earnings miss, which have then a disappointing share price performance. So I think if you look in public markets, there's definitely opportunities to be found but also private assets can have their individual situations that the valuations are attractive. So apologies for -- not trying to evade your answer with your question with a clear answer. But I think there's not a one size fits or response to your question. So Joren, I hope that's clear how we look at this. Operator: We will now take the next question from the line of Hans D'Haese from ING. Hans D'Haese: And I wanted to state first, Guido, that really happy with the new tables layout and increase even better transparency already was happy with IFRS 10 change and how this really helps also with the valuation drivers for listed companies and so, a very good job. Then regarding portfolio, we've seen that you've been very explicit in what sectors Exor would like to increase its exposure and for what, so thank you for that. In the meantime, we only saw a considerable increase of Philips. So we are waiting for other stuff. If now opportunities arise for acquiring minority stakes in other companies, companies, for instance, that you already are an important shareholder like, for instance, The Economist. Would you consider to increase the stake? Is this something that would fit in the portfolio? Or are you sticking to it should be health care literally? That's one question. And then the second one, in light of market expectations of further U.S. dollar weakness and considering that your stakes in CNH and Clarivate and Lingotto are dollar sensitive. What is your hedging strategy? Are you considering -- are you doing something? Or is this something that is not part of the strategy of Exor? And then third and last question, what are your considerations about investing in Bitcoin and cryptocurrencies? Do you see them as an alternative for your cash position? Or do you see them as a different asset class? Is this -- just do you want to share your thoughts about this? Guido de Boer: Yes. With pleasure. Thanks, Hans. First, for the compliments, much appreciated because we've been working hard on providing information to you and all our other stakeholders, which is as clear as possible so that we can talk more about fundamental activities like you now asked about. So much appreciated. On portfolio, whether we would consider investing in existing companies versus like, for example, The Economist or in only health care technology and luxury. We are, in a sense, agnostic. Why have we said health care, technology and luxury? Because these are sectors where we think there are structural tailwinds and where we've built up a domain knowledge. So we know all the good players in the industry. We know subsectors of those industries, which we like. And in that way, we feel we can uncover opportunities that maybe others don't see. So that's why our focus is there. But if we see another opportunity either in our portfolio already, which obviously has many advantages because we know that asset or outside, we're very open to consider those as well. So we're not married to investing in health care, luxury or technology. On the U.S. dollar, we don't do any hedging. Hedging, I think, is a useful measure for covering short-term exposures, which you cannot offset for a production company, hedging your fixed cost if you import into a country when your sales and you cannot change your prices. But for us, as a long-term investor, we don't see hedging as a valuable tool. There might be actually a short-term opportunity to say maybe with the devaluation of the U.S. on a relative basis, U.S. companies have become more attractive than 6 months ago. So we look at it more from that perspective. And then utilizing the dry firepower that we have now. We're quite conservative on that and put it in cash spread over euros and dollars across multiple banks, including many of you who are in this call. So stable banks across currencies at a decent return because this is not where we want to make our money. So that's why crypto or Bitcoin would not be places where we would park our money. Where we want to take risk is in the long-term investments that we do and not in the short-term liquidity storage that we hold. So that's how we look at it today and not voicing an opinion on Bitcoin or crypto because there's many people who are much better positioned than I to speak about this. Operator: We will now take the next question from the line of Alberto Villa from Intermonte SIM. Alberto Villa: A couple from my side. Many have been already asked. But again, on Lingotto, congratulations to the team, a very great performance. Now it's 8% of the GAV. Is there any internal limitation you put yourself in terms of size of the investment of your funds in Lingotto or it could grow further in the future? The second question is a more general question is about the -- let's say, when you consider investing in a company with the current geopolitical uncertainty and turmoil, if you're now looking more specifically to some regions rather than others, if there is any, let's say, change in the approach on a geographical standpoint compared to the past due to what has been happening in the recent past and presumably will continue to be a very volatile environment on that side. Guido de Boer: Thank you, Alberto. So on Lingotto, I think the limitation breaks down maybe in 2 parts. One on individual funds and two on allocation to Lingotto in a whole. So as I mentioned earlier on Lingotto as a whole, we always take Lingotto as part of our portfolio review strategy and we see do we want to allocate more to existing strategies or new funds, and we decide what kind of returns, risk, reward do we get against this, and we make an investment decision based on that. In terms of limitation, and I think it's a very important question, which goes to the core of Lingotto. For us, it's key that the investors behind the Lingotto funds focus on performance and outperformance. So the limitation is the size where adding further assets under management would go at the detriment of performance, and that would be the limitation. And that's obviously different for different types of strategies, whether it's public or listed and which markets they are. But that's where the key limitation probably is for individual Lingotto strategies. And then geopolitical, it is an important investment consideration, obviously. It is also a potential opportunity if those have led to significant price movement because we are a long-term investor. So we do take that into account, but I cannot say that, that has led to exclusion of certain regions or countries where we would say we're absolutely not looking there. Operator: [Operator Instructions]. We will now take the next question from the line of Andrea Balloni from Mediobanca. Andrea Balloni: Few questions from myself. My first one is a follow-up to the one of Martino and sorry for asking again, which is about Ferrari. I was wondering if you find some very good opportunities to invest in -- would you even consider another partial disposal of Ferrari to finance the investment? Or on the opposite, the current stake you have in Ferrari is a level you are not willing to lower? And my second question is about current holding discount that we see at 50% despite the material share buyback you have recently done, what could be, in your view, a way to shrink this holding discount as of today? And my very last question is on Philips. I remember when you have announced the acquisition of this stake, you mentioned that you were convinced to be able to extrapolate some value from a company that was clearly undervalued by the market. But just to understand what time horizon you had in mind for this asset? Guido de Boer: Thank you, Andrea. So on Ferrari, our view remains as what we said earlier in the year that our commitment to Ferrari is as strong as ever. And we didn't do this disposal about reducing our interest of the company. It was really a strategic decision to reduce our portfolio concentration as well as creating room for the next opportunity. So we're actually extremely happy that Ferrari is still a significant part of our portfolio. And as I said, we do like concentration and are confident that Ferrari will be a strong contributor to future results. So on the holding discount. What are we doing about it? I think calls like now based on clear and transparent communication are one important part of it. But even more important is we need to continue to show a sustained outperformance, both on an absolute and on a relative basis. And I think it's interesting also to have a look at the long-term performance of Exor versus the MSCI World Index because that's really why we want people to invest in our stock because we are long-term investors and by compounding better returns than the index over a long time, we will create significant value for our shareholders. So that's something we'll just continue to do. But if you have other views of actions that we could take, always happy to hear them from you and either reading it in your report or to have a call on that, if you like. So Philips, we continue to believe that the company has a huge potential and that it's delivering on its potential. So we're quite excited by its operational performance and our conviction also remains strong and happy with the progress that they're making. So our time horizon is long. We're there for the long term. We don't have any specific horizons where we say at this moment, we exit. So there's not a year that I can mention you of our planned horizon for an investment like this. Operator: This concludes the Q&A session. I would like to hand back over to Guido de Boer for closing remarks. Guido de Boer: I would love to thank all of you for your very thoughtful questions. I think this was all valuable and also gives us some good inputs to sharpen our strategy. So very happy you all joined this call, and please reach out via the usual channels, if you have any further information request or I would like to speak to us in any other way. So thank you, everyone, and have a nice day. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I am your Jota, your Chorus Call operator. Welcome, and thank you for joining Allegro Group Earnings Call and Live Webcast to present and discuss the second quarter 2025 results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Tomasz Pozniak, Investor Relations Director. Mr. Pozniak, you may now proceed. Tomasz Pozniak: Thank you, Jota, and welcome to all participants of our call. Let me introduce the presenters of today. Marcin Kusmierz, the CEO of Allegro Group, who will provide you with the highlights of Allegro performance in Q2 and summarize the key takeaways; and Mr. Jon Eastick, our CFO, who will guide you through the financials for Q2 and update of the outlook for the full year 2025. As usual, our results presentation is available for download from our Investors web page at allegro.eu. You may also download the slides from the link available on the webcast screen. As a reminder, today's presentation and discussion contains forward-looking statements. Our actual results could differ materially from the expectations expressed in such statements. Please make sure you review the full disclaimer on Slide #2. Also please note this presentation and the Q&A session are being recorded and will be available for a replay on our website at allegro.eu. And with this, I would like to hand over to our CEO, Marcin. The floor is yours. Marcin Kusmierz: Good morning. This is Marcin Kusmierz, CEO of the company. Thank you for introducing and welcoming the participants of today's conference call. At the beginning of our meeting, I would like to share the key financial and operating results achieved in the second quarter of 2025. Detailed information will be presented by Jon Eastick, our CFO, in the second part of the presentation. GMV on Allegro in Poland was close to 10% and more than twice as high than nominal growth in retail sales. We showed rapid growth compared to our competitors in the e-commerce industry as well as traditional retail chains. We exceeded 15 million active buyers, while also passed PLN 4,000 GMV per active buyer. Good results in GMV and increase in the number of buyers resulted in strong revenue growth over 18% year-on-year. Almost every part of our business developed well, but our advertising business line deserves special mention with over 30% growth year-over-year. It is also worth mentioning the take rate, which exceeded 13% in Poland and improved by nearly 5 percentage points. We see that we still have very good potential for further growth in Poland. For customers in Poland, Allegro is the first choice, and we are consistently building our position in the Central Eastern Europe. At the group level, GMV increased by 9%, which was influenced by continued optimization of the mall group. At the level of international marketplaces in CEE, we achieved excellent GMV growth and demonstrated Allegro's consistency in building a strong position as a regional leader. The number of active buyers in the group exceeded 21 million with GMV per active buyer increasing by over 4%. At the group level, our revenues grew by over 10%, again, with a good outlook for the future. Strong GMV growth and excellent revenue growth had a positive impact on adjusted EBITDA, which increased by 14% in Poland and by over 20% at the group level. Thanks to that, we are upgrading revenues and adjusted EBITDA outlook towards the top end of the range. We are constantly continuing our investments related to the development of the marketplace's functionality and making it even more attractive. We're also investing in the development of logistics infrastructure that supports the expansion of the Allegro delivery program. As a result, our CapEx expenses increased by 67% to over PLN 200 million. It's also worth mentioning the reduction in financial leverage, which was supported by strong free cash flow generation. Let me now present the 4 pillars of our development. These are the strategic directions, which we focused last couple of years. We are constantly investing in the development of the marketplace, our core business in both Poland and the CEE region, giving consumers the widest choice of products, ease of purchase and range of added services. We're also developing new growth drivers, which, on the one hand, strengthened our core business and on the other hand, build a long-term competitive advantage. They have a positive impact on the pace of our business development and make our business more diversified. I'm talking about advertising, financial services and logistics. With each quarter, we are growing stronger in the markets of Central Eastern Europe. Customers from Czechia, Slovakia and Hungary are increasingly shopping on Allegro, building relationships with us and taking advantage of our loyalty program. They increasingly treat us as one of the main places to buy products based on our wide selection and attractive prices. We want to continuously improve our value proposition for buyers and sellers in the region so that as in Poland, we are their first choice. We're also strengthening our foundations, technological business and human. We use a modern technological platform within the group, and we are building a culture focused on innovation and development. We are a company that invests in long-term growth and strengthening our market position. For a moment, I will focus on the value proposition we offer to buyers and sellers in Poland. We invest heavily in personalization and targeting products to the expectations of consumers and business customers. Allegro is a place where you can find the widest range high-quality branded products. We're constantly attracting new sellers to the platform. They represent almost all industries and business sizes. They are global corporations as well as local microenterprises and have perfect understanding of customer expectations and needs. When I joined Allegro a couple of months ago, we almost immediately started a discussion with the management team and the Board about the possibility of accelerating our growth and strengthening our market position. Allegro has almost everything it needs to conquer new market segments and attract new customer groups. It is the leading online shopping destination in Poland, and we see further prospects for strengthening our position. So we are analyzing the market and the attractiveness of investment in its individual segments. In the coming weeks or months, we will discuss and approve strategic areas for making potential investments with the Board. We have launched the process that we're calling accelerated evolution. Our ambition is to be the leading shopping destination for current customers and customers representing future generations. We want to be a platform that addresses customer expectations and needs and is a friendly ecosystem that supports the growth of our partners. Let's start by discussing the core marketplace and how we see opportunities for its growth in the future. We will certainly accelerate investments in the development of marketplace functionality. For 25 years, Allegro has been the first choice for buyers and sellers in Poland and Central Eastern Europe. We see potential in combining the functionality and added services of the 3P and 1P models, everything that is the best about that. The 3P model remains our foundation, and we do not plan to expand our own product range or maintain larger inventories. What inspires us in 1P and what we add to Allegro is sector expertise, consulting and even better product management. Now I will focus on the possibility of expanding our marketplace with new categories and market segments. The natural direction for the development of marketplace is expansion of product offering. We currently have over 80 million products, but we still see opportunities to add some new product categories, accelerate GMV growth and increase the frequency of purchases. We're also exploring possibility of cooperating with brands that they are not currently present in Poland and CEE to become a gateway for their market expansion. Services, a new area of interest for us. We're analyzing and looking with curiosity at the rapidly growing services segment in recent years. We're carefully looking at the segments with the largest market share and the greatest potential, both those that support the sales of products, financial services or insurance as well as those that are independent. Customers trust Allegro. They have great relationships with us, and they want to grow with us. So we believe that we will be able to create for them some new special unique value. The next point is potential externalization of services produced at Allegro as another area that could potentially support our growth. We're considering selling some services outside the marketplace. We create world-class products and following the example of global players, we're thinking about selling them in other parts of the market. Our Allegro Pay is the best buy now, pay later solution on the market. Our logistics infrastructure is the engine for the highest quality services. This is a potential opportunity to build relationships with the new groups of customers and sellers. We see a lot of interest and demand from merchants. We're talking with them about joint opportunities for growth, business development and new directions for expansion. Finally, our goal is to update our value proposition so that customers continue to see its uniqueness and fully appreciate its value. For clarity, I want to underline that presented directions of development are fully consistent with the current strategy and are still the subject of our analysis and consultations with the Board. We're constantly investing in improving our value proposition for buyers and sellers. In the first half of the year, we developed a shop-in-shop service combining the shopping experience known from 3P and 1P models. The solution has been recognized by regional and international brands such as Finish, HP, Inglot, Karcher or Pampers. The number of authorized sellers representing well-known brands has also increased significantly. Now we have over 3,000 of them on Allegro. Thanks to better management of AML and KYC processes by Allegro Finance, we have improved the merchant verification process. As a result, new merchants can start selling on Allegro much faster. As part of the partner channel, we're working with merchants to further simplify processes. Our ambition is to have the most merchant-friendly ecosystem among European marketplaces. Over 1.5 million products in Poland and nearly 0.5 million in Czechia are covered by the best price guarantee. This is further confirmation for customers that Allegro is the best shopping destination. With us, they can save some money and time. And it is also worth mentioning the prestigious awards we received in the second quarter, Brand of the Year, Best Marketplace and the Best Shopping Experience. Smart! is one of the leading loyalty programs in Europe. We have added new benefits to it and to activate and reward its users. The program now has many new additional features, fun and gamification, unique deals and benefits to be used on Allegro, but also outside the platform. Smart! is extremely popular and attracts hundreds of thousands of new users every year. They also have access to unique events and promotional campaigns. In Poland alone, they are already over 6 million subscribers. We are happy to announce that Allegro Delivery has become the program serving the largest number of parcel lockers in Poland. Thanks to the new agreement with DPD announced in recent days, their number within Allegro Delivery has exceeded 33,000 and the number of pickup points has exceeded 37,000. Thanks to the close cooperation with DHL, DPD, Orlen Paczka and of course, Allegro, buyers and sellers have even more choice in both delivery methods and locations. It is worth remembering that consumers always decide how they want their parcels to be delivered and they use Allegro app to track their shipments. Buyers on Allegro also have access to logistics services provided by other companies. By developing the Allegro Delivery program and our infrastructure, we are increasing the efficiency of our logistics services and our independence from selected service providers. By the end of the year, we want to have over 8,000 of our own parcel lockers, over 1,000 more than we originally planned. It is worth mentioning that thanks to successful negotiations with manufacturers, the installation of a larger number of parcel lockers will take place within the approved CapEx. We have also decided to invest in new depots and completing new sorting facility. This is associated with rapid increase in managed volume, which exceeded 34% at the end of Q2 and increased by nearly 5 percentage points compared to the previous quarter. We're also achieving one of the highest NPS results in the industry, which amounted to 82 points in the second quarter. We are already seeing the positive impact of the cooperation with DHL, which began a couple of months ago, and we expect at least the same effect from the new cooperation with DPD. Let's move on to my favorite slide because it's related to AI technology. Our company is certainly one of the leaders in AI-based technological transformation. We do massive implementation in the company, which will cover almost all parts of the organization. We're talking about areas related to purchasing such as intelligent search engines or recommendations, increasing productivity in software development and equipping our employees with new skills to improve their work efficiency. We believe in this technology. We have already implemented it commercially based on an agentic approach in marketing or customer experience or customer service, and we are convinced that AI is an investment with a high rate of return. We are constantly increasing the use of AI technology in our current and planned projects. We expect that next year, around 40% of the software we produce will contain some components prepared or produced by AI. At Allegro International, we achieved excellent GMV growth in the second quarter, 61%. We also increased the number of Smart! users to over 1 million, and the GMV generated in the application grew by over 100% year-over-year. Allegro International sales are mainly based on Polish sellers, but we're also consistently increasing the number of local partners. We have launched a new program aimed at significantly increasing the number of local sellers and supporting them in their sales. We're also completing the transformation of some of our international assets. In the case of Mall North, the process has been already completed. In our international development, we focus on the 3P model and group synergies. The growth dynamics show that we are doing this better and better. Jonathan Eastick: Thank you very much, Marcin, and good morning, everybody. It's great to be with you today, and I'm really looking forward to taking you through these really great Q2 results for the Allegro Group. As usual, I'll start with the Polish operations. Key KPIs are in front of you at the moment. Let me move to the next slide and the key KPIs behind the GMV. So as you've heard, the business accelerated in Poland in the second quarter. The main driver for that was increase in spend per active buyer. You can see there on the right-hand side that it's moved up sequentially to 2% growth on quarter-on-quarter, which gets us to PLN 4,178 of annual spend per customer, well over $1,000, and that's an 8% growth rate on a year-on-year basis. In terms of active buyers, over the last 12 months, we've added over 300,000. We're at 15.2 million active buyers for the Polish market. It's very important to remember behind many of these accounts are households. So there are millions of more buyers on Allegro than you see here. When it comes to GMV, up 0.9% sequentially to 9.8% on a year-on-year basis, PLN 16.5 billion of GMV generated in the second quarter. On a last 12-month basis, that moves our GMV up to PLN 63.4 billion, which is 10.1% higher than this time a year ago. It's also important to note that in the second quarter, we had a headwind from the fact that Easter had moved back into April from March a year ago. And for our categories, Easter is actually a headwind unlike for the grocery businesses that you also follow. So with that in mind, the result is even better than it looks at first sight. As usual, supermarket and health and beauty, high-frequency categories that we're focused on continue to grow faster than the average. This quarter, it was 2x faster. Looking for a physical measure of our development, as you know, we track items sold as a marketplace. That's up 11.4% on an annualized basis. It's also worth looking at the ASP on those items sold. Mix adjusted, the ASP is up by 1.7% year-on-year. This is the highest reading since the figures turned positive about a year ago and continues to move on an upward trend. And a quick word on Allegro Pay, 15.3% of GMV was funded by the Allegro Pay payment methods in the second quarter. Loans origination has moved up to PLN 3.3 billion in the quarter. So then let's look at revenue, and we've had an excellent quarter. The growth has accelerated to 18.1% year-on-year, landing on almost PLN 2.8 billion of revenue. And this is obviously coming from the GMV growth, combined with the higher take rates, strong performances from advertising, logistics and consumer lending. Focusing on the take rate, you'll remember from the previous call regarding Q1 that we increased the cofinancing rates in our annual monetization change in March. So there was 1 quarter of improvement included in the Q -- sorry, 1 month of improvement included in the Q1 results. Obviously, we now have 3 months' worth in Q2, and that results in the take rate moving up sequentially to 13.01% for Q2. On an annual basis, it's almost 0.5% higher than a year ago. You see as well on the bridge there, the rates of growth across advertising continuing to be over 30% quarter after quarter. Logistics moving up significantly, more and more of the services or the deliveries that they're doing are actually also the paid deliveries that we do outside of Smart!. So the logistics revenues are going up and also financial income being a driver behind the other income that you see on the slide. So with growth like that in revenue, it's relatively straightforward to grow EBITDA, and our EBITDA moved up by 14.2% for the Polish business in Q2. PLN 1.037 billion of adjusted EBITDA for Poland for the quarter. And you can see the impact of those revenue drivers on the bridge on the left-hand side there, the first 3 items on the bridge. Let's focus in a little bit on cost of delivery. PLN 156 million higher cost of delivery than a year earlier, which translates to a 23.1% increase in delivery cost. As a percentage of GMV, it's actually come down very slightly from Q1 from 5.1% to 5% of GMV. And most importantly, most of the growth in this cost has actually come from volume, from additional parcels from the higher GMV and from additional penetration of Smart!. You see that laid out there, 18.1% of the 23%, plus another 3.5% where Allegro Delivery is delivering parcels that are being paid for by the consumers. That leaves only 1.5 percentage points of impact that's coming from higher unit cost. And when you remember that on the 1st of January, we absorbed a double-digit indexation increase from our largest delivery partner, we're really very happy to see that we managed to offset most of that increase in the Q2 numbers. That unit cost increase is mainly held down in that way because of the growth in our Allegro managed volumes, which were up by 4.6 percentage points Q-on-Q to 34%. And in essence, every single delivery that we move into an Allegro managed delivery method is at a lower cost than the alternatives, and this is why we're now starting to see a significant positive impact on our cost of delivery. Looking at the net cost of delivery, which requires also considering the revenues that are coming from cofinancing, which are part of take rates, the net burden of running the Smart! program expressed as a percentage of GMV has actually come down in Q2 compared to Q2 a year ago. Final comment really on this slide is to draw your attention to the 6.27 percentage adjusted EBITDA to GMV, which is 24 percentage points higher -- sorry, decimal points higher. This is going to be the high point for the quarter -- sorry, for the year. As we expect going forward, as the year progresses that certain cost increases will need to be absorbed; higher salaries, higher costs of various delivery methods, other indexations. And therefore, the margin will come down a little bit later in the year. Moving on to capital investment. And we were signaling to you earlier in the year that the CapEx program this year is significantly more ambitious, and that's what you see in the numbers. 72% growth on a year-on-year basis for Q2 to PLN 193 million, which is mainly coming from an increase in other CapEx, which was up by 4x at PLN 80.3 million for the quarter. This is mostly obviously coming from investments in our logistics expansion. It's predominantly APMs, but also investments in our courier depots and network. When it comes to capitalized development costs, those are up much more moderately, up 22% year-on-year or PLN 20 million. The tech team is slightly larger than a year ago. Obviously, salaries are higher than a year ago. And they're actually spending more time programming new functionalities that Marcin was describing earlier than on maintenance, which is also increasing the share of the cost, which is being capitalized. When we compare to our medium-term guardrails where we've set out a maximum of 25% of Polish adjusted EBITDA to be reinvested into CapEx, our H1 situation is that we're running at a 20% spend. So comfortably within the guardrails. So let's move on from Poland and take a look at the international operations, key KPIs set out on the slide that you see in front of you. I will come back to why this is on a pro forma basis in a couple of minutes. But let's focus in on the Allegro International segment for Q2. Now as Marcin said already, it's been a very good quarter for the international marketplaces, which are our new marketplaces in Czech Republic, Slovakia and Hungary. Great growth across the board. Starting with the traffic, it's up 47% year-on-year. And this despite the fact that we've actually dialed back on our marketing investments and really focused on improving the ROIs on those investments on a going-forward basis. Active buyers up even more, 57.4% at 3.9 million active buyers across the 3 markets, which is a really strong performance. Spend per buyer also moving up 10.2% higher than a year ago at PLN 540. Looking then at the other key metrics, that means that the GMV growth was able to reach 61%, so very comfortably up at the top end of our outlook, and that's PLN 572 million of GMV from these marketplaces. Revenue was up even stronger at PLN 63 million, 111% higher than a year ago. The take rates are up by 2.6 percentage points on last year. More of the Smart! subscriptions are being paid for by the consumers. There's more revenue coming in from logistics. So altogether, revenue is moving up nicely. And that means that we were actually able to cut the size of the loss for the first time on a year-on-year basis. It's down PLN 21 million on a year ago, PLN 66.5 million invested in the marketplaces and the margin to GMV has improved to minus 11.6% in the quarter. Let's move on and take a look at the Mall segment. And as you've heard from Marcin, we've essentially finished the projects around transforming Mall in the northern markets of Czech, Slovakia and Hungary. And the main component of that has obviously been this intentional rundown of their legacy unprofitable e-shop business, which you see reflected here in the GMV for the second quarter, 58.7% lower than it was a year ago at PLN 184 million. That was only generating PLN 24 million of margin, as you see on the right-hand side. And with other cost savings, we were able to actually cut the loss to PLN 55.7 million. And most importantly, because we shut down now the independent operation, the independent front ends, we've been able to take further reductions in staffing. We've also been able to move out of the legacy warehouse, which is too big for purpose and move to outsourced logistics solutions. And those things will help us cut the loss much further in the second half of the year. So summing the 2 segments together, you get the results of international operations, which are shown on the next slide in summary form. And let me now come back to the topic of why those numbers were pro forma. We've made a change in the segment reporting between Q1 and Q2. And what's triggered this is one of the points I mentioned, which is that we've finally shut down all of the Mall North front end, the independent legacy front ends. And now, Mall North only trades as a lean merchant selling over the marketplace. Now applying the accounting regulations, what that means is that the Mall North segment no longer has an independent route to market to generate revenues. And in those circumstances, the segment needs to be rolled up into the bigger segment, the one that does have that capability to generate revenue. So as a result, we now will be reporting the Mall North operation together with the new marketplaces going forward. To see this in numbers, take a look at the next slide. And the key thing here is that the numbers themselves in total are not changing. So the total international operations, which you see there on the right-hand side of the slide is no different between the old way of doing the segmentation, the pro forma, and the new segmentation, which you'll find as reported in the financial statements, exactly the same numbers. The difference is that the Mall North segment moves out of Mall and into the Allegro International segment. You can see that in the gray boxes between the 2 tables and nothing else really changes. What's left in Mall is just the Mall South business, which is in Slovenia and Croatia, where they continue to operate using their independent e-shop. And the last part of this story is that the accounting rules also require when you make a change in segments to retrospectively restate all the history. And we've shown you what that impact is for GMV on the following slide. On the left-hand side, you have the way we've been reporting the marketplaces and their growth historically. And on the right-hand side, this new segmentation. Now what you see there is that the Q2 numbers are essentially exactly the same. And going forward, you'll be looking at the growth of the marketplace as we continue to develop it. When you're looking at year-on-year growth rates, you're going to see the impact of that shrinking legacy Mall growth in the prior year comparatives. And that's going to make the headline GMV growth rates look lower for a few quarters. So that's it for International. Let's move on and take a look at the consolidated group. I normally just talk about leverage when we look at the group numbers, and I'm going to continue that today. Let's start with the leverage as of 30th of June. It's moved down by 12 basis points of a turn to 0.72x adjusted EBITDA. It would have gone down even more if we've not made the decision to use some of the high cash balances at our disposal to increase the investment that we have in our consumer loan book. We put PLN 364 million to work funding Allegro Pay loans during the first half of the year, bringing the total to PLN 867 million. And that, of course, means we retain a bigger share of the financial income that's coming from these loans, sharing less of it with our financing partners and helping our EBITDA. We've also prepared for you a pro forma calculation for the 30th of June to show you what is the impact of the financing transactions that took place in the few weeks after the end of June. In particular, you see here the impact of the return of PLN 1.4 billion to shareholders via a share buyback for 3.7% of stock. Taking that PLN 1.4 billion out of the balance sheet, in effect, has moved the leverage up to 1.16 on a pro forma basis as of the 30th of June. And it will be coming down from there. We expect to be generating significant cash flow in the second half of the year, and we would expect to land around about that 1x leverage that we have in our medium-term guidelines and capital allocation policy as our target level for the group's leverage. So let me move on to the outlook, which, as you've heard from Marcin, is moving up for the full year. But let me just start with a quick look at how we've done at the halfway mark in comparison to the guidance as originally published back in March, which you see on this slide. The key message here is across all KPIs and all segments, we're on track. And the year is going very, very well indeed. Let's look at then current trading, which is laid out on the next slide. How has it been going in the third quarter? Well, we're continuing a gradual acceleration of the Polish business. The GMV is up towards 10% year-on-year. On the international markets, the international marketplaces that were growing 61% in Q2, we're still seeing growth in the 50% to 55% range, reminding you as well, we're now lapping Slovakia as well as Czech Republic results in these numbers. The Mall North legacy front-end GMV that I was describing in the context of the segment changes means that the results for this segment as a whole are going to be slightly negative because we still have these figures in the prior year numbers. And the Mall South segment, which has continued to be reported separately, is shrinking, but that shrinkage has slowed to mid-single digits. So looking at GMV on a group level, we're actually growing somewhat quicker than we were doing in the first half of the year. So that means moving on to look at the outlook update. As we get closer to the end of the year, we're either able to narrow the ranges because there's obviously less variability remaining or in some cases, we've managed to move up the guidance because we're getting increasingly confident we're going to move towards the top end of the range. And that's particularly true for the revenue and the adjusted EBITDA where our expectations are moving up. A couple of numbers just to call out. The Polish operations, we're expecting to come in on or around that 10% growth rate for the full year, but going faster in international than we were originally expecting. Revenues were up across the board. We're looking at 8% to 11% growth for the group and 16% to 18% for Poland. EBITDA costs very much under control, especially in Poland. So the guidance has moved up for Poland to the 10% to 12% growth for the full year. And capital investment, very much on track, no change in the guidance, but we are managing to do 1,000 extra APMs within the cost budget. So with that, I think you can agree that things are going well, and I'm going to hand it back over to Marcin to hit the key talking. Marcin? Marcin Kusmierz: Thank you, Jon. So let me remind you of our key achievements in the second quarter of 2025. A very solid improvement in almost all financial and operating results. We are very pleased with the growth in GMV, revenue, adjusted EBITDA and the increase in the number of users of our marketplaces and their growing spending. . Advertising and financial services are developing very, very well and have good prospects ahead of them. We are successfully developing our international business, focusing on 3P model, we're seeing solid and promising growth in GMV. We also have completed the transformation of Mall North in Czech Republic, Slovakia and Hungary. And we're continuing the strategic development of our logistics network and the Allegro Delivery program. Managed volume is already at 34% with an increase of nearly 5 percentage points quarter-to-quarter. The new agreement with DPD will certainly have a positive impact on the efficiency of the logistics area. And for sure, it will be accelerating the diversification process. We also have completed a very successful buyback and achieved a historically high free float of 72%. And last but not least, we're working with the Board about new potential growth opportunities to build additional growth drivers into annual strategy update. Tomasz Pozniak: Thank you, Marcin. Thank you, Jon. We have just concluded the presentation, and we're ready for the Q&A session. Jota, over to you. Operator: [Operator Instructions] The first question comes from the line of Holbrook Luke with Morgan Stanley. Luke Holbrook: My first one is just on your delivery partner network that's now handling about 34% of your volume. As you mentioned, it's up 5% Q-on-Q. It was up a similar percentage to the quarter before. So with DPD coming online, almost doubling, I guess, the amount of APMs you have through that network, how can we expect that to trend over the next 2 or 3 quarters, if you could just map that out for us? And then secondly, just on your comments that your delivery partners are now cheaper than your largest non-network delivery partner. I'm just kind of wondering how that looks in terms of when we can expect you to kind of announce the outcome of your renegotiations with InPost for your contract that's due to expire in 2027. Jonathan Eastick: Okay. Thank you for those questions. Yes. Let me start with the one about DPD. So obviously, we just signed the contract. There has been quite a lot of work going on in the background to get ready for DPD, but there won't really be much impact from DPD in Q3, obviously, because these deliveries will only kick in, in the next few weeks. It will have much more of a significant impact on the fourth quarter. And you rightly highlighted the fact that there's a lot more APMs, 11,000 additional points where we'll be able to funnel traffic, although they're smaller APMs than the others, means that it will also be a driver for increasing the Allegro managed volume metric, especially in the fourth quarter. When it comes to the pricing, obviously, we are talking with InPost and it's too early to make any predictions about if and when we will come to conclusions. We are very constructive about the situation, but we do need to see lower prices. And Marcin, if there's anything you want to add to that? Marcin Kusmierz: Yes. Thank you, Jon. I think you know that we are purely focused on the development of Allegro Delivery. And you see that we're inviting new partners to the program, all major players on the Polish market. So we just announced cooperation with DPD, the second player on the market. So thanks to that, we have the largest network of lockers on the Polish market and [indiscernible] as well. So this is the crucial point for us, and we want to invest mainly in development of this program. Operator: The next question comes from the line of Ross Andrew with Barclays. Andrew Ross: A couple for me, please. The first one is just to double-click a bit on some of the investments, but it sounds like you're discussing with the Board to help growth accelerate. I'm wondering if you can put a bit of a framework around that in terms of when we might see these investments and kind of how you think about margin investment in that context and then kind of when we might see Polish growth accelerate. And I appreciate it's hard to be specific, but if you could just give us a bit of a kind of directional framework, that would be helpful. And then the second question is to kind of follow up on that. In the opening remarks, you spoke about the idea of taking -- or kind of selling some of your services off-platform. On the fintech side, I think you touched on buy now, pay later, but are there any other fintech services that you could envisage being sold kind of off-platform? And you've also touched on logistics. Can you just be more specific by what you meant when you spoke about kind of selling your logistics solution? Does that mean taking other kind of merchant volumes through the Allegro One network? Does it mean something else, it would be helpful to better understand by what you mean on that. Marcin Kusmierz: Thank you for these questions. Of course, I just joined the company started in May this year. And of course, I was -- and I am still specialized in new business. If you look at my career and my development, I was always looking for some new opportunities, how to speed up growth, how to accelerate development of the company. And I do the same here at Allegro. So we started as a management team discussion with the Board, how we can accelerate our growth, how we see potential directions, also entering some new fields. But this is quite early stage. Of course, we see some new attractive parts of the market we can potentially cover. We see new product categories. We see services, as mentioned before, we see some cooperations or even strategic partnerships, thanks to that we can add something new, something extra to the platform and thanks to that attract new group of customers to us. You know that we have great potential and we have great position on the market, but the market is changing rapidly. So we try to discover all the time some new possibilities, again, to help our customers to find all they need at Allegro, but also, of course, thanks to that to accelerate our growth. And we're also discussing how we can use existing products we develop at Allegro, using example of Allegro Pay or using example of our logistics infrastructure. They represent absolutely the world class. They absolutely are the best-in-class in those segments. So we analyze how we can help our merchants, how we can use our infrastructure to be even more efficient. What is the attractiveness in creation of some new capabilities for our merchants? Because finally, as we saying many times, we want to build a very merchant-friendly ecosystem and to support their growth, of course, mainly on Allegro because we see and we know that this is the perfect place for them to do business together. But of course, we want to be as efficient as we could be. So again, we have many innovations. We have some advantage in comparison to other players, and we want to use these tools to be even stronger. Andrew Ross: So just to be clear on that, could that involve putting in kind of non-Allegro inventory through the Allegro One network? Jonathan Eastick: Andrew, it's Jon. If we were to go in that direction, it would almost certainly be on the Allegro Delivery level, right? So it might be non-Allegro parcels, but across all the partners in Allegro Delivery. But it's still at an early stage. As Marcin was saying, these are the areas that we can see a first look to expand our footprint of activity, which is another way to obviously find additional growth drivers. We're discussing these with the Board in this year's planning round. And we would anticipate starting to make tangible moves on some of these once it's all been agreed over the next few months in our planning process. Operator: The next question comes from the line of Reshetnev Roman with Goldman Sachs. Roman Reshetnev: Congratulations on the solid set of results. Just to follow up on logistics. InPost previously mentioned that 30% of their Allegro checkouts in Q2 included a prompt to use your delivery network. And given InPost's legal action and some customer pushback reported in the media, could you comment on how do you view the situation from your side? And as we enter the high season when service quality becomes more sensitive, how sustainable is this approach for volume redirection for you going forward? And second one on logistics, just like following the recent partnership agreement with DPD, what would be your long-term vision for logistics in Poland? And given you still have a long way to build out your own network and considering your stronger leverage position, would you look at some M&A opportunities in the logistics space? Jonathan Eastick: Okay. Thank you for the questions. I think the first part was relating to the arbitration case, if I understood correctly, that InPost has brought under the scope of the long-term contract that we have that runs until 2027. As we actually showed in one of those slides that Marcin put up earlier, have the capability to prompt customers in the checkout process to see and to consider using lockers, which are now available under the Allegro Delivery framework, either because they've just been deployed or because we've added partners, and we do that. We make use of that. I'm not going to comment on what percentage of the time, but we don't use it all the time. We respect the choices of consumers. But what's most important there is that in accordance with the agreement, the customers have just one click on a button that says change, and they can see the full list of all the available delivery methods that they have at their disposal and they're able to pick whatever they want. So we will see what happens in the arbitration, but we don't think that there's any merit to the claim. Now the second part was M&A and logistics. I mean, we don't really comment on M&A. I don't think there's any need to be considering M&A. The Allegro Delivery approach is working extremely well. The partnerships are working extremely well. Who knows in the very long term what may happen in an industry. But in the short term, there's no comment to make on M&A. Roman Reshetnev: And just a follow-up on the current trends, given that you already highlighted an update on the third quarter GMV growth. And since we're now in the high season, could you also elaborate on the EBITDA growth trajectory? And specifically, how would you describe the activity of Chinese marketplaces in Poland and international over the last months? And do you still see them driving significant pressure on customer acquisition costs? Jonathan Eastick: Yes. Thank you for that question. Yes, let me come back to the margin. Obviously, the margin was up to 6.27% in Q2, but we try to limit our monetization moves to once a year, and we've been doing that for a couple of years now in the first quarter. So it tends to generate a high watermark in the margin in the second quarter, and it will then trend down somewhat over the rest of the year because the salary raises, for example, are in April. Generally speaking, delivery partners need some kind of indexation increase during the course of the year. The IT providers are obviously also looking for increases. So as these things come into the numbers, plus a natural trend for the take rate to drop lower in the fourth quarter mean that the average margin for the year will be lower than that 6.27%. And obviously, you can back calculate it into the guidance that we've given you today that it's expected to land just under the 6% mark for the full year. Yes. And the second part of the question was around the Chinese. We are seeing an increase in activity. This kind of the rebound or the knock-on effect, if you want to call it that, from the tariffs and the changes that were imposed in the U.S. So there is clearly more activity of the Chinese players across Europe, not only in Poland, in recent months. But we're still not seeing a significant increase in the rate of increase in our own surveys. They're still in the similar sort of range. So there's a lot of top of funnel activity. We don't see that much of it coming through in the surveys that we do that try and look at where people are actually shopping in the month-to-month surveys. It is having an impact on our marketing spending. I didn't touch on it in the EBITDA slide, but you can see that we're up about, I think, 17% on a year-on-year basis. We're fighting on all fronts for the share of voice on all different advertising media. We're not going to cede any ground. We are the leader in this market. But yes, they're an important player. Marcin Kusmierz: And as Jon said, we see kind of limited direct competition because Chinese players, of course, they are strong, they are innovative, but they cover different parts of the market, mainly being focused on most price-sensitive customers. And this is, by the way, they show some potential for us or some parts of the market to be covered. But we should remember that the strength of Allegro is based on cooperation with 100,000 merchants from Poland and the region, and we have the widest selection of branded products. So again, we see, of course, some rising competition. But right now, we see that we cover a bit different parts of the market. Operator: The next question comes from the line of Potyra Michal with UBS. Michal Potyra: I just have follow-up questions. The first one on your net cost of delivery. It seems to have plateaued at 5% of GMV. So my question is, is this the level you are satisfied with? Or we should expect that to return to growth in the coming quarters? And the second question, another follow-up this time on the Chinese competitors. I just wonder, I mean, it seems that margin was lobbying in Brussels. There was also an article in FT on the topic. So maybe you can share some intel what are your expectations on the potential regulatory changes in either Europe or Poland, which could even the playing field between the international marketplaces and the incumbents. Jonathan Eastick: Okay. Let me take that first question. Yes, the cost of delivery that's at 5% of GMV is effectively the gross cost, we call it cost of delivery these days. And the short answer is we'd like to see that going down over time, right? And the way to do that is to successively blend lower than the average unit cost methods into the mix. And we're on a good path to do that using the Allegro Delivery solution. And hopefully, at some point as well, we may make a modified deal with InPost, but also obviously have a big contribution to that cost. The total burden though, of running the Smart! program and paying for deliveries is, as I mentioned, you need to take into account the cofinancing, which is up in the take rate. The net of the 2, we talked about in a bit more detail in Q1 in the previous update. When you net one against the other, the 5% comes down to about 2.5% of GMV, which is the net cost of running the Smart! program. And the comment I was making earlier was that it's ticked down fractionally on a year ago as a result of the cofinancing changes and this progress that we've made on controlling the gross cost. Hopefully, that's clear. And the second question was about the Chinese. Marcin Kusmierz: So we don't expect any kind of protection for Allegro or other European players. The only thing we expect is fair competition and to have the same rules for every single player existing or selling some goods on the European markets. So we know -- you know as well that this is today unfair competition. We see that, for example, the U.S. is acting faster and protecting the market against unfair competition. And our expectation is almost the same. So again, we appreciate that some companies that invest in development of European markets, and this is great. But we want to build our competitive advantage, thanks to having the same rules for everyone. Michal Potyra: But do you have any more kind of specific expectations about potential changes, the timing, et cetera? Marcin Kusmierz: This is quite complicated or complex topic. And of course, we work with other European players to create some pressure or to explain why some Chinese players, they use the European market on different conditions than we. So of course, we explain to authorities how the market should be defined and how we should act with some initiatives. And we are quite patient. But of course, we see that some Chinese players, they have some advantage, not because they are much clever or they are stronger or much more innovative, but because, for example, using some unfair advantage. Operator: [Operator Instructions] Ladies and gentlemen, there are no further audio questions at this time. I will now give the floor to Mr. Pozniak for any questions from our webcast participants. Tomasz Pozniak: Thank you, Jota. We have quite a long list of questions. Luckily, part of them already answered when they covered the questions asked by the analysts so far. Some of them, I believe, were explained during the presentation, the ones that came early. I will address them by topic rather than question by question because they touch upon the similar points. So the first question would be, where are we with the cofinancing and how much headroom we still have to improve it? Jonathan Eastick: Yes. Thank you for that question. So the cofinancing move that we made in March moved the share that's being carried by the merchants up to approximately 45% of the total cost. That will tick down, as I said, as we absorb indexation increases from some of the players that have different timing to InPost in their contracts. But essentially, we don't have plans to move it up very quickly from here. The long-term expectation that we've mentioned many times is that we see a 50-50 split as being something which merchants can comprehend and still be excited about, and it's very typically the level that you see around the world. So we probably will get there eventually. But we would think that we've gone from 0 cofi to this level in about 4 years. So we won't be moving up so quickly going forward. Tomasz Pozniak: I believe the next question would be to Marcin because this is asking about the AI-driven marketplaces, AI chats taking away our business. Can you comment on this? Marcin Kusmierz: Yes, absolutely. We do cooperate with all major players producing AI technology or potentially giving us some access to AI capabilities. And we rather perceive it as a chance for us to have additional sales channels. So this is not kind of competition. This is something supportive for us. And we, again, do cooperate with all major players providing this technology. We know how to use to improve efficiency. We know how to use this technology to achieve better conversion on our marketplace and how to create some new extra value, thanks to purchasing through applications. So we perceive it as something positive to us and hoping that new models will be implemented commercially quite soon because as I said during the presentation, we are pretty matured with this technology, and we know how to build advantage of using AI. Tomasz Pozniak: The next question will also be to you, I believe, because this covers the recent changes to the regulations concerning access to the Allegro API. And this has triggered some comments on the web. So what is the main reason for doing this? And can this have impact on our KPIs? Marcin Kusmierz: This is an interesting topic, but this is a technical change because API, this is the protocol used by our partners to manage their products on the marketplace or to automate some processes. And some of our partners, they shared the access to API to other companies without permission for example, and we do invest heavily in development of API because this is something that supports in boosting sales on marketplace and also helping our merchants to be much more efficient. So this is something that we want to secure efficiency of this protocol and to help merchants. Tomasz Pozniak: The next question, international operations. Are they still a strategic priority for the group? Or could potential exits from loss-making operations be considered? Marcin Kusmierz: This is a strategic point or strategic direction for us. And of course, we are still mainly focused on the development of the Polish market, and we are here over 25 years. But we are present in the region, not by accident. This is something like a strategic move for us, and we see that we are able to create some special unique value for customers living in Czechia, Hungary or Slovakia. We see increasing number of customers using our marketplaces. We see increasing number of Smart! users. We see also huge demand from merchants using our marketplaces to cover some expectations of people living in the region. So there is no consideration today that we will be only Polish company. We want to stay in the region. We want to develop these markets. And this is quite early stage of development. Let's remember about that. And we're consequently improving our position and our competitive advantage in comparison to any other player on the market. So yes, we want to invest and we want to be there. Tomasz Pozniak: Thank you. And I believe we have time for just last question. So could we comment on the OCCP case related to our trees being planted for the packages delivered in Allegro boxes -- status and potential impact on the financials? Jonathan Eastick: Yes, there isn't too much to add. There is a conversation going on with OCCP about their findings. We don't know how that will play out. We planted an awful lot of trees, which we're actually very proud about, and we want to continue that. And as part of our branding identity of Allegro One, but it's also inherently intrinsically a very good thing to do. So if something happens, then we will reflect it in the financial results. We certainly don't expect anything material from it. Tomasz Pozniak: Thank you, Jon. So that was last question answered by the management. I will address offline a few technical questions that are still there. And thank you very much, everyone, for participating. Jota, over to you for the conclusion. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good day.
Operator: Good day and thank you for standing by. Welcome to the FactSet Fourth Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Toomey, Head of Investor Relations. Please go ahead. Kevin Toomey: Thank you and good morning, everyone. Welcome to FactSet's Fourth Quarter and Fiscal 2025 Earnings Call. Before we begin, the slides we reference during this presentation can be found through the webcast on the Investor Relations section of our website at factset.com. A replay of today's call will be available on our website. After our prepared remarks, we will open the call to questions. The call is scheduled to last for 1 hour. [Operator Instructions] Before we discuss our results, I encourage all listeners to review the legal notice on Slide 2. Discussions on this call may contain forward-looking statements. Such statements are subject to risks and uncertainties that may cause actual results to differ materially from results anticipated in these forward-looking statements. Additional information concerning these risks and uncertainties can be found in our Forms 10-K and 10-Q. Our slide presentation and discussions on this call will include certain non-GAAP financial measures. For such measures, reconciliations to the most directly comparable GAAP measures are in the appendix to the presentation and in our earnings release issued earlier today, both of which can be found on our website at investor.factset.com. During this call, unless otherwise noted, relative performance metrics reflect changes as compared to the respective fiscal 2024 period. Also consistent with the past 3 quarters, please note that in fiscal '25, FactSet started reporting organic ASV rather than organic ASV plus professional services to focus on the recurring nature of our revenues. Joining me today are Sanoke Viswanathan; Helen Shan, Chief Financial Officer; and Goran Skoko, Chief Revenue Officer. I will now turn the discussion over to Sanoke Viswanathan. Sanoke Viswanathan: Thank you, Kevin and good morning, everyone. Thank you for joining us today. I'm Sanoke Viswanathan and I'm honored to speak with you as the new CEO of FactSet. I want to begin by recognizing Phil Snow for his remarkable leadership. Over more than 3 decades, Phil has helped propel FactSet into a global leader in financial data and analytics, scaling our business to well over $2 billion while staying relentlessly client-focused and innovating with purpose, establishing the company as an industry leader. He leaves behind the legacy underpinned by our open platform, superior client service and deep workflow integration. We are all grateful and I'm personally inspired to build on that legacy. Let me share why I'm here and what excites me about FactSet's future. We are at a strategic inflection point in our industry. AI and data-driven innovation are transforming how financial institutions operate, invest and serve clients, which is driving increased demand for quality data. My career has always been at the intersection of finance and technology and I believe the next decade is going to be defined by those companies that can deliver trusted, integrated financial intelligence to their clients. I've been a FactSet client for years and have been studying the company deeply for the last 6 months and I believe we have a unique opportunity to become the leading AI-powered financial intelligence platform for our clients. In my first week here, I've visited our major offices and met hundreds of colleagues. I'm inspired by the energy and passion across our teams to continue innovating and rolling out new products, data sets and solutions for our clients. I've kicked off reviews of our product road map and client implementations, including various AI initiatives. I've also been welcomed by dozens of senior clients and partners that are keen to explore opportunities for growth. This last week has reinforced my long-held beliefs that I'm sure you all share as many of you are also direct users of FactSet solutions. #1, we provide unparalleled client service. Clients like their FactSet consultant and count on them to be their trusted partner when it comes to resolving the most complex and sophisticated questions. This level of client conviction and trust has been earned by delivering high-quality solutions for decades anchored in deep domain expertise and a client-centric culture. The passion for client service runs throughout the company and I see it in my leadership team, most of whom started their careers as FactSet consultants. #2, we are deeply embedded in our clients. Across the buy side, dealmakers and wealth clients, we are used in their front, middle and back offices to execute complex tasks every single day. Our data, tools, insights and solutions help clients research and create new business opportunities, perform complex analyses and execute transactions in the front office. We run performance, attribution and risk analytics for over 6 million institutional client portfolios every night and help streamline reporting and operations, minimize risk and drive productivity. We also integrate more than 15 million wealth portfolios, enabling advisers to monitor their books of business like never before. We have a great starting point as an enterprise partner to enable clients to transform and even disrupt their existing workflows. And this is evident in our recent performance. #3, we are uniquely geared for collaboration. FactSet's open architecture is fundamentally designed to enable clients to combine their own proprietary knowledge with FactSet's proprietary data sets and insights and with other third-party data our clients see value in. We are cloud native, think API first and partner every day with hundreds of data providers worldwide. We are not bogged down with legacy integrations or business model conflicts. This is a huge advantage when it comes to implementing AI and agentic workflows at scale with dozens and hundreds of integration points up and down the technology stack and across the ecosystem of our clients. In sum, I believe we are extremely well positioned to become the leading AI-powered financial intelligence platform for our clients. I recognize there is significant work ahead of us as AI continues to transform our industry and creates new competitive dynamics. As I look ahead, my focus will be on engaging with clients on their top priorities and continuing to build my knowledge base about FactSet's data, tools and services. I will be working closely with my leadership team to refine our long-term vision and strategy and product road map with particular emphasis on AI. We are operating from a position of strength. FactSet has a long track record of profitable growth, a differentiated position in the market and a distinct value proposition for our clients. With more than $600 million of free cash flow and a strong balance sheet, we are able to invest confidently in our future. Given the growth we are experiencing, combined with the significant opportunity ahead of us, we are continuing to invest in the business this year and Helen will share more details shortly. I believe in a disciplined measured approach to investing for long-term growth, guided by the needs of our clients and focused on generating attractive returns for our shareholders. I look forward to partnering with clients, colleagues and shareholders and sharing more of my vision in the spring. With that, I'll turn it over to Helen to discuss our Q4 performance and FY '26 outlook. Helen Shan: Thank you, and good morning to everyone on the call. Let me start by welcoming you, Sanoke. I look forward to working with you for the next phase of FactSet's journey. It's going to be an exciting time for everyone. With that, I will now share fourth quarter and full year fiscal 2025 results. This year has been marked by change in the markets, in economic policies and in technology. Against this backdrop, FactSet continued to perform well, executing against our plan and finishing fiscal 2025 with strength. We made meaningful progress against our multiyear AI road map, embedded FactSet deeper into client workflows by integrating LiquidityBook for seamless buy-side trading and added Irwin to serve corporate IR needs, all while continuing to advance our open platform strategy. For FY '25, we added $127 million of organic ASV, which is near the top end of our guidance range. Annual revenue increased to $2.3 billion, while adjusted operating margin was 36.3% and adjusted EPS grew to $16.98, all comfortably within our guidance ranges. We anticipate a better performance in the second half of the year and I'm really pleased to report excellent fourth quarter results. Our Q4 organic ASV of $81.8 million was the largest quarter in the company's history, representing a sequential acceleration in growth to 5.7%. This improvement was fueled by recent wins in wealth and asset management, underpinned by increasing demand for our data solutions. For Q4, product drivers came from data, wealth solutions and our analytics suite. Within data, demand for real time and benchmarks was significant for the buy side. We're pleased with the early success of our investments in AI as a number of trials were converted into signed deals in the quarter. We have top line momentum as we close fiscal 2025. With that, let's review the quarterly results in more detail. Starting with our regional performance. In the Americas, organic ASV growth this quarter accelerated sequentially to 6%. What was encouraging was the breadth of growth with asset managers increasing their technology investments and wealth continuing to be a standout performer with our platform capturing share from legacy providers. In EMEA, organic ASV growth improved to 4%. We executed on strategic wins this quarter, including a competitor displacement at a large asset manager. While we are seeing a recovery in the U.K. market, midsized asset managers and asset owners in the region continue to face secular headwinds. Importantly, we're using this period to deepen our relationships and expand our footprint within existing accounts. In Asia Pacific, organic ASV growth increased 7% this quarter. While we faced pricing pressures in some markets, we're offsetting this through solution expansion and new client acquisition. The demand for middle office solutions and AI-ready data is strong here as firms modernize their operations to compete globally. Our workstation growth reflects increasing adoption by local and regional players who recognize they need institutional-grade tools to serve sophisticated clients. Across all regions, we're seeing the same trend. Clients are consolidating vendors and choosing platforms that can deliver integrated AI-enhanced workflows. Clients want comprehensive solutions that transform how they operate. Now turning our results from a firm type perspective. Wealth delivered strong Q4 performance with continued organic growth at greater than 10%, fueled by 7-figure deals, including 2 competitive displacements. We successfully captured market share from incumbent providers while driving higher expansion through our real-time and markets data offerings. Our land and expand strategy is proving effective as existing desktop clients increasingly adopt our data feeds and digital solutions. Off-platform ASV with wealth clients grew more than 50% year-over-year, continuing to expand our enterprise footprint outside of the wealth workstation. For FY '25, dealmakers organic ASV grew 4% year-over-year. Banking delivered strong quarterly results as clients are expressing confidence in our AI road map and choosing FactSet as their partner of choice in their own AI journey. With multiyear contracts securely in place with all of our top 15 largest banking clients, including all of the global bulge bracket banks and leading independent banks, we are leveraging our long-standing C-suite relationships to position for growth across the client's enterprise. Our banker productivity tools continue to drive demand with Pitch Creator, LogoIntern and our market-leading office integration solutions helping both retention and expansion. Lastly, improved market conditions led to better lateral and summer hiring trends as experienced across our bulge bracket clients. Outside of banking, PE/VC and corporates also performed well during the quarter. The integration of Irwin and FactSet provides IR users with an end-to-end workflow solution, which is driving seat count growth and accelerating cross-sell momentum as we expand further into the office of the CFO. Back in June, we noted that most of our Q4 pipeline was from the institutional buy side. It delivered its largest quarterly ASV increase on record, accelerating FY '25 organic ASV growth to 4%. This increase reflects stronger demand for our analytics solutions in the front and middle office and especially for data. Asset managers experienced strong growth with multiple 7-figure wins with improvement in both retention and expansion. Hedge funds growth accelerated for the fifth consecutive quarter, driven by demand for data, our portfolio life cycle offering with LiquidityBook and StreetAccount. Asset owners stabilized from last quarter, with acceleration driven by an increase in demand for our data solutions and strength in the middle office. Growth in Partnerships and CGS accelerated to 8% in FY '25, reflecting significantly improved retention, continued high issuance activity and demand for our proprietary data offerings. Our results reflect in part the strategic investments we made throughout the year. We expanded our data content with real-time feeds, benchmarks and aftermarket research to create a more differentiated workflow-ready data universe and we immersed AI into our solutions and launched 6 distinct offerings that help automate complex tasks and enable future agentic workflows. These initiatives improved renewal rates, expanded client opportunities and contributed approximately 2/3 of our organic ASV growth acceleration this year. These investments positioned us well to compete effectively in a challenging environment. While we're encouraged by this quarter's momentum, we recognize that our success came against the backdrop of tight client budgets and evolving market dynamics. Clients are being strategic in their technology investments and look for battle-tested solutions with institutional credibility. This selectivity can mean longer sales cycles and rigorous scrutiny but our performance reflects 2 key differentiators, the quality and breadth of our data and technology. Our competitive advantage starts with something that simply cannot be replicated easily, decades of curated, connected financial data that improves every day. Here's what's changed. We're not just collecting more data, we're making it exponentially more valuable through AI enhancement and real-time integration. Our largest client wins this year demonstrated strong positioning. [indiscernible] direct displacements at wealth and buy-side clients, 3 involved replacing clients' internal solutions and 1 was a new managed services mandate for an existing client. Our largest losses tell a different story with 2 clients acquired by other companies and 2 strategic cancellations we initiated in Q2, as we noted on a prior call. Importantly, we secured large renewals early, especially with premier global banking clients, generating momentum and pipeline visibility for fiscal 2026. FactSet's ongoing investments in AI and continued progress driving tangible workflow improvements is being recognized by our largest clients who are placing increased value in working alongside trusted partners to navigate the integration of AI advancements into their own businesses. This success translates into improved quality in our ASV. While annual price increases contributed less this year due to lower CPI, significantly stronger retention largely offset this impact, demonstrating that our products are mission-critical and our investments to enhance our data and incorporate AI into our offerings are resonating with clients. We've also steadily improved expansion with existing clients each quarter this year, while new business growth accelerated in the second half. We continue structuring competitive multiyear deals to win new logos when the total contract value creates strong customer lifetime value. As a result, our client count grew to 9,000, nearly a 10% increase year-over-year, driven by additions in corporate and wealth clients. Notably, we now have over 237,000 users with wealth driving growth in Q4 and for the full fiscal year. Turning now to financial results. Fourth quarter revenues increased 6.2% year-over-year, reaching $597 million. In fiscal 2025, we delivered 5.4% overall revenue growth and 4.4% on an organic basis, marking more than 45 consecutive years of top line growth. This track record demonstrates our resilience and consistent performance throughout market cycles. Alongside top line growth, we continued disciplined expense management in Q4 to help self-fund our strategic investments while absorbing acquisition-related dilution. On an adjusted basis, operating expense for the quarter grew 9.5% year-over-year. People-related expenses increased $27 million or 13%, primarily due to higher bonus accruals and workforce expansion, which included employees from our Irwin and LiquidityBook acquisitions. Our headcount grew less than 2% in the quarter, primarily in low-cost locations. Technology expenses grew $8 million or 13%, reflecting higher internal use software amortization and increased cloud and software spend. As stated, we are concentrating our spend in AI capabilities to maintain market leadership through product innovation. We have effectively managed our other major expense categories. Third-party content costs increased $3 million versus the prior year, reflecting investments made in new data sets to support the research workflow while real estate expense rose $2 million due to renewed leases and return to office expenses. Lower other expenses reflect better receivables collection and decisions to reduce discretionary spend. These efforts resulted in an adjusted operating margin of 33.8% for Q4. Adjusted earnings per share in the fourth quarter rose 8% on a year-over-year basis to $4.05, helped by a lower tax rate and a reduced number of weighted shares. For a detailed breakdown of our expense progression from revenue to adjusted operating income and reconciliations of adjusted results with comparable GAAP measures, please reference the appendix in today's earnings presentation. On capital allocation, we repurchased approximately 260,000 shares for $107 million during the quarter, concluding our $300 million fiscal 2025 share repurchase program. As of September 1, we began executing against the new $400 million share authorization program approved by the Board in June. We paid a quarterly dividend of $1.10 per share today to shareholders of record as of August 29. As a reminder, we increased our dividend by 6% in Q3, marking our 26th consecutive year of dividend increases on a stock split adjusted basis. Combined, we returned over $460 million to shareholders in fiscal 2025 through dividends and share repurchases, demonstrating our consistent commitment to delivering shareholder value. We strengthened our balance sheet by reducing our term loan, achieving a gross debt leverage ratio of 1.5x, which provides significant financial flexibility. As part of our ongoing portfolio review, we divested RMS Partners, a noncore sell-side research platform within our dealmakers offering just before fiscal year-end. This divestiture enables us to concentrate resources on our core growth areas. It led to a onetime gain recognized in our GAAP results that had no material impact on our adjusted results in FY '25. To clarify, RMS Partners is distinct from our leading buy-side research management solution. We remain committed to our internal research notes offering for institutional buy-side clients, where our core workstation now features AI-powered workflows designed to enhance research efficiency and insight generation. We're already seeing early positive signals from our past year's investments and we plan to lean into areas where clients have demonstrated strong demand and where we can achieve clear outcomes. For fiscal 2026, we'll continue building on our momentum while investing for future growth. We're executing on data expansion efforts, widening our real-time and pricing reference data capabilities while extending proprietary data coverage across deep sector, such as in TMT, power and utilities. We're embedding deeper into client workflows through our portfolio life cycle solution, further integrating OMS and IBOR to our platform. And we plan to simultaneously develop a comprehensive suite of AI-ready data and our own agentic platform as part of our multiyear AI road map. These investments will support growth in fiscal 2026 across all of our firm types. Wealth remains our growth engine. While we expect to continue to capitalize on competitor displacement opportunities, we plan to expand our offerings in both data feeds and analytics solutions, which include risk and OMS to meet the growing sophisticated needs of the advisers. We expect that buy side will benefit from the integration of LiquidityBook, enabling us to fulfill larger portfolio life cycle opportunities across performance, reporting and trading. We expect our markets, pricing and reference and benchmark data feeds to continue to drive top line growth. We expect the enhanced offerings in our deep sector data and aftermarket research to support dealmakers growth, allowing us to expand to other banking teams such as TMT and credit risk. Our clients should further benefit from the AI capabilities we provide to enhance their workflows. Our AI-ready data enhancements benefit all firm types, including partnerships. We're strategically managing relationships with a growing number of AI start-ups used by our clients. We've maintained control over commercial relationships with our clients and have protections in place for our intellectual property. Moving forward, we plan to carefully balance content monetization through select providers while preserving our direct market presence and revenue streams. We expect to accelerate our focus on productivity. With the help of AI, we've been able to increase the speed of our content collection and expand our coverage in both StreetAccount and CallStreet. Applying what we've learned from developing AI solutions for our clients, we plan to invest to improve client service, reduce our technology [ gap ] and further strengthen our infrastructure in areas such as data connectivity and cybersecurity. Experience in AI implementation reveals that quality data and middleware are not expenses but essential investments as companies who do not prioritize these foundations can face costly delays and challenges in capturing future benefits. With that context, let's discuss our fiscal 2026 guidance. We anticipate continued strong demand for our solutions. Our outlook is supported by a first half sales pipeline that's comparable to last year. We expect continued momentum in wealth, in-line activity in banking and partners and stability in the buy side. Given these dynamics, we're guiding to organic ASV growth of $100 million to $150 million, representing approximately 5% growth at the midpoint. We are taking a conservative approach to our guidance to reflect the current environment of longer sales cycles and more rigorous client approval processes and not due to reduced confidence in our competitive positioning or market demand. GAAP revenues are expected to be in the range of $2.42 billion to $2.45 billion. We expect GAAP operating margin range of 29.5% to 31% and adjusted operating margin of 34% to 35.5%. This range incorporates expectations of higher technology and content costs and targeted investments in wealth and buy-side workflows. We expect some of these anticipated increases to be partially offset by productivity gains and cost discipline. Our wider margin provides us the flexibility to invest more if opportunities exceed expectations. Our GAAP EPS guidance range is from $14.55 to $15.25. Our adjusted EPS guidance range is from $16.90 to $17.60. For fiscal 2026 modeling purposes, net interest expense is expected between $43 million to $48 million. Capital expenditures are projected at $110 million to $120 million. Effective tax rate is projected to be between 18% and 19%. As we enter fiscal 2026, we're positioned at an inflection point where our strategic investments are beginning to translate into measurable competitive advantages. The convergence of client demand for workflow integration, data modernization and AI-enabled solutions creates a compelling opportunity for FactSet to expand our market presence while deepening existing client and partnership relationships. We're not expecting dramatic market shifts to impact our growth. Instead, we're methodically building capabilities that address genuine client needs while positioning FactSet to capitalize on secular trends, reshaping how financial professionals access, analyze and act on information. This measured approach, combined with our established market presence and proven execution capabilities, forms the foundation for sustained value creation in the years ahead. Thank you for your time today. We'll now open up the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Alex Kramm with UBS Securities. Alex Kramm: Welcome Sanoke to the call and the company. I'm actually going to start with the margin question. So I guess this is more for Helen but maybe you can start by maybe breaking down how much of the kind of margin decline is really due to incremental investing versus just cost inflation and where those investments are ultimately going in terms of new projects? And then looking a little bit further ahead, I know this is fiscal year '26 beginning but do you view this as a onetime kind of investment phase? And when we get into 2027, we can start looking at margin expansion again? Or do you think this is kind of like the new normal? Sorry for the loaded question. Helen Shan: Thanks for your questions, Alex. And let me kind of walk through. I think your question is both about '25 and then '26. So when we gave our range of 36% to 37%, where we had in there, of course, was a normalization of our bonus to begin with. And quite frankly, what we've shown in this year is the ability to not only expand but absorb some of the dilution from our acquisitions. So the biggest impact from a dollar perspective was on the bonus. And then I think the other piece, quite frankly, is some of the additional hiring that was supporting some of our investments. But had it not been for the dilution, we'd actually be above the midpoint of the range. As I think about the guidance going forward, I'll give you a little bit more detail to help walk you through that. So when we think about the investments from '25 that we believe has given us some of that, I'll call them, green shoots of benefit, when we think about 2026, I would think the breakout there is really into 2 pieces. I would say that we're investing about, let's call it, 250 basis points really in growth investments, 2/3 of it will be in growth investments and 1/3 a bit more structural. Now as we talked about on the call, the growth is in AI, in data and in PLC. All of that is meant to drive the top line. Structural will be on cyber and internal AI as well as helping to support further growth as it relates to our AI-ready data. So when we think about going forward, we're only talking about 2026 right now, so I won't go into any more details. But we would expect to get the operating leverage off of our structural investments and then expect top line growth from the growth investments. Operator: Our next question comes from the line of Faiza Alwy with Deutsche Bank. Faiza Alwy: And welcome Sanoke from me as well. Maybe I'll ask you, you mentioned that you think FactSet is well positioned to become the leading AI-powered financial intelligence platform. And then you talked about significant work ahead of you and alluded to new competitive dynamics. So maybe expand on that a bit. Sort of where do you think the focus will be for you over the next couple of years? And where do you think the end state is for you? Sanoke Viswanathan: Thank you and thank you for the question. I appreciate it. And thank you, everyone, for the warm welcome. On AI, clearly, it is the biggest opportunity in front of us. We have already several products in the market. And as you've heard in our call so far, we are seeing real traction and we are really leveraging those to make these competitive displacements that are adding value and adding to the growth rate. What I meant by the work ahead is, this is an accelerating and really dynamic space. There is a lot of technology change. There is a lot of competitive dynamics as in new competitors, start-ups and traditional competitors, all in an AI arms race. So my focus in the next several weeks and months is going to be spending significant time with our clients to understand their top priorities, how they are transforming their own workflows and spend tons of time with teams internally that our product evolution and looking at our road map and understanding how we are meeting our client demand. So there is a fair amount of work to be done here, understanding our infrastructure, understanding our technology architecture and how it will integrate with our clients. But I am encouraged by what I've seen in just the last few days. Just within the last week, I have seen some really exciting projects and some products that I think you will also be excited when they come out in the coming weeks and months. Operator: Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Ashish Sabadra: Sanoke, let me add my welcome and congratulations as well. I just wanted to parse the strength that we are seeing in wealth. Obviously, very strong momentum, really good displacement of incumbents. But as we think about growth going forward, how do you think about more 7-figure deals there and as well as ability to add more through improved attach rate at existing clients? Sanoke Viswanathan: Thank you, Ashish. I will ask Goran to add in a minute with all the more recent sort of conversations that he's been having. But as you know, I've just most recently been in my previous roles, very deeply ingrained in what's happening in wealth management. And I'd just start off by saying that the secular trends in the industry are all in favor of continued growth for FactSet. When you think about how a wealth manager thinks about their business, there is the ongoing activity of building the book and growing new business where there is an increasing application of analytics and AI in the business development workflows. And then there is the business of managing the existing book of business really efficiently and continuing to add value to clients and continue to improve their portfolio performance, where, again, we have a strong presence with our adviser desktops and all the tools that we bring to bear. And I see only increasing -- ever-increasing demand for high-quality analytics that will add value to the advisers. Goran? Goran Skoko: Ashish, I would say, I think our opportunity is demonstrated by our success in the quarter. We had -- our strategy has been land and expand. I think we had 2 7-figure expansion deals in the quarter, both in terms of upselling our data as well as upselling into additional departments in addition to advisers. That will continue. We see that as a significant opportunity for AI and opportunity -- opportunities for AI solutions exist within the wealth management and we are taking advantage of some of them. There are still large 7-figure deals and large opportunity for us in the market, in addition to that, geographic expansion, expansion for our prospecting tools. So wealth will continue to be our growth driver for years to come. Operator: Our next question comes from the line of Kelsey Zhu with Autonomous Research. Kelsey Zhu: I was just wondering if you could maybe talk a little bit more broadly about FactSet's AI strategy, both on enhancing internal efficiencies as well as driving better client engagements. And in light of this, maybe also talk a little bit more about the moat of FactSet's Workstation in light of all of these emerging AI companies and start-ups. I know you previously guided towards 30 to 50 bps ASV growth in '25 from GenAI products. So just wondering actual results, how does that compare to guidance? And if you're expecting the same type of growth from AI products in 2026? Sanoke Viswanathan: Thanks, Kelsey. That's a really a big expansive question. So I'll start off by just giving my general thoughts on how I see the strategy and what I've been learning in the last few days. And then Helen is going to cover your question around what the impact has been. And maybe, Goran, you can highlight some of the ways in which AI is translating into competitive wins. So if I come back to -- and I have to draw on my experience over the last decade or so, where I've been working to implement various sort of iterations of AI at very large scale in my previous roles. And one of the things that I and everybody else always underestimated was how complex it was to capture the value that -- the promise was always high but the process it takes to put models into production in highly regulated environments that our clients have is not easy. It's really complex. And it -- the core comes down to the implementation, the quality of implementation, the quality of the data, how reliable a partner are you working with? And you can see that those trends starting to emerge now as you talk to enterprise CTOs and CIOs who are trying to implement and data officers who are trying to implement this. So this is why I'm personally incredibly excited about the opportunity for us because of the open architecture design and fundamental sort of infrastructure that FactSet has built over the last 10 years, which enables us to partner much more actively and aggressively with both clients who want to bring in their proprietary data, FactSet's own data and insights as well as on the fly join up with third-party data that a client may find valuable. So I see incredible opportunity for us given that dynamic. Helen? Helen Shan: Yes. Thank you, and thanks, Kelsey. So I want to keep in mind that, one, we launched many of our products in January of this year. So it's been terrific to be able to see some of that go through. A lot of this has to do with adoption. But to answer your question more specifically, when we gave the guidance of 30 to 50 basis points, I'm really happy to say that we were exactly in the middle. So we were able to accelerate growth right in the middle of the range and right within our expectations. I think that it's important also to note that those are stand-alone products. Those are monetized products. But quite frankly, so much of our conversations with clients is around both the strategy and the road map and how that influences their decisions. So I'll let Goran talk more because when you talk about the impact AI has, it's much broader than just the monetized products that we've been able to bring to market, so off of a PowerPoint page and on to actually used by clients. Goran Skoko: Thanks, Helen. I just want to highlight a couple of things and I have to take the opportunity. We really had a fantastic sales quarter and lots of momentum going into 2026. And AI was significant contributor to that. About 60% of what we have sold in terms of our AI tooling and content came in Q4. And I think that really bodes well for what is ahead of us and the opportunity that Sanoke spoke about. So in addition to discrete sales of -- that we are referencing when we are talking about the numbers, our GenAI tooling and strategy has been pivotal in many of our renewals and new deals. So about 35% of our renewals in the quarter mentioned our GenAI tooling and strategy as a contributor to their decision to select FactSet in head-to-head competition versus others. So I think we are very happy with the progress and the momentum that these tools are bringing to us. We had 3 very large banking renewals in the quarter. And all 3 mentioned, again, our AI tooling as one of the key points in their decision to go with FactSet as well. I hope that answers your question. Operator: Our next question comes from the line of Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Sanoke, I want to join the others in welcoming you. And I just want to put this out in terms of -- I know it's early on but there's been a lot of investment in AI and it seems like it's very exciting and embedded in a lot of products and a little bit of growth also coming from that. Do you feel that this investment is going to materially accelerate the growth rate for FactSet? Or do you think that with everything going on in the industry, realistically, all these investments that are going on are really to kind of maintain your market position of where you are. And realistically, that's what you need to do to just kind of hold on to what's going on. So trying to figure out, is there going to be -- is this just an increased investment that's necessary to keep you there? Or are we going to see a return to some kind of material growth? I know it's early on but you must have thought about this before you took this job. Sanoke Viswanathan: Thank you. Thanks for the question. It is one of the important questions that every provider is asking themselves when it comes to what is happening with the AI-led transformation. My perspective is, these transformations go through different phases. And I think we are still in a relatively early phase of embedding of AI in our clients' workflows. And at this phase and FactSet has done incredibly well to get out ahead of competitors, the -- it is a discovery phase. And during this phase, clients are experimenting with lots of different ideas and tools. There are a lot of evolution in the dynamics of the technology itself and it's going to take some time to settle down. Usually, what happens then is there is a breakout phase that is well ahead of us in this context, where the winners start breaking away from the rest because the solutions are clearer, there is more client adoption. And when it really starts coming to committing real budgets, there is more conviction. And I think we are way early in the AI adoption cycle still for that and especially in our client base, which are, again, highly regulated, where the data and the outcomes have to be incredibly precise. And we are going to see that evolution curve ahead of us. So to your question, I think my perspective is what I see as the investments underway right now is allowing FactSet to be a leader in client conversations. It is allowing FactSet to have the right kind of progressive dialogue around where we see the market going. And I think a lot of this is going to translate into ultimately the real big winning products that are ultimately going to come out. And I have been personally quite excited about what I've seen in the last week as I've gotten deeper into it and I've been understanding the product road map. And there are some really exciting products and projects underway that will add a lot of value to our clients. I don't know if Helen or Goran want to add anything to that in terms of your perspectives. Helen Shan: No, I think you've captured it well. I think the fact that we have some of these green shoots from the investments we already made is what gives us greater comfort and confidence of why we are investing more in those same areas of data, workflow and AI. And those are the winning combinations and I see that helping us grow going forward. Operator: Our next question comes from the line of Jason Haas with Wells Fargo. Jason Haas: I'm curious if you could talk about what trends you're seeing in regards to bank hiring. And then we've heard this idea that the banks are already pretty fully staffed. So even if we see a continued rebound in IPO and M&A activity that the banks don't need to hire a lot more because they're fully staffed. So I was curious if you could comment on that thought as well. Sanoke Viswanathan: Thank you for that question. I'm going to just make a couple of general remarks about what I see in banking and then I'll pass it on to Goran to give a bit more color from especially the recent large wins that he has seen. What I see as the ongoing trend in banking is there's a continued strategic convergence across the full spectrum of banking activity from commercial banking, corporate banking, all the way to investment banking and deal making. There is a lot more of an integration that is happening at the universal banks in bringing these capabilities together and being able to go to market and go to their clients with a joined-up approach. There is a huge focus on CRM convergence and bringing together their ability to understand their clients, which has not been easy for especially the largest institutions. And there is a continued focus on banker productivity, particularly obviously enabled by some of the advancements that we see in AI. So there is a fair bit of technology dollars that is being committed that I've, at least in my experience over the last couple of decades, this is the highest intensity of technology and intensity of data and analytics being applied in banking that I've ever seen. And I think that's -- we are just at the start of that. Goran? Goran Skoko: I would just add, I think so hiring in Q4 was a bit better than expected for us. So we did see contribution from banking hiring in our results. It wasn't material but it was better than we had modeled throughout the year. We are also seeing similar trends carry into Q1. So there is improved hiring in the sector. And I would also just want to highlight, I think this is the area where some of our productivity tools and some of our GenAI-related tools or AI-related offerings are really receiving the most attention. And I think we expect momentum in that regard as well. Operator: Our next question comes from the line of Surinder Thind with Jefferies. Surinder Thind: Helen, this question is actually for you. Can you help us maybe better understand some of the internal productivity initiatives here and what you're expecting, if there's anything that you can quantify? It seems that there's a narrative out there that AI should be a material beneficiary to margins. And yet in the near term, we're seeing all of this increased investment. So is this an idea where maybe you can do a lot more rather than doing, I guess, the same amount with maybe lower resources? Like how do we think about that trade-off? And what it means for headcount on a go-forward basis? Helen Shan: Yes, sure. No, thank you for that. Now you're absolutely right. There is a narrative out there of material change in terms of costs. And I think from our perspective, there's a couple of things you need to get right. When we talk about internal, we've already had some of the increased output in what we've been able to do for CallStreet or StreetAccount. We've seen some of the benefits from an engineering perspective in terms of productivity improvements. But right now, what we're trying to do is get things done faster, be able to hit our deadlines quicker, bring products to market in a more efficient way, more -- in a speedier way, quite frankly. I think that's actually what you're -- we're seeing in our top line improvement. Now we do need to invest. And every company has the struggle of wanting to get their data connected in a way that can provide the insights, that can take away a lot of manual processes. As a finance person, we always talk about the death of Excel but I'll wait to see when that happens. But quite frankly, we do still have a lot of manual pieces out there. So my view is that you'll see a slowdown in employee growth but a lot of our improvements will be about redeploying that talent and then we're going to see that translate into greater productivity and higher output, which will drive top line growth. So that's where I see a lot of the efficiencies come from. Operator: Our next question comes from the line of Craig Huber with Huber Research Partners. Craig Huber: Congratulations as well. Wanted to ask you, we're looking at a, obviously, a stock market that was up 23% to 24% each of the last 2 calendar years, up about 12% year-to-date here, probably can do a whole lot better than that. You do cite that the environment has been holding your revenue growth back and it's been up 4% to 5% organically, as you know, in the last 6 quarters here, looking at my model. What has to change in the environment out there in order to get accelerated organic revenue growth aside from this AI that you've been chatting about here. What else can you point to here to help give us some confidence that the organic growth will accelerate above this 4% to 5% trend you've had the last 6 quarters? Sanoke Viswanathan: Thanks, Craig. Let me just make a couple of remarks and then I'll suggest Goran gives a little bit more color based on our client conversations. I think beyond AI, my perspective on what's happening in the industry, right across all of the major clients that we serve is there is a continued increase in the use of analytics through and through the trade life cycle, the portfolio life cycle, the client life cycle. And I think that is an accelerant -- that AI is an accelerant to that. It was always happening but AI is driving an acceleration in that trend, which leads to the demand for services such as FactSet, where we see growing opportunity across the board. And that's, again, starting to be reflected as you saw in this last quarter. Goran? Goran Skoko: So just maybe to continue on that note, so we did accelerate significantly in the quarter from 4.5% to 5.7%. There is no change in the market conditions during this period. We believe we can continue this momentum. We have a new set of maturing products. We keep talking about GenAI but our exchange data feeds, our price reference data feeds, our managed services offering, all of those will contribute and we do not have to see a significant change in the market conditions to accelerate. We have to execute on what's ahead of us but we have plenty in our toolbox to accelerate our growth. Helen Shan: And maybe I can add on a bit to what both Sanoke and Goran have said. If I think about the trends that are out there, there are 2 pieces in particular. We have clients who are upgrading their own tech stack. They're moving from what, quite frankly, on -- I think we've used this stat before that less than 30% of them have even moved to the cloud. So that is a natural place for clients to reconsider who they want to use going forward. So that's one piece of it. The second is, quite frankly, the need for more data and not just data for the sake of data, data that's quality -- that is of quality, that's been tested, that we have decades of historical information and that is all concorded. And I think that's reflected this year where we have double-digit growth in our data ASV. And so I think that is a harbinger for what we see going forward. So between -- and the third piece, which Goran touched on, is that as things become more sophisticated, managed services is a great way for clients to be able to then essentially focus on what they're best at, which is generating alpha and then moving towards using us where we're able to use our own technology, our AI to be able to do a lot of the middle office pieces in a more efficient manner. So I would look at 3 things in addition to what was already been said that they're not really based off of a better stock market. One is the ability for the change in the tech stack, the focus by clients on what they're best at and the movement of actually even greater data needs, quality data needs, refined data needs that I think we're best at. Operator: Our next question comes from the line of Toni Kaplan with Morgan Stanley. Toni Kaplan: And I'll add my welcome to Sanoke as well. My question is for Helen and it's sort of a longer-term question. But at your Investor Day in November, you had expected 37% to 38% adjusted operating margins in the medium term. Obviously, at the midpoint of the guide here, you're below 35%. My question is, do you think that 37% to 38% is off the table at this point for the next few years? Maybe what has changed from 10 months ago? And so a little bit of a longer-term margin question in terms of where this goes. Helen Shan: Thanks, Toni. Appreciate it. Let me talk a little bit about what's underneath the investments and the productivity that we're going through in '26 and that will give you a little bit of a sense. But I am going to focus on 2026 as opposed to the medium-term guidance. We're not making any changes to that. And when we do, we'll obviously come back and talk to that. But in the investments that we're making, which we believe will drive that top line growth was the data expansion, the wealth, the PLC for what we call the portfolio life cycle, which now wealth is very -- advisers very much want. That's a driver on top line. And then, of course, as Sanoke has already talked about, everything we have is going to have AI. So that's going to be a driver. That's meant to help on the top line growth. That's about -- of what we're investing, which is about 250 basis points, 2/3 of that is coming into those buckets. The other 1/3, which I'm calling it structural, is really around things that will help on the efficiency side or give us the operating leverage going forward. For 2026 alone, we have about 100 basis points of what I'll call cost reduction in the productivity, in lower professional fees and lower third-party content. So I sort of think about those going forward as we're going to get better and better on the productivity front and we're going to get leverage both on that piece and driving our top line. So I'm going to stick with talking to 2026. I understand your question but that's how we're thinking about it at this moment. Operator: Our next question comes from the line of Scott Wurtzel with Wolfe Research. Scott Wurtzel: Sanoke, welcome. Just wanted to stick on the investment and margin side of topic here. I mean, Helen, just wondering if you can maybe talk about, especially on the sort of growth investment side, if there are any specific payback periods you are sort of looking for when you guys are making these investments. Helen Shan: Yes. No, thank you for that. So I'm going to answer that in a couple of different ways. When we're talking about something that we're building out in a much -- which requires more, I'll call it, infrastructure costs like real time or like deep sector, which are much bigger investments and require more time, we have a period that we look at for a payback, which is around 3 years. It's kind of similar to how we think about with our acquisitions as well. And then there are other things that we expect quicker paybacks for, especially as it relates to the sale of content. So I would say it's less than that period of time. And I think quite frankly, the scale on the content side can be quite quick. So that's how we measure the speed at which we can cover our costs. Operator: Our next question comes from the line of Peter Knudsen with Evercore ISI. Peter Knudsen: I'd love to ask -- touching on an earlier question about pricing contributions. I know in the past, that's been a little bit under pressure. And last quarter, I think you said that's stabilized. So I'm just wondering if you could talk a little bit about your outlook for pricing contributions on new business in '26. Helen Shan: Yes. Thank you for the question. I'll take that one as well. So when we talk about pricing discipline, that is something that we go across the board. We believe the value we're providing our clients is appropriately priced. We have actually not seen too much change, as you referenced over the year. There's been a little bit on new business and it really depends on certain firm types. I would say, of the various ones, we've managed to be able to maintain within a 5% range of our price realization. So we're not doing more discounting than we have before. We've actually saw an uptick in Q4 in terms of new business. So both in terms of ASV and in terms of number of deals. And our annual price increase, which is what we've done in the past, was in line. And so we're not assuming anything different in our 2026 outlook. Operator: Our next question comes from the line of Manav Patnaik with Barclays. Manav Patnaik: Welcome, Sanoke, as well. Just Sanoke, maybe just for you, just curious on your thoughts on capital allocation and particularly in this AI race that you talked about, whether dealmaking is going to be a focus for you. And Helen, I just wanted to follow up quickly. You mentioned a few times investments in cyber. I was just -- I was hoping you could elaborate on that. And I'm guessing it's more internal security but just some thoughts on that. Sanoke Viswanathan: Thanks, Manav. It's an important question. As I think about this, my first priority is to continue to really understand our product portfolio and the strength of our product road map. I've already started doing this. And what I observe is, we have a really strong product set. And there is a huge amount of energy going into the innovation in the company. And historical acquisitions that have been made are also well integrated and adding quite a lot of value to our clients. So in the coming months, I'm going to investigate this and obviously, in much more detail, both in terms of hearing what client priorities are and how they are shifting and from our internal teams to understand our road map and where we are finding traction. And that will ultimately optimize the approach in terms of organic versus inorganic growth. What I'd like to add, though, is that I'm not a believer in growth at any cost. I think it's important that we are prudent with our investments and with our capital allocation. And we'll continue to do that in the way that FactSet has done over the years. And frankly, I see so much opportunity for growth with the capabilities that are already in place here at FactSet. Helen Shan: Manav, your question on the cyber front. So yes, that is meant for internal. I think as we continue, obviously, to invest in AI, that's an important piece of it. And when you have over 6 million of portfolios on the asset management side and over 15 million portfolios and growing on the wealth side, we want to make sure that we are providing the best we can in terms of the security. So that's why that is part of the driver of our focus. Operator: Our next question comes from the line of George Tong with Goldman Sachs. Keen Fai Tong: I'd also like to extend a welcome to Sanoke. So your fiscal 2026 guidance for organic ASV growth of around 5% at the midpoint points to a deceleration from growth you saw in fiscal '25. Can you talk a little bit more about the drivers of this deceleration and what you're seeing competitively maybe contributing to it? Sanoke Viswanathan: George, thank you. Let me start and then I'll hand over to Helen. It's obviously day 9 for me today, and it's been a busy week and a bit. And I must say, through that period, I've had extensive discussions with the leadership team and the Board. And the guidance reflects our view of the business today and the dynamics that we see in the marketplace and balancing that with our commitment to our -- to long-term growth. So we clearly see continued growth opportunities in the areas that we've already talked about, whether it's wealth, data solutions and frankly, in quite a lot of the other places that I've seen. And we are continuing to make investments that are disciplined and balancing AI investments with all the other investments that we need to make where we see opportunity. So the guidance reflects the state of play today. Clearly, I'm going to be spending a lot of time in the coming weeks and months with our teams and with clients and come back and talk about long-term vision and opportunities and strategy in the coming months. Helen, would you like to add anything? Helen Shan: Sure. No, happy to do that. And thanks for your question, George. As noted on -- in the script, I mean, we are taking a more conservative approach to our guidance exactly for the reasons that Sanoke just talked about. It is not due to reduced confidence either in market demand or competitive positioning. As we talked about in the top wins that we had, most of those were competitive wins. I'll ask Goran to talk about the pipeline but the midpoint is just conservative in some cases, because we know that there are longer sales cycles. We know that we can tell from some of the good green shoots that we've had on the AI front that you need to have the adoption from the client side and that can take a little bit longer, especially as they go through their own compliance checks as well. And then we know there are some headwinds as it relates to some of the policy changes in Europe. But quite frankly, we feel very good about where we are, the fact that we are above our midpoint for this year. And just to keep us all in line, last year, we were at a range of [ $90 million to $140 million ] and we're up this year. So I think it just reflects a conservative -- and we're going to do everything we can to beat it. Goran Skoko: So I would just reinforce what Helen just said. I think our guidance is conservative, with a high level of confidence we'll be able to execute in the range we provided. That range is identical to last year. We feel good about the momentum. Our pipeline is a bit improved year-over-year. It's early in the year, so it's a little bit difficult to talk with certainty but we do see improvement. And we saw, quite frankly, significant acceleration in the pipeline over the last 5 weeks. So that is one of the main data points that I look at when -- as we are entering the year. So we have a high degree of confidence we will execute on the range we have given you. Operator: Our next question comes from the line of Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to touch again on AI. I hear your conviction on the medium-term opportunity and your belief in your competitive position. But I'm curious, I guess, one, how you'd characterize your suite of AI products and the specific kind of execution around that relative to your peers at this early stage? And then maybe conceptually, how important is it for you to be first? Or does the stickiness of your product, how heavily embedded you are with clients allow you to be a little bit more deliberate with product development, product investments, product rollout? Sanoke Viswanathan: Thanks, Andrew. Really important question. And as I said earlier, we are very much in the sort of the early stages of the AI adoption curve with our clients. When I look at the products that we have out in the market and as I get to learn more about what's being -- is still in the development phase, I think they are really very finely tuned to add value to our existing product, services and solutions with our customers. So an example being portfolio commentary in the buy side, or Pitch Creator on the banking side. These are natural adjacencies and absolutely synergistic with the kinds of solutions that we offer traditionally to our client base. So I think the competitiveness of these products, I believe, is high. We are going to see continued traction with it. And the investments that we are making and what I see in the hopper are all constructive and logical and natural extensions of where we are today. But to your question around the adoption curve and do we need to be first mover, I believe there is a trade-off between being too early and getting things wrong and being too late and missing sort of the market share and the opportunity to leapfrog competition. And this is a fine balance to strike. It's early for me to say if we've gotten it absolutely right or not. But I am confident that there is a lot of great talent here at FactSet and I'll be working with the teams to get that balance as right as we can going forward. Operator: Thank you. This concludes the Q&A session. I would now like to turn the call back over to Sanoke Viswanathan for closing remarks. Sanoke Viswanathan: Thank you. Thank you, everyone, for joining the call today. As we begin fiscal 2026, it's an exciting time. Our strategic investments are driving strong momentum across the business as we execute on what matters most to our clients. As I stated earlier, we are uniquely positioned to become the leading AI-powered financial intelligence platform for our clients. We provide unparalleled client service. We are deeply embedded in our clients and we are uniquely geared for collaboration. I look forward to meeting many of you over the coming weeks and days. Operator, that ends today's call. Operator: Thank you. This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I am your Jota, your Chorus Call operator. Welcome, and thank you for joining Allegro Group Earnings Call and Live Webcast to present and discuss the second quarter 2025 results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Tomasz Pozniak, Investor Relations Director. Mr. Pozniak, you may now proceed. Tomasz Pozniak: Thank you, Jota, and welcome to all participants of our call. Let me introduce the presenters of today. Marcin Kusmierz, the CEO of Allegro Group, who will provide you with the highlights of Allegro performance in Q2 and summarize the key takeaways; and Mr. Jon Eastick, our CFO, who will guide you through the financials for Q2 and update of the outlook for the full year 2025. As usual, our results presentation is available for download from our Investors web page at allegro.eu. You may also download the slides from the link available on the webcast screen. As a reminder, today's presentation and discussion contains forward-looking statements. Our actual results could differ materially from the expectations expressed in such statements. Please make sure you review the full disclaimer on Slide #2. Also please note this presentation and the Q&A session are being recorded and will be available for a replay on our website at allegro.eu. And with this, I would like to hand over to our CEO, Marcin. The floor is yours. Marcin Kusmierz: Good morning. This is Marcin Kusmierz, CEO of the company. Thank you for introducing and welcoming the participants of today's conference call. At the beginning of our meeting, I would like to share the key financial and operating results achieved in the second quarter of 2025. Detailed information will be presented by Jon Eastick, our CFO, in the second part of the presentation. GMV on Allegro in Poland was close to 10% and more than twice as high than nominal growth in retail sales. We showed rapid growth compared to our competitors in the e-commerce industry as well as traditional retail chains. We exceeded 15 million active buyers, while also passed PLN 4,000 GMV per active buyer. Good results in GMV and increase in the number of buyers resulted in strong revenue growth over 18% year-on-year. Almost every part of our business developed well, but our advertising business line deserves special mention with over 30% growth year-over-year. It is also worth mentioning the take rate, which exceeded 13% in Poland and improved by nearly 5 percentage points. We see that we still have very good potential for further growth in Poland. For customers in Poland, Allegro is the first choice, and we are consistently building our position in the Central Eastern Europe. At the group level, GMV increased by 9%, which was influenced by continued optimization of the mall group. At the level of international marketplaces in CEE, we achieved excellent GMV growth and demonstrated Allegro's consistency in building a strong position as a regional leader. The number of active buyers in the group exceeded 21 million with GMV per active buyer increasing by over 4%. At the group level, our revenues grew by over 10%, again, with a good outlook for the future. Strong GMV growth and excellent revenue growth had a positive impact on adjusted EBITDA, which increased by 14% in Poland and by over 20% at the group level. Thanks to that, we are upgrading revenues and adjusted EBITDA outlook towards the top end of the range. We are constantly continuing our investments related to the development of the marketplace's functionality and making it even more attractive. We're also investing in the development of logistics infrastructure that supports the expansion of the Allegro delivery program. As a result, our CapEx expenses increased by 67% to over PLN 200 million. It's also worth mentioning the reduction in financial leverage, which was supported by strong free cash flow generation. Let me now present the 4 pillars of our development. These are the strategic directions, which we focused last couple of years. We are constantly investing in the development of the marketplace, our core business in both Poland and the CEE region, giving consumers the widest choice of products, ease of purchase and range of added services. We're also developing new growth drivers, which, on the one hand, strengthened our core business and on the other hand, build a long-term competitive advantage. They have a positive impact on the pace of our business development and make our business more diversified. I'm talking about advertising, financial services and logistics. With each quarter, we are growing stronger in the markets of Central Eastern Europe. Customers from Czechia, Slovakia and Hungary are increasingly shopping on Allegro, building relationships with us and taking advantage of our loyalty program. They increasingly treat us as one of the main places to buy products based on our wide selection and attractive prices. We want to continuously improve our value proposition for buyers and sellers in the region so that as in Poland, we are their first choice. We're also strengthening our foundations, technological business and human. We use a modern technological platform within the group, and we are building a culture focused on innovation and development. We are a company that invests in long-term growth and strengthening our market position. For a moment, I will focus on the value proposition we offer to buyers and sellers in Poland. We invest heavily in personalization and targeting products to the expectations of consumers and business customers. Allegro is a place where you can find the widest range high-quality branded products. We're constantly attracting new sellers to the platform. They represent almost all industries and business sizes. They are global corporations as well as local microenterprises and have perfect understanding of customer expectations and needs. When I joined Allegro a couple of months ago, we almost immediately started a discussion with the management team and the Board about the possibility of accelerating our growth and strengthening our market position. Allegro has almost everything it needs to conquer new market segments and attract new customer groups. It is the leading online shopping destination in Poland, and we see further prospects for strengthening our position. So we are analyzing the market and the attractiveness of investment in its individual segments. In the coming weeks or months, we will discuss and approve strategic areas for making potential investments with the Board. We have launched the process that we're calling accelerated evolution. Our ambition is to be the leading shopping destination for current customers and customers representing future generations. We want to be a platform that addresses customer expectations and needs and is a friendly ecosystem that supports the growth of our partners. Let's start by discussing the core marketplace and how we see opportunities for its growth in the future. We will certainly accelerate investments in the development of marketplace functionality. For 25 years, Allegro has been the first choice for buyers and sellers in Poland and Central Eastern Europe. We see potential in combining the functionality and added services of the 3P and 1P models, everything that is the best about that. The 3P model remains our foundation, and we do not plan to expand our own product range or maintain larger inventories. What inspires us in 1P and what we add to Allegro is sector expertise, consulting and even better product management. Now I will focus on the possibility of expanding our marketplace with new categories and market segments. The natural direction for the development of marketplace is expansion of product offering. We currently have over 80 million products, but we still see opportunities to add some new product categories, accelerate GMV growth and increase the frequency of purchases. We're also exploring possibility of cooperating with brands that they are not currently present in Poland and CEE to become a gateway for their market expansion. Services, a new area of interest for us. We're analyzing and looking with curiosity at the rapidly growing services segment in recent years. We're carefully looking at the segments with the largest market share and the greatest potential, both those that support the sales of products, financial services or insurance as well as those that are independent. Customers trust Allegro. They have great relationships with us, and they want to grow with us. So we believe that we will be able to create for them some new special unique value. The next point is potential externalization of services produced at Allegro as another area that could potentially support our growth. We're considering selling some services outside the marketplace. We create world-class products and following the example of global players, we're thinking about selling them in other parts of the market. Our Allegro Pay is the best buy now, pay later solution on the market. Our logistics infrastructure is the engine for the highest quality services. This is a potential opportunity to build relationships with the new groups of customers and sellers. We see a lot of interest and demand from merchants. We're talking with them about joint opportunities for growth, business development and new directions for expansion. Finally, our goal is to update our value proposition so that customers continue to see its uniqueness and fully appreciate its value. For clarity, I want to underline that presented directions of development are fully consistent with the current strategy and are still the subject of our analysis and consultations with the Board. We're constantly investing in improving our value proposition for buyers and sellers. In the first half of the year, we developed a shop-in-shop service combining the shopping experience known from 3P and 1P models. The solution has been recognized by regional and international brands such as Finish, HP, Inglot, Karcher or Pampers. The number of authorized sellers representing well-known brands has also increased significantly. Now we have over 3,000 of them on Allegro. Thanks to better management of AML and KYC processes by Allegro Finance, we have improved the merchant verification process. As a result, new merchants can start selling on Allegro much faster. As part of the partner channel, we're working with merchants to further simplify processes. Our ambition is to have the most merchant-friendly ecosystem among European marketplaces. Over 1.5 million products in Poland and nearly 0.5 million in Czechia are covered by the best price guarantee. This is further confirmation for customers that Allegro is the best shopping destination. With us, they can save some money and time. And it is also worth mentioning the prestigious awards we received in the second quarter, Brand of the Year, Best Marketplace and the Best Shopping Experience. Smart! is one of the leading loyalty programs in Europe. We have added new benefits to it and to activate and reward its users. The program now has many new additional features, fun and gamification, unique deals and benefits to be used on Allegro, but also outside the platform. Smart! is extremely popular and attracts hundreds of thousands of new users every year. They also have access to unique events and promotional campaigns. In Poland alone, they are already over 6 million subscribers. We are happy to announce that Allegro Delivery has become the program serving the largest number of parcel lockers in Poland. Thanks to the new agreement with DPD announced in recent days, their number within Allegro Delivery has exceeded 33,000 and the number of pickup points has exceeded 37,000. Thanks to the close cooperation with DHL, DPD, Orlen Paczka and of course, Allegro, buyers and sellers have even more choice in both delivery methods and locations. It is worth remembering that consumers always decide how they want their parcels to be delivered and they use Allegro app to track their shipments. Buyers on Allegro also have access to logistics services provided by other companies. By developing the Allegro Delivery program and our infrastructure, we are increasing the efficiency of our logistics services and our independence from selected service providers. By the end of the year, we want to have over 8,000 of our own parcel lockers, over 1,000 more than we originally planned. It is worth mentioning that thanks to successful negotiations with manufacturers, the installation of a larger number of parcel lockers will take place within the approved CapEx. We have also decided to invest in new depots and completing new sorting facility. This is associated with rapid increase in managed volume, which exceeded 34% at the end of Q2 and increased by nearly 5 percentage points compared to the previous quarter. We're also achieving one of the highest NPS results in the industry, which amounted to 82 points in the second quarter. We are already seeing the positive impact of the cooperation with DHL, which began a couple of months ago, and we expect at least the same effect from the new cooperation with DPD. Let's move on to my favorite slide because it's related to AI technology. Our company is certainly one of the leaders in AI-based technological transformation. We do massive implementation in the company, which will cover almost all parts of the organization. We're talking about areas related to purchasing such as intelligent search engines or recommendations, increasing productivity in software development and equipping our employees with new skills to improve their work efficiency. We believe in this technology. We have already implemented it commercially based on an agentic approach in marketing or customer experience or customer service, and we are convinced that AI is an investment with a high rate of return. We are constantly increasing the use of AI technology in our current and planned projects. We expect that next year, around 40% of the software we produce will contain some components prepared or produced by AI. At Allegro International, we achieved excellent GMV growth in the second quarter, 61%. We also increased the number of Smart! users to over 1 million, and the GMV generated in the application grew by over 100% year-over-year. Allegro International sales are mainly based on Polish sellers, but we're also consistently increasing the number of local partners. We have launched a new program aimed at significantly increasing the number of local sellers and supporting them in their sales. We're also completing the transformation of some of our international assets. In the case of Mall North, the process has been already completed. In our international development, we focus on the 3P model and group synergies. The growth dynamics show that we are doing this better and better. Jonathan Eastick: Thank you very much, Marcin, and good morning, everybody. It's great to be with you today, and I'm really looking forward to taking you through these really great Q2 results for the Allegro Group. As usual, I'll start with the Polish operations. Key KPIs are in front of you at the moment. Let me move to the next slide and the key KPIs behind the GMV. So as you've heard, the business accelerated in Poland in the second quarter. The main driver for that was increase in spend per active buyer. You can see there on the right-hand side that it's moved up sequentially to 2% growth on quarter-on-quarter, which gets us to PLN 4,178 of annual spend per customer, well over $1,000, and that's an 8% growth rate on a year-on-year basis. In terms of active buyers, over the last 12 months, we've added over 300,000. We're at 15.2 million active buyers for the Polish market. It's very important to remember behind many of these accounts are households. So there are millions of more buyers on Allegro than you see here. When it comes to GMV, up 0.9% sequentially to 9.8% on a year-on-year basis, PLN 16.5 billion of GMV generated in the second quarter. On a last 12-month basis, that moves our GMV up to PLN 63.4 billion, which is 10.1% higher than this time a year ago. It's also important to note that in the second quarter, we had a headwind from the fact that Easter had moved back into April from March a year ago. And for our categories, Easter is actually a headwind unlike for the grocery businesses that you also follow. So with that in mind, the result is even better than it looks at first sight. As usual, supermarket and health and beauty, high-frequency categories that we're focused on continue to grow faster than the average. This quarter, it was 2x faster. Looking for a physical measure of our development, as you know, we track items sold as a marketplace. That's up 11.4% on an annualized basis. It's also worth looking at the ASP on those items sold. Mix adjusted, the ASP is up by 1.7% year-on-year. This is the highest reading since the figures turned positive about a year ago and continues to move on an upward trend. And a quick word on Allegro Pay, 15.3% of GMV was funded by the Allegro Pay payment methods in the second quarter. Loans origination has moved up to PLN 3.3 billion in the quarter. So then let's look at revenue, and we've had an excellent quarter. The growth has accelerated to 18.1% year-on-year, landing on almost PLN 2.8 billion of revenue. And this is obviously coming from the GMV growth, combined with the higher take rates, strong performances from advertising, logistics and consumer lending. Focusing on the take rate, you'll remember from the previous call regarding Q1 that we increased the cofinancing rates in our annual monetization change in March. So there was 1 quarter of improvement included in the Q -- sorry, 1 month of improvement included in the Q1 results. Obviously, we now have 3 months' worth in Q2, and that results in the take rate moving up sequentially to 13.01% for Q2. On an annual basis, it's almost 0.5% higher than a year ago. You see as well on the bridge there, the rates of growth across advertising continuing to be over 30% quarter after quarter. Logistics moving up significantly, more and more of the services or the deliveries that they're doing are actually also the paid deliveries that we do outside of Smart!. So the logistics revenues are going up and also financial income being a driver behind the other income that you see on the slide. So with growth like that in revenue, it's relatively straightforward to grow EBITDA, and our EBITDA moved up by 14.2% for the Polish business in Q2. PLN 1.037 billion of adjusted EBITDA for Poland for the quarter. And you can see the impact of those revenue drivers on the bridge on the left-hand side there, the first 3 items on the bridge. Let's focus in a little bit on cost of delivery. PLN 156 million higher cost of delivery than a year earlier, which translates to a 23.1% increase in delivery cost. As a percentage of GMV, it's actually come down very slightly from Q1 from 5.1% to 5% of GMV. And most importantly, most of the growth in this cost has actually come from volume, from additional parcels from the higher GMV and from additional penetration of Smart!. You see that laid out there, 18.1% of the 23%, plus another 3.5% where Allegro Delivery is delivering parcels that are being paid for by the consumers. That leaves only 1.5 percentage points of impact that's coming from higher unit cost. And when you remember that on the 1st of January, we absorbed a double-digit indexation increase from our largest delivery partner, we're really very happy to see that we managed to offset most of that increase in the Q2 numbers. That unit cost increase is mainly held down in that way because of the growth in our Allegro managed volumes, which were up by 4.6 percentage points Q-on-Q to 34%. And in essence, every single delivery that we move into an Allegro managed delivery method is at a lower cost than the alternatives, and this is why we're now starting to see a significant positive impact on our cost of delivery. Looking at the net cost of delivery, which requires also considering the revenues that are coming from cofinancing, which are part of take rates, the net burden of running the Smart! program expressed as a percentage of GMV has actually come down in Q2 compared to Q2 a year ago. Final comment really on this slide is to draw your attention to the 6.27 percentage adjusted EBITDA to GMV, which is 24 percentage points higher -- sorry, decimal points higher. This is going to be the high point for the quarter -- sorry, for the year. As we expect going forward, as the year progresses that certain cost increases will need to be absorbed; higher salaries, higher costs of various delivery methods, other indexations. And therefore, the margin will come down a little bit later in the year. Moving on to capital investment. And we were signaling to you earlier in the year that the CapEx program this year is significantly more ambitious, and that's what you see in the numbers. 72% growth on a year-on-year basis for Q2 to PLN 193 million, which is mainly coming from an increase in other CapEx, which was up by 4x at PLN 80.3 million for the quarter. This is mostly obviously coming from investments in our logistics expansion. It's predominantly APMs, but also investments in our courier depots and network. When it comes to capitalized development costs, those are up much more moderately, up 22% year-on-year or PLN 20 million. The tech team is slightly larger than a year ago. Obviously, salaries are higher than a year ago. And they're actually spending more time programming new functionalities that Marcin was describing earlier than on maintenance, which is also increasing the share of the cost, which is being capitalized. When we compare to our medium-term guardrails where we've set out a maximum of 25% of Polish adjusted EBITDA to be reinvested into CapEx, our H1 situation is that we're running at a 20% spend. So comfortably within the guardrails. So let's move on from Poland and take a look at the international operations, key KPIs set out on the slide that you see in front of you. I will come back to why this is on a pro forma basis in a couple of minutes. But let's focus in on the Allegro International segment for Q2. Now as Marcin said already, it's been a very good quarter for the international marketplaces, which are our new marketplaces in Czech Republic, Slovakia and Hungary. Great growth across the board. Starting with the traffic, it's up 47% year-on-year. And this despite the fact that we've actually dialed back on our marketing investments and really focused on improving the ROIs on those investments on a going-forward basis. Active buyers up even more, 57.4% at 3.9 million active buyers across the 3 markets, which is a really strong performance. Spend per buyer also moving up 10.2% higher than a year ago at PLN 540. Looking then at the other key metrics, that means that the GMV growth was able to reach 61%, so very comfortably up at the top end of our outlook, and that's PLN 572 million of GMV from these marketplaces. Revenue was up even stronger at PLN 63 million, 111% higher than a year ago. The take rates are up by 2.6 percentage points on last year. More of the Smart! subscriptions are being paid for by the consumers. There's more revenue coming in from logistics. So altogether, revenue is moving up nicely. And that means that we were actually able to cut the size of the loss for the first time on a year-on-year basis. It's down PLN 21 million on a year ago, PLN 66.5 million invested in the marketplaces and the margin to GMV has improved to minus 11.6% in the quarter. Let's move on and take a look at the Mall segment. And as you've heard from Marcin, we've essentially finished the projects around transforming Mall in the northern markets of Czech, Slovakia and Hungary. And the main component of that has obviously been this intentional rundown of their legacy unprofitable e-shop business, which you see reflected here in the GMV for the second quarter, 58.7% lower than it was a year ago at PLN 184 million. That was only generating PLN 24 million of margin, as you see on the right-hand side. And with other cost savings, we were able to actually cut the loss to PLN 55.7 million. And most importantly, because we shut down now the independent operation, the independent front ends, we've been able to take further reductions in staffing. We've also been able to move out of the legacy warehouse, which is too big for purpose and move to outsourced logistics solutions. And those things will help us cut the loss much further in the second half of the year. So summing the 2 segments together, you get the results of international operations, which are shown on the next slide in summary form. And let me now come back to the topic of why those numbers were pro forma. We've made a change in the segment reporting between Q1 and Q2. And what's triggered this is one of the points I mentioned, which is that we've finally shut down all of the Mall North front end, the independent legacy front ends. And now, Mall North only trades as a lean merchant selling over the marketplace. Now applying the accounting regulations, what that means is that the Mall North segment no longer has an independent route to market to generate revenues. And in those circumstances, the segment needs to be rolled up into the bigger segment, the one that does have that capability to generate revenue. So as a result, we now will be reporting the Mall North operation together with the new marketplaces going forward. To see this in numbers, take a look at the next slide. And the key thing here is that the numbers themselves in total are not changing. So the total international operations, which you see there on the right-hand side of the slide is no different between the old way of doing the segmentation, the pro forma, and the new segmentation, which you'll find as reported in the financial statements, exactly the same numbers. The difference is that the Mall North segment moves out of Mall and into the Allegro International segment. You can see that in the gray boxes between the 2 tables and nothing else really changes. What's left in Mall is just the Mall South business, which is in Slovenia and Croatia, where they continue to operate using their independent e-shop. And the last part of this story is that the accounting rules also require when you make a change in segments to retrospectively restate all the history. And we've shown you what that impact is for GMV on the following slide. On the left-hand side, you have the way we've been reporting the marketplaces and their growth historically. And on the right-hand side, this new segmentation. Now what you see there is that the Q2 numbers are essentially exactly the same. And going forward, you'll be looking at the growth of the marketplace as we continue to develop it. When you're looking at year-on-year growth rates, you're going to see the impact of that shrinking legacy Mall growth in the prior year comparatives. And that's going to make the headline GMV growth rates look lower for a few quarters. So that's it for International. Let's move on and take a look at the consolidated group. I normally just talk about leverage when we look at the group numbers, and I'm going to continue that today. Let's start with the leverage as of 30th of June. It's moved down by 12 basis points of a turn to 0.72x adjusted EBITDA. It would have gone down even more if we've not made the decision to use some of the high cash balances at our disposal to increase the investment that we have in our consumer loan book. We put PLN 364 million to work funding Allegro Pay loans during the first half of the year, bringing the total to PLN 867 million. And that, of course, means we retain a bigger share of the financial income that's coming from these loans, sharing less of it with our financing partners and helping our EBITDA. We've also prepared for you a pro forma calculation for the 30th of June to show you what is the impact of the financing transactions that took place in the few weeks after the end of June. In particular, you see here the impact of the return of PLN 1.4 billion to shareholders via a share buyback for 3.7% of stock. Taking that PLN 1.4 billion out of the balance sheet, in effect, has moved the leverage up to 1.16 on a pro forma basis as of the 30th of June. And it will be coming down from there. We expect to be generating significant cash flow in the second half of the year, and we would expect to land around about that 1x leverage that we have in our medium-term guidelines and capital allocation policy as our target level for the group's leverage. So let me move on to the outlook, which, as you've heard from Marcin, is moving up for the full year. But let me just start with a quick look at how we've done at the halfway mark in comparison to the guidance as originally published back in March, which you see on this slide. The key message here is across all KPIs and all segments, we're on track. And the year is going very, very well indeed. Let's look at then current trading, which is laid out on the next slide. How has it been going in the third quarter? Well, we're continuing a gradual acceleration of the Polish business. The GMV is up towards 10% year-on-year. On the international markets, the international marketplaces that were growing 61% in Q2, we're still seeing growth in the 50% to 55% range, reminding you as well, we're now lapping Slovakia as well as Czech Republic results in these numbers. The Mall North legacy front-end GMV that I was describing in the context of the segment changes means that the results for this segment as a whole are going to be slightly negative because we still have these figures in the prior year numbers. And the Mall South segment, which has continued to be reported separately, is shrinking, but that shrinkage has slowed to mid-single digits. So looking at GMV on a group level, we're actually growing somewhat quicker than we were doing in the first half of the year. So that means moving on to look at the outlook update. As we get closer to the end of the year, we're either able to narrow the ranges because there's obviously less variability remaining or in some cases, we've managed to move up the guidance because we're getting increasingly confident we're going to move towards the top end of the range. And that's particularly true for the revenue and the adjusted EBITDA where our expectations are moving up. A couple of numbers just to call out. The Polish operations, we're expecting to come in on or around that 10% growth rate for the full year, but going faster in international than we were originally expecting. Revenues were up across the board. We're looking at 8% to 11% growth for the group and 16% to 18% for Poland. EBITDA costs very much under control, especially in Poland. So the guidance has moved up for Poland to the 10% to 12% growth for the full year. And capital investment, very much on track, no change in the guidance, but we are managing to do 1,000 extra APMs within the cost budget. So with that, I think you can agree that things are going well, and I'm going to hand it back over to Marcin to hit the key talking. Marcin? Marcin Kusmierz: Thank you, Jon. So let me remind you of our key achievements in the second quarter of 2025. A very solid improvement in almost all financial and operating results. We are very pleased with the growth in GMV, revenue, adjusted EBITDA and the increase in the number of users of our marketplaces and their growing spending. . Advertising and financial services are developing very, very well and have good prospects ahead of them. We are successfully developing our international business, focusing on 3P model, we're seeing solid and promising growth in GMV. We also have completed the transformation of Mall North in Czech Republic, Slovakia and Hungary. And we're continuing the strategic development of our logistics network and the Allegro Delivery program. Managed volume is already at 34% with an increase of nearly 5 percentage points quarter-to-quarter. The new agreement with DPD will certainly have a positive impact on the efficiency of the logistics area. And for sure, it will be accelerating the diversification process. We also have completed a very successful buyback and achieved a historically high free float of 72%. And last but not least, we're working with the Board about new potential growth opportunities to build additional growth drivers into annual strategy update. Tomasz Pozniak: Thank you, Marcin. Thank you, Jon. We have just concluded the presentation, and we're ready for the Q&A session. Jota, over to you. Operator: [Operator Instructions] The first question comes from the line of Holbrook Luke with Morgan Stanley. Luke Holbrook: My first one is just on your delivery partner network that's now handling about 34% of your volume. As you mentioned, it's up 5% Q-on-Q. It was up a similar percentage to the quarter before. So with DPD coming online, almost doubling, I guess, the amount of APMs you have through that network, how can we expect that to trend over the next 2 or 3 quarters, if you could just map that out for us? And then secondly, just on your comments that your delivery partners are now cheaper than your largest non-network delivery partner. I'm just kind of wondering how that looks in terms of when we can expect you to kind of announce the outcome of your renegotiations with InPost for your contract that's due to expire in 2027. Jonathan Eastick: Okay. Thank you for those questions. Yes. Let me start with the one about DPD. So obviously, we just signed the contract. There has been quite a lot of work going on in the background to get ready for DPD, but there won't really be much impact from DPD in Q3, obviously, because these deliveries will only kick in, in the next few weeks. It will have much more of a significant impact on the fourth quarter. And you rightly highlighted the fact that there's a lot more APMs, 11,000 additional points where we'll be able to funnel traffic, although they're smaller APMs than the others, means that it will also be a driver for increasing the Allegro managed volume metric, especially in the fourth quarter. When it comes to the pricing, obviously, we are talking with InPost and it's too early to make any predictions about if and when we will come to conclusions. We are very constructive about the situation, but we do need to see lower prices. And Marcin, if there's anything you want to add to that? Marcin Kusmierz: Yes. Thank you, Jon. I think you know that we are purely focused on the development of Allegro Delivery. And you see that we're inviting new partners to the program, all major players on the Polish market. So we just announced cooperation with DPD, the second player on the market. So thanks to that, we have the largest network of lockers on the Polish market and [indiscernible] as well. So this is the crucial point for us, and we want to invest mainly in development of this program. Operator: The next question comes from the line of Ross Andrew with Barclays. Andrew Ross: A couple for me, please. The first one is just to double-click a bit on some of the investments, but it sounds like you're discussing with the Board to help growth accelerate. I'm wondering if you can put a bit of a framework around that in terms of when we might see these investments and kind of how you think about margin investment in that context and then kind of when we might see Polish growth accelerate. And I appreciate it's hard to be specific, but if you could just give us a bit of a kind of directional framework, that would be helpful. And then the second question is to kind of follow up on that. In the opening remarks, you spoke about the idea of taking -- or kind of selling some of your services off-platform. On the fintech side, I think you touched on buy now, pay later, but are there any other fintech services that you could envisage being sold kind of off-platform? And you've also touched on logistics. Can you just be more specific by what you meant when you spoke about kind of selling your logistics solution? Does that mean taking other kind of merchant volumes through the Allegro One network? Does it mean something else, it would be helpful to better understand by what you mean on that. Marcin Kusmierz: Thank you for these questions. Of course, I just joined the company started in May this year. And of course, I was -- and I am still specialized in new business. If you look at my career and my development, I was always looking for some new opportunities, how to speed up growth, how to accelerate development of the company. And I do the same here at Allegro. So we started as a management team discussion with the Board, how we can accelerate our growth, how we see potential directions, also entering some new fields. But this is quite early stage. Of course, we see some new attractive parts of the market we can potentially cover. We see new product categories. We see services, as mentioned before, we see some cooperations or even strategic partnerships, thanks to that we can add something new, something extra to the platform and thanks to that attract new group of customers to us. You know that we have great potential and we have great position on the market, but the market is changing rapidly. So we try to discover all the time some new possibilities, again, to help our customers to find all they need at Allegro, but also, of course, thanks to that to accelerate our growth. And we're also discussing how we can use existing products we develop at Allegro, using example of Allegro Pay or using example of our logistics infrastructure. They represent absolutely the world class. They absolutely are the best-in-class in those segments. So we analyze how we can help our merchants, how we can use our infrastructure to be even more efficient. What is the attractiveness in creation of some new capabilities for our merchants? Because finally, as we saying many times, we want to build a very merchant-friendly ecosystem and to support their growth, of course, mainly on Allegro because we see and we know that this is the perfect place for them to do business together. But of course, we want to be as efficient as we could be. So again, we have many innovations. We have some advantage in comparison to other players, and we want to use these tools to be even stronger. Andrew Ross: So just to be clear on that, could that involve putting in kind of non-Allegro inventory through the Allegro One network? Jonathan Eastick: Andrew, it's Jon. If we were to go in that direction, it would almost certainly be on the Allegro Delivery level, right? So it might be non-Allegro parcels, but across all the partners in Allegro Delivery. But it's still at an early stage. As Marcin was saying, these are the areas that we can see a first look to expand our footprint of activity, which is another way to obviously find additional growth drivers. We're discussing these with the Board in this year's planning round. And we would anticipate starting to make tangible moves on some of these once it's all been agreed over the next few months in our planning process. Operator: The next question comes from the line of Reshetnev Roman with Goldman Sachs. Roman Reshetnev: Congratulations on the solid set of results. Just to follow up on logistics. InPost previously mentioned that 30% of their Allegro checkouts in Q2 included a prompt to use your delivery network. And given InPost's legal action and some customer pushback reported in the media, could you comment on how do you view the situation from your side? And as we enter the high season when service quality becomes more sensitive, how sustainable is this approach for volume redirection for you going forward? And second one on logistics, just like following the recent partnership agreement with DPD, what would be your long-term vision for logistics in Poland? And given you still have a long way to build out your own network and considering your stronger leverage position, would you look at some M&A opportunities in the logistics space? Jonathan Eastick: Okay. Thank you for the questions. I think the first part was relating to the arbitration case, if I understood correctly, that InPost has brought under the scope of the long-term contract that we have that runs until 2027. As we actually showed in one of those slides that Marcin put up earlier, have the capability to prompt customers in the checkout process to see and to consider using lockers, which are now available under the Allegro Delivery framework, either because they've just been deployed or because we've added partners, and we do that. We make use of that. I'm not going to comment on what percentage of the time, but we don't use it all the time. We respect the choices of consumers. But what's most important there is that in accordance with the agreement, the customers have just one click on a button that says change, and they can see the full list of all the available delivery methods that they have at their disposal and they're able to pick whatever they want. So we will see what happens in the arbitration, but we don't think that there's any merit to the claim. Now the second part was M&A and logistics. I mean, we don't really comment on M&A. I don't think there's any need to be considering M&A. The Allegro Delivery approach is working extremely well. The partnerships are working extremely well. Who knows in the very long term what may happen in an industry. But in the short term, there's no comment to make on M&A. Roman Reshetnev: And just a follow-up on the current trends, given that you already highlighted an update on the third quarter GMV growth. And since we're now in the high season, could you also elaborate on the EBITDA growth trajectory? And specifically, how would you describe the activity of Chinese marketplaces in Poland and international over the last months? And do you still see them driving significant pressure on customer acquisition costs? Jonathan Eastick: Yes. Thank you for that question. Yes, let me come back to the margin. Obviously, the margin was up to 6.27% in Q2, but we try to limit our monetization moves to once a year, and we've been doing that for a couple of years now in the first quarter. So it tends to generate a high watermark in the margin in the second quarter, and it will then trend down somewhat over the rest of the year because the salary raises, for example, are in April. Generally speaking, delivery partners need some kind of indexation increase during the course of the year. The IT providers are obviously also looking for increases. So as these things come into the numbers, plus a natural trend for the take rate to drop lower in the fourth quarter mean that the average margin for the year will be lower than that 6.27%. And obviously, you can back calculate it into the guidance that we've given you today that it's expected to land just under the 6% mark for the full year. Yes. And the second part of the question was around the Chinese. We are seeing an increase in activity. This kind of the rebound or the knock-on effect, if you want to call it that, from the tariffs and the changes that were imposed in the U.S. So there is clearly more activity of the Chinese players across Europe, not only in Poland, in recent months. But we're still not seeing a significant increase in the rate of increase in our own surveys. They're still in the similar sort of range. So there's a lot of top of funnel activity. We don't see that much of it coming through in the surveys that we do that try and look at where people are actually shopping in the month-to-month surveys. It is having an impact on our marketing spending. I didn't touch on it in the EBITDA slide, but you can see that we're up about, I think, 17% on a year-on-year basis. We're fighting on all fronts for the share of voice on all different advertising media. We're not going to cede any ground. We are the leader in this market. But yes, they're an important player. Marcin Kusmierz: And as Jon said, we see kind of limited direct competition because Chinese players, of course, they are strong, they are innovative, but they cover different parts of the market, mainly being focused on most price-sensitive customers. And this is, by the way, they show some potential for us or some parts of the market to be covered. But we should remember that the strength of Allegro is based on cooperation with 100,000 merchants from Poland and the region, and we have the widest selection of branded products. So again, we see, of course, some rising competition. But right now, we see that we cover a bit different parts of the market. Operator: The next question comes from the line of Potyra Michal with UBS. Michal Potyra: I just have follow-up questions. The first one on your net cost of delivery. It seems to have plateaued at 5% of GMV. So my question is, is this the level you are satisfied with? Or we should expect that to return to growth in the coming quarters? And the second question, another follow-up this time on the Chinese competitors. I just wonder, I mean, it seems that margin was lobbying in Brussels. There was also an article in FT on the topic. So maybe you can share some intel what are your expectations on the potential regulatory changes in either Europe or Poland, which could even the playing field between the international marketplaces and the incumbents. Jonathan Eastick: Okay. Let me take that first question. Yes, the cost of delivery that's at 5% of GMV is effectively the gross cost, we call it cost of delivery these days. And the short answer is we'd like to see that going down over time, right? And the way to do that is to successively blend lower than the average unit cost methods into the mix. And we're on a good path to do that using the Allegro Delivery solution. And hopefully, at some point as well, we may make a modified deal with InPost, but also obviously have a big contribution to that cost. The total burden though, of running the Smart! program and paying for deliveries is, as I mentioned, you need to take into account the cofinancing, which is up in the take rate. The net of the 2, we talked about in a bit more detail in Q1 in the previous update. When you net one against the other, the 5% comes down to about 2.5% of GMV, which is the net cost of running the Smart! program. And the comment I was making earlier was that it's ticked down fractionally on a year ago as a result of the cofinancing changes and this progress that we've made on controlling the gross cost. Hopefully, that's clear. And the second question was about the Chinese. Marcin Kusmierz: So we don't expect any kind of protection for Allegro or other European players. The only thing we expect is fair competition and to have the same rules for every single player existing or selling some goods on the European markets. So we know -- you know as well that this is today unfair competition. We see that, for example, the U.S. is acting faster and protecting the market against unfair competition. And our expectation is almost the same. So again, we appreciate that some companies that invest in development of European markets, and this is great. But we want to build our competitive advantage, thanks to having the same rules for everyone. Michal Potyra: But do you have any more kind of specific expectations about potential changes, the timing, et cetera? Marcin Kusmierz: This is quite complicated or complex topic. And of course, we work with other European players to create some pressure or to explain why some Chinese players, they use the European market on different conditions than we. So of course, we explain to authorities how the market should be defined and how we should act with some initiatives. And we are quite patient. But of course, we see that some Chinese players, they have some advantage, not because they are much clever or they are stronger or much more innovative, but because, for example, using some unfair advantage. Operator: [Operator Instructions] Ladies and gentlemen, there are no further audio questions at this time. I will now give the floor to Mr. Pozniak for any questions from our webcast participants. Tomasz Pozniak: Thank you, Jota. We have quite a long list of questions. Luckily, part of them already answered when they covered the questions asked by the analysts so far. Some of them, I believe, were explained during the presentation, the ones that came early. I will address them by topic rather than question by question because they touch upon the similar points. So the first question would be, where are we with the cofinancing and how much headroom we still have to improve it? Jonathan Eastick: Yes. Thank you for that question. So the cofinancing move that we made in March moved the share that's being carried by the merchants up to approximately 45% of the total cost. That will tick down, as I said, as we absorb indexation increases from some of the players that have different timing to InPost in their contracts. But essentially, we don't have plans to move it up very quickly from here. The long-term expectation that we've mentioned many times is that we see a 50-50 split as being something which merchants can comprehend and still be excited about, and it's very typically the level that you see around the world. So we probably will get there eventually. But we would think that we've gone from 0 cofi to this level in about 4 years. So we won't be moving up so quickly going forward. Tomasz Pozniak: I believe the next question would be to Marcin because this is asking about the AI-driven marketplaces, AI chats taking away our business. Can you comment on this? Marcin Kusmierz: Yes, absolutely. We do cooperate with all major players producing AI technology or potentially giving us some access to AI capabilities. And we rather perceive it as a chance for us to have additional sales channels. So this is not kind of competition. This is something supportive for us. And we, again, do cooperate with all major players providing this technology. We know how to use to improve efficiency. We know how to use this technology to achieve better conversion on our marketplace and how to create some new extra value, thanks to purchasing through applications. So we perceive it as something positive to us and hoping that new models will be implemented commercially quite soon because as I said during the presentation, we are pretty matured with this technology, and we know how to build advantage of using AI. Tomasz Pozniak: The next question will also be to you, I believe, because this covers the recent changes to the regulations concerning access to the Allegro API. And this has triggered some comments on the web. So what is the main reason for doing this? And can this have impact on our KPIs? Marcin Kusmierz: This is an interesting topic, but this is a technical change because API, this is the protocol used by our partners to manage their products on the marketplace or to automate some processes. And some of our partners, they shared the access to API to other companies without permission for example, and we do invest heavily in development of API because this is something that supports in boosting sales on marketplace and also helping our merchants to be much more efficient. So this is something that we want to secure efficiency of this protocol and to help merchants. Tomasz Pozniak: The next question, international operations. Are they still a strategic priority for the group? Or could potential exits from loss-making operations be considered? Marcin Kusmierz: This is a strategic point or strategic direction for us. And of course, we are still mainly focused on the development of the Polish market, and we are here over 25 years. But we are present in the region, not by accident. This is something like a strategic move for us, and we see that we are able to create some special unique value for customers living in Czechia, Hungary or Slovakia. We see increasing number of customers using our marketplaces. We see increasing number of Smart! users. We see also huge demand from merchants using our marketplaces to cover some expectations of people living in the region. So there is no consideration today that we will be only Polish company. We want to stay in the region. We want to develop these markets. And this is quite early stage of development. Let's remember about that. And we're consequently improving our position and our competitive advantage in comparison to any other player on the market. So yes, we want to invest and we want to be there. Tomasz Pozniak: Thank you. And I believe we have time for just last question. So could we comment on the OCCP case related to our trees being planted for the packages delivered in Allegro boxes -- status and potential impact on the financials? Jonathan Eastick: Yes, there isn't too much to add. There is a conversation going on with OCCP about their findings. We don't know how that will play out. We planted an awful lot of trees, which we're actually very proud about, and we want to continue that. And as part of our branding identity of Allegro One, but it's also inherently intrinsically a very good thing to do. So if something happens, then we will reflect it in the financial results. We certainly don't expect anything material from it. Tomasz Pozniak: Thank you, Jon. So that was last question answered by the management. I will address offline a few technical questions that are still there. And thank you very much, everyone, for participating. Jota, over to you for the conclusion. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good day.
Chris Pockett: Okay. Good morning, everyone. So my name is Chris Pockett. I'm Head of Communications for Renishaw. I'd like to welcome you to this live Q&A session for Renishaw's full year financial results for the year ended June 30, 2025. Hopefully, you've all had an opportunity to view the video presentation that's released as part of this morning's RNS statement. Will Lee, CEO; and Allen Roberts, Group FD are here now to answer any queries that you may have in relation to that presentation and the results statement. They'll try to answer as many questions as possible before we close at 11:15 and I'll try to group similar questions together, so we may not answer all individual questions. [Operator Instructions]. Chris Pockett: So let's get going. First question here is around our industrial metrology products. So the markets appear very mixed here with automotive weakness ongoing machine tool data in Germany still soft, offset by the strength in your systems business. So what is your outlook for this Industrial Metrology business in FY 2026? And I think that's over to you, Will. William Lee: Thanks, Chris, and good morning, everyone. So with the industrial metrology market, clearly, yes, for our sensors business selling into machine tools, probably worst case, maybe Germany, also Taiwan, those markets are really quite soft at the moment with our customers facing challenging conditions. Here, we focus, as we always do, on the medium to long term, working on business development with those customers. And I think we're making good progress there, particularly probably of note is on the laser tool setting side where some of the newer innovations that we've launched with the NC4 Blue product line really starting to help us with gaining market share there in an area where typically we actually unusually are #2 rather the #1, so making really good progress. The area where we can have the more media impact over the shorter term is on the systems business. Here, focused very much on shop floor metrology, which we see as a high growth area and an area for us to really grow our business quickly. Making good progress and we are very positive there going forward. In terms of specific outlooks, I think early to say for the year, and we'll be monitoring and pushing that hard there. Chris Pockett: Okay. Thanks, Will. A question now on additive manufacturing. You said that AM revenue was down in FY '25, but finished the year with a good order book. So what was the book-to-bill for AM for FY '25. I think that's another one for you, Will. William Lee: Yes. So AM was a bit softer. It is one of those businesses that is still relatively small, also with high ticket items. So we expect a bit more variability there. Seeing some really positive signs. Some of the end markets are strong. I think defense probably is the one to pick out at the moment as being really after performance, but quicker moving, quicker decision-making than something like an aerospace. So looking forward positively there for this year, again, very early on in the year, really to comment there. Chris Pockett: Okay. Thank you. A question now relating to China. Could you expand on the opportunities that you see in market segments that you do not currently serve in China? And given rising competition and resulting pricing pressures, are Renishaw margins now lower in China than in other regions? And back to you, Will. William Lee: Yes. So if you look at it, really the China relative to the rest of APAC, there is no significant difference in margins there. So clearly, we do and we've talked about saying, are there some entry level good enough markets where we don't really operate at the moment, and that probably are for both IM and PM. Both areas are quite interesting. So commercially, we've talked about exploiting more of what appears to be an entry-level market and some of the machine shop factories over in China with lower price alternative to some of our core products, and we will develop that strategy going forward. We also see probably on the encoder market that some applications start to come in, some new applications in electronics and semiconductor come in for our encoders and some applications start to become more commoditized and maybe drop at the bottom, but the overall market there is growing for us. So it's actually quite a pretty complicated picture. And one, I think, in general, we still see more positives with of opportunities, both as new things start and also with our commercial strategies. Overall, for us, though, China, we're seeing good growth and are optimistic going forward with the opportunities that we have. Chris Pockett: Thanks, Will. A question now regarding consumer electronics markets. Could you clarify what you're seeing in this end market? It was noted as an area of strength for industrial metrology, but in his prepared remarks, Allen said that this end market was down in 2025 at group level. So what is going on here? Back to you, Will? William Lee: Yes. Our biggest challenge last year was the -- first half of H1 last year was tougher for consumer electronics, seeing a gradual recovery throughout the year with H2 ending up better. Looking forward, and this is always a really tricky one to predict, but it feels like customers are now facing the necessity to make decisions that they have been off putting. So looking forward, I think we feel more positive here in terms of investment for this over the rest of this financial year than probably we did 3, 6 months ago, just because our customers have no choice, they have to make some decisions, we believe. So we are monitoring this quite closely. And the one thing we always try and do is make sure we are prepared for whatever happens here. Chris Pockett: Okay. Now a question on pricing and tariffs. Assuming no miracles emerge from today's talks at checkers and U.S. tariffs remain in place. Can you make surcharges permanent? Or do you have other options to address this headwind such as localizing more production? And will with you again? William Lee: Okay. So we have made the assumption that these will be permanent. So surcharges have been migrated and are migrating through into price increases here for our customers in the U.S. We've taken that route rather to look at localizing of production. We will consider our group manufacturing strategy and what we do with changes in geopolitics, but that's certainly a far more long-term decision. So at the moment, this is all being covered by now a price increase, so increased revenue to offset those additional costs that we are facing. Chris Pockett: Another question on end markets. Can you talk about the extent of the contraction in automotive and your expectation for FY '26? Also in relation to defense, how big is it? What is it growing at and a rough split? And back to you again, Will. William Lee: Yes. Okay. So we -- to be clear, we don't know for sure the size of our exposure to these markets because a lot of our stuff will go through integrators. So when we're selling to a machine tool builder that they will sell on our extrapolation. And what we think is happening is roughly about 5% for defense, roughly about 13% for automotive. Defense, I think, is a really interesting area at the moment. Sadly, clearly, a lot more investment going in there. And we talked about a little bit with additive earlier. Certainly, I know there's a question on this coming up, I think, next on inductive encoders, it feels like there are opportunities also here with us supporting that industry directly with some of our newer encoders as well. Chris Pockett: Okay. Thank you. You've already alluded to the part of the next question. So this relates to new products, new product launches. And the question is, how are these new products performing that have been recently launched and specifically mentioned Equator-X, the dual-laser RenAM machine and the ASTRiA inductive encoders? So back to you again, Will. William Lee: Yes. So we've been very clear. Our strategy is very much one about using innovation, specifically new product innovation, really here to drive our long-term growth. A lot of focus has been on looking at productivity within the group, really to get some key new products through. And this is a really exciting time for us with the launches that we have made recently and are making in the next few months. A particular note, very topical Equator-X and importantly, the new software to go through with it, MODUS IM. Next week, we'll be over at the EMO trade show, a really large machine tool trade show in Germany, first significant public launch of those 2 products. I was actually getting a demo of MODUS IM yesterday on new software for this and going through with the team, simplicity and ease of use is really, really transformative here. This is really, really important for us in terms of looking at developing new routes to market and getting us more productive and reducing our distribution costs, our applications costs. So exciting times there with those 2. Also ASTRiA, I think, has been a good example of our minimum viable product, or MVP, strategy with new development of getting out, testing out with customers, we've really seen a sweet spot, we believe, with defense customers here and we've been able to take now from the initial work that we've done. So a robust good working product to make sure we can now do some of the final tailoring and specific for their needs to exploit that opportunity. Also with this, and the question we do get asked is then, what about next, what's coming through? And it's good here that we get to see -- so only last week, we had our encoder group review of the early-stage technology. So the exciting bit here is we have an awful lot of new stuff coming through. This is right across the board for the group. Now our focus is on the productivity. How do we help really talented engineering teams get these products through to market sooner, making both priority goal decisions and also how do we support them to make sure they can operate as productively as possible. Chris Pockett: Okay. Thanks, Will. We've got some similar questions here on relating to costs and specifically the GBP 20 million labor savings. So if I just try and whiz through these and try and join some of these together. So what is your expectation for underlying cost inflation in FY '26? Can you talk us through the main moving parts of the FY '26 operating profit bridge, including how much of the GBP 20 million savings will be seen in FY '26? What is engineering cost inflation, labor admin inflation, savings from facility closure and any ERP costs? And also are there other savings within the GBP 20 million that might take time to filter through? So that's trying to amalgamate a few questions there. So start with Will and I think -- I was going to start with Allen on that one. Allen Roberts: Thank you, Chris, and good morning, everybody. Yes, there's good progress on the cost reduction program which, alongside the closure of our drug delivery business and the closure of our facilities -- R&D facilities in Edinburgh, which are going well. And we expect these to have a cost saving of around about GBP 24 million. However, we do have the pay rise that was put into effect at the beginning of this year and possibly a likely similar percentage coming up in January '26 and also based upon a turnover -- a payroll cost of around GBP 300 million. In addition, we do have the GBP 3 million of incremental national insurance over and above the previous year that we have to accommodate. On the other side, in addition to these cost reduction measures, we are further looking at productivity initiatives across the business in all areas, including the rollout of our global 1ERP program, further looking at our logistics automation, investments in manufacturing equipment that we've been putting in over the last couple of years and the processes that we're focusing on, which will probably have seen, if you were on CMD a few months ago, when you went through our manufacturing plant, a lot of initiatives are taking place in cost reductions. And we're starting to see some of those coming through now, which will, in fact, impact our gross margin and with the rollout of our e-commerce platform as well. So there are a lot of initiatives going on across the board with regard to cost management. Chris Pockett: Okay. Thanks, Allen. Tariffs again. Trump implemented increased Section 232 tariffs on certain steel and aluminum, I guess, which is say products in August and post your year-end. Does that affect any of Renishaw's products? And if so, what is the impact offset mechanisms, including timing? Will, I think that's for you. William Lee: Yes. I think we've probably answered most of this already. So yes, we do get caught up in the tariffs here. Tariff, we have now switched over to price increases rather than a surcharge. It's about a 1% impact on revenue, about GBP 9 million. So we feel in a comfortable place there. Clearly, it's lots of discussions with customers in getting to that position. So I don't think too much more to add on that one. Chris Pockett: Okay. Thank you. A question about cash. There's nearly GBP 300 million of cash on the balance sheet. Any plans to deploy this via M&A? Or in the absence of that, would the management consider special divi or buyback? And what would be the preference between these two options? And there's a similar question noting that -- or asking, could we give more color on the "more active capital allocation" that you referred to in today's statement. So Will, start with you on that one. William Lee: Yes. So that's just, I guess, underpin this with the things that we are trying to achieve at the moment. So in terms of the priorities and initiatives for us here, Allen has talked about a minute ago on the productivity side of saying, yes, our #1 strategy is still very much the revenue growth, profitable revenue growth through innovation, but we will underpin that with being more focused and more productive. Now with that, on top of that, we want to make sure we're pushing up our cash generation from that profit and also being prudent with our capital investment over the next few years. This is generating cash for us and correct, we are up to now almost GBP 300 million. As I mentioned at Capital Markets Day, we are discussing this. It is a hot topic of discussion for the Board as to the use of that cash and what we do. I don't have any new information for everyone at the moment on that. But what I can say is it is something that's being actively discussed with the Board at the moment. Chris Pockett: Okay. Thanks, Will. The question now on our search for the new CFO. And the question is, how is it going? William Lee: Yes. So very early stages, and nothing really to add on that at the moment. Chris Pockett: A question on expense. I think this is going Allen's way. Can you remind us of the phasing of IT infrastructure spend and whether this is going above or below the line? Allen? Allen Roberts: Thank you, Chris. Yes, the phasing of the ERP rollout is actually very active right now because we went live in the U.K. [indiscernible], our U.K. sales activity, which is probably one of the most complex implementations that we will have during the whole rollout program and that went live 10 days ago. So -- and that's -- we're working through it, and we are shipping product. So that's good news. Then we're going to be rolling it out through Germany and then to America and then progressively through APAC and the rest of EMEA. So that's going well. And the -- we're looking to do a lot more of the in-house rollout ourselves. So whilst there will be further costs incurred with consultants in this current year. And it is all above the line actually. So we have been burdened with that over the last couple of years. And so it will reduce over time, over the next 2 or 3 years as the rollout progresses. Chris Pockett: Okay. Thanks, Allen. Just looking through, I think we've already answered, there's a question. Yes, tariffs, I think we've pretty much answered that. We've talked through capital allocation. Question, Allen, I think for you. What do you expect the effect of currency to be during FY '26? Allen Roberts: Thank you, Chris. Yes, our forward currency hedging program seeks to mitigate the short-term volatility in our results due to currency. And at this stage, we don't see a significant debt impact in '26 versus '25. We do have an average forward U.S. dollar contract rates -- forward rates for '26 and '27 at [ $1.27 ] to the pound and [ $1.28 ] for the following year. This is against the current rate of [ 136 ]. So we're in quite a good position in that respect. Chris Pockett: Okay. Thanks, Allen. I think we've answered everything that's come in, unless there's a late flurry, I'm not seeing anything. So I think that's it. I think we've now ended -- I think there's -- it looks like there might be a question coming in. Just we'll take this one. It's just coming through the system. Just wait for that one. Okay. Just snuck this in before the end. So how does working capital move as a percentage of sales given potential growth and how does CapEx look beyond the GBP 40 million this year? And Allen, I put that one over to you. Allen Roberts: Yes, we're looking at around about GBP 40 million for the current year in terms of CapEx. And for the following couple of years also, that sort of order. So the major spend, which was at Miskin, as you would have seen at CMD was the build and construction of Holes 3 and 4. So the major element of that expansion program took place in the last couple of years. So we're well prepared going forward in terms of capacity -- production capacity and the availability of Hole 4, which could come through depending on our growth over the next few years. So GBP 40 million a year. In terms of working capital, I wouldn't expect to see any significant movement in working capital statistics over the next 2 or 3 years. Very tight control on our debtors and working capital and inventory. There's quite good control on our inventory management process, which will be further enhanced and improved as the rollout of our ERP program proceeds. Chris Pockett: Okay. Thanks, Allen. Another question has come in on currency. So can you remind us of the FX impact that came through in Q1 of '25? And then if there could be a similar impact this year? Allen Roberts: No, we don't expect there was a sort of -- there was a one-off benefit that we got from autumn in autumn '22 when Liz [indiscernible] mini budget, we took the opportunity to take some good for contracts, which came through in the first quarter of last year. I think it was circa around about GBP 5 million, and we don't expect that to recur this year. Chris Pockett: Okay. Thank you, Allen. Just a question here about order trends. Could you touch upon order trends? The development was noted to be encouraging in Q3? What has the development been like in Q4 and the last few months? I think that's one for Will. William Lee: Yes, overall positive, slightly up. I think those broad themes we talk about of actually APAC overall being positive at the moment. Europe is already struggling and the Americas being a bit more complicated, but with some encouraging signs, but also some risks there remain true. I think we would also say that we view the sort of semiconductor electronics as being an [ unusual show ] with steady growth rather than its normal cyclical ramp up and down. And I think as we talked on earlier, we sort of see consumer electronics as being probably going into a more positive phase, but really not sure. So I think those are the bits I would probably pull out. Clearly, we've touched on some of these other bits earlier as well. Chris Pockett: Okay. Thanks, Will. I think that really is it this time. So that now ends today's session. As ever, we'll aim to publish a combined recording of this webcast and results presentation on the IR section of our website by tomorrow morning. And just to point out that whilst we've had no questions today on the new reporting segmentation, we will be publishing results for the new reporting segments at 07:00 BST on Tuesday, 23rd of September. So if you can look out for that. So on behalf of Renishaw, I'd just like to thank you all for attending this event, and have a great day.
Adam Castleton: Good morning. Thank you for joining LSL's Interim Results Presentation. I'm Adam Castleton, LSL's Group CEO, and I'm here with David Wolffe, Interim Group CFO. I'll first cover highlights, market context and progress we've made in our divisions. David will then take you through a financial review. I'll then talk about outlook and some key takeaways, and we'll take questions at the end. We're recording this event and a replay will be available on the LSL IR website. These are my maiden set of results as Group CEO. I'm really pleased to report the results are in line with expectations, and we continue to make good operational progress. Revenue and profit are up with operating margin maintained at a 15-year high. Return on capital employed of 31% for the last 12 months is much higher than historical levels. These reflect the improvements we've achieved following the transformation of the group in recent years, and this was achieved while continuing to invest for growth. This performance underlines that our capital-light resilient model is delivering consistently while we are reinvesting for the future and the full year outlook remains unchanged. Moving to key financial highlights. Group revenue increased by 5% to GBP 89.7 million, and we maintained our strong market share. Group underlying operating profit was up 3% to GBP 14.8 million, while we continue to invest strategically in our business and absorb the national insurance increase. We are a highly cash-generative business. Our cash conversion for the last 12 months was 95%. This is at the upper end of our target range of 75% to 100%. We performed well in a recovering market. Total mortgage lending in the market increased by 5% with a very different picture in new lending, which was up 22%, whilst product transfers rebalanced back 10% year-on-year. We gained market share with our new mortgage lending up 23%. U.K. residential sales were up 17% with a pull forward of demand given the stamp duty changes. We maintained our market share of this market. Mortgage approvals increased 10%, with the change in our lender mix slightly reducing our estimated share in surveying and valuations with revenue up 9%. We operate 3 divisions with leading market positions, each benefit from strong long-standing client relationships with scale and strength in their markets as well as expertise and deep domain knowledge. Each delivered operational progress during the period. In Surveying & Valuation, productivity per surveyor increased by 8%. B2C revenue increased by 43%, and we renewed a top 5 lender contract and started working with another new lender. In Financial Services, new mortgage lending was up 23%. Revenue per adviser increased by 8% and the implementation of the new CRM is progressing well. In our Estate Agency Franchising division, we increased the size of our lettings portfolio, making 3 acquisitions during the period with a strong pipeline, and we added 3 new branches to our franchise network. In summary, each division continues to execute well while maintaining discipline on margins and returns. I'll now hand over to David to take you through the financial review in more detail. David Wolffe: Thank you, Adam. Good morning. I'm David Wolffe, Interim CFO at LSL, previously CFO at a number of high-growth, tech-driven and listed businesses. Let's look at the group's financial performance in more detail. In the half year, revenue grew 5% to GBP 89.7 million, driven by 9% growth in our largest division, Surveying & Valuation. Underlying operating profit increased to GBP 14.8 million, up 3% year-on-year, and I'll come back to that increase in just a moment. Operating margin remained strong at 17% at the upper end of our historical range. Cash from operations at GBP 7.4 million reflects shareholder distributions, planned investment and some working capital timing. Again, more on that shortly. Return on capital employed for the last 12 months increased to 31%, very strong compared to historical levels. So the first half has delivered continuing growth while maintaining a high return on capital profile. Coming back to that operating profit increase, there are 2 main points to highlight. First, we have made positive operating performance progress with an underlying increase of GBP 3 million before strategic and investment decisions. This progress is driven by our volume growth across the business, improved pricing and the first positive contribution from the Pivotal Joint Venture. Second, we made strategic decisions in 2 areas, which reduced profit in the period. We stepped away from some protection-only business as we rebalanced our adviser firms towards mortgage and protection or composite firms, and we made investment across Financial Services and Surveying to drive future growth. So the headline growth of 3% is a combination of that underlying progress and the growth investment. Turning now to cash flow and capital allocation. In the half, we delivered positive operating cash flow of GBP 7.4 million after working capital movements around the 2024 year-end. I'll come back to this in just a moment. We deployed capital in 2 key areas in the period. First, in shareholder returns, we distributed GBP 9 million in dividends and share buybacks. The interim dividend is maintained at 4.0p, and the buyback program continues with GBP 3 million deployed to date. Second, in strategic investment, GBP 3.6 million of cash was spent across CRM development, data and lettings books acquisitions to drive future growth. Our balance sheet remains robust. With June cash at GBP 22 million and a GBP 60 million unutilized facility, we have strong liquidity and our capital-light model ensures ongoing flexibility. Looking at the positive operating cash flow and working capital in a bit more detail now. The line at the bottom of this slide shows our adjusted cash from operations performance over the last few half periods. The GBP 7.4 million we reported in H1 presents as a lower number than last year, but we had a timing effect of GBP 4 million excess working capital inflow just before the 2024 year-end that then unwound into an outflow into 2025. You can see this in the lines above. In operating profit, we have stable progression. Depreciation is flat and low, reflecting our capital-light operating model. Cash on lease liabilities continues to moderate after the transformation of the Estate Agency business. But on working capital, H2 2024 inflow of GBP 5.9 million you'll see in the box was an outlier, which illustrates these timing effects around the year-end. The unwind in H1 of 2025 makes our cash conversion look suppressed in the half, even though on a rolling 12 months basis, we made really good progress. We expect that the second half and full year 2025 cash conversion should be normalizing towards our target of 75% to 100%. Taking each division in turn, let's run through the story of the half. In Surveying & Valuation, revenue grew 9% to GBP 53.2 million, within which B2C was up 43%. Underlying operating profit was GBP 11.9 million, with margins at 22%. This is down on the elevated levels of H1 last year with Surveyor commissions now normalized, and this effect is in line with what we have flagged before. But in sequential performance compared to the second half of 2024, we have made good margin progress, up 200 basis points. Volumes grew with jobs up 7%. Fee per job was up 2% with better terms and more B2C activity, and we improved Surveyor productivity in jobs per surveyor, which was up 8%. In Financial Services, revenue was flat overall, but this illustrates the combination of mortgage-related revenue up 21% and protection revenue down 12%, following our strategic repositioning away from protection-only brokers. As a result, adviser numbers were down to 2,637, but adviser productivity increased 8% in completions per adviser, and we grew fee per completion by 3%. But overall, at a divisional level, despite the broker repositioning and some P&L investment in CRM, operating profit grew 23% to GBP 4.8 million, with Pivotal making that positive contribution. In Estate Agency Franchising, revenue overall grew 1%, but while residential sales revenue was up 24% and lettings revenue up 4%, our land and new homes business was pushed back by a contract change. As a result, underlying operating profit margin remained flat at 24%. We are expecting improvement in the second half with cost savings feeding through. Branches grew by 1% after 3 more openings in the half, with overall sales income per branch up 22%. The lettings portfolio now stands at over 37,400 properties after 7 lettings books acquisitions since mid-2024, with overall income per property now up 1%. So with progress in each of the divisions, the group delivered on expectations in the first half, whilst at the same time, positioning itself for stronger growth in the second half of the year. And with that, I'll hand you back to Adam to take you through the outlook. Adam Castleton: Thank you, David. Expectations for the full year remain unchanged. In the second half, we expect a sequential step-up in profit in each division with an increase in refinancing activity, a strong activity in 2-year and 5-year mortgages in 2020 and 2023 mature in large numbers. We've already seen this in July and August, with July the strongest refinancing month for us this year. We also came into the half with residential sales pipelines increased from this time last year. We will continue to invest in our business in the second half, for example, in lettings books and the FS CRM system. Indeed, in September, we've already completed a further 3 lettings books. When I presented our preliminary results back in April, just before I started out as Group CEO, I set out my early thoughts and priorities. These remain unchanged, and I'm pleased with early progress. Our senior leadership teams are responding well and are raising their sights and ambitions even higher for the future. We continue our investments in technology and data, notably the new CRM in FS and data in Surveying & Valuations, whilst we are also trialing new AI-enabled solutions to improve productivity. I'm already working closely with our divisional business leaders on the opportunity to leverage group strengths, and I'm encouraged by the early signs that I'm seeing. I'm working very hard and even more transparent and clear communication, both internally and to the market. For example, we've just rolled out the first wave of updates to our IR website, adding some fresh new elements to allow greater accessibility and transparency. This is all steady, deliberate progress, and I look forward to sharing news of our ongoing progress. We are a diversified, resilient cash-generative group, strategically positioned for growth. We're delivering, performing in line with expectations, and we're investing carefully while maintaining shareholder distributions. We're building consistently. The LSL of today is stronger and leaner, delivering higher-quality earnings. It is early days in my tenure as CEO, and I'm excited about the growth opportunities open to us as a group. With 2025 on track, we're looking ahead with renewed ambition and with confidence about our future. With that, operator, can we please move to Q&A. Operator: Thank you. [Operator Instructions] There appears to be no questions at this time. So I'd like to hand the call back over for questions via the webcast. Unknown Executive: Okay. Thank you. We've got a number of questions on the webcast. I'll ask them one at a time. The first question is from Glynis at Jefferies. Glynis asks about the Surveying division and the year-on-year movement in the operating margin. You talked about this as -- in the second half of 2024, you're talking about it again today. How should people think about the first half 2025 margin? And what sort of level is considered normal? Adam Castleton: Yes. Thank you, Glynis. Thank you for your question. So last year, as we flagged at the interims and the prelims, we had enhanced margins in the first half of last year as we came into the year in 2024. We had a burst of activity, and we didn't bring back the surveyor incentives immediately. And secondly, there were some administrative heads that we didn't bring back immediately as well. Therefore, there was quite an enhanced margin for the first half of, I think it was 25%, sequentially then that fell in H2 and has now recovered to about 21%, 22%. We expect that really to be the norm. So at the moment, 21%, 22% is really the norm for our margin going forward, the 25% was elevated in the very top end of what we might normally expect to see. Unknown Executive: Great. Thank you, Adam. The second question comes from Jonathan, who's at Edison. Jonathan asks about the impact of changes in stamp duty. Have you seen any material changes in demand in the month since the stamp duty changes came into effect? Adam Castleton: Yes. Thank you. Thank you for your question. Yes, there was a spike, particularly in March with the stamp duty changes. So we saw for the whole half, 17% up for the overall market, which we tracked. March was particularly strong. It was actually 170,000 transactions in the market for that month. What we've seen since then is a good market as we expected. In fact, because H1 2024 was a bit softer, the 17% looks very high. But in fact, the second half of this year will be a little bit more in transactions than it was in the first half. So we see sequential rises, notwithstanding the spike. So certainly, if the question is which -- from time to time, people have asked whether somehow there was a spike and then it sort of hollowed everything out, it certainly didn't. We entered this half year with increased pipelines, which is great. As I said, we expect residential sales to be a little bit more in the second half than it was in the first half, notwithstanding the spike duty spike. Unknown Executive: Great. Thanks, Adam. We have a follow-up question or a second question rather, sorry, from Glynis at Jefferies. There's been a lot of talk in recent weeks about potential government policy changes. How has this impacted your business in recent weeks? And if some of the changes that are being speculated in the press were put into place, what are the implications for the group? Adam Castleton: Thank you again, Glynis, for the question. Obviously, something that we're all reading in the newspapers. The autumn budget is obviously a couple of months away in November, and we read, as you do, Glynis, all the various either ideas or kites that are being flown, it's hard to tell which they are. I don't think I'll comment on speculating what may not come through and what that might mean. Obviously, as a business, we stay very close to what will happen, what we focus on are the facts that we have at hand and as a business that covers the whole range of services in the property and lending markets, we've got really deep knowledge and deep data. So if we look at all the information that we have across Surveying Financial Services and Estate Agency covering mortgage applications, completions, fall-throughs, which are when agreed sales fall through sometimes because the chain has fallen through because people pull out. We're seeing nothing of any of our metrics and -- because I expected some of these questions rather than checking these numbers once a day, I'm checking them twice a day with people and ringing people up. We're not seeing anything at the moment. Whether there's a question of sentiment, I can't say, but certainly, all of our metrics are showing no change of customer behavior. And I think depending on what does or doesn't transpire in the budget, as we've demonstrated over many, many years, we're a dynamic business. We're very quick to react and to change the market. We're well positioned for that. And for any negative shocks that comes to the market in the future, of course, following our franchising restructure, we're a lot more even in our earnings, less volatile. And so we're certainly less spiky. And we're very, very quick to react. And as I said, the data that we have is very, very specific. Just as a little example, when our friends across the water introduced the tariffs, I made a call and said, could they pull out fall-through data from Solihull, which is where the Land Rover factory is and in the Northeast where the Toyota factory is just in case people felt nervous because of the tariffs. So we really stay on top of data closely. And whilst I can't tell what may happen tomorrow or the day after in the budget, certainly, everything we've seen demonstrating that the customer behavior is unchanged and in line with what our expectations are. Unknown Executive: Great. We're actually going to move back to the conference call. We've had a question on the conference call, and then I've got another 2 questions on the web platform. Operator: And we take a question from Robert Sanders from Shore Capital. Robert Sanders: Just I suppose following on from that question about the government and sort of the other aspect of the market that's been a bit open to surveys has been the lettings market and [indiscernible] whatever saying that there's a downturn. Is that something that you're experiencing? And what do you think the outlook is going to be for the lettings market given renters rights [indiscernible] as we move into the next year? And then as a follow-on question, can I also ask you about what your -- you talked about the technology and data innovation and what you're seeing as the opportunities, particularly in the Surveying & Valuation division for the use of AI? Adam Castleton: Certainly, yes. Thank you. Thanks very much. Good question about the lettings market. The first thing I'll say is the lettings market is extremely resilient. If you actually look at the number of privately rented dwellings in the country, it's been very stable at GBP 5.4 million, GBP 5.5 million for the last few years, so we've seen no change of that. From our perspective, we have slightly increased our lettings portfolio, as David said, to over 37,000. And actually, as legislation, you mentioned the renters rights becomes a bit tighter. What we're seeing is that there's more interest from landlords who are self-managing to move towards a managed service. And we're starting to see that movement and that interest and we're certainly marketing to those landlords. It's interesting, you mentioned some of the metrics and the headlines that we see that forecast problems for the lettings market. I would just say that if you note some of those metrics, they don't necessarily show what they may appear to on the face of it. The first thing is there's been some publicity about lettings instructions being down, which is actually something we've seen over a number of years. One of the main reasons for that is that people are staying in their properties for longer, and therefore, there are less instructions than historically they were. Landlords will keep a good paying regular tenant and tenants will -- with everything going on in the market, will prefer to stay where they are. So that's certainly the reason -- one of the main reasons that instructions are down. It's not demonstrating that things are leaving the market. And also, we hear metrics quoted around there being more properties for sale that were previously rented. And whilst that might be the case, of course, those rental properties are often bought by other buy-to-let landlords. So certainly, we don't see a big change in the numbers of properties rented. We see opportunities for further growth. As David said, since the middle of '24, we've done to the end of the period 7. And actually, we did 3 lettings books during the half. And since the end of the half, actually in September, we've done 3 and just about to close to 4. So we see some good opportunities there. It's certainly not buoyant as it was when originally buy-to-let really grew quite strongly, but we're seeing no material change in the numbers of properties, dwellings that are privately let. In terms of the renters rights, as you mentioned, and as I say, just to reiterate, a, we don't see that changing materially the structure of the market. As I said, it may certainly lead to an opportunity for us to bring landlords who are currently self-managing over to a managed service. And that's probably a general point to make around regulation and regulatory changes. As a larger player, we're well placed to make the investments required to cover any changes necessary. And obviously, our deep relationships with whether it be our franchisees or our financial services, we're able to give our sort of trusted advices we have for many, many years. Unknown Executive: I've got 2 questions here from Robin from Zeus. Again, I'll ask them one at a time. In terms of the first question, could you please provide some more detail on Pivotal Growth in terms of current run rate of advisers, revenue, trading performance? Adam Castleton: Yes, Pivotals -- the Pivotal investments is scaling very well in terms of EBITDA, which is the actual entity results in the first half, that was -- again, these are within the interims, these are about GBP 3 million, GBP 4 million of EBITDA. So on a decent run rate for the year. So it's scaling up well. There were 2 small acquisitions during the half that we announced in the interims. And actually, in the post balance sheet note, you'll see that there was one further acquisition that completed after the end of the period. So scaling up nicely with over 500 advisers, the EBITDA run rate is going well. We're looking forward to continued growth and eventual realization of our investments. Certainly, we expect that to be well over our return on our weighted average cost of capital. Unknown Executive: Great. Thanks, Adam. And then there's a second question from Robin also about Pivotal growth. So Robin's question is, can you please expand on your reference about LSL being founded 21 years ago and it's being built on -- success being built on operational resilience, opportunistic dealmaking and entrepreneurial culture. What are LSL's strengths? And how does Pivotal fit into these strengths? Adam Castleton: Okay. That's okay, interesting. So yes, I mean, I won't repeat the words, but the business has -- it's quite entrepreneurial. It's very agile and it's very dynamic. We're very quick to move and to take opportunities. One of the examples actually I often use is when the pandemic hit at the same time that we were planning for the worst case for a year where we would have no business, we were also planning for the state agency to open immediately, and we're planning for both. And in the end, we really, really farmed the market well as it recovers. So very, very quick, and we're always agile. The opportunity -- the opportunistic element of Pivotal when it was founded was for a buy and build within the broking business, which exists in many other industries as we know, and there's an opportunity for us in the broking business, which we have launched. So really, it is an opportunistic approach to buy and build within a sector that had not seen it before. And so far, we're pleased with the scaling. And as I said, we expect a realization of our investments in due course. Unknown Executive: Great. That's all the questions covered on the web platform. No further questions. That's it. Back to you, Adam, for closing remarks. Adam Castleton: Listen, thank you for all the questions. I apologize for my colleague, David. They've all been pointed at me and I've answered them all. So I'm sorry that your -- all your numbers are not... David Wolffe: [indiscernible] Adam Castleton: Thank you very much. So listen, thank you for the questions. We're really excited about the opportunities ahead for the group. We're available for any follow-up that you may need. And I thank you all for your questions, your interest, and I look forward to carrying on the dialogue with you. Thank you.
Operator: Good afternoon and thank you to those of you who are joining us. There is quite a number of you. So if you just bear with us, we'll allow everyone into the meeting. Great. Okay. Well, thank you for joining us this afternoon. We're here to hear from McBride plc, who announced their results earlier this week. Today, we're going to have a brief introduction followed by a video, and then on to the main bulk of the results presentation, which was shared with analysts, as I say, earlier this week. Then, we will have an opportunity for Q&A at the end. Please feel free to submit them as we go through the presentation, and we will take as many as we can in the time that we have allocated, which is the hour. So without further ado, I will hand over to Chris Smith. Christopher Ian Smith: Thanks, Hannah. Good afternoon to everyone. Thank you for joining this call. So as Hannah said, I'm Chris Smith. I'm the CEO, been with the group coming up for 11 years now. And I'm joined here today by Mark Strickland, who's our CFO, who's been with the group around 5 years. I thought -- so first of all, we're going to kick off with a very rapid introduction to McBride for those of you who don't know anything about us. We have a small corporate video, which explains a bit more. And then we will, as Hannah says, rattle through the results presentation we gave yesterday. So look, this is right on the page. We are the #1, the leading supplier in our space across Europe of household cleaning products. We're all coming up for 100 years old. We are a pan-European business. We are not just a U.K. business. Our heritage is U.K. We're coming up to 1927, it was formed in Manchester. But we now have something between 3,500, 3,600 people across 18 locations and 13 countries selling over 1 billion consumer units to our customers, which are predominantly retail customers. So you'll see here on the bottom left, 84% of our business is what we call private label or white label. So this is -- and I'll come on to a bit more about what that is. And we have a small amount of volume into contract manufacturing where we manufacture for brands. You'll see on the bottom right. We are a pan-European business. Everyone thinks we're just a U.K. company. We're not -- U.K. is our third biggest market. Germany is our #1 market, nearly 1/4 of the group. In France, U.K., Italy, Spain, the main countries. And we are doing, as you'll hear in the results, just under GBP 1 billion of sales in the year to June 2025. Next slide, please, Hannah. So look, it's really important for people to understand, I think, in our business model, private label or some people call it white label is at our core. That is the roots of the business and the absolute core mission of the company. You can see our purpose statement here, everyday value cleaning products. So every home could be clean and hygienic. We are your everyday supplier of everyday products that you see in the supermarket aisle, and I'll come on to the product ranges in a moment. I just would like to point you, if you get the chance and you're on LinkedIn, join us and look us on LinkedIn. We've just been doing a series of interesting articles that paint the backdrop to what is private label, -- why -- what is fast followership mean? What does McBride offer to the market. So there's some really good posts that have been coming out in the last 3 or 4 weeks. I would point you to look at those if you get the chance, gives you a nice background around the company as well. Next slide, please, Hannah. So the products that we manufacture are summarized here. And in reality, the sort of really the main 3 thrusts for the group are laundry products, dishwashing products and surface cleaners or household cleaners, we also have some air care products from our aerosols business. And in laundry, everything you would imagine if you're stood in the aisle in Tesco from laundry powder to laundry liquid to laundry capsules, to fabric conditioner, stain removals, all those sorts of things that you would see dish, the same, tablets for automatic dishwashing machines, dishwash powders and of course, also hand dishwash, very liquid equivalents. And cleaners is everything you imagine with a spray onto a surface, table cleaning, surface cleaning, antibacterial sprays, toilet cleaners, bleach, all those sorts of products. So absolutely pretty much everything you will see in the household aisle of a retail partner. Next slide, please. We run our business across 5 divisions, product-driven. So you can see the 5 divisions here, liquids, which is anything that you pour basically out of a bottle, out of a carton, out of a pouch. We do what we call unit dosing. So those your dishwash tablets, your laundry pods and increasingly, these soft pods that you have in dishwash. Powders is what it says on the tin, it's absolutely the familiar thing that most people remember in laundry powders and dishwash powders. Then we have an aerosols business. And we have a kind of incubator [indiscernible] business in Asia doing predominantly actually personal care and household products. Next slide. The industry, as you all know, and you will see if you stand in the aisle of supermarket -- is all about ultimately innovation in the products that you're being offered as a consumer. And the real focus in innovation nowadays is all around packaging and compaction, better formulation to reduce carbon footprint. McBride is at the forefront of this in the private label space, whether it's recycled plastic, we have been the first to market, for example, with laundry liquid in what looks like an orange juice carton. You can buy that in Sainsbury's, for example. We're the first to market with a paper bag rather than a plastic bag for laundry powders. And we're the first as well to the market with a cardboard box rather than a plastic tub, for example, for laundry capsules. So the world is moving fast. The retailers are very demanding in this space, and it's a key aspect of our business, as you might imagine. And then finally, on the sort of [indiscernible], why is McBride successful and the #1 in this space. And look, we pride ourselves on being the most competitive, the most reliable and the most innovative supplier to the trade across all the markets in which we operate. We are hugely customer and market-oriented and focused. We bring significant scale. That brings fantastic distribution networks. It brings buying scale for things like raw materials and also, of course, things like innovation. We are distributed in our asset base. Transportation is expensive to move bottles of washing up liquid around. So we have a distributed asset base, pretty unique in the industry. We pride ourselves on expertise and being absolute leaders in the specialisms that are needed for these categories. And with our new strategy that's been in place now for 3 to 4 years, absolutely focused and disciplined on what we're trying to achieve in our strategic outlook. So that's a very, very rapid rattle through but McBride at a glance. Hannah, we now got a corporate video, if you would go to play that. This is available on our website, the corporate video, by the way, in the who we are section. So if you want to watch it again, you can at your leisure. But over to that. [Presentation] Christopher Ian Smith: Great. Thank you, Hannah, for sharing that. So look, we'll now move on to the slide deck that we presented yesterday and as part of our results announcement. And look, it's really -- it was an absolute pleasure, and I'm super proud as part of the leadership team to be able to present the numbers that we did yesterday, continued proof really of our rebased much improved business. I'd like to think that another set of strong performance results as we're sharing with you today will begin to turn heads as we cement our performance at these new levels as the leading business in its sector in Europe. And as you'll hear through this presentation, the group is confident of its position and progress towards its strategic goals. This confidence is behind the reinstatement of our annual dividend, all of which will help support more investor interest in the group and the potential value opportunity. As you will hear shortly, McBride is also a much stronger all-round business. Our platform is much improved. Yes, we've turned around the financials. We've doubled our EBITDA returns from historic levels, and we've normalized our balance sheet in the past few years. But equally worthy of note is the extent to which we've improved many of what you might consider to be background features and aspects of the group's performance. And therefore, our credibility with customers, suppliers, colleagues, banking partners and other stakeholders is much improved. These core capabilities have committed McBride to continue to grow in a competitive and price-sensitive market while sustaining these high levels of profit margin. We've seen a lot of doubt in recent years that we can maintain these profit levels. So I'm delighted to say this is our fifth consecutive reporting period at these new profit levels with our outlook consistent to retain at this current level. Our heightened profitability has translated well into strong cash flows, strong cash generation. Our net debt has fallen again. It's now close to GBP 100 million, and our debt cover level is well ahead of our 1.5x target. We mentioned at our Capital Markets Day 18 months ago that we had a series of options and ideas to support further growth and expansion of the group as part of its strategic growth agenda to further its leadership in the industry. Our balance sheet is now able to permit the group to be considering these options behind what we call our Core+ and our buy-and-build ambitions. Finally, this financial position overall and our confidence for the future has permitted the Board to announce the reinstatement of annual dividends with this first dividend for over 5 years now recommended at 3p. Next slide, please. And again, thank you. At our Capital Markets Day in March 2024, we outlined our strategy direction and our midterm financial targets. It is really pleasing to be able to report good progress towards these targets as outlined on this page. In revenue terms, our growth ambition of 2% per year is a volume target. And whilst revenue growth in the last 12 months in GDP terms was up just under 1% in volume terms, our growth was at 4.3%, demonstrating continued progress with our growth task. Our profitability held at 9.3% in terms of EBITDA. Good profit growth in our powders, unit dose and aerosols businesses was offset with slightly weaker margins in our liquids business, which was off just under 1%. As I said, our cash performance was very pleasing despite increased capital expenditure, net debt fell again and debt cover is now at 1.2x, beating our target of 1.5x. Part of the net debt improvement was a result of good working capital management, which offset higher capital additions with the result that ROCE held at levels reported last year at 33% and significantly ahead of our 25% target. I will update you shortly on our transformation program, but this remains central to our strategy delivery and is now delivering net benefits and remains on track to hit the GBP 50 million cumulative net benefit over 5 years. The leadership and the Board of McBride are focused -- are laser-focused, should I say, on delivering the strategic ambitions for McBride and its stakeholders, and we remain confident we have the right team and the right direction to deliver on these targets over the midterm. Next slide. Whilst most of the headlines as the investor audience will want to hear will center around our improving financial metrics, I'm also super proud of the excellent performance across a range of our other crucial areas that point to McBride being a stronger overall business now and for the future. Service levels to customers, we call it CSL is a key hygiene factor for any supplier into retail. Our work in our transformation program on service excellence and strong focus across the business has seen the best service levels in the group for over 6 years. This positions McBride really well for any new business opportunities, margin management conversations, but also keeps our logistics and internal servicing costs to the optimum levels. Ensuring we're as efficient as possible in our manufacturing has stepped forward again this year with focused continuous improvement teams driving machine efficiency in the factories, yielding on average something like a 2% improvement in operating effectiveness. And finally, on this slide, I'm not going to go through all of these. I'm just going to talk about our sustainability ambition. We have continued to make real progress with our carbon footprint reduction ambitions, real reduction in absolute carbon levels in the last 12 months despite volume growth and actually reporting an -- what we call an intensity level reduction of minus 8%. So well on track to deliver our carbon commitments. Next page, please. A key feature of our reset business and our new strategy is to be far more informed and better aware of what is happening in the market as a whole. We have spent a significant amount of time developing our data analytics to support our understanding of how we're performing relative to the market and how the market itself is performing. We buy panel data for the 5 countries that the flags are shown on this slide, and we can track quarter-by-quarter a rolling 12-month total market position of both branded and private label products in the categories that we supply. The graph on the left shows the total market volumes over time, each bar being the next quarter on and the last data to June 2025. The dark green bars represent the branded volume and the light green bars represent the private label volume. The overall market moved up a little bit, 1% in total. But as you can see with the top line on the chart on the right, the private label growth continues to outperform the branded volume growth. Private label share has grown to 35.5%, up from around 30%, 3 to 5 years ago. And that would appear that line on the chart, which is that private label share has steadied and is holding now at these new high levels. And evidentially, if you look at other sectors like pet care, pet food, baby diapers, ice cream, private label share when it makes such a significant step change stays at these new levels. And we expect that to continue in the coming year. In the branded space in the last 12 months, we have seen a longer period of promotional activity from the brand typically in the spring time, and we haven't seen that for a few years now. There was some impact into our volumes and the market more generally during the end of what is our quarter 3, so February, March and into a bit into April. But since then, we have seen generally private label demand return to normal levels, solid and robust. In terms of categories, quite some differences in category penetration for private label. A key focus and strategic direction for us is laundry. Laundry is typically the highest value, highest margin part of the market. It's the least penetrated for private label, typically just under 30% for laundry, where you compare that to dishwash where penetration is 44%. Overall, we grew our volumes in private label just under 2% as was evident in the market as a whole. And we did particularly well in Dishwash, where we outperformed the market heavily. And in laundry liquid, which is a key priority and focus strategic area for us, we grew that business 7% against the market that grew 2.8%. So trends in the market are still favoring private label. We believe that they will hold at this level and our growth in the future will be coming from contract wins and growing our share in the existing customer base. Next slide, please. So just very quickly on our divisions. All these -- for your information, all these divisional divisions have their own management teams. We have a series of shared resources like purchasing and transportation and central finance and IT, for example. All other functions reside and are accountable within profit and loss accounts for each of these 5 divisions. Liquids is our biggest division, over 57% of the group. And we saw a good performance from the business this year, growing top line, moving up in contract manufacturing. We onboarded a significant new contract manufacturing contract in France. We've progressed strongly with our operational excellence agenda, driving lean approaches in manufacturing. And we continue to invest in automation and reduction of headcount through robotics and end-of-line automation. That business is cost oriented, by the way. You'll see each of these divisions has a strategic focus and the liquids is typically the most competitive environment. It's the lowest barriers to entry, cost leadership essential as a strategic focus for that division. Our unit dosing business is much more about product leadership. This is a fashion thing. You'll see frequent changes to formats. These are typically high priced on shelf. And we will work hard to lead in this space by driving new innovation, new formats all the time. Two new dishwash formats introduced in the last year, and we are now bringing to market the first soft dishwash fusion product, we call it into market right now. But actually, the performance improvement for unit dosings last year when you see the profit numbers was all about its operational performance. These are very difficult products to manufacture very fiddly, quite intricate machinery. We've had a fantastic step-up in output, waste reduction levels and labor efficiency through the factories. So great to see the progress that business, our most profitable business has performed last year. Very quickly on [indiscernible]. Laundry powders and dishwash powders is a declining market. So this is a -- this -- whilst it needs to be cost leadership, it's absolutely about specialism and expertise, a lot of work for sustainability on compacted products. So the days of 10-kilo boxes of laundry powder, you're now buying 1.5 kilo bags of laundry powder to do the same number of washes. That's very good for the carbon emissions and good for transport and everything else. And we've done a great job there, even though the market has declined slightly, strong delivery and margin expansion through operational performance improvements. And I'll quickly touch on Aerosols. This business was loss-making when we started the journey of divisionalizing this business last year. It's grown 21%. It's absolutely leading in its space, and we are very positive about the outlook for our aerosols business. Next slide, please. And I'll just touch now on our transformation program. So we launched this transformation program, we ran a series of what I call excellence projects about 2 years ago. And the outcome was to obviously try to drive value and drive benefits, and we targeted GBP 50 million across the 5 years from '23 to '28, but they're all around improving the platform that McBride has got. The backbone to this project is our SAP upgrade. We have -- we are currently an SAP customer. We have SAP across our division, but it's a 26-year-old SAP, and we are now migrating to the latest generation. A sort of multiyear project. It's the backbone really of our excellence agenda, standardizing processes, absolutely harmonizing the way we work across every location. And obviously, they're driving efficiencies, much more analytics, digital interfaces, AI experiences as well. So well on track. We have our first go-live in 1st of November. We're doing it on a very limited site-by-site basis. So we're not exposing the whole business to this at one go, but our first one is coming up in November, and we're very positive and in a good place on the rollout of that project. Our commercial and service excellence programs are actually now in the phase of closing out the project work streams and ready for handing back to the business as business as usual. We have made great progress with both these initiatives and time is right now to bed in the change they brought and continue to deliver on the benefits each are already showing. Our service performance statistics show the progress. We're up to 94%. That's the best in 6 years and our improved pricing and margin management, evidence of the commercial excellence program coming through in our results. As we go forward, we will see these full year benefits roll continuously into our results going forward. The expected benefits from SAP and our productivity program coming a little later in the 5 years, but we're also driving overhead efficiencies out. We removed 60 people at the end of the last year, financial year. People were underperforming. We have a rigorous assessment of individuals now and we've upped our game as part of that platform on our HR disciplines and HR processes, and we've cut costs, and we're driving overheads out by we drive performance across all aspects of the company. So that's my rapid overall business progress update. And hopefully, you've heard about -- not just about the financials, but also the strong all-around business that Bride now is and how we are set up for continued progress towards our midterm goals. I'm going to hand over to Mark now to cover off some of the financials. Mark Strickland: Thank you, Chris, and good afternoon, everyone. I'm pleased to have reported an excellent set of results for the financial year ended 30th of June 2025. As you'll see, the business has further strengthened its balance sheet, increased its liquidity and through the reinstatement of the accordion has further increased its optionality for future investment and capital allocation. As a result, I continue to have huge optimism for what the business can deliver for its shareholders into the future. So looking at the 2025 financial year in a little bit more detail. Whilst group revenues were down GBP 8.3 million or 0.9% on an actual basis, on a constant currency basis, they actually rose by 0.7% or GBP 6.5 million. Contract manufacturing, especially has helped this constant currency growth. As a business, we continue to look closely at forward -- sorry, closely analyze forward-looking raw material and packaging trends, adjusting sales margins accordingly. This, combined with close operational and overhead cost control means that at GBP 66.1 million, our adjusted operating profit has been maintained at similar levels to last year. Over the last 3 years, we have progressively strengthened our balance sheet through cash generation and debt reduction. For the 2025 financial year, our free cash flow was GBP 93.9 million, and our net debt further reduced ending the year at GBP 105.2 million. This gives the business a great platform for further investments in growth. Next slide, please. This slide looks at the group and divisional performance on both an actual and a constant currency basis. If we look at the left-hand side at the actual revenue figure, there were 2 notable impacts at play. Firstly, volume growth of GBP 39.5 million or 4.3%. This arose from new contract manufacturing volumes, continued private label volume growth and a significant growth in our aerosols business. The second impact was the price and mix effect of negative GBP 33 million. This is because there were more sales of lower value products in financial year '25 versus financial year '24. It should be noted, however, that though the selling price may be lower, the profitability is often similar to other products as these are also lower cost format products. I've included the tables on the right-hand side of this slide because of the significant impact of currency during the '25 financial year. I won't go through the detail, but this clearly illustrates the point that whilst at actual currency, both revenue and operating profit reduced slightly when looked at on a constant currency basis, in fact, both revenue and operating profit grew. Next slide, please. And in the interest of time and allowing questions, I'm actually going to skip over the divisional detail and move on through the divisional slides to Slide 18. If you can look at the divisional slides in detail, they just give a little bit more about each element of our business. So what I wanted to do is spend a little time on looking at costs. As you can see, input costs were broadly flat. So looking at the left-hand chart, costs broadly flat. But as you can also see, they remain significantly higher than back in 2021. Inflation is still prevalent and some costs are still rising, albeit at slower rates than over the last few years. This is why McBride's continuing focus on margin management has been key and will remain key to the delivery of another good set of results and similar results into the future. This consistency of performance means that McBride as a group remains very well placed to sustain and grow profits into future years. In terms of overheads, as you would expect, we continue our focus on cost optimization, and I deliberately talk of cost optimization, not cost reduction, as we will continue to spend in areas where we believe the returns and benefits of any expenditure exceed the actual cost increase. As with most businesses, technology remains a key focus and indeed, McBride is embracing new technology, believing that this will be a key positive differentiator going forward. Just some examples. We will shortly be going live with Wave 1 of S/4HANA, as Chris has said. We continue to invest into and benefit from our data analytics function. Again, a real-life example of this capability is some of the market analysis information that you saw in Chris' earlier section. We're also actively developing appropriate uses for AI across the business. Lastly, it would be remiss of me not to talk about distribution costs, which actually rose to 9.2% of revenue from 8.7% of revenue. This was actually as a result of the higher volumes we put through the business at the lower selling prices. So you had higher volume whilst revenue didn't necessarily increase. Next slide, please, Hannah. So looking at pensions. Year-on-year, the IAS 19 pension deficit decreased to GBP 24.9 million from GBP 29.4 million due to the deficit reduction contributions paid by the group, a lower value of liabilities and lower-than-expected inflation. The deficit is comprised of a U.K. defined benefit deficit of GBP 23 million and the post-employment benefit obligation outside of the U.K. of GBP 1.9 million. For information, the U.K. scheme is close to new members and future accrual. Within the U.K. scheme, contributions for the financial year '25 totaled GBP 7 million being made up of GBP 5.3 million of deficit reduction contributions and a one-off payment of GBP 1.7 million to remove the pension trustees' dividend matching mechanism, which was put in place a couple of years ago. That GBP 1.7 million is already paid back as without removing it, the trustees could have claimed that they could get GBP 5.3 million, which is the cost of the dividend. So for the price of GBP 1.7 million, we've avoided a GBP 5.3 million cost. The 31st of March 2024 triennial evaluation was agreed with the trustees during the year. And as part of that agreement, McBride has agreed future pension deficit reduction contributions of GBP 5.7 million to the end of FY '28, where upon they revert back to the previous profit-related mechanism. Turning to capital expenditure. At GBP 30.4 million, capital expenditure levels were above historic norms as the business invested in both its new SAP S/4HANA system and for future operational growth. It is expected that in FY '26, that will be the sort of level of expenditure, but then thereafter, it will drop back down to around the GBP 22 million to GBP 25 million as the SAP project comes to completion. Finally, on to net debt. As indicated at the start of my presentation, the business continues to generate strong cash flows and strong cash conversion, resulting in net debt falling to GBP 105.2 million. Additionally, the business has strong core liquidity with around GBP 141 million of headroom within its core facilities and an additional unutilized GBP 75 million -- EUR 75 million accordion facility. So it is well placed as well placed as it could be for both internal and external future expansion and investment. Next slide, please, Hannah. We flagged up in January that the Board intended to reinstate annual dividends -- and I am pleased to say that the Board is recommending 3p per share dividend for the 2025 financial year just ended. Hopefully, going forward, we may become increasingly accretive as a mix proposition share comprising capital appreciation combined with an income. As I said at the beginning of my presentation, I'm hugely optimistic for the future of the business. In the Capital Markets Day in March 2024, we set the business some challenging midterm targets. And as you have seen today, we are either already delivering on many of them or have made significant progress. My personal belief is that this set of results provides a further proof point that the business is definitely on the right track. Thank you, and I'll pass back to Chris. Christopher Ian Smith: Thank you, Mark. So look, just to wrap up in terms of an outlook. We never close to the end of our first quarter. And at this stage, we have seen a solid start to the year. Our volumes are absolutely in line with where we expected them to be. And we are seeing a good success rate in recent tenders, signaling further growth coming through from -- in our next -- in our second half of our next -- this current new financial year. We're now seeing great progress with our customer partnerships. That's evident in our win rates and that robust pipeline looking promising. The group will continue its mission on optimizing operational delivery and efficiencies, both in our day-to-day work, but also from the work from the transformation team, the transformation program, all supporting that midterm ambition of 10% EBITDA. And finally, with a strong balance sheet and financial flexibility now, the leadership team are looking at options for investment to support the midterm step-up in the group's scale and value creation opportunity for the benefit of all current and future shareholders. So that's it on the presentation, Hannah. So we're delighted to be able to take questions. Operator: Super. And we have a number. Right. Here we go. Cost pressures and margins. Are you able to add any detail as to how much of a threat to our operating margin are the cost-outs demanded by customers? Christopher Ian Smith: Look, it is always a feature of every conversation with any retailer, right, cost and price of product to retailers. It's not universal. We see very different conversations with different retailers. So please don't think every element of the market across all of Europe is identical. But we have -- part of our skill set, part of our capability is that ability to manipulate and manage product engineering to the benefit of both customers and ourselves. And unlike some other industries, like food, for example, if you could pick up a bottle of Tesco washing up liquid and a bottle of Sainsbury's and a bottle of Asda, and they all look the same, all the same site bottle and the same color. They are typically entirely chemically different. Every product is typically unique. We have that ability to flex formulations. It may affect performance. It may affect viscosity. It may have less perfume, more perfume. There are always ways to manage that. And look, it's an active part of the way we operate with our customers, and they will go through phases of want quality and they will go through phases of wanting cost. And that skill set, and Mark talked about it earlier, the focus on margin management to make sure that, yes, we can move prices and costs, but we're managing our margins and maintaining our margin. And look, there's been a lot of talk over the years about the ability of the power of the retailers into the supply side. In the crisis that we saw with the hyperinflation 3 years ago now, we recognize the -- we saw very clearly how important we are to our customers. There isn't anyone. Tesco honestly probably couldn't go anywhere else to do exactly everything we're doing. So you do have leverage. We do have arrangements with customers now for quarterly pricing reviews. It's not programmed. It's the right of both sides of a contract to ask the questions and challenge. But it protects our margins much better than before. Operator: And is the negative GBP 33 million price and mix effect on revenue entirely the result of the cost-outs demanded requested? Christopher Ian Smith: Not all. No. The mix side is not. Mix is that we do -- we -- part of the mix effect is actually the impact of the big contract manufacturing arrangement that we have with one of the world's biggest branders where we now 100% manufacture their bleach in the French market. Bleaches are low-priced commodity end product, but it's a stepping stone for us into a major relationship with a big brand. And the rest, yes, it's a bit of price give here and there, but we -- as you can see in the numbers, we've held our margins despite that. Mark Strickland: Just adding to that. So if a retailer says, look, we need you to get to a certain price point for a product, we may not supply the same product as they were getting before. We say, look, if you want us to meet a price point, then we are going to reengineer that product because we reserve the right to keep our margins. So it isn't just a like-for-like product and a reduction in the price. If there is a reduction in the price point, there is probably a reduction in the cost we put into that product. Therefore, we maintain our margins. Operator: Okay. Let's move on to cash flow and capital allocation. So you did a great job of bringing debt down. Do you foresee a decline of similar magnitude in the next period, given consensus forecasts are broadly flat? Or do you have other spending plans for the free cash flow? Mark Strickland: So a really good question and it is the right question. I think we focused on getting our balance sheet into a really good place. I think we're in a good place. That has now really given us optionality. We've obviously decided as a first step to pay dividends. But our capital allocation process is quite rigorous. And people have talked about share buybacks, about, well, do you want a progressive dividend? Do you want to do M&A? So we have a rigorous process. We have plenty of ideas as to what we might do. But we also have shareholder value accretion in our minds. And at any point in time, we'll take decisions based on what is available to us at the time. So if we carried on and did nothing, we would reduce debt further, but I'm not convinced that reducing debt further is the best use of our cash. There may be better uses. And again, that just depends how the year progresses and how opportunities come our way or don't come our way. But it's a really good question. Operator: Well, then as a natural segue, do you have a maintenance CapEx backlog? Or are you now able to fund growth CapEx? Mark Strickland: So I don't think we've ever really had a maintenance CapEx backlog. I think even when we constrained cash, we kept maintaining our equipment. I think it's always interesting whether CapEx is maintenance or growth because as your machines become older and you replace them, is that, in fact, maintenance CapEx? Or when you replace them, you tend to replace them with a machine that will do things quicker or cheaper, higher volumes, and that actually gives you growth and more ability to grow volume within your businesses. Now is that maintenance CapEx? Or is that growth CapEx? I think it's a little bit of both. But I don't believe our facilities are particularly starved with CapEx. I think they are appropriately invested. We also have quite a challenging approval system to make sure that we do invest in the right things. It's not free money. Christopher Ian Smith: I think just to add to that, we like to have a balance in the capital. It's not all about growth for stuff beyond pure maintenance. So there's some great opportunities for efficiencies. We talked about automation, end of line, removing labor from our cost structure. Cobots and robots don't ask for pay rises, right? And they don't go -- don't do industrial action or accident. So we see plenty of options and ideas coming from within the business. There are some great sources of high-quality, good value capital outside of the usual channels, which we're exploring to drive real value quickly, and we've done a few this last year. We'll do more. There's absolutely opportunity to drive margin improvement from CapEx automation as well as obviously from growth, which we will always continue to support. Operator: Okay. Just another quick one for you, probably, Mark. Can you tell us what estimate of WACC you're using to make decisions about what to do with free cash flow? Mark Strickland: So I actually use a different methodology. I'm from a private equity background, so I tend to work on payback. And my initial starting point is 2-year payback on stuff. Having said that, for the right things, we will do a longer payback. And for health and safety, you've just got to do health and safety. So I don't work on a WACC. I work on return on capital. We've said it's over 25%, but I also work on how quickly can we spin that cash. So can you get a payback quickly? So you're spinning the cash and utilizing it, very sort of private equity sort of approach to it. Operator: Okay. This individual has obviously seen the chaos that's been caused at the likes of M&S with their systems being hacked. Are you confident that won't happen to yourselves? And if so, why is that the case? Mark Strickland: Yes. So we concentrated on the shell. So we've put a lot of money into the shell to prevent people getting into our systems. However, we're now -- we switched from a prevention of attack to eventually somebody will get through. So it's not if, it's when. And if you change your attitude to, okay, somebody eventually will get lucky and get in because we've got to be lucky every minute, every second of every day to prevent and get in. So we spend a lot of money now on the inside of the shell as to how quickly we would detect somebody on the inside and also how we would shut segments of the systems down and how quickly we could get back up. So we're as confident as we can be. Until it's tested in anger, you're never 100% sure, but we have an awful lot of top expert advice. So we do have penetration testing. We have crisis management. We have simulations. Can I guarantee? I don't think anybody can guarantee, but I think we're in a reasonable place. Christopher Ian Smith: Compulsory training is the other thing. And the biggest risk is social engineering, isn't it? And so making sure all our teams, all our interfaces with systems are up to date on their training and is a key part of what we've been doing as well. Operator: Two questions on buybacks. Are you considering them? And if not, why not? Mark Strickland: It's part of the capital allocation consideration. At the moment, if you look at our share price, you would argue it's relatively good value and you could deliver value to shareholders by buyback. If you're not careful, that just concentrates the shareholder base even more. We did one about 4 years ago, and it didn't desperately move the share price. We also have a number of other ideas as to what we could do with it. But yes, it's not out of the question. But at this moment, we are just concentrated on paying the dividend. As I say, the balance sheet strength, you're absolutely right, gives us optionality, which is a nice place to be. Operator: Well, you raised it there, the share price question here around the frustrations that a lot of private investors feel that the current valuation put on the business. Why do you think you are so out of kilter from your peers? Christopher Ian Smith: Look, it is immensely frustrating. I mean we recognize that for all involved. I think the message we get -- the story we get is, look, concerns about 2022 happening again and concerns around -- which -- I know we should say the word unprecedented, no one likes that word. But I mean, we've never ever seen anything like that in my 11 years and in any of the history of the company before. It was all an outcome really of the consequence of supply chain post-COVID being chaotic and the ability to get chemicals and prices going up crazily. But the other fear is that sort of -- it's just going to go back to being a 3.5% to 4% business like it was for the 10 years probably running up to the COVID time. So we're super confident this business is not a 3% to 4% business. This is a 7% to 8% and an 8% to 10% business in EBITDA terms. We fundamentally believe the restructuring we've done, the way we've driven the organization design, our focus in the right markets. We have -- in the 5 years up to COVID, this business declined its volumes every single year. In the 5 years since we've grown them every single year. That's a testament to the way we now approach the customer, the way we operate with the customer. So we're firmly of the view that higher level sustainability levels of profits are there. The message is you've got to keep doing it to prove it. And so look, this is our second full year. It's 2.5 years because the year before that was -- we were coming out of the challenge in the second half was at these sorts of levels. We have got huge amounts of headroom. And in the last crisis, we entered that crisis, which is unprecedented. I mean we had [indiscernible] GBP 260 million, GBP 270 million of inflation on input costs in a 9-month period on a business that was making GBP 30 million of EBITDA. You can imagine how difficult that is to sort out, but we did. We've come through it. We've completely changed the relationships we have with our customers. And look, we can never predict whether there's going to be another macro crisis like that. But this business is an entirely different shaped business and a more resilient business. And we have got -- as Mark showed in the headroom, you can take a shock. We might take a shock for a quarter, but we have arrangements with customers that allow us to go back and challenge on price if that's clearly evident. And we spent a lot of time on raw material prediction indices. We're using data analytics. We're using all sorts of statistical processes to try to predict the forward views on ethylene, on natural products like natural alcohol and these sorts of things because that's super -- that's a major part of our proposition to customers is given that insight early. So I think the business is positioned well. It feels like we need to do more of it to prove to investors that this isn't a 3% to 4% business again. And we're sitting here with our targets. We've shown them today, second year in a run. We're looking -- the year forward is looking very similar, too. We hope to be better. And look, we're a staple product. Everybody needs toilet cleaner. They need to be able to wash the clothes. They need to clean the dishes. In consumer choice where they spend their money, we are a staple. And we're the biggest in Europe at doing it. and that sets us in a good position for the future. So look, we're just going to do more, and that valuation will come in time. Mark Strickland: Can I just add 2 things to that. I think in general, the small cap market is relatively unloved in the U.K. I think there's probably something Chris and myself can do more of. We've tended to be concentrated on to institutional investors, and this is our first attempt to reach out to the retail investors, and we need to engage, I think, more with the likes of yourselves. We've probably not got our message across into the retail community as well as we could do. This is our first step. And hopefully, we can engage more with investors like ourselves. Christopher Ian Smith: And just one last point. Although we call fast-moving consumer goods this space, it is actually slow moving consumer goods. I have to tell you this. Nothing changes dramatically overnight other than that crazy raw material situation, which has never happened before. The business doesn't line up around from this to that over time. It's really steady. We can predict it pretty well going forward. So it isn't -- although it's FMCG and everyone gets a bit panicky and jazz hands about the space, it is pretty steady. We are a great customer for our raw material suppliers. We're boringly tedious of buying the same amount of hypochlorite or PVC or whatever we might be buying from our suppliers. So it is a steady, solid business. It doesn't -- it's not going to change overnight. Operator: Okay. That was a really good explanation. Let's take a positive note. We've got a couple of questions here on growth. Given impressive service levels, where are the new opportunities and sort of aligned to that, are you making any progress on discounters because you were a little bit sort of underweighted, should we say? Christopher Ian Smith: Yes. Well, I love your question. Thank you. Look, we're very positive on the growth agenda. You've seen in the market data that the tailwind the industry has had for the last few years probably has steadied. There are pockets of difference within the overall market. But in general, the tailwind that we've had and the whole industry is probably steadied. It's holding at these new levels. So our growth in private label with the retailers is going to come from market share gains. I said earlier in my speech that we have made great progress in recent tenders. We've done very well with one of the -- our #1 customer is one of the worldwide brand. So discounters that you're probably thinking of begins with an A and letters along. That is our biggest customer. It's still no more than -- it's about 11% of the group. It's multi-country. It's not one single contract. And we just won loads more business at them as well. And they're a big partner customer for us. So we will gain share. That's the plan within our existing customer base. We didn't lose customers. You tend to lose SKUs or categories or ranges. We've never been kicked out really of any customer, but things move around a bit within the industry. So we're doing well, I think, in the retail, but we will just gain share. We have targeted areas like we talked strongly about laundry. We want to be #1 in the top -- we're #1 in the 5 countries of the big 5 countries in Europe, we're #1 in 3 of them, probably 4 actually just start to prove out at the moment, but we have gap in a fifth. So we've got opportunity to grow there. And then the other side is contract manufacturing. So we have a target of 25% of our revenues get to contract manufacturing. Why? 3 reasons really. One, it's load balancing. So it means we have a regular -- they're very reliable volumes in strategic long-term contract deals. It's a platform of volume through your factories, which cover overheads. Secondly, they are priced quarterly rigorously by the -- so it's absolute pass-through, and we will change the prices every month -- every quarter, sorry. But thirdly, relationships with the brands are important. We learn a lot from them. We help co-invest. We -- sorry, co-develop sometimes with branders. And they bring standards and insights that are helpful to our business model as well. So look, we think there's more opportunity. Reckitt recently have sold part of their household business. We think some of that may be available for contract manufacturing in the future. We would like to think we could participate in that. And we're now seeing increasingly a number of brands for peripheral operations where they don't have scale, for example, looking for outsourced partners, and we think we can grow strongly and get that ratio up in our total portfolio. So we're still very positive about growth. And as someone said, I think in the question, the platform that I talked about earlier around high-quality products, really strong service levels, good innovation, responsible development around sustainability, factories that you can walk around and be super proud of, safe environment. The platform is in good shape and customers like that. Operator: Great. The GBP 45 million of transformation benefits, how are they going to be distributed between each accounting period? And which KPI should we be looking at to see this effect? Mark Strickland: Yes. So it's GBP 50 million over -- the GBP 50 million cumulative over the 5 years. I think we'll see another GBP 5 million in the current financial year. So the benefit overall would be GBP 10 million, probably GBP 5 million the following year, which would make it GBP 15 million and then GBP 20 million in the final year. So it gradually ramps up. But if you add those all up, that gets you to your GBP 50 million. And it will come through a number of things. I mean how do you prove that you've got an extra penny on a bottle of bleach. We use a number of KPIs for commercial excellence and the benefit we get from that. So some you can directly measure such as overhead cost or OEE. Others such as commercial excellence, how do you measure the benefit from that it's derived from a number of KPIs. But it will come through things like margin, it will come through operating costs and it will come through overhead. Operator: And what about the cost of the SAP implementation, both capital and operating? And what are the expected benefits? Mark Strickland: So yes, that's a really good question. Again, the benefits are in part of the transformation and part of the transformation benefits. The overall project will be around GBP 27 million to GBP 30 million over -- it's over 4, 5 years. In terms of the benefits, the benefits should max out around GBP 15 million a year. Operator: Great. Will you allow me one more question? I have passed, but we've got a few more. You mentioned record output from factories, but obviously, we're seeing increasing costs in the U.K. from employment and obviously expensive in the EU as well. How do you allocate new business to factory? Is it purely a geographical consideration? Christopher Ian Smith: Yes. So typically, if you look at the product ranges that we -- the divisions are product-based, liquid products typically don't travel very well. I mean they do travel, but they're expensive. They're typically lower value per unit and the freight costs are quite high as a percentage of the total cost structure. So which is why our liquids factor is typically distributed around Europe to be more proximate to the end markets. So in those cases, for liquids choice, it's obvious which factory it's going to go to. It will be the one in the local area. When it comes to unit dose and powders, we make those centrally. They do travel well. The price points are higher. And it will depend -- our Danish plant for dishwash tablets is eco-certified. So if the Eco ranges, they will typically go there. And so often, it's driven by the sort of format of the product and what the capability of each site is. But we do load balance between the unit dose and powder sites, less so within the liquids. There's a bit of it. I won't -- I mean, for example, the German market is served by both our Polish plant in liquids, but also our Belgium plant. So there is a bit of load balancing and optimizing for cost and transport between those. But typically, it's pretty straightforward when we put the product. Operator: Great. And what are the branded companies doing in terms of promotion? Where are we in that cycle? Christopher Ian Smith: Yes. So if you look at the data, the price point, we look at data at a macro level across countries and by categories, pretty much across the board, the gap, I mentioned in my -- in that original speech, it typically branded products are twice the price of a private label. That gap has widened over the last 2 to 3 years. It's not necessarily narrowing at all at the moment. There are some exceptions, but broadly speaking, it's not narrowing. So the price gap is as big as ever. And what we're seeing with the brands, I would say, more than ever is we're seeing probably more on advertising. This is our perception, more promotional activity through advertising, through store placement, gondola ends, you're going to see Club card type promotions. And you'll see as well sort of fixture promotion where they'll decorate shelves and have gripping banners and arrows pointing at it. A little bit less on the pricing than we thought. So I think they're experimenting. It's not -- again, it's a very big generalization, please. So it may be completely wrong on any particular case. But that would be the general feeling. I think the price points are not coming down on average. We see the gap held. So therefore, by definition, it's not price investment that we're seeing in promotion and advertising. Operator: Well, listen, thank you. I know you've got to get off to our next meeting. So thank you very much for your time today to our audience for joining us. Apologies if we didn't get through to your question. I will try and send the extra ones over to management, and we can come back to you. But that leaves me to say we look forward to hearing an update in 6 months' time. Christopher Ian Smith: Great. Thanks, very appreciate it. Thank you. Mark Strickland: Thank you.
Operator: Welcome, everyone, to the half year -- Welcome, and thank you for joining Exor's Half Year 2025 Results Conference Call. Please note that the presentation materials and the related press release are available for download on Exor's website, www.exor.com under the Investor and Media Financial Results section and any forward-looking statements made during this call are covered by the safe harbor statement included in the presentation material. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to turn the conference to Exor's Chief Financial Officer, Guido de Boer. Sir, you may now begin. Guido de Boer: Fantastic. Thank you for this introduction, and happy to have this half year results call. And as you'll see in the new format of our half year report. I hope that gave good insights, and I want to take you through the highlights in this presentation. So our NAV per share outperformed the MSCI World Index by about 5%, largely aided by the EUR 1 billion buyback. Companies did well, but a mixed bag of performance across the different companies, which we'll address a bit later. We're particularly pleased with the performance of Lingotto performing with an 11% increase, mainly from the public investment part in the backdrop of the declining market. And this half year saw us monetizing EUR 3 billion of Ferrari stake as well as some other items leaving us with good firepower to monetize, to invest in the future. And it leaves us with a very healthy debt ratio at 5.5% of our GAV. So moving to the key figures at the half year. Our gross asset value went down by EUR 2.5 billion, partly from value changes, partly from the buyback and our NAV moved in line with that, while our NAV per share saw an increase and our loan-to-value, as mentioned, is more or less half than what it was at the end of 2024. So our NAV per share growth went up by 0.9%, and 3.2% of that growth is attributed to our buyback, given that we buy back our own shares at a discount the positive impact on NAV compared to the number of shares that we reduce is delivering this growth. So even ex buyback, our portfolio has done better than the MSCI World index. And this is an important measure because we want to outperform relative to the index. We also want to show absolute returns. And in that sense, obviously, we're disappointed that our TSR, even though better than the market is negative, and we aim to improve that in the coming period. So if we move to the overview, I first would like to present to you a new classification. And rest assured, I don't want to make a habit of this so that you need to change your models all the time. This was actually intended to provide you further insight and probably also ease for building your models. Given that Exor Ventures is now managed by an external investor. We moved that to the other funds moved by third parties into others. And you really see separately the performance of Lingotto, which are the funds operating under our own management. And we thought it's useful not to group cash and cash equivalents under others but show separately also, if you want to look at a net debt basis to facilitate your analysis. So hope it's helpful. And if you have any comments or suggestions or requests for historical data, please feel free to reach out to the Investor Relations team. So if we then move to the drivers of change in gross asset value in this new format and maybe starting on the right-hand side, you see the change that I mentioned previously of a GAV of EUR 42.5 billion to EUR 40 billion, which split in EUR 1.1 billion of shareholder distributions, around EUR 100 million of dividends and EUR 1 billion of buybacks. So it's a decrease of GAV, but not necessarily reflective of performance, adjusted capital distribution. And you see EUR 1.4 billion decrease in value, which is the real metric of our performance on GAV. If we then move one column to the left, cash and cash equivalents. Here, you can see well the movement in our cash flow, where we've invested EUR 1 billion in new investments. We realized EUR 3.5 billion of disposals and obviously, the EUR 1.1 billion in distributions. So if we take the EUR 1 billion in investments, you'll see and we'll go into more detail later. EUR 4378 million went into listed companies, principally Philips and a minor part in Juventus and then a bit in commitments on Lingotto and EUR 428 million in others, which we invested in bioMérieux. The disposals line for EUR 3.5 billion breaks up quite simply in EUR 3 billion for Ferrari and almost EUR 0.5 million of proceeds from the reinsurance fee costs that we invested in as part of the sale of PartnerRe. Now we have the line change in value, which I propose we address in a bit more detail in the following slides. So performance of listed companies. I mentioned already the investments behind Philips, Juventus and the disposal of Ferrari. If you then look in the change in value, you basically see that the change in value of Ferrari is marginal, where it started on the first of January and where it landed on the 30th of June. We were quite lucky in our timing that we did the trade at the all-time high in that period, but a very flat movement in between start and the end of the period. CNH, a similar story, and we measure our returns in euros and in euros, it was flat, notwithstanding a strong movement between the dollar and the euro. The big driver of the decrease in value was the disappointing share price movement of Stellantis as well as that of Philips, which started the year a bit above EUR 24 was at the half year at EUR 20 and now ranges around EUR 24 again. So the good thing is the EUR 700 million of loss has rebounded in the year-to-date, large. And then obviously, the positive news in the half year was also the strategic transaction on Iveco which in the run-up to that transaction led to a significant increase in the share price. And that is a monetization for Exor at a very attractive price, as well as a good home for Iveco for the future is that the pending transaction will complete in 2026. So those are the key moves in listed companies. If we then move to unlisted companies. We had some smaller investments between -- behind Via Transportation where there was some shares available ahead of the IPO. And I'm happy to say that following the successful IPO on NYSE last week, we'll move Via to the listed companies in the following reporting and some existing commitments we have on TagEnergy and ShangXia. And you'll see the movement in value, where the largest ones Institut Mérieux on the back of the increase in share price of bioMérieux, Via Transportation based on its strong performance. Welltec and The Economist actually largely FX movements and the other amounts are relatively smaller. So if we then move to Lingotto and others. You see we invested in private strategies around EUR 166 million. And you see a very strong performance of the public investments, notwithstanding the equity capital markets in general, declining. So we're very happy with how the Lingotto funds deliver returns, which are less correlated to the rest of the portfolio and outperforming the market. We then move to others. There, you see funds managed by third parties. So that also now includes Exor Ventures. And it was also including the reinsurance vehicles where you see the half billion of disposals. So we're quite positive. The funds are doing quite well. The minus EUR 72 million is actually EUR 427 million negative FX and both Exor Ventures as well as the reinsurance vehicles in local currency have been performing well. In listed securities, you see, again, the investment of EUR 317 million in bioMérieux and the change in value is largely due to the decline in share price of Neumora and smaller investment that we've done in the past. And I think those are the main items to highlight in Others. So Cash and Cash Equivalents, I largely mentioned this previously, we had strong dividend inflows of EUR 624 million, of which we distributed again EUR 1.1 billion to our shareholders. We raised disposals between EUR 0.5 billion, which we reinvested for EUR 1 billion, and we repaid bank debt for EUR 547 million and a bit of a bond, which leads us to a cash position now of EUR 1.5 billion, which is obviously very, very healthy. And that's in line with gross debt that, as I mentioned, with the reduction in bank debt and the bonds now stands at EUR 3.5 billion rather than the EUR 4.1 billion at year-end. And as you know of us, we try to have a very stable maturity profile. So we have no cliff payments and on the short-term obligations that we have here can easily be filled out of our cash positions. So with that brief summary, I would like to open the floor to Q&A. So over to you at the operator. Operator: [Operator Instructions]. We will now take the first question from the line of Monica Bosio from Intesa Sanpaolo. Monica Bosio: I have three. First of all, on the future investments. My perception is that maybe the group priorities are more on the health care side. Or do you see real true opportunities in the luxury segments? I'm just wondering because in the last conference, the company didn't see real opportunities in the luxury segment. And the second question is on the size of the potential acquisitions. The press speculated a lot on this. Any comment from you on this side? And do you have any time horizon for the completion of the new investments? And the very last is not only investments but mainly on disposal, should we expect in the coming future, some other disposal on top of [ Lifenet ]? Guido de Boer: Fantastic. Thank you, Monica. Good questions as usual. So in terms of priorities for us when evaluating a potential acquisition, we look at fundamentals. Does it have the right strategic fit our financial fundamentals, cultural alignment with us as an owner, what our leadership strength with us their governance proposals. And we base this on analysis of each individual company. So it can be health care. It can be luxury. These are in particular industries where we have domain knowledge within the team, but it could even be outside that, if the investment opportunity is sufficiently attractive for us. So there is no priority preference of health care over luxury. In terms of size, we basically have said that we are considering to do transactions, which are meaningful in the perspective of our total GAV and 5% is a percentage where this is -- becomes meaningful. But again, we look at every individual opportunity to decide if it's attractive or not. And on disposals, we continuously evaluate our portfolio to decide whether we should increase our stake like we've done on Philips in the period or whether it's a good time to dispose. If there's anything to update, obviously, you will be the first one to know. But for now, there's nothing further to mention. So Monica, I hope this answers your questions. Operator: We will now take the next question from the line of Martino De Ambroggi from Equita. Martino De Ambroggi: The first question is on the financial flexibility because once you divest Iveco stake, you will have another EUR 1.3 billion cash in. So would you prefer to look for one more big ticket, as you mentioned, 5% of GAV or buyback could be another priority. And specifically on the buyback, you don't need any divestiture to continue to buy back shares. You already finalized EUR 1 billion buyback in one shot, but why you are not starting additional buyback considering the high discount to net asset value. And the third question is on the -- well, sorry to be more specific on the name, but Armani is I don't know, up for sale, probably not shortly and so on. But just from a theoretical point of view, so just theoretically, could it be an interesting asset for you or you're absolutely out of the game, even if today, it's too early to talk about it? And very last on Ferrari, when you sold the stake, you mentioned there was an excessive concentration in terms of asset value. Today, Ferrari is roughly 90% of the net asset value. So the issue of too high concentration could come back. But what's your way of thinking about it for future in case the concentration further increases? Guido de Boer: Yes. Thank you, Martino, and good to have you on the call again. So on buybacks, they are part of our resource allocation process. And in a sense, the buyback, the discount is also an opportunity for Exor to reinvest capital. And for investors that want to remain on to benefit from a NAV per share increase from that, which you've seen in this half year. We've just done EUR 1 billion of capital return. So in terms of our market cap that is something that's very, very sizable. But -- as I mentioned, every time we do our portfolio review, we consider to increase or reduce the holdings in existing companies. We consider new investment opportunities that we have and we consider buybacks, and we decide on what we feel is the most attractive choice or multiple choices between those. So we'll continue to do that and consider buybacks as part of the process. Armani, don't really have anything to comment on the individual transaction as we obviously never do that. And Ferrari, the concentration has nicely reduced. It was 43% when we did the transaction, we're now at 39% of our gross asset value, which is the way we look at it. Indeed, if you look at it as our market cap, you probably meant 90% of market cap rather than net asset value. That is high, but then you could almost see Exor as buying Ferrari and getting the rest for free. So in that sense, I would see this as a great opportunity for investors to buy into the extra stock. And concentration, maybe to have that as a general point, we like concentration because our belief is that if we buy 1 share of every stock in the index, we perform like the index, and we want to outperform. So we invest in companies where we have conviction. And Ferrari is absolutely one where that holds true. So I hope this addresses the point you raised, Martino. Martino De Ambroggi: Yes. Thank you, Guido. And you are right. I mentioned as a percentage of NAV, but it was on market cap. One more follow-up on Lingotto which made a great job because the performance was very strong. Could you remind us what were the main drivers for this performance? And in terms of strategy, are you planning to open the doors or to accelerate on third parties asset? Or this is something that is not in your -- on your table? Guido de Boer: So one for us to invest more or less behind Lingotto strategies is part of the portfolio review process, as I mentioned. And if we would invest more behind existing strategies or if there's new ones, we'll obviously announce that to the market. For us, our strategy is not to grow assets under management and gain management fees. Lingotto was created to deliver performance to us. So I think that is critical. We want to grow our assets under management through performance rather than capital inflows. And as you see, we are delighted by the performance at it, showed in this half year, which it has been showing over a longer period now. So the quality of investors that we've been able to attract makes us obviously very pleased with having put the funds behind Lingotto. Martino De Ambroggi: And about the first half performance, is there any specific driver leading to such a good performance? Guido de Boer: I think they're great investors that know how to find the stock that perform well. Operator: We will now take the next question from the line of Joren Van Aken from Degroof Petercam. Joren Van Aken: A lot of great questions have already been asked. But just one from my side. I remember Mr. Elkann saying a while ago that private valuations were higher than listed assets and not long after that you bought the Philips stake. Today, I'm hearing that high-quality assets in the private market still have very high valuations. Do you think that the bid-ask spread has narrowed sufficiently on the private side? Or do you think that listed is still more attractive today? Guido de Boer: I'm not sure if I've seen too much reduction in price expectations from private assets. So I don't think that much has changed on private asset valuations and public market valuations, I think that's your day job. So you know much better than me, but also there, I would say there is a big disparity between certain type of companies like the large tech companies versus some slower-growing companies or companies that have 1 quarter earnings miss, which have then a disappointing share price performance. So I think if you look in public markets, there's definitely opportunities to be found but also private assets can have their individual situations that the valuations are attractive. So apologies for -- not trying to evade your answer with your question with a clear answer. But I think there's not a one size fits or response to your question. So Joren, I hope that's clear how we look at this. Operator: We will now take the next question from the line of Hans D'Haese from ING. Hans D'Haese: And I wanted to state first, Guido, that really happy with the new tables layout and increase even better transparency already was happy with IFRS 10 change and how this really helps also with the valuation drivers for listed companies and so, a very good job. Then regarding portfolio, we've seen that you've been very explicit in what sectors Exor would like to increase its exposure and for what, so thank you for that. In the meantime, we only saw a considerable increase of Philips. So we are waiting for other stuff. If now opportunities arise for acquiring minority stakes in other companies, companies, for instance, that you already are an important shareholder like, for instance, The Economist. Would you consider to increase the stake? Is this something that would fit in the portfolio? Or are you sticking to it should be health care literally? That's one question. And then the second one, in light of market expectations of further U.S. dollar weakness and considering that your stakes in CNH and Clarivate and Lingotto are dollar sensitive. What is your hedging strategy? Are you considering -- are you doing something? Or is this something that is not part of the strategy of Exor? And then third and last question, what are your considerations about investing in Bitcoin and cryptocurrencies? Do you see them as an alternative for your cash position? Or do you see them as a different asset class? Is this -- just do you want to share your thoughts about this? Guido de Boer: Yes. With pleasure. Thanks, Hans. First, for the compliments, much appreciated because we've been working hard on providing information to you and all our other stakeholders, which is as clear as possible so that we can talk more about fundamental activities like you now asked about. So much appreciated. On portfolio, whether we would consider investing in existing companies versus like, for example, The Economist or in only health care technology and luxury. We are, in a sense, agnostic. Why have we said health care, technology and luxury? Because these are sectors where we think there are structural tailwinds and where we've built up a domain knowledge. So we know all the good players in the industry. We know subsectors of those industries, which we like. And in that way, we feel we can uncover opportunities that maybe others don't see. So that's why our focus is there. But if we see another opportunity either in our portfolio already, which obviously has many advantages because we know that asset or outside, we're very open to consider those as well. So we're not married to investing in health care, luxury or technology. On the U.S. dollar, we don't do any hedging. Hedging, I think, is a useful measure for covering short-term exposures, which you cannot offset for a production company, hedging your fixed cost if you import into a country when your sales and you cannot change your prices. But for us, as a long-term investor, we don't see hedging as a valuable tool. There might be actually a short-term opportunity to say maybe with the devaluation of the U.S. on a relative basis, U.S. companies have become more attractive than 6 months ago. So we look at it more from that perspective. And then utilizing the dry firepower that we have now. We're quite conservative on that and put it in cash spread over euros and dollars across multiple banks, including many of you who are in this call. So stable banks across currencies at a decent return because this is not where we want to make our money. So that's why crypto or Bitcoin would not be places where we would park our money. Where we want to take risk is in the long-term investments that we do and not in the short-term liquidity storage that we hold. So that's how we look at it today and not voicing an opinion on Bitcoin or crypto because there's many people who are much better positioned than I to speak about this. Operator: We will now take the next question from the line of Alberto Villa from Intermonte SIM. Alberto Villa: A couple from my side. Many have been already asked. But again, on Lingotto, congratulations to the team, a very great performance. Now it's 8% of the GAV. Is there any internal limitation you put yourself in terms of size of the investment of your funds in Lingotto or it could grow further in the future? The second question is a more general question is about the -- let's say, when you consider investing in a company with the current geopolitical uncertainty and turmoil, if you're now looking more specifically to some regions rather than others, if there is any, let's say, change in the approach on a geographical standpoint compared to the past due to what has been happening in the recent past and presumably will continue to be a very volatile environment on that side. Guido de Boer: Thank you, Alberto. So on Lingotto, I think the limitation breaks down maybe in 2 parts. One on individual funds and two on allocation to Lingotto in a whole. So as I mentioned earlier on Lingotto as a whole, we always take Lingotto as part of our portfolio review strategy and we see do we want to allocate more to existing strategies or new funds, and we decide what kind of returns, risk, reward do we get against this, and we make an investment decision based on that. In terms of limitation, and I think it's a very important question, which goes to the core of Lingotto. For us, it's key that the investors behind the Lingotto funds focus on performance and outperformance. So the limitation is the size where adding further assets under management would go at the detriment of performance, and that would be the limitation. And that's obviously different for different types of strategies, whether it's public or listed and which markets they are. But that's where the key limitation probably is for individual Lingotto strategies. And then geopolitical, it is an important investment consideration, obviously. It is also a potential opportunity if those have led to significant price movement because we are a long-term investor. So we do take that into account, but I cannot say that, that has led to exclusion of certain regions or countries where we would say we're absolutely not looking there. Operator: [Operator Instructions]. We will now take the next question from the line of Andrea Balloni from Mediobanca. Andrea Balloni: Few questions from myself. My first one is a follow-up to the one of Martino and sorry for asking again, which is about Ferrari. I was wondering if you find some very good opportunities to invest in -- would you even consider another partial disposal of Ferrari to finance the investment? Or on the opposite, the current stake you have in Ferrari is a level you are not willing to lower? And my second question is about current holding discount that we see at 50% despite the material share buyback you have recently done, what could be, in your view, a way to shrink this holding discount as of today? And my very last question is on Philips. I remember when you have announced the acquisition of this stake, you mentioned that you were convinced to be able to extrapolate some value from a company that was clearly undervalued by the market. But just to understand what time horizon you had in mind for this asset? Guido de Boer: Thank you, Andrea. So on Ferrari, our view remains as what we said earlier in the year that our commitment to Ferrari is as strong as ever. And we didn't do this disposal about reducing our interest of the company. It was really a strategic decision to reduce our portfolio concentration as well as creating room for the next opportunity. So we're actually extremely happy that Ferrari is still a significant part of our portfolio. And as I said, we do like concentration and are confident that Ferrari will be a strong contributor to future results. So on the holding discount. What are we doing about it? I think calls like now based on clear and transparent communication are one important part of it. But even more important is we need to continue to show a sustained outperformance, both on an absolute and on a relative basis. And I think it's interesting also to have a look at the long-term performance of Exor versus the MSCI World Index because that's really why we want people to invest in our stock because we are long-term investors and by compounding better returns than the index over a long time, we will create significant value for our shareholders. So that's something we'll just continue to do. But if you have other views of actions that we could take, always happy to hear them from you and either reading it in your report or to have a call on that, if you like. So Philips, we continue to believe that the company has a huge potential and that it's delivering on its potential. So we're quite excited by its operational performance and our conviction also remains strong and happy with the progress that they're making. So our time horizon is long. We're there for the long term. We don't have any specific horizons where we say at this moment, we exit. So there's not a year that I can mention you of our planned horizon for an investment like this. Operator: This concludes the Q&A session. I would like to hand back over to Guido de Boer for closing remarks. Guido de Boer: I would love to thank all of you for your very thoughtful questions. I think this was all valuable and also gives us some good inputs to sharpen our strategy. So very happy you all joined this call, and please reach out via the usual channels, if you have any further information request or I would like to speak to us in any other way. So thank you, everyone, and have a nice day. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the FedEx First Quarter Fiscal 2026 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to FedEx Vice President of Investor Relations, Jeni Hollander. Jenifer Hollander: Good afternoon, and welcome to FedEx Corporation's first quarter earnings conference call. The first quarter earnings release, Form 10-Q and Stat Book are on our website at investors.fedex.com. This call and the accompanying slides are being streamed from our website. During our Q&A session, callers will be limited to 1 question to allow us to accommodate all those who would like to participate. Certain statements in this conference call may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. Today's presentation also includes certain non-GAAP financial measures. Please refer to the Investor Relations portion of our website at fedex.com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures. Joining us on the call today are Raj Subramaniam, President and CEO; Brie Carere, Executive Vice President and Chief Customer Officer; and John Dietrich, Executive Vice President and CFO. Now I will turn the call over to Raj. Rajesh Subramaniam: Thank you, Jeni. We delivered a solid quarter in line with the Q1 outlook we shared in June, despite significant volatility and uncertainty around the global trade environment. Our results demonstrate the resilience we have built into our network. They also reflect the dedication of our world-class team who have adapted quickly to serve customers with excellence through an evolving demand environment. I'm very appreciative of Team FedEx. We continue to reduce structural costs while deploying Tricolor, advancing Network 2.0 and improving our European operations. These strategies are enabling us to flex the network faster than ever before and lowering our cost to serve, all while providing our customers with high-quality service. Importantly, we are continuing to win new business in high-value verticals, driven in part by our differentiated digital tools that are enhancing the FedEx value proposition and customer experience. We also continue to make meaningful progress preparing for the spin-off of FedEx Freight, which remains on track. Following the spin-off, Freight will be a separate public company with the best customer value proposition in the LTL market and a proven track record of strong operational execution. Turning to our consolidated Q1 results. Revenue was up 3% year-over-year, driven by strength across our U.S. domestic package services. We achieved our targeted $200 million in transformation-related savings and grew adjusted operating income by 7%. Similar to last quarter, the results at Federal Express Corporation, or FEC, demonstrate the operating leverage that we built into our business. On a 4% year-over-year increase in FEC revenue, we grew adjusted operating income by 17% and expanded adjusted operating margin by 70 basis points. Notably, we achieved this result despite continued headwinds from the trade environment and the U.S. Postal Service contract expiration. Consistent with the industry trends that we have seen in recent quarters, revenue at Freight remained pressure. That said, despite the prolonged weakness in the industrial economy, the LTL market remains rational, and we are well positioned with our disciplined approach to strategic growth. I'm proud of the results our team is delivering across the enterprise, despite industrial economic weakness. While an industrial recovery is not required for long-term value creation at FedEx, I'm confident that we'll unlock significant upside across the enterprise when the demand environment improves. Last quarter, I spoke about the degree to which we flexed our networks to better match the demand environment amid global trade shifts. As policies and demand evolved throughout the first quarter, we further adjusted capacity, thanks to our Tricolor strategy. For example, we reduced our purple tail transpacific Asia outbond capacity by 25% year-over-year. And nearly 10% versus the prior quarter. We also decreased our third-party or white tail capacity by similar percentages. At the same time, we shifted capacity to capture profitable revenue on the Asia to Europe lane. With the full removal of the de minimis exemption in the United States late last month, we have been working closely with our customers, helping them maintain effective and efficient access to the vital U.S. market. Given a significant portion of our de minimis volume exposure previously came from China, we were able to use learnings from our experiences in May to help shippers elsewhere navigate the more recent exemption elimination. This level of connectivity extends to how we're advancing the elements of our transformation that are unique to FedEx. The Network 2.0 rollout is progressing well and customer feedback, especially when it comes to the consolidated pickup experience remains very positive. In the first quarter, as planned, we optimized approximately 70 additional U.S. stations. Our total optimized station count across the U.S. and Canada is now approximately 360, enabling us to exit September with nearly 3 million in average daily volume flowing through Network 2.0 optimized operations. Looking beyond Network 2.0, improving profitability in Europe remains a top priority, and I am especially pleased with the team's year-over-year improvements in labor and on-road productivity metrics. Q1 also marked our best new business quarter in Europe in the last 2 years. Driven by Express parcel growth on both the intra-European and Transatlantic lanes. Importantly, this business was well balanced between B2B and B2C customers demonstrating our focus on growing in premium B2B and longer haul export B2C segments. This commercial strategy, combined with our rigorous focus on cost management led to a meaningful contribution to our year-over-year FEC profit improvement. I talked earlier about how our Tricolor strategy enabled us to flex the network to adapt to changing demand patterns. Tricolor is also driving greater densification and reduced unit costs across our Purple, Orange and White networks. The strategy is simultaneously focused on enhancing service quality and mitigating congestion at major sort locations. Our execution on this important initiative is bolstering end-to-end solutions for global customers as we grow profitably in the global airfreight market. This strategy supported an impressive 14% year-over-year Q1 revenue growth in international priority and economy freight with high flow-through. Data and technology remain foundational to our business, but we are entering a new chapter in how we leverage them. Our founder's vision more than 45 years ago, that information about the package is as important as the package itself has proven precious. Today, FedEx operates an advanced digital twin that goes beyond tracking. It is becoming an intelligent system that anticipates disruptions provides optimized route information in real time and creates predictive customer experiences. We moved 17 million packages through our network daily, generating 2 petabytes of data and 100 billion transactions across software applications. But the real value is in the volume. It is in the unique nature of this data. Our position at the intersection of global commerce gives us an unmatched view of physical supply chain patterns, seasonal demand shifts and emerging trade corridors. This real-world operational data platform cannot be replicated by any competitor or a tech solution. Simply put, FedEx owns one of the richest logistics, intelligent assets in the world. I'm excited to welcome Vishal Talwar, our new Chief Digital and Information Officer and President of FedEx Dataworks, who joined us last month. As the former Chief Growth Officer at Accenture Technology, Vishal brings deep expertise in enterprise AI and understands how to leverage our unique physical digital assets into next-generation AI-led capabilities. Under Vishal's leadership, we will continue accelerating 2 key priorities: scaling AI across the enterprise from enterprise function to how we operate and sell our customers and exploring new revenue models that leverage our unique assets. We're also strengthening our cybersecurity posture to protect our strategic advantages. Before I turn the call over to Brie, I'd like to update you on our expectations for the remainder of the fiscal year. Based on our current assumptions, we expect full year adjusted earnings to be $17.20 to $19 per diluted share. This reflects a range of scenarios in what remains a dynamic global operating environment. As it continues to evolve, we will remain focused on executing on our commercial priorities, dynamically matching capacity with demand and delivering on the $1 billion in transformation-related savings we shared previously. Brie and John will provide more details on the key variables and underlying assumptions for this outlook shortly. We have made tremendous progress on our transformation, and there is much more to come. To that end, we are excited to announce that our next FedEx Corp. Investor Day will be held in Memphis on February 11 and 12, 2026. I look forward to seeing many of you there. Where we will provide more detailed updates on our strategic initiatives and our longer-term financial targets. Now over to you, Brie. Brie Carere: Thank you, Raj. I'm very proud of our entire global team for how they are supporting our customers in the current trade environment. Our strong value proposition, including superior weekend coverage, supported 3% year-over-year revenue growth across the enterprise. This is the highest quarterly rate we have seen since the pandemic. At FEC, revenue was up 4%, driven by U.S. domestic package revenue strength. This was a direct result of profitable share growth in the U.S. domestic market. This strength was partially offset by continued weakness at FedEx Freight due to the continued pressure for the industrial economy. Our value proposition is helping us deepen our customer relationships and win business. For example, in Q1, Best Buy names FedEx as their primary national parcel carrier. Leveraging our advanced visibility tool, Best Buy will provide real-time tracking data and customer order communication, improving their customers' experiences. By providing customers with more timely and accurate updates, the company also expects to reduce support calls, cancellations and reship costs. We are excited to partner with Best Buy to create a smarter, more reliable supply chain that further strengthens their customer trust. We were pleased to deliver a 5% increase in U.S. domestic ADV year-over-year, with growth across the majority of our services. In line with our expectations and consistent with the trends we saw in May, international export volumes declined, particularly on the China to U.S. lane. Knowing our strongest international lane would be under pressure. We pivoted the commercial team, and they have done a tremendous job capturing demand out of Southeast Asia and Europe. This provided a partial offset against the headwinds to demand on the China to U.S. export lane. The team has also done a great job maximizing U.S. outbound capacity. We are seeing improving trends in both outbound weight and volume, supported by strong growth in our health care vertical. At FedEx Freight, along with broader industry trends, average daily shipments declined. Weakness in the industrial economy and excess capacity in the truckload market continue to pressure our results. That said, Freight made excellent progress in the quarter continuing to stand up its dedicated sales team. This team is focused on improving the customer experience and maintaining strong yields. As the industrial economy improves, Freight is poised for growth and margin expansion. The parcel pricing environment continues to improve. We have achieved strong capture from our pricing changes in the quarter, which included an increase in our fuel surcharge index. At FEC, U.S. domestic package yield was up 3%, driven by strength across all services. International export package yield grew 4%, driven by higher fuel surcharges, favorable exchange rate impacts and the reduction in lightweight e-commerce volume due to the change in the de minimis exemption. Our Tricolor strategy continued to drive growth in international priority and economy freight, where we delivered a 9% increase in revenue per pound. At FedEx Freight, revenue per shipment declined 1%, driven by lower revenue per hundredweight and lower fuel surcharges. While weight per shipment was flat year-over-year, we are encouraged by the sequential improvement in weight for shipment over the past few quarters. And FedEx Freight revenue per hundredweight remains amongst the highest in the industry. We announced our demand surcharges in July, which are needed to offset the incremental cost at peak to deliver outstanding service while protecting profitability. Earlier this month, we announced a 5.9% general rate increase effective in January. We expect strong capture from both. In Q1, we prepared for the ramping of our new Amazon business, which was minimal in the first quarter as we expected. We believe the onboarding will be complete by the third quarter, which will support continued U.S. domestic revenue growth in the quarters ahead. This profitable business will skew towards larger, heavier weight packages. We are cautiously optimistic about peak season growth based on what we are hearing from our customers currently. As a reminder, this year's peak season will last 1 day longer than last year. With that in mind, we are expecting a modest increase in peak ADV versus fiscal year '25 and a mid- to high single-digit increase in year-over-year total peak volume, with growth driven by our larger B2C customers. Regarding the full year outlook, we are currently planning for revenue growth of 4% to 6%. The top of this range assumes that current favorable trends in the U.S. Domestic segment continue, and the lower end assumes incremental pressure on U.S. demand, particularly in the second half of the fiscal year. On the international side, the top of the revenue range assumes the current level of international export revenue pressures continue through the rest of the fiscal year, while the lower end assumes an acceleration in these pressures. At FedEx Freight, we expect revenue to be flat to up modestly year-over-year, depending largely on the market conditions in the second half of the year. We continue to advance our commercial priorities, sharply focused on B2B, small and medium-sized businesses, Europe and of course, global airfreight. Within B2B, we continue to onboard new health care business in Q1, building on our momentum from prior quarters. This includes strong health care-related growth within our global air freight business. Later this month, we are launching a new flight linking Dublin and Indianapolis. This new flight will move goods 1 day faster, supporting health care and other high-value verticals with shipments between Ireland and the U.S. We grew our U.S. domestic small business revenue by more than 10% year-over-year in the first quarter. This was fueled by focused and targeted sales execution and a close alignment between our sales and our operations teams. This collaboration is accelerating onboarding, shortening deal cycles and driving meaningful new acquisition. We are also scaling high-impact support to deliver exceptional customer experiences during this complex environment. FedEx Rewards, our loyalty program, which is unique in the industry continues to see significant growth while deepening our SMB customer relationships. In closing, I am very proud of our team's strong execution in this dynamic environment. We are helping our customers manage through evolving policies and changing demand patterns. We remain disciplined in our approach to revenue quality. We are ready to continue providing outstanding service to our customers before, during and after peak. And with that, I'll turn it over to John. John Dietrich: Thanks, Brie. Our Q1 results reflect the tenacity and agility of the FedEx team in providing outstanding service while delivering on our strategic initiatives and increasing stockholder returns. We executed very well in Q1, with results above the midpoint of our adjusted EPS outlook range. We also maintained our disciplined approach to capital expenditure, continue to repurchase stock and grew our quarterly dividend. Turning to our financial results. On a consolidated basis, in the first quarter, we delivered $3.83 in adjusted earnings per share, up 6% year-over-year. And we delivered these positive results despite significant headwinds from reduced international export demand and the expiration of the U.S. Postal Service contract. Overall, we delivered revenue growth of 3%, which supported 20 basis points of adjusted margin expansion and 7% adjusted operating income growth. As Brie mentioned, our yield management and strong commercial execution resulted in higher revenue growth from U.S. domestic packaged services, which contributed to our year-over-year adjusted operating income improvement. We grew adjusted operating income by approximately $90 million despite the $150 million headwind from the global trade environment, $130 million of headwind from the U.S. Postal Service contract expiration and continued softness at FedEx Freight. As a reminder, will lap the expiration of the Postal Service contract at the end of this month. Additionally, our Q1 results reflect a higher-than-expected Q1 GAAP tax rate of 27.3% and which was unfavorably impacted by a nonrecurring income tax expense related to the examination of prior year tax return filings. Turning to performance by segment. At FEC, adjusted operating income increased by $168 million, up 17% and adjusted operating margin expanded by 70 basis points. This marks the fourth consecutive quarter of year-over-year adjusted margin expansion for FEC. This was driven by higher yields, continued cost reduction efforts and increased U.S. domestic package volume. These drivers were partially offset by higher wage and purchase transportation rates and the headwinds I mentioned earlier. As expected, due to the evolving trade environment in the quarter, we experienced a material headwind on our Asia to U.S. lane, largely from China outbound, driving most of the $150 million international export headwind to adjusted operating income. At FedEx Freight, adjusted operating income declined by just over $70 million and adjusted operating margin contracted 250 basis points. Though the current operating environment is challenging for the entire LTL sector, FedEx Freight is uniquely positioned to see strong incremental margins in the eventual market upswing. Moving on to capital allocation. During the quarter, we opportunistically purchased $500 million worth of stock, which, alongside our increased dividend payout demonstrates our unwavering commitment to increasing stockholder value. We have $1.6 billion remaining under our 2024 stock repurchase authorization and subject to business and market conditions, we expect to continue repurchasing shares during the remainder of FY '26. FedEx maintains a healthy balance sheet with $6.2 billion of cash on hand exiting Q1 and with investment-grade credit ratings from the major agencies. I'm also very pleased that our recent euro-denominated bond offering was significantly oversubscribed, a testament to the strength of our business, balance sheet and capital allocation strategy. Q1 CapEx was $623 million, driven by Network 2.0 related facility enhancements of modernization and continued investments to maintain our fleet of aircraft and vehicles. And we continue to target $4.5 billion in annual CapEx for FedEx Corp. in FY '26. With regard to pension contributions, given the well-funded status of our pension plan, we are reducing our expected pension cash contribution. We now anticipate making up to $400 million in voluntary pension contributions to our U.S. qualified plan in fiscal 2026 compared to our prior forecast of up to $600 million. Moving to our FY '26 adjusted EPS outlook, which is based on the information that is known to us today. Though the global operating environment remains fluid with dynamic economic conditions across geographies, our value proposition remains strong, and we continue to execute effectively. As a result, we expect to deliver adjusted EPS of $17.20 to $19, which reflects a range of potential scenarios for the year. Factors that will determine where we ultimately fall in the outlook range include the evolution of global trade, the health of the industrial economy, the U.S. domestic demand environment, traction in our higher-margin B2B verticals and inflation. Adjusted EPS of $18.10, which is the midpoint of our range assumes consolidated revenue growth of 5% and $1 billion in transformation-related savings from our structural cost reductions and Network 2.0 and associated One FedEx savings in FY '26. We expect adjusted operating income offsets to include a $1 billion headwind due to the global trade environment, recognizing this number could flex in either direction as the environment evolves, and a $160 million headwind to adjusted operating income from the expiration of the postal contract. We expect our FY '26 effective tax rate to be approximately 25% and EPS to be supported by our share repurchase program, as I mentioned earlier. At the midpoint of our range, we anticipate a 6% increase in Federal Express revenue with adjusted operating margin down slightly. Also at the midpoint, we expect low single-digit improvement in FedEx Freight revenue with margin down year-over-year. Now turning to our FY '26 adjusted operating income bridge. We're introducing a new view of this bridge to provide deeper insights into the expected drivers of profitability this year. The bridge shows the year-over-year elements embedded in our outlook in one of the scenarios at the midpoint, resulting in adjusted operating income of $6 billion. Of course, the assumptions behind the variables at the midpoint may flex as the environment changes. In this scenario, for FEC volume-related revenue net of variable costs associated with this volume, we expect a $400 million tailwind driven largely by U.S. domestic package services, offset by a material headwind from reduced international export demand. With respect to FEC yield, we expect a $2.3 billion tailwind, demonstrating our commitment to revenue quality and continued pricing discipline. Offsets to these tailwinds include a $2.1 billion base expense increase across the business, excluding FedEx Freight, a $300 million headwind from direct trade-related expenses, including higher customs clearance costs, the $160 million U.S. Postal Service contract expiration headwind I mentioned earlier, a $100 million decline in adjusted operating profit at Freight and a $100 million headwind from the net impact of foreign exchange fluctuations. Embedded in our assumptions are the previously mentioned $1 billion in headwind to adjusted operating profit from the global trade environment and $1 billion in transformation-related savings from DRIVE and Network 2.0. And while DRIVE began as a cost reduction program, it is now fundamental to how we run our business. With regard to Q2 we anticipate a sequential improvement in adjusted EPS. At FEC, we expect to maintain or improve operating margins sequentially. And at FedEx Freight, we expect the year-over-year decline in adjusted operating margin to begin moderating sequentially in Q2. Before turning to Q&A, I want to provide an update on our spinoff of FedEx Freight, which is progressing well and on track for the June 2026 separation. In August, we submitted our confidential Form 10 to the FEC and in September, we submitted a request for a private letter ruling on the tax treatment of the transaction to the IRS. These are important milestones as we move toward the tax-efficient spin-off. Freight now has about 200 frontline LTL sales and sales support personnel on board and is well on its way towards our goal of 400 sales specialists prior to the spin-off. I'm confident that both the expanded dedicated sales force and our ramping technology investments will continue to improve the customer experience. Once separated, FedEx Freight will be a separately traded public company listed on the New York Stock Exchange under the ticker symbol FDXF. And we plan to host our FedEx Freight Investor Day in New York City in spring of 2026 prior to the separation. Overall, I remain confident that the FedEx Freight separation and the continued execution of our strategic priorities will unlock significant stockholder value in the years ahead. And with that, let's open it up for questions. Operator: [Operator Instructions] The first question comes from Jordan Alliger with Goldman Sachs. Jordan Alliger: Thanks for the color on the midpoint. I'm curious on the low and the high end of your EPS range. Is it simply a function of where it comes out in that revenue range? Or is there other things that could help impact where it winds up sitting? John Dietrich: Yes. Thank you, Jordan. It's John. I'll start by saying it's really important to note that we're basing this outlook on the information available today. We did center on the midpoint of our range and I think it's fair to say that where we ultimately land will be determined by a variety of variables. And I touched on them in some of my prepared remarks, including the evolution of global trade and its impact on demand, the health of the industrial economy, U.S. domestic demand and so forth. So it's not any one factor. It's a variety of factors, and we're going to be monitoring those closely. It's going to be a very dynamic environment that we intend to capitalize on. Operator: The next question is from Ken Hoexter with Bank of America. Ken Hoexter: And thanks for the details on the cost there. I just want to dig into that a little bit to understand because if I look at the incremental margin growth of 4% to 5% -- 4% to 6%, yet the incremental operating gains are not keeping pace. So is that because of those the headwinds that you ran through, maybe, John, maybe you can refine that a little bit on the $1 billion cost, the $300 million headwind on the trade expenses? I just want to maybe parse that out a little bit further. John Dietrich: Sure. Yes, there will be pressure. I mean, what we're talking about here is $1 billion of headwind as a result of some of the environmental impacts. So our full year assumption, it does include the removal of the de minimis exemption for the rest of the world that went to effect in the end of August. But I think it's fair to say that, that $1 billion will be something that we'll be focused on, but something that will be a challenge for us as we go forward. Rajesh Subramaniam: If I can add to that, Ken, I think that is a big headwind for fiscal year '26. We're doing everything in our power to make sure that we can improve our customer experience and mitigate the costs as we move forward. The underlying business is very strong as we move into '27 and beyond. Operator: The next question is from Bascome Majors with Susquehanna. Bascome Majors: Raj, you leaned a little further into the data side of the business post the hire Vishal I know we just started a month ago. I don't know if he's on the call or could talk a little bit high level about strategy, particularly where you're talking about finding new revenue models to monetize that part of the FedEx story? Or if not him, just a little more thought on where you're heading in that and how big a business that might be for FedEx going forward? Rajesh Subramaniam: Well, thank you, Bascome, for raising that question. One of the things that we are clear about is the value of the data that we have. We move 17 million packages a day, 2 petabytes of data. As I said earlier, it's not just the volume of the data. It's the value of the data, especially in the dynamic world that we live today. The important thing is that we started this work back in 2020, and we started organizing and engineering this data on a platform basis for some time now. And that's what gives us the edge, especially as AI has now evolved and is moving quickly, the fuel for AI is data. And have engineered data and the high-value data of what we have is now super critical as we move forward. It's already bearing fruit. It's bearing fruit in our operations as deep learning models are enhancing our predictability. We couldn't have done Network 2.0 without the data platform that we have and the technology we have. It's already bearing fruit from a differentiation perspective. We have premium monitoring and intervention tools for our customers and the health care business that Brie's team is winning, 40% of them or on the around platform, which is essentially based on the data platform and AI tools that we have. We also launched the commerce platform FDX, and that essentially is now becoming a workflow tool for our customers or orchestrating their supply chains. And especially in this complex trade environment, those kind of -- it's the added value as we improve our value proposition for moving things across borders and being predictive using GenAI to create value from HS classifications and so on. That area is quite nascent, and we have a long road in runway ahead of us. So our mission and vision has evolved to make supply chain smarter for everyone. It begins with our data platform and the insights that we have on supply chain and the role of AI and the tools that we have. So I think as you look ahead, we'll talk more about this in February as it becomes an enabler for our operations, a differentiator from our customers' point of view, and new revenue models that we can create based on this. So thank you again for that question. Operator: The next question is from Scott Group with Wolfe Research. Scott Group: So any color on the magnitude of sequential earnings growth that you'd expect? And then just -- that was for Q2? And then just bigger picture. If I think about the last couple of years, we've heard we're reducing costs and growing earnings despite lower revenue. And then whenever we get the revenue growth the operating leverage is going to be really strong. And now we've got 5% revenue growth and $1 billion of cost reduction and buyback, but earnings are flat. I guess, why aren't we seeing the better operating leverage? I get the global headwind, but you're still -- you're growing revenue 5% even with that $1 billion global headwind. John Dietrich: So Scott, thanks for that. Let me start with the Q2. And we have focused our commentary on the full year guidance and are not giving Q2 guidance. But that said, as Brie mentioned, we're cautiously optimistic about peak season demand. And we do expect consistent with last year's sequential earnings improvement in Q2 and versus Q1 383, but we're not guiding to Q2 being up or down on a year-over-year basis. We expect continued benefits from our transformation-related savings and large trade-related OI headwind than in Q1 of the $150 million. But just pivoting to your second question on kind of the flow-through. I'll repeat what I said before, we're facing a $1 billion headwind due to the trade environment. In Q1, we experienced $150 million of that to adjusted op income primarily driven by reduced demand out of China on the U.S. lane. And so for the full year, and just to give a little bit more detail, we're assuming a material revenue headwind from the global trade environment. Operating income at the midpoint of the range will require us to execute, but there's going to be pressure. So the flow-through is not as great, given some of the pressures. The $1 billion is embedded in lost opportunity in our FEC volume net of cost line. The direct trade-related expenses for things like customers clearance and staffing and base expense increases. So there's a fair amount of pressure there from which we intend to deliver on and we'll be focused on staying in the range. Operator: The next question is from Tom Wadewitz with UBS. Thomas Wadewitz: John, I guess it's maybe a little more on that same topic that Scott was just asking about. The global trade headwind, I still feel like I don't really understand what it is. If I look at your international export revenue, I think, was up a little bit in 1Q. And then I think on one of your slides you were pointing to some nice reduction in hours in flight hours on Asia, U.S. and both purple tail and white tail. So I guess it's not clear to me what that $150 million in 1Q is. It doesn't seem to be revenue. It doesn't seem to be clear where the cost impact is. So I really just wanted to see if you could just help us understand that a little bit better? And also why that gets meaningfully worse on a full year basis to like $1 billion instead of versus the $150 million in 1Q? Brie Carere: Tom, it's Brie. I'll take the top line question and then certainly let John kind of add in the color on the expense increase. So what we saw in the first quarter is the vast majority of that $150 million was impact from reduction in top line revenue. Specifically, the majority of that is de minimis impacted in coming out of the China lane. We anticipate that, that will continue to flow through the year. In addition to the $150 million per quarter as we are planning for incremental pressure because of the global de minimis change, which took place at the end of August, we've got $100 million of bottom line pressure throughout the year. And then we have $300 million of incremental expense. So to be really clear that $1 billion of headwind is predominantly an impact of top line revenue reduction because China to the U.S. is a very profitable lane for us. John? John Dietrich: Yes. No, Brie, just to add what I mentioned before, I mean, you touched on the direct trade related expenses of the $300 million for additional custom clears and related capabilities and also running through the base expense increases that coupled with the top line that you mentioned. Operator: The next question is from Jonathan Chappell with Evercore ISI. Jonathan Chappell: I think we're all trying to get to the same place here. So I'll just layer on top of Tom and Scott. If this is all the top line impact from the global trade $150 million in the first quarter, yes, [ $850 million ] for the rest of the year, which is close to $300 million. So it's almost doubling the impact in fiscal 2Q,3Q and 4Q. You have to get to the midpoint or even the low end of the full year revenue guide, the rate of change will have to accelerate from the 3% in the first quarter and your year-over-year comps and even 2-year stock comps are more difficult. So can you just help us bridge where the revenue acceleration comes from if this anomalous headwind is intensifying, potentially doubling? Is it all from price and yield? Are you expecting some significant volume pickup at some point absent the global tariff headwinds in de minimis? Brie Carere: Jonathan, it's Brie. So great question. So yes, we were very pleased with the 3% revenue growth in the first quarter. To get to the midpoint of 5%, first of all, we do expect the majority of trends will continue. So right now, what we're seeing in September looks a lot like August with a continuation of trend with a couple of really important notes. Number one, in the first quarter, we had a $280 million top line headwind because of USPS. That goes away in Q2 and beyond. Two, we are still onboarding some of the wins from Q1 -- or Q4 of last year and early Q1. And as I mentioned, as an example, Amazon is still onboarding and it had very little impact in Q1. There are several other examples of onboarding. And then in the back half of the year, we do expect FedEx Freight to have modest yield improvement and better than the first quarter or the first quarter and the second quarter from an expectation perspective. So we do think the midpoint is very realistic, and we're clear-eyed about how to get from Q1 to the rest of the year's range. Operator: The next question is from Brandon Oglenski with Barclays. Brandon Oglenski: Brie, I appreciate all those details. I was wondering if maybe you could walk through the outlook for domestic volumes on the package side again. And it's no secret that your largest competitor is shrinking here. So can you talk about maybe the competitive landscape? What's presenting for market share opportunities and pricing? Brie Carere: Great question. So from a domestic perspective, we're not -- and I'm speaking specifically to parcel. We're not expecting a massive trend chain. We are expecting, as I mentioned, the onboarding. I think you'll see the mix look very similar from a different package profile. A couple of things, the team has done a really good job from an execution perspective. We've had the best momentum in SMB in the last quarter that I've seen for a while, so that's helping our yield growth. From a yield -- the other thing to note is, of course, fuel was very helpful in the first quarter, and that will continue through the year. In addition to that, we executed some price changes that came in, in the middle of the quarter. and those will be helpful Q2 and beyond. So net takeaway, I don't see a massive trend change. This is self-help, if you will. This is market share, strategic profitable market share acquisition and we expect it to continue. To your point on price, we're really focused on winning with the value proposition. We're winning in health care. We're winning in small business. We're winning because of our 7 day. I think you all heard the Best Buy example. Pricing is improving in the market and I think very rational, competitive but rational. Operator: The next question is from Chris Wetherbee with Wells Fargo. Christian Wetherbee: I guess maybe I just wanted to ask about the range. So 4% to 6% on the top line and $17.20 to $19 on the bottom line. Midpoint is 5% of revenue for the midpoint of the EPS. Should we assume that 4% revenue growth lines up with 17.20 and 6%? Is it the $19 side? And then maybe just a quick clarification point. What exactly is the $300 million of direct related expenses on the trade side? Just want to get a sense of what that is? John Dietrich: Yes. Chris, it's John. I would not make that direct connection between the factor you described on the 4% leading to on the low end. As I said before, this is a dynamic environment. There's going to be a lot of puts and takes as we go forward here, and we're going to be aggressively monitoring and managing it. That was just -- we just gave one scenario. As we mentioned when we talked about how we get to the midpoint, there could be a number of others as well. With regard to your second question, I'm just trying to recall if you could -- the $300 million, yes, I'm sorry. That was customs clearance and related staffing and related administrative expenses as a result of adapting to the current trade environment. Operator: The next question is from Richa Harnain with Deutsche Bank. Richa Harnain: Okay. So regarding the top end of your guidance, you said it's predicated on the continuation of strength in domestic. I guess this question for Brie. You saw some of the best conditions you said since like COVID period, your pricing was certainly the best, we believe, since 2022. Volume growth third consecutive quarter of mid-single-digit plus growth in domestic volumes. Brie, you said SMB best momentum you've seen in while. So maybe you can help us understand what's really driving the share gain what do we need to see to make it sustainable? And then regarding the onboarded the business you're onboarding, what does it look like? What's the profitability profile, et cetera? Brie Carere: Thanks for the question, Richa. Honestly, from an execution perspective, we're really focused on strategic segments. SMB, we are selling direct. Our primary competitor sells through more platforms and third parties, and we've really seen some just outstanding execution momentum. We have a loyalty program that is highly effective and we've been very focused on making sure customers are aware and engaged in loyalty program, and that is working from a health care, that's why you're seeing the premium volume momentum that we have seen over the last 2 quarters essentially. So we're pleased with that. Health care is very sticky revenue. It is high service expectations very, very custom SOP and who it is profitable, but it's also very sticky. And then, of course, from an e-commerce perspective, you have seen that HD ground economy bundle working. We are growing there. We are faster than our primary competitor. We have rural coverage that they don't have. And of course, we now cover about 65% of GDP on Sunday. So really pleased with the team's focus, equally pleased with their revenue quality. We've been pulling pricing levers as appropriate and that definitely benefited us in the first quarter, and we anticipate that we'll get a high capture throughout the year. Of course, we're also planning very rigorously for peak surcharges are in place. They are working. The team has got a very, very focused plan for peak that I'm excited about. Operator: The next question is from Ravi Shanker with Morgan Stanley. Ravi Shanker: A two-parter, if I may. On the de minimis, kind of what has been the customer reaction to the expiry of the rule? And do you think that is a new normal going forward? And also, does it feel like there's been much pull forward in international volumes that may have benefited you in fiscal 1Q? And kind of what does that kind of normal run rate look like for the next kind of several quarters as well? Brie Carere: Thanks for the question. I'm certainly not going to speculate on the future trade environment. But I will tell you, obviously, from a customer perspective, it has been a very stressful period. I'm really proud of our clearance operations team and our commercial team because they are lockstep with customers and has been particularly challenging for small exporters because they do not have the expertise and the staffing, and that's where our teams have come in and really partnered with them to help, as Raj talked about, automate some of their clearance inputs from a digital perspective. So we're very, very focused from a partnership perspective, but it has been -- it has been really tough on small customers and exporters. As far as the pull forward, I will remain optimistic the American consumer from our numbers has been resilient. We do not see any indication in either airfreight or our domestic parcel business that this is all forward. I will absolutely acknowledge July was quite strong for us, especially the Prime Week. We saw a lot of U.S. retailers sales in market, and they were affected. We saw strong volumes in July, but I don't necessarily see that as a pull forward. And like I said, right now, from our forecasting, we both peak in the back half, we're confident in the range we put out from a top line perspective. Operator: Next question is from Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Maybe Brie, just to start off by elaborating a bit more on the peak. It sounds like some of its visibility to maybe some of these new contracts that are onboarding, some of it's more of a the macro. So maybe you can separate just how much of the peak strength is FedEx related versus what you see in the underlying market? I think that would be helpful. And also maybe a little bit of context on freight. We didn't get too much color on that, but certainly a tough market and tough quarter, but it sounds like you expect things to stabilize and improve pretty significantly from here. So I wanted to get some additional thoughts on what's embedded in that outlook. Brie Carere: Okay. I think I got it all, Brian, but stop me if I don't hit all of it. From a peak perspective, yes, when we look at kind of the number of operating days in the season of peak, we are expecting kind of from an ADV perspective, sort of a low to moderate growth from an ADV, but total volume will be up because we have that extra day. I do think a relatively significant portion of this volume growth is our acquisition that we took in the back half of last year. And so you're going to have that lapping benefit for us from a peak perspective, I anticipate our numbers will be slightly elevated versus market. I also, from a performance perspective, we do see this driven by large B2C retailers and brands. That's definitely heavy from a peak perspective. Rest assured, we have the revenue quality strategy and the peak surcharges in place. The team has done really good job or lockstep with Scott Ray and the surface team to manage capacity and service. So we feel very good from a peak perspective. But to your point, I don't necessarily think that it is an indicator of overall market performance. From a FedEx Freight perspective, you've all tracked the pressures on the industrial economy, we are the FedEx -- where FedEx is the market share leader in the LTL industry. And so of course, we are feeling that pressure. The team's #1 priority at FedEx Freight and take this responsibility very seriously is revenue quality. We will have the benefit of the lapping in the back half. So we do anticipate that yields will increase in the back half, but we remain very disciplined and very focused. Operator: The next question is from Bruce Chan with Stifel. J. Bruce Chan: Maybe just one on the broader airfreight market. We've been hearing about some potential supply constraints as the global fleet sort of ages here. I guess, first, are you seeing signs of that? And then so how do you think about the flow-through with Tricolor. I imagine you've got some good flexibility to shift volumes sort of between the purple tails and third-party capacity. Brie Carere: Yes. From an airfreight perspective, again, we're a relatively small market share participant from a global airfreight perspective. We are being selective and really focused on premium freight I am particularly proud of the airline team this quarter. They shifted capacity and equally proud of the commercial team. We knew because of the trade environment that our China to U.S. lane, and we are the market share leader there would be pressured. And so we pivoted. We are growing between Asia and Europe, which is a large lane. We're being selective there. And then equally important on the Purple tail that we balance capacity, and the team did a really good job from a U.S. perspective. I'll give the health care team a shout out almost 50% of the weight growth from a U.S. expert perspective came from health care, airfreight, so our health care strategy is working there, too. Rajesh Subramaniam: Bruce, if I can jump in on this Tricolor, if you remember the conversations that we have had before, the idea was to decongest the hubs and to have a truck-fly-truck network so that it links all our networks together optimally and densification of our network. All those are being tracked at KPI level very carefully, and I'm happy to report that the team has done a tremendous job and it's working. And that's what enables us to provide the value proposition to our customers to strategically and profitably grow in these segments. So again, we are in early innings on Tricolor, but the implementation has been stellar. Operator: The next question is from Jason Seidl with TD Cowen. Unknown Analyst: This is [ Elliot Alper ] on for Jason Seidl. So in terms of Network 2.0 and heading into peak season, are you planning for any changes in the process like putting some stations on hold in busier markets as you work through peak. Could that affect any timing in terms of the cadence of the $1 billion in cost savings or anything to think about there? Rajesh Subramaniam: Well, thank you for the question. We are very encouraged by the progress on Network 2.0. The Canada transition is complete and the service levels there are very strong. We're obviously moving forward in the U.S. market underway as we planned. There is no change to the plans that we have set in place. We have exiting Q1 with 18% of our U.S. ADV running through the Network 2.0 model. We have close to about 140 facilities and integrated 360 stations in the process. And at the end of the day, I want to -- that's pretty much as planned, and that's what we will continue to execute going forward. You had rumor that Network 2.0 is an efficiency story, but also a growth story as we improve our customer value and customer experience that this becomes what efficiency part of the equation and also ability for us to grow in this segment. Brie Carere: I think it's important to note, we never plan for a new optimization in the middle of peak. So our rollout schedule it's a given that, that just doesn't happen in peak because service is our top priority for our customers. Operator: The next question is from David Vernon with Bernstein. David Vernon: So John, I wanted to kind of come back to this question on operating leverage and try to help better understand the bridge that you laid out here. When we think about first quarter, is there anything in the comp on a year-over-year basis that may be added to the leverage, whether it's incentives or anything like that? And then as we think about the remainder of the year, right, obviously, there's a lot of things happening on trade and things happening top line, bottom line. Is the answer here of why we're not getting more leverage just that the mix is shifting to less profitable traffic? I'm just trying to kind of really understand this thing at a high level, like if we've got $1 billion worth of costs taking out that would offset the headwind and then we got 5% of revenue growth, like why isn't there more falling to the bottom line? John Dietrich: Yes. As I mentioned before, there's a variety of factors in play here, including kind of the opportunity cost of the hit to revenue as a result of the change in the trade environment. Mix shift is a factor to lower-yielding mix. But I should say it's profitable, it's profitable mix, I want to be clear on that. But that is certainly a consideration. But there's a whole dynamic environment of factors that are putting pressure on us that run the range that are factored into that $1 billion. Operator: The next question is from Ari Rosa with Citi. Ariel Rosa: So just on the revenue growth target, maybe you could help us understand how much of that is coming from new business wins because I don't think that's been totally clear. So like is there a way to segment how much of the 4% to 6% is driven -- is organic versus kind of new business wins? Anything you can give us on kind of the margin contribution of that? And then if I can squeeze one other one in the $600 million of Freight spin costs, maybe you could just give a little bit of color on what that is? John Dietrich: Well, I'll start with the Freight spin costs and then turn it over to that like with any large transaction, there's a significant amount of cost that's incurred it's largely driven by the IT and the systems and enhancing the systems have freight to improve the customer experience. There are some staffing costs, but I would say those are small in the scheme of things. We talked about the sales force and so forth but largely IT-related and systems-related. Brie Carere: Yes. As far as the revenue range, it's a combination of factors, as I talked about. We've got execution from a share gain perspective, we've got execution on getting the right business in and the yield. The one thing that I can emphasize that as we look at the difference between the Q1 and Q2 through Q4, the domestic momentum. One of the larger factors there will be continued onboarding, but we'll also be pushing on yields. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Raj Subramaniam for any closing remarks. Rajesh Subramaniam: Well, thank you, operator. In closing, our Q1 results demonstrate our ability to support customers through this dynamic environment and I'm incredibly proud of the FedEx team for their outstanding commitment to our customers and for driving such strong performance in this quarter. I'm confident that the momentum we have established positions us well for the peak season ahead. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Adam Castleton: Good morning. Thank you for joining LSL's Interim Results Presentation. I'm Adam Castleton, LSL's Group CEO, and I'm here with David Wolffe, Interim Group CFO. I'll first cover highlights, market context and progress we've made in our divisions. David will then take you through a financial review. I'll then talk about outlook and some key takeaways, and we'll take questions at the end. We're recording this event and a replay will be available on the LSL IR website. These are my maiden set of results as Group CEO. I'm really pleased to report the results are in line with expectations, and we continue to make good operational progress. Revenue and profit are up with operating margin maintained at a 15-year high. Return on capital employed of 31% for the last 12 months is much higher than historical levels. These reflect the improvements we've achieved following the transformation of the group in recent years, and this was achieved while continuing to invest for growth. This performance underlines that our capital-light resilient model is delivering consistently while we are reinvesting for the future and the full year outlook remains unchanged. Moving to key financial highlights. Group revenue increased by 5% to GBP 89.7 million, and we maintained our strong market share. Group underlying operating profit was up 3% to GBP 14.8 million, while we continue to invest strategically in our business and absorb the national insurance increase. We are a highly cash-generative business. Our cash conversion for the last 12 months was 95%. This is at the upper end of our target range of 75% to 100%. We performed well in a recovering market. Total mortgage lending in the market increased by 5% with a very different picture in new lending, which was up 22%, whilst product transfers rebalanced back 10% year-on-year. We gained market share with our new mortgage lending up 23%. U.K. residential sales were up 17% with a pull forward of demand given the stamp duty changes. We maintained our market share of this market. Mortgage approvals increased 10%, with the change in our lender mix slightly reducing our estimated share in surveying and valuations with revenue up 9%. We operate 3 divisions with leading market positions, each benefit from strong long-standing client relationships with scale and strength in their markets as well as expertise and deep domain knowledge. Each delivered operational progress during the period. In Surveying & Valuation, productivity per surveyor increased by 8%. B2C revenue increased by 43%, and we renewed a top 5 lender contract and started working with another new lender. In Financial Services, new mortgage lending was up 23%. Revenue per adviser increased by 8% and the implementation of the new CRM is progressing well. In our Estate Agency Franchising division, we increased the size of our lettings portfolio, making 3 acquisitions during the period with a strong pipeline, and we added 3 new branches to our franchise network. In summary, each division continues to execute well while maintaining discipline on margins and returns. I'll now hand over to David to take you through the financial review in more detail. David Wolffe: Thank you, Adam. Good morning. I'm David Wolffe, Interim CFO at LSL, previously CFO at a number of high-growth, tech-driven and listed businesses. Let's look at the group's financial performance in more detail. In the half year, revenue grew 5% to GBP 89.7 million, driven by 9% growth in our largest division, Surveying & Valuation. Underlying operating profit increased to GBP 14.8 million, up 3% year-on-year, and I'll come back to that increase in just a moment. Operating margin remained strong at 17% at the upper end of our historical range. Cash from operations at GBP 7.4 million reflects shareholder distributions, planned investment and some working capital timing. Again, more on that shortly. Return on capital employed for the last 12 months increased to 31%, very strong compared to historical levels. So the first half has delivered continuing growth while maintaining a high return on capital profile. Coming back to that operating profit increase, there are 2 main points to highlight. First, we have made positive operating performance progress with an underlying increase of GBP 3 million before strategic and investment decisions. This progress is driven by our volume growth across the business, improved pricing and the first positive contribution from the Pivotal Joint Venture. Second, we made strategic decisions in 2 areas, which reduced profit in the period. We stepped away from some protection-only business as we rebalanced our adviser firms towards mortgage and protection or composite firms, and we made investment across Financial Services and Surveying to drive future growth. So the headline growth of 3% is a combination of that underlying progress and the growth investment. Turning now to cash flow and capital allocation. In the half, we delivered positive operating cash flow of GBP 7.4 million after working capital movements around the 2024 year-end. I'll come back to this in just a moment. We deployed capital in 2 key areas in the period. First, in shareholder returns, we distributed GBP 9 million in dividends and share buybacks. The interim dividend is maintained at 4.0p, and the buyback program continues with GBP 3 million deployed to date. Second, in strategic investment, GBP 3.6 million of cash was spent across CRM development, data and lettings books acquisitions to drive future growth. Our balance sheet remains robust. With June cash at GBP 22 million and a GBP 60 million unutilized facility, we have strong liquidity and our capital-light model ensures ongoing flexibility. Looking at the positive operating cash flow and working capital in a bit more detail now. The line at the bottom of this slide shows our adjusted cash from operations performance over the last few half periods. The GBP 7.4 million we reported in H1 presents as a lower number than last year, but we had a timing effect of GBP 4 million excess working capital inflow just before the 2024 year-end that then unwound into an outflow into 2025. You can see this in the lines above. In operating profit, we have stable progression. Depreciation is flat and low, reflecting our capital-light operating model. Cash on lease liabilities continues to moderate after the transformation of the Estate Agency business. But on working capital, H2 2024 inflow of GBP 5.9 million you'll see in the box was an outlier, which illustrates these timing effects around the year-end. The unwind in H1 of 2025 makes our cash conversion look suppressed in the half, even though on a rolling 12 months basis, we made really good progress. We expect that the second half and full year 2025 cash conversion should be normalizing towards our target of 75% to 100%. Taking each division in turn, let's run through the story of the half. In Surveying & Valuation, revenue grew 9% to GBP 53.2 million, within which B2C was up 43%. Underlying operating profit was GBP 11.9 million, with margins at 22%. This is down on the elevated levels of H1 last year with Surveyor commissions now normalized, and this effect is in line with what we have flagged before. But in sequential performance compared to the second half of 2024, we have made good margin progress, up 200 basis points. Volumes grew with jobs up 7%. Fee per job was up 2% with better terms and more B2C activity, and we improved Surveyor productivity in jobs per surveyor, which was up 8%. In Financial Services, revenue was flat overall, but this illustrates the combination of mortgage-related revenue up 21% and protection revenue down 12%, following our strategic repositioning away from protection-only brokers. As a result, adviser numbers were down to 2,637, but adviser productivity increased 8% in completions per adviser, and we grew fee per completion by 3%. But overall, at a divisional level, despite the broker repositioning and some P&L investment in CRM, operating profit grew 23% to GBP 4.8 million, with Pivotal making that positive contribution. In Estate Agency Franchising, revenue overall grew 1%, but while residential sales revenue was up 24% and lettings revenue up 4%, our land and new homes business was pushed back by a contract change. As a result, underlying operating profit margin remained flat at 24%. We are expecting improvement in the second half with cost savings feeding through. Branches grew by 1% after 3 more openings in the half, with overall sales income per branch up 22%. The lettings portfolio now stands at over 37,400 properties after 7 lettings books acquisitions since mid-2024, with overall income per property now up 1%. So with progress in each of the divisions, the group delivered on expectations in the first half, whilst at the same time, positioning itself for stronger growth in the second half of the year. And with that, I'll hand you back to Adam to take you through the outlook. Adam Castleton: Thank you, David. Expectations for the full year remain unchanged. In the second half, we expect a sequential step-up in profit in each division with an increase in refinancing activity, a strong activity in 2-year and 5-year mortgages in 2020 and 2023 mature in large numbers. We've already seen this in July and August, with July the strongest refinancing month for us this year. We also came into the half with residential sales pipelines increased from this time last year. We will continue to invest in our business in the second half, for example, in lettings books and the FS CRM system. Indeed, in September, we've already completed a further 3 lettings books. When I presented our preliminary results back in April, just before I started out as Group CEO, I set out my early thoughts and priorities. These remain unchanged, and I'm pleased with early progress. Our senior leadership teams are responding well and are raising their sights and ambitions even higher for the future. We continue our investments in technology and data, notably the new CRM in FS and data in Surveying & Valuations, whilst we are also trialing new AI-enabled solutions to improve productivity. I'm already working closely with our divisional business leaders on the opportunity to leverage group strengths, and I'm encouraged by the early signs that I'm seeing. I'm working very hard and even more transparent and clear communication, both internally and to the market. For example, we've just rolled out the first wave of updates to our IR website, adding some fresh new elements to allow greater accessibility and transparency. This is all steady, deliberate progress, and I look forward to sharing news of our ongoing progress. We are a diversified, resilient cash-generative group, strategically positioned for growth. We're delivering, performing in line with expectations, and we're investing carefully while maintaining shareholder distributions. We're building consistently. The LSL of today is stronger and leaner, delivering higher-quality earnings. It is early days in my tenure as CEO, and I'm excited about the growth opportunities open to us as a group. With 2025 on track, we're looking ahead with renewed ambition and with confidence about our future. With that, operator, can we please move to Q&A. Operator: Thank you. [Operator Instructions] There appears to be no questions at this time. So I'd like to hand the call back over for questions via the webcast. Unknown Executive: Okay. Thank you. We've got a number of questions on the webcast. I'll ask them one at a time. The first question is from Glynis at Jefferies. Glynis asks about the Surveying division and the year-on-year movement in the operating margin. You talked about this as -- in the second half of 2024, you're talking about it again today. How should people think about the first half 2025 margin? And what sort of level is considered normal? Adam Castleton: Yes. Thank you, Glynis. Thank you for your question. So last year, as we flagged at the interims and the prelims, we had enhanced margins in the first half of last year as we came into the year in 2024. We had a burst of activity, and we didn't bring back the surveyor incentives immediately. And secondly, there were some administrative heads that we didn't bring back immediately as well. Therefore, there was quite an enhanced margin for the first half of, I think it was 25%, sequentially then that fell in H2 and has now recovered to about 21%, 22%. We expect that really to be the norm. So at the moment, 21%, 22% is really the norm for our margin going forward, the 25% was elevated in the very top end of what we might normally expect to see. Unknown Executive: Great. Thank you, Adam. The second question comes from Jonathan, who's at Edison. Jonathan asks about the impact of changes in stamp duty. Have you seen any material changes in demand in the month since the stamp duty changes came into effect? Adam Castleton: Yes. Thank you. Thank you for your question. Yes, there was a spike, particularly in March with the stamp duty changes. So we saw for the whole half, 17% up for the overall market, which we tracked. March was particularly strong. It was actually 170,000 transactions in the market for that month. What we've seen since then is a good market as we expected. In fact, because H1 2024 was a bit softer, the 17% looks very high. But in fact, the second half of this year will be a little bit more in transactions than it was in the first half. So we see sequential rises, notwithstanding the spike. So certainly, if the question is which -- from time to time, people have asked whether somehow there was a spike and then it sort of hollowed everything out, it certainly didn't. We entered this half year with increased pipelines, which is great. As I said, we expect residential sales to be a little bit more in the second half than it was in the first half, notwithstanding the spike duty spike. Unknown Executive: Great. Thanks, Adam. We have a follow-up question or a second question rather, sorry, from Glynis at Jefferies. There's been a lot of talk in recent weeks about potential government policy changes. How has this impacted your business in recent weeks? And if some of the changes that are being speculated in the press were put into place, what are the implications for the group? Adam Castleton: Thank you again, Glynis, for the question. Obviously, something that we're all reading in the newspapers. The autumn budget is obviously a couple of months away in November, and we read, as you do, Glynis, all the various either ideas or kites that are being flown, it's hard to tell which they are. I don't think I'll comment on speculating what may not come through and what that might mean. Obviously, as a business, we stay very close to what will happen, what we focus on are the facts that we have at hand and as a business that covers the whole range of services in the property and lending markets, we've got really deep knowledge and deep data. So if we look at all the information that we have across Surveying Financial Services and Estate Agency covering mortgage applications, completions, fall-throughs, which are when agreed sales fall through sometimes because the chain has fallen through because people pull out. We're seeing nothing of any of our metrics and -- because I expected some of these questions rather than checking these numbers once a day, I'm checking them twice a day with people and ringing people up. We're not seeing anything at the moment. Whether there's a question of sentiment, I can't say, but certainly, all of our metrics are showing no change of customer behavior. And I think depending on what does or doesn't transpire in the budget, as we've demonstrated over many, many years, we're a dynamic business. We're very quick to react and to change the market. We're well positioned for that. And for any negative shocks that comes to the market in the future, of course, following our franchising restructure, we're a lot more even in our earnings, less volatile. And so we're certainly less spiky. And we're very, very quick to react. And as I said, the data that we have is very, very specific. Just as a little example, when our friends across the water introduced the tariffs, I made a call and said, could they pull out fall-through data from Solihull, which is where the Land Rover factory is and in the Northeast where the Toyota factory is just in case people felt nervous because of the tariffs. So we really stay on top of data closely. And whilst I can't tell what may happen tomorrow or the day after in the budget, certainly, everything we've seen demonstrating that the customer behavior is unchanged and in line with what our expectations are. Unknown Executive: Great. We're actually going to move back to the conference call. We've had a question on the conference call, and then I've got another 2 questions on the web platform. Operator: And we take a question from Robert Sanders from Shore Capital. Robert Sanders: Just I suppose following on from that question about the government and sort of the other aspect of the market that's been a bit open to surveys has been the lettings market and [indiscernible] whatever saying that there's a downturn. Is that something that you're experiencing? And what do you think the outlook is going to be for the lettings market given renters rights [indiscernible] as we move into the next year? And then as a follow-on question, can I also ask you about what your -- you talked about the technology and data innovation and what you're seeing as the opportunities, particularly in the Surveying & Valuation division for the use of AI? Adam Castleton: Certainly, yes. Thank you. Thanks very much. Good question about the lettings market. The first thing I'll say is the lettings market is extremely resilient. If you actually look at the number of privately rented dwellings in the country, it's been very stable at GBP 5.4 million, GBP 5.5 million for the last few years, so we've seen no change of that. From our perspective, we have slightly increased our lettings portfolio, as David said, to over 37,000. And actually, as legislation, you mentioned the renters rights becomes a bit tighter. What we're seeing is that there's more interest from landlords who are self-managing to move towards a managed service. And we're starting to see that movement and that interest and we're certainly marketing to those landlords. It's interesting, you mentioned some of the metrics and the headlines that we see that forecast problems for the lettings market. I would just say that if you note some of those metrics, they don't necessarily show what they may appear to on the face of it. The first thing is there's been some publicity about lettings instructions being down, which is actually something we've seen over a number of years. One of the main reasons for that is that people are staying in their properties for longer, and therefore, there are less instructions than historically they were. Landlords will keep a good paying regular tenant and tenants will -- with everything going on in the market, will prefer to stay where they are. So that's certainly the reason -- one of the main reasons that instructions are down. It's not demonstrating that things are leaving the market. And also, we hear metrics quoted around there being more properties for sale that were previously rented. And whilst that might be the case, of course, those rental properties are often bought by other buy-to-let landlords. So certainly, we don't see a big change in the numbers of properties rented. We see opportunities for further growth. As David said, since the middle of '24, we've done to the end of the period 7. And actually, we did 3 lettings books during the half. And since the end of the half, actually in September, we've done 3 and just about to close to 4. So we see some good opportunities there. It's certainly not buoyant as it was when originally buy-to-let really grew quite strongly, but we're seeing no material change in the numbers of properties, dwellings that are privately let. In terms of the renters rights, as you mentioned, and as I say, just to reiterate, a, we don't see that changing materially the structure of the market. As I said, it may certainly lead to an opportunity for us to bring landlords who are currently self-managing over to a managed service. And that's probably a general point to make around regulation and regulatory changes. As a larger player, we're well placed to make the investments required to cover any changes necessary. And obviously, our deep relationships with whether it be our franchisees or our financial services, we're able to give our sort of trusted advices we have for many, many years. Unknown Executive: I've got 2 questions here from Robin from Zeus. Again, I'll ask them one at a time. In terms of the first question, could you please provide some more detail on Pivotal Growth in terms of current run rate of advisers, revenue, trading performance? Adam Castleton: Yes, Pivotals -- the Pivotal investments is scaling very well in terms of EBITDA, which is the actual entity results in the first half, that was -- again, these are within the interims, these are about GBP 3 million, GBP 4 million of EBITDA. So on a decent run rate for the year. So it's scaling up well. There were 2 small acquisitions during the half that we announced in the interims. And actually, in the post balance sheet note, you'll see that there was one further acquisition that completed after the end of the period. So scaling up nicely with over 500 advisers, the EBITDA run rate is going well. We're looking forward to continued growth and eventual realization of our investments. Certainly, we expect that to be well over our return on our weighted average cost of capital. Unknown Executive: Great. Thanks, Adam. And then there's a second question from Robin also about Pivotal growth. So Robin's question is, can you please expand on your reference about LSL being founded 21 years ago and it's being built on -- success being built on operational resilience, opportunistic dealmaking and entrepreneurial culture. What are LSL's strengths? And how does Pivotal fit into these strengths? Adam Castleton: Okay. That's okay, interesting. So yes, I mean, I won't repeat the words, but the business has -- it's quite entrepreneurial. It's very agile and it's very dynamic. We're very quick to move and to take opportunities. One of the examples actually I often use is when the pandemic hit at the same time that we were planning for the worst case for a year where we would have no business, we were also planning for the state agency to open immediately, and we're planning for both. And in the end, we really, really farmed the market well as it recovers. So very, very quick, and we're always agile. The opportunity -- the opportunistic element of Pivotal when it was founded was for a buy and build within the broking business, which exists in many other industries as we know, and there's an opportunity for us in the broking business, which we have launched. So really, it is an opportunistic approach to buy and build within a sector that had not seen it before. And so far, we're pleased with the scaling. And as I said, we expect a realization of our investments in due course. Unknown Executive: Great. That's all the questions covered on the web platform. No further questions. That's it. Back to you, Adam, for closing remarks. Adam Castleton: Listen, thank you for all the questions. I apologize for my colleague, David. They've all been pointed at me and I've answered them all. So I'm sorry that your -- all your numbers are not... David Wolffe: [indiscernible] Adam Castleton: Thank you very much. So listen, thank you for the questions. We're really excited about the opportunities ahead for the group. We're available for any follow-up that you may need. And I thank you all for your questions, your interest, and I look forward to carrying on the dialogue with you. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Scholastic reports, First Quarter, Fiscal Year 2026 Results. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jeffrey Matthews, Executive Vice President and Chief Growth Officer. Jeffrey Mathews: Hello, and welcome, everyone, to Scholastic's Fiscal 2026 First Quarter Earnings Call. Today on the call, I'm joined by Peter Warwick, our President and Chief Executive Officer; and Haji Glover, our Chief Financial Officer and Executive Vice President. As usual, we posted this call's investor presentation on our IR website at investor.scholastic.com, which you may download now if you've not already done so. We would like to point out that certain statements made today will be forward-looking. These forward-looking statements, by their nature, are subject to various risks and uncertainties and actual results may differ materially from those currently anticipated. In addition, we will be discussing some non-GAAP financial measures, as defined in Regulation G. The reconciliations of those measures to the most directly comparable GAAP measures may be found in the company's earnings release and accompanying financial tables, filed this afternoon on a Form 8-K. This earnings release has also been posted to our Investor Relations website. We encourage you to review the disclaimers in the release and investor presentation and to review the risk factors disclosed in the company's annual and quarterly reports, filed with the SEC. Should you have any questions, after today's call, please send them directly to our IR e-mail address, investor_relations@scholastic.com. And now, I'd like to turn the call over to Peter Warwick, to begin this afternoon's presentation. Peter Warwick: Thank you, Jeff, and good afternoon, everyone. Scholastic had a productive summer, as we prepared for the back-to-school season and advanced important initiatives. As expected, our first quarter reflected the normal seasonality of our business, with an operating loss in line with previous years. We continue to make strong progress on our previously announced real estate monetization process, with significant investor interest in both our SoHo headquarters and our Jefferson City distribution center. We remain on track, with the time line, we outlined in July. Haji will share further details in his remarks. At the same time, we're driving greater financial discipline and operational leverage across the company, while affirming our full year guidance. These actions position us well, for profitable growth in the quarters and years ahead. In our Children's Book Publishing and Distribution segment last quarter, trade sales were solid, strong continued demand for our global franchises drove unit sales in excess of the overall growth in the children's and young adult markets. Suzanne Collins: Sunrise on the reaping, has now sold 3.7 million copies worldwide, since its March release. Looking ahead, in October, we're excited to release the 25th title in Lauren Tarshis's, I Survived series, another middle-grade best seller along with the illustrated addition of Catching Fire and the interactive illustrated edition of Harry Potter and the Goblet of fire. In November, we will publish a collector's edition of Sunrise on the reaping, to sustain momentum ahead of Lionsgate's feature film adaptation in 2026. We're also building towards another major global release, with Dave Pilkey's, Dogman, big Jim believes. Preorders are tracking in line with the last dogman, positioning this newest title for a strong on sale. The Dog Man franchise has more than 70 million copies in print, across 48 languages. And next spring, Dave Pilkey's Captain Underpants returns in an entirely new format, with the first Epic manga, illustrated by Motojero. In book fairs, quarter 1 represents only a small portion of annual revenue, given the school summer vacations, but early indicators are encouraging. Fall bookings are strong and ahead of last year's bookings. Redemption of Scholastic dollars, our reward currency in book fairs is high, indicating good engagement with book fair hosts. We're also making progress in booking more larger fairs and reducing churn. In book clubs, quarter 1 also represents a small portion of annual revenue with year-over-year change, reflecting the timing of mailings. With the integration of trade fairs and clubs into the new Children's Book group, we now have one aligned organization coordinating editorial, merchandising, marketing and distribution to maximize the reach and value of our publishing, across both our proprietary and retail channels. Our initial priority has been streamlining operations and infrastructure, enhancing data analytics, optimizing inventory and overhead and driving early cost savings while building a foundation for long-term profitable growth. Turning to Scholastic Entertainment. We're positioned for renewed growth, as industry greenlighting accelerates and our 360-degree IP strategy gains traction. Now with the capabilities and assets of 9-story Media Group fully integrated into our strategy and organization. We're using YouTube as a launch pad for new properties after integrating all 9 story branded channels under the Scholastic banner. Clifford remains a cornerstone franchise, both in traditional linear and on digital platforms. We expect to surpass 10 million monthly views by calendar year-end, of classic Clifford content on YouTube and we're supporting this with new publishing consumer products and promotional partnerships to lay the groundwork for Clifford's next phase of growth. The trailer for Paris Hilton's Paris & Pups dropped on all social media platforms and has been viewed more than 1.8 million times. The Series YouTube launch is coming September 23, with episodes releasing weekly and toys launching in fall 2026, with Playmates Toys, as they announced this morning. Scholastic holds global publishing rights with tie-in books also scheduled for fall 2026. This approach, pairing digital-first content with publishing is central to our strategy. It not only expands the reach of our IP, but also builds brand affinity that flows back into book sales. As just announced, we've also launched the first ever Scholastic branded streaming app, in partnership with Future today. The app offers families a free, safe and trusted destination, to enjoy beloved scholastic programming on demand, with nearly 400 half hours of content and will scale to more than 1,300 half hours by fiscal 2027. A significant marketing campaign begins this month to build awareness and adoption. Together, these initiatives are expanding the reach of Scholastic's IP, creating high-margin digital revenue streams and strengthening our position at the intersection of Publishing and media. In Scholastic Education, sales were pressured in the quarter, by a volatile funding environment, reflecting the delay of some federal education grants and cancellation of others. Further, several states are facing budget impasses. In this challenging environment, we continue taking steps to strengthen this business for the long term. Under new leadership, the team is refocusing our go-to-market functions on our core strengths, rationalizing the product portfolio and prioritizing investments in high-impact offerings, like Knowledge library. While near-term results remain constrained by the market, education continues to be central to Scholastic's mission, we remain confident in its long-term potential. International results reflected continued portfolio rationalization and a focus on margin improvement. We see growth opportunities, in expanding English as a second language programs and in growing markets like India and the Philippines. Overall, Scholastic delivered a solid start to fiscal 2026. We advanced our strategy, including recent reorganizations, investing in some of our strongest franchises and IP, made progress on our potential real estate monetization and prepared for the important back-to-school season. With these actions, we're affirming our full year guidance and remain confident in our ability to deliver meaningful profit growth, while continuing to create long-term value for our shareholders and lasting impact for children worldwide. Thank you. And I'll now turn it over to Haji. Haji Glover: Thank you, Peter, and good afternoon, everyone. As usual, I will refer to our adjusted results for the first quarter, excluding onetime items unless otherwise indicated. Please refer to our press release tables and SEC filings for a complete discussion of onetime items. As Peter discussed earlier, our first quarter reflected the normal seasonality of our business, during the quiet summer months. I'm proud of our team's hard work, preparing for the back-to-school season and we are well positioned to achieve our plan, this fiscal year and beyond. Beginning with our consolidated financial results and our typically small summer first quarter, when our school reading events division had minimum sales, revenues decreased 5% to $225.6 million. Our seasonally adjusted operating loss improved to $81.9 million from $85.6 million, in the prior year period. Reflecting cost-saving initiatives, adjusted EBITDA was a loss of $55.7 million, an improvement from a loss of $60.5 million a year ago. Net loss was $63.3 million compared to $60.3 million, in the prior year period. On a per diluted share basis, adjusted loss increased to $2.52 compared to a loss of $2.13 last year, primarily reflecting lower shares outstanding due to share buybacks. As a reminder, Scholastic results are highly seasonal. In addition to first quarter, we also generally recorded an operating loss in our third quarter with profitable second and fourth quarters. Turning to our segment results. In Children's Book Publishing and Distribution, revenues for the first quarter increased 4% to $109.4 million, reflecting growth in school book fairs. Segment adjusted operating loss improved to $34.3 million from $36.6 million in the prior year period. Book fair revenue were $34.1 million in the quarter, an increase of 18%, driven by higher Scholastic dollar redemptions. Book Clubs revenue were $1.8 million in the quarter compared to $2.7 million a year ago, reflecting the timing of mailings, as Peter discussed. In our Trade Publishing division, revenues were $73.5 million in the first quarter, essentially flat with prior year period, reflecting continued strong demand for Hunger Games and Harry Potter titles. We are optimistic in our publishing plan for this fiscal year, which features many exciting new titles in upcoming quarters. Turning to Scholastic Education, Segment revenues were $40.1 million in the first quarter versus $55.7 million in the prior year period, reflecting lower spending on supplemental curriculum products and the timing of state sponsored program revenues. Segment adjusted operating loss was $21.2 million in the first quarter compared to a loss of $17 million in the prior year period, reflecting lower gross profit, partly offset by cost cuts and careful expense control. Turning to our Entertainment segment. Revenues decreased by $3 million to $13.6 million compared to $16.6 million in the prior year, primarily driven by fewer episodic deliveries, as anticipated. Segment adjusted operating loss was $4 million, a decline of $5.2 million from the prior year quarter. The current year period includes $700,000 in incremental amortization expense on intangible assets related to the timing of the acquisition in the prior year period. As Peter discussed, we remain encouraged by recent momentum and are positioned for renewed growth, as industry green lighting accelerates. International segment revenues were $59.4 million in the first quarter, up from $56.8 million a year ago. Excluding the $0.2 million year-over-year impact of favorable foreign currency exchange, segment revenues were up $2.4 million primarily driven by higher revenues in Australia, the U.K. and Asia. Segment adjusted operating results improved to a loss of $4.1 million compared to a loss of $8.3 million in the prior year period, reflecting higher revenues and continued optimization of this business. Unallocated overhead costs decreased by $6.6 million to $18.3 million in the first quarter primarily, driven by lower employee expenses from cost reduction initiatives. Now turning to cash flow and the balance sheet. In the quarter, seasonal net cash used by operating activities was $81.8 million compared to net cash used of $41.9 million in the prior year period. This increase in cash use was primarily driven by fluctuations in net working capital with higher inventory purchases, including tariff charges, the timing of general operating expense payments, higher interest, partially offset by higher customer remittance. Severance payments were also higher as part of the cost-saving initiatives. Free cash used in the first quarter was $100.2 million compared to $68.7 million in the prior year period, reflecting lower cash flow from operations partially offset by lower capital expenditures. At quarter end, the company had borrowings of $325 million under its unsecured revolving credit facility. Net debt was $242.8 million compared to net debt of $136.6 million at the end of fiscal 2025, which was due to the working capital requirements. In the first quarter, we continued to return excess cash to shareholders through our regular dividends of $5.2 million. We currently have $70 million remaining on our share buyback authorization. The company expects to continue purchasing shares time to time as conditions allow, on the open market or a negotiated private transactions for the foreseeable future. As we previously announced, the company retained Newmark Group, to identify investment partners for potential sale-leaseback transactions of all or part of its own office and retail real estate in New York City and its Jefferson City distribution centers. These processes have generated significant interest and are progressing. We expect both to conclude this fall. While there can be no guarantees of transactions of either or both properties, we remain optimistic about both in the context of our capital allocation priorities, which include debt reduction and share repurchases. Now for our outlook for the remainder of the year. Our strategic efforts to align spending with long-term goals are driving favorable operating margins, supported by our ongoing SG&A optimization. Our goal for these actions is to sustainably lower our cost structure, especially with respect to non-revenue generating and consulting expenses. As for the impact of tariffs, we are closely following changes in policy and continue to expect approximately $10 million of incremental tariff expenses this fiscal year in our cost of product. We expect a strong second quarter benefiting from major trade releases. As Peter previously indicated, we are affirming our fiscal year 2026 guidance for revenue growth of 2% to 4%. Adjusted EBITDA of $160 million to $170 million and full year free cash flow between $30 million and $40 million. Thank you for your time today. I'll hand the call back to Peter for his final remarks. Peter Warwick: Thank you, Haji. In conclusion, after a solid start to the fiscal year and the return of students to schools, Scholastic is positioned well to continue its momentum and execute its plan for substantial earnings growth in fiscal 2026. As I laid out in July, our plan is focused on building Scholastic's long-term opportunity as a global leader in the children's publishing, media and education spaces meeting kids, families and schools essential needs to educate, inform and engage kids. In support of that, we continue to reduce costs, strengthen our organization, return capital to shareholders and take steps to optimize our capital structure and balance sheet. We look forward to providing our next update in December, after a big second quarter. Thank you all very much. Let me now turn the call over to Jeff. Jeffrey Mathews: Thank you, Peter. With that, we will open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from Brendan McCarthy with Sidoti. Brendan Michael McCarthy: I just wanted to start off looking at the Education Solutions business. I know we just wrapped up the summer months. But I'm curious if you've had any early feedback on some of the new products that you brought to the market and maybe how they've have been resonating with schools or students. Jeffrey Mathews: Brendan, this is Jeff here. I'll step in as the head of this -- interim head of this business. Look, we were getting great feedback from customers around some of the new products. Of course, it's a difficult selling situation. As Peter described, there are some delays and cancellations of some federal funds. So I think in that environment, we are very encouraged by the -- what we're hearing particularly with knowledge library and as well as our core products, our classroom libraries and our classroom magazines. Brendan Michael McCarthy: Got it. I appreciate the color, Jeff. And I guess, at this point, what do you think -- so I understand there's been the pause in spending from states and school districts. What do you think are key variables to keep an eye on that would ultimately turn this trend around. Jeffrey Mathews: That's a good question. And it's important to understand it's not -- there hasn't -- the schools are continuing to spend money. It's an environment when the certainty of future funds is low, they are more likely to hold back on anything but the most necessary must-have purchases. What we're doing -- our strategy is very much focused on helping our customers understand why Scholastic's products align with their most critical needs. Of course, as there's greater funding certainty and we've seen that some of the federal programs that had been paused or some federal grants have been paused were released in late August. As there becomes more certainty, we expect that school district and -- school and district leaders will be more forthcoming with and more confident in their ability to purchase because there's no question schools continue to need materials in the classroom. In many cases, they've made significant investments in their core curricula over the last year or 2. This is a time when they start to need to fill out their classrooms with additional materials, to support their teachers and support their students. So with that respect, the cycle is favorable, it's just getting through this moment of uncertainty that has been caused by volatility, largely in Washington. Brendan Michael McCarthy: That makes sense. Jeff, certainly something to keep an eye on there. I wanted to turn to the Entertainment segment. I know your priority has really been focused on getting some content up on to YouTube, where there's the advertising revenue share model. I guess what's the -- when can we expect to really see that kind of flow through into the financial statements into the P&L? And I guess more of a long-term perspective to what does long-term success really look like with the 9-story media business? Peter Warwick: It's Peter here, Brendan. Look, the digital model that we now have and the digital income that we're getting is high margin and it's going to grow. So that's really -- that's a really good thing for us. It's about -- we will see the major benefits, going progressively out into the future. It's not -- there's not going to be some sort of like sudden change this quarter or next quarter, if you know what I mean. But there's a lot of -- what's going on, is the benefits of what we're doing with things like YouTube and so on. Is that it's not just a source of high-value revenue. It's also exposing our brand and it's driving kids to buy books about Clifford or whatever as well. I mean, we now have 1.2 million subscribers, to Scholastic channels on YouTube. We didn't have those before and so this is a major thing. And we are pretty confident that over time, this is going to be a major source of high -- it's high margin revenue because it's the revenue share from the advertising that comes with it. And it's also -- it's part of this 360-degree strategy that we've talked to you and others about that we are able to -- what we're really doing is integrating as closely as possible, both a publishing and media strategy and seeing the interrelationships between the 2 and gaining benefits from both our media and our book properties. Brendan Michael McCarthy: Right. That makes sense. Peter. I guess just in terms of scale, are you able to maybe quantify what the revenue opportunity might look like as it relates to 9 story. And I guess, strictly speaking from the perspective of monetizing the digital content side. Haji Glover: This is Haji. Just taking that question from you. So right now, we're really in early stages of this and we're going to try to really see -- right now, we're only on 2 platforms with the opportunity to increase that to another 6 or 7 platforms. And I think when we look at it, this has been both an opportunity for us to get our content in front of new viewership and really build on the success of what we already have. But being able to actually quantify this impact is probably going to take us a few months as we see the viewership grow. And then once again, we're dealing with a partner in this and sharing the share of that revenue. And most likely, we'll see this opportunity or upside in 2027. Brendan Michael McCarthy: Understood. One question for me on the cost structure side, looking at SG&A. Just curious as to where you're taking cost out of the business and where -- maybe where you see additional room for expense reduction there? Haji Glover: Well, I can say this that we really dove deep into the restructuring of the organization and this fiscal year -- early part of this fiscal year and we continue to define areas or where those opportunities for us to reduce spend, we will do. But we did -- we definitely took a really good look at it prior to actually given our guidance, and our guidance reflects the majority of our spend reductions. I think we announced somewhere between $15 million and $20 million of price cost reductions. And we're right now seeing the fruition of that come through in our financials. Brendan Michael McCarthy: Got it. Got it. One more question for me just on the guidance affirmation. I guess at this point, I know we're only at the start of the school year. But at this point, what variables might cause a material underperformance or outperformance of the full year fiscal guide? Haji Glover: For us, it's all about understanding where the retail market is. As you know, we're experiencing a lot of things in the marketplace. Consumer and school spending is somewhat in question. But we feel very confident in the plan we put out from an organization perspective. I don't foresee any major concerns from my side, what's going on. But there could potentially be some upside and downside, and we're going to manage it as an organization. And that's why we leave the opportunity to be very conservative on how we approach things. But at the end of the day, we want to continue to invest in growth, which is in our revenue side of the business and fall back on things that do not generate revenue and the most important thing for us is the concerns of tariffs, as it reflects our business because we are a retail business. And those expenses, which we've already planned for, which is about $10 million this year, we're continuing to monitor all the things that are going on with the government, down in D.C. Peter Warwick: And I think it's -- Brandon, the other thing is that, as I mentioned, school book fairs are the number of fairs that we have are up. And it's too early to tell. But clearly, a key thing that matters to us is things like revenues per fare, the average revenue for fare. We haven't had enough fairs yet to be able to be able to calculate that yet. But I think we're -- we'll see about that. No reason to think that we're not on track with what our planning is. And it's good having a number of fairs booked being up. So that's also a good thing. Operator: Our next question comes from [indiscernible] with B. Riley Securities. . Unknown Analyst: I want to go back to the Education Solutions business. You flagged the funding uncertainty as an impact on spending for supplemental materials. I think in the recent past, you've also indicated you expect market conditions to get better over the next 12 to 24 months. How do we reconcile those 2? Should we anticipate a similar trajectory for the business as we observed in 1Q as you move through fiscal '26? Or do you think things stabilize as an opportunity to improve profitability as you move through the year? Jeffrey Mathews: Drew, this is Jeff again. We are expecting, based on the current patterns that this year will be more back-end loaded than previously. it's been inside baseball, but we have shifted our selling year to be aligned with our fiscal year. That going to give us -- which will mean we'll go into Q4 with a very full pipeline. We didn't start Q1. This summer, we started with an empty pipeline. We also expect that as we, you've seen this as I'm sure you were doing monitoring the headlines around federal education policy in the states that some of these -- the delays over the summer and in the spring, which, of course, have -- there's a long lead time with part purchases given selling cycles. Those were particularly hard hitting over the summer, we expect we're hopeful that will -- those headwinds will moderate over the fall and into the spring. And we're doing everything we can to be very well positioned, of course, to lean into the market now, sopping up money that's available and then make sure we're ready for a very big spring selling season. Unknown Executive: Also on top of that, Drew, just to be clear that we are very diligent about our frugality and what we spend and how we continue to look at our expenses within that business. So I just want to make sure you're clear on that. Unknown Analyst: Okay. All right. Helpful. Maybe looking at fiscal 2Q, Peter, I think you characterized your expectations for the quarter or that it will be big. I'm curious as if you can expound upon that and kind of what the puts and takes are for the quarter. Peter Warwick: Well, I think -- I mean, first of all, there's the trade -- just looking through the segments, really. If you look at trade publishing, we've got a big quarter 2. And we've got some really good stuff coming, including a new Dog Man. And all the indications that we're seeing with advanced sales in and all the rest of it are in giving us good feelings that that's going to be significantly higher than we had in quarter 2 last year. And we're feeling pretty good about the year as a whole as well. The other areas such as book fairs, I mean, as we mentioned before, the fair count in quarter 2 -- in our quarter 2 will be higher than the fair count in the prior year. And that's -- the bookings are up and everything is looking pretty good at the moment, but it's -- I can't give you any more information than that because we really need to have more fairs actually done sorted out and all the rest of it. But what I can tell you is that I think the folks doing it psychologically are feeling pretty good. So that's -- I'll take that. The other thing that we're seeing in terms of puts and takes is actually our cost base. I mean you'd see even in education that we had -- there was a significant reduction in year-over-year revenues, but the difference in revenues was pulled very significantly down when you actually look at the -- when you look at your sales were down $15 million, but OI was only down by $4 million. And that's because of the cost savings that we've been making. The other benefit that we've had, just on the cost side is our operating expenses generally and the things that we've been doing. And those will -- some -- a lot of that was created in quarter 1, but a lot of it is also a flow-through from the benefits that we had in costs in the second half of the prior financial year. They're flowing through now. So I'm feeling good about all of those things. I think the other thing that we've seen is we've had a good pickup in international markets as well, particularly U.K. and Australia and New Zealand. I mean Australia, the whole education year and school book fair is the other way around as we want to hear. So they're busy and active at the moment, and we had a good quarter 2 from quarter 1, sorry, from them. The other thing we've seen is that our book business, particularly in the U.K. has been doing very well, especially with some of these key titles like Sunrise on the reaping, Suzanne Collins's is Hunger Games series, Dog Man, et cetera, et cetera. So those are -- they're all making me feel pretty good about quarter 2 at the moment. And they give me a strong sense that we're -- the guidance that we've given for the year is we're absolutely on track for that. And in terms of our internal expectations, we were happy with what we were doing in quarter 1. They were -- that from an internal -- the way we've been targeting and we've be expecting that was -- that's good. Unknown Analyst: Great. And then maybe one last one for me for Haji. You outlined the drivers behind the negative variance for cash flow and free cash flow, specifically in your preamble versus the year ago period. It sounds like you believe you can make that up over the balance of the fiscal year. What are the swing factors to achieving that? Haji Glover: So the majority of it is actually around our revenue and how we sort of forecast our revenue for the year. So receipts are going to come in a little bit stronger first half -- excuse me, second half versus first half. That's number one. Number 2 is we're really tightly watching. And actually, our forecast for spending on capital expense is a different profile than last year. We made significant investments last year on our One Scholastic fulfillment center. Those are actually coming down year-on-year. So that's number one. And then number two, just the things that we're looking at to invest in from a growth perspective, a slightly different profile this year than last year. So I'm extremely excited about where we are. And then last thing I want to say is we both had the Dave Pilkey and Suzanne Collins to pay last year, whereas this year, we only have to pay just Dave Pilkey, in terms of the new titles that are being released. So that's another thing. So I'm very excited and confident about where we are, from a capital perspective and where we're spending our money this year. Operator: And this concludes our Q&A. I will pass the call back to management for any closing remarks. Peter Warwick: Well, thank you very much. And also thank you to our authors and illustrators, educators, employees. It's their hard work and creativity that drives our success. And I'd also like to thank our shareholders and all, who joined us this afternoon live or on the recorded call later. We appreciate very much your support. Bye. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good afternoon and thank you to those of you who are joining us. There is quite a number of you. So if you just bear with us, we'll allow everyone into the meeting. Great. Okay. Well, thank you for joining us this afternoon. We're here to hear from McBride plc, who announced their results earlier this week. Today, we're going to have a brief introduction followed by a video, and then on to the main bulk of the results presentation, which was shared with analysts, as I say, earlier this week. Then, we will have an opportunity for Q&A at the end. Please feel free to submit them as we go through the presentation, and we will take as many as we can in the time that we have allocated, which is the hour. So without further ado, I will hand over to Chris Smith. Christopher Ian Smith: Thanks, Hannah. Good afternoon to everyone. Thank you for joining this call. So as Hannah said, I'm Chris Smith. I'm the CEO, been with the group coming up for 11 years now. And I'm joined here today by Mark Strickland, who's our CFO, who's been with the group around 5 years. I thought -- so first of all, we're going to kick off with a very rapid introduction to McBride for those of you who don't know anything about us. We have a small corporate video, which explains a bit more. And then we will, as Hannah says, rattle through the results presentation we gave yesterday. So look, this is right on the page. We are the #1, the leading supplier in our space across Europe of household cleaning products. We're all coming up for 100 years old. We are a pan-European business. We are not just a U.K. business. Our heritage is U.K. We're coming up to 1927, it was formed in Manchester. But we now have something between 3,500, 3,600 people across 18 locations and 13 countries selling over 1 billion consumer units to our customers, which are predominantly retail customers. So you'll see here on the bottom left, 84% of our business is what we call private label or white label. So this is -- and I'll come on to a bit more about what that is. And we have a small amount of volume into contract manufacturing where we manufacture for brands. You'll see on the bottom right. We are a pan-European business. Everyone thinks we're just a U.K. company. We're not -- U.K. is our third biggest market. Germany is our #1 market, nearly 1/4 of the group. In France, U.K., Italy, Spain, the main countries. And we are doing, as you'll hear in the results, just under GBP 1 billion of sales in the year to June 2025. Next slide, please, Hannah. So look, it's really important for people to understand, I think, in our business model, private label or some people call it white label is at our core. That is the roots of the business and the absolute core mission of the company. You can see our purpose statement here, everyday value cleaning products. So every home could be clean and hygienic. We are your everyday supplier of everyday products that you see in the supermarket aisle, and I'll come on to the product ranges in a moment. I just would like to point you, if you get the chance and you're on LinkedIn, join us and look us on LinkedIn. We've just been doing a series of interesting articles that paint the backdrop to what is private label, -- why -- what is fast followership mean? What does McBride offer to the market. So there's some really good posts that have been coming out in the last 3 or 4 weeks. I would point you to look at those if you get the chance, gives you a nice background around the company as well. Next slide, please, Hannah. So the products that we manufacture are summarized here. And in reality, the sort of really the main 3 thrusts for the group are laundry products, dishwashing products and surface cleaners or household cleaners, we also have some air care products from our aerosols business. And in laundry, everything you would imagine if you're stood in the aisle in Tesco from laundry powder to laundry liquid to laundry capsules, to fabric conditioner, stain removals, all those sorts of things that you would see dish, the same, tablets for automatic dishwashing machines, dishwash powders and of course, also hand dishwash, very liquid equivalents. And cleaners is everything you imagine with a spray onto a surface, table cleaning, surface cleaning, antibacterial sprays, toilet cleaners, bleach, all those sorts of products. So absolutely pretty much everything you will see in the household aisle of a retail partner. Next slide, please. We run our business across 5 divisions, product-driven. So you can see the 5 divisions here, liquids, which is anything that you pour basically out of a bottle, out of a carton, out of a pouch. We do what we call unit dosing. So those your dishwash tablets, your laundry pods and increasingly, these soft pods that you have in dishwash. Powders is what it says on the tin, it's absolutely the familiar thing that most people remember in laundry powders and dishwash powders. Then we have an aerosols business. And we have a kind of incubator [indiscernible] business in Asia doing predominantly actually personal care and household products. Next slide. The industry, as you all know, and you will see if you stand in the aisle of supermarket -- is all about ultimately innovation in the products that you're being offered as a consumer. And the real focus in innovation nowadays is all around packaging and compaction, better formulation to reduce carbon footprint. McBride is at the forefront of this in the private label space, whether it's recycled plastic, we have been the first to market, for example, with laundry liquid in what looks like an orange juice carton. You can buy that in Sainsbury's, for example. We're the first to market with a paper bag rather than a plastic bag for laundry powders. And we're the first as well to the market with a cardboard box rather than a plastic tub, for example, for laundry capsules. So the world is moving fast. The retailers are very demanding in this space, and it's a key aspect of our business, as you might imagine. And then finally, on the sort of [indiscernible], why is McBride successful and the #1 in this space. And look, we pride ourselves on being the most competitive, the most reliable and the most innovative supplier to the trade across all the markets in which we operate. We are hugely customer and market-oriented and focused. We bring significant scale. That brings fantastic distribution networks. It brings buying scale for things like raw materials and also, of course, things like innovation. We are distributed in our asset base. Transportation is expensive to move bottles of washing up liquid around. So we have a distributed asset base, pretty unique in the industry. We pride ourselves on expertise and being absolute leaders in the specialisms that are needed for these categories. And with our new strategy that's been in place now for 3 to 4 years, absolutely focused and disciplined on what we're trying to achieve in our strategic outlook. So that's a very, very rapid rattle through but McBride at a glance. Hannah, we now got a corporate video, if you would go to play that. This is available on our website, the corporate video, by the way, in the who we are section. So if you want to watch it again, you can at your leisure. But over to that. [Presentation] Christopher Ian Smith: Great. Thank you, Hannah, for sharing that. So look, we'll now move on to the slide deck that we presented yesterday and as part of our results announcement. And look, it's really -- it was an absolute pleasure, and I'm super proud as part of the leadership team to be able to present the numbers that we did yesterday, continued proof really of our rebased much improved business. I'd like to think that another set of strong performance results as we're sharing with you today will begin to turn heads as we cement our performance at these new levels as the leading business in its sector in Europe. And as you'll hear through this presentation, the group is confident of its position and progress towards its strategic goals. This confidence is behind the reinstatement of our annual dividend, all of which will help support more investor interest in the group and the potential value opportunity. As you will hear shortly, McBride is also a much stronger all-round business. Our platform is much improved. Yes, we've turned around the financials. We've doubled our EBITDA returns from historic levels, and we've normalized our balance sheet in the past few years. But equally worthy of note is the extent to which we've improved many of what you might consider to be background features and aspects of the group's performance. And therefore, our credibility with customers, suppliers, colleagues, banking partners and other stakeholders is much improved. These core capabilities have committed McBride to continue to grow in a competitive and price-sensitive market while sustaining these high levels of profit margin. We've seen a lot of doubt in recent years that we can maintain these profit levels. So I'm delighted to say this is our fifth consecutive reporting period at these new profit levels with our outlook consistent to retain at this current level. Our heightened profitability has translated well into strong cash flows, strong cash generation. Our net debt has fallen again. It's now close to GBP 100 million, and our debt cover level is well ahead of our 1.5x target. We mentioned at our Capital Markets Day 18 months ago that we had a series of options and ideas to support further growth and expansion of the group as part of its strategic growth agenda to further its leadership in the industry. Our balance sheet is now able to permit the group to be considering these options behind what we call our Core+ and our buy-and-build ambitions. Finally, this financial position overall and our confidence for the future has permitted the Board to announce the reinstatement of annual dividends with this first dividend for over 5 years now recommended at 3p. Next slide, please. And again, thank you. At our Capital Markets Day in March 2024, we outlined our strategy direction and our midterm financial targets. It is really pleasing to be able to report good progress towards these targets as outlined on this page. In revenue terms, our growth ambition of 2% per year is a volume target. And whilst revenue growth in the last 12 months in GDP terms was up just under 1% in volume terms, our growth was at 4.3%, demonstrating continued progress with our growth task. Our profitability held at 9.3% in terms of EBITDA. Good profit growth in our powders, unit dose and aerosols businesses was offset with slightly weaker margins in our liquids business, which was off just under 1%. As I said, our cash performance was very pleasing despite increased capital expenditure, net debt fell again and debt cover is now at 1.2x, beating our target of 1.5x. Part of the net debt improvement was a result of good working capital management, which offset higher capital additions with the result that ROCE held at levels reported last year at 33% and significantly ahead of our 25% target. I will update you shortly on our transformation program, but this remains central to our strategy delivery and is now delivering net benefits and remains on track to hit the GBP 50 million cumulative net benefit over 5 years. The leadership and the Board of McBride are focused -- are laser-focused, should I say, on delivering the strategic ambitions for McBride and its stakeholders, and we remain confident we have the right team and the right direction to deliver on these targets over the midterm. Next slide. Whilst most of the headlines as the investor audience will want to hear will center around our improving financial metrics, I'm also super proud of the excellent performance across a range of our other crucial areas that point to McBride being a stronger overall business now and for the future. Service levels to customers, we call it CSL is a key hygiene factor for any supplier into retail. Our work in our transformation program on service excellence and strong focus across the business has seen the best service levels in the group for over 6 years. This positions McBride really well for any new business opportunities, margin management conversations, but also keeps our logistics and internal servicing costs to the optimum levels. Ensuring we're as efficient as possible in our manufacturing has stepped forward again this year with focused continuous improvement teams driving machine efficiency in the factories, yielding on average something like a 2% improvement in operating effectiveness. And finally, on this slide, I'm not going to go through all of these. I'm just going to talk about our sustainability ambition. We have continued to make real progress with our carbon footprint reduction ambitions, real reduction in absolute carbon levels in the last 12 months despite volume growth and actually reporting an -- what we call an intensity level reduction of minus 8%. So well on track to deliver our carbon commitments. Next page, please. A key feature of our reset business and our new strategy is to be far more informed and better aware of what is happening in the market as a whole. We have spent a significant amount of time developing our data analytics to support our understanding of how we're performing relative to the market and how the market itself is performing. We buy panel data for the 5 countries that the flags are shown on this slide, and we can track quarter-by-quarter a rolling 12-month total market position of both branded and private label products in the categories that we supply. The graph on the left shows the total market volumes over time, each bar being the next quarter on and the last data to June 2025. The dark green bars represent the branded volume and the light green bars represent the private label volume. The overall market moved up a little bit, 1% in total. But as you can see with the top line on the chart on the right, the private label growth continues to outperform the branded volume growth. Private label share has grown to 35.5%, up from around 30%, 3 to 5 years ago. And that would appear that line on the chart, which is that private label share has steadied and is holding now at these new high levels. And evidentially, if you look at other sectors like pet care, pet food, baby diapers, ice cream, private label share when it makes such a significant step change stays at these new levels. And we expect that to continue in the coming year. In the branded space in the last 12 months, we have seen a longer period of promotional activity from the brand typically in the spring time, and we haven't seen that for a few years now. There was some impact into our volumes and the market more generally during the end of what is our quarter 3, so February, March and into a bit into April. But since then, we have seen generally private label demand return to normal levels, solid and robust. In terms of categories, quite some differences in category penetration for private label. A key focus and strategic direction for us is laundry. Laundry is typically the highest value, highest margin part of the market. It's the least penetrated for private label, typically just under 30% for laundry, where you compare that to dishwash where penetration is 44%. Overall, we grew our volumes in private label just under 2% as was evident in the market as a whole. And we did particularly well in Dishwash, where we outperformed the market heavily. And in laundry liquid, which is a key priority and focus strategic area for us, we grew that business 7% against the market that grew 2.8%. So trends in the market are still favoring private label. We believe that they will hold at this level and our growth in the future will be coming from contract wins and growing our share in the existing customer base. Next slide, please. So just very quickly on our divisions. All these -- for your information, all these divisional divisions have their own management teams. We have a series of shared resources like purchasing and transportation and central finance and IT, for example. All other functions reside and are accountable within profit and loss accounts for each of these 5 divisions. Liquids is our biggest division, over 57% of the group. And we saw a good performance from the business this year, growing top line, moving up in contract manufacturing. We onboarded a significant new contract manufacturing contract in France. We've progressed strongly with our operational excellence agenda, driving lean approaches in manufacturing. And we continue to invest in automation and reduction of headcount through robotics and end-of-line automation. That business is cost oriented, by the way. You'll see each of these divisions has a strategic focus and the liquids is typically the most competitive environment. It's the lowest barriers to entry, cost leadership essential as a strategic focus for that division. Our unit dosing business is much more about product leadership. This is a fashion thing. You'll see frequent changes to formats. These are typically high priced on shelf. And we will work hard to lead in this space by driving new innovation, new formats all the time. Two new dishwash formats introduced in the last year, and we are now bringing to market the first soft dishwash fusion product, we call it into market right now. But actually, the performance improvement for unit dosings last year when you see the profit numbers was all about its operational performance. These are very difficult products to manufacture very fiddly, quite intricate machinery. We've had a fantastic step-up in output, waste reduction levels and labor efficiency through the factories. So great to see the progress that business, our most profitable business has performed last year. Very quickly on [indiscernible]. Laundry powders and dishwash powders is a declining market. So this is a -- this -- whilst it needs to be cost leadership, it's absolutely about specialism and expertise, a lot of work for sustainability on compacted products. So the days of 10-kilo boxes of laundry powder, you're now buying 1.5 kilo bags of laundry powder to do the same number of washes. That's very good for the carbon emissions and good for transport and everything else. And we've done a great job there, even though the market has declined slightly, strong delivery and margin expansion through operational performance improvements. And I'll quickly touch on Aerosols. This business was loss-making when we started the journey of divisionalizing this business last year. It's grown 21%. It's absolutely leading in its space, and we are very positive about the outlook for our aerosols business. Next slide, please. And I'll just touch now on our transformation program. So we launched this transformation program, we ran a series of what I call excellence projects about 2 years ago. And the outcome was to obviously try to drive value and drive benefits, and we targeted GBP 50 million across the 5 years from '23 to '28, but they're all around improving the platform that McBride has got. The backbone to this project is our SAP upgrade. We have -- we are currently an SAP customer. We have SAP across our division, but it's a 26-year-old SAP, and we are now migrating to the latest generation. A sort of multiyear project. It's the backbone really of our excellence agenda, standardizing processes, absolutely harmonizing the way we work across every location. And obviously, they're driving efficiencies, much more analytics, digital interfaces, AI experiences as well. So well on track. We have our first go-live in 1st of November. We're doing it on a very limited site-by-site basis. So we're not exposing the whole business to this at one go, but our first one is coming up in November, and we're very positive and in a good place on the rollout of that project. Our commercial and service excellence programs are actually now in the phase of closing out the project work streams and ready for handing back to the business as business as usual. We have made great progress with both these initiatives and time is right now to bed in the change they brought and continue to deliver on the benefits each are already showing. Our service performance statistics show the progress. We're up to 94%. That's the best in 6 years and our improved pricing and margin management, evidence of the commercial excellence program coming through in our results. As we go forward, we will see these full year benefits roll continuously into our results going forward. The expected benefits from SAP and our productivity program coming a little later in the 5 years, but we're also driving overhead efficiencies out. We removed 60 people at the end of the last year, financial year. People were underperforming. We have a rigorous assessment of individuals now and we've upped our game as part of that platform on our HR disciplines and HR processes, and we've cut costs, and we're driving overheads out by we drive performance across all aspects of the company. So that's my rapid overall business progress update. And hopefully, you've heard about -- not just about the financials, but also the strong all-around business that Bride now is and how we are set up for continued progress towards our midterm goals. I'm going to hand over to Mark now to cover off some of the financials. Mark Strickland: Thank you, Chris, and good afternoon, everyone. I'm pleased to have reported an excellent set of results for the financial year ended 30th of June 2025. As you'll see, the business has further strengthened its balance sheet, increased its liquidity and through the reinstatement of the accordion has further increased its optionality for future investment and capital allocation. As a result, I continue to have huge optimism for what the business can deliver for its shareholders into the future. So looking at the 2025 financial year in a little bit more detail. Whilst group revenues were down GBP 8.3 million or 0.9% on an actual basis, on a constant currency basis, they actually rose by 0.7% or GBP 6.5 million. Contract manufacturing, especially has helped this constant currency growth. As a business, we continue to look closely at forward -- sorry, closely analyze forward-looking raw material and packaging trends, adjusting sales margins accordingly. This, combined with close operational and overhead cost control means that at GBP 66.1 million, our adjusted operating profit has been maintained at similar levels to last year. Over the last 3 years, we have progressively strengthened our balance sheet through cash generation and debt reduction. For the 2025 financial year, our free cash flow was GBP 93.9 million, and our net debt further reduced ending the year at GBP 105.2 million. This gives the business a great platform for further investments in growth. Next slide, please. This slide looks at the group and divisional performance on both an actual and a constant currency basis. If we look at the left-hand side at the actual revenue figure, there were 2 notable impacts at play. Firstly, volume growth of GBP 39.5 million or 4.3%. This arose from new contract manufacturing volumes, continued private label volume growth and a significant growth in our aerosols business. The second impact was the price and mix effect of negative GBP 33 million. This is because there were more sales of lower value products in financial year '25 versus financial year '24. It should be noted, however, that though the selling price may be lower, the profitability is often similar to other products as these are also lower cost format products. I've included the tables on the right-hand side of this slide because of the significant impact of currency during the '25 financial year. I won't go through the detail, but this clearly illustrates the point that whilst at actual currency, both revenue and operating profit reduced slightly when looked at on a constant currency basis, in fact, both revenue and operating profit grew. Next slide, please. And in the interest of time and allowing questions, I'm actually going to skip over the divisional detail and move on through the divisional slides to Slide 18. If you can look at the divisional slides in detail, they just give a little bit more about each element of our business. So what I wanted to do is spend a little time on looking at costs. As you can see, input costs were broadly flat. So looking at the left-hand chart, costs broadly flat. But as you can also see, they remain significantly higher than back in 2021. Inflation is still prevalent and some costs are still rising, albeit at slower rates than over the last few years. This is why McBride's continuing focus on margin management has been key and will remain key to the delivery of another good set of results and similar results into the future. This consistency of performance means that McBride as a group remains very well placed to sustain and grow profits into future years. In terms of overheads, as you would expect, we continue our focus on cost optimization, and I deliberately talk of cost optimization, not cost reduction, as we will continue to spend in areas where we believe the returns and benefits of any expenditure exceed the actual cost increase. As with most businesses, technology remains a key focus and indeed, McBride is embracing new technology, believing that this will be a key positive differentiator going forward. Just some examples. We will shortly be going live with Wave 1 of S/4HANA, as Chris has said. We continue to invest into and benefit from our data analytics function. Again, a real-life example of this capability is some of the market analysis information that you saw in Chris' earlier section. We're also actively developing appropriate uses for AI across the business. Lastly, it would be remiss of me not to talk about distribution costs, which actually rose to 9.2% of revenue from 8.7% of revenue. This was actually as a result of the higher volumes we put through the business at the lower selling prices. So you had higher volume whilst revenue didn't necessarily increase. Next slide, please, Hannah. So looking at pensions. Year-on-year, the IAS 19 pension deficit decreased to GBP 24.9 million from GBP 29.4 million due to the deficit reduction contributions paid by the group, a lower value of liabilities and lower-than-expected inflation. The deficit is comprised of a U.K. defined benefit deficit of GBP 23 million and the post-employment benefit obligation outside of the U.K. of GBP 1.9 million. For information, the U.K. scheme is close to new members and future accrual. Within the U.K. scheme, contributions for the financial year '25 totaled GBP 7 million being made up of GBP 5.3 million of deficit reduction contributions and a one-off payment of GBP 1.7 million to remove the pension trustees' dividend matching mechanism, which was put in place a couple of years ago. That GBP 1.7 million is already paid back as without removing it, the trustees could have claimed that they could get GBP 5.3 million, which is the cost of the dividend. So for the price of GBP 1.7 million, we've avoided a GBP 5.3 million cost. The 31st of March 2024 triennial evaluation was agreed with the trustees during the year. And as part of that agreement, McBride has agreed future pension deficit reduction contributions of GBP 5.7 million to the end of FY '28, where upon they revert back to the previous profit-related mechanism. Turning to capital expenditure. At GBP 30.4 million, capital expenditure levels were above historic norms as the business invested in both its new SAP S/4HANA system and for future operational growth. It is expected that in FY '26, that will be the sort of level of expenditure, but then thereafter, it will drop back down to around the GBP 22 million to GBP 25 million as the SAP project comes to completion. Finally, on to net debt. As indicated at the start of my presentation, the business continues to generate strong cash flows and strong cash conversion, resulting in net debt falling to GBP 105.2 million. Additionally, the business has strong core liquidity with around GBP 141 million of headroom within its core facilities and an additional unutilized GBP 75 million -- EUR 75 million accordion facility. So it is well placed as well placed as it could be for both internal and external future expansion and investment. Next slide, please, Hannah. We flagged up in January that the Board intended to reinstate annual dividends -- and I am pleased to say that the Board is recommending 3p per share dividend for the 2025 financial year just ended. Hopefully, going forward, we may become increasingly accretive as a mix proposition share comprising capital appreciation combined with an income. As I said at the beginning of my presentation, I'm hugely optimistic for the future of the business. In the Capital Markets Day in March 2024, we set the business some challenging midterm targets. And as you have seen today, we are either already delivering on many of them or have made significant progress. My personal belief is that this set of results provides a further proof point that the business is definitely on the right track. Thank you, and I'll pass back to Chris. Christopher Ian Smith: Thank you, Mark. So look, just to wrap up in terms of an outlook. We never close to the end of our first quarter. And at this stage, we have seen a solid start to the year. Our volumes are absolutely in line with where we expected them to be. And we are seeing a good success rate in recent tenders, signaling further growth coming through from -- in our next -- in our second half of our next -- this current new financial year. We're now seeing great progress with our customer partnerships. That's evident in our win rates and that robust pipeline looking promising. The group will continue its mission on optimizing operational delivery and efficiencies, both in our day-to-day work, but also from the work from the transformation team, the transformation program, all supporting that midterm ambition of 10% EBITDA. And finally, with a strong balance sheet and financial flexibility now, the leadership team are looking at options for investment to support the midterm step-up in the group's scale and value creation opportunity for the benefit of all current and future shareholders. So that's it on the presentation, Hannah. So we're delighted to be able to take questions. Operator: Super. And we have a number. Right. Here we go. Cost pressures and margins. Are you able to add any detail as to how much of a threat to our operating margin are the cost-outs demanded by customers? Christopher Ian Smith: Look, it is always a feature of every conversation with any retailer, right, cost and price of product to retailers. It's not universal. We see very different conversations with different retailers. So please don't think every element of the market across all of Europe is identical. But we have -- part of our skill set, part of our capability is that ability to manipulate and manage product engineering to the benefit of both customers and ourselves. And unlike some other industries, like food, for example, if you could pick up a bottle of Tesco washing up liquid and a bottle of Sainsbury's and a bottle of Asda, and they all look the same, all the same site bottle and the same color. They are typically entirely chemically different. Every product is typically unique. We have that ability to flex formulations. It may affect performance. It may affect viscosity. It may have less perfume, more perfume. There are always ways to manage that. And look, it's an active part of the way we operate with our customers, and they will go through phases of want quality and they will go through phases of wanting cost. And that skill set, and Mark talked about it earlier, the focus on margin management to make sure that, yes, we can move prices and costs, but we're managing our margins and maintaining our margin. And look, there's been a lot of talk over the years about the ability of the power of the retailers into the supply side. In the crisis that we saw with the hyperinflation 3 years ago now, we recognize the -- we saw very clearly how important we are to our customers. There isn't anyone. Tesco honestly probably couldn't go anywhere else to do exactly everything we're doing. So you do have leverage. We do have arrangements with customers now for quarterly pricing reviews. It's not programmed. It's the right of both sides of a contract to ask the questions and challenge. But it protects our margins much better than before. Operator: And is the negative GBP 33 million price and mix effect on revenue entirely the result of the cost-outs demanded requested? Christopher Ian Smith: Not all. No. The mix side is not. Mix is that we do -- we -- part of the mix effect is actually the impact of the big contract manufacturing arrangement that we have with one of the world's biggest branders where we now 100% manufacture their bleach in the French market. Bleaches are low-priced commodity end product, but it's a stepping stone for us into a major relationship with a big brand. And the rest, yes, it's a bit of price give here and there, but we -- as you can see in the numbers, we've held our margins despite that. Mark Strickland: Just adding to that. So if a retailer says, look, we need you to get to a certain price point for a product, we may not supply the same product as they were getting before. We say, look, if you want us to meet a price point, then we are going to reengineer that product because we reserve the right to keep our margins. So it isn't just a like-for-like product and a reduction in the price. If there is a reduction in the price point, there is probably a reduction in the cost we put into that product. Therefore, we maintain our margins. Operator: Okay. Let's move on to cash flow and capital allocation. So you did a great job of bringing debt down. Do you foresee a decline of similar magnitude in the next period, given consensus forecasts are broadly flat? Or do you have other spending plans for the free cash flow? Mark Strickland: So a really good question and it is the right question. I think we focused on getting our balance sheet into a really good place. I think we're in a good place. That has now really given us optionality. We've obviously decided as a first step to pay dividends. But our capital allocation process is quite rigorous. And people have talked about share buybacks, about, well, do you want a progressive dividend? Do you want to do M&A? So we have a rigorous process. We have plenty of ideas as to what we might do. But we also have shareholder value accretion in our minds. And at any point in time, we'll take decisions based on what is available to us at the time. So if we carried on and did nothing, we would reduce debt further, but I'm not convinced that reducing debt further is the best use of our cash. There may be better uses. And again, that just depends how the year progresses and how opportunities come our way or don't come our way. But it's a really good question. Operator: Well, then as a natural segue, do you have a maintenance CapEx backlog? Or are you now able to fund growth CapEx? Mark Strickland: So I don't think we've ever really had a maintenance CapEx backlog. I think even when we constrained cash, we kept maintaining our equipment. I think it's always interesting whether CapEx is maintenance or growth because as your machines become older and you replace them, is that, in fact, maintenance CapEx? Or when you replace them, you tend to replace them with a machine that will do things quicker or cheaper, higher volumes, and that actually gives you growth and more ability to grow volume within your businesses. Now is that maintenance CapEx? Or is that growth CapEx? I think it's a little bit of both. But I don't believe our facilities are particularly starved with CapEx. I think they are appropriately invested. We also have quite a challenging approval system to make sure that we do invest in the right things. It's not free money. Christopher Ian Smith: I think just to add to that, we like to have a balance in the capital. It's not all about growth for stuff beyond pure maintenance. So there's some great opportunities for efficiencies. We talked about automation, end of line, removing labor from our cost structure. Cobots and robots don't ask for pay rises, right? And they don't go -- don't do industrial action or accident. So we see plenty of options and ideas coming from within the business. There are some great sources of high-quality, good value capital outside of the usual channels, which we're exploring to drive real value quickly, and we've done a few this last year. We'll do more. There's absolutely opportunity to drive margin improvement from CapEx automation as well as obviously from growth, which we will always continue to support. Operator: Okay. Just another quick one for you, probably, Mark. Can you tell us what estimate of WACC you're using to make decisions about what to do with free cash flow? Mark Strickland: So I actually use a different methodology. I'm from a private equity background, so I tend to work on payback. And my initial starting point is 2-year payback on stuff. Having said that, for the right things, we will do a longer payback. And for health and safety, you've just got to do health and safety. So I don't work on a WACC. I work on return on capital. We've said it's over 25%, but I also work on how quickly can we spin that cash. So can you get a payback quickly? So you're spinning the cash and utilizing it, very sort of private equity sort of approach to it. Operator: Okay. This individual has obviously seen the chaos that's been caused at the likes of M&S with their systems being hacked. Are you confident that won't happen to yourselves? And if so, why is that the case? Mark Strickland: Yes. So we concentrated on the shell. So we've put a lot of money into the shell to prevent people getting into our systems. However, we're now -- we switched from a prevention of attack to eventually somebody will get through. So it's not if, it's when. And if you change your attitude to, okay, somebody eventually will get lucky and get in because we've got to be lucky every minute, every second of every day to prevent and get in. So we spend a lot of money now on the inside of the shell as to how quickly we would detect somebody on the inside and also how we would shut segments of the systems down and how quickly we could get back up. So we're as confident as we can be. Until it's tested in anger, you're never 100% sure, but we have an awful lot of top expert advice. So we do have penetration testing. We have crisis management. We have simulations. Can I guarantee? I don't think anybody can guarantee, but I think we're in a reasonable place. Christopher Ian Smith: Compulsory training is the other thing. And the biggest risk is social engineering, isn't it? And so making sure all our teams, all our interfaces with systems are up to date on their training and is a key part of what we've been doing as well. Operator: Two questions on buybacks. Are you considering them? And if not, why not? Mark Strickland: It's part of the capital allocation consideration. At the moment, if you look at our share price, you would argue it's relatively good value and you could deliver value to shareholders by buyback. If you're not careful, that just concentrates the shareholder base even more. We did one about 4 years ago, and it didn't desperately move the share price. We also have a number of other ideas as to what we could do with it. But yes, it's not out of the question. But at this moment, we are just concentrated on paying the dividend. As I say, the balance sheet strength, you're absolutely right, gives us optionality, which is a nice place to be. Operator: Well, you raised it there, the share price question here around the frustrations that a lot of private investors feel that the current valuation put on the business. Why do you think you are so out of kilter from your peers? Christopher Ian Smith: Look, it is immensely frustrating. I mean we recognize that for all involved. I think the message we get -- the story we get is, look, concerns about 2022 happening again and concerns around -- which -- I know we should say the word unprecedented, no one likes that word. But I mean, we've never ever seen anything like that in my 11 years and in any of the history of the company before. It was all an outcome really of the consequence of supply chain post-COVID being chaotic and the ability to get chemicals and prices going up crazily. But the other fear is that sort of -- it's just going to go back to being a 3.5% to 4% business like it was for the 10 years probably running up to the COVID time. So we're super confident this business is not a 3% to 4% business. This is a 7% to 8% and an 8% to 10% business in EBITDA terms. We fundamentally believe the restructuring we've done, the way we've driven the organization design, our focus in the right markets. We have -- in the 5 years up to COVID, this business declined its volumes every single year. In the 5 years since we've grown them every single year. That's a testament to the way we now approach the customer, the way we operate with the customer. So we're firmly of the view that higher level sustainability levels of profits are there. The message is you've got to keep doing it to prove it. And so look, this is our second full year. It's 2.5 years because the year before that was -- we were coming out of the challenge in the second half was at these sorts of levels. We have got huge amounts of headroom. And in the last crisis, we entered that crisis, which is unprecedented. I mean we had [indiscernible] GBP 260 million, GBP 270 million of inflation on input costs in a 9-month period on a business that was making GBP 30 million of EBITDA. You can imagine how difficult that is to sort out, but we did. We've come through it. We've completely changed the relationships we have with our customers. And look, we can never predict whether there's going to be another macro crisis like that. But this business is an entirely different shaped business and a more resilient business. And we have got -- as Mark showed in the headroom, you can take a shock. We might take a shock for a quarter, but we have arrangements with customers that allow us to go back and challenge on price if that's clearly evident. And we spent a lot of time on raw material prediction indices. We're using data analytics. We're using all sorts of statistical processes to try to predict the forward views on ethylene, on natural products like natural alcohol and these sorts of things because that's super -- that's a major part of our proposition to customers is given that insight early. So I think the business is positioned well. It feels like we need to do more of it to prove to investors that this isn't a 3% to 4% business again. And we're sitting here with our targets. We've shown them today, second year in a run. We're looking -- the year forward is looking very similar, too. We hope to be better. And look, we're a staple product. Everybody needs toilet cleaner. They need to be able to wash the clothes. They need to clean the dishes. In consumer choice where they spend their money, we are a staple. And we're the biggest in Europe at doing it. and that sets us in a good position for the future. So look, we're just going to do more, and that valuation will come in time. Mark Strickland: Can I just add 2 things to that. I think in general, the small cap market is relatively unloved in the U.K. I think there's probably something Chris and myself can do more of. We've tended to be concentrated on to institutional investors, and this is our first attempt to reach out to the retail investors, and we need to engage, I think, more with the likes of yourselves. We've probably not got our message across into the retail community as well as we could do. This is our first step. And hopefully, we can engage more with investors like ourselves. Christopher Ian Smith: And just one last point. Although we call fast-moving consumer goods this space, it is actually slow moving consumer goods. I have to tell you this. Nothing changes dramatically overnight other than that crazy raw material situation, which has never happened before. The business doesn't line up around from this to that over time. It's really steady. We can predict it pretty well going forward. So it isn't -- although it's FMCG and everyone gets a bit panicky and jazz hands about the space, it is pretty steady. We are a great customer for our raw material suppliers. We're boringly tedious of buying the same amount of hypochlorite or PVC or whatever we might be buying from our suppliers. So it is a steady, solid business. It doesn't -- it's not going to change overnight. Operator: Okay. That was a really good explanation. Let's take a positive note. We've got a couple of questions here on growth. Given impressive service levels, where are the new opportunities and sort of aligned to that, are you making any progress on discounters because you were a little bit sort of underweighted, should we say? Christopher Ian Smith: Yes. Well, I love your question. Thank you. Look, we're very positive on the growth agenda. You've seen in the market data that the tailwind the industry has had for the last few years probably has steadied. There are pockets of difference within the overall market. But in general, the tailwind that we've had and the whole industry is probably steadied. It's holding at these new levels. So our growth in private label with the retailers is going to come from market share gains. I said earlier in my speech that we have made great progress in recent tenders. We've done very well with one of the -- our #1 customer is one of the worldwide brand. So discounters that you're probably thinking of begins with an A and letters along. That is our biggest customer. It's still no more than -- it's about 11% of the group. It's multi-country. It's not one single contract. And we just won loads more business at them as well. And they're a big partner customer for us. So we will gain share. That's the plan within our existing customer base. We didn't lose customers. You tend to lose SKUs or categories or ranges. We've never been kicked out really of any customer, but things move around a bit within the industry. So we're doing well, I think, in the retail, but we will just gain share. We have targeted areas like we talked strongly about laundry. We want to be #1 in the top -- we're #1 in the 5 countries of the big 5 countries in Europe, we're #1 in 3 of them, probably 4 actually just start to prove out at the moment, but we have gap in a fifth. So we've got opportunity to grow there. And then the other side is contract manufacturing. So we have a target of 25% of our revenues get to contract manufacturing. Why? 3 reasons really. One, it's load balancing. So it means we have a regular -- they're very reliable volumes in strategic long-term contract deals. It's a platform of volume through your factories, which cover overheads. Secondly, they are priced quarterly rigorously by the -- so it's absolute pass-through, and we will change the prices every month -- every quarter, sorry. But thirdly, relationships with the brands are important. We learn a lot from them. We help co-invest. We -- sorry, co-develop sometimes with branders. And they bring standards and insights that are helpful to our business model as well. So look, we think there's more opportunity. Reckitt recently have sold part of their household business. We think some of that may be available for contract manufacturing in the future. We would like to think we could participate in that. And we're now seeing increasingly a number of brands for peripheral operations where they don't have scale, for example, looking for outsourced partners, and we think we can grow strongly and get that ratio up in our total portfolio. So we're still very positive about growth. And as someone said, I think in the question, the platform that I talked about earlier around high-quality products, really strong service levels, good innovation, responsible development around sustainability, factories that you can walk around and be super proud of, safe environment. The platform is in good shape and customers like that. Operator: Great. The GBP 45 million of transformation benefits, how are they going to be distributed between each accounting period? And which KPI should we be looking at to see this effect? Mark Strickland: Yes. So it's GBP 50 million over -- the GBP 50 million cumulative over the 5 years. I think we'll see another GBP 5 million in the current financial year. So the benefit overall would be GBP 10 million, probably GBP 5 million the following year, which would make it GBP 15 million and then GBP 20 million in the final year. So it gradually ramps up. But if you add those all up, that gets you to your GBP 50 million. And it will come through a number of things. I mean how do you prove that you've got an extra penny on a bottle of bleach. We use a number of KPIs for commercial excellence and the benefit we get from that. So some you can directly measure such as overhead cost or OEE. Others such as commercial excellence, how do you measure the benefit from that it's derived from a number of KPIs. But it will come through things like margin, it will come through operating costs and it will come through overhead. Operator: And what about the cost of the SAP implementation, both capital and operating? And what are the expected benefits? Mark Strickland: So yes, that's a really good question. Again, the benefits are in part of the transformation and part of the transformation benefits. The overall project will be around GBP 27 million to GBP 30 million over -- it's over 4, 5 years. In terms of the benefits, the benefits should max out around GBP 15 million a year. Operator: Great. Will you allow me one more question? I have passed, but we've got a few more. You mentioned record output from factories, but obviously, we're seeing increasing costs in the U.K. from employment and obviously expensive in the EU as well. How do you allocate new business to factory? Is it purely a geographical consideration? Christopher Ian Smith: Yes. So typically, if you look at the product ranges that we -- the divisions are product-based, liquid products typically don't travel very well. I mean they do travel, but they're expensive. They're typically lower value per unit and the freight costs are quite high as a percentage of the total cost structure. So which is why our liquids factor is typically distributed around Europe to be more proximate to the end markets. So in those cases, for liquids choice, it's obvious which factory it's going to go to. It will be the one in the local area. When it comes to unit dose and powders, we make those centrally. They do travel well. The price points are higher. And it will depend -- our Danish plant for dishwash tablets is eco-certified. So if the Eco ranges, they will typically go there. And so often, it's driven by the sort of format of the product and what the capability of each site is. But we do load balance between the unit dose and powder sites, less so within the liquids. There's a bit of it. I won't -- I mean, for example, the German market is served by both our Polish plant in liquids, but also our Belgium plant. So there is a bit of load balancing and optimizing for cost and transport between those. But typically, it's pretty straightforward when we put the product. Operator: Great. And what are the branded companies doing in terms of promotion? Where are we in that cycle? Christopher Ian Smith: Yes. So if you look at the data, the price point, we look at data at a macro level across countries and by categories, pretty much across the board, the gap, I mentioned in my -- in that original speech, it typically branded products are twice the price of a private label. That gap has widened over the last 2 to 3 years. It's not necessarily narrowing at all at the moment. There are some exceptions, but broadly speaking, it's not narrowing. So the price gap is as big as ever. And what we're seeing with the brands, I would say, more than ever is we're seeing probably more on advertising. This is our perception, more promotional activity through advertising, through store placement, gondola ends, you're going to see Club card type promotions. And you'll see as well sort of fixture promotion where they'll decorate shelves and have gripping banners and arrows pointing at it. A little bit less on the pricing than we thought. So I think they're experimenting. It's not -- again, it's a very big generalization, please. So it may be completely wrong on any particular case. But that would be the general feeling. I think the price points are not coming down on average. We see the gap held. So therefore, by definition, it's not price investment that we're seeing in promotion and advertising. Operator: Well, listen, thank you. I know you've got to get off to our next meeting. So thank you very much for your time today to our audience for joining us. Apologies if we didn't get through to your question. I will try and send the extra ones over to management, and we can come back to you. But that leaves me to say we look forward to hearing an update in 6 months' time. Christopher Ian Smith: Great. Thanks, very appreciate it. Thank you. Mark Strickland: Thank you.
Chris Pockett: Okay. Good morning, everyone. So my name is Chris Pockett. I'm Head of Communications for Renishaw. I'd like to welcome you to this live Q&A session for Renishaw's full year financial results for the year ended June 30, 2025. Hopefully, you've all had an opportunity to view the video presentation that's released as part of this morning's RNS statement. Will Lee, CEO; and Allen Roberts, Group FD are here now to answer any queries that you may have in relation to that presentation and the results statement. They'll try to answer as many questions as possible before we close at 11:15 and I'll try to group similar questions together, so we may not answer all individual questions. [Operator Instructions]. Chris Pockett: So let's get going. First question here is around our industrial metrology products. So the markets appear very mixed here with automotive weakness ongoing machine tool data in Germany still soft, offset by the strength in your systems business. So what is your outlook for this Industrial Metrology business in FY 2026? And I think that's over to you, Will. William Lee: Thanks, Chris, and good morning, everyone. So with the industrial metrology market, clearly, yes, for our sensors business selling into machine tools, probably worst case, maybe Germany, also Taiwan, those markets are really quite soft at the moment with our customers facing challenging conditions. Here, we focus, as we always do, on the medium to long term, working on business development with those customers. And I think we're making good progress there, particularly probably of note is on the laser tool setting side where some of the newer innovations that we've launched with the NC4 Blue product line really starting to help us with gaining market share there in an area where typically we actually unusually are #2 rather the #1, so making really good progress. The area where we can have the more media impact over the shorter term is on the systems business. Here, focused very much on shop floor metrology, which we see as a high growth area and an area for us to really grow our business quickly. Making good progress and we are very positive there going forward. In terms of specific outlooks, I think early to say for the year, and we'll be monitoring and pushing that hard there. Chris Pockett: Okay. Thanks, Will. A question now on additive manufacturing. You said that AM revenue was down in FY '25, but finished the year with a good order book. So what was the book-to-bill for AM for FY '25. I think that's another one for you, Will. William Lee: Yes. So AM was a bit softer. It is one of those businesses that is still relatively small, also with high ticket items. So we expect a bit more variability there. Seeing some really positive signs. Some of the end markets are strong. I think defense probably is the one to pick out at the moment as being really after performance, but quicker moving, quicker decision-making than something like an aerospace. So looking forward positively there for this year, again, very early on in the year, really to comment there. Chris Pockett: Okay. Thank you. A question now relating to China. Could you expand on the opportunities that you see in market segments that you do not currently serve in China? And given rising competition and resulting pricing pressures, are Renishaw margins now lower in China than in other regions? And back to you, Will. William Lee: Yes. So if you look at it, really the China relative to the rest of APAC, there is no significant difference in margins there. So clearly, we do and we've talked about saying, are there some entry level good enough markets where we don't really operate at the moment, and that probably are for both IM and PM. Both areas are quite interesting. So commercially, we've talked about exploiting more of what appears to be an entry-level market and some of the machine shop factories over in China with lower price alternative to some of our core products, and we will develop that strategy going forward. We also see probably on the encoder market that some applications start to come in, some new applications in electronics and semiconductor come in for our encoders and some applications start to become more commoditized and maybe drop at the bottom, but the overall market there is growing for us. So it's actually quite a pretty complicated picture. And one, I think, in general, we still see more positives with of opportunities, both as new things start and also with our commercial strategies. Overall, for us, though, China, we're seeing good growth and are optimistic going forward with the opportunities that we have. Chris Pockett: Thanks, Will. A question now regarding consumer electronics markets. Could you clarify what you're seeing in this end market? It was noted as an area of strength for industrial metrology, but in his prepared remarks, Allen said that this end market was down in 2025 at group level. So what is going on here? Back to you, Will? William Lee: Yes. Our biggest challenge last year was the -- first half of H1 last year was tougher for consumer electronics, seeing a gradual recovery throughout the year with H2 ending up better. Looking forward, and this is always a really tricky one to predict, but it feels like customers are now facing the necessity to make decisions that they have been off putting. So looking forward, I think we feel more positive here in terms of investment for this over the rest of this financial year than probably we did 3, 6 months ago, just because our customers have no choice, they have to make some decisions, we believe. So we are monitoring this quite closely. And the one thing we always try and do is make sure we are prepared for whatever happens here. Chris Pockett: Okay. Now a question on pricing and tariffs. Assuming no miracles emerge from today's talks at checkers and U.S. tariffs remain in place. Can you make surcharges permanent? Or do you have other options to address this headwind such as localizing more production? And will with you again? William Lee: Okay. So we have made the assumption that these will be permanent. So surcharges have been migrated and are migrating through into price increases here for our customers in the U.S. We've taken that route rather to look at localizing of production. We will consider our group manufacturing strategy and what we do with changes in geopolitics, but that's certainly a far more long-term decision. So at the moment, this is all being covered by now a price increase, so increased revenue to offset those additional costs that we are facing. Chris Pockett: Another question on end markets. Can you talk about the extent of the contraction in automotive and your expectation for FY '26? Also in relation to defense, how big is it? What is it growing at and a rough split? And back to you again, Will. William Lee: Yes. Okay. So we -- to be clear, we don't know for sure the size of our exposure to these markets because a lot of our stuff will go through integrators. So when we're selling to a machine tool builder that they will sell on our extrapolation. And what we think is happening is roughly about 5% for defense, roughly about 13% for automotive. Defense, I think, is a really interesting area at the moment. Sadly, clearly, a lot more investment going in there. And we talked about a little bit with additive earlier. Certainly, I know there's a question on this coming up, I think, next on inductive encoders, it feels like there are opportunities also here with us supporting that industry directly with some of our newer encoders as well. Chris Pockett: Okay. Thank you. You've already alluded to the part of the next question. So this relates to new products, new product launches. And the question is, how are these new products performing that have been recently launched and specifically mentioned Equator-X, the dual-laser RenAM machine and the ASTRiA inductive encoders? So back to you again, Will. William Lee: Yes. So we've been very clear. Our strategy is very much one about using innovation, specifically new product innovation, really here to drive our long-term growth. A lot of focus has been on looking at productivity within the group, really to get some key new products through. And this is a really exciting time for us with the launches that we have made recently and are making in the next few months. A particular note, very topical Equator-X and importantly, the new software to go through with it, MODUS IM. Next week, we'll be over at the EMO trade show, a really large machine tool trade show in Germany, first significant public launch of those 2 products. I was actually getting a demo of MODUS IM yesterday on new software for this and going through with the team, simplicity and ease of use is really, really transformative here. This is really, really important for us in terms of looking at developing new routes to market and getting us more productive and reducing our distribution costs, our applications costs. So exciting times there with those 2. Also ASTRiA, I think, has been a good example of our minimum viable product, or MVP, strategy with new development of getting out, testing out with customers, we've really seen a sweet spot, we believe, with defense customers here and we've been able to take now from the initial work that we've done. So a robust good working product to make sure we can now do some of the final tailoring and specific for their needs to exploit that opportunity. Also with this, and the question we do get asked is then, what about next, what's coming through? And it's good here that we get to see -- so only last week, we had our encoder group review of the early-stage technology. So the exciting bit here is we have an awful lot of new stuff coming through. This is right across the board for the group. Now our focus is on the productivity. How do we help really talented engineering teams get these products through to market sooner, making both priority goal decisions and also how do we support them to make sure they can operate as productively as possible. Chris Pockett: Okay. Thanks, Will. We've got some similar questions here on relating to costs and specifically the GBP 20 million labor savings. So if I just try and whiz through these and try and join some of these together. So what is your expectation for underlying cost inflation in FY '26? Can you talk us through the main moving parts of the FY '26 operating profit bridge, including how much of the GBP 20 million savings will be seen in FY '26? What is engineering cost inflation, labor admin inflation, savings from facility closure and any ERP costs? And also are there other savings within the GBP 20 million that might take time to filter through? So that's trying to amalgamate a few questions there. So start with Will and I think -- I was going to start with Allen on that one. Allen Roberts: Thank you, Chris, and good morning, everybody. Yes, there's good progress on the cost reduction program which, alongside the closure of our drug delivery business and the closure of our facilities -- R&D facilities in Edinburgh, which are going well. And we expect these to have a cost saving of around about GBP 24 million. However, we do have the pay rise that was put into effect at the beginning of this year and possibly a likely similar percentage coming up in January '26 and also based upon a turnover -- a payroll cost of around GBP 300 million. In addition, we do have the GBP 3 million of incremental national insurance over and above the previous year that we have to accommodate. On the other side, in addition to these cost reduction measures, we are further looking at productivity initiatives across the business in all areas, including the rollout of our global 1ERP program, further looking at our logistics automation, investments in manufacturing equipment that we've been putting in over the last couple of years and the processes that we're focusing on, which will probably have seen, if you were on CMD a few months ago, when you went through our manufacturing plant, a lot of initiatives are taking place in cost reductions. And we're starting to see some of those coming through now, which will, in fact, impact our gross margin and with the rollout of our e-commerce platform as well. So there are a lot of initiatives going on across the board with regard to cost management. Chris Pockett: Okay. Thanks, Allen. Tariffs again. Trump implemented increased Section 232 tariffs on certain steel and aluminum, I guess, which is say products in August and post your year-end. Does that affect any of Renishaw's products? And if so, what is the impact offset mechanisms, including timing? Will, I think that's for you. William Lee: Yes. I think we've probably answered most of this already. So yes, we do get caught up in the tariffs here. Tariff, we have now switched over to price increases rather than a surcharge. It's about a 1% impact on revenue, about GBP 9 million. So we feel in a comfortable place there. Clearly, it's lots of discussions with customers in getting to that position. So I don't think too much more to add on that one. Chris Pockett: Okay. Thank you. A question about cash. There's nearly GBP 300 million of cash on the balance sheet. Any plans to deploy this via M&A? Or in the absence of that, would the management consider special divi or buyback? And what would be the preference between these two options? And there's a similar question noting that -- or asking, could we give more color on the "more active capital allocation" that you referred to in today's statement. So Will, start with you on that one. William Lee: Yes. So that's just, I guess, underpin this with the things that we are trying to achieve at the moment. So in terms of the priorities and initiatives for us here, Allen has talked about a minute ago on the productivity side of saying, yes, our #1 strategy is still very much the revenue growth, profitable revenue growth through innovation, but we will underpin that with being more focused and more productive. Now with that, on top of that, we want to make sure we're pushing up our cash generation from that profit and also being prudent with our capital investment over the next few years. This is generating cash for us and correct, we are up to now almost GBP 300 million. As I mentioned at Capital Markets Day, we are discussing this. It is a hot topic of discussion for the Board as to the use of that cash and what we do. I don't have any new information for everyone at the moment on that. But what I can say is it is something that's being actively discussed with the Board at the moment. Chris Pockett: Okay. Thanks, Will. The question now on our search for the new CFO. And the question is, how is it going? William Lee: Yes. So very early stages, and nothing really to add on that at the moment. Chris Pockett: A question on expense. I think this is going Allen's way. Can you remind us of the phasing of IT infrastructure spend and whether this is going above or below the line? Allen? Allen Roberts: Thank you, Chris. Yes, the phasing of the ERP rollout is actually very active right now because we went live in the U.K. [indiscernible], our U.K. sales activity, which is probably one of the most complex implementations that we will have during the whole rollout program and that went live 10 days ago. So -- and that's -- we're working through it, and we are shipping product. So that's good news. Then we're going to be rolling it out through Germany and then to America and then progressively through APAC and the rest of EMEA. So that's going well. And the -- we're looking to do a lot more of the in-house rollout ourselves. So whilst there will be further costs incurred with consultants in this current year. And it is all above the line actually. So we have been burdened with that over the last couple of years. And so it will reduce over time, over the next 2 or 3 years as the rollout progresses. Chris Pockett: Okay. Thanks, Allen. Just looking through, I think we've already answered, there's a question. Yes, tariffs, I think we've pretty much answered that. We've talked through capital allocation. Question, Allen, I think for you. What do you expect the effect of currency to be during FY '26? Allen Roberts: Thank you, Chris. Yes, our forward currency hedging program seeks to mitigate the short-term volatility in our results due to currency. And at this stage, we don't see a significant debt impact in '26 versus '25. We do have an average forward U.S. dollar contract rates -- forward rates for '26 and '27 at [ $1.27 ] to the pound and [ $1.28 ] for the following year. This is against the current rate of [ 136 ]. So we're in quite a good position in that respect. Chris Pockett: Okay. Thanks, Allen. I think we've answered everything that's come in, unless there's a late flurry, I'm not seeing anything. So I think that's it. I think we've now ended -- I think there's -- it looks like there might be a question coming in. Just we'll take this one. It's just coming through the system. Just wait for that one. Okay. Just snuck this in before the end. So how does working capital move as a percentage of sales given potential growth and how does CapEx look beyond the GBP 40 million this year? And Allen, I put that one over to you. Allen Roberts: Yes, we're looking at around about GBP 40 million for the current year in terms of CapEx. And for the following couple of years also, that sort of order. So the major spend, which was at Miskin, as you would have seen at CMD was the build and construction of Holes 3 and 4. So the major element of that expansion program took place in the last couple of years. So we're well prepared going forward in terms of capacity -- production capacity and the availability of Hole 4, which could come through depending on our growth over the next few years. So GBP 40 million a year. In terms of working capital, I wouldn't expect to see any significant movement in working capital statistics over the next 2 or 3 years. Very tight control on our debtors and working capital and inventory. There's quite good control on our inventory management process, which will be further enhanced and improved as the rollout of our ERP program proceeds. Chris Pockett: Okay. Thanks, Allen. Another question has come in on currency. So can you remind us of the FX impact that came through in Q1 of '25? And then if there could be a similar impact this year? Allen Roberts: No, we don't expect there was a sort of -- there was a one-off benefit that we got from autumn in autumn '22 when Liz [indiscernible] mini budget, we took the opportunity to take some good for contracts, which came through in the first quarter of last year. I think it was circa around about GBP 5 million, and we don't expect that to recur this year. Chris Pockett: Okay. Thank you, Allen. Just a question here about order trends. Could you touch upon order trends? The development was noted to be encouraging in Q3? What has the development been like in Q4 and the last few months? I think that's one for Will. William Lee: Yes, overall positive, slightly up. I think those broad themes we talk about of actually APAC overall being positive at the moment. Europe is already struggling and the Americas being a bit more complicated, but with some encouraging signs, but also some risks there remain true. I think we would also say that we view the sort of semiconductor electronics as being an [ unusual show ] with steady growth rather than its normal cyclical ramp up and down. And I think as we talked on earlier, we sort of see consumer electronics as being probably going into a more positive phase, but really not sure. So I think those are the bits I would probably pull out. Clearly, we've touched on some of these other bits earlier as well. Chris Pockett: Okay. Thanks, Will. I think that really is it this time. So that now ends today's session. As ever, we'll aim to publish a combined recording of this webcast and results presentation on the IR section of our website by tomorrow morning. And just to point out that whilst we've had no questions today on the new reporting segmentation, we will be publishing results for the new reporting segments at 07:00 BST on Tuesday, 23rd of September. So if you can look out for that. So on behalf of Renishaw, I'd just like to thank you all for attending this event, and have a great day.
Randall Neely: Good morning, and thank you for attending our midyear 2025 results call. I am joined today by Eddie Ok, our CFO, who will walk through the financial and operations highlights as well as Geoff Probert, our COO, who will provide a review of ongoing operations and provide more detail on the progress made to improve our production sharing contracts in Egypt. In addition, Nathan Piper, Director of Commercial, is also available for the Q&A session. Since myself, the new management team, Geoff, Eddie, Nathan and our entire Board joined the company beginning in 2023, we've made it very clear what our goals were. We intended to improve upon the base business in Egypt, reduce overhead and scale down or eliminate all nonviable activities of the company. To do that, we set out with our JV partner in Egypt, Cheiron to negotiate a new consolidated production sharing contract for the 50-50 jointly held contracts. That has been a major undertaking, and we announced earlier this year that we had achieved a major milestone with the government approval of those terms. Geoff will provide more detail on this process and outcome shortly. For those of you that perhaps have not been paying attention to our journey over the past 2 years, I'll remind you that we have exited all noncore activities, and we reduced our G&A burden by approximately 80%, including our staffing contingent, effectively rightsized the organization. As well, the company returned over $600 million to investors through dividends and share buybacks. Operationally, we have worked very hard to achieve technical alignment with our partner in Egypt, and we are very pleased with how that has progressed. Today, I can confidently state that Capricorn and Cheiron are working synergistically to improve the technical and financial results of the joint venture. When this team, Capricorn 2.0 joined, we all recognized that the company needed to instill financial discipline, which included a measured approach to funding investments in Egypt, effectively a self-funding model. Although with the improved fiscal terms and payment schedules, this approach may not appear as relevant today as it was 2 years ago. We do not intend to deviate from this mindset. With our initial goals principally achieved, we are turning our attention to increasing value for our shareholders. Our intent is to do that through 3 principal activities: First, realizing on the improvement of the base business in Egypt. The improvements to fiscal terms and lengthening of contract life will open up significantly new resource for the joint venture to pursue and exploit. Effectively, the amended contractual terms will allow the joint venture to pursue a very large existing resource base to have both reserves and production. Second, we, led by Nathan, our Director of Commercial, will continue to search for opportunities in the U.K. North Sea to realize on our historic position there. We have a strict set of criteria we measure every North Sea opportunity against. And although we have been deep into several processes, we have been unable to successfully conclude any of them. That's been either due to being outbid or the seller just effectively electing to retain the asset. And the third activity that we'll look to add value is looking for synergistic asset deals or business to add to the portfolio. Ultimately, all of these will lead the company to return value to the shareholders. Building business of scale and longevity. Over the past 2 years, the new Board, myself and the rest of the team have made a major effort to transform the culture, priorities and focus of Capricorn. This wheel is meant to capture very simply how we are approaching this. We focus on the small details. We finance the business and any new ventures conservatively. We approach every project with technical rigor and apply strict capital discipline and demand the same of our partners. We approach the business strictly through a self-funding business model and new ventures initiated will require the application of a prudent approach to risk management. I'll let Geoff take the next slide. Geoffrey Probert: Thanks, Randy, and good morning. You can see here on the graphic that we're on the last step of our journey to completing the consolidation of our 8, 50-50 concession agreements into a single extended and improved agreement. Improvements in concession longevity and fiscal terms are a catalyst to increase Capricorn's reserves and production with value and cash flow enhanced by increased investment self-funded from Egypt. For EGPC, this increased and more importantly, sustained investment delivers great production over the long-term for Egypt, and has potential to be a true win-win for all stakeholders. We continue to expect custom ratification in the near future, commencing investment consistent with the new terms in the second half of 2025 and expect new terms and commitments to apply to that investment. Back to you, Randy. Randall Neely: Thanks, Geoff. Now with many of our primary objectives having been achieved, our primary focus for myself and as well as Nathan is to get investors to recognize this value improvement. On the back of an envelope, you can see that we have a base business in Egypt that fully supports our market value. Note that our debt in Egypt has been paid down materially over this year and will continue to be paid down over the coming year. On top of that, we have the cash that resides in the parent company, a value improvement that will be realized upon ratification of our Egyptian-based business and the value that can be realized by future investment in the U.K. North Sea. All of these combined leave us with a near-term potential of doubling our share value, and that's before we expand our operations either in Egypt or elsewhere. I'll now turn the presentation over to Eddie Ok, our CFO, to provide a review of the financial and operating highlights. Eddie Ok: Thanks, Randy, and good morning, all. Production through the first half was in line with projections, and we continue to guide towards the midpoint of our published range of 17,000 to 21,000 BOE per day. Our focus on higher-margin drilling continues to perform as liquids remain slightly above forecast at 43% of production. OpEx is continuing to trend upwards as the currency devaluation impact from last year works its way through our cost structure. This is being exacerbated by declining production against a large fixed cost base, but we continue to work with the operator to ensure that costs are being controlled to the greatest extent possible. We slightly reduced our capital guidance as scheduling is going to push back some current year activity into the following year, but we remain on track to deliver the bulk of our development drilling in the second half. Next slide, please. As can be seen from our cash waterfall, the contingent consideration collected in the half has offset the slow pace of collections from EGPC. In the second half to date, collections have improved, and we're anticipating the collection of at least $90 million in the second half, which will help offset scheduled repayments of our outstanding debt. Up next, Goeff is going to take you through an operational overview of the remainder of the year. Geoffrey Probert: Thanks, Eddie. I'm going to very briefly highlight our first half 2025 Egypt operational focus, give a snapshot of where we expect to invest in '26 and look at our reserves and resources are trending, particularly in the context of the new agreement. This map shows our focus on liquids development and production, particularly in the BED, Abu Roash G reservoir area, and that was all in the first half of 2025. While new agreement has been finalized, we also drilled 3 wells to fulfill our legacy commitments on the 3 pure exploration concessions acquired as part of the Egypt acquisition in 2021. Those exploration commitments are now satisfied with a minor on spend of $750,000 on NUMB. Our joint venture with Cheiron, the operator has elected to further evaluate commerciality of 2 of these wells, and we expect those results later this month. You can also see here that the hatched areas indicated concessions that we expect to form the new consolidation agreements closely the prime contiguous land added for further development and exploration on trend. Next slide. This slide illustrates our expected 4 rig development drilling schedule, 4 rigs to reflect improved agreement terms encouraging us to invest in a longer list of economic wells. Alongside optimization of development well sequence, we continue to work with our JV partner Cheiron to also prioritize non-rig production generation, reinstating shutting wells, identifying additional perforation opportunities on bypass pay. Next slide. This last slide on reserves encapsulates the rationale behind Capricorn negotiating an extended and improved integrated concession agreement on our 50-50 concessions. We expect our ability to replace reserves and extend their life to be materially improved by the extended concession period and improved concession economic terms. We also expect the concession improvement will also impact our risk appetite to chase near-field exploration potential on our newly extended land and our existing land and to develop and mature our portfolio of resources. Capricorn has been working with opportunity hopper on the 50-50 new concession agreement acreage, not just near-term development options, but also contingent and prospective resources. We expect this work will help to underpin future reserve and resource bookings and may also direct and prioritize productive drilling activity. You can see here that internally, we've identified a working interest around 350 million barrels of oil equivalent unrisked best estimate contingent resources to mature. Near-term license extensions resulting from an approved integrated concession potentially support the early conversion of up to a working interest nearly 20 million barrels oil equivalent to reserves, with further reclassifications anticipated, all underpinned by 5-year investment plans. Once approved, we expect to rapidly move to drill wells to exploit those reserves additions. Thanks for your time and attention. Now I'm passing over to Randy to wrap up. Randall Neely: Yes. Thanks, Goeff. I trust that those of you that have been following the Capricorn story since this team took over will agree that we have had a strong record of delivering on company objectives. To summarize, we set out to improve the Egyptian business by making it both long-term sustainable and a platform for growth. We are very near the confirmation of that objective with ratification occurring in the near future. The new PSC will provide a catalyst for increases in reserves for investment and value improvements. Additionally, we are seeing and hearing reasons to be optimistic about the future reduction of our outstanding receivables and a more stable, consistent payment plan from EGPC. And while we have been slower than we hoped to be to deliver or realize an embedded value for us to reinvest in the U.K. North Sea, we remain steadfast in our goal to achieve this objective. Beyond our current operations in Egypt and our near-term goal of expansion in the U.K. North Sea, we are actively looking for synergistic opportunities in the areas of our capabilities and credibility that we have in Capricorn and our team. Well, that's it for our formal presentation. Thank you very much for dialing in, and we'll now take questions from analysts online. Operator: [Operator Instructions] We now take our first question from James Hosie of Shore Capital. James Hosie: A couple of questions for you. Just firstly, on the improved trade receivable position and the payment plan. You've already received $37 million since the midyear and the release mentioned today a $50 million payment being due in October. Just wondering if it's reasonable to think that Capricorn is on track to collect more in H2 than the minimum $90 million you referred to. And then second question is just wondering about the updated competent persons report you plan to publish once the new concession term is ratified. Should we expect that to include revised 2P production and CapEx profile? Are you simply just going to apply the assumptions you used in July CPR to the new concession terms? Eddie Ok: I'll take the AR question. Yes, you're right. We've received $37 million to date, and we're expecting a $50 million bullet here in the near term. We're remaining conservative about our collections assumptions. But yes, if all goes according to plan, we should be collecting in excess of that with a material reduction in our receivables possible by the end of the year. Geoffrey Probert: And Goeff here, I'll pick up the other question, James, on CPR revision. When we issue that CPR, yes, it will be the midyear actually to understand. It will include revised CapEx profile deductions for production. It will be a full update. Operator: And we'll now move on to our next question from Chris Wheaton of Stifel. Christopher Wheaton: A question for me also on working capital, but trying to look forward a bit further. What provisions in the license renegotiation has there been for working capital recovery? Because my concern when you start drilling and exploiting some of that upside resource potential is, you've got to start really putting CapEx in the ground first, then your production goes up, then you get the cash flow. Well, then you actually sell the oil, then at some point in the future, you get the cash flow. So there could be quite a significant working capital burn at least to start with unless Egypt are prompted in paying those receivables back because with the higher CapEx as well as the higher OpEx, then your receivables amount is going to start building quite quickly unless you get those regular repayments. Could you talk about how you've tried to mitigate those risks in the license renegotiation? And secondly, what that means for potential timing of dividend payouts because I still see your priorities as being first pay down -- first, you've got to keep investing in the drilling. Secondly, you've got to pay down the debt remaining in Egypt and then possibly shareholders could start to get some more cash back. So I'm interested in that implication for your future dividend payments. Eddie Ok: Chris, I'll take that. Yes. So we've got obviously a material investment sort of obligation opportunity in Egypt as a result of the modernized concession agreement and one that we're happy to deliver on given the economic return that's represented by that investment. Just keep in mind, we're still producing 20,000 barrels of oil equivalent per day in Egypt with the corresponding build in cost pools, profit oil, profit gas as well as our existing receivables position. And as you folks have seen historically, we're managing the business quite carefully with respect to invested dollars against realized dollars out. And so that philosophy is not going to change going forward. Part of the overriding imperative on this deal has to be that our shareholders realize a return. Now based off of historical decisions, historical investments, we've got a fairly really weighted debt burden hanging over this asset base. But we plan on honoring those debt commitments with repayments of that debt coming up over the next couple of years as well as delivering on these capital investments. And to your point, yes, after that, and as always, our overriding concern is going to be on shareholder value and how do we deliver that value in the asset base to the shareholders over time. Geoffrey Probert: Jack, I may just add one thing. That is the -- background to negotiations create, let's say, a more investable concession agreement and bond agreements and that creates relevance. I mean the whole purpose is not just to create value for the shareholders also to get paid. By improving the terms, we have an investable set of concessions where before, frankly, that it was a pretty weak place to be. Each we pays those who have the capacity to invest. And by that, I mean the places they can invest economically. So it's a bit of a symbiotic outcome for both we invest, we get great production, we get paid so that we can invest and we generate returns. They do accept that part of it. In terms of the overall commitments we have to make in terms of investment, the terms are -- if you look at our historical investment profile in Egypt on a working interest basis, they're quite modest. It's spread over a number of years -- if there happens to be a short-term problem around payments for a while, we can just dial back investments, while that happens and dial those investments back up again in the future. So we're pretty confident that this structure and the new concession agreement will generate the right opportunities for us to invest and be paid at the same time. Christopher Wheaton: Okay. Just to be clear, the concession doesn't include -- the revised concession agreement doesn't include a sort of contractual basis for this is how receivables will be paid and this is sort of [indiscernible]... Randall Neely: Yes. I'll take it. Yes. So Chris, that's in there already. Like, those terms are in the existing contracts. So... Christopher Wheaton: Right. They are totally fine. Randall Neely: Yes. What the situation is Egypt sometimes struggles to keep up payments just because of their own fiscal issues and where they're prioritized. But we're seeing -- we're seeing that mindset change. And that's because Egypt is short energy and they've struggled to sort of keep the production moving in the right direction given the local demand. And so that's what we're seeing change over the past 18, 24 months as they're moving into more reprioritizing IOC payments in order to at least maintain production rather than things slip off or go to other jurisdictions. Operator: Thank you. We have no further questions in the queue. I'll now hand over for webcast questions. So we've got a few questions from Charlie Sharp at Canaccord. First question, what liquid proportion of total production would you expect to be able to achieve over the next 6 to 18 months? Randall Neely: So actually, I didn't quite hear that. Operator: What liquid portion of total production would you expect to be able to achieve over the next 6 to 18 months? Geoffrey Probert: I don't anticipate a significant change in the overall proportion. We recorded rather a 42%, 43% liquids in the last half, and we anticipate that continuing going forward. It might now just a little bit, but it's not going to increase significantly in the next 6 months. Operator: Next question from Charlie. What sort of test results on the 2 exploration wells would support commerciality and what would the next operational steps to be? Randall Neely: So obviously, the rate and sustainability, so the pressure drop if there is the reservoir during the testing phase there are -- as is often the case in these Western Desert reservoirs or wells, there are multiple potential pay zones. We have to look at productivity, we have to look at sustainability. And we have to look at the distance to the nearest infrastructure. These wells are reasonably close to nearby infrastructure, but that doesn't make them seldom. So yes, that's pretty much how we look at the wells. In terms of the next steps, we take the data, we will evaluate it and with our partner, the operator Cheiron, we'll make a proposal if we see economic value to do so to complete and hook up those wells into nearby production facilities. Operator: Great. And final question, can you provide some guidance on expected year-end 2025 receivables? Eddie Ok: Sure. It's in the release. If you take a look at what our historic production is and the forecast going forward against what our projected collections are that you should be able to back into that number pretty quickly. And like I said, it's going to be a conservative estimate for the year-end, but that's what we're guiding towards. Operator: No further questions from the webcast. So I'll hand over to you for any closing remarks. Randall Neely: Thanks, Kelly. I just want to say thanks, everyone, for dialing in or listening in, afterwards, and we look forward to speaking to many of you live over the coming weeks. Have a great day.
Randall Neely: Good morning, and thank you for attending our midyear 2025 results call. I am joined today by Eddie Ok, our CFO, who will walk through the financial and operations highlights as well as Geoff Probert, our COO, who will provide a review of ongoing operations and provide more detail on the progress made to improve our production sharing contracts in Egypt. In addition, Nathan Piper, Director of Commercial, is also available for the Q&A session. Since myself, the new management team, Geoff, Eddie, Nathan and our entire Board joined the company beginning in 2023, we've made it very clear what our goals were. We intended to improve upon the base business in Egypt, reduce overhead and scale down or eliminate all nonviable activities of the company. To do that, we set out with our JV partner in Egypt, Cheiron to negotiate a new consolidated production sharing contract for the 50-50 jointly held contracts. That has been a major undertaking, and we announced earlier this year that we had achieved a major milestone with the government approval of those terms. Geoff will provide more detail on this process and outcome shortly. For those of you that perhaps have not been paying attention to our journey over the past 2 years, I'll remind you that we have exited all noncore activities, and we reduced our G&A burden by approximately 80%, including our staffing contingent, effectively rightsized the organization. As well, the company returned over $600 million to investors through dividends and share buybacks. Operationally, we have worked very hard to achieve technical alignment with our partner in Egypt, and we are very pleased with how that has progressed. Today, I can confidently state that Capricorn and Cheiron are working synergistically to improve the technical and financial results of the joint venture. When this team, Capricorn 2.0 joined, we all recognized that the company needed to instill financial discipline, which included a measured approach to funding investments in Egypt, effectively a self-funding model. Although with the improved fiscal terms and payment schedules, this approach may not appear as relevant today as it was 2 years ago. We do not intend to deviate from this mindset. With our initial goals principally achieved, we are turning our attention to increasing value for our shareholders. Our intent is to do that through 3 principal activities: First, realizing on the improvement of the base business in Egypt. The improvements to fiscal terms and lengthening of contract life will open up significantly new resource for the joint venture to pursue and exploit. Effectively, the amended contractual terms will allow the joint venture to pursue a very large existing resource base to have both reserves and production. Second, we, led by Nathan, our Director of Commercial, will continue to search for opportunities in the U.K. North Sea to realize on our historic position there. We have a strict set of criteria we measure every North Sea opportunity against. And although we have been deep into several processes, we have been unable to successfully conclude any of them. That's been either due to being outbid or the seller just effectively electing to retain the asset. And the third activity that we'll look to add value is looking for synergistic asset deals or business to add to the portfolio. Ultimately, all of these will lead the company to return value to the shareholders. Building business of scale and longevity. Over the past 2 years, the new Board, myself and the rest of the team have made a major effort to transform the culture, priorities and focus of Capricorn. This wheel is meant to capture very simply how we are approaching this. We focus on the small details. We finance the business and any new ventures conservatively. We approach every project with technical rigor and apply strict capital discipline and demand the same of our partners. We approach the business strictly through a self-funding business model and new ventures initiated will require the application of a prudent approach to risk management. I'll let Geoff take the next slide. Geoffrey Probert: Thanks, Randy, and good morning. You can see here on the graphic that we're on the last step of our journey to completing the consolidation of our 8, 50-50 concession agreements into a single extended and improved agreement. Improvements in concession longevity and fiscal terms are a catalyst to increase Capricorn's reserves and production with value and cash flow enhanced by increased investment self-funded from Egypt. For EGPC, this increased and more importantly, sustained investment delivers great production over the long-term for Egypt, and has potential to be a true win-win for all stakeholders. We continue to expect custom ratification in the near future, commencing investment consistent with the new terms in the second half of 2025 and expect new terms and commitments to apply to that investment. Back to you, Randy. Randall Neely: Thanks, Geoff. Now with many of our primary objectives having been achieved, our primary focus for myself and as well as Nathan is to get investors to recognize this value improvement. On the back of an envelope, you can see that we have a base business in Egypt that fully supports our market value. Note that our debt in Egypt has been paid down materially over this year and will continue to be paid down over the coming year. On top of that, we have the cash that resides in the parent company, a value improvement that will be realized upon ratification of our Egyptian-based business and the value that can be realized by future investment in the U.K. North Sea. All of these combined leave us with a near-term potential of doubling our share value, and that's before we expand our operations either in Egypt or elsewhere. I'll now turn the presentation over to Eddie Ok, our CFO, to provide a review of the financial and operating highlights. Eddie Ok: Thanks, Randy, and good morning, all. Production through the first half was in line with projections, and we continue to guide towards the midpoint of our published range of 17,000 to 21,000 BOE per day. Our focus on higher-margin drilling continues to perform as liquids remain slightly above forecast at 43% of production. OpEx is continuing to trend upwards as the currency devaluation impact from last year works its way through our cost structure. This is being exacerbated by declining production against a large fixed cost base, but we continue to work with the operator to ensure that costs are being controlled to the greatest extent possible. We slightly reduced our capital guidance as scheduling is going to push back some current year activity into the following year, but we remain on track to deliver the bulk of our development drilling in the second half. Next slide, please. As can be seen from our cash waterfall, the contingent consideration collected in the half has offset the slow pace of collections from EGPC. In the second half to date, collections have improved, and we're anticipating the collection of at least $90 million in the second half, which will help offset scheduled repayments of our outstanding debt. Up next, Goeff is going to take you through an operational overview of the remainder of the year. Geoffrey Probert: Thanks, Eddie. I'm going to very briefly highlight our first half 2025 Egypt operational focus, give a snapshot of where we expect to invest in '26 and look at our reserves and resources are trending, particularly in the context of the new agreement. This map shows our focus on liquids development and production, particularly in the BED, Abu Roash G reservoir area, and that was all in the first half of 2025. While new agreement has been finalized, we also drilled 3 wells to fulfill our legacy commitments on the 3 pure exploration concessions acquired as part of the Egypt acquisition in 2021. Those exploration commitments are now satisfied with a minor on spend of $750,000 on NUMB. Our joint venture with Cheiron, the operator has elected to further evaluate commerciality of 2 of these wells, and we expect those results later this month. You can also see here that the hatched areas indicated concessions that we expect to form the new consolidation agreements closely the prime contiguous land added for further development and exploration on trend. Next slide. This slide illustrates our expected 4 rig development drilling schedule, 4 rigs to reflect improved agreement terms encouraging us to invest in a longer list of economic wells. Alongside optimization of development well sequence, we continue to work with our JV partner Cheiron to also prioritize non-rig production generation, reinstating shutting wells, identifying additional perforation opportunities on bypass pay. Next slide. This last slide on reserves encapsulates the rationale behind Capricorn negotiating an extended and improved integrated concession agreement on our 50-50 concessions. We expect our ability to replace reserves and extend their life to be materially improved by the extended concession period and improved concession economic terms. We also expect the concession improvement will also impact our risk appetite to chase near-field exploration potential on our newly extended land and our existing land and to develop and mature our portfolio of resources. Capricorn has been working with opportunity hopper on the 50-50 new concession agreement acreage, not just near-term development options, but also contingent and prospective resources. We expect this work will help to underpin future reserve and resource bookings and may also direct and prioritize productive drilling activity. You can see here that internally, we've identified a working interest around 350 million barrels of oil equivalent unrisked best estimate contingent resources to mature. Near-term license extensions resulting from an approved integrated concession potentially support the early conversion of up to a working interest nearly 20 million barrels oil equivalent to reserves, with further reclassifications anticipated, all underpinned by 5-year investment plans. Once approved, we expect to rapidly move to drill wells to exploit those reserves additions. Thanks for your time and attention. Now I'm passing over to Randy to wrap up. Randall Neely: Yes. Thanks, Goeff. I trust that those of you that have been following the Capricorn story since this team took over will agree that we have had a strong record of delivering on company objectives. To summarize, we set out to improve the Egyptian business by making it both long-term sustainable and a platform for growth. We are very near the confirmation of that objective with ratification occurring in the near future. The new PSC will provide a catalyst for increases in reserves for investment and value improvements. Additionally, we are seeing and hearing reasons to be optimistic about the future reduction of our outstanding receivables and a more stable, consistent payment plan from EGPC. And while we have been slower than we hoped to be to deliver or realize an embedded value for us to reinvest in the U.K. North Sea, we remain steadfast in our goal to achieve this objective. Beyond our current operations in Egypt and our near-term goal of expansion in the U.K. North Sea, we are actively looking for synergistic opportunities in the areas of our capabilities and credibility that we have in Capricorn and our team. Well, that's it for our formal presentation. Thank you very much for dialing in, and we'll now take questions from analysts online. Operator: [Operator Instructions] We now take our first question from James Hosie of Shore Capital. James Hosie: A couple of questions for you. Just firstly, on the improved trade receivable position and the payment plan. You've already received $37 million since the midyear and the release mentioned today a $50 million payment being due in October. Just wondering if it's reasonable to think that Capricorn is on track to collect more in H2 than the minimum $90 million you referred to. And then second question is just wondering about the updated competent persons report you plan to publish once the new concession term is ratified. Should we expect that to include revised 2P production and CapEx profile? Are you simply just going to apply the assumptions you used in July CPR to the new concession terms? Eddie Ok: I'll take the AR question. Yes, you're right. We've received $37 million to date, and we're expecting a $50 million bullet here in the near term. We're remaining conservative about our collections assumptions. But yes, if all goes according to plan, we should be collecting in excess of that with a material reduction in our receivables possible by the end of the year. Geoffrey Probert: And Goeff here, I'll pick up the other question, James, on CPR revision. When we issue that CPR, yes, it will be the midyear actually to understand. It will include revised CapEx profile deductions for production. It will be a full update. Operator: And we'll now move on to our next question from Chris Wheaton of Stifel. Christopher Wheaton: A question for me also on working capital, but trying to look forward a bit further. What provisions in the license renegotiation has there been for working capital recovery? Because my concern when you start drilling and exploiting some of that upside resource potential is, you've got to start really putting CapEx in the ground first, then your production goes up, then you get the cash flow. Well, then you actually sell the oil, then at some point in the future, you get the cash flow. So there could be quite a significant working capital burn at least to start with unless Egypt are prompted in paying those receivables back because with the higher CapEx as well as the higher OpEx, then your receivables amount is going to start building quite quickly unless you get those regular repayments. Could you talk about how you've tried to mitigate those risks in the license renegotiation? And secondly, what that means for potential timing of dividend payouts because I still see your priorities as being first pay down -- first, you've got to keep investing in the drilling. Secondly, you've got to pay down the debt remaining in Egypt and then possibly shareholders could start to get some more cash back. So I'm interested in that implication for your future dividend payments. Eddie Ok: Chris, I'll take that. Yes. So we've got obviously a material investment sort of obligation opportunity in Egypt as a result of the modernized concession agreement and one that we're happy to deliver on given the economic return that's represented by that investment. Just keep in mind, we're still producing 20,000 barrels of oil equivalent per day in Egypt with the corresponding build in cost pools, profit oil, profit gas as well as our existing receivables position. And as you folks have seen historically, we're managing the business quite carefully with respect to invested dollars against realized dollars out. And so that philosophy is not going to change going forward. Part of the overriding imperative on this deal has to be that our shareholders realize a return. Now based off of historical decisions, historical investments, we've got a fairly really weighted debt burden hanging over this asset base. But we plan on honoring those debt commitments with repayments of that debt coming up over the next couple of years as well as delivering on these capital investments. And to your point, yes, after that, and as always, our overriding concern is going to be on shareholder value and how do we deliver that value in the asset base to the shareholders over time. Geoffrey Probert: Jack, I may just add one thing. That is the -- background to negotiations create, let's say, a more investable concession agreement and bond agreements and that creates relevance. I mean the whole purpose is not just to create value for the shareholders also to get paid. By improving the terms, we have an investable set of concessions where before, frankly, that it was a pretty weak place to be. Each we pays those who have the capacity to invest. And by that, I mean the places they can invest economically. So it's a bit of a symbiotic outcome for both we invest, we get great production, we get paid so that we can invest and we generate returns. They do accept that part of it. In terms of the overall commitments we have to make in terms of investment, the terms are -- if you look at our historical investment profile in Egypt on a working interest basis, they're quite modest. It's spread over a number of years -- if there happens to be a short-term problem around payments for a while, we can just dial back investments, while that happens and dial those investments back up again in the future. So we're pretty confident that this structure and the new concession agreement will generate the right opportunities for us to invest and be paid at the same time. Christopher Wheaton: Okay. Just to be clear, the concession doesn't include -- the revised concession agreement doesn't include a sort of contractual basis for this is how receivables will be paid and this is sort of [indiscernible]... Randall Neely: Yes. I'll take it. Yes. So Chris, that's in there already. Like, those terms are in the existing contracts. So... Christopher Wheaton: Right. They are totally fine. Randall Neely: Yes. What the situation is Egypt sometimes struggles to keep up payments just because of their own fiscal issues and where they're prioritized. But we're seeing -- we're seeing that mindset change. And that's because Egypt is short energy and they've struggled to sort of keep the production moving in the right direction given the local demand. And so that's what we're seeing change over the past 18, 24 months as they're moving into more reprioritizing IOC payments in order to at least maintain production rather than things slip off or go to other jurisdictions. Operator: Thank you. We have no further questions in the queue. I'll now hand over for webcast questions. So we've got a few questions from Charlie Sharp at Canaccord. First question, what liquid proportion of total production would you expect to be able to achieve over the next 6 to 18 months? Randall Neely: So actually, I didn't quite hear that. Operator: What liquid portion of total production would you expect to be able to achieve over the next 6 to 18 months? Geoffrey Probert: I don't anticipate a significant change in the overall proportion. We recorded rather a 42%, 43% liquids in the last half, and we anticipate that continuing going forward. It might now just a little bit, but it's not going to increase significantly in the next 6 months. Operator: Next question from Charlie. What sort of test results on the 2 exploration wells would support commerciality and what would the next operational steps to be? Randall Neely: So obviously, the rate and sustainability, so the pressure drop if there is the reservoir during the testing phase there are -- as is often the case in these Western Desert reservoirs or wells, there are multiple potential pay zones. We have to look at productivity, we have to look at sustainability. And we have to look at the distance to the nearest infrastructure. These wells are reasonably close to nearby infrastructure, but that doesn't make them seldom. So yes, that's pretty much how we look at the wells. In terms of the next steps, we take the data, we will evaluate it and with our partner, the operator Cheiron, we'll make a proposal if we see economic value to do so to complete and hook up those wells into nearby production facilities. Operator: Great. And final question, can you provide some guidance on expected year-end 2025 receivables? Eddie Ok: Sure. It's in the release. If you take a look at what our historic production is and the forecast going forward against what our projected collections are that you should be able to back into that number pretty quickly. And like I said, it's going to be a conservative estimate for the year-end, but that's what we're guiding towards. Operator: No further questions from the webcast. So I'll hand over to you for any closing remarks. Randall Neely: Thanks, Kelly. I just want to say thanks, everyone, for dialing in or listening in, afterwards, and we look forward to speaking to many of you live over the coming weeks. Have a great day.
Operator: Greetings, and welcome to the Darden Fiscal Year 2026 First Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded. [Operator Instructions] I'll now turn the call over to Ms. Courtney Aquilla. Thank you. You may begin. Courtney Aquilla: Thank you, Kevin. Good morning, everyone, and thank you for participating on today's call. Joining me are Rick Cardenas, Darden's President and CEO; and Raj Vennam, CFO. As a reminder, comments made during this call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Those risks are described in the company's press release, which was distributed this morning, and in its filings with the Securities and Exchange Commission. We are simultaneously broadcasting a presentation during this call, which is posted in the Investor Relations section of our website at darden.com. Today's discussion and presentation include certain non-GAAP measurements, and reconciliations of these measurements are included in the presentation. Looking ahead, we plan to release fiscal 2026 second quarter earnings on Thursday, December 18, before the market opens, followed by a conference call. During today's call, I'll reference to the industry Chuy's results refer to Black Box Intelligence Casual Dining Benchmark, excluding Darden. During our fiscal first quarter, average same-restaurant sales for the industry grew 5% and average same-restaurant guest counts grew 2.6%. Additionally, due to the continued divergence between average and median results, we are sharing that median same-restaurant sales for the industry grew 3.3% and median same-restaurant guest counts grew 1.3%. This morning, Rick will share some brief remarks on the quarter, and Raj will provide details on our first quarter and share our updated fiscal 2026 financial outlook. Now I will turn the call over to Rick. Ricardo Cardenas: Thank you, Courtney, and good morning, everyone. We had a great quarter with same-restaurant sales and earnings growth that exceeded our expectations. For the first quarter, 3 of our 4 segments generated positive same-restaurant sales and traffic growth. The strength of our results is a testament to the power of our strategy. Across our portfolio, our restaurant teams remain focused on being brilliant with the basics through culinary innovation and execution, attentive service and an engaging atmosphere, all enabled by our people. And at the Darden level, we continue to strengthen and leverage our 4 competitive advantages of significant scale, extensive data and insights, rigorous strategic planning and the quality of our employees to further position our brands for long-term success. Olive Garden same-restaurant sales grew 5.9%, driven by compelling food news and the continued growth of first-party delivery. Early in the quarter, Olive Garden's marketing highlighted their Create Your Own Pasta platform from the core menu. Their television creative featured a new Spicy 3-Meat Sauce and Bucatini pasta starting at $12.99. This new sauce taps into guest evolving tastes for bolder, more flavorful offerings. It was well received and helped drive a significant increase in preference for the Create Your Own Pasta platform. Olive Garden built on the momentum of bold and spicy flavors by debuting Calabrian Steak and Shrimp Bucatini for a limited time during the quarter. The dish exceeded expectations and quickly became a new guest favorite, ranking among the top 10 entrees for preference. First-party delivery through our partnership with Uber Direct is helping capture younger, and more affluent guests who value convenience and crave Olive Garden. This represents a significant incremental opportunity for the brand as these guests have a higher check average and typically do not use Olive Garden for an in-restaurant dining occasion. Olive Garden's advertising featuring 1 million free deliveries concluded in the first quarter with all the free deliveries being redeemed. Average weekly deliveries doubled throughout the campaign. Following the campaign, delivery order volume has remained approximately 40% above the pre-campaign average. The team will continue to promote delivery across a number of channels. On our last call, we talked about putting a greater emphasis on sales growth and reinvesting to drive long-term growth. One of the ways we're doing this at Olive Garden is by strengthening affordability on the menu to give guests more variety at approachable price points. During the quarter, Olive Garden began testing a lighter portion section of the menu, featuring 7 of their existing entrees with reduced portions and a reduced price. These items available at dinner and all day during the weekend still offer abundant portions and come with Olive Gardens never-ending first course of unlimited Breadsticks and unlimited soup or salad. 40% of Olive Garden restaurants currently offer this menu and the initial response from guests has been encouraging, with affordability scores increasing 15 percentage points and high satisfaction with portion size. I have confidence in Olive Garden's initiatives for the year as well as their 5-year road map to sustain long-term growth and success. LongHorn Steakhouse grew same-restaurant sales by 5.5%, driven by continued adherence to their strategy rooted in quality, simplicity and culture. The team continues to raise the bar in food quality by consistently executing every dish on their menu to their high standards. This is reflected by LongHorn's #1 ranking among casual dining brands -- major casual dining brands within Technomic industry tracking tool for food quality, service, atmosphere and value. I'm really proud of the operational consistency at LongHorn and the work the team is doing to maintain their momentum. Same-restaurant sales for our Other Business segment grew 3.3% during the quarter, driven by strong performance at Yard House, Cheddar's Scratch Kitchen and Seasons 52. During the quarter, Yard House strengthened their competitive advantage of distinctive culinary offerings with broad appeal by enhancing their taco platform with higher-quality ingredients and more options for guests. As they have seen with similar investments in their burger and pizza platforms, this resulted in higher preference and guest satisfaction. To help strengthen their competitive advantage of a socially energized bar, Yard House held its third annual Best On Tap Competition during the quarter. What began as a test of knowledge and hospitality skills has grown into a cornerstone of the Yard House culture where every bar tender competes. Congratulations to this year's winner, Michelle Younes from the Yard House at City Center in Houston, Texas. The Cheddar's team leverages efficiency and Darden's purchasing power to provide great food served at a wow price. During the quarter, they introduced a Hawaiian sirloin, a center cut top sirloin finished with pineapple and a sweet Hawaiian glaze, starting at $16.49. This limited time offer also included a Honey Butter Croissant and 2 sides for that price. In Technomic most recent survey, Cheddar's ranked first among casual dining brands for both price and affordability. During the quarter, Cheddar's also saw strong off-premise sales growth driven by first-party delivery. Off-premise sales grew 15% during the quarter, and the Cheddar's team will continue to promote delivery through owned and digital channels as well as in restaurants. Same-restaurant sales for the Fine Dining segment was slightly negative for the quarter, but I'm encouraged by the actions each of our Fine Dining brands are taking to address the softness. For example, in the current environment, more guests are seeking price certainty, and Ruth's Chris Steakhouse introduced a 5-week limited time offer featuring a 3-course menu that drove positive comps for the quarter. For $55, guests could select 1 of 3 entrees as well as a super salad, an individual side and dessert. The offer was well received with strong guest preference and sales lift. Now I want to share a quick update on the sale of 8 Olive Garden locations in Canada that I referenced during our last call. On July 14, we closed on the sale of those locations to Recipe Unlimited, the largest full-service operator in Canada. At closing, we also entered into an area development agreement with Recipe Unlimited to open 30 more Olive Garden's over the next 10 years, 5 of which have already been approved. Our franchising team is focused on growing our global presence. Today we have 163 franchise locations, which includes 63 in the Continental United States and 100 outside the Continental U.S. Last month, we held our annual leadership conference, which provides a powerful way for us to engage with every general manager and managing partner across our brands, celebrate past performance and align on key operational priorities. This was also an opportunity for these restaurant leaders to learn about their brand's 5-year business plan and understand what they need to do to win today and into 2030. The opportunity to interact with this talented group of operators is one of the highlights of the year. I came away energized by the level of engagement and passion on display, which further reinforced the results of our most recent engagement survey, a new all-time high for Darden. Overall, I am pleased with the strong start to our new fiscal year. Our strategy is working, enabling us to grow sales and take market share while meaningful -- making meaningful investments in our business and returning capital to our shareholders. Beyond that, we have a larger purpose at Darden: to nourish and delight everyone we serve. One of the ways we do this is by fighting hunger. Once again this year, Darden is helping Feeding America add refrigerated trucks for 9 member food banks. With the addition of these new trucks, the Darden Foundation, with support from our partner, Penske Truck Leasing, has funded more than 50 vehicles to meet the increasing demand for food assistance in communities where we operate. Our philanthropic giving would not be possible without the efforts of our 200,000 team members and their passion to nourish and delight our guests and communities. Thank you for all you do. Now I'll turn it over to Raj. Rajesh Vennam: Thank you, Rick, and good morning, everyone. The first quarter was another strong quarter for Darden. Sales and earnings growth exceeded our expectations as our sales momentum from the fourth quarter continued into the first quarter. This strong top line sales growth and our significant scale provide us with the opportunity to keep a long-term perspective and continue investing in our business. In addition to the menu investments Rick mentioned, the largest investment we made over the past several years is pricing below total inflation. During the first quarter, our pricing was 30 basis points below inflation. We generated $3 billion of total sales, 10% higher than last year, driven by same-restaurant sales growth of 4.7%, the acquisition of 103 Chuy's restaurants and the addition of 22 net new restaurants. Both our same-restaurant sales and same-restaurant guest counts for the quarter were in the top quartile of the industry. Adjusted diluted net earnings per share from continuing operations of $1.97 were 12.6% higher than last year. We generated $439 million of adjusted EBITDA and returned $358 million to our shareholders this quarter by paying $175 million in dividends and repurchasing $183 million in shares. Now looking at our adjusted margin analysis compared to last year. Food and beverage expenses were 20 basis points lower, driven by pricing leverage as commodities inflation was approximately 1.5% for the quarter. Restaurant labor was 20 basis points unfavorable as a result of high performance-based compensation expense, including a higher 401(k) match for our restaurant teams. Total labor inflation of 3.1% was fully offset by pricing of 2.2% and productivity improvements. Restaurant expenses were 10 basis points higher as sales leverage was more than offset by Uber Direct fees and the brand mix with the addition of Chuy's. Marketing expenses were flat as cost savings in marketing helped fund additional marketing activity in the quarter. This resulted in restaurant-level EBITDA of 18.9%, 10 basis points lower than last year. Adjusted G&A expenses were 30 basis points favorable. Synergies from the acquisition and leverage from sales growth were partially offset by unfavorable mark-to-market expense on our deferred compensation. Due to the way we hedge mark-to-market expense, this unfavorability is fully offset in the tax line. Interest expense increased 10 basis points due to the financing expenses related to the Chuy's acquisition. Our adjusted effective tax rate for the quarter was 10.5%, helped by the mark-to-market hedge I mentioned earlier. Our effective tax rate would have been approximately 12.5% without this impact. In total, we generated $231 million in adjusted earnings from continuing operations, which was 7.6% of sales. Looking at our segments for the quarter. Total sales for Olive Garden increased by 7.6%, driven by strong same-restaurant sales and traffic growth. The sales from the addition of 18 new restaurants more than offset the sales loss from the refranchising of 8 Canadian restaurants. Their sales momentum continued from the prior quarter with same-restaurant sales in the top decile of the industry and outperforming the industry benchmark by 90 basis points. Olive Garden delivered a strong segment profit margin of 20.6% for the quarter, which was only 10 basis points below last year, even with the investments in affordability and the impact of delivery fees. At LongHorn, total sales increased 8.8%, driven by same-restaurant sales growth of 5.5% and the addition of 18 new restaurants. The sustained sales and traffic outperformance resulted in same-restaurant sales in the top quartile of the industry for the 13th consecutive quarter, with this quarter ranking in the top decile. The LongHorn team is doing a great job of staying focused on their strategy and maintaining momentum within the business despite continued cost pressures. Higher-than-expected beef cost towards the end of the quarter and pricing below total inflation of approximately 100 basis points resulted in segment profit margin of 17.4%, 60 basis points below last year. Total sales at the Fine Dining segment increased 2.7%, driven by the addition of 5 net new restaurants. While same-restaurant sales for the segment were slightly negative, the strong performance of the limited time offer at Ruth's Chris helped to offset the continued challenges within the Fine Dining category. Overall, segment profit margin was lower than last year. The Other Business segment sales increased 22.5% with the acquisition of Chuy's and positive same-restaurant sales of 3.3%. The positive sales momentum and continued productivity improvements in multiple brands within the segment resulted in segment profit margin of 16.1%, 90 basis points higher than last year. Now turning to our financial outlook for fiscal 2026. This morning, we updated a few items in our guidance, taking into consideration actual performance year-to-date and the evolving commodities outlook for the remainder of the fiscal year. We are raising our expected total sales growth and tightening the range of same-restaurant sales to reflect the outperformance in the first quarter, acceleration in our new unit pipeline and any incremental pricing we may take to partially offset the additional commodities costs. We now expect total sales growth of -- for the year of 7.5% to 8.5%, same-restaurant sales growth of 2.5% to 3.5%, approximately 65 new restaurant openings and total inflation of 3% to 3.5% with commodities inflation of 3% to 4%. All other aspects of our guidance remain unchanged, including adjusted diluted net earnings per share between $10.50 and $10.70. While we are reiterating our full year earnings per share guidance, we expect the lowest year-over-year EPS growth to be in the second quarter, driven by the significant step-up in beef costs and our measured approach to pricing for these costs. We expect our pricing for the second quarter to be approximately 100 basis points below total inflation. We have a proven track record of successfully navigating through higher costs, and we'll continue to take a disciplined approach to ensure the long-term health of our business. We believe our strategy remains the right one for our company. Now we'll take your questions. Operator: [Operator Instructions] Our first question today is coming from Brian Harbour from Morgan Stanley. Brian Harbour: Maybe just on that last point first, Raj, could you talk about sort of contracting through the balance of the year and sort of what gives you visibility that you've kind of encompassed the range of food cost outcomes? Rajesh Vennam: Yes, Brian, I think if you look at what we published this morning, we -- our coverage is less than typical, especially in beef. Right now, we only have about 25% coverage in beef for the next 6 months. And that's one of the biggest opportunities in terms of where we're seeing the biggest headwinds. And I think as you all know, there's been a significant spike in beef costs recently, especially tenders and rebuys, so -- and we don't believe these price levels are sustainable, and that's why we don't have as much coverage, and that's part of the reason. And given the significant price increase, there are -- we are starting to see some demand disruption in retail. So I guess, really the big picture, beef is the biggest variable here. And then the other component here where you're seeing a higher inflation is on seafood, primarily due to the tariffs on shrimp. And our team is working through to figure out how to mitigate some of that. And that's really the reason why we're taking the inflation up from 2.5% at the beginning of the year to now 3% to 4%. But this situation is still very fluid here. Brian Harbour: Rick, maybe just on the comments about sort of the new portion sizes at Olive Garden. What -- are you seeing sort of a different guest that is asking for that? Do you think this is actually sort of a traffic driver for Olive Garden? Or I guess, on the other hand, do you think this is check dilutive in some sense? Like how are people actually sort of approaching that? What are you seeing from those items? Ricardo Cardenas: Yes, Brian, it's still pretty early. We do believe in the long run, this is a traffic driver. It will dilute our check a little bit if people trade from a higher portion size item to a lower portion size item. But we believe that's the portion that those guests want. And it's very early indications are that we're seeing a little bit more frequency. But it's not necessarily new guests because we haven't marketed it, and we put it in restaurant without even any fanfare and it's just people are gravitating towards that. It's not significant preference gravitating towards it, but there is some preference moving there. Operator: Next question is coming from Jon Tower from Citi. Jon Tower: Great. Maybe kind of in the same vein, that -- the affordability pivot and -- this quarter as well as the Uber Eats amplification or build in the quarter. Can you maybe speak to how that hit on the cost line during the period? And I noticed that, obviously, the restaurant margin, you didn't lever that as much on a pretty solid comp in the period. So maybe, Raj, if you could speak to those costs during the period and what you're expecting going forward as well. Rajesh Vennam: Yes, Jon, let me first start by saying these are things we planned on and we had in our plan. And I think we said -- that's why we said we're actually exceeding our plan. And it's actually -- the fact that the segment profit margin is only down 10%, they're still north of 20%, is a testament to the strength of the business model at Olive Garden. Now with that said, let me explain a little bit more detail. First of all, we still priced below total inflation. Olive Garden's pricing was only 1.9%. So that's a pretty low price in this environment given that, again, the total inflation. Second, specific to those 2 items, they were roughly on the margin, if you just purely look at the margin percentage impact, they are probably about 20 basis points each. So if you put that back, I mean, we would have been positive 30, right? But that's, again, even with pricing below inflation. So I think that's sort of a key metric that we need to take into consideration because we believe, long term, these are the right decisions we're making. And I think any business would envy a 20-plus segment profit margin. Jon Tower: And then maybe just drilling a little bit more into the delivery business at Olive Garden. Can you talk about -- Rick, you had mentioned that you're pleased with how, obviously, you're seeing younger guests make their way in, more affluent. Can you give us any more information on the frequency of those guests? Are they coming more so than what you're seeing within the store in terms of frequency and how they're using it even, obviously, it hasn't been a year yet, but seasonally, how they're maybe using that channel relative to in store? Ricardo Cardenas: Yes, Jon. We've said -- as we said in the past, we are getting higher frequency for delivery guests than we are in dining guests. It's still early. We haven't had the delivery for a year yet, as you mentioned. As to seasonality, the one thing that Uber told us is normally, over the summer, delivery orders start to kind of fall off. And we really hadn't seen that. So we'll know a little bit more about the seasonality of delivery after we've passed a year or maybe even 2 years, because it continues to grow for us. That said, we're very excited about how delivery is going. And as Raj mentioned earlier, we are using some of that extra guest count and extra margin to invest for all guests, and we feel really good about that for the long term. Operator: Next question is coming from David Palmer from Evercore ISI. David Palmer: Aside from the beef cost question, I think there's probably 2 areas that are major areas of curiosity, and I certainly share them. And one is the strong performance of the casual dining segment, which is becoming increasingly unusual after fast casual has slowed through the year, through the middle of this year. And another, I think, is Olive Garden against more difficult comparisons later in your fiscal year. How will it do and what are you lining up against that? So those are really my 2 questions. What are your thoughts about why casual dining is doing as well? And do you think that will continue? And then separately, Olive Garden, you're rolling out a pretty large test on small portions, but what are your thoughts? And what are you kind of lining up to keep the momentum going as you get into lapping some of the good stuff you've been doing in the last 3 or 4 months? Ricardo Cardenas: Yes, David. I believe the strong casual dining segment is driven by, generally, less pricing than other segments of dining, for the segment itself, for casual dining itself. And for the larger players in casual dining, even lower pricing than casual dining total. So there's -- the guests are starting to see the value that casual dining brings. Now we've been seeing that for a few years now, as you know, it's just others are kind of following in line with that, and we're seeing that the guests see the value. Also, when they're trying to figure out where they spend their money, they're going to places where they can connect and engage with their friends and family. There may be less snacking going on and less kind of munching, but when people are going out to eat, they're going out to where they can feel they can get a great meal at a great value and have time with their friends. In regards to Olive Garden for the back half of the year, we have plans to continue the momentum. We do know that the comparisons get a little bit more challenging. But the Olive Garden team is working on things that we could do in the back half of the year. We've got a great plan. We do believe that, over time, the affordability items on the menu, the lighter portion -- I don't want to call them affordability. They're the right portion size for the right price for a group of consumers, that will eventually drive more traffic. It might not drive it in the back half of the year because we're not talking about it yet. That said, we may start talking about it in the back half of the year. So there's a lot of things that we're going to do. We've got a great team. And we'll react to whatever the sales trends look like at Olive Garden, and we'll go from there. Operator: Next question is coming from Jim Salera from Stephens. James Salera: I was hoping you could give us a breakdown on LongHorn, just the comp split between traffic and ticket. And then as a follow-up on that, have you seen any increased engagement with consumer -- you mentioned, obviously, pricing 100 basis points below inflation. Should we kind of expect that similar gap to progress through the year? Or any thoughts around how we should expect pricing to trend? Rajesh Vennam: Yes. So let's start with the LongHorn traffic versus -- LongHorn traffic was up about 3.2% for the quarter. The same-restaurant sales were 5.5%. So the check was 2.3%. Their pricing was 2.5%. They had a little bit of a negative mix, primarily [indiscernible], of 20 basis points. In terms of pricing versus inflation, at LongHorn, as we said, we -- there was a bigger spike in beef prices. That was a little bit of a surprise at the end of the quarter. But we also had planned on having some gap to pricing. So it further widened, I guess, by the time we ended the quarter, a little bit. As we look through the year, we expect second quarter, at the Darden level, without getting specific segment level here. At the Darden level, we expect pricing to be about 100 basis points below inflation, and we expect that gap to narrow as we go through the year. And so you would expect the pressures on the margin to be -- kind of follow that, right? So we probably have the biggest gap in Q2, maybe cut that in half by the time you get to Q3 and then try to narrow that further as we get to Q4. But consistent with our philosophy, our pricing for the full year will probably be -- we'll end up being below inflation. Is it going to be 30% or 50%? I don't know. We're working through that. I think our -- we've been always very thoughtful about what cost do we actually price for. And we don't want to price for temporary costs. We want to price for, over time, find other ways to solve for these incremental costs. And that's what our team is focused on. James Salera: Great. And then you guys mentioned the value-focused menu expansion at Olive Garden. Is that something that we could see maybe in a more limited fashion at LongHorn as well, maybe focus on like appetizers or smaller plate items? Or is that something that right now it's just Olive Garden focused? Ricardo Cardenas: Yes. We're doing this at Olive Garden to see how that works out. And if other brands think that it makes sense for them and they get the learnings from Olive Garden, maybe they will implement. But right now, the focus is the Olive Garden and it's the Olive Garden team that's driving it. And as I said, we'll see how that goes. Now there might be some things that LongHorn does in the future or other brands do in the future, but they'll make those decisions as those times come. Operator: Next question is coming from Eric Gonzalez from KeyBanc Capital Markets. Eric Gonzalez: Just a few quarters ago, you talked about some strength among the lower income consumers. Obviously, most of your peers, particularly on the fast food side, are talking about weakness among that cohort of income. So if you maybe you could talk about what you're seeing from an income perspective, and are you gaining share among lower-income consumers? Do you think that part of the equation is actually holding yourselves up relative to your peers? And are you seeing some maybe trade into the category from some of the higher-income folks, particularly on the casual dining side? Ricardo Cardenas: Yes, Eric, specific to casual dining, all our casual dining brands saw an increase in visits year-over-year from guests across all income groups, but specifically those in higher income groups. So you would expect that would have been -- that could have been some trade down, but it could be trade up from a lower income group to a great value in casual dining. We are seeing a few shifts in behavior and that guests are going towards what price certainty, so they know what they're going to pay before they come in, or greater perceived value even if the item is a high price. So if you think about the Calabrian Steak and Shrimp that we had at Olive Garden, great preference, great perceived value. It was the highest priced menu item on the menu. But we are seeing, as I said, for casual dining brands, growth among all income groups. Eric Gonzalez: Great. And then on the -- just to close the loop on the commodity discussion. Based on where the commodities are now and what you've locked in, I know you're a little bit lighter on the beef side, what do you think that implies for store-level margins? And what's embedded in the guidance? In the past, you talked about modest margin expansion you still think you can get there based on what you did in the first quarter and where you are locked in. Rajesh Vennam: Eric, I would refer you back to our long-term framework, which basically talks about our earnings after tax from 0 to 20 basis points growth. So if you look at our guidance, even at the low end, we're basically either flat or growing margin at the Eat level. We don't want to focus too much on any one line item, and for us, ultimately, if we're able to achieve our long-term framework and get the targets we want to get to by investing more in the guest, we want to do that. If that means that the segment profit margins are down year-over-year, that's not something we're concerned about. I think our focus ultimately is on -- at the Eat level, at the earnings after tax level, are we staying flat or growing margins? And that's -- we feel like we're still on a path to get there. Operator: Next question today is coming from David Tarantino from Baird. David Tarantino: Rick, I had a question about your views on the overall health of the consumer spending environment. Certainly, you had a great quarter. But I guess over the last few months, we've seen a lot of crosscurrents related to the job updates and whatnot. So I'm just maybe wanting to get your thoughts on where we are from the state of consumer spending and whether you think anything's changed recently relative to maybe where you thought it was at the start of the year. Ricardo Cardenas: Yes, David, I can't say that anything has changed dramatically from where we saw it at the start of the year. We are ahead of where we thought we'd be right now. There's a lot of talk about the job revisions, but those jobs didn't exist. So that's what people were working. And so we're dealing with what was actually happening, not what was thought to be happening. And so I believe that the August retail sales were up pretty significantly, and we had a pretty darn good August too. So I don't see any dramatic change to what we thought the consumer was. David Tarantino: Great. And Raj, one quick clarification. You mentioned the inflation versus pricing gap is expected to narrow as you get into maybe the second half of the year. Is that because of the price components going higher or the inflation components coming down? I guess, could you explain kind of how that might work? Rajesh Vennam: Yes. Sure, David. It's primarily the -- we are taking a little bit more price as we go through the year. We mentioned that at the beginning of the year, right? We started pretty low in the first quarter. We expect to get for the full year to be in the mid- to high 2s. And we started with 2.2, as you can see, as the year progresses, that moves up a little bit. And then there's also some near-term pressures that we expect, because like I said in the commentary around beef, we don't think all these high prices are sustainable. I mean these are pretty punitive to the consumer, and we're trying to protect them by not pricing for it. Operator: Next question is coming from Sara Senatore from Bank of America. Sara Senatore: I wanted to ask about the idea of sort of investing and growing top line, more of a top line-driven growth algorithm. You mentioned pricing below inflation and, obviously, affordability is something that your brands are known for in terms of value for the money. But I guess I could also characterize marketing as a way to do that or even perhaps subsidizing delivery fees. So I was just curious, as you think about the kind of different investments, is marketing something -- I know you said you got some leverage, so marketing dollars were higher though, perhaps a little bit light of what we might have expected. And you talked about delivery fees as perhaps margin pressure. So I wasn't sure if that's because you're not fully covering them with what you charge your customers. But perhaps you could -- and I know it's free delivery this quarter, so perhaps that's an exception. But maybe you could talk a little bit about as you think about investing behind top line, these other possible ways to do that. And then I do have another quick follow-up. Ricardo Cardenas: Yes, Sara, we do believe that marketing can help drive traffic. And while our marketing as a percent of sales didn't seem to grow, I think Raj mentioned in the prepared remarks, we had some cost saves in marketing that offset our actual marketing growth. So we actually had more TRPs out there, our other brands that are not on linear TV or testing connected television and other digital aspects, Cheddar's has their first ever 30-second commercial on a connected television. So we are increasing our marketing activity because we believe that will drive some traffic. But we're not doing it at deep discounting in the ways that we had done it in the past. And you did -- I think you answered your question on the delivery fees. There are other ways that we can do things to drive delivery. But this quarter, the 1 million free deliveries did impact a little bit of the margin. Sara Senatore: Great. And then just the follow-up was, I think, Rick, you alluded to less snacking or munching. I was curious, is that like a GLP-1 reference in terms of like how people are changing their eating patterns? Or was it more people are prepared to give up some of these sort of convenience or impulse occasions and spend behind really good experiences like they get at Olive Garden or LongHorn or your other brands? Ricardo Cardenas: Yes, I think it's a little bit of both. There are some people on GLP-1s that when you do the research on them, they eat smaller portions or they eat out a little less, but when they eat out, they actually eat out more in casual dining. And so there is a little bit of that. But I think it's maybe even a consumer that says, "I'm just trying to be healthier or eat a little less." And so maybe there is a little less snacking. And at the lower end consumer, they probably don't have as much resource to go out as much as they did, and it's probably impacting another category more than it is impacting us. Operator: Next question today is coming from Jeffrey Bernstein from Barclays. Jeffrey Bernstein: Great. Rick, for fiscal '26, you raised your comp guide modestly. But clearly, that's in spite of maybe what many people expected, a slightly tougher macro and concerns of a consumer slowdown, and we know about the tougher compares. I think you mentioned the first quarter was modestly above your plan. But any color you could share on your confidence in raising that guide? And as we think about the current fiscal 2Q, the compares are definitely much tougher. I know, last quarter, you were willing to frame kind of what you expected for the current quarter versus your full year guide, wondering whether you think the fiscal second quarter will come in above or below kind of that new range. And then I had one follow-up. Ricardo Cardenas: Yes, Jeff, I'll start by saying we wouldn't have increased our guidance if we didn't feel confident about it. So as we look at our same-restaurant sales and our total sales -- part of the reason we raised our total sales is we're really confident in our unit count in development. We increased the number of -- well, we got rid of the low end of our range for development and we say now we're approximately 65, partly because we are -- most of the restaurants are either built or being built or open already, and some of them are coming in earlier than we thought. So we feel really good about our development pipeline. And I'll let Raj talk about the cadence of our comp, but -- for the second quarter and beyond. Rajesh Vennam: Yes, Jeff, I'd say, look, we expected as we went into the year for the back half to be not as strong in comps as the first half. But I think as the year is progressing, we're learning more and we feel really good about how even the second quarter started off, and that's all taken into consideration as we provided this guidance. But I think ultimately, the cadence will still be the fact that we still expect the back half to be lower than the first half. Jeffrey Bernstein: Understood. And then just a follow-up on your Uber partnership. I know it's still early, but it seems like you're having success with Olive Garden and Cheddar's with the 1P. I'm just wondering, first, whether you'd consider a next brand to embrace that 1P Uber delivery and whether there's any updated thoughts on potential for using Uber for the order aggregation part of things, not just delivery. Ricardo Cardenas: Yes, Jeff. We are pleased with our first-party delivery, both at Olive Garden and at Cheddar's. It continues to grow for us. We do have another brand that's wanting to embrace it, and we would expect that brand to be on the platform sometime in Q3. I won't tell you what brand that is, but they're very excited to jump into the first-party delivery. In regards to marketplace or third party, whether it's Uber or anyone else, we still have some challenges with the model. We're focused on first party right now. And we've talked about the things that we don't like about third party. If a provider can come with every solution that we have for third party or the reasons that we don't like it, then we would definitely consider it. But right now, we're very comfortable and very pleased with how first-party delivery is going. Operator: Next question is coming from Jacob Aiken-Phillips from Melius Research. Jacob Aiken-Phillips: Yes, I first wanted to double back on unit growth acceleration over like the medium to long term. I know you took away the lower end. Just how should we think about that ramping up, especially with -- I know there's some new prototypes, there's some acceleration in Canada and a couple of moving parts? Ricardo Cardenas: Yes. The development is our owned restaurants, so 65 of our restaurants. Canada is all franchised, so that doesn't count in our unit growth. We get a lot of good royalties from that, but that doesn't -- isn't a unit for us. In regards to how we're going to ramp up our, 5-year plan, has us solidly in our long-term framework of 3% to 4% of our sales growth coming from new units. And so you would expect our unit growth percentage to ramp up a little bit year-over-year. Jacob Aiken-Phillips: Great. And then just on -- I know that there were like some prototypes of like smaller, but then also some competitors are saying they're seeing some higher construction costs from like imported stuff. Any comments there? Ricardo Cardenas: Yes. We've got a couple of brands -- actually, all of our brands, especially Olive Garden and LongHorn, over years, worked on the right prototype size. Yard House and Cheddar's have just come out with new prototypes that are smaller, much more efficient and the costs are lower than it would be for building our existing prototype-size restaurants. And we've opened a few of them and they're doing really well and they're able to generate the sales that our existing prototypes are generating in general. In regards to costs, our costs are much closer and actually sometimes under our budgeted amounts, which is very different than it was before. Tariff impacts, we don't believe, are too dramatic to construction costs. And so we feel really confident about our pipeline and being able to build them at a very good return for us. Operator: Next question is coming from Jake Bartlett from Truist Securities. Jake Bartlett: My first one is on delivery. I'm hoping you can frame the mix that delivery was in the first quarter, but also what the exit rate was after the promotion. Also, whether you expect to promote similar promotions in the -- as we go forward in '26. And then I have a follow-up. Ricardo Cardenas: Yes, Jake, I'll speak specifically to Olive Garden. I think that's what you're asking for. So for Olive Garden delivery in the first quarter was about 5%. We exited at about 4%. As we mentioned, when we stopped 1 million free deliveries, we exited a little bit lower, but still 40% above where we were before the promotion. I think that was... Jake Bartlett: That was the question. And whether you expect to doing a similar promotion to 1 million... Ricardo Cardenas: Sorry. I don't know if we may do another 1 million free deliveries. I don't know, but we do have marketing funds that Uber gives us based on our volume. And so we're going to utilize those somehow. Whether it's 1 million free deliveries or doing something different, we will utilize those funds. Jake Bartlett: Got it. In terms of the Never Ending Pasta Bowl promotion, I think time is similar to last year. I'm wondering, you made a comment about consumers really grabbing -- taking towards on price certainty, some momentum in August. I'm wondering whether you can comment on how you expect Never Ending Pasta Bowl to perform this year versus last and maybe how it is performing, whether it's particularly resonating with consumers right now. Ricardo Cardenas: Yes. I will say that Never Ending Pasta Bowl is off to a good start for us. It's really at the center of Olive Garden's core equity of Never Ending Craveable abundant Italian food. And preference is up versus last year, and the team is doing an amazing job ensuring that guests get refilled. So the refill rate is way up. So I think guests are understanding that promotion more and more as we brought it back and they really understand the value that it brings. And I will say that the performance to date is in our guidance. Operator: Next question is coming from Peter Saleh from BTIG. Peter Saleh: Great. Maybe just one question, on the beef situation. Can you elaborate a little bit more on maybe what's driving it higher in the near term or more recently? And why do you think this is not sustainable? And then just more specifically, if these prices are sustained or maybe even go higher, would you take a little bit more price at LongHorn in the back end of the year? Just trying to understand the strategy there if beef prices actually go a little higher from here. Rajesh Vennam: Yes, Peter, let's just start with the dynamics, right? Right now, supply is constrained from a few things. One, there have been some pack or cutbacks and also Mexican cattle imports have been halted because of the screwworm outbreak. So those are kind of the drivers of the supply constraint. In addition to that, tariffs on Brazil are causing a significant reduction in beef imports into the U.S. So that's also creating a constraint. So those are on the supply side. The part of the reason we don't believe that kind of price increase, especially double-digit price increase you saw, we're seeing are not sustainable, is because the consumer can't afford these. And over time, there will be some -- there should be some demand destruction. And also, the amount of cattle on feed has actually been fairly consistent month to month. And at some point, this cattle has to be -- has to go to -- put to work, I guess. So those are the reasons how we think about where the prices might go. Who knows exactly? We don't know. We're just -- but we're a lot more open for those reasons. Now as we think about what would we do, yes, if these price -- if prices stay very high, that means that the demand is also very high, which means we should be able to take some price. We're not -- that's not our preferred path, but if the dynamics lead to a place where we feel good about demand, then yes, we'll take some price. Operator: Next question is coming from John Ivankoe from JPMorgan. John Ivankoe: I want to go a couple of different directions. First, Raj, in your prepared remarks, you did talk about seeing some demand destruction at retail. I wondered if you're actually seeing that, if it's recent. Some of the data that I've seen, I thought it was recent, was actually showing quite high demand at the retail level. So I just -- hopefully, got your facts being better than mine, just to kind of correct me what we're seeing in retail and if we are seeing any material signs in any slowdown in retail because that could certainly help us on the restaurant side from a supply perspective. Rajesh Vennam: Yes, John. So you're right in the fact that if you go back a few months, it's been pretty robust. But if you look at the last month of data, you're starting to see that decline. Actually, the data we have shows that the volume actually declined in the low single digits year-over-year at retail. That wasn't the case for prior, call it, 4, 5 months or so. So there was -- yes, there was some resiliency in that, but it's starting to -- at least we saw 1 month of data where it slipped into low single-digit decline year-over-year. John Ivankoe: And that's maybe just classic growing season being over and people are just shifting to other things. That's helpful. So... Rajesh Vennam: No, John, it's year-over-year. Sorry, I just want to clarify, we look at year-over-year. So seasonality is captured in the year-over-year. John Ivankoe: Yes. But it's -- we're speaking the same language, I just said that awkwardly. So it was interesting, hearing things like reduced portion prices of some -- reduced prices and some portions of some core menu items, things like Hawaiian Steak. I'm not going to name the brand that it reminds me of 20 years ago, but -- and this wasn't a Darden concept, but I've seen this done actually quite unsuccessfully over time. In other words, when consumers kind of expect to see a certain amount of food on the plate, especially at dinner, that's not something that you're necessarily happy with even if they are paying lower prices. So Rick, I'm sure you know exactly what I'm talking about. But was there anything to learn about previous history lessons in casual dining specifically? I think this was probably tried around 2007, 2008 where smaller portions at smaller prices were tried, but weren't successful. And things like Hawaiian Steak way back when, which are tried that a few people like, but it's really a lot of people different. Where are we on that stage gate process today in 2025, maybe versus some of the lack of success, the overall industry had 20 years ago? Ricardo Cardenas: John, I'll start with the Hawaiian Steak. It's not a smaller portion size. It's a Cheddar's. It's a great portion for Hawaiian Steak. And by the way, LongHorn ran Hawaiian Steak and did really well with it a few years back. So maybe there's different tastes now than they were back then. And in regards to portion size, I think if you go back 20, 30 years ago, overall portions were maybe a little bit smaller in the dinner menu already. And so if somebody brought even smaller portion, it went a little bit too far. And then -- but the way we're thinking about it is there is a consumer group out there that believes in abundance, but abundance is different for everybody. And by bringing some smaller portion sizes to the dinner menu at Olive Garden, there are still abundant portion sizes, but it also adds price breadth to the menu. So consumers can choose. We're not changing our entire menu to make it a smaller portion. We are putting items on there that are smaller with a compelling price point. And at Olive Garden, you still get the unlimited soup or salad and you get all the Breadsticks you want. So it's still a great -- it's still abundant. John Ivankoe: And maybe our consumers finally evolved that you don't need to have uneaten food on the plate to feel that you've gotten good value. You can just see just the right amount of portion and be happy with it. So that would certainly be a change versus the old America, but that would obviously be a good direction to go. Operator: Next question is coming from Lauren Silberman from Deutsche Bank. Lauren Silberman: So, I just want to go back to top line. A lot of questions, obviously, what's going on in the restaurant industry broadly. You talked about strong August. Can you just help unpack sort of what you saw in terms of cadence of comps during the quarter? Any more color on September from that? And then any differences in performance that you're seeing across the regions? Rajesh Vennam: Yes, Lauren, I think from a cadence of comps, actually, the gap to the industry was the biggest for us in August. In fact, when we look at our own internal comps, we were actually -- July was our weakest. And so for us, June was pretty strong. July was still strong, all positive, but just if you look at the weak month-to-month, July was weaker than June and August. And actually, like I said, August had the biggest gap to the industry. As far as regionality, there isn't a huge amount of regionality. It's actually what we're seeing is fairly similar to what we see -- what you kind of see in Black Box with certain markets still not performing as well, such as Texas, and Florida is starting to pick back up so it feels like Florida is getting better. And then depending on the brand, California had some decent strength. So that's all I can share regionally. There's not a lot of other stuff to get into there. Lauren Silberman: And then just a follow-up on the commodity side. What are you expecting in terms of cadence to get to the 3% to 4% for the year? I understand like there's a commodity price dynamic, but do you expect like 2Q to peak in terms of actual commodity inflation? Rajesh Vennam: At this point, yes, we think Q2 will probably the peak. But Q3, Q4, probably not that much lower. I mean by the time we get to Q4, we expect it to be a little bit better than where we would be. But Q1 would be the lowest that we just had, right? It was 1.5%. I think pretty much every quarter going forward is, we're expecting to be north of 3%, and that's how you get to the 3% to 4% guide. But Q2 is probably the peak. Operator: Next question is coming from Danilo Gargiulo from Bernstein. Danilo Gargiulo: Maybe a year ago or so, you started talking about the relevance and importance of improving the speed of service and maybe, arguably, with the increased focus on affordability or right portion for the right price, there could be even more of an overlap between consumers who might be choosing casual dining over fast food. And so I'm wondering if you have any early signs or any KPIs that are showing some momentum that you're picking up in the improvement in speed of service so far. Ricardo Cardenas: Yes, Danilo, across our brands, we're seeing some brands with some improvement and other brands that haven't really made a whole lot. And so we had a refocus on that this year at our general manager conference, and we would expect to see greater improvement in speed of service in the upcoming years. Recall, when I mentioned that, I said this is going to take a while. And it is taking a while. But the managers are really getting on board with it over the last year, and the reinforcement of our conference gives me great confidence that we're going to get better. In regards to, do we have any data to say that we're taking share from other categories, the only thing I can say is all of our consumer groups and all of our income groups were positive year-over-year in casual dining, which is probably the best chance to take share from other categories. And those other categories have had a little bit more traffic decline. So maybe we're taking share or maybe they're just losing some share. Danilo Gargiulo: And then it sounds from Raj's response that there's not a lot of regional differences maybe with the exception of Texas and maybe pockets in California. So if you're stepping back and analyzing the delta between the top-performing stores within the same brand and the bottom-performing stores within the same brand, what is the one characteristic that is driving the increased performance? And how can you make that more standardized across the rest of the group? Ricardo Cardenas: I will say this is a tried and true thing in restaurants, the thing that drives the most performance within a brand is the quality and consistency of the managers in that restaurant, and the team. And so as turnover gets better, if you've got a great general manager and a great team of managers that are running things to our standards, you have better performance. And so that's going to be restaurants for the rest of our lives. You can have restaurants that are in a market that's doing great, but the restaurant is not doing great. It all comes down to leadership. Operator: Our next question today is coming from Dennis Geiger from UBS. Dennis Geiger: Just wanted to ask if anything to note -- else to note on sort of behaviors that Olive Garden, LongHorn or broadly across the portfolio as it relates to performance across daypart or even kind of within the menu side, desserts, alcohol, anything to call out there? Rajesh Vennam: Yes. Look, I think we are seeing -- I mentioned a little bit about alcohol. There is less -- we're seeing some lower preference on alcohol across most of our brands. There is -- some brands at LongHorn, for example, has grown lunch more than their dinner, but all dayparts are growing there. And then in Fine Dining, I think we're seeing a little bit more drop-off in the business travel that's leading to some weekday weakness. But those are some of the dynamics from a consumer perspective that I can share. Operator: Next question is coming from Chris O'Cull from Stifel. Christopher O'Cull: Rick, the conversation around eliminating the tip wage seems to be ramping up. Do you believe there's a risk that it could be eliminated? And how are you thinking about any potential impact it could have on the business? Ricardo Cardenas: I would start by saying this industry has really diverse business models. And we believe that the policy environment should reflect the level of diversity in the model. As a full-service operator, our business model continues to be the best choice for our guests and our team members. And I will tell you that whatever happens, we're going to be okay with it, okay in the way we react. So I don't foresee a big change in that. But if it does, we will work through those things and come out okay. Operator: Next question is coming from Brian Vaccaro from Raymond James. Brian Vaccaro: Just two quick ones, if I could. First on the housekeeping side. Raj, could you break out the Olive Garden comps between traffic and check? And as we think about check at Olive Garden, I think it's been exceeding pricing for the last several quarters. Is it still reasonable to expect check to exceed price as you think about the next few quarters? Rajesh Vennam: Yes, Brian. Let me start with the breakdown. Olive Garden same-restaurant sales was 5.9%. Their traffic, as we measure was 2.8%, but then they also had catering of 80 basis points. So I would categorize that as 3.6% traffic growth. And then when you think about the check, the pricing was 1.9%, and Uber fees, basically the delivery service fee net of the discount, was about 40 basis points. So yes, as we go into the future, do we expect check to be a little bit higher than pricing? Yes, but it will be because of the delivery fee and service fee. That's really the driver. Yes. Brian Vaccaro: And then just as a follow-up, obviously, talking about investing in the guest experience, as you've been doing for a while, but thinking about fiscal '26 specifically as well. When you look at labor in the first quarter, it looks like labor per operating week as we look at it, was up 4.5%, maybe closer to 5%. You talked about the higher incentive comp, and obviously you have higher traffic, which takes more labor to service. But I'm curious to what degree that also reflects some reinvestments that you're making in the guest experience. And maybe you could provide a few examples of the specifics on those reinvestments. Rajesh Vennam: So Brian, let me just start by saying, from a labor perspective, our total inflation was 3.1%, right? So if you look at -- you mentioned 4.5% increase on dollars, but if you take the 3.1%, that is part of it. Then it was up about 1 point or so, but our traffic was up closer to 3% once you take into consideration the catering for -- at the Darden level. So that means we're actually getting some leverage on that traffic. And so that's really what's happening. And that's why I mentioned in the script that we were -- we had productivity improve actually year-over-year. We continue to look at ways to invest in labor. I don't think we need to get into specifics, but some of the things that Rick mentioned about speed, those are places where we're looking at. How do we help ensure that? But that doesn't translate necessarily into a labor deleverage because you actually get more throughput when we make those investments. Operator: Next question today is coming from Andrew Charles from TD Cowen. Our next question is coming from Jim Sanderson from Northcoast Research. James Sanderson: Just had a few follow-up questions. Going back to the delivery segment, have you discussed what percentage of sales mix was incremental? I think that's been a little bit of a moving target, especially given the promotions. Maybe you could update us on what you expect incrementally out of delivery for both Olive Garden and Cheddar's. Ricardo Cardenas: Yes, Jim, I'll speak specifically outside of the promotion. It's about 50% incremental. During the promotion, when you get free delivery, some of the people that would have gotten normal to go probably shifted into delivery. But outside of that, it's about 50%, both at Cheddar's and Olive Garden. James Sanderson: So relatively stable with what it has been, let's say? Ricardo Cardenas: Yes. James Sanderson: And just a follow-up question on Olive Garden, when you were talking about the breakdown of same-store sales. I didn't really detect any negative mix. And I was wondering, does that mean that the smaller portions and the promotions aren't having any meaningful impact on check? Is that the right way to look at that? Rajesh Vennam: Well, they have -- that specifically has a negative impact, but it was offset by other mix. So we are seeing -- we had -- I think we mentioned on the call, we had the Calabrian Steak and Shrimp that had a higher price, but we actually had -- saw a pretty strong preference there, that helped. So it was mostly entree mix itself tended towards higher value, sometimes maybe higher price items. Operator: Next question is coming from Andrew Charles from TD Cowen. Zachary Ogden: Yes. This is Zach Ogden on for Andrew. Could you just elaborate on where the strength is coming from for Other Businesses? Are there certain brands that are outperforming others and what would be leading to that? Ricardo Cardenas: Do you mean in the Other Business or other business? I just want to make sure I understand the question. Zachary Ogden: Yes. So the Other Businesses segment, so the 3.3% in 1Q. What was the strength coming from there? Ricardo Cardenas: Well, we mentioned that 3 of those brands were all positive, some more positive than others. I think Cheddar's was the most positive and then Yard House after that and potentially Seasons are right around there. But I think Cheddar's had the highest comp in that segment. Zachary Ogden: And then could you just comment on what you're seeing from the younger cohort more broadly, maybe just beyond delivery? Are you seeing certain -- or, I guess, relative strength or weakness among Gen Z? Ricardo Cardenas: They're fairly similar to the rest of our consumer group. Operator: Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Courtney Aquilla: This concludes our call. I want to remind you that we plan to release second quarter results on Thursday, December 18, before the market opens, with a conference call to follow. Thank you for participating. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Research Solutions' financial and operating results for its fiscal Fourth Quarter and Full Year ended June 30, 2025. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Steven Hooser, Investor Relations. Steven Hooser: Thank you, David, and good afternoon, everyone. Thank you for joining us today for the Research Solutions' Fourth Quarter and Full Fiscal Year 2025 Earnings Call. On the call with me today are Roy W. Olivier, President and Chief Executive Officer; Bill Nurthen, Chief Financial Officer; and Josh Nicholson, Chief Strategy Officer. . After the market closed this afternoon, the company issued a press release announcing its results for the fourth quarter and full year [indiscernible] the release is available on the company's website at researchsolutions.com. Before Roy and Bill begin their prepared remarks, I would just like to remind you that some of the statements made during today's call will be forward looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied due to a variety of factors. We refer you to Research Solutions' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. Also, on today's call, management will reference certain non-GAAP financial measures, which we believe provide useful information for investors. A reconciliation of those measures to GAAP measures is included in the earnings press release issued this afternoon. Finally, I would like to remind everyone that this call will be recorded and made available for replay via the company's investor relations website. I would now like to turn the call over to Roy W. Olivier, Roy? Roy Olivier: Thank you, Steven. Good afternoon, and warm thanks for joining us. Overall, we're pleased with the progress of business in FY '25. We set many new records for the company's performance, including $21 million in ARR we grew ARR 20% in FY '25 and remain focused on hitting our $30 million platform ARR target by the end of FY '27 this is not guidance, but a BHAG or a Big Hairy Audacious Goal. Our acquisition pipeline is strong, and we have several opportunities that we believe would allow us to hit that goal faster. To do that, we need to execute well on several fronts. First, we need to execute from a product perspective in terms of providing unique value delivered at the right time in the customer journey. Much of this involves development of our existing products and expanding how AI can help researchers accelerate research in a copyright compliant way. While we can always improve, we continue to make good progress in this area. Second, we need to continue to execute in our marketing and sales teams. Market has done a great job in building top of funnel leads through marketing activities, including digital spend, webinars, white pay more, we see strong results in this area. As you know, we brought a new Chief Revenue Officer in November of 2024 and have seen strong B2B sales in the second half of the year. We expect that to continue in FY '26. Third, we seek organically and through acquisitions, unique value that can be software tools, content or a combination of content that we believe are not only unique today but will remain unique in the AI world. We'll discuss this a bit later in the call in terms of how we think about our strategy going forward. Finally and most importantly, we need to have the right strategy. We have been a company in transition from a transaction-based company into a vertical SaaS company for many years. We are now in what may turn out to be a period that will drive massive change in the segments we serve due to the MPI will have on research workflows. Over the past several years, we have built a great set of software and other research tools to support research. As we look forward, large LOMs have the potential to drive massive change to research workflows so we must pivot our strategy to be where the customer is and deliver unique value at the right time, at the right place in the research workflow. In short, we will continue to improve software tools for our customers to simplify and accelerate the research process, but we will also need to improve our software APIs and create new AI-based solutions to support larger customers who will standardize on one LLM but need some unique value data that we can provide. Our AI-based products are organically growing at almost 4x the pace of our legacy products today. We expect to see strong tailwinds from AI in the next few quarters, and we think we are uniquely positioned to take advantage of that as we update and expand our products. Josh Nicholson will provide some context about that. updated strategy later in the call. For now, I'd like to pass the call over to Bill to walk through our fiscal fourth quarter and full year 2025 financial results in detail, and then I'll come back with some additional comments. Bill? . William Nurthen: Thank you, Roy, and good afternoon, everyone. I will start by first summarizing the fourth quarter results, and then we'll discuss the full fiscal year results. Please note for comparisons between the fourth quarter 2025 in the fourth quarter of 2024, those comparisons are fully organic. For fiscal year 2025, the results include 12 months of contribution from the site acquisition compared to approximately 7 months in fiscal year 2024. The fourth quarter was another really strong quarter for our business and served as further validation of how our ongoing shift to SaaS revenue is translating into expanding margins, profitability and cash flow. Total revenue for the fourth quarter of fiscal 2025 was $12.4 million compared to $12.1 million in the fourth quarter of fiscal 2024. Our platform subscription revenue increased 21% from the prior year quarter to approximately $5.2 million. The growth was primarily driven by growth in both B2C and B2B platform revenue including for the latter, a net increase of platform deployments and upsells and cross-sells into existing customers. As a mix of total revenue, platform revenue accounted for over 40% of the revenue in the quarter for the first time at 42% compared to 35% in the prior year quarter. We ended the quarter with $20.9 million in annual recurring revenue, or ARR, up 20% year-over-year. The result included another impressive quarter of B2B ARR growth. You may recall that in our last quarter's call. I commented that net ARR growth in Q3 was a company organic record of $736,000, this quarter was very close to that result as net B2B ARR growth was $724,000, which compares to $407,000 in the prior year quarter. We also added 38 net new platform deployments. The last quarter, the growth was well balanced between new sales and upsells and occurred across both Site and Article Galaxy products. The total company ARR at quarter end breaks down as $14.2 million in B2B ARR and approximately $6.7 million in normalized ARR associated with sites B2C subscribers. We did experience a modest sequential decline in B2C ARR as the late spring into summer is seasonally a difficult time for that product. As a result, the net total incremental ARR growth for the quarter was approximately $567,000. We see today's press release for how we define and use annual recurring revenue and other non-GAAP items. Transaction revenue for the fourth quarter was approximately $7.3 million compared to $7.9 million in the prior year quarter. We started seeing some year-over-year declines in paid transaction order volumes in February of 2025 and that trend continued through our fourth quarter. Our total active customer count for the quarter was 1,338 compared to 1,398 in the same period a year ago. Gross margin for the fourth quarter was 51% a 450 basis point improvement over the fourth quarter of 2024. This was the first time in the company's history that blended gross margin has been in excess of 50% for a quarter and platform gross profit contributed over 70% of the total gross profit in the quarter. The platform business recorded a gross margin of 88.5% compared to 85.3% in the prior year quarter. This was an unusually high result and I suspect it could come down some in future quarters, but not materially. Gross margin in our Transaction business was 24.1% compared to 25.4% in the prior year quarter. The decrease was primarily attributable to lower fixed cost coverage due to the lower revenue base. I expect transaction gross margins to look more like this quarter's result in future quarters, should we continue to experience similar year-over-year declines in transaction revenue. Total operating expenses in the quarter were $5.1 million compared to $5 million in the prior year quarter as increased sales and marketing expenses and general and administrative expenses were partially offset by lower stock compensation costs. I will comment that while sales and marketing expenses were up year-over-year, they were down sequentially. This is due to some seasonality we have in our accruals that typically produce a sequential reduction in sales and marketing expense between Q3 and Q4. As a result, I expect sales and marketing expense to look more like what we saw in the third quarter of 2025 as we look ahead to future quarters. Lastly, the Q4 result for general and administrative expenses did include over $100,000 in severance-related charges that were accrued at year-end. Other income for the quarter was $1.2 million and was primarily attributable to a favorable adjustment to the final earnout determination per site. Other expenses for the prior year quarter totaled $3.5 million, which included a $4.3 million charge related to an earn-out adjustment in that period per site. Net income for the quarter was $2.4 million or $0.07 per diluted share compared to a net loss of $2.8 million or $0.09 per diluted share in the prior year quarter. Adjusted EBITDA for the quarter was $1.6 million, which was a 13% margin and a new company quarterly record compared to $1.4 million in the fourth quarter of last year. Now let me turn to our results for the full fiscal year 2025, which was also another record year for the company in many respects. Total revenue for fiscal 2025 was approximately $49.1 million, a 10% increase from fiscal 2024. Platform subscription revenue increased 36% to roughly $19 million. From an ARR perspective, we added over $2.1 million in net B2B ARR for the fiscal year. And total deployments ended the year at 1,171, up 150 for the year. Net B2C ARR increased just under $1.4 million for the year. Transaction revenue for fiscal 2025 was $30.1 million, a 2% decrease from the prior year. The decrease, as previously mentioned, is attributable to the declines in order volumes we experienced in the second half of the fiscal year. Gross margin for fiscal 2025 was 49.3%, a 530 basis point improvement over fiscal 2024. The result represents a 23% year-over-year increase in the company's gross profit. Total operating expenses in fiscal 2025 were $21.7 million compared to $20.4 million in the prior year. The increase is attributable to higher sales and marketing expenses, offset by lower general and administrative expense and lower stock compensation expense. We intentionally invested in sales and marketing expenses in fiscal 2025 and believe we are seeing some of that pay off with the recent quarterly performance in net B2B ARR growth. Other expense for the year was $1.2 million compared to other expense of $2.9 million in fiscal 2024. And -- both years reflect net adjustments -- net expense adjustments of $1.7 million and $5.1 million, respectively, made related to the site earn-out. Net income for fiscal 2025 was $1.3 million or $0.04 per diluted share compared to a net loss of $3.8 million or $0.13 per diluted share in the prior year. Adjusted EBITDA for the year was $5.3 million, a company record compared to $2.2 million in fiscal 2024. It also represents the first time in the company's history that full fiscal year's adjusted EBITDA margin crossed the 10% threshold. Before I discuss cash flow on our balance sheet, I would like to take a minute to discuss the final determination of the site earn-out. The final earn-out was determined to be $15.4 million. This was to be paid 50% in cash and 50% in stock over 8 quarters. However, through an offer to site shareholders, we increased the cash mix portion of the earn-out payment to approximately 62%. We made this offer given the confidence we have in our cash flow and the desire to issue less shares as part of the overall transaction purchase price. We made the first payment on the earnout in August, which consisted of approximately $1.3 million in cash and approximately 265,000 shares. Future cash payments will be approximately $1.2 million each quarter and the shares to be issued will change quarterly based on a market calculation of their value prior to the distribution of the shares. The payments will be every 3 months and will be completed in May 2027. Turning to cash flow. It has been very satisfying to see the transformation in cash flow in the business over the past few years. Our cash flow has continued to outperform our adjusted EBITDA which I think is a testament to the quality of our earnings and the validity of our SaaS revenue mix shift model. In fiscal 2025, we generated over $7 million in cash flow from operations which has almost double the result from the last year of approximately $3.6 million. This cash flow has translated into a nice cash build on our balance sheet. I'll remind everyone that when we completed the site acquisition in December 2023, our cash balance dropped to $2.7 million. Now only 18 months later, we were able to end fiscal year 2025 with a cash balance of $12.2 million, and there are no outstanding borrowings under our $500,000 revolving line of credit. As a result, barring any strategic M&A-type activities, we expect that we can make the site earn-out payments in fiscal year 2026 and still end the year with a higher cash balance than we have today. As we look ahead, we are enthusiastic about the momentum in our B2B ARR growth and believe that can continue. There are some competitive pressures we are experiencing in the B2C space that may affect near-term growth, but we remain positive regarding the long-term prospects for that business as well as our ability to convert certain groups of B2C users to larger B2B platform sales. Lastly, transaction revenue growth was challenging in the back half of fiscal 2025. We expect it to continue to be challenging in the first half of fiscal year 2026, but are optimistic about a flattening of the decline or even a possibility of a return to low levels of growth as we get into the back half of fiscal 2026. From an expense standpoint, we will continue to invest in sales and marketing as well as in technology and product development, while aiming to reduce our overall general and administrative. From an adjusted EBITDA perspective, I expect to follow the same seasonality as last year with the first quarter being potentially a slight dip sequentially from this quarter, but a beat to last year's Q1 result. Q2 will likely be our weakest quarter and then our strongest quarters will be in the back half of the year. All things considered, we remain on track to have another record year of performance. Further, our present cash balance, paired with our expanding adjusted EBITDA and cash flow, leave us better positioned than ever to execute on M&A opportunities. I'll now turn the call back over to Roy. Roy Olivier: Thanks, Bill. A few additional comments about our FY '25 results. As a reminder, we made several investments during the year, some of which are, we invested in a new Chief Revenue Officer, who joined in November of '24 and has overhauled the way we go to market. These changes have driven nice results in the second half of the year, and we expect to continue to see that in FY '26. As a result of his efforts, we have signed more large contracts in recent months, including several over $100,000 in ARR than we've closed in the company's history. We've also seen strong results from the new academic focused sales team we formed in early FY '25. It's our fastest-growing segment and generated new bookings equal to the long-standing corporate focused team. That said, our business remains 80-plus percent corporate customers. We made a change in leadership over our transactions business. As previously noted, that business has seen headwinds, but we have some levers we can pull to improve results. The new team is aggressively evaluating ways to do that and working with our product management and software engineering teams to implement those improvements. We have seen some short-term successes and we'll report more in our Q1 call. We've also made several changes to the software engineering and software development teams over the year. We believe those changes will accelerate development velocity, and provide more high-value features to our customers as we go through FY '26. We revamped how we identify and pursue acquisition targets, as a result of the changes we made, we have a large pipeline in place today. The targets we have are actionable, meaning valuation expectations seem realistic and add new workflows or content that we believe will fit well into our customer base. In addition, we believe our products are fit into their customer base. I'm confident we'll be able to move forward with one or more deals in FY '26. In addition, given our strong cash generation, I believe we can finance those deals primarily through senior debt and cash. I have a strong bias towards sellers who want to stay with the company and grow the combined business and want stock to do so. However, I expect deal structures will be more weighted toward cash at close. We also invested resources in time to create a new source of revenue with the recently announced AI rights product. Every customer of ours is concerned about copyright compliance and wants to make sure they have the rights they need when they need them. The best example of that recently is AI rights. Our solution allows the customer to know what rights they have in a single click and acquire rights as needed. It allows the customer to use AI, provides new revenue source to the publishers and add real value to our product. It's been very well received by customers and our publishing partners, including some of our largest customers. I've got a few more comments about the future, but right now, I'd like to pass it over to Josh, our Chief Strategy Officer, to walk you through some of the things we're doing to drive growth in this new AI-driven world. Josh? Josh Nicholson: Thanks, Roy, and hello, everyone. Today, I'd like to highlight some of the broader shifts we're seeing across the web with the rise of LLM and chat bots and how these changes are creating new challenges as well as opportunities for us. Increasingly, more people are performing what the Wall Street Journal called zero-click search, that is people are turning to AI as answer engines and getting good enough answers without having to click through to the underlying data, whether that is a news article or Reddit thread or in our case, a scientific article. As Roy and Bill have highlighted, this is manifesting on our side with [indiscernible] transaction revenue slipping and publishing partners reporting declines in traditional usage-based statistics such as full text reads and downloads. . Our internal surveys from users point specifically to AI being the reason people are acquiring less articles. In short, AI is shifting demand from article retrieval to structured reasoning, which means the future of research and our products must be task and databased. Over the last few calls, I've highlighted how our AI strategy is to focus on specific researcher based workflows with AI, differentiating ourselves from more general tools by focusing on the first and last mile of the researcher journey, something that might be too small or too complex for a generic tool to accomplish. We will continue to focus on specific researcher needs as we develop our products and go-to-market approach, but we will also increasingly look to be where the customer is or what we call a headless strategy. We see site and article galaxy increasingly being used as an API-first platform. Our customers are no longer just logging into a single interface. They are embedding site directly into their own systems, dashboards and even generative AI assistance. This headless strategy is intentional by decoupling our services from a fixed UI, we enable developers and institutions to full citation graph, evidence summaries and right cleared full text content directly into their workflow. Already, we have deployed various API first deals across both products, some of which have been our largest contracts ever for our respective product site in Article Galaxy. This approach allows us to go where the user is through integrations into internal built tools, third-party products and to shift our focus from an arm's race to an ARM supplier. We have launched an AI TDM rights offering that allows our customers to easily and securely get AI rights for articles they have acquired. And while many publishers might negotiate these rights directly, it's important for us to display that information for our users and to make it possible to acquire the rights where necessary. Closely tied to this, we are exploring working directly with publishers to enable AI models and agents to discover content and source AI rights from a single pan publisher resource called an MCP or Model Context Protocol. We believe such infrastructure is the future of how large language models interact with research articles, presenting the path for AI models to securely clear scientific articles, retreat citations, verify claims and integrate trustworthy literature directly into its reasoning process. In practice, this means that whether you're a pharmaceutical company building an in-house assistant and academic using a generic AI your company has licensed or a publisher enabling AI-driven services Research Solutions becomes the compliant safe bridge between proprietary content, licensing and reliable AI output. Taken together, these initiatives mean Research Solutions is no longer just a distributor of articles or a platform for positioning ourselves as the building blocks of scientific AI, the infrastructure that ensures research content is accessible, reliable and legally cleared for the age of generative AI. I'm excited by our progress as a team and I think we're uniquely positioned to serve the needs of publishers and researchers in an AI-native world. Thank you again, and I'll now turn it back to Roy to wrap up. Roy Olivier: Thanks Josh, I mentioned in my introductory comments, the things we need to execute on in FY '26 and beyond. The most important one of those things is strategy. We have spent a lot of time in FY '25 looking over -- looking -- thinking about all the different things we do and what we might do that is unique. A few of those things are managing the customer's library of scientific research, including what rights came with those articles, the ability to easily access rights the customer needs when they need it. The site badge, which is like a FICO score or Rotten Tomato score for an article being evaluated and that is unique in the market today. The site search, which includes searching beyond the paywall for most of the world's content. This generates better results, is copyright compliant and actually improved sales of articles for the publisher. Generally, the large LLM search abstracts and have near 0 behind the paywall access. Because of all of this, site generates far fewer hallucinations in its results. We also deliver articles from 2,000-plus publishers, a vast majority of those are delivered in a few seconds. And we integrate curated data from several sources to improve AI-generated output. We have the ability to do that today given the databases we acquired as part of the Resolute acquisition. That is a big part of our headless strategy because it will offer our customers curated databases to include insights assistant or other AI-generated output. . In short, I think we're on the right track in terms of an updated strategy that will position us well in the new AI world. We also think the operational improvements and investments mentioned above will enable us to execute that strategy, both organically and through acquisitions. One final comment. I did mention in the pre-release of our earnings back in August, that we were focused -- or that we continue to be focused on the weighted rule of 40. We -- in FY '25, the calculation was a 34 in the rule of 40, and as we think about our FY '26, we expect to make continued progress toward the 40 number. Just to -- as a reminder, the weighted rule of 40 is your ARR growth rate as a percentage times 1.33 plus our adjusted EBITDA margin as a percentage times 0.67. So with a little more weighting on growth, we continue to lean toward investing in growth to make it to the weighted rule of 40. After all that, we remain excited about where we are, how we're positioned and where we're going. And I'd like to turn the call back over to the operator for questions. Operator? Operator: [Operator Instructions] We'll take our first question from Jacob Stephan with Lake Street. Jacob Stephan: Maybe just first, wondering if you could touch on the nice sequential uptick in ASP. Maybe help us kind of think through some of the drivers of this? Was it more cross-sell, upsells or kind of larger new deal activity? Roy Olivier: Bill, do you want to take that one? William Nurthen: Yes, sure. No, we are -- I mean, part of what we've seen with the onboarding of the new CRO and some of the sales training that we've been doing is that we are actually getting larger deals. And so I think Roy mentioned we had -- we've got announced just recently a couple of hundred thousand dollar deals in. And these are in the past few months, we've seen some of the larger deals in our company's history. I'll also say there was sort of a period where we had some churn from Resolute in the past, which was traditionally more of a larger deal where that basically caused a decline in our ASP. And so that has kind of leaned off and now we're at a place where we can sort of build back ASP. And I think it will be a focus as we do additional sales training, bring on some better salespeople over time and again, continue to see some larger deals. Also just as it relates to some of the API type deals that Josh was talking about. Jacob Stephan: Okay. Got it. And you kind of ask one question further on Resolute. Obviously, you noted some churn issues kind of starting off there. But how are you using the product? How do you see the Resolute software adapting to your new strategy of being the API provider for LLMs? Roy Olivier: Well, Resolute has always had a strong API and has not necessarily had a strong UI in their software. So Resolute works much better in this headless strategy than it works as a product unless we go in and rewrite big parts of the product. which we have not wanted to do. So we haven't talked about Resolute in a number of quarters because it's a product we don't focus on. We focus on a heavy investment in site and heavy investment in Article Galaxy, which, of course, are driving all of our growth. However, as we develop this headless strategy we talked about, being able to plug in the 13 additional databases via API into the workflow kind of resurrected that product in terms of selling that data to customers. And Josh, you may have a few other comments on that. Go ahead, if you do Josh Nicholson: Yes. I'd really just emphasize that there are these 13 highly curated databases kind of coming to us for an API to get and access to the article, to get clinical trials, to get research articles, to get news articles, all these different things is a big value add for customers. And so I'm personally excited because it's kind of been right there in front of us for a while, and it's very easy to execute on. The one thing I would also say about the API-first deals is that by embedding ourselves into the infrastructure of some of these large companies, I think those contracts become very sticky. And so I'm personally quite excited by the Resolute databases really coming back to life as a focus for us. Jacob Stephan: Okay. Maybe just one last one, more on the kind of competitive environment in this headless strategy. Are you aware of anybody else that's kind of doing -- running the same API strategy to kind of plug in with the larger LLMs? Roy Olivier: Do you want to take that, Josh? Josh Nicholson: Yes. I think I think what we're starting to see in the ecosystem is some publishers doing this. And so if you look at why we, I think the third largest publisher, they are directly opening up their articles or segments of their articles to LLM providers such as Anthropic. On their recent earnings call, they talked about leaning more into AI and specifically AI licensing deals. And so I think we're going to start to see this across the ecosystem from publishers themselves. I think publishers will have somewhat of a challenge becoming a pan-publisher source for this, largely because competitors don't want to give their content to other competitors. And so this is what we're talking about when we say we're pretty uniquely positioned is that we work with virtually all publishers. We're already driving them revenue. And this is really, as Roy and I have said in the past, kind of a shift from [indiscernible] . And so I increasingly see these bits of articles or chunks of articles and specifically the data from articles being something that's valuable that integrates directly into tools, whether that's a hyperscaler or whether that's an internally licensed LLM at a large corporate or even an academic institution. So I think it's an exciting time, and I think there's a lot of people kind of looking at this and trying to say, how do we bridge this gap between research articles and AI. Operator: We'll take our next question from Richard Baldry with ROTH Capital. Richard Baldry: Same question I asked last quarter, the COGS line was actually slightly down on the platform side, while revenues were up pretty good. Can you talk again about sort of the trends there, whether this is sort of getting the peak optimization, I think about it that way? Or is there further cost improvements that can come on the platform side even as the top line is scaling? Roy Olivier: Bill, do you want to take that? William Nurthen: Yes, sure. Yes, some of this is effectively using our cash. I mean really where this is coming from is we sort of stabilized the labor base there that grows kind of just was like not a lot of additional headcount, but just cost of living increases, things like that. But we've really tried where we could to lower or limit the increase in the hosting cost. And some of what we've been able to do is take the cash flow that we've had and apply that to some prepayments where we prepay some of our space with Amazon Web Services and other providers. And as a result, we're actually getting it cheaper over time by prepaying. So I'm not sure how much we can do that going forward to sort of see it decrease, but I think we can do that to the extent that it will increase less than at the pace that we're growing the revenue, which again is why I think you're seeing some very high numbers on the gross margin side for platforms. We're also seeing in certain areas, AI becoming cheaper, so as we grow, some of the AI providers we use get cheaper over time. And so that's impacting the number as well. Richard Baldry: Okay. Then on the AI-related deals being 4x the growth rate of non-AI, do you think that can continue at this pace? Is there sort of eventually the scale of that base gets big enough that it can't keep up at that sort of delta? How do we think about that headed into the next sort of year or 2 as a driver? Roy Olivier: Yes. I think we expect to see similar results in the B2B space. In the B2C space, we don't expect it to grow as much as it did in FY '25 simply because the base is getting bigger and it is getting more competitive. But Josh or Bill, I'd invite you to add any comments you might have. Josh Nicholson: Yes. I mean I would just again emphasize I think with this headless strategy, this is internal tools or internal companies using internal AI and this allows us to price based on like the usage of this, right, the calls that they're making to our API. And so what we're seeing is as these tools ramp up, it's less looking at here's a 100-person seat license versus here's a company-wide integration into a tool that they're heavily training on. And so I think that will command larger check sizes at B2B. And I think as we started to prove that out, those will continue to grow because we're going into places that companies are already investing a lot of money into. Richard Baldry: Great. And last for me would be, can we dig a little deeper into the strength in the deals above $100,000? So are you going after a different type of customer? Or are you going after a different value prop? Are they larger deals per customer? And how are you achieving that on sort of a similar customer base? Or is it different verticals? How are you getting sort of larger deals out of what presumably is a similar customer set? Roy Olivier: Yes, there's a few moving parts. One is the new sales process and the new CRO has brought in a number of new people who are not kind of preprogrammed with an expectation of what we should sell a product at. And a big part of the new sales process is spending time qualifying the customer and understanding what their pain points are, what value we can use to address those pain points and what the economic impact to them will be if we do. And then the products are being priced accordingly. So I think part of it is -- and I think it's probably a big part of it is sales execution and the way we're selling now. Secondarily, we did wholesale change the pricing on the academic segment of the business, not much of that is reflected in FY '25. But what we did do in '25 is we experimented with different pricing points. In other words, when we acquired site, they had a fairly set pricing model for libraries. We sold at that price point. We sold at price points way above that price point, and we kind of played around with pricing in FY '25 until we figured out a new model that we recently implemented. So some of it is just our standard pricing has changed. And I guess that would be the 2 main drivers that I can think of. Bill, is there any more that you can comment on? William Nurthen: Not too much. I do think it's a sales execution thing. And really, before we frame a proposal to a customer, really trying to understand their pain points and how much value the product is going to deliver for them and then pricing that value accordingly. Operator: [Operator Instructions] We'll take our next question from Derek Greenberg with Maxim Group. Derek Greenberg: The first question I have is just on a recent partnership you guys announced with LibKey and the integration there. I was wondering if you could just talk a little bit more about this partnership and the opportunity there. Roy Olivier: Yes. As that address -- I'll jump in and Josh, you can add some comments. But basically, in the academic segment, LibKey is a big player in the library, providing a product that's called a Link Resolver. And Link Resolver, what it basically does is when you do a search and you get an answer to your search in terms of a scientific article, it kind of resolves where you go to get to the link to obtain that article. And they've been doing that for a number of years, private company successful. And we also work with, frankly, 3 other link resolver companies that we worked with for a number of years. And so putting together the Third Iron deal, Third Iron is the company that owns and -- I'm sorry, the LibKey product. We've run a number of webinars in conjunction with them, which introduce us into their libraries. And keep in mind, academics is new to us. I don't think we have more than 200 academic customers. There are 10,000-plus libraries out there that we can sell into. So we view partnering with Third Iron around LibKey as an opportunity to expand our academic business as well as kind of revisiting the partnerships we have with some other providers that provide a product like LibKey to expand into their academic library business. Josh, anything you want to add? Josh Nicholson: I don't have too much to add except to say that we look at a variety of different services that Roy mentioned to get our users access, whether that's subscription-based access that they have from their university or whether they're an individual at a university, access to the content as quickly as possible. And so there's really kind of like a hierarchy of needs and looking at how can we make sure we're facilitating access for the end user in the most robust and kind of efficient way possible. And I think leveraging our partnership with LibKey is one piece of that. Derek Greenberg: Okay. Got it. Turning to the cross-sell between Site and Article Galaxy. I was wondering if you have any statistics you're willing to provide in terms of what percent of Article Galaxy customers are also customers of Site. I recall previously, you said this was single digits and you were looking to get to double digits. I was just wondering how things are progressing on that side. Roy Olivier: Yes. We have not disclosed that number. I can tell you that -- and Bill, correct me if I'm wrong, a vast majority of the site sales in FY '25 are to what we call a new, new customer. In other words, we're not doing business with them on the Article Galaxy side. We do some cross-sells and a lot of times, those cross-sells are pretty big from an ARR perspective. But I think if you look at it from a logo perspective, vast majority of the logos are new, new customers. Bill, anything to correct that? William Nurthen: Yes. I would still describe it, excuse me, as low to mid-single-digit penetration on the Article Galaxy customer base. Derek Greenberg: Okay. That's helpful. My last question is just on margins. We saw some really good improvement this year. EBITDA margins growing 5%, doubling year-over-year. I was wondering, looking towards '26, how we see expansion relative to this year in margins and how you expect, I guess, operating expenses to grow compared to revenue? Roy Olivier: Bill? William Nurthen: Yes. I think part of the question for us is how much do we invest back into sales and marketing and tech and product development. As I said, we're trying to basically try to keep investing in the sort of those 2 top lines on our expense base, sales and marketing, tech product development while cutting sales -- excuse me, cutting G&A, things like stock comp where we can. But I will say -- so in other words, I think we'll definitely cross the 10% margin threshold for the year. We want to stay above that. I think next year, we can be above where we are today, but we may temper that a bit. In other words, I think we could run 15 plus, but I don't think we're going to do that. I think we'll invest back into it. And so we'll kind of be somewhere in between that kind of 10% to 15% range, and that's where I expect we'll kind of end up from an EBITDA margin. I think gross margin will continue to expand. That will be 50%-plus for the year next year. And expense base, tough to say. I mean, again, I think it could -- we'll kind of pull levers where we need to pull levers. But again, could be 10% growth on the sort of SG&A type bucket. But again, I think I'll have more update on the Q1 call as we see our Q1 results come in and as we sort of further define and chart out how we're going to manage expenses and invest in growth for the rest of the year. I do think transactions are a key element of this. And on our own internal models, as I said, we're modeling those down at least for the first half of the year. And so if you are sort of building models and such, I would do similar from that standpoint until we start to see that turn the other way. But given that, I still think we'll be kind of at the levels I talked about as we look ahead to '26. Roy Olivier: I did get one question via e-mail. Can we explain the strategy to stem the decline and resume growth in the transactions business? To address that, what I would say is the current thinking is product improvement to improve conversion percentages. And I think part B of that is understanding what's driving the change. In other words, we're seeing a significant year-over-year increase in monthly average users and weekly average users which is great. But what we're seeing is a big increase in them acquiring free documents and not paying for documents. As Josh mentioned, we recently did a survey that suggested some of our customers, around 10%-ish of our customers are buying less documents because they can get a good enough answer from AI. So our current thinking is to improve -- we have a massive amount of traffic in site, and we have a massive amount of traffic in Article Galaxy. And so our current thinking is to work to make -- to improve the conversion rate to also take advantage of the opportunity, you just bought this article, here's 3 other articles like it. You just bought this article, here's 5 articles that have a supporting statement in them related to the one you acquired or have a contrasting statement in them related to the one that you acquired. Do you want to buy these? So it's really -- I use the comment internally, we want to be the Amazon of Docdel. We want to make it super easy. It's not as easy as it could be today. We want to suggest it sell. We don't really do that today at all and do some other things. As I mentioned, we already took action on one barrier and saw a pretty nice improvement, which if it were to continue for all 52 weeks because we look at weekly data, would be a high 6-figure improvement in revenue to that business. And as you know, that's a pretty EBITDA profitable business for us. So we've got a number of things in the works, but strategically, we focus on SaaS revenue and AI, but we do have a fairly large around 60 people that work on the Docdel business. The leader in that business now is a guy who's very technologically savvy, and he's gone through every internal process, every customer process that we have with the intent of how do we make this more seamless and more suggestive to drive more sales in that business. Back to you, operator. Operator: And there are no further questions on the phone line at this time. So I'll turn the program back to you, Roy, for any additional or closing remarks. Roy Olivier: Okay. Well, thanks, everybody, for your time, and I look forward to connecting in November to discuss our first quarter fiscal 2026 results. Have a great day. Operator: This does conclude the Research Solutions fiscal and operating results for its fiscal fourth quarter and full year ended June 30, 2025. Thank you for your participation, and you may disconnect at this time.
John Messenger: Great. Good morning, everybody. Thank you for being with us this morning for the Barratt FY '25 full year results meeting. Just a couple of points of housekeeping. There is no fire alarm expected. So if there is an alarm, follow Mike through that door, because he will be the first off or through this door with myself. We're going to start with David in a moment. So David is going to do a first intro, then pass it over to Mike, and then return to David, and then we'll open it up for Q&A. But with that, I'll hand over to David. Thanks, David. David Thomas: Thanks, John, in your comparing role. So good morning, everyone, and welcome to the first full year Barratt Redrow presentation. So as John said, Mike and I are going to take you through our FY '25 performance and current trading as well as updates on sales outlets and also building safety. We'll conclude by looking at the market and the underlying fundamentals and why Barratt Redrow is best place to perform across the cycle. First of all, I'd like to just take you through some of our key messages for today. In FY '25, the market clearly remained challenging. Affordability was a constraint for many and consumer confidence remained low with political and economic uncertainty persisting. Despite this, the business has produced a very resilient performance, both operationally and financially, alongside completing the majority of the Redrow integration whilst delivering cost synergies well ahead of target. The business remains financially robust, underpinned by our strong balance sheet. And now through our acquisition of Redrow, we have 3 distinct brands that position us well for future growth. So looking in a little more detail at the operational highlights from last year. Bringing the Redrow brand into the business was, of course, a particular highlight, allowing us to reach most of the market as well as capitalize on synergy opportunities. We received CME clearance in October 2024 and as mentioned, have already completed the bulk of the integration. This allows us to concentrate on maximizing the benefits of the combination and driving the total business forward. In the year, we remained active in the land market, enhancing our land position through strong approval levels utilizing our numerous land channels. We delivered 16,500 homes, which is a significant achievement in what is a challenging market. I would also like to take a moment to highlight some of our externally accredited achievements over the past year. Our repeated success in the HBF ratings and the NHBC Pride in the Job Awards are testament to the dedication of our teams across the business as well as the quality of the training and the customer first culture we maintain across the group. This quality is also reflected in our Trustpilot scores given by our customers, which award all 3 brands with the highest rating of Excellent. Mike will cover the financials in much more detail, but just to pull out a few highlights. Whilst our completions came in modestly below guidance, our adjusted profit before tax and PPA was in line with market expectations. This reflected our rapid progress on cost synergy delivery with GBP 69 million confirmed in the year and GBP 20 million crystallized in FY '25, double our previous forecast. Our return on capital employed, excluding PPA, improved to 10.7% from 9.5%. We finished the year with a strong net cash position, supporting our growth and capital allocation plans. Now looking at reservations. Our growing portfolio of PRS partners helped to increase our overall reservation rate to 0.64. Additionally, some improvement in mortgage competition and availability provided a boost to our net private reservation rate, excluding PRS and other multiunit sales. However, the improvement in the rate was offset by the reduced number of sales outlets and our opening order book. Turning now to completions. Our total completions were down 8% compared to the aggregated figure for FY '24. This was due to a reduction in affordable completions, reflecting the nature and timing of these types of deals. However, we were pleased that our underlying private completions in the year were up around 3.5%. Our average selling prices saw price inflation of around 1% with customers remaining very sensitive to both increases in headline prices and reductions in incentive levels. Other increases in underlying private ASP were largely due to increased delivery of larger homes outside of London. For more detail on reservation rates, completions and ASPs, please see the information in the appendices. Our land bank supports our medium-term growth ambitions. Our multiple land pipelines allow us to source high-quality land throughout the cycle. While planning remains a slow process, we are very optimistic about the reforms and the positive changes we will see once the legislation is passed. Gladman remains an important part of our business and will also benefit from the planning reforms, being the partner of choice continues to benefit us in the land market as well. In the year, we announced the MADE partnership alongside Homes England and Lloyds Banking Group, and also the West London partnership with places for London, giving us access to further high-quality land opportunities. Moving on to outlets. The proposed planning reforms, as I've said, are extremely positive. However, they have taken longer to come into law than we expected. Therefore, as announced in our July trading update, we expect outlet numbers in FY '26 to be largely flat. From FY '27, we will start to see organic outlet growth plus the benefit of our revenue synergy outlets. As seen on this graph, the vast majority of our FY '27 outlets are already open or have detailed planning concern. In FY '28, there is still a relatively low proportion of forecast outlets that rely on future planning approvals. This provides us with excellent visibility over the next few years and gives us confidence in our growth forecasts. On current trading, in July and August, we saw our net private reservation rate, excluding PRS, increased slightly compared to the same period in FY '25. However, we recognize that the market remains subdued. And after speculation about stamp duty, some customers are going to wait to see the impact of the budget in late November. Meanwhile, the lack of PRS reservations in the period simply reflects the timing of deals. Our year-to-date completions are marginally ahead of last year's and our forward sold position is in line. So we are very pleased with the solid start to the financial year. So I'm now going to hand over to Mike who will take you through our FY '25 performance and financials. Michael Scott: Thanks, David. Good morning, everyone. So as David said, I'll take you through our FY '25 performance and also spend a few minutes this morning on building safety. This slide shows FY '25 performance against the reported position for FY '24, which obviously excludes any impact of the Redrow acquisition. I'll touch on the P&L metrics shortly. But you can see here our total home completions of 16,565 homes and strong closing net cash position of GBP 773 million after the payment of GBP 249 million of dividends, GBP 50 million spent on the share buyback and just over GBP 100 million spent on building safety remediation. So if I move on now to a more meaningful comparison of performance as Barratt Redrow. As we did at the half year, we're focusing on the FY '25 performance stripping out the impact of deal purchase price allocation adjustments, which I'll touch on later. And these are noncash accounting adjustments, which largely fall away from FY '26 onwards. We think this is the best view of underlying trading in the business during the year. In the comparative for FY '24, we're including Redrow here from the 24th of August 2023, but without any adjustment for accounting policies. And we've put a more detailed slide in the appendices if anyone has the appetite which shows the reconciliation of all of these amounts to ensure you've got full transparency. So several points to highlight. First of all, total home completions, as David said, were down 7.8% as a result of lower outlet numbers during the year. Despite the lower volume, adjusted gross profit was broadly flat at GBP 970.3 million, and gross margin improved by 30 basis points to 17.4%, which mainly reflected modest sales price inflation and the positive mix effect of more recently acquired land coming into production. Adjusted operating profit was up 2.9% at GBP 595.4 million, with margin up 50 basis points at 10.7% reflecting the benefit of cost synergy delivery during the year. Adjusted profit before tax was GBP 591.6 million, slightly ahead of guidance in July, and adjusted EPS was 30.8p, which delivers a full year dividend up 8.6% to 17.6p. So overall, we're pleased with the performance of the combined group delivered in the year despite the reduced total home completions and particularly positive to see both gross and operating margins moving in the right direction. This slide updates on the accounting fair value adjustments that have been finalized since our provisional position at the half year, and 4 changes to draw out here. First of all, the uplift on land and work in progress is now GBP 120.4 million, that's up from GBP 93 million at the half year, and that reflects the final valuation of sites in the opening balance sheet. Secondly, as I mentioned back in February, the recognition threshold for building safety liabilities is lower than normal for Redrow because we were required to bring contingent liabilities onto the balance sheet by the accounting rules. As we detailed in the July trading statement, we've increased Redrow's building safety provisions to take into account concrete frame issues in London, and this has increased this adjustment to the GBP 144.5 million shown here. The final changes relate to the tax effect of the fair value adjustments, resulting in a GBP 94 million adjustment to deferred tax. So goodwill recognized on the Redrow transaction is, therefore, GBP 321.9 million and that's up from the provisional estimate of GBP 259 million. So again, just to note that most of these fair value impacts have actually already unwound in FY '25 with a reduction of GBP 103.3 million in adjusted profit before tax. We're expecting a further GBP 20 million charge in FY '26 before this becomes immaterial to future years. So moving on to land, and this is the updated position on embedded gross margin in the land bank. And pleasingly, the land bank margin continues to improve, up 90 basis points since half year to 19.2% at the end of June. So with little net inflation impact, roughly 1/3 of the improvement came from the utilization of land in the half and the remaining 2/3 from the new sites that we've added to the land bank. And as you know, we remain focused on improving this position over the medium term to our current gross margin hurdle rate of 23% by optimizing price, managing build cost inflation effectively and bringing new land into production. So moving on to look at adjusted operating margin in FY '25. And from last year's Barratt only operating margin, we saw a reduction of 120 basis points from reduced volume. That was almost all offset by improved pricing across the year. And as we've said previously, build cost inflation was broadly flat in FY '25. Looking at our same site, same house type measure of inflation, which covers around 1/3 of our volume, like-for-like sales price inflation was around 1.4% in the year. Last year, we saw a step-up in completed development costs, but these have normalized this year, resulting in a positive margin benefit of 80 basis points. The impact of other mix effects, including Redrow coming into the group, contributed 70 basis points together with a further 30 basis points from the cost synergies we realized during the year. Our adjusted operating margin before the impact of fair value PPA adjustments was therefore 10.7%. And you can see the impact of those PPA adjustments, which take margin to 9%, flat on the Barratt only margin from last year. So now just to update on cost synergies. We're making really good progress on realizing the cost synergies target of at least GBP 100 million with GBP 20 million included in the income statement in FY '25. With 9 office closures confirmed, 6 were completed by year-end and 3 are in the final stages of closing at the end of June with GBP 23 million of savings confirmed. The head office rationalization is also underway, and will complete shortly with GBP 21 million confirmed at the 29th of June. And on procurement, we're making good progress in aligning pricing and terms across key materials categories with GBP 25 million confirmed at the 29th of June. As we said, our operational leadership was aligned and effective from the 1st of July 2025, and the IT integration is in progress with the migration of 6 remaining divisions expected to complete in FY '26. Having crystalized GBP 20 million of cost synergies in FY '25, we're well on track to deliver an incremental GBP 45 million in FY '26. So on revenue synergies, just to give you the latest numbers to date, we've now submitted 25 planning applications at the end of August, and we've already received planning permission on 9 of those sites. We expect to submit the remaining applications during the course of FY '26, and we're very much on track to see the first incremental outlets ready to open at the start of FY '27. So now I'd like to spend a few minutes just updating on building safety. So as you know, our approach from the start of this issue has been to focus on the safety of the buildings we've built and the people who live in them. We've been very engaged with government, and we were the first housebuilder to create a unit dedicated to remediation, and we commit significant time and resources to support it in delivering our program. We apply a rigorous process in assessing buildings within the scope of our obligations. That includes using reputable fire engineers and seeking peer reviews of all fire risk assessments undertaken on our buildings. We're also making some progress with recoveries from the supply chain, where we have a robust case to pursue them for substandard workmanship or design. So looking at our building safety provisions, we currently have GBP 886 million on the balance sheet relating to fire and external wall system issues. During the year, we brought the Redrow provision of GBP 184 million onto our balance sheet. And as we announced in July, within the Barratt legacy portfolio, we've provided GBP 109 million across 3 areas. Firstly, GBP 76 million in relation to developments in our Southern region, which related to a specific build typology we don't think is repeated anywhere else in the group. We've also seen GBP 17 million of incremental costs at an existing remediation project in London. But other than that, the underlying position was relatively stable with a net GBP 16 million movement of costs, which was offset elsewhere in the income statement by supply chain recovery. Moving on to look at the provision for concrete frame issues. We carry a provision of GBP 187 million at the end of June. During the year, no new buildings came into scope in the Barratt portfolio. As we updated in July, we identified concrete frame issues similar to those identified on legacy Barratt development at up to 4 Redrow developments. And we booked GBP 105 million to the opening balance sheet provision for these issues. But based on the reviews we've carried out today, we don't expect any further buildings to come into scope for these frame related issues going forward. So on to the balance sheet, and here's our usual balance sheet breakouts. And in the appendices, we've included a slide which reflects the impact of the consolidation of Redrow at fair value and also the movements from underlying trading. So 2 points to highlight here. First of all, the ongoing organic investment in land. And as well as bringing Redrow's land into the balance sheet, we invested an incremental GBP 181 million across FY '25. The significant increase in land creditors saw an additional GBP 167 million added over and above Redrow's consolidation. So land creditors remained below the target range of 20% to 25%, but moved up to 15.9% this year, and we're looking to ensure that we add land on deferred terms to take us into that 20% to 25% range. Part exchange has increased by GBP 39 million, which is a reflection of its importance of a selling tool in a tough market, but more than 2/3 of the 549 homes in our portfolio had already been sold by the 29th of June. And as you know, we keep tight control of part exchange stock. So here's the cash flow bridge for Barratt Redrow from reported operating profit on the left to the net cash outflow on the right and really just a couple of things to point out from this slide. Firstly, a step-up in tax payments was the prime driver of the GBP 101 million outflow in interest and tax. And as I've already noted, building safety spend totaled GBP 101 million. Our operating cash inflow was GBP 50 million, and we brought Redrow's cash onto the balance sheet and also made some further investment into additional timber frame facilities at our Oregon factory in Scotland. With dividends paid and the share buyback of GBP 50 million, the net cash outflow for the year was GBP 96 million. So just to update on capital allocation and just reiterating our unchanged capital allocation priorities here. Clearly, our enhanced scale and balance sheet strength with net cash of GBP 772 million and committed lending facilities of GBP 700 million put us in a very strong financial position looking forward. We're focused on investing in our business to drive our future growth. David detailed our sales outlook profile, and we're focused on delivering land to accelerate development using our 3 brands. We remain committed to innovation and development and we'll continue to invest in opportunities like the timber frame facilities and also our sustainability initiatives. And finally, we have a clear approach on shareholder returns, including our ordinary dividend at 2x cover and the ongoing share buyback program of at least GBP 100 million per annum. So turning now to guidance. Most of these points have been covered, but just to highlight, we expect our adjusted administrative costs to be around GBP 400 million. This reflects the additional period of Redrow's overhead base, which will impact FY '26, underlying cost inflation and the benefit of incremental synergies of approximately GBP 30 million. We're anticipating total synergies of GBP 45 million with the balance of GBP 15 million crystalized in cost of sales. A finance charge of approximately GBP 50 million, which is dominated by noncash charges in relation to land creditors and legacy property provisions as well as modest cash interest income on a reducing cash balance. In relation to land, we expect to operate at broadly replacement levels and spend between GBP 800 million and GBP 900 million on land and land creditors in FY '26. On building safety spend, we estimate spend will be around GBP 250 million for FY '26. And within this, I'm assuming that around half of our building safety fund costs will be paid during the year, so that's around GBP 70 million. Looking at net cash at the end of June 2026, we expect to be between GBP 400 million and GBP 500 million. So finally, to summarize, we believe we've delivered a solid financial performance in FY '25 in what was a tough market. Adjusted profit before tax was delivered slightly ahead of expectations for the year. And notwithstanding the tough market backdrop, our balance sheet remains strong. We've delivered cost synergies ahead of schedule whilst also making good progress on revenue synergies and the wider integration program. Our land bank and strong balance sheet give us a great platform to grow the business. And finally, we've put in place both clear capital allocation plans with an updated dividend policy alongside the annual GBP 100 million buyback program. And with that, I'll hand back to David. David Thomas: Thanks very much, Mike. And now just turning to look at the market. So I think whilst I've covered earlier that the current market clearly has its challenges, I think we need to bear in mind that the fundamentals of our industry remain very strong. Housing is clearly a top priority for government and the demand for homeownership remains steadfast. When consumer confidence returns, the policy environment becomes clearer and the planning reforms kick in, we can expect to see a strong uptick in planning approvals, outlet growth and opportunities to increase sales and volumes through our 3 leading brands. We remain confident that Barratt Redrow is best placed to navigate the market at all points of the cycle. Fundamental to Barratt Redrow are our 3 high-quality differentiated brands, and we have the skills and experience to deploy them effectively. These brands allow us to operate in a variety of locations and local markets with the optimal divisional infrastructure to match. Our customer focus is clearly demonstrated and recognized by our numerous third-party credentials. We have demonstrated that we are a reliable partner, allowing us to be flexible and innovative. Our reorganized divisional structure and brand portfolio positions us well for growth over the medium term. And finally, we remain financially strong with a solid balance sheet, a robust net cash position and cost synergies, which will increasingly drive higher profit margins. So in summary, we remain confident in the medium-term guidance that we gave in February. Outlet growth on which we have good visibility will allow us to reach our outlets goal, which will flow through to 22,000 total home completions. Our progress on cost synergies has enabled us to deliver on profit expectations, and we will continue to benefit the business financially as we move forward. Savings through synergies as well as greater efficiency of our fixed -- on our fixed cost base will help us to drive our operating margin back to 15%. We will be increasing our use of line creditors, which will aid our return on capital employed, recovering back to 20%. Also helping us to improve return on capital employed will be the effect of multi-branding of developments using our 3 high-quality and differentiated brands. And finally, as we've touched on, we remain financially robust and that gives us confidence in our growth aspirations and also providing stable shareholder returns. Thank you very much. And Mike and I will be happy to take questions, which John is going to host. Thank you. John Messenger: Thank you, David. We're going to open up for Q&A. [Operator Instructions] We'll start in the front row with Will, if you could, please. William Jones: Will Jones at Rothschild & Co Redburn. Try 3, please, if I can. First, just referencing, I think, in the statement, you talked about additional risk given the obvious and understandable around the budget in November. And I think the need for a normal autumn. Could you just expand on what the normal autumn might look like? And perhaps just remind us of the -- roughly the full year sales rate you're assuming? Second one was actually back to building safety, 2 parts to it. To what extent is there still risk around the building count with respect to inactive buildings maybe coming into scope? And perhaps you can expand on the other side, the recovery process. I think you talked about some steady progress there, but what's the potential for that over time? And then the last one is maybe just around build cost. I think you've reiterated your guidance for the current year and you've got good visibility, but just wondering what -- how you think things might shape up for the conversations that start to take place at the end of the year, start of calendar of '26 with suppliers, subdued market for you guys? Will it be, I guess, subdued for them in terms of what they end up achieving? David Thomas: Well, first of all, good morning, Will. Good to see you in the front row. So Mike will pick up in terms of building safety and also on build costs. I mean if I just touch in terms of the budget, I mean, I think really kind of 2 points to make. I mean one is, look, we're pleased with what we've seen through July and August. So that's the first thing. And we've also provided that information in terms of reservations through July and August. I think it's understandable that we would flag that speculation relating to the budget can affect customer sentiment. And we recognize that, that can be both positive and negative. So what we've got to do is we've just got to concentrate on trading our business, making sure that we're putting attractive offers in front of our customers, and we feel that we're doing that effectively, given the market conditions. In terms of rates of sale, we would normally see some tick up as we move into the autumn. So we've clearly provided rates of sales through July and August. I think the tick up in the autumn or the tick up in the spring has probably been less substantial than it used to be. Primarily, I think because we've just seen strong trading through, say, January, February or strong trading through July and August, which we haven't necessarily seen previously. And I mean overall time, I think we said earlier in the year that somewhere around about 0.6 is the kind of rate of sale that we're looking at as a group. Mike? Michael Scott: So if I pick up building safety first. So first of all, on the portfolio that's provided, I think we've got increasingly good visibility on costs and progress there. So about 90% of that portfolio has now been through some kind of tender process on costing or we're actually actively remediating it. So I think the visibility we've got on that is really good. On inactive buildings, I mean they have been through a process, albeit largely desktop in terms of documentation around the status of risk assessments, the build typology, the external wall systems and so on. So there's been an element of process there already. And that's why we don't believe that there's work to do, and they're not in the active bucket. And then if you look at the flow-through of buildings from that sort of inactive group into the provision over time, actually, it's very, very low in the second half of the year, literally just a couple of buildings that moved across. So I think as we move through time, we are increasingly confident of the position. The problem with it is you can't say that nothing will come out as we get into buildings and time passes. But I think our visibility and confidence is increasing. On the recovery process, I mean, we're engaged in a number of conversations. Obviously, we can't talk too much about them for commercial reasons, obviously. But I think we are engaged in that process. We recovered GBP 60 million from the supply chain during the year, and we're actively engaged on a program to do that as we go forward. Moving on to build cost. So I mean, I think we're still comfortable with the 1% to 2% guidance range for the year from everything that we've seen. As we said previously, a little bit more pressure on labor and the subcontractor side than on materials. And I think some of that's now the flow-through of the national insurance increases and the other labor cost increase is coming through. And again, it's the early-stage trades. It's the ground workers and so on that we're seeing a little bit more pressure on. But we obviously also have the benefit of the cost synergies through our procurement program. And again, we've had really good engagement with the supply chain on that. We're able to get very good forward visibility of the growth of the business, which is helpful. So overall, we're comfortable with 1% to 2% for this year. John Messenger: Aynsley from room. Aynsley Lammin: Aynsley Lammin from Investec. Just 2 from me, please. One, if you could just provide a bit more color on incentives and pricing and what you're doing going into the autumn selling season in relation to that? And then secondly, just on the planning, obviously slow to come through at the local level. Could you just remind us of the time line of what happens from here when you expect that to actually start to impact positively at a local level when the legislation comes in, et cetera? David Thomas: Yes. Aynsley, so I mean, first of all, in terms of incentives, I mean, the short answer is no real change in relation to incentives or incentive levels. I think when you look at our incentives, I mean, I won't run through them all, but if I just highlight 2 or 3 of those incentives. So for example, for first-time buyers, we will offer a deposit match. So if the first-time buyer has a 5% deposit, we will effectively match that deposit. It allows the first-time buyer to get on to a 90% loan to value, and that is an attractive proposition. Secondly, we have, for a period of time, accelerated post COVID, run a key worker discount. So primarily aimed at blue light workers, but a broader range has been brought in of key workers. I don't think analysts are in that range. But we can expand it, and that is a really attractive proposition. So we're typically offering a 5% discount subject to ceiling. So it probably blends at about 3.5%, 4%. And then the third offer is part exchange. So part exchange is probably our most expensive offer. We don't look to make profit on the part exchange offer, but it is a very attractive offer for consumers. So if you were a second or a third time buyer, then clearly taking all of the pain out of the move process is attractive. And I think we tend to see that when the second hand market, the existing home market is a bit slower than part exchange becomes much more attractive. But we're still seeing overall incentive levels as we've set out sort of 6% plus in terms of overall incentive levels and quite a bit of that is driven by part exchange. In terms of planning and infrastructure, we've said very consistently that the government coming in, in July '24, have really tried to take a transformational approach to planning. We have to remember that if you go back to March, April '24, we were going backwards very, very rapidly from a planning point of view. And I think the government has set out what I see as being a very bold and ambitious agenda in terms of planning, not just for residential development, but for commercial development, for infrastructure and so on. Most of that is contained within the planning and infrastructure bill. I think it has taken a bit longer than we would have thought back in July, August '24. And our understanding of the time lines presently is it's going through the review within the House of Lords. And we'd expect that perhaps November, December, it will come into legislation. And then all local authorities will need to comply with the requirements of the planning and infrastructure bill. So we should start to see that taking effect during 2026. John Messenger: Chris? Christopher Millington: Chris Millington, Deutsche. First one, I just wanted just to kind of gauge your steel behind the outlet opening profile. Obviously, we had a delay last time. They're still obviously subject to third parties kind of moving in line just how front or back-end loaded in those periods, do those outlets come through. So that's just the first one. Second one is looking more at the longer-term shape of the balance sheet. There's obviously quite a lot of demands on cash over the next few years. Where would you start getting uncomfortable with regard to adjusted leverage? It does look like the net cash balance is probably going to be eliminated in the next couple of years? And the next -- the last one, I thought a really helpful slide on the land bank margin really good to help us build it up. Perhaps you can give us some sort of guide as to the evolution of that maybe something like when do the sub-15% gross margin categories get eliminated or something to that effect? David Thomas: Thanks very much, Chris. If I pick up on outlets and then Mike will pick up in terms of the sort of shape of the balance sheet and cash and land bank margin. So think in terms of outlook, so we recognize that we had a revision of guidance for outlets for FY '26, which we updated the market with that in July. I mean I think our confidence regarding outlet delivery is twofold. One, we're putting it up on a slide, we've broken it down in detail, and I'm presenting the slide. So I think that demonstrates a strong level of confidence. We wouldn't normally give that level of detail. I think the second point I would say is that this is unusual. I mean I've been here 16 years, and I think at any point over the last 16 years, if we had put up an outlet profile, we would have had much less with detailed consent or much less with planning submitted. And that's just a byproduct of 2 things. One is that since we've gone back into the land market post 2022, we have acquired sites that can be single, dual or triple branded. So that gives us good outlet delivery. And secondly, through the combination with Redrow, we've identified that 45 sites can be delivered. And obviously, we see that there are more than 45 potential. So we take a reasonably conservative view and say we can deliver 45. And that's also entirely in our control, and Redrow are already on those sites or Barratt are already on those sites, and we're effectively either doing a plot substitutional or we're doing a replan. So yes, we have a high level of confidence regarding delivery. As I touched on a moment ago, I think everyone in the industry is very positive about the government's approach in relation to planning. I mean why would you not be? But I think it has been more protracted than anyone would have expected because we're now 14 months later, and we still don't have the legislation. So -- but we are where we are. The legislation will come, and it should be effective from the beginning of '26. Michael Scott: If I just pick up on the balance sheet first. So I guess the first point to make is we're starting from a really strong place. GBP 770 million of cash at the end of last year. We flagged in February that there would be a couple of years of investment in web and infrastructure to get the new outlets open and get us up to the 500 outlet target in a few years' time. So we do expect to be in that phase. We expect to use that net cash over the next couple of years, but then we start to generate cash at the end of the plan as those outlooks come into production and we sort of stabilize outlet numbers. I think when you step back from it, the shape of the balance sheet over the last 3 or 4 years has probably been the outlier in a sense with the level of net cash that we've been holding. If you look over a longer period of time, we'd normally have targeted very small level of net cash at year-end. And that's probably where we'll end up getting back to trust. But I think we're starting from a very strong place. We've got good line of sight to those investments and work in progress and infrastructure to get the new outlooks open. And we've said many times that the strength of the balance sheet is a real priority for us and the board as we go forward. On the land bank margin, I mean it's difficult to predict exactly when those sites will roll off, but average site length is sort of 3.5 years. So you think over the next 2 or 3 years, you'll see those lower site margins roll off. We've given the medium-term target of getting to the hurdle rate of gross margin of 23 and then 24 when the procurement synergies have kicked in. So you'd expect to see that evolution continue over the next few years, 90 basis points up in the year this year with the land we've added. We're carrying on adding land hurdle rates that will blend up over time. So again, it will take a few years to get there, but we're confident that that's directional travel. John Messenger: Great. Ami? Ami Galla: Ami Galla from Citi. A couple of questions for me. One was on the gross margin in the land bank. Can I clarify, is the synergies on top of that, the procurement synergies associated with the gross margin, will that be on top of that? Or is that included in the land bank gross margin that we see? The second question was really on the WIP investments linked to outlets. You've talked about this previously, but can you remind us how should we think about that investment profile over the medium term? And the last one was on the ASP in the land bank. That's also marginally higher, and I presume that's mix as well. Can you give us some color as to how is that -- how is the shape of that mix adjustment over the next 3 years? Michael Scott: Sounds like 3 for me. So gross margin in the land bank does include procurement synergies. So that's fairly straightforward. On work in progress, so I think we're guiding this year that we'll have GBP 200 to GBP 250 million of incremental with investment as we go through this year. And again, that's investing in outlet openings that we'll see coming through both at the end of this year and into FY '27. And then we're not guiding for '27, but we've been at that level of GBP 200 million to GBP 250 million for the last couple of years. And on ASPs in the land bank, it is largely reflective of mix. And clearly, in the land bank now we're reporting Redrow as well, which operates at a slightly higher ASP than Barratt and David Wilson did previously. We're not seeing any particular sales price inflation at the moment. Our sort of like-for-like measure is broadly flat on selling prices. So the increase in ASPs that you're seeing is coming through the mix of sites rather than inflation. John Messenger: Clyde? Clyde Lewis: Clyde Lewis at Peel Hunt. 3, if I may as well. Firstly, on the desire to grow the deferred terms around the land buying, how easy do you think that's going to be? And do you think that's going to limit your choice in any way in terms of what you can buy? Second was around the sort of bulk sales mix in terms of the volume guidance this year, what sort of contribution are you expecting to see from bulk sales? And the third one probably was going back to your comment, David, about being up at the company with 16 years, pretty much in every one of those years, you will have seen some sort of demand incentive from the government, whether it's stamp-duty holidays or specific first-time buyer help. Do you think this government actually understands that it's probably going to need some of that to try and get the overall housing market back to where it wants to be, despite all the extra money they put into the affordable housing sector? David Thomas: Yes. Okay, Clyde. Thank you. I think if I just pick up on the deferred terms and Mike will pick up in terms of multi-unit bulk sales, and then we'll just talk -- I'll about the demand side. So I think on deferred terms, I mean -- I think it obviously depends on the position of the land owner, but I would say as a generalization, we are buying sites that are larger than average and the ability to secure deferred terms is greater. So I don't see anything that will change that because we see that when we're bidding maybe on a site that might be 150 to 200 plots, there can be a huge amount of interest in those sites, whereas if we're looking at sites that are maybe 750 plots and above, there's just a limited number of buyers, probably ourselves, Vistry, maybe a couple of the other majors might be in that market. And so I think there is an ability to structure deals, which is -- it's got to work for both sides, but securing deferred terms for us has always been important, and we're just going to place a little bit more emphasis on it going forward. So that's the kind of deferred terms. I think on the demand side, and you've seen everything unfold in terms of the way that the markets evolve. So all the 16 years I've been here apart from the last 2 years, there has been a government-backed program in the market. So since 2009 without interruption. The programs have changed in their nature. And as you know, in the early days, the house builders either participated by providing 50% of the shared equity loan or the house builders paid to access the scheme. And with Help to Buy, the house builders were not asked to pay to access the scheme. And we've said Barratt Redrow, and I know many other house builders said that we would happily pay to access the scheme. We see that when you look at affordability in areas such as London or London in the Southeast, affordability for first-time buyers is at record levels of challenge. We've not seen the kind of metrics on affordability previously. And therefore, you can see that particularly in London, as you know, London for us is a relatively small part, 5% to 7% of our completions in London. But the reality is that affordability challenges in London are acute. And you can see that coming through in terms of the numbers. So our message to government has been the house builders are happy to contribute towards a scheme. It should be targeted at first-time buyers and there should be a particular focus on areas of acute affordability. Michael Scott: And then just on multiunit sales and so on. I think on the affordable side, we are seeing slightly more appetite from the registered providers to do additionality. Again, that was probably backed off a little bit over the last 12 or 18 months, and we're seeing good levels of grant funding come through into some of those deals that we're doing. So I think they'll definitely be a feature for us this year. And then on PRS, as you know, we sort of focused on 2 or 3 key relationships on PRS, the most significant of which is Lloyds Living. And we've talked about the framework we've got in place with them, want to do about 1,000 units a year over time. And in general, as we grow the business to 22,000 homes per year, we think PRS will be about 2,000 of that 22,000. So I think for this year, we'd probably expect multiunit sales in PRS to be just over 1,000 units in the completion mix again. But we're seeing -- we're still engaged in good conversations with the PRS providers. I think that there are still deals there, pricing that we're comfortable to do the deal. And it will just be part of our mix going forward, I think. John Messenger: Charlie? Charlie Campbell: Charlie Campbell at Stifel. Just a couple of questions, please. Just firstly, on mortgages, some changes in stress tests and loan to income. Just wonder if that's had any impact yet and whether we should expect that to have some impact going forward? And then secondly, on Section 106 and HAs, affordable housing, has that appetite return back to normal after the hiatus or do we need to wait for things like the prospectus to come out for the affordable homes program? David Thomas: Charlie, okay. If I pick up both of them. And first of all, I think that everyone is conscious of the fact that there was very substantial tightening of the mortgage lending rules post the financial crisis. And I think we recognize that there is some concerns about a rapid relaxation of those rules. But we would welcome the relaxation that has taken place, and we think that the scope for further relaxation, particularly around multiples of joint income multiples. So I think it's very difficult to disaggregate that from exactly what is the impact. But clearly, it is a positive impact in terms of allowing more lending to take place in the market. And there has been quite a lot of documentation published around the way in which it improves affordability. So that has to be a positive. In terms of the Section 106, I mean, look, at a headline level post the announcement by government, I would say, at June '25, we found the closure of Section 106 agreements in aggregate to be much easier than at June '24. I'm not saying it was easy, but it was much easier. And I think beyond that, it is an assessment on an HA by HA basis. And I think where housing associations have got challenges regarding cladding and cladding remediation, and the government have done something to alleviate that by allowing the housing associations to access the building safety fund. And also where housing associations have got particular challenges around the remediation of existing housing stock, i.e., it needs to be brought up the standard under Awaab's Law. I think the reality is that housing associations have got some cash and funding challenges. So I think it is the housing association specific. And the industry is very definitely flagging that it is not a resolved issue for government. And there's a consultation in terms of the effectively, the equalization of rentals. But that consultation is not closed. And so the equalization of rentals is another very important thing for the HAs in terms of the financial impact it has on the HAs. John Messenger: Allison? Allison Sun: Allison from Bank of America. 3 questions from my side. The first one on the ASP for next year, I don't know what's your expectation is overall. Do you think it's going to still be positive, stable? Or you just still a lot of uncertainties there given the budget impact? Number one. And number two is on the PRS because we also saw the news like the government might impose some landlord tax or the national insurance on the investors. Do you see it's going to be a negative impact for the future investment demand for the PRS? And thirdly is on this future home standard, which I understand we still haven't got full details yet. And I heard there are some builders saying, if there is a mandatory requirement on the solar panel installation, there could potentially be a negative or the downside risk to the earnings for that particular builder. But I wonder if you heard anything on the regulation and what's the progress for the Barratt portfolio? David Thomas: Yes. Certainly. Mike, can you take the ASP one? So if I just pick up on PRS initially. I mean I think this just falls into a category of the sort of budget speculation. And clearly, we don't know whether there is any intention to put national insurance on rental income. So we just have to wait and see. I would think that if you're an institutional investor, then you're going to want to look at that fairly carefully, I would assume. But we'll find out in November about directionally where that is going to go. In terms of the Future Homes standard, so I chair the Future Homes hub. So I'm sort of very close to the Future Homes standard of what's happening with the Future Homes standard. So I think the first thing is that the Future Homes standard has been delayed. It depends on at what point you're measuring, but the Future Homes standard is probably 12 months to 18 months behind when it was originally anticipated to be. And that is giving all participants in the industry more time to adjust. And when the standard comes into effect, we expect the standard to be published prior to Christmas. There will be a transition plan, and that transition plan will run through certainly '26, '27, '28, but the transition plan will be published. And then thirdly, there is a subconsultation about the number of -- the amount of solar panels that will be required on properties. And certainly, from the Future Homes point of view, we've just effectively said that there has to be a balance to that. We shouldn't be in a situation that we're mandating very large quantities of solar panels because the standards can be achieved in different ways, not simply through the provision of solar panels. But when the standard is published in December, we will see the outcome from that. But again, I would emphasize it will be over quite a long transition period. Michael Scott: And then on ASP. So on pricing, generally, we said that using our like-for-like measure last year, pricing was up 1.4%. So that's the sort of underlying pricing position. Year-to-date, that's been flat. So clearly, the pricing position has been more challenging in recent months. And so looking forward into FY '26, we're not expecting any benefit from sales price inflation in the numbers. There will be a small increase in ASPs just coming through the mix effect. We'll be blending in Redrow. And that will be slightly offset by a higher proportion of affordable housing in the year, but I'd expect it to be very slightly ahead year-on-year. I don't think there will be significant movements in the ASPs. John Messenger: Alastair? Alastair Stewart: Yes. Alastair Stewart from Progressive Equity Research. A bit of a niche series of questions all based in Scotland, no vested interest there, of course. Yes. Just a bit of color on Scotland. First of all, you did a couple of deals with Springfield. Any further organic opportunities north of the Borden? Also, the Scottish government seemed to have changed tack quite a lot on -- especially build to rent, but just generally seem to be a bit more pragmatic, let's say. Any color on that? I suppose it's a question for you, David. David Thomas: Yes. I feel well qualified to answer. Yes. Look, we have a big business in Scotland. So we're based in Glasgow, Edinburgh and Aberdeen. And we've had a big business in Scotland over a long period of time. I think that the Springfield deal that you touched on is reflecting two things. One is we have a very positive view of the market in Scotland. It is a market that operates under different regulations and different policy from England. So for example, Scotland never had a government support program, not in the same way. And policies in Scotland have probably been a little more slanted towards affordable housing generally. But we see it as being a positive environment. And therefore, we acquired the sites from Springfield, and they've obviously gone through a restructure of their activities to be more focused in terms of the north of Scotland. So we're positive about that opportunity. Again, I would say that the rent controls in Scotland adversely impacted the buy-to-rent market. And the institutional investor, I think, was less enthusiastic. But that position seems to be altering and therefore, we should see the opportunity for more private rental, particularly for Edinburgh. I think Edinburgh is a very, very strong market or a very strong potential in terms of private rental. And then the other area, which Mike, maybe just touch on, is just on building safety because, again, I think that -- do you want to just touch on building safety? Michael Scott: Yes. I mean, I guess, it's been an open conversation for a while in terms of where the standard for remediation would end up compared to the standard in England and Wales. I think that has moved during -- this year has moved towards the England and Wales position, which clearly for us is positive because that's the basis that we've approached building safety in Scotland, but still not concluded, but I think closer to conclusion and in a more positive sort of state. John Messenger: Marcus? Marcus Cole: Marcus Cole from UBS. Just one question on timber frame. Obviously, you all went up to the factory earlier this year. I'm just thinking about how that's progressing. Any learnings you have there? And how do you think about more about vertical integration on the back of those learnings? David Thomas: Yes, we're very positive about timber frame. I mean, if you -- just to go back to Scotland very briefly, when I came into the business, we were almost entirely brick and block in Scotland. And we're now almost entirely timber frame. So 95% plus in terms of what we're doing in Scotland is timber frame. It would only really be on higher apartments where we would move away from that. So I think that the use of timber frame is going to become more and more prevalent in England. And you can see that through the majors that most people have either got agreed sourcing arrangements or they have their own factories. I mean -- and that's the reality. It's very much the direction of travel. So we are very positive about it. The factory -- the new factory in Derby is progressing well and we see volumes rising. Ultimately, we see capacity between the 2 factories up to 9,000 frames. But I think the opportunity goes beyond that in terms of being able to do more and more within the factories. So having closed panels, being able to put services into the panels, whether it's windows, doors, plumbing, et cetera. There's a lot of stuff that can be done within the factory. So we see that -- what we have in Scotland and what we have in Derby is very much a platform for us to grow from over the next few years. In terms of vertical integration, I mean, I would say our starting position is that we would prefer not to vertically integrate. You'll find that many of the products that we buy we are a relatively small part of the manufacturers business. And what we don't really want to be doing is running a business where because of the economics of the business, we're having to provide a lot of product to other companies. We want to be able to like with timber frame, bring something into our portfolio where it can provide exclusively to Barratt Redrow. And therefore, when you look at the sort of volumes that are involved in certain production areas, that just wouldn't be possible. You wouldn't be able to run the sort of economies on our volumes alone. So I think we're very, very selective about what we would vertically integrate on, but where we see an opportunity like our acquisition of Oregon or for example, we run our own in-house wardrobe factory, then we're certainly happy to further integrate those types of businesses. John Messenger: Any more questions? Hope we exhausted everyone. Thank you, everyone. One more? Yes, of course. Chris? Christopher Millington: Sorry, Chris Millington, Deutsche. It's just about what your thinking is about the proportion of affordable going forward. Do you think it can keep pace with the private growth within the business on volumes? Or is there an assumption that will lag slightly because of the funding issues we've seen historically? David Thomas: I think if you look at a policy level, then I think you would expect the proportion of affordable to increase slightly going forward on the basis that for greenfield sites under the planning and infrastructure build, there will be a higher assumption in terms of affordable for example. So I think you would say that the general trend would be an upward trend on affordable. I think the funding question is we've touched on that, that's a kind of separate question. And the funding challenge is real. I mean the government obviously announced a huge funding program over a 10-year period, but short term, the funding challenge is real. And I think the final point, and we -- this has been well documented in London is that 35% or 40% or 50% of nothing isn't benefiting anyone. And I think we've consistently seen this over 20 or 30 years is that as there is an attempt to take more value from the land, the landowners have an opportunity to say, actually, we won't participate or sites get bogged down in viability arguments. And that clearly is what's playing out in London presently. John Messenger: Great. Thank you, everyone, for coming along. If there are any follow-up questions, don't hesitate to get in touch with myself. But thank you, and we'll close proceedings. Michael Scott: Thank you. David Thomas: Thanks very much. Thanks, everyone.
Operator: Good morning, ladies and gentlemen, and welcome to the IP Group Plc Half Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and we'll publish their responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, as usual, we would just like to submit the following poll. And if you'd give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from IP Group Plc. Greg, good morning, sir. Gregory Smith: Good morning, and thank you to Jake. And as always, thanks to everyone at Investor Meet Company for again hosting our half year results webinar. I was reflecting -- I was reading my FT on Saturday, and I almost choked my yogurt, I guess, these days, I've sort of had to move on from corn flakes for longevity reasons. But I saw the headline, the U.S. market for IPOs has exploded back to life with the busiest week for 4 years, and that's not something I've seen for a few years, I guess, maybe obviously based on the cycle. But it was an interesting reflection that the public markets have had quite a positive impact on the portfolio in more ways than one so far in 2025. And hopefully, there is more opportunity that arises for us in future as a result. I'm Greg Smith. And as CEO, I have the honor of leading IP Group and our excellent team on our mission to accelerate the power of science for a better future. And with me on today's call, we have our managing partner, Mark Reilly; and our CFO, Dave Baynes, both in the room really and virtually. As usual, this presentation will be uploaded on to the IR section of our website with a few appendices. Before we start, please note all the usual disclaimers and you can read that in the time I'm going to spend on the slide and good luck, but this covers all the information, particularly any forward-looking statements that we may make during the course of the next hour or so. So in terms of what we're going to cover, I'll provide an overview of the Group's performance in the first half, then I'll pass on to Mark, and he'll give an update on a number of our key balance sheet holdings and then some other notable development actually. And then Dave is going to run us through a summary of the numbers, and then we'll head into Q&A. As Jake said, as always, please post your questions up in the Q&A section. And as always, we'll endeavor to cover them all either live in the session or afterwards by platform as we run out of time. So for the half year, I think the main message is, overall, we made strong progress in the first half. We saw a number of encouraging developments in the portfolio. And indeed, the pipeline of significant milestones remains good through to the end of 2027. The public markets were more of a contributor in terms of fair value. And then there were a number of other positive developments in the private portfolio. That public side included the successful IPO of Hinge Health in May and strong half year results from Oxford Nanopore who beat city expectations. We recorded total cash proceeds of GBP 30 million. That's 9x what we saw in the first half of '24. And as a reminder, I said at the full year that we were targeting GBP 250 million of exits by the end of 2027. So what we've seen year-to-date means that we remain confident in achieving that target. And we had a small overall loss for the first 6 months. However, NAV per share essentially stabilized in the reporting period and has subsequently increased since the period end to about GBP 1 a share. We continue to be in a strong balance sheet position and have good liquidity, and we still got gross cash of GBP 237 million. And obviously, that's significantly up from this time last year when we had the Featurespace exit and others during the period. And then a final note is we are seeing increasing momentum in our efforts to add to our private scale-up capital under management. And the market hasn't necessarily moved as quickly as we hoped or expected on this front. However, we have good confidence of securing at least one new mandate by the time that I talked to you at the time of our full year results. So on the portfolio, coming into the year, 4 out of our top 5 holdings have seen encouraging developments in the year-to-date. As Mark and DB will cover briefly later, the fifth Oxa, while it's making encouraging underlying progress, is yet to close its latest funding round. And so our revised valuation has been pegged back to reflect that position. On Hinge, we were delighted for Dan and Gabe and the team to have the opportunities to ring the New York Stock Exchange opening bell on May 22. PitchBook described their successful IPO as a pivotal moment for digital health, signaling the reopening of the health tech public markets after a 3-year drought, and Mark will cover more on this shortly. But in summary, the company has traded very well since IPO is up about 80% off the back of strong Q2 numbers. Oxford Nanopore, they delivered a strong first half of trading. They beat analyst expectations on both revenue and on a lower EBIT loss. I think our observation was that growth was strong across all sectors and geographies. So by customer category, they grew in academic and in all of the 3 sort of applied sectors. And then by regions, even despite the sort of some of the headwinds in America, Americas was up, APAC was up, EMEA was up. So we're confident in the outlook for that company. By way of context, we are now the second largest holder behind EIT, The Ellison Institute of Technology, which is backed by Larry Ellison, as many of you will know. Of course, Larry recently became briefly the world's richest man, and he obviously has quite an incredible track record of delivering value through Oracle. I thought it was quite interesting that the U.K. press has started to pick up more recently on EIT and its Oxford Ambitions. And Nanopore is very relevant. If you go to the website, you can see how relevant it is to their focus on 2 of their big themes. One around health, medical science and generative biology and the other around food security and sustainable agriculture. In terms of our position, as a reminder, we invested about GBP 80 million into the company over time. We've realized about GBP 110 million to date. So we've already covered our costs in full. And as you'll have seen in our portfolio data for this year and last year, we've taken a small amount of liquidity on a couple of occasions. And as you'd expect, we continue to very actively monitor the company against where we consider fair value to be at any given time. But as I said, we remain really confident in the medium-term outlook for the business. And we -- our feeling was that the full year '25 guidance was maybe a bit conservative given the strong first half update. So we're confident in our holding. We look forward to further commercial updates from the company. There's clearly a number of interesting commercial relationships brewing there in biopharma and in clinical and also the deeper dive on their refined commercial strategy, which will be coming out in Q4, particularly around how they intend to exploit the sort of $13 billion to $14 billion of TAM that they've identified in what they call the higher priority segments. And then on Istesso, following the news that the -- their most recent trial didn't meet its primary endpoint back in February, the management team has worked hard to progress that program through to value. And the company published a peer-reviewed paper in The Journal of Pharmacology and Experimental Therapeutics, JPET, to its friends, and that was outlining the impact of its compounds on various chronic diseases where tissue damage occurs. So rheumatoid arthritis, as you know, but also things like osteoporosis, fibrosis and interestingly, sarcopenia or muscle loss. And that last bit, I think, led to the paper being picked up by some of the longevity publications because muscle loss is particularly relevant at the moment around the weight loss drugs very common side effects of some of the GLP-1s. And during the period, the company also added a very experienced nonexec, Dr. Mike Owen, delighted to have Dr. Owen joined the Board. And he -- you might recognize the name. He was a co-founder of Kymab, which sold to Sanofi back in 2021 for -- I think it was a GBP 1.1 billion upfront. And when he joined, he said Istesso's old approach to reversing tissue damage could fundamentally change the treatment paradigm for chronic diseases and therefore, holds enormous clinical and commercial potential. As I mentioned a few months ago at the full year results, the company has got funding to carry out a further trial and the location and design of which is well underway, and we anticipate that will commence before the end of the year. On exits, we had a good period for cash realizations. We set an internal target of GBP 50 million for full year '25 coming into the year and the momentum into half 2 and I guess, a more elevated level of inbound interest in the portfolio gives us a high degree of confidence that we'll achieve that and likely exceed it. Of the examples shown here, 2 companies were outright company acquisitions and one Centessa was a partial realization. For our remaining holding in Centessa, the company recently gave a positive update at the Morgan Stanley Global Healthcare Conference. And we anticipate the readout of the Phase II in narcolepsy is pretty imminent, and that will be the next catalyst for our remaining holding. In addition to these examples, also worth mentioning, we realized a small amount of our Hinge holding at the time of the IPO. And as I mentioned, the balance has gone up by around 80%. So our lockup expires on that in November. On what we've done with that cash, as a reminder, our policy is a commitment to deliver cash returns to supplement capital growth using a proportion of the exits that we make in any given year. At the moment, we are using buybacks, and we said that we'll do that until the discount gets to a lower level than 20% and given that persistent discount at the time of our full year results back in March, we announced the intention to use a greater proportion of our realizations in 2025, and we will again review that towards the end of this year based on our capital forecast for going into 2026. The current program is GBP 75 million, and that includes GBP 20 million that we announced in June. At today's date, as of yesterday, we've got about GBP 9 million left to run on that program. And so as we make further realizations, we'll look to add to that total. I think it's worth noting the acceleration this year has been quite significant. In fact, yesterday, I was looking at the numbers, our share count fell below 900 million shares for the first time, which means that we've now retired 15% of our capital in issue. We focused lots of our capital in the last couple of years on the buyback and on existing portfolio and getting those with the highest value potential through to their milestones and value realization. And I've -- we're starting to see as sort of performance and market appetite continues to return, we'll start to selectively add a few more new holdings to the balance sheet portfolio, including from Parkwalk and the wider ecosystem. But before I hand on to Mark, I just want to sort of briefly look forward quickly a reminder of the IP Group investment case, 3 things to believe. The first is that there is significant value potential in U.K. science and technology. I've talked about this and exemplified this at our Capital Markets Day back in June. The second is that IP Group is well positioned to exploit this given the team, the track record, the sourcing and the portfolio and that this represents an attractive shareholder opportunity, particularly given the discount to NAV against which we currently trade. To reiterate again, this is something that I've covered in the past few updates. This in a single slide, I guess, depicts the capital strategy that we are following to be able to exploit that opportunity. From the perspective of a developing science and technology business, we're one of the few investors that can support development from the very earliest stages to relative maturity at the sort of venture growth end of the journey. And complementary private funds are strategically important in terms of pipeline, particularly in the case of Parkwalk, but also development capital for our businesses, and they also contribute fees to mitigate our net overheads. In terms of scale and ambition, Parkwalk, we're aiming to maintain around GBP 0.5 billion of assets there, successful exits of balancing off against new subscriptions. On the balance sheet, we're focused on NAV per share delivery, and that obviously includes that GBP 140 million of cash that we've returned to shareholders over the last couple of years and is appropriate for where we are in the cycle. And then on the scale-up fund side, under which you'll remember Hostplus increased their commitment by a further GBP 125 million last year. And that's where there is a real growth opportunity to scale available capital to ensure strong returns from our balance sheet and our sources of -- for our various investors. On the first bit of that, just a quick update on our differentiated U.K. sourcing platform, Parkwalk. The business here, as you'll see from the numbers, as I mentioned, has about GBP 0.5 billion of assets under management there, which are all EIS tax advantage capital, and we partner with many of the U.K.'s leading universities to source new spin-out opportunities. I'll just pull a couple of highlights out from the first half. And so one, in addition to the alumni funds that we have with Oxford and Cambridge and Imperial and Bristol, we were very pleased to add a new fund in collaboration with Northern Gritstone, which covers Leeds, Liverpool, Manchester and Sheffield. And then similar to the theme that we're seeing on the balance sheet side, last week, we were delighted to announce the acquisition of one of our portfolio companies in the funds, [ Cytora ], which gave a good return to our EIS investors. And for our Plc shareholders, that generates additional fund management fees that contribute to lowering our net overheads. And then at the other end of the -- of that sort of capital strategy is our objective to add further scale up capital. I mean the context here continues to move in our favor. Our overall observation is that the public and private sectors are starting to align in terms of their policy and their approach. And during the first half, there have been quite a lot of important points of progress and those things like updated mandates and increased funding for the British Business Bank and the National Wealth Fund, which you can see there on the left-hand side. And a lot of that is highly aligned with the industrial strategy in the U.K. and the sectors that we focus on in turn, aligned with those. The pensions bill is currently passing through and the commons, how long that's quite going to take, but that removes some of the widely cited barriers to pension funds and similar long-term capital investing more in private productive assets in the U.K. And the Mansion House Accord, which is about 17 of the largest workplace pension providers in the U.K. committed to a voluntary commitment to have 10% of their default schemes in private markets by 2030, including half of that capital going into the U.K. So there's been quite a lot of sort of sector activity. Our experience and probably that of the wider market when you look at mandates is that there hasn't been very many VC commitments, perhaps with the notable exception of the Phoenix, Schroders joint venture future growth capital. But there's not been much that's really at scale. And our view is ultimately, that's what's needed and where the big opportunity lies. I would say encouragingly, the number and the stage of conversations with potential funders has seen quite an increase since the time of the Match House Accord, and we've added some additional experienced resource to our team to help exploit that. As I said at the start, we've got a good degree of confidence in securing at least one new mandate by the time I next talk to you for the full year results. And then quickly before I hand on to Mark, I thought I'd just cover a few of the companies or trail a few of the companies that we are excited about and particularly those that have either presented or are going to present at our events this year. So OXCCU, our sustainable airline fuel business. Mark is going to talk about that one shortly. Andrew, the Co-Founder and CEO, will be at our flagship scale-up event in October. Intrinsic, you might remember that the Co-Founder and CTO of Adnan presented at our Capital Markets event. There's a video on our YouTube channel. If you like a lot of technical detail, that's quite a technical one. They are producing the world's smallest nonvolatile memory, and they have a sort of tape-out coming towards the back end of this year. That does have very significant commercial potential given the company is initially targeting a segment of the memory market that's worth more than GBP 50 billion. And then genomics at the Capital Markets Day back in June again, David Thornton, who is the President there, gave a very compelling overview of the technology and its commercial applications. You also say right till the end to update everyone that revenues will grow by more than 100% this year and will do so again in 2026, taking them to $70 million, $80 million. He said they'll be EBITDA positive by the end of this year. So that's another of our top 20 companies to watch. And then on the therapeutics, our current clinical stage portfolio is worth about 23p per share, and there's a good number of clinical milestones coming up between now and the end of '27. Again, Mark is going to cover a couple of those shortly. And then just one other quick thing to mention just briefly on our licensing portfolio. We don't speak much about this. We have a licensing portfolio of IP predominantly from Imperial, and that contributes a few hundred thousand to our net overheads. There are 3 main projects in that portfolio. But I mentioned at the start that the public markets have contributed in more ways than one this period. And back in January, Metsera, Therapeutics business IPO-ed in the U.S. and actually, we licensed the core IP to Metsera. Now of course, it's early days, but if successful, there could be quite a meaningful source of royalty income over time. So we'll keep you updated on that one. So with that, I will hand on to Mark to talk a bit more about the portfolio. Mark Reilly: Thank you, Greg. Good morning, everybody. So there have been a few notable events over the course of the first half, perhaps arguably the standout one certainly for me personally having sort of witnessed the whole journey of Hinge Health. I recall, I think it was 2012, 2013 when its founder, Dan Perez who remains the Chief Executive of Hinge Health, walked into our office and very confidently said I'm going to make you guys a lot of money. And I think you can say that some confidence that, that was accurate now with a 50x overall return on our investment so far on to -- that asset. So the company, of course, we were the first investor when Dan was still a PhD student in the University of Oxford. It went on to raise substantial sums in -- from some of the top Silicon Valley investors, underwent very impressive growth and had that successful IPO in May of this year. We were able to sell a small amount at the IPO, and we did sell a larger chunk of our holding prior to that at a very good valuation in the private markets 2 or 3 years ago. But we still have a remaining holding that was worth just under $40 million at the half year and some share price continues to trend upward since then, which is good news. So that holding is locked in now until end of November, but we still have that holding [indiscernible] in the company has since put out some announcements of its latest results, its Q2 announcement and again, exceeded expectations, did very well. Revenue reported is increasing at 55% year-over-year, and they're now at $140 million of revenue in that period, and they're projecting 40% of the year-on-year growth going forward. So still very strong commercial progress there. I saw there was a question in the Q&A. The first question that came in, in the Q&A was why sell Hinge Health when there are lots of other smaller holdings in the portfolio that are -- that were described as nonlisted and nonrelevant in the question. So I would, first of all, highlight that Hinge was one of those nonrelevant nonlisted holdings until relatively recently. And so we think there is value in holding stuff that has potential that could hit that inflection curve. I think also the reason why you as investors have us holding shares on your behalf that there are some rationale for doing that, which is that we have this technical expertise internally that we can kind of arbitrage technical risk. We can judge that better than others. We have influence on these companies. We have extra visibility of a lot of these companies that others don't. And when those things become less true as the companies mature, that's less of a kind of rationale for us to hold them and so where that liquidity exists. That's where we start to consider divesting those positions. So just running through some of the other -- the top firm assets by value in the portfolio, just to update you on what's been happening at some of those assets. Greg spoke quite a bit about Nanopore, so I won't spend too long on that one other than to reiterate the fact that it continues to outperform its peers. They had a positive set of results that beat the market expectations, 28% rise in revenue, up to GBP 105 million now. And the key thing that we were looking for in those results was a diversification of revenue, a demonstration that they're moving into applied markets into clinical markets as well as this strong base of research revenue that they've already demonstrated over the past several years. And we really saw that this time. The revenue grew by over 50% in the clinical domain and 27% in the applied domain. So that's really showing that they're moving into those big market opportunities, and that's very encouraging. On [indiscernible] as Greg said, this was frustrating that they missed this endpoint in the first Phase II trial, but frustrating because it also demonstrated there's so much potential in this drug. And as Greg said, there was some data from that trial published in the Journal of Pharmacology and Experimental Therapeutics that demonstrated that this ability to elicit tissue repair, not just sort of preventing degrading the tissue, but actually showing that it's repairing the tissue, which has a lot of implications, but it showed these improvements in bone erosion and disability and fatigue. And so that has a lot of implications for sort of slowing aging and to slow the progress and even reverse the progress of some of these really detrimental conditions that people suffer from like this, their focus is currently on rheumatoid arthritis. So that publication certainly increased market confidence that there's a mechanism of action here that's really interesting. The efficacy of this drug is real that there's a range of clinical indications and diseases where it could be used. So we're sort of frustrating because of this potential. And unfortunately, that benefit didn't manifest in particular primary endpoint chosen over the time scale and over the cohort of this first trial. But we've learned a lot from that. They're going to do another trial now that implements those learnings and focuses on the things that they think they can really create a difference with, and they're well-funded to do that trial. So that's positive in that respect. So I remain optimistic about the sort of long-term prospects of that company. And finally, on this side, amongst our most valuable assets, Pulmocide. So they -- not a huge amount to report there because things are going well. The trial is on track. That's progressing according to plan. This is developing these respiratory treatments [indiscernible] inhaled treatments for respiratory infections like invasive pulmonary aspergillosis is a very nasty thing that you get wrong with your lungs and sort of mold infection in the lungs. And the trial is recruited well. And so we're still expecting that to read out in sort of H2 of '26 and have some results from that next year. Finally, not on this slide, but Greg also mentioned Oxa. So Oxa, we have taken this impairment on the holding there. It continues to make good technical progress. We've got very encouraging commercial progress. The company is doing well. It has been harder than we hope to raise money for the company, a bit frustrating because we have sort of the building blocks around, but it's -- we're just not quite over the line with that yet, but we are quite advanced now in discussions with some major potential cornerstone and I hope to have some good news on that asset soon. So that's sort of the higher-value stuff in the portfolio. That's the kind of top end. But another -- just picked out another handful of assets to mention because of some exciting developments in those assets. So Artios you may recall, is a company that's developing DNA damage response-based cancer therapies, and they are focused on hard-to-treat solid tumors. It's now public that they're targeting pancreatic and colorectal cancers, both of which have a huge, unfortunately, unmet clinical need. So a big market opportunity for the company, a big commercial opportunity. They did publish some of the sort of early data from the current trial, the Phase II trial at the American Association for Cancer Research Conference, and that data was very well received. They're funded to continue that trial and to explore the indications that they're seeing. And so we expect to see results from that end of next year, sort of early 2027 is the most likely time [indiscernible] I have to sort of qualify all of these clinical trial expectations that there are always things that can go off track and it can be delayed. But at the moment, as far as we know [indiscernible] both on track and expecting the same time scales that we've already guided. Then finally, there's 2 assets to mention in our Cleantech portfolio. So OXCCU, I don't know we maybe haven't spoken a huge amount about this company in the last few presentations, but this is a company in Oxford that spin out of Oxford University that's developing the world's lowest cost, lowest emission methods of making sustainable aviation fuel. So you use sort of waste carbon, and you turn it into fuel for airplanes and it's a good news for those of us who would like to continue traveling without, I think, quite the impact on the environment that it currently has. So that company raised GBP 28 million in a Series B round during the period. And the exciting thing about that is the sort of incredibly impressive list of strategic investors who came in to really validate the proposition that OXCCU is working on. So it was -- round was led by Safran, which is the world's second largest aircraft equipment manufacturer. The energy company Olin came into the round. IAG, which is the parent company of British Airways, came into that round. So a real kind of validation of their proposition based on the strategic interest that they've had in strategic financial support that they've got. They've built a demonstration plant. It sat on the top of my head there in Oxford Airport that's kicking out jet fuel. It's working. It's producing jet fuel now, and they started the process to develop a full-scale commercial project in the U.K. So that will be the sort of next scale up of their project. And finally, Hysata, we've talked about Hysata in these presentations before, a very compelling proposition. They have a hydrogen electrolyzer, a machine that produces hydrogen at 95% efficiency, which is well above anything that you will achieve if you buy a hydrogen electrolyzer off the shelf today. So their 100-kilowatt system, it is slightly delayed, but we anticipated there was a possibility that there will be a delay on this 100-kilowatt system. So that's built into their funding road map with the money that we raised with them last time. So they're still fund to produce that system, and we're still expecting it to be commissioned during Q3 as in this quarter of this year. They've also got a field trial going on a [indiscernible] machine running on a customer premises in Saudi Arabia. So this is not set in Hysata facility it's halfway around the world, and that is working, and it's -- they've reproduced that world-leading efficiency at that customer site. So they've demonstrated the ability to put machine in different places probably that [ where we need ] efficiency. And with that, I will hand back to David now. David Baynes: Thank you very much. Thanks, Mark. Yes, financial results, nice to review again as always. I'm going to go through this fairly quickly. It pretty much just pulls together all the things we've been talking about. Overall, cash, very strong again, GBP 237 million cash, that's actually up 47% from this time last year, and that's because of a very successful exit Featurespace at the end of last year, which of course, has generated significant amount of cash. We are, of course, slightly down from the year-end if we make investments, and I'll give you the cash flow in a minute to talk you through that. There was a small loss in the period, that 1.5% to about GBP 43 million loss. It is worth making the point as you've already heard that since the year-end, all of that has reversed actually for improvements in Nanopore and Hinge, about GBP 35 million of that's come back. And it means combined with share buyback, actually our NAV per share is now actually up. So it was briefly down at the half year from 97 to 96. We're now about GBP 1 a share. So that's, as I say, a combination of the improvement since year-end and also the share buyback which improves the NAV per share as we go along. And net overhead is down about 14% period-on-period. I'll do a slide on those in a minute and talk you through it. This next slide could be long, could be short. I'm certainly going for the short option increase and as disclosed in the interim results. There's a number of kind of uplifts over 5 or 6 companies and a number of write-downs over a similar number of companies and a foreign exchange loss of GBP 14 million, which relates to the pound being strong when we convert some of our American-denominated assets in particular, that may or may not reverse at some stage, depending on currency. But those elements just eliminate, quite frankly. And then you've got really just to do with 2 funding rounds really, Artios and Oxa, where actually, as you've already heard, the company is performing well, but actually, we've not either completed or have started a full funding. And as such, we have no choice but to actually make some kind of provision against both. And those -- that accounts for sort of GBP 9 million of that. So pretty much that is the story of the half. But just adjusting for those 2 assets in that small loss, but that loss has now been eliminated between the year-end and today. That's why when we now look at the assets here, assets are down a small amount from about GBP 1 billion to GBP 900 million, those are rounded, it's actually down about GBP 60 million. So it's a combination of that small loss and also shares we bought back because, of course, the buyback does actually balance sheet slightly smaller as we buy back shares. The concentration hasn't changed. So that next bit of the slide telling you there's no news. It was about exactly 56% of the top 10 at the year-end, and it is now. It's pretty much the same sort of ratio of how the portfolio looks. And actually, the next slide is also no change. This is a slide I always do but talks about how well the portfolio itself is funded because of course, that's very important. And actually, we've increasingly seeing this pattern whereby it's about 1/3 that is funded to profitability. You don't need to worry about that. And then there's about 1/3, which over the next year, 1.5 years need funding and then another 1/3 that doesn't need funding until '27 and beyond. So much of the portfolio is pretty well funded, but there will always be funding challenges and companies requiring funding at any point in time. So that kind of 1/3, 1/3, 1/3 rule is beginning to come pretty well solid as a rule. And now this just pulls it all together. So here's the cash of what's happened, and you've heard, I think, all of these numbers now. We've invested GBP 35 million in the period. It occurred over a number of assets. Most in current assets, only about 12% of that total investment into new assets as a single new company in the period. Realizations, we've talked about at length, GBP 30 million. Share repurchases, GBP 25 million. It almost exactly what we realized we've used on buybacks. That's actually a coincidence. But we are this year committed to 50% of our realizations to be done in the form of buybacks. It just so happens that some of the buybacks we've done relate to last year. It doesn't quite work out the math. But in short, we will be during the course of the year, I think 50% of our realizations and buybacks. Overhead is down, as we've heard, the net debt, actually, we generated about GBP 2.6 million net income on interest, but we've made some repayments on the debt in the period, which means the actual total move just a small reduction overall. And then there's a relatively large working capital movement. That relates to the licensing, which we just started talking about a bit. What happens on the licensing, we own certain licensing assets on Imperial College. We're responsible for them. We often collect in the proceeds and then actually we keep some, some need to distribute to other parties, it's Imperial College itself. And that means you sometimes have these working capital movements where we're paying out money in receipt on behalf of others. And that's why you get a relatively large movement. But that's the story of the cash, cash still very, very strong. And overheads, I'm very glad to say pretty much exactly what we said they'd be. So that 15% this time compared with this time last year, but we're going to do what we said we'd do. When we did the cost reduction in the second half last year, we said we'd reduced the '23 number, which was about GBP 22.5 million net to about GBP 16.5 million net. That's what we're going to do, 23% reduction. That still looks like what we'll achieve at the year-end. So I think without further ado, I'll pass back to Greg. Gregory Smith: Thank you, Dave. So leaving some good time for questions. So a summary of the half year results. So we made good progress in the first half. We saw a number of encouraging developments in the portfolio, many of which Mark has touched on, the public markets were a particular fair value contributor, including that Hinge Health IPO and Oxford Nanopore's strong trading. We made good progress on exits of GBP 30 million, and that momentum into half 2 means we remain confident of our target of achieving GBP 250 million of exits by the end of 2027. As Dave just mentioned, our NAV per share essentially stabilized over the period and has subsequently increased since the period end to GBP 1 a share -- about GBP 1 a share. And on the scale of capital and expanding our resources as a group, our capital resources as a group, we continue to see a big opportunity. And while the market hasn't necessarily moved as quickly as we hoped or expected, good confidence of securing at least one new mandate by the time we next see you all on the IMC platform for our full year results. I'll just quickly remind you, looking forward, our investment case is based on these 3 sort of hypotheses. The first is that there's significant value in U.K. science and technology, given our world-leading position there. And the IP Group is one of the pioneers in this space and with a long track record is well positioned to exploit that and that we hope we've set out an attractive shareholder opportunity in the next 6 months and indeed out to 2027. And then just because I think this is a good form, these were the priorities and future areas of focus that I set out at the full year, which we are aiming to achieve over the course of the time between now and the end of the year in 2027 on the exits. And I think on all of those, we're making good progress. So I won't go through them each in turn, and I'll cover them all off when we report to you our full year results. So thank you, everyone, for listening, and we will now turn to questions. David Baynes: Great. Thank you very much. Well, that's gone well so far. We said we'd be 40 minutes, and we're 38. So we've got quite a lot of questions, maybe not quite as many as normal. So we may get through this now. Laurent Tess, if you don't mind, I think we've answered yours, you had a question about why you're selling Hinge and keeping some of the smaller positions. I think Mark answered that while he was presenting. So I'll move on to next. Kane, nice to have you, analyst from Deutsche. Nice to have you here, Kane. You've got 3 questions. I'm going to do them one at a time. Mark, I'll do the first one with you. Might the adverse uncertain conditions research in the U.S. for example, funding like the NIH create opportunities in the U.K. Mark Reilly: Maybe. And there are headwinds as well and some pharma investments being withdrawn from the U.K. newspaper a couple of week or so ago. So I think we frequently see -- remember a few years ago, this question was about Brexit and the time before that, it was about the recession. And so there are lots of these kind of ebbs and flows of funding. I think it takes time to have an impact on us because it takes time to then filter through to the funding of the science, and that takes time to filter through to the commercialization that's coming out of those research lab, I would say not in the short term, but maybe in the long term. David Baynes: Kane, your second question, I'm going to point out to you, Greg. Why do you think Larry Ellison is so keen on LNG? Gregory Smith: I think looking at the time the question came in, it might have been before I said why I think he's keen. I mean I think the commercial answer is that the technology is incredibly well suited to 2 of those big themes that they're trying to solve the big global challenges they're trying to solve through the Ellison Institute of Technology, particularly around sort of human health and genetics, but also on the sort of sources of food and agriculture. Clearly, they're building a significant position there, which is interesting. So I haven't spoken to them directly. So I couldn't say definitively, but it's a good sign if you -- he's had such an incredible track record, like 40 years of delivering value through being able to not necessarily be ahead of the curve on technology adoption but certainly delivering real cash value. So I think it's a good sign, but also, it's one to watch. David Baynes: Yes. I'm going to point the next one to you, Mark, we know it's coming. Hinge Health up strongly post period end. Will you be inclined to take some profits? Mark Reilly: Well, we're locked in at the moment, and we did take some of the IPO. Then as I said earlier, it's an evaluation of the liquidity and the value available to us at any given time also. David Baynes: Thank you very much. Gregory Smith: And as you'd expect, obviously, we don't want to tell you about our intentions on our quoted companies because there's smart people out there that can do things with that information. But yes, we're pleased with that holding, and it's a good source of liquidity over time. David Baynes: The next one, Sam. Nice to have you here. Another analyst at Berenberg, good to have you here, Sam. I'm mentioning this because people in the past have said, can you make it clear when someone is an analyst and when they're not, so I'm doing that. I'm going to split this question. I'll do the first bit, Mark, and then maybe give you the second, if that's all right. First, one sentence, but would you be able to provide more detail on your IP licensing portfolio? And then separately, and therapeutic programs, when do you expect licensing income to ramp up? I'll perhaps do a little bit on the licensing. Licensing traditionally has been a relatively small part of our business. We inherited the licensing as part of the acquisition when we bought Touchstone. They, as part of their remit used to do the licensing for Imperial College. A very large number of patents, some of what we call active, ones that actually we had an agreement around them and some of the ones that was just exploratory and still waiting for maybe some of the license. And we retained all of those active licenses. So there's a relatively big portfolio about 80 different licenses. The actual strengthen that's what question is. The actual strengthen is relatively small traditionally, we'd be recognizing something like GBP 500,000, GBP 700,000 income a year. That tends to be the patent licenses you have to have a large number, most of them generate relatively small amounts. And then from time to time, you can sometimes get some really big licenses, a single license can do 95%, 99% sometimes of your license income. We have kind of 3 licenses out there. Greg has already referred to the Net Zero one. It's early. It's early. We're not going to start making claims about their value. And we're not recognizing in the books. Actually, in accordance to accounting standards, it's unlikely we will recognize in the books until such time as actual license income is recognized. So you can't kind of recognize it like a potential intangible or something. But any of the top 3 have the potential to, in time, generate significant revenues. Net Zero are now about a GBP 3.8 billion company, a GLP-1 agonist and it looks promising at the end of a Phase II trial. There are some notes out there. If that got to a Phase III trial, if that then became a successful drug, there may in time be some decent license income that come to us and something we would be also shared with Imperial College. So that's probably what I can say at the moment. At the moment, no impact on the financials, no significant impact on the financials. But maybe in time, maybe -- and I'm thinking maybe 2 to 3 years' time, you may start seeing if some of the things go well, some decent licensing income, and we'll talk about that at the time. It's a bit of a wide one to talk about all therapeutic programs. Is anything you want to touch on, Mark, where we might treat that question as dealt. I don't know there's anything over and above what we've already talked about there. Mark Reilly: I wonder whether that was at 10:18 as well as we have couple... David Baynes: Yes, I think that is. Gregory Smith: It's worth saying in the appendices in our results presentation, we do a sort of a summary of the main holdings and where they are in their clinical development and our valuation. And so what we're sort of -- what we're seeing as milestones coming up. So that's sort of a ready reckoner and I'm very happy to talk about in more detail than any of the others we haven't covered when we next see you, Sam. David Baynes: I've got another one for you, Sam, you split yours. I'll give it to you, Greg. I mean, given the current cash position and potential exits over the next couple of years, is there any change in your thinking around buybacks? Gregory Smith: Well, we hope we've got a pretty clear policy out there. While the discount is greater than 20%, the proportion of cash that we allocate to returning to shareholders is being done by way of a buyback. We think that's most accretive way to do that at the moment. And at the moment, for this year, we're doing -- we're using 50% of our realizations to that end. We will, as always, look at that number for next year. Historically, it's been around 20% of realizations that we've returned, which we see as sort of a more sustainable steady state. But obviously, we'll look at the relative opportunities for buybacks of our own shares versus portfolio opportunities and some small number of new opportunities. So no real change in the policy. The application changes each year based on circumstances. David Baynes: Next, Josh L, not an analyst, of which I'm aware. I'll probably take this. How has there been no First Light Fusion fair value movement despite a complete change of strategy during the period? There has been a significant change in strategy and actually some very promising technical developments, which I won't try to talk to. You can ask Mark about those if you're interested. But actually, reviewing the valuation, one of the main considerations which is like the probability of funding, the likely valuation of funding. And when we reviewed it, we came to conclusion that actually the kind of value we carry it at looks pretty robust around what we'd expect to value that. Mark Reilly: Myr recollection is that the new strategy was fairly well advanced at the time of the full year valuation. So that was... David Baynes: Pretty much factored in, yes, exactly. And at the moment, I think from where I'm sitting in terms of technical side of valuing it, I think that actually we carry it where we sort of think it may be valued. We may be wrong, but we will see. But we -- after quite a lot of discussion, we felt it was fairly valued and the movement in its actual carrying value is that just related to money we've invested in the business. So it's gone from. So that [indiscernible] So next, who would this be? From MV, hi IP Group team, nice momentum in portfolio. Thank you. Any plans on a partial full sell down on Nanopore, particularly given the IT initiatives? Well, Greg has already mentioned unlikely to comment on that. I don't know if you want to say anything further, but we're unlikely to comment on ourselves to public companies. Maybe you want to add to that Greg [indiscernible] Gregory Smith: I don't think anything to add to what we've said on that front. We do look at it all the time. It's not -- I've said in the past; it's not our strategy to have big holdings in large, quoted liquid companies that our shareholders can access directly. So it's a matter of time, but we're very -- we're a happy holder given the progress in the portfolio, and we always look at liquidity. David Baynes: Next question from Bill H. Probably, Mark, is about you, what is the role of IP Group's managing partner? If you'd like to... Mark Reilly: Well, to deliver shareholder value to increase the value of our existing portfolio and to make exciting new investments into companies that will be future well-changing company. So I have responsibility across the portfolio. I'm the person that chairs our investment committee. So I sure that the decision-making is sound and as good as it can be. And I see all the decisions around transactions of investments and exits. David Baynes: Thank you. Again, I think one for you, Mark, how much you want to talk about this. Can you -- this is Milosz, another analyst, Edison this time. Milosz, nice to have you. Can you give us an update on the monetization of Ultraleap patents and what you're able to talk about on that, Mark, I think. Mark Reilly: I can. I wasn't sure if I could, but I [indiscernible] text the CEO and he told that they did a LinkedIn post on Monday actually on this that the transaction, you might recall, we had an agreement to sell the patent portfolio to a company called [indiscernible] specialist in monetizing patent portfolios. And we were way to close that transaction when we last spoke publicly about this. That transaction has now closed. And so that's very positive. And the company has received the proceeds for that initial part of the transaction. There is an earn-out agreement. So as [indiscernible] monetize that portfolio, funds flow to [indiscernible] very positive. We really believe in the value of that portfolio. There's a lot of places where we think those patents are valuable. So we're optimistic about future fund flows from... David Baynes: Thank you. Next one, there's more questions coming in actually. Questions are picking up page. Robin M, I'll give this to you, Greg. I think maybe you can talk a little bit about cash raise from private markets secondary sales, both in the past and going forward. Is this becoming an easier way to raise capital? I think possibly referring to the small deal we did last year. I'll let you... Gregory Smith: Yes, so yes, we did do a small secondary last year. I think there's another question further down that asked about how are the assets marked and all that sort of stuff. And I think at the time, we said that on average across the various holdings on the balance sheet, it was a slight premium. It was about NAV, maybe a tiny premium to NAV on the balance sheet, and it was across -- it was a secondary that was across a few companies on the [indiscernible] funds and a few companies on the balance sheet side. There was -- the exact total was around GBP 23 million, I think, across the 2 pools. And we also said that there were things like preemption rights and all that sort of stuff, which we -- which meant we couldn't complete the full transfers that we planned to. I think we did just over 2/3 of the GBP 23 million, I think that transaction is all played through. And we do look at other options like that. We've explored all the time that I've been at IP Group, which is sort of 15-plus years, we've always looked at are their ways that we can accelerate value through these sort of structured transactions. I think the secondary markets are interesting at the moment. And they're interesting potentially -- for us potentially as we think about how we access scale up capital and build some strategic relationships. But also the secondary market is quite interesting because we have a permanent balance sheet and our liquidity position is reasonably strong, relatively speaking. There is clearly an opportunity where in companies that we're existing shareholders of that we particularly like or even potentially companies that we've tracked over the last few years that have made significant developments, but perhaps the cap table isn't as strong as it could be, then clearly, there's secondary opportunities for us. So yes, we look at it on both sides, and we'll always consider those opportunities. David Baynes: Next one, I'll point towards you, Mark, from Milosz again. And it's one that probably just give a general feedback on. But what appetite for M&A and licensing deals do you see across the life science sector at present? It's quite a wide-reaching question. Mark Reilly: I mean it seems good. My context is perhaps lacking a bit because I wasn't responsible for life sciences until a year or so ago, but I don't have a full history of staying close to this market in a way that others might, but it's -- that we've had quite a lot of interest in particularly one of our portfolio companies, there's been some inbound interest from potential sort of license acquirers. So in the small sample set that we have, it's maybe not representative, but it seems positive. David Baynes: I'll have a next one. Congratulations. This is David R. Congratulations on a good set of results. Thank you for that. On what basis is the optimistic view of exits of GBP 250 million for the period through to '27? Well, it's basically on our internal projections. So you can imagine we're running the sort of capital allocation process all the time. So I'm always updating estimates of how much we need to invest, how much we think we're going to realize, therefore, what's the closing cash balance is going to be. And in that process, we're always running out 3-year projections what our realization is going to be. And we do feel relatively optimistic in the period at the end of '27, we will generate that level of realizations. And to be clear, that doesn't include Oxford Nanopore. There's no plan for selling that. Nanopore is not in that. So one would hope Nanopore itself, that's the number they're talking about, could easily grow to a GBP 200 million asset on its own share at least by that time. So that's separate. We do think looking -- particularly there's a number of the therapeutic programs, which we think will come through in that timeline reporting both in '26 and '27, which we feel if they are successful, could generate really quite sizable realizations for us. So when you look at our numbers, I mean too much detail. When you look at our estimates for what we think we're going to realize, we have weighted probabilities, all types of complexity to try and estimate it. But we're increasingly finding we're relatively accurate at it. Although it's sort of a balancing day with 10% probability of that and 40% probability of that actually, it seems to work out relatively well, which is why we've been able to manage our cash relatively well. So in short, it's based upon our current expectations of the portfolio as it stands, and there are quite a number of, as you can see, look at therapeutic readout, therapeutic quite big programs reading out, which if any one of those work could make a serious dent in that number. And we are certainly, as we've already said, on target to do the number we plan to this year already. Next one, Haran, I hope you don't think I'm ignoring you. I think this is a question around the secondary we did last year, which Greg referred to, and I think we've answered. So I'll have a next question, which could answer the last one I haven't read, but I will read it out. We'll see what we've got. This is from David R. Your ambition is simply to increase NAV rather than achieve a more typical target of, say, 15%, which might be expected for VC investing. Should shareholders assume either that you're very cautious or simply don't believe you can create typical value on this risk or asset class in the U.K. Greg, how about you have that one? Gregory Smith: We all have a view on that. David Baynes: Yes. We go for that. Gregory Smith: We've got to be realistic with the current environment that we're operating in. However, it's fair to say that our ambition or our objective is to deliver compelling financial returns that are consistent with that risk profile. And certainly, when the IC needs to consider any investment in a portfolio company, we're not looking at will we keep this holding flat. We're looking at VC type multiples and VC type IRRs. And so the objective is to have more of those successful returns, and we focused the investment strategy more into those areas where we've seen that those success returns in the past, but also importantly, where we think there is returns to be had in the future in delivering against the sort of science-back investing environment. I don't know, Mark, if you'd add anything particular to that. Mark Reilly: No, that's all. Gregory Smith: Hopefully, we're moving into a period where that the environment is a bit more accommodative, and we're seeing good pickup in M&A interest. I wouldn't say it's sort of like a wall of M&A interest, but certainly compared to the last couple of years, there's quite a marked increase in inquiries. So that's obviously what -- it's the sort of cash-on-cash returns ultimately, which are important. And I think if you look at the track record of things we've had, including feature space recently and others, the cash-on-cash record there is very good. It's sort of 5x, 6x and in the sort of 20%, 30% IRR. So that's what we're targeting. The NAV gives you an idea of how it's going over time. But sometimes we have NAV setbacks and that doesn't necessarily mean that the company is not going to deliver strong cash-on-cash returns in the future. David Baynes: I agree. I also -- but I think 15% is something we can certainly can achieve. And certainly when you look at some of the areas we now focus on, as Greg said, actually mathematically, you can see the past, no proof of the future, but you can see investing in those areas in the past, we have achieved those sort of returns. So it's certainly a number we have part to and believe we will achieve. Andrew M, next, talking about the fall in value of Oxa, which has been partially explained by Greg. Could we -- he has mentioned there's some good technical progress. Could we perhaps, Mark, a little bit more about how we feel the technical progress despite the fall in value. Mark Reilly: Yes. Yes, I get an e-mail from the CTO once every couple of weeks talking about some of the exciting technical progress in the -- most of it's in the context of deployment on actual vehicles in real-world applications. They're doing a lot of work. Some areas I don't want to go into too much detail of because this is sort of commercially sensitive information, but they're doing a lot of work deploying their software on to real-world vehicles. One is in Jacksonville in the U.S., where I got an e-mail from the CTO the other day saying they're now 1,000 journeys and over 4,000 kilometers traveled autonomously. And I believe all those passengers survived the experience. So that seems to be going very well. And the sort of equivalent proof point in the off-road domain currently fitting out the trucks that transport big containers around ports. And the CTO has been sending me videos of these trucks. Look, we've now got 2 of these things and they can drive around without driving into each other. And so its very rapid progress being made of deploying this software on unusual vehicles accommodating all the parameters of those vehicles and the different requirements of their environment and operating effectively in those environments. So yes, I think from a technical perspective, they move at a great pace at Oxford and it's very impressive. David Baynes: Thank you very much. I appreciate that. Going to the next one, Haran again. You do get your question at this time. There were reports in the press reg Hinge Health that some shareholders sold shares at the time of their most recent results. Could IP Group have sold at the time? Mark Reilly: Yes. I think that may refer to the staff sale I guess there was a provision which allowed them to sell in that period, which other shareholders couldn't. I'm in contact with the bankers and with the company pretty regularly. I spoke to them a couple of times around that time that the staff sales occurred. So... David Baynes: Yes. No, we can confidently say we couldn't have done no. We're aware that we've tested the market. We know what we can and can't do and we couldn't know. Next one, Andrew M, where GBP 5 million investment in First Light go, I think [indiscernible] effectively bridge funding, a standard way we often fund our companies. I don't know if... Mark Reilly: Yes, on this operating capital, it's paying the salaries of the people that are continuing the research, developing this product that they're selling to the people who are pursuing the nuclear fusion and the people who are selling that product. David Baynes: I should warn everybody, by the way, but we are exactly at 11:00. So those of you only have on that, we won't be offended if you leave, but we're going to carry on. I think I've got about 5 more questions, so we will carry on. So for those that are engaged, stay with us. I've been guessing about another 10 minutes. But thank you for those who have to leave. I'm going to hand this to you, Greg, slightly unusual, but interesting question. Which competitors do you use as internal benchmarks. Well, are there any public or private funding vehicles you view as best-in-class that you draw inspiration from? It's a good question. Gregory Smith: It's a good question. Competitors or comparators in the U.K. I mean there's a reasonably well-developed market in the U.K. for certainly the early-stage bit of commercializing U.K. science. And a lot of the comparators, and we don't really compete with them significantly more often because there's more opportunities in capital generally at the moment. And you're often looking to collaborate rather than compete. We do compete if it's competitive deal. So on the U.K. side, there's Oxford Sciences Enterprise, we've got a small holding in that. We were a founder, shareholder in setting that business up, same with Cambridge Innovation Capital, Northern Gritstone, we work reasonably closely with, and we just launched that fund I was talking about for early-stage EIS investing alongside them in the portfolio. We also work some of the other well-known VCs in the U.K., Amadeus. And then I suppose some of the people that I have looked up to in terms of scale of business, I guess it's businesses like ICG, who very successfully used their flagship credit product to build out a very scaled asset management business bringing in private capital to support their existing portfolio and indeed to then build that out. So I often look at those comparators as sort of ambitious directions of travel for the group because certainly, it does feel that there is a large amount of capital that wants to allocate to this space. And so clearly, being in a position where we're a public listed entity, we've got the professional valuations and the systems and the reporting and the track record puts us in hopefully in an attractive position for those partners who are looking sort of reputationally at working with people that have been around for a period of time. So yes, there's probably those sorts of businesses. And of course, there are some world-leading VCs who are focused in particular areas, and we look at those for best practice and various of the team have the sort of their favorite bloggers in VC space that we track their thought leadership. They're very well resourced on VCs on the West Coast, some of whom they're increasingly moving into the deep tech space where we are. And so looking at their pronouncements and how they're seeing the world is all useful information for us. David Baynes: Thank you. I'm going to move on to Ian. I'm going to point this from your direction, Mark, if that's all right. It's a question we sort of get from time to time. How are you finding the U.K. universities at present? Are their funding issues making much difference to the way they're approaching tech transfer? And sort of separately, but connected, are any of the government-funded schemes being impacted by budget constraints and has this affected you at all? Mark Reilly: I would say yes, but I would say that's been the case for the past 15 years. I mean, they've always had these constraints on budgets and that has always manifested in their approach to tech transfer, and it sort of varies by university based on recent success or lack of in the domain of commercializing innovation. I think some of the universities that have had one standout success are much more kind of ready to invest in the area of tech transfer than others who have their fingers burned by it. So I wouldn't say that I've observed a huge sort of sea change or big fluctuation in the last period, but there is definitely always a budgeting pressure on tech transfer activities. And any of the government-funded schemes being impacted by budget constraints. Again, we're a little bit to us and there is definitely -- you will hear that if you walk the corridors of universities that budget constraints are impacting the research. But I think in some of the exciting areas that we're focused on in areas like quantum computing and emerging AI research work, there is still good money flowing into those areas, and we've done some really exciting research. And U.K. has always done a lot with a little. We've always done good research with limited results. David Baynes: I'll go on next. I think I'll probably take this one. It looks like my direction of it. Andrew M, thank you for this. Is it really accurate share buyback program has accelerated? It's up compared to '24, pretty stable in '25. I mean, I guess the answer is yes and yes to that. It certainly accelerated compared with what it did historically. I mean certainly, the amount we bought about 75 million shares just in the last year compared with sort of GBP 88 million, I think, ever. So it has, yes, accelerated. But it's a fair point within the year, it has been buying back at a relatively constant rate. During the year, why can our program be increased further? Well, it could, obviously. But that's the correct balance. I think we feel if we think we're buying at about the right rate and using about the right proportion of our proceeds on that buyback program. We feel it's been relatively successful. Ironically helped by a very low share price and then we bought quite a large amount of shares in the first half year at an average of about 47p. So we think we've got the balance right. We've already made this commitment we're doing half of the proceeds this year. So I think we feel that we've got the balance about right. Of course, one could always do more. There are some people that are saying, why don't you do less. So it is about trying to get a balance really. Next one, I'll probably do that as well, [indiscernible] doesn't it from Haran. The cash generated in half 1 from sales, what was the cash value relative to the holding value. Well, ironically, they were all actually. There's about 5 sales over the period, and they're pretty much all public company -- public company. So in terms of we haven't talked about what was an up or down because it was just the market price at the time. And a number of them went, I think, in for example, went for about double. That was the main one. I think we got about GBP 8.8 million. I think at the year-end, that was got in books at about GBP 4.4 million. So we haven't -- it doesn't really make sense to talk about whether we sold them up or down at the time because they were public market shares in any case. Let's have a quick look at the next one, sorry, coming down, Phil N. I think we've had this before, Phil N, if you don't mind, you're asking a question about whether we could sell Hinge or not. I think we've answered that fairly comprehensively. Okay, this one is always a tricky one. I'll ask Phil. I mean probably I'll point this to you, Greg. Always difficult, but for the shares to ride, you need happy existing shareholders and new buyer's summary. So who are the people who are selling? Is there a pattern, a trend or what? And is there an excess being dribbled out by a certain style of owners? Yes, quite a lot in that question. Do you have another go at there? Gregory Smith: Yes. Well, the overall backdrop probably you'll have seen the same sort of data that we see around net flows in and out of U.K.-focused equities, which continues to be negative and quite significantly negative global equities, actually, the flows have started to become negative overall, but particularly the U.K. has been negative. So there has been certainly in my experience over the last 10, 15 years, the number of humans that we go and talk to in the U.K. who are managing small mid-cap capital has definitely decreased and the number of funds has definitely decreased. When you look at the -- we get a monthly register analysis each month, and we go through that and try and get some clues as to who's buying and selling. Often there's changes period-to-period on the tracker funds. And sometimes from month-to-month, you get some of the larger or middle-sized holdings either reducing the position a bit or increasing the position a bit. There's not really a huge pattern that I could talk to, if I'm honest. Our job is to deliver on the strategy to be able to communicate that strategy, and we seek to do that as actively as we can. We've got a number of capital markets events we've done over the course of the year to attract new investors. And Dave, maybe you just want to talk a little bit about the efforts we've done with brokers this year and the other sort of -- given the U.K. has been more net reduction in capital available with the other relationships we've been. David Baynes: Yes. Yes, we're very proactive actually. I mean we have quite a wide range of brokers. I say our primary brokers is extreme supportive and very good. Numis and Berenberg, but we do also get some help. There's an asset called [ TKDY ] in New York, a small team of 5, who have been -- they've kind of identified about 200 American investors who are interested in U.K. stocks. And they've been getting us meetings. I probably have a meeting on average about once a week on them. And if they're interested enough, then Greg joins me, and we do a joint meeting. We think we -- it's often actually hard to tell. I know it sounds funny. We get a full shareholder register every month and you're paying down and trying to analyze. Sometimes you can't immediately identify who is what because they get through nominees, for example. But we think some of those American presentations are beginning to bear fruit. Cantors have also been helping us as well. We're finding some meetings both in America, and we've got some roadshows in Europe coming up. [indiscernible] have helped us. They took on a roadshow in Switzerland recently. So we're actually extremely active. And you will find by the end of the year our Head of Global Capital [indiscernible] some presentations in the Middle East and also in the Far East. So it's definitely not due to a lack of energy, and we are trying to get out and see people. And we think that is begun to pay dividends. We think and that partly reflects in the share price that we are getting people to find out how interesting the story is and find out how extraordinary discount is and what the opportunity is, is pretty much what we're telling people. Next one is from Lucas, a shareholder from Switzerland. Lucas, good to have you there with us. A new written -- just thinking out loud, you're giving an additional GBP 200 million in exits in private holdings until 2027. So you add that on to sort of Nanopore, which sort of hopefully by then, something like GBP 170 million. Are you saying that there's nearly 70% to 80% of current market cap might be achieved? I think the answer is yes. That was pretty much what I said earlier. Yes, that is about right. Obviously, there's a lot ifs in that. But if we achieve that, which we believe we will on the sort of non-nanopore holding. If Nanopore still performs as it should, we believe it will, yes, there's something between GBP 150 million to GBP 200 million Nanopore on top of that number, we will hope we will see. Last one, David B. Always nice talking [indiscernible] Why are you so good on someone. David B, this is for you, Mark. Do you think the start of U.S. drug pricing and tariffs by the U.S. administration is affecting pricing in the biotech market but ultimately successful innovation? If so, does that mean the model needs to be revisited so it is sufficiently profitable given the huge development costs? It's repeat your question. Mark Reilly: Question -- danger of being a political question, yes. So from our perspective, yes, I think we've got to assume that there has an impact something that is an impact. It's something that the team is factoring into the valuation work that we do every time we make a transaction in the portfolio. And so with the sense of the model needing to be revised. I think it's about making sure that we're putting money in at the right price to reflect the ultimate terminal value of the company. And so that's -- you described it as a revision of the model on a macro basis, we're doing it from the ground up of the looking at these transactions and the value is there to be delivered in the context of the current market. The other thing I said, I don't think we're really seeing this in the conversations we're having with pharma in the portfolio yet. I don't think I haven't heard that we've had pharma coming to us and saying we can possibly engage with you on this or pay this much for this company on the basis that the ground has shifted beneath us, but that might be going. David Baynes: And the last question is not a question, thank you, Filip N. Thank you, everybody, who stayed with us this long, and thank you all the questions. That's a 29th and last question, Jake. Operator: Perfect, guys. That's great. And thank you, as usual, for being so generous of your time then addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you after the presentation. But Greg, perhaps before really now just looking to redirect those on the call to provide you their feedback, which I know is particularly important to yourself and the company. If I could please just ask you for a few closing comments just to wrap up with, that would be great. Gregory Smith: Thanks, Jake. Yes, so to summarize, again, we've made strong progress in 2025 year-to-date, good progress on cash proceeds, and that gives us good confidence around that GBP 250 million of exit target to the end of 2027. I think the standout in performance for the first half or standout transaction was that successful Hinge Health IPO, which we're very pleased to see and delighted for the team and of course, for our financial returns, and that's helped NAV per share now get up to about GBP 1 a share, and hopefully, we go up from here. And then on the share price, we've done -- continue to do 2 things that we think we can to close the discount, convert more portfolio into cash and return that excess capital with discipline at today's price. We still think that buybacks are an accretive tool. And so we've been using that tool more aggressively that year, and as David said, to good effect, and we'll continue to weigh buybacks against new investments strictly on a returns basis. And so we are one of the world's most experienced university science investors. And so we remain uniquely positioned to capitalize on the sort of the fiscal reform that we're seeing and hopefully, this rising demand for high-growth innovation. So thank you all for listening and look forward to updating you on progress for the rest of the year and into 2026. Operator: Perfect, Greg. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of IP Group Plc, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.