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Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the UNFI's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Steve Bloomquist, Vice President of Investor Relations. Please go ahead. Steve Bloomquist: Good morning, everyone, and thank you for joining us for UNFI's Fourth Quarter Fiscal 2025 Earnings Conference Call. By now, you should have received a copy of the earnings release from this morning. The press release and earnings presentation, which management will speak to, are available under the Investors section of the company's website at www.unfi.com. We've also included a supplemental disclosure file in Microsoft Excel with key financial information. Joining me for today's call are Sandy Douglas, our Chief Executive Officer; and Matteo Tarditi, our President and Chief Financial Officer. Sandy and Matteo will provide a business update, after which we will take your questions. Before we begin, I'd like to remind everyone that comments made by management during today's call may contain forward-looking statements. These forward-looking statements include plans, expectations, estimates and projections that might involve significant risks and uncertainties. These risks are discussed in the company's earnings release and SEC filings. Actual results may differ materially from the results discussed in these forward-looking statements. I'd like to point out that during today's call, management will refer to certain non-GAAP financial measures. Definitions and reconciliations to the most comparable GAAP financial measures are included in our press release and the end of our earnings presentation. I'd now ask you to turn to Slide 6 of our presentation as I turn the call over to Sandy. James Alexander Douglas: Thanks, Steve, and thank you, everyone, for joining us this morning. UNFI delivered solid fourth quarter results that drove fiscal 2025 performance in line with our previously provided outlook ranges for net sales and adjusted EBITDA and above our outlook for free cash flow. Notably, our strong free cash flow generation enabled us to reduce net debt to around $1.8 billion, the lowest level since the end of fiscal 2018 and reduced net leverage by 0.7 turns compared to last year. Our fiscal 2025 results reflect the strength and resiliency of our customer base, combined with disciplined execution against the multiyear strategic plan we detailed a year ago. We're building momentum as we enter year 2 of our strategic plan. We're increasingly confident in our trajectory and in our ability to create sustainable long-term value for our customers, suppliers, associates and shareholders. With that backdrop, I want to take a few minutes to walk through the progress that we've made in the first year of our refresh strategy as well as the opportunities ahead to further accelerate our performance. At UNFI, we aspire to become the food industry's most valued partner by bringing innovative products, programs and services designed to help retailers and suppliers profitably grow their businesses and ours. We believe that UNFI's scale, heritage in enduring high-growth categories like natural, organic and specialty products, our merchandising programs, private brands and our value-added services make us uniquely suited to help retailers differentiate and compete in a dynamic marketplace. And as a result, we are building significant capabilities to help our suppliers build their brands and accelerate their growth within our diverse retailer network. Based on these core strengths, we believe that we are well positioned to drive profitable growth within a growing $90 billion target addressable market that includes many natural, organic, specialty, multicultural and conventional grocery retailers, all of whom can benefit from our differentiated products, programs, insights and services today and in the future. As expected, the refresh strategy and multiyear plan we announced last October have been steadily driving growth within this market, anchored by 2 primary focus areas, creating more value for customers and suppliers and becoming a more effective and efficient business. Over the past year, we've made meaningful progress in both areas, starting with our focus on adding value for customers and suppliers. Fiscal 2025, we grew our business with both existing and new customers by providing customized product, supply chain and programmatic solutions for customers to meet their short- and long-term needs. At the same time, we're taking action to improve our category merchandising and account management capabilities by realigning our sales and merchandising teams to better meet the unique needs of the customers and suppliers they serve across the natural, organic, specialty, fresh and conventional product sets. We also continue to expand our digital and professional services, which create deeper and stronger customer relationships and range from credit card processing, shelf management and store remodeling to digital solutions like the UNFI Media Network and electronic shelf labels. Some of our long-standing customers increased their business with us to add these services last year, helping them save money, operate more efficiently and compete more effectively. For suppliers, we continue to roll out our revamped commercial go-to-market program, which streamlines fees and adds access to proprietary insights that help them build and profitably grow their brands within our retail network. We also created a dedicated cross-functional team that has been building new and improving existing processes to enhance the supplier experience. Together, these efforts underscore our commitment to create meaningful value for both our customers and suppliers while strengthening our own market position for the future. Next, I'll focus on our progress towards becoming a more effective and efficient company, which has been driven by 4 components: network optimization, cost efficiency, working capital management and reducing capital intensity. Over the past few quarters, we've outlined our efforts to optimize our distribution network to better serve customers and suppliers over the long term. During fiscal 2025, we consolidated volumes from 4 distribution centers into larger, more modern facilities with broader assortments to benefit customers in these regions. These actions will also further improve our network profitability in fiscal 2026. In parallel, we've optimized capacity and enhanced capabilities across our network. This includes strategic investments in automation and approximately 400,000 incremental square feet in Manchester, Pennsylvania and Sarasota, Florida, which should enable growth in both regions, improve product restocking speed and order accuracy over time while reducing our operating costs. To further improve our service levels, we've deployed lean daily management in 28 of our 52 distribution centers through the end of fiscal 2025, which is strengthening our performance across safety, quality, delivery and cost metrics. We continue to embed lean management routines across our organization and create greater accountability through real-time tracking of key performance metrics. From adding new capabilities to embedding lean processes across our operations, we're building a more responsive and resilient supply chain that is well positioned to support customer needs across a range of macro and competitive backdrops. Our nimble solutions-oriented approach helped us drive above-industry growth in fiscal 2025 and we expect to continue building on this strength in the year ahead. In fiscal 2025, we improved free cash flow by reducing capital intensity and strengthening our working capital management processes. Rigorous prioritization helped drive our approximately $130 million reduction in capital investment spend during the fiscal year. We also reduced inventory days on hand to pre-COVID levels, while working to improve fill rates for our customers. Finally, we've continued to optimize spending through disciplined SG&A cost management across the enterprise. This included streamlining our processes and corporate support structure to enable key business functions to serve our customers and suppliers more quickly, effectively and cost efficiently, which resulted in an approximate 30 basis point reduction in full year operating expenses as a percentage of sales. In fiscal 2026, we expect to continue to make progress in each of these areas while also focusing on capability building and incremental initiatives to accelerate long-term profitable growth. For example, we see a meaningful opportunity to improve the experience for independent customers and emerging innovative suppliers who are critical to the vitality of our industry. We will also make our portfolio of value-added services more accessible to these operators. In terms of driving greater effectiveness and efficiency, we're focused on building a strategic road map for technology investments and streamlining more of our internal processes to drive even greater adaptability as well as margin and free cash flow benefits. Turning to our fiscal 2026 outlook, which Matteo will provide more detail on shortly, we are confident in our continued execution of our strategy, and ability to deliver another year of profitable growth while further strengthening our balance sheet. Looking ahead and turning to Page 6 in the presentation. We are accelerating and raising the multiyear objectives we previously set and announced 1 year ago for the fiscal 2025 to fiscal 2027 period. We now expect net sales to grow in the low single digits on average from fiscal 2024 to 2027, which compares to our previous expectation for fiscal 2027 net sales to be roughly flat to fiscal 2024. This reflects better than projected organic growth driven by growing customers as well as new customers, new categories with existing customers, customer retention and growth within natural, organic, specialty and fresh products, which is supported by enduring consumer tailwinds towards health, wellness and differentiated products. In addition, we now expect average annual adjusted EBITDA growth from fiscal 2024 to fiscal 2027 to be well above our prior expectations and projected the growth for this period will be in the low double-digit range, with adjusted EBITDA margin growing by almost 40 basis points in fiscal 2026. Our updated multiyear objectives imply that we will deliver adjusted EBITDA of over $730 million in fiscal 2027. This higher profitability as well as our continued focus on optimizing capital investments and achieving pre-COVID levels of working capital is expected to generate free cash flow of around $300 million in both fiscal 2026 and fiscal 2027, roughly double the expectations that we communicated a year ago. Combining our higher adjusted EBITDA and free cash flow generation, we expect to reduce net leverage to around 2.5x by the end of fiscal 2026 and to further reduce this to under 2x by the end of fiscal 2027. As we reduce our debt levels and interest expense and improve profitability, we expect adjusted EPS will continue to grow faster than adjusted EBITDA. In summary, despite the unexpected challenges we faced as we navigated the cyber incident with our customers and suppliers in the fourth quarter of fiscal 2025, we continue to maintain our underlying business momentum through strong partnerships and a collaborative solutions-oriented culture. I'd be remiss if I didn't once again thank all of our customers and suppliers for their partnership and resilience during a challenging time. We learned a lot, and we're putting our learnings into action, as we focus on helping our customer and supplier community execute their strategies during the upcoming holiday selling season and beyond. Now a month into year 2 of our refresh strategy, we are focused on accelerating our momentum by building on UNFI's unique ability to provide differentiated products, services and well-scaled supply chain solutions that help our customers and suppliers grow profitably. We look forward to discussing our path to long-term value creation in greater detail at our Investor Day in December. We are grateful to our customers and our suppliers for their continued partnership and the UNFI associates for delivering on our commitments over the past year. We still believe our future value creation opportunities far exceed what we've achieved so far. With that, let me turn it over to Matteo to provide more detail about our financial performance and our fiscal 2026 outlook. Giorgio Tarditi: Thank you, Sandy, and good morning, everyone. As Sandy stated, we finished fiscal 2025, in line with the revised outlook ranges we provided in July during our business update call for sales, adjusted EBITDA and adjusted EPS, while we outperformed our free cash flow target. Today, I will provide additional insight into our fourth quarter results, our year-end financial position and capital structure in our fiscal 2026 outlook. Our expectations for the new year include incremental benefits as we accelerate the execution of our multiyear strategy built upon the early success of our lean operating approach and look to achieve our previously stated 2.5 turns leverage target in 2026, 1 year ahead, our initial plans. With that, let's review our Q4 results. If you look at Slide 8, our fourth quarter sales came in at $7.7 billion compared to $8.2 billion last year. Including the $582 million benefit from the extra week in last year's fourth quarter, net sales grew by 1.6%. This growth rate reflects a volume decline of around 3%, driven by the lost revenues from the cyber incident, which was more than offset by inflation of about 2% and positive product mix. The sales growth rate also includes an estimated impact of 5% from the cyber incident. Our Natural segment growth of 9% on a comparable 13-week basis again outperformed the market. We grow from both smaller and larger customers as well as the secular tailwind from increasing customer adoption of these products. Conventional segment sales declined 6%, partially reflecting the lapping of a large new customer addition and the beginning of the optimization and accretive transition out of Allentown. For the full year on a comparable 52-week basis, net sales rose 4.6%, volumes grew 1.4%, inflation was about 1.8% and a favorable mix shift accounted for the balance. Notably, full year volume growth outperformed Nielsen's industry benchmarks. This was largely the result of the strength of our customer base, including the benefit of new business with existing customers and the onboarding of new customers. In Retail, sales fell 1.7% in the quarter on a 13-week comparable basis. We believe that absent the cyber incident, total sales would have been positive as would ID sales at Cub. Our new Retail CEO, David Best, started at the beginning of the new fiscal year. David is focused on working with our Retail team to improve the customer experience, store traffic and operations and financial results. We are confident that under David's leadership and with his deep knowledge of the local market that Cub serves, we can enhance our offering while deepening our franchisee partnerships to drive improved performance. Moving to Slide 9. Let's review profitability drivers in the quarter. Our gross margin rate in the fourth quarter was 13.4%, which compares to 13.7% in the prior year quarter. Excluding LIFO in both years and the impact of the cyber incident in this year's fourth quarter, which drove elevated shrink, the gross margin rate was 13.5% in the fourth quarter of both years, represented the highest quarterly rate this fiscal year. This performance reflects another solid quarter in managing shrink, the further benefits from our supplier programs and early progress with incremental win-win value creation solutions with customers. Gross profit dollars on a comparable 13-week basis increased about $13 million resulting from the 1.6% increase in sales for the same period. Our operating expense rate was 13.6% of the net sales compared to 13.2% last year. The higher rate is largely attributable to the deleveraging impact on fixed cost of the estimated $400 million in lost sales as well as our meaningful investment in servicing our customers during the cyber incident which included additional overtime and other expenses from manual processes. During fiscal 2026, we fully expect our OpEx rate to return to the pre-cyber incident trends we experienced in the first 3 quarters of fiscal 2025, and believe the benefit of lean initiatives will continue to deliver better throughput and supply chain efficiency over time, supporting an improved customer experience. Adjusted EBITDA for the fourth quarter was $116 million compared to $133 million in last year's fourth quarter, excluding the additional week in fiscal 2024. This brought full year adjusted EBITDA to $552 million, slightly above the midpoint of the outlook we provided on July business update call as well as our original outlook provided 1 year ago. All in, we estimate that this cyber incident impacted adjusted EBITDA by approximately $50 million in the quarter, which means our full year estimate adjusted EBITDA would have been roughly $600 million. Adjusted EPS for Q4 was a loss of $0.11, bringing full year adjusted EPS to $0.71, also above the midpoint of our most recent guidance. Turning to Slide 10. Free cash flow in Q4 was $86 million. This brought full year free cash flow to around $240 million compared to an approximate $90 million use of cash in fiscal 2024. This roughly $330 million improvement was largely the result of the work accomplished throughout the year to better forecast and manage the drivers of free cash flow, particularly returning inventory toward pre-COVID levels as well as the addition of free cash flow as an incentive compensation metric to drive focus and alignment within our organization. The free cash flow generated in Q4 enabled us to maintain leverage sequentially at 3.3 turns despite the reduced level of trailing 12-month adjusted EBITDA resulting from the cyber incident. Importantly, we reduced net leverage by around 0.7 turns from the end of last fiscal year. Net debt also fell to just above $1.8 billion, the lowest level since 2018. Flipping to Slide 11. We continue to deepen lean practices to drive benefits across safety, quality, delivery and cost. We implemented lean daily management in 28 distribution centers as of the end of the fiscal year, which was a key driver of our operating efficiency and throughput improvement in fiscal 2025. We are actively increasing deployment of lean daily management throughout our distribution network and expect to drive further improvement to supply chain effectiveness and efficiency in fiscal 2026. Our lean initiatives in fiscal 2026 also include eliminating waste and optimizing and digitizing processes to improve distribution center performance. Our value delivery office will also continue to generate further incremental savings with an emphasis this year on indirect spending. This relates to equipment and services not for retail, it makes up a meaningful portion of our roughly $4 billion annual operating spend. Additionally, we see further opportunities to improve the supplier experience as well as working capital efficiency and free cash flow generation by aligning and streamlining billing processes and payment standards. Simultaneously, we continue to refine and optimize our organizational structure to deliver even higher service levels and productivity. All these controllable actions should more than offset planned merit and other customary operating cost increases. As Sandy highlighted earlier, we will also be focused on building enhanced capabilities within merchandising, revenue growth management and technology as well as making specific investments to the independent customers and emerging supplier experience. This builds on work done over the past few years to better understand the needs of all customers and suppliers. These capabilities are expected to enhance our longer-term growth trajectory and margin potential and we plan to provide more detail on these initiatives at our upcoming Investor Day in December. If you go to Slide 12, we finished fiscal 2025 with operating momentum and a high degree of conviction in our strategy. We remain focused on creating value for our customers and suppliers while becoming more effective and efficient as a business partner. As outlined in our press release, the guidance ranges and increases compared to fiscal 2025, include the following: sales that are expected to be in the range of $31.6 billion to $32 billion. As a reminder, this includes the top line impact from the optimization and accretive transition out of Allentown within our Conventional segment. This transition is expected to reduce our consolidated net sales growth rate by about 3% while improving our profitability and recurring free cash flow, an expected range for adjusted EBITDA of $630 million to $700 million, representing a year-over-year increase of about 20% at an average annual growth rate of close to 15% at the midpoint relative to our reported fiscal 2024 results. Using the midpoints for each of these ranges, we do expect to see year-over-year margin expansion largely driven by the various initiatives we have planned for the year and their anticipated contribution. And finally, an adjusted EPS range of $1.50 to $2.30 per share, a 1-year increase of about $1.20 per share at the midpoint and a 2-year increase of $1.75. Our outlook for capital spending, including cloud implementation spend, is around $250 million. Our CapEx plans reflect our focus on safety, modernization and continued prioritization. We always evaluate opportunities to reinvest some of the benefits of this prioritization to support the long-run growth and improving supply chain value for customers and suppliers. This includes targeted automation and technology enablement investments. We're also actioning our fiscal 2026 plan to generate approximately $300 million in free cash flow in fiscal 2026. We will continue to prioritize reducing net debt to improve our leverage to approximately 2.5 turns or less by year-end. This exceeds our prior stated long-term goal of generating recurring free cash flow of well over 0.5% of sales. Like the initial outlook we provided for last fiscal year, we believe these ranges represent a high confidence case with multiple ways to achieve these targets. As highlighted on Slide 13, we made solid progress in fiscal 2025 to create incremental value for our customers and suppliers while taking actions to become a more effective and efficient business. We fully expect this momentum to continue in the new fiscal year as we further execute on our strategy. Having been here for about 1.5 years now, I'm even more confident about the future of UNFI and the value we can generate for our shareholders. After a successful fiscal '25 of delivering and deleveraging, we are committed to accelerating the momentum we've built and again, delivering our outlook in fiscal 2026. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of John Heinbockel with Guggenheim Securities. John Heinbockel: Sandy, do you want to start with Natural merchandising initiatives, capabilities? Where do you see the biggest opportunity there? Is it -- obviously, the long tail is where the innovation is. But those guys don't have manufacturing capabilities, so there's some limitation on supply. Is it the long tail? Is it helping them with supply? Or where is it? And I guess, would that allow you to continue to grow Natural in the high single digits? James Alexander Douglas: I think of it as really 3 pieces depending on the customer segment. First, as you suggest, innovation is very important to Natural retailers who are positioned that way. And so a lot of the merchandising work we're doing there is to simplify the experience for emerging suppliers and to facilitate more innovation through multiple platforms to our customers. On the more conventionally positioned side, our Natural agenda is more about the road map to deepen their involvement in the categories. And depending on the region of the country and the development of the categories, we manage that specifically on a customer-by-customer basis. I think the punchline is that we think there's a significant opportunity for UNFI to help our customers merchandise their products and be more successful regardless of their positioning. John Heinbockel: All right. Then my follow-up is right now that you guys are obviously now disclosing segment EBITDA. Conventionals have that -- have the margin of Natural. So I wonder, when you look at that margin, what's the opportunity to improve Conventional profitability? Can it be meaningfully improved, I guess, and I don't know if you have an idea as to where? Or is it more, look, that's just structural and we need to shrink that business thoughtfully over the next 5 years? Giorgio Tarditi: So Natural, as you mentioned, has a higher profitability and historically had a higher margin profile due to the specialized and differentiated product assortments as well as their ability to -- or our ability to have higher operating leverage on warehousing and transportation cost just based on the network and the composition of the business. Now across both segments, we are focused on driving greater profitability with a focus on 3 areas. I mean, the first one is to improve product and service mix. The second one is to continue to drive greater efficiency, so shrink indirect costs, operating expenses. And then the third element is how do we continue to embed lean into our operations and identify it through lean ways to be both more effective and more efficient. So if you think about the margin trajectory, we grew about 10 basis points, '25 to '24 with the headwind from the cyber incident. We're growing the guidance -- midpoint of the guidance about 35 basis points between '26 and '25. And then with the $730 million of EBITDA direction for 2027, that will be about 60 basis points of margin expansion versus 2024. So we're working all the levers, balancing, creating customer -- value for customers and suppliers, becoming a more effective business partner and then planned efficiencies. Operator: Our next question comes from the line of Mark Carden with UBS. Mark Carden: So to start on your updated 3-year guidance, you're boosting your sales growth expectations to low single-digit range. And you talked a bit about the stronger-than-anticipated organic growth. Are you guys -- any shifts to how you're approaching planned customer attrition or any assumptions for new account growth going forward? Just some more color on how you're thinking about the balance would be great. James Alexander Douglas: Mark, our view is that as we migrate to our addressable market of $90 billion, we've done some optimization, particularly in the Conventional side, which has been a headwind to overall growth. But beyond that, inside the addressable market, we've seen solid growth in our customer file, both from a new customer and expanding categories with existing customer perspective. And I'd say the thing that's changed is the organic tailwind in natural organic and higher levels of customer file growth and customer retention. And our strategy on the whole for the various segments hasn't changed at all. We're just performing slightly better than we expected when we originally guided last year. Mark Carden: Okay. Great. And then just in terms of the current backdrop, are you guys seeing any shifts to the industry promotional backdrop? And just how is that shaping up relative to your expectations with all the unevenness in the consumer backdrop? Giorgio Tarditi: Mark, we see the promotion cadence edging up, but it remains very disciplined. So the share of volume sold on deal is still running below 2019. We see selectively at least in activities and kind of leaning harder into digital coupons, retail media placements, [ deferred ] share, which also supports the future value proposition of our UMN. What we consider for our outlook for fiscal 2026 is basically an immaterial step change in promotion levels. So very consistent with 2025. Operator: Our next question comes from the line of Kelly Bania with BMO Capital Markets. Kelly Bania: First, I just want to clarify, I think I heard volume metrics that you gave. Are we right to assume that volumes would have been about positive 2% excluding the cyber incident in the quarter? And just can you clarify how that would look across the channels, just assuming the incident was kind of equally distributed across the channels. Is that a fair assumption? Giorgio Tarditi: Kelly, so volume was up about 1.5% for full year in 2025. And as you can imagine, with Natural being up high single digits and then on a reported basis with the cyber headwind Conventional being flattish year-over-year, volumes were clearly more skewed towards Natural than Conventional. So overall, the cyber impact was probably a little bit heavier on the Conventional front. Our ability to recover through some of the many, many processes where we activated was quicker in Natural. And so with that, we had probably a little bit more of an impact in Conventional. You'll see it also as we think about year-on-year kind of tailwinds into 2026 EBITDA. Kelly Bania: Okay. That's helpful. And I guess as we just kind of step back and think about the updated algorithm over the next few years here, what is the biggest contributing factor that is leading to raise the adjusted EBITDA algorithm? Giorgio Tarditi: Kelly, it's really 3 things. First one is, we were modeling a year ago to be flat in terms of top line growth. And now we are seeing low single digits through the combination of a strong resilient Natural business and also our ability to retain more customers as part of the network optimization. The second element is the continuous progress with shrink reduction and the suppliers' programs. These have been both positive in '24 and '25, and we continue to see the trend into 2026 with tight daily management. And then the third area is really the productivity effort. So if you recall, in 2024, we remargin the business with about $150 million. In 2025, we reduced OpEx by about 50 basis points as a percentage of sales, that on $30 billion is about $150 million. And the journey continues into '26 and '27. '26 is going to be a full year realization of the actions that we launched in 2025. And then '26 across '27 is the focus that we're putting on indirect spend. Operator: Our next question will come from the line of Scott Mushkin with R5 Capital. Scott Mushkin: Thanks for all the details you guys have given on the company. It's really helpful. So my question is really strategic and it really has to do with the relationship with Amazon and is there any way to make it more symbiotic? Amazon is out there, creating a 3P network of grocers. So the question would be, can you bundle your smaller and mid-sized customers to participate in that network? Could you create a buying consortium since you guys sell a lot of the same products and you're obviously serving their Whole Foods banner? And then could you put Cub into that 3P network? So I just kind of want to get a feel for, do you think this relationship could grow over time? James Alexander Douglas: Scott, it's Sandy. As you know, we have a policy not to comment on specific customers and we'll continue to live by that policy in this answer. What I would say, though, broadly, is that, particularly with our enterprise accounts, we develop a very customized and tailored strategy of creating value for and with them and that would include the widest possible range of values that we could usually agree to pursue. And I think you can be assured that, that would include the customer you mentioned as a high priority for us. I would say, in parallel, though, that we are working on a segmented basis to improve our ability to grow profitably and to help customers of all sizes, in particular, small independents that are very agile and innovative, both from a wholesale supply standpoint and also for our suppliers. So think of it as a segmented approach with a range of enterprise value drivers up to and including our largest customer and then ranging down through the segments to independents as well. Scott Mushkin: It seems if you've teamed up, you could really help those smaller players over time. The second question is, obviously, you've been rationalizing distribution and automating, making it more efficient. If your volumes came in much stronger than you're anticipating over the next 2 to 3 years, walk us through whether you would need significant capital investment and facility expansion. James Alexander Douglas: Sure. I guess the best way to describe that is that we have been both rationalizing to optimize distribution centers and expanding and growing. Most recently, as we mentioned in our prepared remarks, in Natural, we opened a new DC in Manchester, Pennsylvania that's an automated DC and then we opened a new DC in Sarasota, Florida, between them 400,000 incremental square feet and different automation applications in each of the 2, to facilitate accelerated growth in those regions. We'll continue to optimize the network as our technology road map takes hold, we'll develop more agility and flexibility in the network. But at this stage, our growth is well contained in our 3-year plan and then the outlook we've provided. Giorgio Tarditi: And if I can add a couple of thoughts here also. Scott, in the $250 million capital investment that we have for 2026 and beyond, we always assign a portion of that to automation and modernization. So as Sandy mentioned, we're going to have Sarasota going live with new automated technologies and also we're going to have Joliet going live in about 12 months. That brings the total count of automated DCs within our portfolio to 6. And then we're also using lean not only as a way to improve safety and improve quality and delivery and cost, but also as ways to optimize our layout and create more capacity. So when you put both, the $250 million envelope to work and a lean lens on our processes, we had opportunities to expand capacity without necessarily going too long relative to CapEx. Operator: Our next question comes from the line of Alex Slagle with Jefferies. Alexander Slagle: Congrats. I wonder if you could talk about how we should think about the balance of where the margin gains flow through in '26 would kind of come? I would imagine there'd be more of it on the OpEx side, net-net. But I think you mentioned you expect the OpEx margin, the return at the levels from 1Q to 3Q levels. So just kind of curious how you're thinking about that for '26. Giorgio Tarditi: Alexander, let me walk you through the big pieces of the EBITDA expansion or the EBITDA growth. So if you start with $552 million of adjusted EBITDA for '25 as a jumping off point, then we would add the $50 million of the cyber incident-related losses that are not repeat. And so rebaseline as at $600 million for 2025. From there, there is EBITDA accretion from the exit of an unprofitable customer and distribution center that builds on the $600 million. There is the continuous progress on shrink and suppliers' funds. And then there is a third element of productivity, which, as I was mentioning earlier on, is centered on two areas. One is the full year realization of the 2025 actions. And the second area is really as we go and continue to deploy lean, finding more throughput opportunities and then going after the indirect spend, which is a meaningful portion of the $4 billion spending. So think about really these 4 blocks as you walk, '25 to '26 is the $50 million no repeat of cyber is the exit of the unprofitable contract, is the continuous programs in shrink and suppliers and then is the productivity actions. Alexander Slagle: Got it. And on tariff impact. I don't know if you mentioned anything there. I know you were talking about a moderate impact you thought, but what's the backdrop look like at this point now? Are there any unknowns that you're working through? James Alexander Douglas: Alex, I guess our view on tariffs, while it's still fairly dynamic, we're very closely partnering with suppliers and customers to help all of them navigate and compete across the various segments where they're operating. We have a cross-functional task force monitoring the new development scenario planning with customers and providing product alternatives that were necessary. And ultimately, I think the key theme is to work as hard as we possibly can to help our customers keep prices as low as possible, which we believe will help us and then drive sustainable and profitable long-term growth. At this stage, we're being able to manage it in a very agile way and continue to expect to do so. Operator: Our next question comes from the line of Bill Kirk with ROTH Capital. William Kirk: So I don't think I saw a reconciliation for reported EPS and the adjusted EPS guide for fiscal '26. And I guess, given the delta is pretty large, could you help us by maybe giving some buckets and some sizing of the onetimes that you expect in fiscal '26 that weigh on the reported and obviously not on the adjusted? Giorgio Tarditi: Yes, so the big pieces here are on the adjusted EPS what you would expect is to see the benefit of the no repeat of the $50 million or so of cyber-related losses. Then the expansion on EBITDA related to the exit of the unprofitable contract [indiscernible] the shrink and supplier benefits, supplier funds benefits and then the productivity. That kind of gets you from the $0.70 of adjusted EBITDA in 2025 to the midpoint, call it, $1.90 in 2026. Now relative to the reported over and above those, I mean, we would have the $25 million or so of cyber-related remediation costs and elevated expenses that we incurred that were adjusted out of adjusted EPS and EBITDA in 2025 and ran through the reported numbers, as well as when you think about the $53 million of Key Food termination fee, that would be a no repeat both -- or I guess, in the reported EPS in 2026. So the 2 big drivers between '25 and '26 in the reported numbers are the cyber-related costs and the no repeat of the termination fee. William Kirk: I guess what I'm going for, it looks like -- it sounds like we got some of it is the difference between reported 2026 and adjusted 2026. So forget the 2025 onetime for a second, what are the onetimes in 2026 that are driving that difference? Giorgio Tarditi: There is severance. For instance, we continue to invest in kind of optimization and kind of restructuring plan. So we have that. We have always a placeholder for transformation initiatives. I think that these are kind of the big components. Operator: Our next question comes from the line of Leah Jordan with Goldman Sachs. Leah Jordan: Just seeing if you could provide a little bit more detail on your sales outlook for '26. And just a cadence throughout the year and how you're thinking about volumes versus inflation, that would be helpful. Giorgio Tarditi: So relative to the way we're thinking about growth, at the midpoint of the guidance, so $31.8 billion, what we have reflected here is our focus on driving profitable revenue with greater level of profitability and free cash flow and this is what is driving the improvement in adjusted EBITDA growth and margin improvement. If you think about the midpoint, $31.8 billion is roughly flat versus 2025 and includes the organic sales growth that is led by our Natural business that is also enjoying a kind of secular tailwind and then this growth is offset by the impact of our DC network and retail optimization. But again, both reflects our focus on a strategic targeted addressable market of $90 billion as we redefined about a year ago. What we expect within the kind of organic growth is Natural to grow at a steady clip on an enduring long-lasting basis with our focus in Conventional being more on optimizing our portfolio and continuing to find win-win opportunities with our customers. So that's how we updated our 3-year sales objectives from flat '24 to '27 to low single digit. Relative to the seasonality in the year with Thanksgiving and Christmas being 2 holidays falling in the second quarter, we would always expect revenues to be higher in the second quarter and being the highest point in the year. And then, again, relative to seasonality, I think the other point that is relevant in terms of modeling is we tend to build inventory in the first quarter and the first half of the year. So we would expect some cash usage in the first quarter and kind of in the first part of the year and then rebalancing in the second part. Leah Jordan: That's very helpful. Then I just wanted to follow up on services. I know Sandy, you called out a number of services you provide and all the opportunity there. Just if you could provide more detail there. How has engagement tracked with your customers, the uptick there, which services are you seeing today? And what are the biggest opportunities long-term? And how should we think about any impact to top line growth versus more of a margin tailwind? James Alexander Douglas: Yes. Thanks, Leah. I really think about services in 2 buckets. One are the services that tend to flow with sales, whether they be retail merchandising, store design, equipment and those are sort of the legacy services that we've built and then the more value-added sort of elective services like credit card processing scale or some of our new digital services, whether that be the UNFI Retail Media Network or digital shelf tags and other innovation that we're working with various vendors on. And I think we can continue to expect a steady growth of the more basic services and then where we see the biggest opportunity is in the digital services and helping suppliers navigate our customer base and helping our customer base do the research and the homework to understand which digital applications are best for them and then connecting the dots for everybody to accelerate growth and make everyone more competitive, more efficient and more successful. And there's a whole lot of opportunity there given the wide range of innovation that's happening in the digital marketplace, and we see a significant value add for UNFI there. Operator: Our next question comes from the line of Edward Kelly with Wells Fargo. Edward Kelly: I wanted to touch on the secular growth sort of tailwind that you've mentioned in Natural organic industry or Natural segment. It seems like last year, there was some real acceleration in the industry and we're lapping that now. I'm kind of curious as to how you're sort of thinking about that? Are we entering somewhat of an air pocket because of that comparison where growth might be a little bit slower than what it might normally be for the industry there. And then longer term, sort of over time, is this still a subsegment that you think has growth roughly in sort of the mid-single-digit range, which I think is where a lot of sort of like industry sources would talk about that. James Alexander Douglas: I think your last comment is roughly what we expect to see from an industry perspective. We're in line with that. There's 2 other pieces of color that we would add. The first one is that we think it's an enduring trend. We think regardless of the economy, there's a significant uptick in mindful eating, healthy eating, wellness in general and that traverses economic segments to a degree. So we think that it's a very durable tailwind. The second piece of color I would mention is remember that our business is not exactly a mirror of the retail segment. We earn business by serving the needs of retailers who traverse the Natural position retailers as well as Conventional because they're also focused on growing their Natural business. And so we continue to view that as a strong growth area of the business. And we continue to view Conventional with differentiated retailers to be a durable segment as well. So that's how we kind of think about it. Edward Kelly: Great. And just, I guess, maybe along those lines, I would imagine Conventional players continue to push deeper into that product offering. Has the landscape more recently in the tailwinds just really driven more of a desire from that customer base to push down that road. I would imagine that, that's obviously incremental margin for you. I'm just kind of curious as to what you're seeing sort of underneath of the demand trends from the Conventional players there? James Alexander Douglas: Yes. I think the way I'd describe that is, it obviously varies. The Conventional market is almost an oversimplified term. Retailers range in positioning and strategy widely from multicultural to value-added and all the way across to your neighborhood supermarket. My own view is that natural and organic and wellness products are an important component of any retailer's assortment, but it's going to vary depending on the positioning, how important that is to them. I do think and I continue to believe that the pure-play Natural retailers have a significant advantage because of the way they compete, but we're in the business of helping our customers succeed and we're going to meet them where they are with their strategy and the development of their business. Operator: Our next question comes from the line of Chuck Cerankosky with Northcoast Research. Charles Cerankosky: I want to talk about it from consumers point of view again. And you mentioned that some of their spending is cautious or guarded, careful, yet they're trying to eat in many cases, more healthily. How are they approaching their market basket in terms of branded products, fresh products, private label? And how does that influence UNFI's operations, especially as you approach product suppliers? James Alexander Douglas: Yes. Thanks, Chuck. I think, again, you're going to get a segmented answer here. Consumers generally are eating more healthily and that applies to the various categories and it results in accelerated growth in natural and organic and a trend to fresh, et cetera. But the guarded piece is the other side of the coin. And one of the areas that we're extremely focused on for our customers is working on the overall cost picture for them so that they can compete more effectively against discounters. So it's a full grocery basket, and it varies by consumer and by retailer positioning. But I would say cost matters in every category and then having the right assortment and product set for the retailer strategy is the other piece to maximize growth. Charles Cerankosky: So you're working with them almost by vendor or putting together programs to their purchases across vendors are optimized for their style of business and volume of purchases? James Alexander Douglas: Yes. And what I would say is we are investing in our capability to get better and better at that. We think there's a long runway of opportunity to improve our merchandising capability to meet customers where they are, and it's a major priority for us. Operator: Our last question will come from the line of William Reuter with Bank of America. William Reuter: So I just have two. The first is the move to automation. I think you'll have 6 facilities you said by later this year. When you make those investments, are those positive ROI, return on capital investments? Or do you view them kind of as defensive measures that are required to make sure you continue to compete and keep your business? Giorgio Tarditi: William, yes, we're going to have 6 automated DCs by the end of 2026. And we view them as ROI, both capacity and ROI-positive investments. With that in mind, the automation investments are expensive and they are kind of long-term returns, but we always do them as ways to increase capacity, improve our effectiveness and improve our efficiency sort of in this order, right? So we always keep customers and suppliers front and center as we think about how do we serve them better, how do we become more effective and then how do we realize the throughput benefits of automation with the overarching principle also that automation helps a lot in our safety goals, which is the first priority. So they are expensive. We model them in our $250 million or so of CapEx budget for 2026. And we also view lean, as I was mentioning a couple of questions ago, as a good alternative to continue to improve capacity, safety and efficiency. William Reuter: Got it. And then just secondarily, on leverage, you're now going to reach your target by the end of the year or a year earlier than expected. How is this going to impact your capital allocation? I guess, would you consider acquisitions at that point? Would you consider share repurchases? What are your thoughts? Giorgio Tarditi: William, our priority right now and has been the same consistently over the last 4, 5 quarters is to reduce debt. We have multiple ways to achieve the 2.5 turns or less in 2026 and below 2 turns in 2027. If you think about the midpoint of the guidance at $665 million of EBITDA times 2.5, I mean it tells you that our debt should be about $1.6 billion to $1.7 billion and with $300 million of free cash flow guidance for '26 will be below $1.6 billion, right? So we have multiple ways to get there, which continues to embrace our philosophy and our belief of high confidence plans and there will be more that we can talk about as we achieve those targets. But for now, that's a priority. Operator: That will conclude our question-and-answer session. And I will now turn the call back over to Sandy Douglas for any closing comments. James Alexander Douglas: Thank you, operator. During fiscal 2026, we will be focused on accelerating momentum and continuing to add value for customers and suppliers while becoming a more effective and efficient partner as we execute the second year of our refresh strategy. We expect this to drive increasing profitability and free cash flow and to further strengthen our capital structure. We are also continuing to grow capabilities to help our customers and our suppliers compete and grow profitably in a dynamic marketplace with the ultimate goal of becoming the most valued partner to the vibrant diversified food retailing industry. For our customers and suppliers, we thank you for your continued partnership, collaboration and support. For the UNFI associates listening today, our thanks to each of you for everything that you do for our customers, our suppliers, our communities and each other. And for our shareholders, we thank you for the trust you continue to place in us. Thanks again for everybody joining this morning. We look forward to updating you on our progress through the year. And we hope that you all will be able to join us for our Investor Day at this coming December. Operator: This will conclude today's call. Thank you all for joining. You may now disconnect.
Operator: Welcome to the Glimpse Group's Fiscal Year 2025 Financial Results Webinar. [Operator Instructions] As a reminder, this conference is being recorded. The earnings release that accompanies this call is available on the Investors section of the company's website at t https://ir.theglimpsegroup.com. Before we begin the formal presentation, I'd like to remind everyone that statements made on today's call and webcast, including those regarding future financial results and industry prospects are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's regulatory filings for a list of associated risks, and we would also refer you to the company's website for more supporting industry information. I would now like to hand the call over to Lyron Bentovim, President and CEO of the Glimpse Group. Lyron, the floor is yours. Lyron Bentovim: Thank you, Holly. Thank you, everyone, for joining us. I am pleased to welcome you to The Glimpse Group's Fiscal Year 2025 Financial Results Investor Call for quarter ended June 30, 2025. Fiscal year 2025 was a remarkable year for Glimpse with many achievements. Return to revenue growth, achievement of annual cash flow neutrality for the first time in the company's history, significant Tier 1 customer wins, divestiture of non-core assets, key technology development centered around integrating AI into our immersive products. The filing of 7 new patents primarily focused on the integration of AI with immersive technologies, all while maintaining high gross margins and a clean balance sheet. Our software products and services are at the forefront of several key emerging technology segments, immersive, spatial computing, AI, cloud. We have established a track record of working with major customers across industries as well as relationships with some of the leading companies in the tech world and have a significant pipeline and growth potential. However, these have not translated into significant shareholder value creation, which has led us to strategically review and with the Board's approval of the plan that will unlock and create far more value for all of us as shareholders. I will go into more details later in my prepared remarks. Driving our growth going forward, our main engine is our subsidiary, Brightline Interactive. As a quick reminder, BLI, through its product Spatial Core provides advanced spatial computing, AI-driven operational simulation middleware software and solutions to the Department of War and big data-driven enterprises. Spatial Core sits at the intersection of spatial computing, immersive technologies, AI, cloud and geospatial data. We view it as an operating system for computing, processing and visualizing information in 3-dimensional space on the cloud. BLI specializes in creating AI-supported workflows on top of dynamic synthetic environments that integrate multimodal and real-time data to accelerate decision-making, enhance mission readiness and expand human and nonhuman training capabilities that can be used in a variety of arenas, including digital twins, robotics, drone and autonomous vehicles. While Spatial Core is at the cutting edge of technology, it is not science fiction. It is based on BLI's established 15 years of technological development deep knowledge-based and rooted in proven paid-for contracts with major entities with high operational and executional requirements. In fiscal year 2025 alone, Brightline achieved several critical milestones, including successfully executing and delivering the development of a unified synthetic training ecosystem for a major DOW entity, a $4-plus million initial contract. The system enables soldiers to train, plan and execute missions in a fully virtualized environment, providing interfaces for collaboration and digital twin integration and functionality. Entered into a $2-plus million Spatial Core contract with another DOW entity as the direct prime to be delivered over the next 12 months. While we can't go into any additional details just yet, it has similar AI and deep tech characteristics as other spatial core contracts. Successfully delivered first full motion immersive simulator to the U.S. Navy, providing the U.S. Navy with advanced simulation capabilities that bridge the gap between the real and virtual world. This state-of-the-art system incorporates spatial computing elements to enable high-level, cost-effective simulations, ensuring that military personnel can train in realistic and immersive environments. Delivered an advanced immersive simulation to a large government service integrator, BLI was able to create a sophisticated spatial simulation in record time, setting what we believe has the potential to become a new industry standard. This initial simulation project was developed with the goal of allowing the GSI to gather simulation needs from others to then add to this build or for further deployments in a cost-effective and scalable manner. Entered into a cooperative research and development agreement, CRADA, with the U.S. Army Combat Capabilities Development Command, Command control Communication, Computer, Cyber Intelligence Surveillance and Reconnaissance Center, Brightline to develop, assess and improve workflows to create and augment synthetic imagery for use in training and assessing artificial intelligence and machine learning algorithms. These, in addition to prior recent years achievements, represent initial contracts and validation of BLI's technology and delivery capabilities. All of these have the potential to expand into multimillion, multiyear follow-on contracts, leading to eventually possible inclusion in programs of record, which are exceptionally large long-term DOW contracts. In addition, BLI has a robust pipeline of new potential customers, both in the DOW space and in the enterprise big data segment, oil and gas, aviation, tech and many others. We believe that BLI's growth potential is immense, even if it does not immediately materialize to its fullest extent and takes time to fully develop. DOW contracting, for example, is notoriously slow and quite complex. In parallel to Brightline, our other entities also achieved major milestones during the fiscal year, including an NIH grant in partnership with Yale Medical, Drexel University and New Jersey Institute of Technology to advance VR education for adolescent and young adult cancer patients, partnership with Montefiore Einstein for our VR study for teen mental health, 3D immersive enterprise service agreement with a leading global energy tech company. Foretell Reality, our subsidiary, entered into several contracts for its AI-driven immersive training product, while Glimpse Learning entered into multiple software license contracts in the health care and educational segment. Despite all of this, we don't believe that our intrinsic value and certainly not Brightline is reflected in Glimpse's current valuation, not even remotely in our view. Indeed, based on our internal analysis, we believe that BLI's public company comps alone in the DefenseTech AI segment trade at vast multiples of trailing annual revenue. Even if a significantly discounted revenue multiple was to be applied to BLI, its valuation would far exceed Glimpse's current valuation. We believe that Brightline's true value and potential is hidden within the Glimpse umbrella and is potentially encumbered by it. This being the case, and in light of Glimpse's current position as a largely abundant illiquid microcap, we have reached a conclusion that the best way to maximize shareholder value for Glimpse shareholders and to increase BLI's chances of success is to spin out BLI. If successful, BLI will become an independent publicly traded company, a pure-play, well-funded stand-alone spatial computing, AI-driven cloud operational simulation middleware provider to the DOW and big data-driven enterprises. While the final methodology has not been determined yet and success is not guaranteed, our Board of Directors has approved the strategy and general process, which we expect to play out in the coming months. As part of the process, the plan is for Glimpse shareholders to be issued shares in the spun-out BLI public entity as a distribution. In parallel, current Glimpse shareholders will maintain their holdings in Glimpse, which we believe could have considerable and attractive going-forward alternatives to pursue as a clean, healthy NASDAQ technology company. With that, I will now turn it over to Maydan Rothblum, Glimpse's CFO and COO, to review the financial results. Maydan? Maydan Rothblum: Thanks, Lyron. I will limit my portion to a summary review of our financial results. A full breakdown is available in our 10-K and press release that were filed earlier today and yesterday afternoon. Please note that I may refer to non-GAAP measures. For the calculation of non-GAAP measures, please refer to the MD&A section of our 10-K filing. Fiscal year '25 revenue of approximately $10.5 million, an increase of approximately 20% compared to fiscal year '24 revenue of approximately $8.8 million. The increase was primarily driven by an increase in Spatial Core revenues and despite the divestiture of non-core assets and entities. Q4 fiscal year '25, that's the April to June '25 quarter, revenue of approximately $3.5 million, an approximate 105% increase compared to Q4 fiscal year '24 revenue of approximately $1.7 million and an approximate 150% increase compared to Q3 fiscal year '25, that's the January to March '25 quarter, revenue of approximately $1.4 million. We expect fiscal year '26 revenue to exceed fiscal year '25 revenue. However, given the nature of Brightline's DOW-driven contracts, revenue recognition timing and potential U.S. government budget delays, the per quarter revenue in fiscal year '25 is expected to be quite choppy with significant movement from quarter-to-quarter. We expect Q1 fiscal year '26 to be significantly lower than Q4 fiscal year '25 and revenues to grow sequentially in the following quarters. Gross margin for fiscal year '25 was approximately 67.5% on par with 67% for fiscal year '25 -- sorry, '24. We expect our gross margins to remain in the 65% to 75% range due to a larger portion of revenue coming from Spatial Core and software license sales. We were essentially cash breakeven for the fiscal year, marking an extraordinary turnaround. Net operating cash loss in fiscal year '25 was approximately negative $0.27 million compared to a net operating cash loss of approximately negative $5.2 million for fiscal year '24. reflecting our significant reorganization efforts, cost reductions, revenue growth and the maintenance of high gross margins. The company's cash and equivalent position as of June 30, 2025, was approximately $6.85 million with an additional $0.85 million in accounts receivable. We continue to maintain a clean capital structure with no debt, no convertible debt and no preferred equity. I'd now like to pass it back to Lyron for some closing remarks, after which we will begin our Q&A session. Lyron? Lyron Bentovim: Thank you, Maydan. Fiscal year 2025 was a pivotal year for Glimpse. We executed on our plan and made great strides, and there are immense opportunities ahead of us. We are determined to try and unlock shareholder value and have several options to achieve this. We intend to aggressively pursue these in the coming months, all the while keeping a sharp focus on our existing businesses and continuing to drive their growth. During this period, we may need to minimize public communications. I thank you all for your interest in and support of The Glimpse Group. And now I'll turn the call back over to Holly to take some questions. Operator: Our first question is coming from Casey Ryan with WestPark Capital. Casey Ryan: Pretty significant. Can I ask sort of as we look at markets, do you feel like BLI's opportunities are primarily in defense and defense-related industries? Or is there some overlap with other opportunities in education and health care? And I'm just trying to understand kind of what would be left with the core business and what would be going with BLI outside of defense contracts currently? Lyron Bentovim: I'll take kind of 2 separate kind of parts of the question. So in terms of Brightline's opportunity, obviously, kind of we've made significant strides with the DOW, and we've got multiple paths that each lead to pretty significant opportunities. In addition to that, we've basically started exploring how to work with our Spatial Core product with enterprises. Kind of it's going to take probably longer to get kind of significant revenue from that, but we see this as kind of a pretty tremendous opportunity for Brightline. Education and health care are less the focus for Brightline, but that's the focus of some of the other entities within Glimpse where we see a significant opportunity integrating immersive technologies with AI. And kind of offering a variety of solutions that will help educational organizations, both at the college level and at the K-12 level as well as kind of health care enterprises to utilize kind of our technology to simulate, train and practice certain scenarios. Casey Ryan: Okay. Okay. That's helpful. And then I know it's early days. We haven't worked on all the details, but from the announcement today to sort of some endpoint where there's something with BOI that happens that's fully consummated, are we looking at a time frame that's maybe 12 months? Or does that feel too long to you and you think it's something sooner than that? Lyron Bentovim: That is way too long kind of we expect to initiate the process kind of in the coming weeks, and we expect that process to take several months to go through, but we expect something to happen if we're successful at the beginning of the calendar year. Casey Ryan: Okay. Terrific. Terrific. And then in terms of sort of the education markets, I guess, and maybe other commercial markets outside of defense again, where do you think -- do your customers feel like they're still learning how to integrate the technologies? Or do you think they're getting closer to sort of integrating them into their normal operations and expanding them broadly, say, a college or K-12 institution? Lyron Bentovim: That's a good question, Casey. Kind of I think that we are very close to that kind of transition of basically organizations trying things out to organizations fully ready to kind of jump into the water and start swimming. We're working with one of the leading universities in Florida as our kind of primary first kind of beta partner for our kind of AIA solution, and we're planning in the fall semester -- in the spring semester, starting in January to fully launch that solution in partnership with them. And that will be a significant test and probably one of the more advanced kind of willingness of an organization to really jump into the immersive AI space. Casey Ryan: Okay. That sounds very compelling. And then sort of just jumping back to BLI, do we sort of sense that like there will be a name change? Or do we think Brightline has a good brand name and that will sort of be the name that we move forward with? Because it feels like all the key players would sort of know that name already. But I'm just sort of wondering. Lyron Bentovim: I do not expect any name change kind of we expect Brightline Bright has a significant brand in the space that it's here with kind of with -- primarily with kind of customers, partners, technology, kind of those there's no reason to change the name. It's a good name. Casey Ryan: Yes. Okay. Perfect. Well, this is a significant and potentially a great strategic move. I'll sort of drop off the question line and let others ask questions as we go forward. Operator: Our next question is from [ Richard Molinsky with Max Ventures. ] Unknown Analyst: First of all, congratulations in turning the company's cash flow around. That was a big change. And this Brightline seems very, very exciting. And I'm wondering, I did love the news release of what you're doing with team mental health at Montefiore. And I know you said the government is really the #1 market for you, but the health care could be like #2. And I'm wondering whether this -- your services and your AI, you could go to some major companies and offer the services for them to sell it to their customers and increase the sales that way besides you doing it on your end? Lyron Bentovim: Richard, kind of this is exactly kind of the path we're planning on taking in 2026 with some of our AI solutions kind of AIA product. We are looking at finding partners in certain industries that specialize in that industry. They've been offering basically 2D kind of solutions to their customers in a variety of fields. We want to kind of integrate their know-how in their industry with our AIA solutions and then allowing them to offer the solution on our platform to their customers kind of integrating immersive AI into their solutions. So that's definitely a game plan for us for 2026 for the AIA product. Unknown Analyst: Right. And when realistically do you think this spin-off could happen in your estimate? Is it 6 months down the road, 3 months? Do you have any idea when you'd want this to happen? Lyron Bentovim: So our plan is to make it happen as quickly as possible, as I responded to Casey's question, I expect this to happen early in 2026 if everything goes according to plan. Casey Ryan: All right. That's terrific. And with one of the last questions, you've been really good monitoring -- managing the cash. Do you expect the cash -- you won't have any cash needs at all at this point in time based on what you currently have in the bank and your projections? Lyron Bentovim: Yes. We expect to fully be able to operate kind of with the cash we have. Operator: Our next question for today is from [ Hung Nguyen, ] a private investor. Unknown Analyst: As far as enterprises, do you plan to get into the training employees for private enterprises as far as system and processes? Lyron Bentovim: Thank you for the question. Kind of we are -- kind of our subsidiaries are not focused directly on corporate training solutions, but our AIA solution allows employees to soft skill train various scenarios in a very effective way, and that's definitely part of our go-to-market. Operator: [Operator Instructions] Our first online question is, is the proposed spinout of BLI given the overhead costs of being a small public company are high and profits are still low -- are still small? Lyron Bentovim: Thank you for the question. We've basically taken that into consideration. And definitely, that's a kind of reason against doing it and part of the reason we've not explored this now. But we believe even with the cost of maintaining 2 public entities, the value that will be created to Glimpse shareholders and the potential for Brightline to access capital as part of the process make this a significantly valuable opportunity for Glimpse shareholders. Operator: Our next online question is, when can we expect this spin-off? Very exciting developments with Brightline. Do you see joint ventures with larger companies wanting to offer Brightline services to their customers? Lyron Bentovim: So 2 parts to this question. The first, we expect, if everything goes according to plan, to have this happen early in 2026. And we're definitely constantly looking at partnership for Brightline. We have significant relationships with some of the world-leading technology companies, and we expect to continue to work with them and strengthen the relationships. Operator: I'd now like to turn the call back over to Lyron for closing remarks. Lyron Bentovim: Thank you, Holly. I would like to thank each and every one of you for joining our earnings conference call. We look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions, please reach out to us directly. Thank you, and have a great day. Operator: This does conclude today's webinar. Thank you for your participation, and have a wonderful day.
Operator: Ladies and gentlemen, welcome to the Preliminary Results 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mike Morgan, Group Chief Executive. Please go ahead. Mike Morgan: Thank you, Lorenzo, and good morning, and welcome to the presentation of Close Brothers 2025 Preliminary Results. I'll begin with an overview of the year. After that, I will hand over to Fiona McCarthy, our Group CFO, who will walk you through our financial performance, and then I'll return to update you on our strategic priorities and wrap up the presentation. We'll be happy to take your questions afterwards, both via the telephone conference line and over the webcast. You can submit your questions either during or after the presentation. This year has shown that change is possible and that we can move at pace. We've strengthened our capital position, reshaped the portfolio and addressed legacy issues. Our performance demonstrates the resilience of our business model and the impact of these actions. We're also encouraged by the growth opportunities across our chosen markets, which I'll touch on shortly. We significantly strengthened our capital position with over GBP 400 million of CET1 capital generated or preserved since March 2024. At the 31st of July 2025, we achieved a CET1 capital ratio of 13.8% or 14.3% following the sale of Winterflood. This is after taking account of the impact of the motor commissions provision and the actions taken to simplify the group and address legacy matters. We've already delivered GBP 25 million of annualized savings by the end of FY '25, ahead of initial guidance. Today, we're announcing that we will deliver at least another GBP 20 million of additional annualized savings in each of the next 3 years, a total of GBP 60 million. We have also simplified the group through the sale of Close Brothers Asset Management, Winterflood and Brewery Rentals. And we've repositioned our premium finance business towards commercial lines, where returns are more attractive. As part of this agenda, I can announce today that we are exiting our vehicle hire business, a loss-making business that is not aligned with our core specialist lending expertise. Together with the impact of declining asset values, this has resulted in an asset impairment charge of GBP 30 million. We have concluded legacy matters regarding Novitas through securing settlements with insurers at a small premium, allowing us to draw a line under the issue and move forward with the exit of this business. Our wide-ranging review of the business has also required us to take other challenging but necessary actions. We are implementing a proactive customer redress program in Motor Finance, where we have identified historical deficiencies in certain operational processes in relation to the early settlement of loans. This has resulted in a provision of GBP 33 million separate to the broader sector-wide redress scheme being considered by the FCA. Since identification of the issue, we have acted quickly to amend the relevant processes and are fully committed to ensuring affected customers are appropriately compensated. In terms of the Motor Finance provision, Fiona will take you through this in more detail. But in summary, the provision has been reassessed in light of all available information, including recent developments and remains unchanged. We welcome the positive outcome of the Supreme Court judgment, which provided much needed clarity to the industry and now await the outcome of the FCA consultation on the design and scope of an industry-wide redress scheme. The actions we have taken in the year created a sharper, more focused portfolio of specialist banking businesses, well positioned to deliver growth and stronger returns. Let me take a step back and show you how the group has been [indiscernible]. This time line illustrates our transition from a diversified merchant bank to today's more focused specialist bank and where we are heading next. First, the fundamental strengths of our business model, which haven't changed. They include our consistent lending criteria with disciplined underwriting and pricing applied through the cycle, a customer-centric approach built on long-standing relationships with straightforward products and services and prudent management of our financial resources. The more recent phase where we've essentially been resetting the business to drive stronger returns even while navigating the uncertainty around motor commissions. Recent events meant we had to protect this valuable franchise. We built and preserved a significant amount of capital through the management actions announced in March 2024. We've also taken decisive actions to address legacy issues, reduce costs and reshape our portfolio. While these actions clearly have a near-term impact on our financial performance, they put us firmly on the right path for our next phase towards stronger returns. And finally, looking ahead to the next phase, with our simplification agenda largely complete, our attention now turns to driving efficiency, which we have termed as optimize and capturing growth, which we have termed as grow. There is more we can do, and I will talk shortly about our plans to deliver a step change in profitability. In parallel, we are evaluating opportunities to optimize capital, funding and liquidity. We see attractive growth opportunities across our businesses. We intend to use our market presence, brand reputation and specialist expertise to win in the segments where we can truly differentiate and become the specialist lender of choice for SMEs in the U.K. and Ireland. Having walked through our journey so far, let's look at what this means for the story of the group going forward. We operate in strong positions within attractive and large target markets. The SME lending markets in the U.K. and Ireland remain underserved and underpenetrated. And that gives us clear opportunities to grow. Second, we're now a focused specialist bank serving a valuable customer franchise. Our customers need specialist expertise and strong customer relationships and our trusted brand and high-touch service model allow us to differentiate and win. And third, we recognize that returns are not yet where they should be. That is why we have clear plan and strategic priorities: simplify, optimize and grow. I'll come back later to give you more detail on each of these priorities, but the point is that we have now a simpler, more focused portfolio and a leadership team focused on delivery. We are well positioned to reduce costs, drive growth in our chosen markets and improve returns. I'm confident together, these actions set a clear path back to double-digit return on tangible equity by the 2028 financial year and rising thereafter. Thank you. And I will now hand over to Fiona to cover our financial performance in the 2025 financial year. Fiona McCarthy: Thank you, Mike, and good morning, everyone. I'll be taking you through financials this morning. Before I go into more detail, I would like to highlight that the financial information is being presented on a continuing operations basis. The headline numbers exclude Close Brothers Asset Management and Winterflood, which have been classified as discontinued operations in the group's income statement for the 2024 and 2025 financial years. They also exclude Close Brewery Rentals Limited and Close Brothers Vehicle Hire, which have been treated as adjusting items. We reported adjusted operating profit of GBP 144 million in the 2025 financial year, reflecting the impact of actions taken to strengthen our capital position and simplify the business and a return on average tangible equity of 7.1%. This equated to an operating loss before tax of GBP 122 million. This was mainly driven by the GBP 267 million of adjusting items, which includes the GBP 165 million provision in relation to motor finance commissions. It also includes operating losses before tax from the group's rentals businesses and a provision for a proactive customer remediation scheme in relation to early settlement of loans in Motor Finance and some additional cost items. I will go into more detail on the adjusting items later. Notwithstanding the loss, we've maintained strong capital funding and liquidity positions, ending the period with a CET1 capital ratio of 13.8%, which is 14.3% on a pro forma basis, including the expected benefit from the sale of Winterflood. In Banking, we delivered GBP 198 million of adjusted operating profit, reflecting a resilient underlying business performance and our continued focus on cost. The operating loss in group central functions increased to GBP 54 million, slightly below guidance. The loan book reduced 4%, primarily due to loan book moderation in the earlier part of the year. The net interest margin was strong at 7.2% and credit quality remained resilient with a bad debt ratio of 1%. As of 31st of July, we have achieved annualized cost savings of GBP 25 million against an initial target of GBP 20 million. I will come on to talk about costs in more detail later. Turning now to the provision in relation to motor finance commissions. In early August, the Supreme Court delivered its judgment in respect of Hopcraft. We welcome the outcome of the Supreme Court's judgment, but uncertainty remains until the FCA confirms the design and scope of an industry-wide redress scheme. An update from the FCA on its consultation is currently expected in early October. In the first half, we booked a provision charge of GBP 165 million in respect of motor finance commissions. We have reassessed this provision in light of recent developments, and it remains unchanged at GBP 165 million. I would note that this is the best estimate based on all currently available information and the ultimate cost to the group could be materially higher or lower. The operating loss for the year has been significantly impacted by adjusting items. Firstly, we have the provision charge related to motor commissions of GBP 165 million, which I've just covered and is unchanged from the first half. It covers estimated operational and legal costs and potential remediation for affected customers. There are a number of other adjusting items. Firstly, as Mike mentioned, we have decided to exit our Vehicle Hire business, which has been loss-making in a challenging market environment. Together with the impact of declining asset values, this has resulted in an impairment charge of GBP 30 million. The total operating loss of GBP 43 million in the financial year also includes an GBP 11 million underlying loss and a GBP 2.5 million impairment on intangible assets. The business will be wound down over 3 to 5 years. Secondly, we are also implementing a proactive customer remediation program in Motor Finance, where we have identified historical deficiencies in certain operational processes in relation to the early settlement of loans. This has resulted in a separate provision of GBP 33 million in the 2025 financial year. We have also incurred GBP 18.7 million of costs for complaints handling and other operational and legal costs in relation to motor commissions. This included increased resourcing to manage complaints and legal expenses, notably those related to the Supreme Court appeal as well as the unwinding of the time value discount in relation to the motor finance commissions provision. This was lower than the guidance provided at the half year 2025 results of GBP 22 million as we successfully deployed automation and artificial intelligence to enhance accuracy and speed in complaints handling. In the 2026 financial year, we expect these costs to be in the single-digit millions. In addition, the Brewery Rentals business, which was sold in July with completion occurring after the end of the financial year, reported an operating loss before tax of GBP 4.1 million. We also incurred GBP 2.3 million of restructuring costs, which mainly relate to redundancy and associated costs, in line with our guidance of GBP 2 million to GBP 3 million. And finally, we recognized GBP 0.2 million of amortization of intangible assets on acquisition. Turning now to the income statement, covering the performance on an adjusted basis. Adjusted operating income reduced 2%, driven by a marginal decline in Banking income as the loan book reduced and lower group net interest income. Adjusted operating expenses rose 3% as cost savings were offset by higher group expenses, mostly driven by legal and professional fees related to motor finance commissions. These amounted to circa GBP 10 million. Credit performance was resilient and impairment charges decreased 6% to GBP 92 million, which reflected an impairment credit in relation to Novitas. Overall, adjusted operating profit was down 14% to GBP 144 million. Profit after tax from discontinued operations, which includes CBAM and Winterflood, was GBP 49 million. The group will not pay a final dividend for the 2025 financial year. As previously stated, the decision to reinstate dividends will be reviewed once there is further clarity on motor finance commissions. Now highlighting the key metrics from across the Banking division on a continuing basis and excluding the Brewery Rentals and Vehicle Hire businesses. We saw a small decrease in income, mainly driven by loan book moderation measures as well as the runoff of the legacy Republic of Ireland Motor Finance business. The loan book declined 4% year-on-year to GBP 9.5 billion, driven by the temporary pause in U.K. motor lending, loan book moderation measures and lower activity in some of our markets in the second half. The net interest margin remained strong at 7.2%, although it was down 20 basis points, reflecting continued pressure on new business margins and changes in lending mix. Expenses increased 1% as cost savings were broadly offset by wage inflation and spend on technology and expansion of capabilities across the business. Overall, adjusted operating profit reduced 7% to GBP 198 million with a statutory operating loss of GBP 68 million for the full year, largely reflecting the GBP 267 million of adjusting items. Now looking at each of the businesses in turn. Firstly, Commercial. Income was broadly flat on the prior year, notwithstanding a 2% reduction to GBP 4.7 million and NIM marginally lower at 6.6% as the FY '25 average loan book was 2% higher. Expenses decreased by 1%, mainly driven by the benefits of cost-saving initiatives, including workforce rationalization in asset finance, partially offset by higher IT spend and depreciation. And the bad debt ratio decreased to 0.4%, driven by an impairment credit from Novitas. Adjusted operating profit increased 16% to GBP 112 million, largely driven by higher income in Novitas. Excluding Novitas, adjusted operating profit was broadly flat at GBP 96 million. Moving on to Retail. Income was down 6% due to lower loan books in both Motor and Premium Finance. The net interest margin decreased to 8.3%, driven by reduced fee income in Motor Finance and a competitive rate environment. Expenses increased 3%, primarily driven by Motor due to growth in the Irish business and inflationary pressures, partially offset by a modest reduction in premium from lower property, technology and volume-related costs. The bad debt ratio decreased marginally to 1.5%. And adjusted operating profit reduced 50% to GBP 19 million, reflecting the lower income in both businesses as well as higher costs in Motor Finance. The strategic repositioning announced in July will focus the growth of our Premium Finance business towards commercial lines insurance premium finance, where we see the strongest risk-adjusted returns and long-term growth potential, reducing our emphasis on personal lines insurance premium finance. Finally, in Property, income was down 2%, reflecting a year-on-year loan book reduction of 5% to GBP 1.9 billion. The NIM also decreased to 6.9%. This primarily reflected lower interest yield driven by the lower Bank of England rate, lower fee yield due to increasing facility utilization and changes in the lending mix with larger loans accounting for a greater share of new business. Expenses were down 3%, driven by lower staff costs and the bad debt ratio increased to 1.5%, reflecting increased individual provisions on a small number of developments driven by build cost inflation, slower unit sales and lower realized values. Adjusted operating profit was GBP 67 million. Moving to the loan book. Overall, the loan book reduced 4% to GBP 9.5 billion. This was driven by the temporary pause in U.K. motor lending and loan book moderation measures as well as lower activity in some of our markets in the second half. Notwithstanding this decline, customer demand remained robust and business was turned away in the first half due to the loan book moderation. Commercial book reduced 2% to GBP 4.7 billion. Asset was down GBP 98 million due to lower volumes and large terminations in the Industrial Equipment division. Invoice and Speciality Finance decreased 1% over the year, including a GBP 62 million reduction in net loans related to Novitas following the settlement of long-standing litigation in this business. Excluding Novitas, the invoice finance loan book was up 4%. The Retail loan book declined 5%. Notwithstanding continued robust underlying demand, the Motor Finance loan book decreased 1%, reflecting loan book moderation measures and a temporary pause in U.K. motor lending. The premium book declined 14%, reflecting the competitive market environment and reduced demand for premium finance from some of our broker partners. And the Property loan book decreased by 5% due to higher repayments and lower drawdowns as well as lower balances in commercial acceptances, reflecting a more challenging economic environment, which was particularly impacting the SME developer market. While the last financial year has been impacted by loan book moderation measures, we see continuing demand in our markets. We have repositioned the business to focus on segments where we see mid- to high single-digit growth potential through the cycle, leaving us well positioned to benefit as the economy and demand recover. Turning to our net interest margin, which remained strong overall at 7.2% as we maintained our focus on pricing discipline. On an underlying basis, which excludes the year-on-year increase in Novitas income and favorable movements in derivatives, the NIM reduced approximately 30 basis points to 7.1%. This reflected continued pressure on new business margins from elevated SME funding costs in a higher rate environment, together with the impact of the resulting changes in lending mix with larger, lower NIM loans accounting for a greater share of new business. As Mike has highlighted, one of our key priorities is improving returns. Whilst we will continue to manage the overall risk-adjusted returns, we remain committed to maintaining a strong NIM. Looking forward, we expect the net interest margin to be slightly lower than 7%, reflecting loan book mix impacts. Moving on to costs, where we've made good progress whilst recognizing there is much more to be done. Since March 2024, we have delivered GBP 25 million of annualized cost savings through streamlining of our technology, suppliers and property and workforce, which generated a GBP 15 million year-on-year P&L benefit in the 2025 financial year. Overall, adjusted operating expenses increased 3%. This was primarily driven by increased legal and professional fees reported in the group segment. In the 2026 financial year, these legal and professional fees are expected to reduce. In Banking, adjusted operating expenses increased 1%. Cost savings were broadly offset by wage inflation and spend on technology and expansion of capabilities across the business. In the 2026 financial year, Banking adjusted operating expenses are expected to be slightly higher, reflecting wage inflation and investment spend, largely offset by cost savings. The group is committed to maintaining cost savings momentum to deliver a step change in operating profitability. We will deliver at least GBP 20 million of additional annualized savings per annum at group level in each of the next 3 years. Mike will come back later on to talk about future costs in more detail. Turning now to our resilient credit performance. The bad debt ratio was stable at 1% and remained comfortably below our long-term average of 1.2% as we recognized GBP 92 million of impairment charges. This included an impairment credit in relation to Novitas and a reduction in Retail driven by more favorable macroeconomic impacts, partly offset by an increase in Property due to an increase in individually assessed provisions. Looking forward, we continue to closely monitor the evolving impacts of inflation and the cost-of-living pressures on our customers. We remain confident in the quality of our loan book, which is predominantly secured or structurally protected, prudently underwritten and diverse and supported by the deep expertise of our people. In FY '26, we expect our bad debt ratio to remain below our long-term average of 1.2%. Moving on to our balance sheet, where we continue to follow our prudent approach to managing financial resources. We maintained a strong balance sheet with total funding of GBP 12.7 billion. We consciously held a higher level of liquidity with GBP 2.8 billion of treasury assets and a liquidity coverage ratio of 1,012%. We have maintained strong access to funding markets and have raised GBP 300 million through a Motor Finance funding securitization. Our funding base is diverse across wholesale markets and a mix of retail and nonretail deposits. In line with our strategy, we continue to actively grow our customer deposit base in the year with Retail deposits up 20% to GBP 6.8 billion. We are continuing to benefit from diversification of our savings product offering. We launched Easy Access in 2023 and balances at 31st of July 2025 stood at over GBP 800 million. In line with our conservative approach, our deposits are predominantly term with only 13% of deposits available on demand. Our average cost of funding reduced marginally to 5.4%. And our credit ratings remain robust. They continue to reflect our inherent financial strength and consistent risk appetite, notwithstanding the current uncertainty around the FCA review of motor finance commissions. Finally, turning to our capital position. In March 2024, we announced a series of management actions aimed at strengthening the group's available CET1 capital by the end of the 2025 financial year. The CET1 capital ratio increased from 12.8% to 13.8%, mainly driven by the sale of CBAM, profits attributable to shareholders and a reduction in loan book RWAs. This was partly offset by the provision in relation to motor finance commissions, the early settlement provision in Motor Finance, the post-tax loss in the group's Vehicle Hire business and AT1 coupon payments. In addition, the sale of Winterflood is expected to increase the group's CET1 capital ratio by circa 55 basis points on a pro forma basis from 13.8% to 14.3%. The leverage ratio also increased to 12.9%. In January 2025, the PRA announced a 1-year delay to Basel 3.1 implementation, pushing the effective date to the 1st of January 2027. We continue to estimate that the implementation will result in an increase of up to 10% in the group's RWAs. The group expects to receive a full offset in Pillar 2a requirements at total capital level of the removal of the SME supporting factor. As such, we expect the U.K. implementation of Basel 3.1 to have a less significant impact on the group's overall capital headroom position than initially anticipated. In the near term, we expect to maintain our CET1 capital ratio above the top end of our medium-term target range of 12% to 13% based on our current assessment of the provision in respect of motor finance commissions. In conclusion, I want to reiterate that our underlying performance remains resilient. Our financial position remains strong, and we have a clear focus and commitment on driving strong, sustainable risk-adjusted returns. Thank you, and I'll now hand back over to Mike. Mike Morgan: Thank you, Fiona. I'd now like to turn to our strategic priorities again and give you an update on the progress we've made since we first set them out when I took over the role of CEO. Let me start with simplification. This was about creating a sharper, more focused portfolio of specialist lending businesses. And to do this, we applied 3 simple tests to each of our portfolios. First, is the business aligned with our business model? And does it therefore fit with the fundamental strengths which differentiate us? Second, does it offer the right returns and support the group's overall ambitions on returns? And third, does it operate in markets that are attractive for future growth, where we either have or can build a strong position and the ability to scale? With those tests in mind, we carefully evaluated our portfolio to maximize future returns and the outcome was clear. We sold CBAM, Winterflood and our Brewery Rentals business and repositioned our premium finance business towards commercial lines. These portfolio actions reduced our cost base by around GBP 230 million, enabling us to further streamline our operating model and central costs going forward. Today, we're also announcing the decision to wind down our Vehicle Hire business. It has been loss-making in a challenging market environment and has limited strategic fit with the rest of the group. This decision and the decline in asset values led to an impairment charge of GBP 30 million. Our simplification agenda is largely complete, and we can now focus on optimizing the business and delivering growth. Turning now to our optimization agenda, a key focus as we drive efficiency and improve returns. I will personally oversee the planning and execution of these cost initiatives. And we have mobilized senior leaders across the group to ensure execution at pace and alignment at every level. We have already delivered GBP 25 million of annualized cost savings by the end of FY '25 through streamlining of headcount, property and suppliers, and are committed to maintaining this momentum to deliver a step change in operating profitability. We will deliver at least GBP 20 million of additional annualized savings per annum in each of the next 3 years, totaling GBP 60 million overall. These savings will come from further consolidation and rationalization of centrally provided functions, outsourcing and offshoring and simplifying our technology. This includes automation and the use of AI. As a result, we expect group adjusted expenses to be within the GBP 410 million to GBP 430 million range by the 2028 financial year. We've already identified GBP 20 million of annualized savings expected by the end of FY '26. These will come from lower legal and professional fees linked to motor commissions and optimizing the cost base of our premium finance business after its recent strategic repositioning. We're also continuing to optimize headcount and property. And as a result, we expect group adjusted expenses to be in the GBP 440 million to GBP 460 million range. Turning to our growth agenda. We're sharpening our focus as a specialist bank to reinvest where we see the greatest potential. We are confident in the growth opportunity across our chosen markets. In the earlier part of the year to preserve capital, we had to turn away attractive new business that met our credit and pricing requirements, and this demonstrates the continuing demand in our core markets. Accordingly, we are taking steps to capture this. In Commercial, we're building on our strong market positions as the U.K.'s largest independent provider of both asset and invoice finance and deep sector expertise. We see clear opportunities to grow mature businesses like Invoice Finance and Energy, while scaling newer areas such as commercial mortgages and agriculture. In Retail, we're expanding Motor Finance through growth in Ireland and deeper partnerships with brokers and dealers. In Premium Finance, we're targeting new broker relationships and insurer partnerships with a renewed focus on commercial lines and strategic accounts. And in Savings, we're enhancing our digital offering and broadening our retail reach while continuing to support a diverse funding base. In Property, despite a tougher build-to-sell environment, structural demand for housing remains strong, and we're well placed to respond. We're broadening our offering into build-to-rent and purpose-built student accommodation and moving into larger build-to-sell loans where we see long-term opportunity and attractive returns. Taken together across Commercial, Retail and Property, we have repositioned the business to focus on markets where we see mid- to high single-digit growth potential through the cycle. This leaves us well placed to benefit as the economy and demand recover. With our strong market positions, reputation and specialist expertise, we're confident in our ability to win in the segments where we can truly differentiate and become the specialist lender of choice for SMEs in the U.K. and Ireland. Bringing all 3 strategic priorities together, we now have a clear pathway to double-digit RoTE rising thereafter. The bridge here shows how we move from today's RoTE to our medium-term ambition. First, simplification. The actions we have already taken are partially reflected in today's reported returns. Further improvement, however, will come from our reshaped, more focused and higher-returning portfolio. Second, optimization. The cost reduction program we've launched will deliver material savings, improving profitability. And third, growth. We have repositioned the business to focus on segments where we see mid- to high single-digit growth potential through the cycle. This leaves us well positioned to benefit as the economy and demand recover. In parallel, there is additional value to unlock through optimization of capital, funding and liquidity. We'll provide a full update on our pathway to rising return on tangible equity once there's clarity on the outcome of the FCA's consultation and its impact on the group, likely early next year or sooner if clarity comes earlier. This brings me to the end of today's presentation. We've taken decisive actions to protect our core business and have a strong capital position. We're moving at pace even while navigating the motor commissions' uncertainty. We've resolved legacy issues, reshaped the portfolio and simplified the group. We have a clear strategy and pathway to rebuild returns over the next 3 years. Our focus is on execution, supported by a leadership team with the right experience to deliver. Thank you. And I'll now be happy to take any questions that you may have. Operator: The first question comes from the line of Ben Toms from RBC. Benjamin Toms: First one is in relation to your GBP 33 million provision, the proactive remediation in Motor Finance from early settlement of loans. I don't want to oversimplify the issue, but it sounds like someone somewhere was doing a calculation wrong over a kind of material period of time. How confident are you the issue is now contained, both from a Motor Finance perspective? Can you also confirm that you've checked you're doing the calculation right in other product lines? How far back were customers impacted by the issue? Could there be a regulatory fine from this? And then secondly, if we just take a step back and we think about an underlying basis ex all of the noise, do you expect PBT to be up '26 over '25? And to what extent is management's remuneration now linked to hitting that double-digit RoTE in 2028? Mike Morgan: Okay. Thanks, Ben. I'll take the first question on the GBP 33 million. So this is an issue that we identified in Motor. It relates to the early settlement of [ loans ]. And what has happened over a period of time is that in instances where customers in settling a loan have overpaid, that overpayment has not, in all cases, been returned to customers. Now we've fixed the processes that sit around that. That process is peculiar to Motor Finance, and so I'm content it's contained within there. Clearly, it's not good, and I'm not pleased around this, Ben, but we have dealt with it. It goes back for quite a long period of time predating this management team. But what we have here is a large number of relatively low amounts going back over a period of time, and that's what this issue is. In terms of going forward, I'll ask Fiona to comment specifically on '26. Fiona McCarthy: Thank you, Mike. So Ben, we're not providing specific profit or AOP guidance for '26. I guess I'd encourage you to look at the guidance we provided more broadly. But what I would call out or just remind a couple of points, we put an announcement out about Premium repositioning into commercial lines back in July and the fact that we were, therefore, exiting or modifying our presence in the personal lines business and called out that, that would result in a runoff of the loan book there. That's circa 3% of our loan book and 4% of income. So we do expect that to run off over time. That will impact FY '26. The other element I'd call out is Novitas. So you'll see from our results that AOP in Novitas in FY '25 was GBP 16 million. That was partly a reflection of the settlement premium that Mike talked about earlier for the successful exit from the -- with the insurers, but also from income resulting from the unwind that we've seen in recent years, the unwind of the provision coming through. So both of those elements will provide a drag impact on FY '26 profitability, notwithstanding the growth that we've articulated and the cost savings that we've also outlined. Benjamin Toms: Just a follow up. So how incentivized the management now to hit that double-digit RoTE target in '28? Mike Morgan: I mean, management's remuneration is aligned in large part to a number of metrics, of which that is one of those. So that clearly getting returns up is critical to us. And so the obvious answer to that is that remuneration is aligned with that. Operator: [Operator Instructions] The next question comes from the line of Gary Greenwood from Shore Capital. Gary Greenwood: The first one was on the costs. And I'm just trying to sort of unpick what you previously said to what you're saying today. So I think you previously said on the premium finance that you're looking to take out GBP 20 million of costs there and there'll be a one-off cost of GBP 15 million to deliver that. So I'm just trying to tie that into the numbers that you've given today, the GBP 60 million. And I think you've talked about GBP 5 million to GBP 10 million of below-the-line costs in 2026. And then I guess also linked to that, just thinking about below-the-line costs, you've called out a couple today, but if you could just give us a feel for sort of overall what you think below-the-line charges are going to be in 2026 and then sort of whether there's going to be any tail sort of going through future years? And then the second question really was on reputation. And I guess, obviously, you've been through the mill over the last sort of 18 months or so. You've had to obviously sort of turn down business in the first half as you've highlighted. I just want to understand sort of how you sort of feel that's impacted the business from a reputational perspective and what you need to do to sort of win back confidence with customers and brokers. Mike Morgan: Thank you, Gary. Let me take the second one on reputation, first of all, and then I'll ask Fiona to pick up on the more specifics. I mean there is no doubt that over the last 18 months, the events that we have seen in the market have really shaken the organization quite significantly. Our plan was to put out capital targets of how we could build and build GBP 400 million. And I'm pleased to say that we have built that GBP 400 million buffer. And if you actually look where we stand today, we have a CET1 ratio of 13.8% or after Winterfloods, 14.3% against a 9% required level. So we've built up a very healthy buffer there. Probably the most disappointing aspect for me in all of this, Gary, has been the necessity to moderate loan book growth. And as we outlined at the half year, we have held back around about GBP 700 million of lending, which is deeply disappointing. It was generally to new, new customers rather than new existing. But nevertheless, it was disappointing. And of course, you have to bear in mind that following the Hopcraft judgment in October last year, we actually pulled out of Motor Finance for 10 days and then restarted again. I'm glad to say that the volumes now are back up to and actually ahead of where we were beforehand. So we can see that the demand is coming back. But nevertheless, it is disappointing not to support our customers. The reality for us, though, going forward, now in businesses having moved out of Vehicle Hire and moved out of Brewery Rental. We're in businesses which are core to what we want to do, and we believe that we can get growth of between 5% to 10% throughout the cycle there. The SME market is underserved in the U.K., and there is a real opportunity for the products and the services we provide. Remember as well, Gary, that typically Close Brothers would lend GBP 7 billion a year. We have a relatively short tenure on the loan book. So in the last year, we have lent GBP 7 billion. So there is a huge demand for what we do. And I'm very confident that going forward with this more focused sharper portfolio, we will see that demand return and we can grow. So that's my point on reputation. I think in terms of the specifics on the costs, do you want to pick that one up, Fiona? Fiona McCarthy: Yes. Thanks, Mike. Gary, so yes, just taking those in turn, as you mentioned in July, we outlined the Premium repositioning and that we would save cost of GBP 20 million over 5 years. And so absolutely, Gary, that GBP 20 million over 5 years, the appropriate proportion of that is embedded in the GBP 20 million annualized savings per annum over 3 years that we've articulated. So that is one component of the GBP 60 million there. In terms of the cost to achieve, we called out a lifetime cost to achieve that GBP 20 million of GBP 15 million of costs. That wasn't entirely an FY '26 cost item. And some of that, Gary, will flow through as an adjusting item in restructuring. Some of it is just part of our core investment portfolio as an enabler to those cost savings in Premium. So effectively, both the cost saving and the cost to achieve are included in what we've articulated today, both at the GBP 20 million per annum and the GBP 5 million to GBP 10 million that we've called out for restructuring costs in FY '26. And if I turn to the second part of your question on outlining what we believe the FY '26 adjusting items will be, per the guidance, we talk about single-digit millions of motor commissions costs. That compares to the GBP 18.7 million for FY '25 that you see reported. And on restructuring, we've called out the GBP 5 million to GBP 10 million, which is in support of the GBP 20 million per annum of cost savings. We have -- we do have the Vehicle Hire business below the line now, and that would continue to -- as we run that business down, its results and performance would continue to flow through adjusting. What I would say there, though, is that the GBP 30 million impairment that we have taken for Vehicle Hire that we believe that to be an appropriate and realistic best estimate of the loss that we will need to incur on this business. And in addition, we are in control and we'll manage that rundown. We have significant experience here. We sold over 1,500 vehicles in FY '25. So we are well versed in how to exit vehicles in this market and run that business down, and we will do so and manage that to optimize commercial value. Gary Greenwood: So there's still going to be the tail in terms of the charges beyond 2026, and that will be sort of further reset charges plus presumably sort of a smaller loss from that Vehicle Hire rundown, excluding the impairment charge. Is that the right way to think about it? Fiona McCarthy: So just to take those in turn, absolutely, in terms of the cost-out program, we would expect to continue to see restructuring costs flowing through beyond FY '26. At this point, I'm not pointing to any further losses coming through on the Vehicle Hire business. As I said, based on what we know and see now, we believe that the impairment sufficiently deals with that, but we will run that business down over the next 5 years and manage that carefully to optimize value. Operator: The next question comes from the line of Sanjena Dadawala from UBS. Sanjena Dadawala: Two, please. First, a bit more on the cost optimization program, including the phasing. So GBP 20 million of sales per annum over FY '26 to '28, but then putting it against the GBP 440 million to GBP 460 million guided for FY '26 from the GBP 445 million delivered in '25 suggests there's potentially front-loaded investment spend in this year and/or more cost inflation and then we get net savings going up to get to the GBP 410 million, GBP 430 million for FY '28. So if you could talk a bit more about that? And then secondly, some more detail around how the net loan book builds back up, given that there is a focus on segments with higher growth potential, but headwinds from Premium Finance repositioning and the potentially some lower demand near term, since the outlook for net loans will be important to determine the income trajectory and key to delivery of double-digit RoTE. Mike Morgan: Okay. Let me just touch on that second point further on the net loan. I think I touched on some of those points in the earlier answer I gave. But I do think that with this focus on the sectors that we are -- we believe are strategically aligned with our objectives, and we can get returns from those and create scale in those. We do feel there is good demand there. And as I say, we believe we can see over the cycle, 5% to 10% growth. Now it's fair to say, and you're quite right to point out, Sanjena, that there is some pressure around the SME segment right now. We're seeing interest rates that are higher for longer. Inflation remains stubborn. So costs are clearly -- we've got the impact of employers [ NI ] coming through from last September. We've got the minimum wage floating through. And of course, now we also have the budget coming through in late November. And what SMEs need is certainty. You can't plan if you don't have certainty. And if you're going to invest, you need to be able to plan. And so that's critical for them. And so right now, we are seeing a little bit of negative sentiment in that area. And of course, the media is pulling that out. So whilst we -- over the longer term and through the cycle, we'll sort of see 5% to 10% growth, clearly, that would be lower in the more immediate term. That would be my response on the loan book. In terms of the optimization, I'll let Fiona talk through the points in a bit more detail, but I'd just like to just sort of talk about it at a high level for a second. When I came into the role in January, we talked about these 3 strategic priorities, which I've just run through in my presentation, simplification, optimization and growing. And optimization is all around cost reduction and creating a scalable platform. As I said in my speech, this is something I will personally take responsibility for. We have brought a transformation manager in to work directly for me. The individual has many years' experience at that market, and it's something we are taking very, very seriously indeed. And that will be fundamental along with the growth to get us to the return on tangible equity of double digit. There are a number of ways we can take that cost out, just to give a little bit of flavor, looking at consolidation of functions, looking at outsourcing and offshoring, looking at simplification and rationalization of technology, looking at the rationalized -- further rationalization of Property portfolio. And I think what we're seeing quite significantly over the last year is the benefits that AI can bring. And one of the areas where we have benefited through motor commissions is the level of AI being employed in parts of our organization. Now so by way of example, if you look at the motor complaints that come in, 99% of those are dealt with through AI. So you'll get an unstructured letter coming through, and that can be translated into structured data and then dealt with. So AI is going to be fundamental going forward. So that gives you a sense of the flavor of what we'll be doing. But in terms of the specific numbers, Fiona, would you like to just talk to that? Fiona McCarthy: Absolutely. Sanjena, so just building on what Mike said there, we are committed to this -- the cost out that we've talked about, the GBP 20 million per annum over the next 3 years. We're committed to that. That doesn't fully reflect our ambition. We have a strong desire to do more than that, but that is what we feel is an incredible target effectively to put out today, but we will continue to build on that and challenge ourselves on that. In that context, Sanjena, and to your point, we've put guidance out there both for FY '26 and FY '28 in terms of the range of expenses. That absolutely does reflect the offset from inflationary pressures and other cost drivers. from the savings that we are targeting. And we -- at this point, we're guiding to, I guess, a reasonably wide range of GBP 410 million to GBP 430 million for FY '28. And so I just refer to my ambition point about where we aspire to get to, but we think the GBP 410 million to GBP 430 million is a very credible positioning at this point based on the GBP 20 million per annum of cost out and based on what we see in terms of inflation and other cost pressures. Operator: Ladies and gentlemen, that was the last question from the phone. I would like to turn the conference back over to Mike Morgan for webcast questions. Camila Sugimura: We have 2 questions from an investor. How does the Supreme Court ruling stand in light of the various scenarios you assumed when you took the GBP 165 million provision? Is it close to the base case or better or worse? And secondly, based on your current estimates, could you provide any relative guidance on worst case compensation costs? Mike Morgan: Let me deal with that generally, and then I'll ask you to talk about the modeling. I mean, clearly, we were pleased with the Supreme Court ruling. That was very, very helpful for us at Close Brothers. But of course, that simply means that we are back to the original position where we are while we're awaiting for the consultation to be issued by the FCA. And as we understand it, that will come out in October. It remains to be seen what will come out of that, and it's very difficult for us to give any guidance or thoughts until we can understand clearly where the FCA's thinking is on this. But in terms of our provisioning, Fiona, do you want to say a little bit more about that? Fiona McCarthy: Yes, absolutely. So I think what the -- as Mike said, the Supreme Court judgment is very welcome and very helpful. In terms of the provision modeling, what that effectively achieves is that it narrows down the range of possibilities and effectively removes one of the sort of more outlier worst-case scenarios that we included in the previous modeling based on that, the Hopcraft judgment being upheld, which naturally it wasn't, it was overturned by the Supreme Court. So we have effectively gone back to basics and reassessed based on all available facts and information what realistic and credible scenarios now are. And having done that work, and that does actually support our existing provision of GBP 165 million, but we have arrived at that in quite a different way. And as I said, with the [indiscernible] than we previously had. In terms of worst case, we're not sharing sort of ranges or worst-case outcomes here. But what I would say is that the GBP 165 million is our best estimate based on probability-weighted scenarios, including a range of outcomes. Camila Sugimura: We have another question from an investor. You referred to the Build-to-Sell market on Slide 26 on Property Finance. Please clarify the group's market share and ambition in this niche market. Mike Morgan: It's -- we have quite a dominant position for one of the smaller banks, but it's not a market share that -- figure that we would disclose publicly. So I'm afraid we wouldn't give that information. Okay. Well, look, if there are no more questions, thank you very much for taking part today, and have a good week. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your line. Goodbye.
Patti McGlasson: Good morning, everyone, and thank you for joining us today. After we review the company's business highlights and financial results for both the fourth quarter of fiscal 2025, as well as our full year earnings, we will open the call for questions. Before we begin, I'd like to provide the cautionary statement. For forward-looking statements that may be made during today's discussion, please note that all information presented on this call is subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our remarks may include forward-looking statements that reflect management's current expectations regarding future events and operating performance. These statements are subject to the risks and uncertainties, and actual results may differ materially from those projected. We encourage you to review the cautionary statements and risk factors contained in a press release issued earlier today, as well as in our filings with the Securities and Exchange Commission, including our most recent form 10-K and quarterly reports on form 10-Q. I'd also like to note that today's discussion will include certain non-GAAP financial measures. A reconciliation of these measures to their most directly comparable GAAP figures can be found in the press release issued earlier today. Lastly, please remember that this call is being recorded and will be available for replay on our website at NetSol Technologies, Inc. as well as through a link included in today's press release. I'd like to reiterate that this time, all participants are in a listen-only mode. Following the prepared remarks, we will open the call for a Q&A session. I will now hand the call over to our founder and Chief Executive Officer, Najeeb Ghauri. Najeeb Ghauri: Thank you much, Patty. Good morning, everyone, and thank you for joining NetSol Technologies, Inc. earnings call to review our results for the fourth quarter and the full fiscal year ended June 30th, 2025. We appreciate your continued interest and support in NetSol as we remain focused on delivering long-term value, strengthening our core offerings through our unified AI-powered Transcend platform, and expanding our presence in key global markets. Today, I'll provide a brief overview of important developments that have taken place over the fiscal year, which reflect our strategic progress and operational highlights. And then I'll hand it over to our CFO, Roger Almond, who will walk us through our financial performance for both the fourth quarter and the full fiscal year in greater detail. After that, we will open the call for your questions. Fiscal 2025 was a pivotal year for NetSol. We made strong progress across our subscription and services segments, areas that form the foundation of our long-term growth strategy. Our strategy of migrating our existing customer base and new customers from a licensed revenue model to a recurring revenue model continues to accelerate. This reflects the trust that our people and products have garnered within our core industries. We also advanced modernization efforts around our platform. Made targeted investments in AI and automation capabilities. We remain committed to optimizing our operational efficiency and maintaining a disciplined cost structure, all while keeping innovation, customer satisfaction, and shareholder value creation at the core of our mission. Over the course of the year, we secured significant contract wins across various regions, further solidifying our reputation as a trusted technology partner in the global asset finance and leasing industry. Alongside the digital, automotive retail space, in addition, we successfully delivered multiple high-impact go-lives, showcasing our capability to implement complex solutions with efficiency and precision. Further, we also enhanced our leadership bench with key senior-level appointments, adding further depth to our organization. These developments, coupled with broader progress and continued innovation, have positioned us well for sustained growth in the year ahead. I'll start by discussing our product ecosystem enhancements. Over the past year, we have made substantial progress in strengthening and expanding our product and service portfolio. The centerpiece of this evolution was the official launch of our United Transcend platform, which is an AI-powered digital retail and asset finance solution designed for automotive and equipment OEMs. Auto captives, commercial lenders, dealers, brokers, banks, and other financial institutions. Today, NetSol Transcend platform revolutionizes how assets are sold, financed, and leased. In line with this vision, we launched Transcend AI Labs, our dedicated innovation hub focused on AI-first enhancements, automation, and strategic consulting. This initiative underscores our focus to leading the market through advanced technology and continuous R&D investment to drive this forward. We have brought in new dealership for our Artificial Intelligence division, bringing deep expertise to our AI initiatives. Our Transcend marketplace continues to gain traction with modular API-first products such as Flex, Torque, and Link, delivering real-world impact in the United Kingdom and beyond. These developments reinforce our position as a progressive technology leader in the asset, retail, finance, and leasing space. Our go-to-market strategy is gaining momentum globally, with several high-value wins and deployments that validate the strength of our technology solutions and commercial strategies. We secured a $16 million, five-year contract with a major US automaker to transform its dealership operations with our Transcend retail platform, representing a major milestone for NetSol in North America. We also continue to deepen relationships with long-standing partners, a major Chinese automotive finance company upgraded to Transcend Finance as part of a multi-million dollar deal involving the migration of over 3 million contracts. One of the largest volumes we have handled to date. In Australia, a leading Japanese equipment finance company went live with Transcend Finance following a multi-million dollar contract. We also made strategic progress in Europe with our first-ever deployment in the Netherlands as our Transcend Finance platform went live for Hiltermann. Further, we also signed a deal with Sinbad Management, SPC in Oman, making our official entry into the Middle East. We are seeing clear signals that the market is continuing to respond positively to our proven state-of-the-art technology. With our modular products and AI investments, we remain focused on driving sustainable growth through operational efficiency and financial discipline. Our continued investment in AI, particularly through Transcend AI Labs, is already helping us unlock greater productivity and scalability without the need to significantly expand headcount. We are seeing meaningful improvements in recurring SaaS revenue and our revenue per employee continues to trend upwards, reflecting better utilization of internal resources and scalability of our offerings. We also strengthened our leadership team this year with strategic hires and appointments that will help guide our long-term vision. Notably, Richard Howard, a seasoned executive with decades of experience at Daimler and Mercedes-Benz in both the OEM and financial services side of the business, joined as an advisory board member and is actively contributing to a North American growth strategy. We also appointed Ian Smith to our Board of Directors. Ian brings with him over three decades of global leadership experience in financial services with a proven track record in automotive finance, digital transformation, and strategic growth. Most notably, he served as a CEO for BMW Group Financial Services USA and Americas. All of these developments from our AI-driven product evolution to strong commercial execution and discipline, operational focus, are positioning us all for long-term profitable growth. We are confident in our roadmap and look forward to continuing to lead in digital transformation across the global asset finance and leasing industry and the digital, automotive retail space. With that, I'll now turn the call over to our CFO, Roger Almond, who will walk us through our Q4 and full year fiscal 2025 financials. Roger, thanks. Roger Almond: Thanks, Najeeb. And good morning, everyone. Let me begin with our fiscal fourth quarter results, followed by a summary of our full year financial performance. Total net revenues for the fourth quarter increased 11.9% to $18.4 million, compared with $16.4 million in the prior year period. This growth was driven primarily by increases in subscription and support revenues, and by our services revenues. License fees for the quarter were $0.5 million, compared with $0.6 million in Q4 of fiscal 2024. Subscription and support revenues grew 9.9% to $8.2 million, compared with $7.5 million in the same period last year, continuing to increase our recurring revenue base. Services revenues were $9.7 million, up from $8.4 million in the prior year period, reflecting strong project delivery and ongoing implementations. Our gross profit for the quarter was $10.3 million, representing a 56% gross margin, up from 52% in the prior year quarter. Operating expenses were $7.2 million, or 39% of sales, compared to $7.7 million, or 47%, in Q4 of fiscal 2024, for a decrease of $521,000. Income from operations increased to $3.2 million, compared with $0.8 million in the prior year period. Non-GAAP EBITDA came in at $4.7 million, or $0.40 per diluted share, nearly quadrupling the prior year's Q4 figure of $1.2 million, or $0.11 per diluted share. Non-GAAP adjusted EBITDA for Q4 was $3.5 million, or $0.30 per diluted share, compared with $0.7 million, or $0.06 per diluted share, in the prior year. Turning to our full year results, total net revenues for fiscal 2025 were $66.1 million, an increase from $61.4 million in fiscal 2024. Looking at the revenue breakdown, license fees for the year were $0.6 million, compared to $5.4 million in the prior year. This year-over-year decline reflects our ongoing transition away from large one-time license deals towards a subscription-first model. Subscription and support revenues were $32.9 million, compared to $28 million in the previous year. This increase was driven by increased SaaS adoptions across multiple markets. Services revenues rose to $32.6 million, up from $28 million in fiscal 2024, a 16.3% increase, reflecting solid project activity throughout the year. Further gross profit for fiscal 2025 was $32.6 million, compared with $29.3 million in the prior year. This improvement is due to the increase in revenues year over year, offset by an increase in our cost of revenues. Operating expenses totaled $29.1 million, compared to $25.8 million last year, as we continued investing in key growth areas, talent acquisition, and global delivery capabilities. Income from operations for the year was $3.5 million, consistent with $3.5 million in the previous year. At fiscal year-end, our cash and cash equivalents stood at $17.4 million, reflecting our continued discipline in managing working capital and operational costs. Our balance sheet remains strong, and we believe we are well-positioned to support both organic growth and future strategic opportunities. I'd like to now hand the call back over to Najeeb. Najeeb Ghauri: Thank you, Roger. To summarize, we closed fiscal 2025 with solid momentum, particularly in our recurring revenue segments, and continued to make progress in executing our long-term strategic vision. Looking ahead, we remain focused on expanding our SaaS offering globally, deepening customer relationships through value-added services and innovation, and improving overall operating leverage as we scale. As always, I want to thank our global workforce of over 1,750 people across our regional offices worldwide for their dedication and hard work. Our customers, for their trust and our shareholders for their continued support. We believe the fundamentals of our business remain strong and we are optimistic about the opportunities ahead of fiscal 2026 and beyond. With that, we now like to open the call for questions. Operator. Operator: Thank you. We would now like to conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question is from Todd Felte with Stonex Wealth Management. Please proceed. Todd Felte: Hey, congratulations guys on an outstanding quarter. Really nice to see the growth and the improvement in margins. I'm trying to figure out if this quarter is an abnormality or the start of a kind of a new upward trend. Do most of your subscription revenues are they paid to you on a quarterly basis or a yearly basis? Najeeb Ghauri: Thank you for your comment, Todd. First of all, I think we have a momentum as we close, very strong fiscal year. I think there is enough going on in the company across all three regions. That gives me a lot of confidence in our continued momentum of growth. Same way. Also, the subscription model, I think. Roger, you want to handle that because I think it's a quarterly pretty much. But it is a. It's a good trajectory that we are into growth side of the SaaS model. And eventually, as you see from the report, that we have done very well. From the last year, almost $32 million, something on the revenue which shows pretty strong, I think. Direction for the company, because that is exactly what we want to see. A subscription revenue grow faster than even license revenue, because pretty much into more subscription than the license model. So we are pretty optimistic about this. Continued journey. Roger Almond: Yeah. So, Todd, to answer your question, we see some annual, some quarterly, and some monthly. And so it's across the board, depending on the contract we have and the customer. So you know, cash will come in like I say on some contracts will be annually. Some are set up to where they pay quarterly. And then we have some subscription revenue that's coming in monthly. Todd Felte: Okay. That's helpful. And finally, I was hoping you could enlighten us a little bit on your sales cycle. I know we've seen some very large contracts recently with some Chinese companies, and an Australian company. From the time you announced these contracts, how long is it until you know you're Transcend? I becomes operational and you start receiving a revenue from those contracts. And is there any upfront fees that they pay you? Najeeb Ghauri: Well, I think good question. First of all, the sales cycle is lengthen is always but on the transient finance, pretty much ready. In our development engine in Lahore, Pakistan. So whenever we sign a contract, for example, the one we just recently announced in Australia. The team working behind the scenes, a lot of work done gets done before we even signed the contract ahead of time so that the team is in place. The timeline is in place, and whatever it takes to make sure that we meet the agreed contract time with the customer and go live, and then continue to not only generate revenue, but also see the momentum of getting excitement within the company to getting new contracts, particularly if the more SaaS driven. So I think it's a pretty good approach in the company. Todd Felte: Okay. And last question, are you guys willing to give any guidance going forward for the next year. Thank you. Najeeb Ghauri: I think we like to always update the guidance in the second quarter so we have better clarity. Although we have. Larger revenue in mind. I believe we will continue the growth momentum that we have seen in this fiscal year. And companies we we know exactly what we want to achieve. And the whole fiscal 2026. But it's better that we share the specific guidance, if not in the first of the second quarter. Todd Felte: Thank you very much. Najeeb Ghauri: Thank you, Todd. Operator: As a reminder to Star One on your telephone keypad, if you would like to ask a question, we will pose for a brief moment to pull for final questions. With no further questions, I would like to turn the conference back over to Najeeb for closing remarks. Najeeb Ghauri: Thank you again for joining today's call and for your continued interest in NetSol. We look forward to updating you on our progress in the quarters ahead. Stay safe and take care. Have a good day. Operator: Thank you. This will conclude today's conference. You may disconnect at this time. And thank you for your participation. Thank you. For your assistance. Have a good day.
Operator: To all sites on hold, we do appreciate your patience and ask that you continue to stand by. Good morning, and welcome to Paychex First Quarter Fiscal 2026 Earnings Call. Participating on the call today are John Gibson and Bob Schrader. Following the speakers' prepared remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the one on your telephone keypad. If you would like to withdraw your question, please press star 2 on your telephone keypad. As a reminder, this conference is being recorded, and your purchase implies consent to our recording of this call. I would now like to turn the call over to Mr. Bob Schrader, Paychex Chief Financial Officer. Please go ahead, sir. Bob Schrader: Thank you for joining us to discuss Paychex's fiscal first quarter fiscal 2026 results. This morning, we released our financial results for the quarter ended August 31, 2025. You can access our earnings release and presentation on our Investor Relations website. We plan to file our Form 10-Q with the SEC within the next couple of days. This conference call is being webcast live and will be available for replay on our Investor portal. Today's call includes forward-looking statements that refer to future events and involve some risks. We encourage you to review our filing with the SEC for additional information on factors that could cause actual results to differ from our current expectations. We will also reference non-GAAP financial measures. A description of these items, along with the reconciliation of non-GAAP measures, can be found in our earnings release. I would now like to turn the call over to John Gibson, Paychex's President and CEO. John Gibson: Thanks, Bob. I will start by sharing our first quarter business highlights and then Bob will come back and discuss our financial results and outlook. Then, of course, we'll open it up for your questions. We are off to a strong start in fiscal year 2026, delivering robust 17% revenue growth and solid adjusted diluted earnings per share growth of 5% in the first quarter. This performance reflects continued progress integrating Paycor and sustained demand for our HCM solutions amid a resilient small business environment. We remain pleased with the progress of the Paycor integration. We are on track to achieve targeted Paycor revenue synergies and exceed our initial cost synergy expectations. Our fiscal year 2026 cost synergy target remains approximately $90 million. We are pursuing additional synergies beyond this target while retaining our flexibility to reinvest those gains for additional growth and innovation investments. Bringing the two companies together provides us a broader set of technology solutions and service models to both win and retain business. We have already enabled several notable client retention wins in the quarter across our purpose-built platforms. Additionally, we are encouraged by the speed at which we have completed the back-end technology integrations to enable the full breadth of revenue and cost synergy opportunities for fiscal year 2026. We remain optimistic about the revenue synergies, particularly cross-selling Paychex Retirement ASO, and PEO solutions to Paycor's approximately 50,000 clients. More than half of Paycor's clients fall right in our sweet spot for ASO and PEO, while retirement solutions have broad relevance across the entire client base. We recently developed a propensity model to target which Paycor clients are more likely to purchase Paychex's broad range of solutions, and we are building a strong pipeline. Among this quarter's cross-sell successes was an ASO sell to a Paycor client with several thousand employees, among the largest in Paychex's history. This initial progress is promising, and early wins reinforce our confidence in the path forward. Beyond Paycor, we continue to see a long runway to further monetize our entire client base where we believe penetration rates still remain low. Building on the momentum from Paycor, another cornerstone of our growth strategy is our long-standing relationships with channel partners. Brokers, CPAs, and banks are important referral sources for new business for us and have been for decades. The Partner Plus program for brokers continues to be received well, with broker enrollment nearly doubling since our last earnings call in June. We believe this momentum provides a strong foundation to retain and expand this vital referral channel. The program centers on helping brokers maximize client impact, grow their book of business, and deliver exceptional service and advisory support. We remain confident our partner program is the best in the industry, and we recently launched new marketing campaigns to further expand awareness and growth. Building on our long-standing partnership with the CPA community, we launched our new CPA Partner Pro portal in the quarter. We recently introduced another powerful Paychex Flex solution supporting small and mid-sized businesses and their CPAs. Bill Pay, powered by Bill, is our new financial management solution designed to simplify payments for SMBs. Bill Pay integrates payroll, HR, and accounts payable into a seamless experience providing small business owners real-time financial clarity to make smarter and faster decisions. Additionally, Bill Pay will enhance CPA's ability to support their clients by integrating critical payment and HR functions to deliver even more valuable insights. We plan to expand Bill Pay to include accounts receivable and roll that out in our additional platforms in the future. Continuing our track record of innovation, Paychex leads the digital and AI-driven transformation of human capital management. We deliver pragmatic AI solutions that drive measurable value for our clients and our business. I'm excited to share several recent advancements that demonstrate how we are harnessing AI internally and externally to enhance client experiences, boost operational efficiency, and we believe position Paychex for sustained growth. Recently expanded AI Insights, our generative AI assistant for workforce questions, to serve our PEO clients in addition to our HCM clients. This AI-powered tool provides instant natural language insights on pay, equity, turnover, hiring trends, and labor costs. Through an intuitive chat interface, users can query complex HR metrics, drill down into detailed analytics, and follow-up questions to uncover deep insights and predictive trends. In June, we launched our generative AI-powered HR guidance tool, developed using HR insights drawn from our nearly 40 million client interactions each year. This internal AI-enabled tool empowers our HR experts to deliver efficient, effective responses to client queries and provide enhanced client support. In addition, we have deployed AI tools across our organization, empowering our teams to focus on higher value work while enhancing quality, efficiency, and innovation. For example, AI is augmenting our software engineering group by automating tasks, improving code quality, and allowing us to accelerate our development. We are also piloting Agenic AI solutions this quarter to transform some of our higher volume inbound client tasks across multiple channels. These AI agents autonomously manage routine client interaction, enhancing operational efficiency, and elevating the client experience, all while freeing up our service providers to focus on high-value advisory and support to our customers. Our PEO business continues to also perform well, with another strong quarter of strong demand and retention performance, leading to mid-single-digit worksite employee growth. We remain bullish on PEO due to our scale, capabilities, and the growth opportunities we see. The PEO model empowers small businesses to offer benefits comparable to Fortune 500 companies, addressing one of the top challenges of attracting and retaining talent. Turning to the macro environment, small businesses remain resilient. Our small business employment watch shows stable employment and moderating wage inflation and has over the past year, with no signs of recession. Since our last call, we've seen greater clarity on key issues such as tariffs, taxes, and inflation. With the tax bill in place, and Fed rate cuts done, we believe this will support renewed business confidence. This clarity should encourage business owners, particularly those previously adopting a wait-and-see approach, to make more informed strategic decisions potentially boosting investment and hiring. Lastly, I'm proud of the hard work demonstrated by our employees. Despite an ever-evolving external environment and the integration of our largest acquisition in the company's history, the team has remained focused on our clients and our purpose. Their dedication and efforts have been recognized once again, this time by Newsweek, which named Paychex one of America's greatest companies and most admired workplaces. Our people and our culture remain a key differentiator, underscoring the vital role our employees play in driving our sustained success. I will now turn it over to Bob to provide an update on our financial results and outlook. Bob? Bob Schrader: Thank you, John. I'll start with a summary of our first quarter financial results and then share an update on our outlook for fiscal 2026. Let me begin by sharing our first quarter results. Total revenue increased 17% over the prior year to $1.5 billion. Management Solutions revenue increased 21% to $1.2 billion, primarily due to the addition of Paycor as well as higher revenue per client driven by price realization and increased product penetration. Paycor contributed approximately 17% to Management Solutions revenue growth year over year. PEO and Insurance Solutions revenue increased 3% to $329 million, primarily driven by solid growth in the number of average PEO worksite employees. Outside of the at-risk plan headwinds, PEO continues to perform well. Interest on funds held for clients increased 27% to $48 million due to the inclusion of the Paycor balances. Total expenses increased 29% to $998 million, primarily driven by the Paycor acquisition. Operating income margins for the quarter were 35.2%, and adjusted operating income margins were 40.7%. Diluted earnings per share decreased 10% to $1.6 per share, and our adjusted diluted earnings per share for the quarter increased 5% to $1.22. Our financial position remains strong with cash, restricted cash, and total corporate investments of $1.7 billion and total borrowings of approximately $5 billion as of August 31, 2025. Cash flow from operations was $718 million for the first quarter, primarily driven by net income. We returned $549 million to shareholders during the quarter in the form of cash dividends and share repurchases. Our twelve-month rolling return on equity remains robust at 40%. Let me now turn to our updated guidance for the year, which assumes the current macro environment. We are reaffirming our fiscal 2026 outlook with the exception of our earnings expectation, which we are raising. Total revenue is still expected to grow between 16.5% and 18.5%, and as we previously noted, we would expect revenue synergies to contribute 30 to 50 basis points of growth in fiscal 2026. Management Solutions is expected to grow in the range of 20% to 22%. PEO and Insurance Solutions is expected to grow in the range of 6% to 8%, and as previously noted, we expect revenue to accelerate in the back half of the year as we anniversary the at-risk revenue growth headwinds we experienced last fiscal year. Interest on funds held for clients is still expected to be in the range of $190 million to $200 million. Adjusted operating income margin is expected to be approximately 43%. Our effective income tax rate is expected to be in the range of 24% to 25%, and as I mentioned, we are now raising our earnings expectations with adjusted diluted earnings per share now expected to grow between 9% and 11%, up from 8.5% to 10.5% that we shared with you last quarter. Now I'll provide you a little bit of color for the second quarter. We would anticipate total revenue growth to be approximately 18% in Q2 with an adjusted operating margin of approximately 41%. And of course, this is based on our current assumptions, which are subject to change. With that, I'll now turn the call back over to John. John Gibson: Thank you, Bob. And with that, we will now open up the call for your questions. Operator: Thank you very much, Mr. Gibson. Ladies and gentlemen, at this time, if you do have any questions, please press 1. If you find your question has been addressed, you may remove yourself from the queue by pressing 2. Additionally, we ask that you please limit yourself to one question and one follow-up question. We'll go first this morning to Bryan Bergin of TD Cowen. Jared Levine: Hi. This is actually Jared Levine on for Bryan Bergin today. I guess to start here, can you give us an update in terms of the demand environment? Any notable differences when you think about employer size segments or across core offerings here? John Gibson: Jared, this is John. No real change. I mean, I look, demand remains consistent with what we've been seeing historically. Matter of fact, activity is up. I think there's a lot of shoppers in the market right now. RPO booking continued to be very solid, up double digits, this past quarter. So you're really across the board seeing a lot of activity and good traction in the micro segment as well, which had been a little lighter in the fourth quarter. But like I said, right now, the demand environment seems stable to me. Jared Levine: Great. And then we've been getting a lot of questions in terms of the Paycor SLO growth there. So just wanna confirm in 1Q, did it still grow low double digits in terms of XSLO growth? And is that still what you're assuming for the year as well? Bob Schrader: Yeah. Drew, this is Bob. It's certainly on a full-year basis, we expect, you know, the recurring revenue to be on Paycor to be a double-digit grower. I don't want to get into the quarterly splits. Obviously, you know, they were invested short on the client funds, so with rate decreases that occurred last year and where we are now, that would have been a little bit of a headwind. But the recurring revenue growth for Paycor in Q1 was in line with our expectations, and we would expect the business to grow double digits on a full-year basis. Jared Levine: Great. Thank you. Operator: Thank you. We go next now to Mark Marcon of Baird. Mark Marcon: Good morning, and thanks for taking my questions. So one, just on the PEO side, I know we're gonna lap, you know, some tough or some easier comps in the second half on the PEO side when we get to the second half. But aside from that, how would you characterize the PEO environment? Because it has been slowing down. And when we take a look at the sequential pattern, you know, Q1 relative to Q4, a little bit worse than what we've typically seen. And so I'm just wondering, is the environment solid for the PEO, or what are the primary headwinds right now? John Gibson: Well, Mark, I'll start. And then, you know, Bob can add maybe a little more color for you. Look, our PEO continues to perform well. And if you look at the numbers, mid-single-digit worksite employee growth, I think you're gonna find we're leading the market there. Our bookings were double-digit in the quarter. We had record retention in the first quarter. Remember last year, we had record retention. We're continuing on that pace. So I continue to see strong demand there. I look at some states, take California, our medical enrollment's up 10% there. Our medical enrollment overall across the country is up. We can talk about a bit later where we are in Florida, which is where we have our MPP. That's where we have a little more challenge. Again, you know that market, pretty competitive in that market, and we don't take a lot of risk. So we're not gonna go after business that's gonna be a bad risk. So overall, I feel very good about where we are from a PEO perspective. Really, really like what I'm hearing in the early engagements with clients in our broker partners as we approach some of the Paycor clients as well. So we've been building a pipeline there. Yes, you know that sales cycle is a little longer. But I'm very pleased with the activity and what we have going on there. Bob Schrader: Yeah. Just to add a little color, Mark. I mean, certainly, the PEO was probably a bit better than our expectations in the quarter, as John mentioned, and we've talked about this in the past with the PEO. It's all about worksite employees, and that was strong in the quarter. I think John highlighted in the prepared remarks mid-single digits. I think when you pull the PEO apart from the agency, the growth of the PEO was in line with that worksite employee growth despite the at-risk headwinds that we have, which we will anniversary here as we turn into the new calendar year. The growth rate overall, I'd say if there's one aspect of our business that was maybe a little bit softer than we expect in the quarter, it was the agency on that. That was a drag on the growth rate of the category. We continue to see some rate pressures from a workers' comp standpoint. Certainly, it was good from an agency standpoint, but, you know, overall, we feel really good about where the PEO is. And as you mentioned, we will anniversary those MPP headwinds and we'll start seeing some stronger growth with the easier compare as we move into the back half of the year. Mark Marcon: Great. And then for my follow-up, direct expenses as a percentage of revenue, you ended up seeing some pretty nice leverage there. And so I'm wondering, you know, that was really strong. How would you characterize direct expenses on a go-forward basis? And then compare and contrast that to SG&A when we strip out the one-time charges and the goodwill just in terms of the ongoing operating expenses? Because it seemed like there's a little bit of a contrast between the two. In other words, direct expenses stripping out everything else looked better. SG&A expense, I imagine just because you've got more overlap and a number of items, maybe a little bit heavier than what we were looking for. How would you expect those to go as the year unfolds? And it seems really encouraging. I mean, I think... Bob Schrader: Yeah. Thanks, Mark. We think so as well. Obviously, we've been focused on the synergies. And as you know, we're the best operator in the business. And so we're always focused on trying to be efficient and productive. I think the expense growth in the quarter obviously is a big number driven by the Paycor acquisition. If you were to strip it out, it's probably closer to about 3% expense growth overall. And the one thing we didn't highlight in the script, which was probably a miss, I mean, if you look at the adjusted operating income growth in the quarter, it was 15%. Right? So, obviously, that's coming from, you know, the strong top-line growth of 17%, but certainly trying to find ways to be more productive and more efficient and really strong adjusted operating income growth for the quarter. And on a full-year basis, expense growth, I would probably think what we saw this quarter organically would probably be consistent with what we would see going forward. Mark Marcon: Perfect. Thank you. Operator: Yep. Thank you. We go next now to Samad Samana at Jefferies. Samad Samana: Hi. Good morning, and thanks for taking my questions. This might be a little bit pointed, but I wanna get back to the Paycor just the recurring revenue component excluding what revenue, which is uncontrollable. Right? What rates will do, what rates will do. If we think about the contribution in the quarter, it implies, essentially, let's call it, you know, around 7-8% growth for Paycor recurring revenue. Which is a pretty material slowdown than what Paycor is doing on a stand-alone basis. So is there some sort of integration-related disruption? I know we're not trying to do quarterly businesses, but that's a pretty material difference versus what the growth rate what Paycor had as a stand-alone business. So we're just trying to understand in the first full quarter, integrated what the implications of that are and how we should think about that accelerating or improving and if that improvement or that double-digit that you're calling out includes the revenue synergies. Then I have one follow-up. Bob Schrader: Yeah. Let me start, and then maybe John can add some color there. I would, again, don't want to get into a math reconciliation, I think our numbers would suggest that the recurring revenue growth is closer to double digits than what you had in Q1. As I mentioned, Q1 was in line with our expectations for Paycor. Obviously, there's some performance at bills during the year. We know that last year, particularly in Q4, we were going through an integration and getting our go-to-market aligned and our new segments aligned, and we called that out last quarter or last Q4, getting that behind us. Obviously, there's probably some level of disruption there coming into the year, but, you know, Q1 was strong for Paycor. It was, you know, in line with our expectations, you know, John can probably add a little bit of color to that. John Gibson: Yeah. Samad, look. As Bob said, Paycor was fine with our expectations that we put together. Client retention was in line and they're at their historical levels. I think the one thing that's gonna be a challenge for all of us here to talk about, I think we talked about this on the last call, we purposely determined to segment our business and we commingle all of the Paychex assets over 100 employees with Paycor. And then Paycor had a business that was under 100, and we moved that business into our mid-market and small market at Paychex. So we have a lot of moving parts. You didn't take the ancillary components over it. So, as I said, this can be extremely difficult for Bob and the team, and it's not the way I'm looking at the business or operating the business. We now have operating segments. They're performing well. Very happy with our sales performance, actually exceeding our expectations across the board, and very happy with the progress that we're making with the Paycor acquisition. I mean, we're making strong progress. A good example is we have HR outsourcing. So I sell a multi-thousand, one of the largest ASO deals in the company's history, in the ASO portion of that revenue. Where do I allocate that? Is that Paycor or is that historical Paychex? Where do I put that? $150,000 incremental a year. And depending on where I wanna stick it, I guess we have the number whatever we want the number to be. But I think what we're looking at is segments. And we believe that the Paycor acquisition is going to help us in the upmarket, and we believe by combining the two assets together, we're going to be better together, and we're seeing progress there. Very pleased with the progress we're making in the quarter. Samad Samana: Understood. And then maybe just, again, if I think about and this will probably be equally difficult just based on the commentary about disaggregating where things should be placed. But I exclude the Paycor contribution, it's kinda getting us to an Bob, I appreciate there's rounding given how you guys give us the contribution, but it gets you to somewhere close to about 4% organic growth for the Management Solutions revenue in the quarter. Which, you know, again, it's a slightly easier comp. You know, again, and based on what we're expecting for FY, I guess, how should we think about that acceleration for the through the year? Do you still expect that? It seems to be maybe a little bit out of the gate slower than anything from FY 15% on a full-year basis. We're at 4% in Q1. We knew that that's how the plan was built. There's a couple of drivers of it, but the big driver of it is the PEO MPP headwind that we have in the front half of the year that we anniversary, and you got an easier compare as we move forward. So, you know, we feel good about where we are through Q1. As John said, we made a ton of progress on the integration. We're really starting to see a lot of momentum on going after the revenue synergies and kind of building a strong pipeline. We haven't talked about that, but we feel good about where we are. And the organic growth, there is some improvements as we move through the year as revenue synergies build on, particularly to the Management Solutions side. Hopefully, that provides you some additional color. Samad Samana: Oh, well, appreciate you taking the questions as always. Thanks, guys. Operator: Thank you. We go next now to Tien-Tsin Huang of JPMorgan. Tien-Tsin Huang: Thanks so much. Just a clarification on the question. Just on the clarification, what's driving the EPS increase of, I think, 50 bps on either end? And then just with retention, any callouts there? It sounds like PEO was a record, Paycor in line. Any other callouts? I remember there were higher bankruptcies and mergers at the low end last quarter. Anything new beyond that? Thank you. Bob Schrader: Yeah. Maybe I'll hit the EPS, and then John can touch on the retention. I mean, obviously, Q1 came in a little bit stronger tension. Obviously, we have a quarter behind us of owning the asset. There's a higher degree of confidence in certainly both the cost and revenue synergies. And so you see some of that playing through. As you know, there's always an element of conservatism as you come into the year, particularly when you have a new asset like that. And so just increased confidence. We feel good about, you know, we achieved what we thought we were gonna achieve in Q1, and we see a lot of momentum both from the cost synergy and revenue synergy. So just letting that play through to the bottom line, and John can touch on the retention. John Gibson: Yeah. I'll add on to that. Just remind everybody, we made a strategic decision. We talked about it last quarter to get a lot of stuff out of the way quickly. A lot of disruption in the sales organization, pulling them out of the field, resetting territories, relaunching the broker program. And really got aggressive, you know, on the synergy front out of the gate. We wanted to get it behind us so we could focus on execution and moving forward into the selling season. We're not gonna drag that out for a long time. So I think we feel confident that we've got the cost synergies that we committed to, which were higher than our original commitments at the time. Remind everybody of that. And we have a good list of other items that we can work on. I will say that we also see additional opportunities for investment both in terms of expanding marketing and sales investment and innovation investment. So we'll manage that appropriately. But we felt based upon where we were the degree of confidence we have in the certainty of the synergies that we've already executed. That we felt comfortable in raising the earnings guidance. Relative to retention, I'd say payroll client and revenue retention continue to be strong at pre-pandemic levels, which I'll remind you were near record levels for the company. We did continue to see concentrated losses in the small business area, predominantly out of business. I think you see bankruptcies that we kind of saw in the fourth quarter kind of continue into the first part of the first quarter. But I'll remind everybody, if you go back and look at the bankruptcy data, while it's a little bit elevated, it's still at that kind of pre-pandemic type of level. It's not out of the ordinary. And then as we mentioned, the PEO worksite employee retention is maintaining a record level performance from last year. So I feel very good about where we are from a retention perspective. I think our value proposition is resonating. Good job with all the disruption. When you think about all the disruption, what we're seeing in the Paycor client base, what we're seeing in our client base, given all the uncertainty in the market and all the talk about challenges in the economy. We certainly are not seeing that in our retention numbers, and we're not seeing it in any of our other indicators as well. Tien-Tsin Huang: Great. Thank you both. Operator: Thank you. We'll go next now to Andrew Nicholas of William Blair. Andrew Nicholas: Hi. Good morning. Thanks for taking my questions. You touched on it briefly in your response to one of the earlier questions, but I just wanted to kind of dig into the second half ramp for PEO. Can you speak a little bit more to kind of the attach rate dynamics in Florida specifically? Have they stabilized and is it mostly just a comp dynamic, or have you seen some improvement there in Florida with that plan? John Gibson: Yeah. I'll take it first, Andrew. What I would say is, look, we're very early. You know our enrollment cycles. We're very early in the process. We have enrollments in October, we have another one in January. Now only about 25% of the employees will end up electing in the October time frame. So we're in very, very early days. What I would say is we've done a lot of work to make sure we have different plan lineups. Those have been put in place. We have several initiatives going on there. We've done some improvements in the underwriting side. We're providing hands-on client and employee enrollment support. We launched an AI partnership that we just recently announced as well that will actually provide a tool to help employees select a plan that they can afford and then combine some things together with savings accounts, which I think is gonna help us as well. So, you know, look. I think we're early in there. We continue to see across insurance, both the agency and in the PEO, employees being very particular in terms of cost and value in the plan. So we've done everything we can and we think that we need to do to be able to make sure that we get the participation. When I step back at it, what I know, all the stuff we're doing is working because we're expanding our overall enrollment in our health plans in the PEO. The issue really is in that Florida plan as we've talked about. We continue to monitor. What I'm not going to do is I'm not going to adjust in an environment, a competitive environment in Florida. I'm not going to adjust my underwriting to take on undue risk. That doesn't get you in a lot of places, and it ends up in a place. And I, you know, again, when I look at it, I look at California, we're increasing our participation 10%, and that's because we've been rational there the whole time and we're taking opportunities as they present themselves. So it's a very delicate balance, particularly in the case where we have this program in Florida. In balancing risk along with the growth of the plan. Remind everybody, it doesn't have anything to do with our profitability, and I don't think it has anything to do with the value of our proposition overall. Bob Schrader: Yeah. And just the only thing I would add to that, Andrew, on your compare question is, you know, the enrollment headwind, the lower enrollment that we had in Florida occurred as we went through the annual enrollment cycles last year. So when you look at the front half of the year, we have a tougher compare because we had higher enrollment last year. Once you get through that January enrollment, then you kind of anniversary that. That headwind goes away, and you have a much easier compare. And then, you know, all the things that John talked about that we're focused on driving enrollment as well as worksite employee growth, and that's why you get the acceleration in the PEO in the back half of the year. Andrew Nicholas: Perfect. Thank you. Makes sense. And maybe just sticking with the PEO market, just broadly, I hear all the momentum there, mid-single-digit worksite employee growth, double-digit bookings, record retention. How would you describe the competitiveness of the environment maybe outside of the health care and the insurance piece? Like, are your competitors there being aggressive with price on the admin fee? Or how aggressive are you willing to be on the administration fee relative to maybe some desperate competitors in that market that aren't seeing the same level of growth as you have this quarter? John Gibson: Yes. Andrew, I don't view it. I've been in that business a long time, as you know. So I don't view it any different than any other cycle we've seen. You know, it ebbs and flows of who's being more aggressive or less aggressive. I'd say the overall environment is very consistent. There's always gonna be one or two irrational players out there. My view is of that value proposition. It's a holistic value proposition. You mentioned admin fee. Well, what the client wants to know is what are you providing from a technology and HR advisory support for the fee that I'm paying. I believe with all the investments we've made, with the data assets we have, we introduced our AI-based HR assistance tool to support our HR experts in helping clients get the retention insight. So while we're going and telling them, are you getting for your admin fee? It is a comprehensive HCM technology platform supported by the best-supported HR experts in the industry. And so, you know, I think had to add with a smaller provider that doesn't offer that type of capability, someone that's looking for HR outsourcing and looking for someone to help them build the HR strategies, I think they're gonna pay the additional admin fee. So we're not being we believe we provide a great value proposition comprehensively from our benefits offering, from our technology platforms, from our HR advisory support. And so I feel very good about where we're positioned right now in terms of the competition. Andrew Nicholas: Perfect. Thank you. Operator: Thank you. We'll go next now to James Faucette of Morgan Stanley. Michael Infante: Hi, guys. It's Michael Infante on for James. Thanks for taking our question. I just wanted to ask about the Bill partnership. Can you maybe just paint the picture for us in terms of the customer profile who would be most likely to initially adopt some of these capabilities? How you think about some of the go-to-market dynamics between the two organizations. And maybe how we should be thinking about ARPU uplift potential for your average payroll customer that begins to use some of those AP capabilities? Thanks. John Gibson: Yeah, Michael. Well, thanks. We're really excited about the partnership. You know, we've kind of been in the payments business to allow our clients to make ancillary payments in the millions, believe it or not, through our system. It's not been our core business. And, certainly, we viewed it as another value add. So I'm not looking at a big ARPU increase. We're trying to add value to the platform. And with this full digital integration that we're going to have with Bill.com, it really blossomed out of, you know, our relationship with the CPAs, and we've had a long-standing one with the Association of CPAs, so does Bill.com. And that's what kind of started this. So this really allows us to very quickly integrate. It's gonna be integrated in our Flex application. Again, it's focused towards small businesses. They have a 7 million payer and vendor network already built into their system, so it's a big advantage for easy payments. We're also gonna augment that. So our clients are going to have the most broad set of payment options embedded in the application. We're gonna start with AP, and then we'll look to add accounts receivable in 2026. So we're gonna bundle this offering really to bring more value to our overall HCM bundle. And I'm not gonna get into a lot of details of how we're going to do that because we're getting ready to go into selling season. But I think it's simple to say that we continue to look for opportunities to partner and fully integrate to add the most value in the HCM industry. Michael Infante: That's helpful. Appreciate that. Bob, just a quick housekeeping one on the agency dynamic within the PEO. I know you called out the agency piece, but was there anything incremental either in terms of PEO versus ASO mix shift and or employees opting for lower-cost health plans and maybe how that trended sequentially? Thanks. Bob Schrader: Yes. No difference there at all, Michael, than what we've seen in the past. I'd say good balance between ASO and PEO. So we didn't see the pendulum swinging in one direction or the other. And as I mentioned, the PEO was actually slightly above what we expected in the quarter. And, you know, I wanted to highlight the agency because the overall growth of that category is being impacted by, you know, what we continue to see is some workers' comp rate headwinds on the agency side. But overall, the PEO business performed solidly and slightly above our expectations in the quarter. Michael Infante: Thanks, Bob. Thanks. Operator: Thank you. We go next now to Daniel Jester of BMO Capital. Daniel Jester: Great. Thanks for taking my questions. To go back to the comment in the prepared remarks about piloting some agentic AI inside your own organization. I guess, I know it's early days, but any sense about how much you would expect productivity to improve? Or how are you measuring the success of these pilot programs? John Gibson: Yeah. So Daniel, let me kind of maybe lay out to you. It's a pretty impressive track record of what we've done from an AI perspective, dating back to the first AI-based product before ChatGPT when we won the award for our retention insights dating back in early 2022. And we've continued to add a series of capabilities into our product set that really are providing more value for our clients. One of the things we strongly believe is we have one of the largest datasets of small, medium-sized businesses when it comes to HR. We're having 40 million interactions with our clients on an annual basis that we're now capturing and analyzing. We believe that we are now applying that technology to really be able to provide them better insights. We think that's going to differentiate our products and our technology in the industry. So number one, the biggest thing we're looking at is how does it continue to help us drive more value, get price in the marketplace, how does it help us win? So that's one key way. We're using it a lot in the back office in terms of determining how we do discounting, how we do pricing. We're using it to help our service providers be more productive, as you mentioned. And we continue to look at ways in which we can leverage it to help our sales forces target their messaging and the clients in which they're talking to. So it's really across the board. We're doing a lot of different things there. We have also just recently launched an actual agentic AI tool that will actually begin to handle some of these high-volume transactions through multiple channels. And so it's early innings in this, but we're really optimistic about what the impacts can be to really allow us to provide more value for the clients, and then for us to free up the transactional time that our frontline service providers are doing today for the client so that they can look at the analytics and go and provide more advisory support. We think that's gonna differentiate us from anyone else, particularly the smaller in the industry that don't have access to the massive dataset that we have. Daniel Jester: That's great color. Thank you. And then on the revenue synergies, you know, holding them consistent with what you shared last quarter, I guess, you be able to provide any color on sort of the learnings that you've had? You highlighted that big win in the prepared remarks. But as you're approaching the cross-sell revenue synergy opportunity, anything that you may be modifying now that you've been out in a couple of months trying to do this? Thank you so much. John Gibson: Yeah. Look. I think the integration has been going really well. I mean, all the things that can happen during a large integration, I've been very happy with the progress we're making on getting the cost synergies as we've already talked about. I think we actually believe there's additional opportunities over the long term to go after those. There's also additional investment opportunities that we see that we think could drive growth and drive further innovation. On the revenue side, we met our revenue synergy expectations for the first quarter, and every month that we were engaging with Paycor's clients, we continued to see the pipeline grow, and we continued to see the receptivity grow. When we looked at areas where we thought that we may have concerns with channels, we've seen that continue to improve through the course of the quarter. So all the things that we kind of knew going into it, the knowns, if you will, I've been very pleased with how we've worked through those. The culture and the people side is always the thing you get concerned about. You get concerned about client disruption. So I go and I look at attrition. Employee attrition actually is better than what Paycor had seen historically. You take the synergies we took out aside. You look at what we've done from integrating them into the executive leadership team that are making huge contributions both in terms of just general management expertise, product expertise, marketing expertise, legal expertise. Across the board, the people at Paychex and Paycor have come together and we're making more powerful decisions, I think, as an organization. And so then I look at it and I go, what's my biggest surprise? You know, we have a very specific model at Paychex that we went after, particularly in upsell. And we have these target segments that we know exactly what the sweet spot is for an ASO client. Someone's gonna use our HR outsourcing. What surprised me is how further upmarket that value proposition could potentially go. I mean, when I'm getting multi-thousand ASO HR outsourcing deals, two of them early stages, that was surprising to me. And we're actually now trying to rethink, okay, what does that look like? Upmarket in much bigger scale than what we're used to? We've done it before at Paychex. But, again, you know, in the first six to eight weeks, we're landing some large clients that we really would not have thought or certainly was not in our model because we were targeting more of our sweet spot. So that's the thing that I'm most excited about is I think value, same thing in 401(k)s. I think the value proposition that we've historically had at Paychex I think is also resonating more upmarket, and I think that's gonna give us some upside opportunity. Daniel Jester: Great. Thank you very much. Operator: Thank you. And just a quick reminder, ladies and gentlemen, any further questions this morning, please press 1. We'll go next now to Ashish Sabadra of RBC Capital Markets. David Paige: Hi. Good morning. This is David on for Ashish. Thanks for all the color provided on the call so far. Just taking a step back in terms of the regulatory environment, government shutdowns, maybe changes to H-1B, how are you thinking about that, and how is the business, I guess, positioned to weather those changes? Whether it be good or bad. Thank you. John Gibson: Yeah. Look, I mean, we've been through a lot of cycles. And what I would say is that our small business clients tend to be resilient. In terms of Paychex specifically, we don't have a heavy concentration with the federal government, and so I, you know, don't expect any impact directly to our business. I'm sure we'll have some clients in the DC area that, you know, may have some issues, and then we don't have a lot of H-1B issues internally as a company. So, I don't view those things as a big issue. What I would tell you is the small, medium-sized business market continues to be resilient. We've seen stability in terms of employment since the start of the year. You know, it's not taking off, but it's not going down in a recessionary mode. We continue to see wage inflation below 3% very steady. That's been very steady for almost eighteen quarters now. So we see a very stable small business environment. I think some of the things with the tax bill being behind us, and there's a degree at least some degree of certainty there, which is probably important for people to make some investment decisions, particularly the R&D credit issue. And then also, I think with now you getting the Fed, but the first rate cut is underway. We'll see where that's going. I'd say that we're still in kind of a restrictive environment. But I think if you continue to see that, you continue to see investment capital, I feel pretty good about where small businesses are set up. I think they're more optimistic now than they were at the start of the year. And like I said, just think we'd continue to work through additional surprises. David Paige: Okay. Operator: Thank you. We'll go next now to Scott Wurtzel of Wolfe Research. Scott Wurtzel: Hey. Good morning, guys. Thank you for taking my questions. Appreciate the incremental color on the cost synergy side and sort of your view on the targets there. Wondering if you could just talk about just give us a kind of update or, you know, reinforce us of the milestones that you've hit so far, what's left to come, and where maybe some of these, you know, incremental potential cost synergies will be coming from down the line? Thanks. Bob Schrader: Yeah. Maybe I'll start, and John can add. I would say most of the actions that require to realize the cost synergies are behind us, Scott. So a lot of that happened, you know, early on after we closed the transaction. Obviously, we had some transition resources that we carried through a period of time to help us there. And so I would say most of the cost synergies, obviously, a lot of that is overlap in functions. You have two public companies coming together, and you know, there's other areas that we're going after. We think there's certainly some opportunities from a procurement standpoint in leveraging, you know, the combined spend to get better rates and things like that. So those are the additional opportunities that we're going to go after. And as we've said, we're going to balance how much of that we drop to the bottom line versus, you know, looking for additional investment opportunities as we move forward. Scott Wurtzel: Got it. Thank you. And then just a quick follow-up. Just on the retirement side, wondering if you can maybe quantify how contributory that was to growth this quarter, just given where kind of equity markets landed at the end of the quarter relative to when you guys reported earnings, if there was any incremental tailwind on the retirement side during the quarter? Thanks. Bob Schrader: Yes. I mean, that's been a strong growth business for us for some time, and in the quarter, that continued. I would say it was near double-digit growth in Q1. Operator: Thank you. And gentlemen, it appears we have no further questions this morning. Mr. Gibson, I'd like to turn the conference back to you for any closing comments. John Gibson: Okay. Well, thank you, Bo. Appreciate it. Well, listen. In summary, as we stated, we're off to a good start in fiscal year 2026, delivering robust revenue growth and solid earnings per share. The integration continues to exceed our expectations. We're hitting the cost synergies, revenue synergy opportunity continues to just reinforce to me the strategic value of the acquisition. And we truly believe that the innovation that we have in front of us with AI-driven solutions are going to drive better value and really across the entire business for our clients and for our shareholders. I think as you look at the company today, having gotten the major lifting and the integration behind us, we are now stronger as one Paychex. And that's really what we are going forward. And I really believe that we have the most comprehensive set of platforms and capabilities in the industry to meet the need of any client of any size. And that's only been reinforced in the last quarter. Understanding the power of our HR outsourcing and its ability to move upmarket. And I think that we're better positioned than we've ever been to fulfill our purpose to help businesses succeed. So I want to thank you for your interest in Paychex. And I hope you have a great day. Operator: Thank you, Mr. Gibson, and thank you, Mr. Schrader. Again, ladies and gentlemen, that will conclude Paychex first quarter fiscal 2026 earnings call. Again, thank you so much for joining us this morning. And, again, we wish you all a great day. Goodbye.
Stocks, led by tech and small caps, extended gains in September, with the S&P 500 and Nasdaq 100 outperforming. Gold surged 10% to a record monthly close, while oil lagged and global equities, including emerging markets, posted solid returns.
Operator: Please standby. We are about to begin. Ladies and gentlemen, good day, and welcome to the Lamb Weston First Quarter 2026 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Debbie Hancock, Vice President of Investor Relations. Please go ahead. Debbie Hancock: Good morning, and thank you for joining us for Lamb Weston's First Quarter Fiscal 2026 Earnings Call. I'm Debbie Hancock, Lamb Weston's Vice President of Investor Relations. Earlier today, we issued our press release and posted slides that we will use for our discussion today. You can find both on our website, lambweston.com. Please note that during our remarks, we will make forward-looking statements about the company's expected performance that are based on our current expectations. Actual results may differ materially due to risks and uncertainties. Please refer to the cautionary statements and risk factors contained in our SEC filings for more details on our forward-looking statements. Some of today's remarks include non-GAAP financial measures. These non-GAAP financial measures should not be considered a replacement for and should be rather read together with our GAAP results. You can find the GAAP to non-GAAP reconciliations in our earnings release in the appendix to our presentation. Joining me today are Mike Smith, our President and CEO, and Bernadette Madarieta, our Chief Financial Officer. Let me now turn the call over to Mike. Mike Smith: Thank you, Debbie. Good morning, and thank you for joining us today. The Lamb Weston team delivered first quarter results that exceeded our expectations and show commercial momentum in our business. While we are early in our Focus to Win execution, we are energized and excited by the emerging evidence of results coming from the foundation that we began to lay earlier this calendar year. Our goal remains to drive profitable growth and win with customers by focusing on the principles that made Lamb Weston the industry gold standard: category-leading innovation, exceptional products, and customer-centric actions. We are early in the journey, but our North Star is clear. I want to thank our hard-working team globally for their excellent work. Let me provide a few key messages I would like to leave with you today. First, we delivered another quarter of strong volume growth. This is a result of excellent work across our organization, from innovation quality, consistency, and our focus on the customer. We are seeing positive customer momentum as we invest behind strategic differentiators. Second, we are acting with urgency to implement our new strategic plan, Focus to Win, including working to deliver our cost savings program, which is in its early innings but tracking to our plan of achieving at least $250 million of annual run rate savings by fiscal year-end 2028. Third, we have new innovative products coming this fall, and we are winning new business and growing with existing customers as our teams go to market with a more customer-centric Lamb Weston organization. Fourth, in response to sustained volume growth in North America, we are restarting a curtailed line. Lastly, we are acting with urgency to position Lamb Weston for long-term success and shareholder value creation, including by prioritizing the specific markets and products where we believe we have a sustainable competitive advantage. Now let's discuss the quarter in more detail. Our first quarter results were led by volume growth in both segments, price mix within our expectations, the benefits of our cost savings initiatives, and significant progress in improving working capital, reducing our capital investments, and driving strong free cash flow generation. As we roll out our Focus to Win strategy and drive operational and strategic changes across our business, we are doing so from a leadership position within a category of opportunity. Whether at home or away from home, let's take a minute to remind ourselves why fries. Traditional french fries are one of the most profitable items on restaurant menus. Fries are the most ordered item at US restaurants. They appeal to a broad range of consumers and are America's favorite order across every generation. The fry attachment rate, or how often someone orders fries with their meal, remains approximately two percentage points higher than before the pandemic. What that means is that when people go out to eat, they are ordering fries more often than in 2019. And we see positive trends around the globe. For example, global demand is growing with an estimated 44% of global menus offering fries. And as multinational and local market QSRs expand, they continue to see developing markets with fries, which is trending positive. Finally, global fry volume growth has outpaced total food growth versus 2019. In July, we launched Focus to Win, our new strategic plan to unlock near and long-term value. While it is early in our efforts, we are making progress. I see it in the focus our teams have and the decisions we are making. We have clearly identified savings plans, and our teams are executing. All this is happening as we work to be our customer's number one partner, a world-class potato company, and an industry-leading innovator. Looking at each of the pillars of our strategy, a few early examples include within strengthening customer partnerships, we have realigned our sales teams around our priority markets. In North America, we are augmenting our successful direct sales force with a broker model to expand our reach into underpenetrated channels of the business. The Lamb Weston organization is embracing a customer-centric mentality. We have secured several new wins around the world, including expanding our share in business and key away-from-home categories such as C-stores and cash and carry. And outside the US, we've increased our business with QSR customers. In terms of executional excellence, the supply chain organization is elevating Lamb Weston's operations. We have undertaken programs across manufacturing, logistics, and procurement that are not just driving cost savings but meaningfully improving our run rates, our quality, and our customer satisfaction metrics. In response to sustained volume growth in North America, as previously mentioned, we are restarting a curtailed line in the latter part of the second quarter to ensure we maintain strong customer fill rates. Our global footprint and the untapped capacity in our manufacturing network allow us to take on new business and provide additional support for our customers. Additionally, we began shipping from our new manufacturing facility in Marda Plata, Argentina. Approximately 80% of production will be destined for export, primarily for Latin America, including Brazil. Finally, setting the pace for innovation. We take great pride in our position as an innovation leader, and we are working to directly improve the customer and consumer experience, drive breakthrough innovations, and innovate how we operate. As I mentioned in July, we've established global innovation hubs to orchestrate disruptive innovation platforms. One in North America and one in The Netherlands for our international markets. This fall, we are launching exciting new products into retail that are aligned with customer trends. This includes flavor-forward offerings from Alexia, such as garlic and Parmesan crinkle-cut fries and dill pickle seasoned fries, as well as expanding our licensed brands with Paw Patrol waffle fries and Shaped Tops. And internationally, we continue the rollout of our really crunchy artisanal fries, which are performing exceptionally well. Before Bernadette provides a more in-depth review of the quarter, let's discuss the upcoming potato crop. We're harvesting and processing crops in our growing regions in both North America and Europe. Currently, we believe the crops in the Columbia Basin, Idaho, and Alberta are above historical average, and in the Midwest are near average as growing conditions in all regions have remained generally favorable. In Europe, growing conditions in the industry's main growing regions of The Netherlands, Belgium, Northern France, and Germany have also been favorable, leading to an above-average yield forecast for the region. We continue to expect our potato costs in Europe to be flat to slightly lower than the previous year's fixed price contracts. As a reminder, in North America, we've agreed to a mid-single-digit percent decrease in the aggregate in contract prices for the 2025 potato crop. We expect to realize the benefit of these lower potato prices beginning late in our fiscal second quarter. We'll provide our final assessment of the potato crops in North America and Europe when we report our second quarter results. I will now turn the call over to Bernadette to review the quarter and our outlook. Bernadette Madarieta: Thank you, Mike, and good morning, everyone. Our teams continue to perform at a high level as we began executing our new strategic plan and driving changes across the organization. In the quarter, we grew volumes, improved our manufacturing cost per pound, and delivered strong cash flow. Starting on Slide 11, first quarter net sales were essentially flat, increasing $5 million, including a $24 million favorable impact from foreign currency translation. On a constant currency basis, net sales declined 1% compared with the prior year. Volume increased 6%, driven by customer wins and retention, led primarily by gains in North America and Asia. In North America, the rate of new customer volumes scaled earlier than we planned. The total volume increase also included lapping an approximately $15 million charge taken in the '5 related to a voluntary product withdrawal. Turning to the industry, restaurant traffic at several customer channels was flat in the quarter, including overall QSR traffic. While some are growing, including QSR chicken, QSR hamburger, however, was down low single digits and declined another percent in August. Restaurant traffic outside the US has been mixed. Traffic in certain markets, including the UK, our largest international market, declined 4%. Our customers continue to lean into value and menu innovation, including limited-time offerings to drive traffic and meet consumer needs. Price mix at constant currency rates was in line with our expectations, declining 7% compared with the prior year. As a reminder, this includes the carryover impact of fiscal 2025 price and trade investments that went into effect in the second quarter of last year, as well as ongoing support of our customers. It also includes unfavorable channel product mix within our segments. Looking at our segments, North America net sales declined 2% compared with the prior year, primarily due to lower net selling prices. Price mix declined 7%, and volume increased 5%, supported by recent customer contract wins and growth across channels. In our International segment, net sales increased 4%, including a favorable $24 million impact from foreign currency translation. At constant currency rates, net sales were flat. Volume grew 6% in the quarter, and price mix at constant currency rates declined 6%. This was primarily related to pricing actions in key international markets to support our customers. Our international segment remains well-positioned for the long term, supported by new modern manufacturing facilities, a broad and innovative portfolio, and an expanding global footprint. In the first quarter, Asia, including China, led our volume growth, reflecting solid market performance. Growth was supported primarily by contributions from multinational chains. In Europe, we expect that a strong crop, soft restaurant market demand, and increased competitive actions will continue to pressure price mix for the balance of the year. And in Latin America, we began shipping from our new facility in Argentina in early second quarter. While we are actively onboarding customers, we expect it will take time before the facility reaches target utilization level. We've seen competitive activity increase in Latin America, most notably in Brazil. Moving on from sales, as expected, on Slide 12, you can see that adjusted gross profit declined. This was primarily due to unfavorable price mix. This was partially offset by higher sales volume and a decrease in manufacturing cost per pound due primarily to benefits from our cost savings initiatives and the benefit of lapping an approximately $39 million charge in the prior year related to a voluntary product withdrawal. We're pleased with the progress we're making against our cost savings initiatives, and we remain on track to deliver fiscal 2026 savings targets. Our broader goal with our manufacturing initiatives, however, is to embed sustainable process improvements that will continue to enhance our manufacturing performance beyond the immediate efficiencies we are seeing. Partially offsetting these benefits was about $15 million of increased fixed factory burden absorption and about $4 million of incremental costs related to the start-up of the new production facility in Argentina. While we anticipated a decline in gross profit this quarter, the decline was less than expected, due primarily to stronger than anticipated sales volumes and incremental benefits realized from our cost savings initiatives. Adjusted SG&A declined $24 million versus the prior year quarter. The decline reflects benefits from cost savings initiatives. It also includes $7 million of miscellaneous income, primarily related to an insurance recovery and property tax refunds that will not repeat in future quarters. Equity method investments were a loss of $600,000 in the quarter, down from earnings of $11 million in the prior year quarter. This reflects the current lower rate of sales volume from our equity affiliate at lower prices but also an unfavorable mix of sales. As a result, adjusted EBITDA was essentially flat with last year at $302 million. The favorable impact on net sales from currency translation was almost entirely offset by higher local currency expenses, particularly cost of sales in our global markets. Turning to segment EBITDA performance on Slide 13, adjusted EBITDA in our North America segment declined 6%, or $18 million versus the prior year quarter to $260 million, primarily related to price and trade investments in support of our customers, which was only partially offset by higher sales volumes, lower manufacturing cost per pound, and lower adjusted SG&A. Lower manufacturing cost per pound and adjusted SG&A both benefited from our cost savings initiatives. We also lapped an approximately $21 million charge for the voluntary product withdrawal in the prior year. In our International segment, adjusted EBITDA increased $6 million to $57 million. This year-over-year improvement primarily reflects the absence of last year's $18 million charge related to the voluntary product withdrawal, lower potato prices, cost savings from our cost savings initiatives, and a $4 million favorable impact from foreign currency translation. These benefits were mostly offset by supporting our customers with price investments, increased competitive actions in certain markets, and approximately $4 million of start-up costs associated with our new manufacturing facility in Argentina. Moving to liquidity and cash flows on Slide 14, our liquidity and cash position remain healthy. We ended the quarter with approximately $1.4 billion of liquidity, comprised of approximately $1.3 billion available under our revolving credit facility and $99 million of cash and cash equivalents. Our net debt was $3.9 billion, and our adjusted EBITDA to net debt leverage ratio was 3.1 times on a trailing twelve-month basis. In 2026, we generated $352 million of cash from operations, up $22 million versus the prior year quarter. Lower inventories were the primary driver of the increase. Free cash flow was strong at $273 million. As a reminder, our Focus to Win plan includes approximately $60 million of incremental cash flow from working capital, mainly from reducing inventory in both fiscal 2026 and '27, or $120 million in total. We believe we're on track to deliver the fiscal 2026 target. Capital expenditures for the quarter declined $256 million to $79 million as we completed our production facility expansion project. For fiscal 2026, our capital spending is expected to be approximately $500 million, with approximately $400 million in maintenance and modernization and $100 million for environmental projects, which are mostly for wastewater treatment. Turning to Slide 15, we remain committed to returning cash to shareholders. In the first quarter, we returned $62 million to shareholders. This included $52 million in cash dividends, and we repurchased $10 million of stock, leaving us with $348 million authorized under the plan. This brings the total cash we've returned to shareholders since the spin in 2016 to over $2 billion. Our capital allocation priorities continue to be anchored in investing in the business, its capabilities, and areas where we are working to competitively differentiate Lamb Weston to execute our business strategy while maintaining a strong balance sheet and opportunistically returning capital to shareholders with dividends and share repurchases. Let's turn to our outlook on Slide 16. We are reaffirming our outlook for fiscal 2026. As a reminder, this outlook includes the contribution of a fifty-third week, with an additional week falling in the fourth quarter. We continue to expect revenue at constant currency rates in the range of $6.35 billion to $6.55 billion, which is a 2% decline to a 2% increase. We expect year-over-year volume growth behind customer momentum in both segments. In our North America segment, we expect volume to grow in both the first and second half of the year. Note that while volumes in the first quarter came in above expectations, this reflects the acceleration of new customer activity that we planned for in later periods. In our international segment, we expect volume in the back half of the year to be essentially flat as we lap the new customer acquisitions from the prior year and we continue operating in a competitive environment. We also continue to anticipate price mix will be unfavorable at constant currency. As of the end of the quarter, we have secured approximately 75% of our global open contract volume at pricing levels generally consistent with expectations. As anticipated, unfavorable price mix will be more pronounced in the first half, reflecting the carryover pricing actions from fiscal 2025. The effect is expected to moderate in the second half of the year, supported by new contracts signed this year. Our adjusted EBITDA guidance range remains at $1 billion to $1.2 billion. As a reminder, adjusted EBITDA now excludes noncash share-based compensation expense. It is available in the reconciliation of non-GAAP financial measures that accompanies the earnings release we filed this morning. Despite the outperformance in the first quarter, with only one quarter behind us, we believe it's prudent to maintain our guidance range. While we previously excluded any impact from tariffs, the range now incorporates tariffs in the balance of the year, based on our latest view of enacted tariffs by the US and other governments. Additionally, given the outperformance of the first quarter's gross profit from higher than planned volume, we expect gross profit margins in the second quarter to be relatively flat with the first quarter. Due primarily to as expected first quarter input cost inflation being flat to slightly down compared with a year ago due to the steep increase in open market potato prices in Europe in the prior year, going forward, beginning in the second quarter, we expect low single-digit inflation, including the benefit of this year's lower raw potato prices. We also expect higher factory burdens from longer than expected planned maintenance downtime at one of our plants and additional start-up expenses and factory burden related to the start-up of Argentina plant to adversely affect our margin performance in our International segment in the second quarter. Turning to adjusted SG&A, our first quarter SG&A as a percentage of revenue was lower than our expectation for the full year. As I previously mentioned, the quarter included $7 million of miscellaneous income that will not repeat in future quarters. In addition, at year-end, we shared our plan to invest approximately $10 million of SG&A in innovation, advertising, and promotion expenses to support our long-term strategic plan. These investments are slated for the remainder of the year. While not in our guidance, the net sales and adjusted EBITDA we are updating our tax rate guidance from approximately 26% to a range of 26% to 27%. We now expect the tax rate in the first half to be in the low thirties, and the second half expectation remains in the low 20s. We do not expect that the recently enacted US federal tax legislation will have a material impact on our fiscal 2026 tax rate. And finally, our outlook reflects the progress we are making with our customers, the cost savings we are on track to deliver, and the early but positive results of the work by our teams to execute Focus to Win within a competitive market. I'll now turn the call back over to Mike. Mike Smith: Thank you, Bernadette. In closing, we are acting with urgency to execute our Focus to Win strategy, including delivering our cost savings program. We have continued to drive strong volume growth and are pleased with the momentum we are seeing with our customers. Our team is focused on improving capital efficiency and increasing cash flows as our growth investments are complete and reducing working capital. We have trend-forward products coming to the market, and the capacity and innovation to partner with our customers. And we are managing our business strategically, deploying resources, and focusing our efforts in the areas of the market where we have the most differentiation, which we are confident will best position us for sustained success. Finally, we've reaffirmed our outlook for fiscal 2026. We'll now be happy to answer your questions. Operator: Thank you. If you would like to ask a question, signal by pressing star 1 on your telephone keypad. Please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll go first to Andrew Lazar with Barclays. Andrew Lazar: Great. Thanks so much. Good morning, Mike and Bernadette. Mike Smith: Morning, Andrew. Andrew Lazar: Maybe to start, you noted that Lamb Weston has restarted a previously curtailed production line in the US. And I guess more broadly, I'm just curious how this squares with sort of the current supply-demand imbalance for the industry overall that you've talked about the last couple of quarters. And have you heard of any further industry capacity delays or outright cancellations beyond what you shared in the international sphere last quarter? Mike Smith: Yeah. I appreciate it, Andrew. You know, we need to restart this line really to keep up the demand signals that we're seeing on the business, the volume, and the customers that we're bringing on board. Really to maintain the customer fill rates. So, you know, all good signals. You've heard me say, historically, this industry has been pretty rational, and our market intelligence would suggest that not all the new announcements are gonna move forward at their original timing. You heard me talk about in July that, you know, we believe that some of those announced capacities aren't gonna move forward. It's either been delayed, postponed, or even canceled. The pace of new announcements has definitely slowed. I can't think of a new announcement that's been made since we reported earnings back in July. So I think, you know, we are seeing signs that this industry is being rational when it comes to capacity. Andrew Lazar: That's really helpful. Thanks. And then I know, Bernadette, last quarter, I think you talked about a low to mid-single-digit year-over-year decline in price mix for the first fiscal half of the year. I'm curious if that still holds. And if so, I guess it would mean a not inconsequential sequential improvement in price mix in fiscal 2Q, if I have that right. Bernadette Madarieta: Yes. No, thanks, Andrew. Foreign currency is having a little bit larger impact on our results. And in the first half, on a constant currency basis, we're expecting a mid-high single-digit decrease in price and then moderating to low to mid in the back half of the year. Andrew Lazar: Thanks so much. Mike Smith: Thanks, Andrew. Operator: Thanks, Andrew. We'll go next to Tom Palmer with JPMorgan. Tom Palmer: Good morning, and thanks for the question. First, I just wanted to kind of clarify some of the gross margin commentary about more flat quarter over quarter. The items you noted seem to be more related to the international segment, like the rising potato costs and the plant start-up costs? Maybe just in North America, an update there. Are we seeing more of kind of the normal seasonal increase to think about? As we shift from 1Q to 2Q? Or are there kind of items there to think about as well? Bernadette Madarieta: Thanks, Tom. As it relates to North America, it is a more seasonal increase. One thing, though, that we do need to consider as it relates to North America is the input cost of inflation. We are gonna see a little bit more in February, but we'll also start seeing some of the benefit related to the lower potato prices come in. But you're absolutely right that much of the change is related to the international segment. Tom Palmer: Okay. Thank you. And then I just wanted to clarify on the tariff commentary that it's now included in guidance but was not previously. What is your tariff exposure? And I think previously, you'd kind of discussed it as not being meaningful. Is there any update there? Bernadette Madarieta: Yeah. So most of our tariff exposure relates to any import of palm oil or other ingredients. And right now, on an annualized basis, we would expect it to be about $25 million. We primarily bring that in from Indonesia and Malaysia. There is going to be a vote in March, is my understanding, that it could be enacted that the Indonesia tariff rate would go away. But that's yet to be known. So we've gone ahead and we've included the full amount for that palm and other ingredients in our guidance for the remainder of the year. Tom Palmer: Great. Thank you. Operator: And once again, ladies and gentlemen, if you'd like to ask a question, signal by pressing star 1. Our next question comes from Peter Galbo with Bank of America. Peter Galbo: Hey, guys. Good morning. Thanks for the question. Mike Smith: Good morning, Peter. Peter Galbo: Bernadette, understanding kind of some of the nuance on the second quarter gross margin. But I guess if I just look at the first quarter performance, it wouldn't be all that different from history. I think it was a roughly flat gross margin Q on Q versus 4Q, which is kind of what the old Lamb Weston would have been even pre-COVID. So I think that the seasonality maybe follows. So I guess the question is, 2Q aside, should we be thinking about the historical seasonality on the gross margin line returning in the second half? At least as it relates to 3Q and 4Q. That would just be helpful as we kind of model out the rest of the year. Bernadette Madarieta: Yeah. That's exactly right, Peter. Based on the strength that we saw in Q1, we do expect gross margin to be flat about flat with Q2. And then similar to historical periods, we expect a seasonal step up in Q3 and then a seasonal decline in Q4. Peter Galbo: Okay. Great. And, Mike, I just wanted to touch on something you brought up in the slides. Noting on, I think, expanding the usage of brokers in North America. You know, historically, the strength of Lamb Weston was truly the direct sales force. I think it was a competitive advantage maybe you had that some of your competitors didn't. So I just want to understand the change in philosophy or the change in thinking and expanding out to using a broker network. How that's being, I guess, received internally by the direct Salesforce. I mean, again, it's a nuance, but it seems like a meaningful change to how you've operated versus history. Thanks very much. Mike Smith: Yeah. I appreciate the question, Peter. I think it's really important, and I want to make sure I'm clear on this. We are maintaining that direct sales force. So that, to your point, Peter, that team has been very helpful to this business over the course of the last several years as we moved to that model. We've seen success with it. This is now gonna give them the opportunity to continue to focus on the areas where they've been successful. We are augmenting that direct Salesforce with a broker in some of our underpenetrated channels, some of the areas that we haven't spent time focusing on in the past. The sales team, the leadership team on that side is super supportive and excited about it because it actually allows them to really focus on the areas that they have been focusing on and gives us a chance to look at some potential upside opportunity that we haven't really spent a lot of time on over the last several years. Peter Galbo: Awesome. Thanks so much, guys. Operator: Thanks, Peter. We'll go next to Max Gumport with BNP Paribas. Max Gumport: Hey. Thanks for the question. I was hoping you could unpack the contribution of customer wins to driving growth in North America. So first, just if you'd be able to quantify that roughly in point terms in terms of what that drove. And then with these gains really first starting to get called out in '25, is there any reason why that benefit doesn't stick in 2Q and 3Q? And then how would you think about that progressing from there? Thanks very much. Mike Smith: Yeah. You know, the team's working hard to pick up new customers, and as I said before, I think we're driving a whole another level of customer centricity here in our organization. You know, as Bernadette mentioned earlier, we've had some customers that we have converted earlier than expected, meaning that some of those customers started placing orders and shipping with us in Q1 that we didn't expect to necessarily happen until Q2. So you know, that's one reason you're seeing the larger step up in Q1 on volume versus what we expected. Bernadette Madarieta: Yeah. And that relates primarily to the North America segment. That's exactly right, Mike. And then as it relates to the international segment, keep in mind that we were lapping the prior year voluntary product withdrawal that we won't see going forward. Max Gumport: Okay. And then just coming back to the 1Q versus 2Q gross margin comments that rise to the NASH, but one other way I wanna just get my head around it would be clearly coming into the year, you expected a return to the normal which would have been a pretty meaningful, you know, few 100 basis points, I believe, step up from 1Q to 2Q. I think it's fair to say 1Q gross margin came in a couple 100 basis points above what you might have expected. And I realize you now expect inflation to accelerate from 1Q to February. Has your view on the absolute gross margin changed? Is that because of the timing of inflation, or is it really just a matter of paying meaningfully better than expected 1Q first margin? Thanks very much. Bernadette Madarieta: Yeah. So for the question. For the year, we're expecting to be fairly close to what we had originally expected. We didn't guide on gross margin per se, but you're exactly right that the cadence of the gross margin and the increase and decreases, that the primary change here is really that Q1 came in better than expected, and we're expecting more of a flat quarter over quarter gross margin between 1Q and 2Q. Max Gumport: Okay. Thanks very much. I'll leave it there. Operator: And our next question comes from Matt Smith with Stifel. Matt Smith: Hi, good morning. Thanks for taking my question. Mike, could you talk about the impact of restarting the curtailed line in the second quarter? Should we think of there being higher fixed cost absorption as that line comes on? Or is that a cleaner startup process relative to when you open a new plant? And then how do you think about that line going forward? Do you expect production to be maintained on that line, or have you learned that you can turn these on and turn them on based on different times of the year and when it's most efficient to use that capacity? Mike Smith: Yes. Great question, Matt. Let me just ground everyone and remind everyone. We curtailed more than just one line when we did our curtailment. So this is one of those lines that we're bringing back on. During the course of the time that line was down, we would, you know, kind of bump the kind of what we call it bump start the engines and the pumps and kind of keep things lubed up. And so it's easier to start these lines than starting a new production facility from scratch. Not a lot of cost to bringing up this new line. Fully anticipate that we're gonna continue to run this line. That's what our demand signals are telling us. And again, we have other curtailed lines that we have positioned should we see continued growth and momentum in the business. That we'll be able to action against into the future. Bernadette Madarieta: Yeah. And the only thing I'd add to that is so for the North America segment, we'll start to moderate at the end of the second quarter when we start up that line from a fixed factory burden perspective. But we'll see a larger impact internationally with the start-up of Argentina and then the higher factory burden from the longer than expected planned maintenance downtime in Q1. Matt Smith: Thank you, Bernadette. And as a follow-up, could you talk about the phasing of cost savings in fiscal 2026? I think cost savings came in above your expectation in the first quarter, but you still expect to be on track for the $100 million run rate in fiscal '26. Or exiting the year. Are you raising your expected cost savings for the year? Is it just more flowed through in the first quarter than you anticipated? Or maybe it was a larger contribution from the carry-in benefits from last year's restructuring savings? Just a little clarification out there. Thank you. Bernadette Madarieta: Sure. I'd be happy to provide some color on that. So you're right. We did drive cost savings a bit faster, which has about two-thirds of the benefit in the back half of the year when we initially announced the plan. There's still many priorities that we need to deliver, and we'll continue to provide updates as the year progresses. But for now, we're on track to deliver the $100 million target that we set for fiscal 2026. And again, about two-thirds of that is expected to affect gross profit, and about a third is expected to affect SG&A. Matt Smith: Thank you. I'll pass it on. Operator: And we'll go next to Scott Marks with Jefferies. Scott Marks: Hey. Good morning, Mike. Bernadette. Thanks so much for taking our questions. First thing I wanna ask about is, you gave some commentary earlier about some of the business wins you've had. You know, expanding some business with QSR customers, expanding in C-stores, and other away-from-home categories. Just wondering if you can speak a bit to what's been the driver of these wins? Has it been more of the price support that you're willing to invest behind it or maybe some other factor helping you kind of gain this business? Mike Smith: Yeah. Appreciate the question. You know, a lot of it has to do with how we're engaging in our customers in a change from how we were in the past. You know, we're spending a lot of time making sure that we're doing the right joint business planning, and that's not just lining up our salespeople to the customer. That's a complete cross-functional approach where our supply chain organization, our marketing organization, and others are spending time with these customers and really understanding what they are looking for in a valued partner, and we're now delivering that. We're seeing customers have a renewed focus on service, quality, and consistency rather than just price when it comes to North America. And I think you're seeing that. When you hear, you know, out or Bernadette mention that we're through 75% of our contracting for this fiscal year with customers. That's at a very high retention rate, which we're excited about. And then, obviously, bringing on some of those new customers is providing some tailwinds for the business. Scott Marks: Understood. And then maybe just on the traffic environment, you made some comments about QSR traffic. I think it was flat overall with some puts and takes across the different subsegments within. Just wondering if you can kind of share just overall backdrop what you're seeing in the US internationally, and what you're hearing from customers as we move through the rest of this, I guess, calendar and fiscal year. Mike Smith: Yeah. You know, QSR traffic was flat in the period. You know, as Bernadette mentioned, burger QSR traffic was down. That was after several months of sequential improvements, albeit still down. Chicken QSR was up, which is a great mix opportunity for us. You know, we're intrigued by some of the offerings that we're seeing from some of our customers in the marketplace in terms of value meals. Excited to see how those are gonna perform into the future. You know, we have great customers. They have really loyal consumers. And, you know, they're looking to drive traffic into their restaurants and in their stores. Bernadette Madarieta: Yeah. And, Mike, if I could just add on the international side, you know, QSR traffic being a bit mixed in the UK. I think I mentioned our largest market. It was down 4%. There were some other markets up, though, that were up slightly. France, Germany, Spain, but then there were others that were down. So a little bit mixed there on the international side. Operator: And we'll go next to Robert Moskow with TD Cowen. Jacob Henry: Hi. This is Jacob Henry on for Rob. Just one question for me. I'm wondering if you can provide any additional details on the pricing of the contracts you signed this quarter? Just curious how those came in versus expectations. I know you guys are winning a good amount of new business. Curious if you are finding you have to discount maybe more than you expected. Thanks. Mike Smith: Yeah. I appreciate the question. You know, as I said earlier, I mean, we're seeing in North America that customers are having that renewed focus around service quality, consistency, and the innovation that we're providing and all that customer centricity that I talked about earlier. It's not just price. Price in North America has been in line with our expectations. That being said, you know, we have supported customers in this challenging environment. You know, we've finished, like we said, 75% of those contracts have gone through the normal course. Another 25% is kind of the normal kind of process that we go through, and we'll start to see those wrap up through the end of the calendar year. You know, I think we've said in the past, last year, about two-thirds of our agreements came up for renewal. We had about a third of those that came up for renewal this year. I'd say, you know, when you think about the international markets, we continue to see a little bit more competitive dynamic. Some of that's related to new capital. Some of that's related to raw pricing in some of the markets. Some of that's related to just normal competitive dynamics. You know? And in Europe, you know, we talked a little bit about the crop and where our raws headed with those contracts. So again, all as expected. And we continue to, again, meet with our customers and show them a differentiated Lamb Weston when it comes to our customers. Bernadette Madarieta: Yeah. And we focused a lot on price, and I think the only other thing I'd add in as it relates to mix is that we are seeing a little bit of a change in mix in some of our channels, particularly in our retail channel with, you know, more focus towards the private label volume versus branded volume. Operator: Our next question comes from Steve Powers with Deutsche Bank. Steve Powers: Hey, great. Good morning. Mike, following up on your comments kind of throughout the call on just the importance of customer service and the efforts that you've all been able to make in terms of the supply chain enabling better customer service delivery on your part. I guess, when you think about the overall scorecard, and I'm focused mostly on North America in this question, but, you know, product quality, order fill rates, just all the different dynamics of customer service. Is that scorecard kind of at this point, universally green in your estimation, or are there areas where you still see room for further improvement that are priorities for the organization? Mike Smith: Yeah. I won't go into detail, Steve, in terms of what the scorecard and what we're tracking, but we do track our customer engagement and some of those key metrics on a regular basis, and we still have opportunities. And I think, you know, that's where my focus has been over the last several months is getting out in front of these customers and better understanding where we have opportunities and how we're gonna address those moving forward. In some ways, we've addressed that through some of the structural changes and changes. In some ways, we've addressed that through innovation, some of the items that we're coming out with. But, again, we're having those conversations. And listen. Never satisfied. We always wanna make sure that we're delivering a higher level of service for our customers, and we're gonna continue to do that. Steve Powers: Okay. Thank you for that. And then, Bernadette, I don't so apologies if I missed this, but just on the plants, the new facility in Argentina, how long do you expect that to take before it is up to target utilization levels? I'm not sure I caught that, and I don't know how the competitive activity you called out in Brazil impacts that. Just your outlook for the ramp-up in that facility. Thank you. Mike Smith: Yeah. And maybe before Bernadette jumps into that one, let me just update the group. You know, we actually have that plant now operational. And we're actively qualifying products for our customers. And transitioning, kind of ramping things up. That does take some time, but it is operational, and much of that capacity will be exported to the Brazilian market in that area. Steve Powers: Okay. Is there a timeline to kind of hit target utilization at this point? Mike Smith: Yeah. It takes time. I mean, you know, if you think about our other lines that we've started up, these aren't we don't fill up the lines on day one. And like I said, it takes some time to condition the lines as we call, shake them down a bit, and bring those new customers on and over. It will take us some time to bring that line up to speed. Steve Powers: Okay. Enough. Thanks, Mike. Operator: And we'll move next to Marc Torrente with Wells Fargo Securities. Marc Torrente: Hey, good morning, and thank you for the question. Just first on SG&A, it came in a bit lower than expectation. Part of that was the nonrecurring $7 million and then maybe some timing shift in strategic investments. So how should we think about the underlying run rate of SG&A going forward? And any phasing of net cost savings ahead? Thanks. Bernadette Madarieta: Yeah. Thanks, Marc. You know, in terms of SG&A, I think about one-third is what we've shared before of the savings are expected to benefit SG&A in fiscal '26, and that's off a $100 million base. And then you're exactly right. The benefit of cost savings in the first quarter did include the $7 million of one-time benefit that we won't see going forward. It will be affected by our cost savings benefits, but then keep in mind, you know, we've got the incremental costs associated with normalizing our stock compensation and then the $10 million in strategic investments that are timed for the latter half of this fiscal year. Marc Torrente: Okay. Got it. And then when new customer wins materialize a bit quicker than anticipated, which pulled forward some of the expected volume growth in the year. Maybe could you talk to visibility and other new customer wins that have yet to start? And ability to sustain volume momentum ahead even if, I guess, traffic across the industry remains muted? Mike Smith: Thanks. Yeah. You know, we're not gonna speak to any future customer wins that are coming up. I think the fact that we restarted the curtailed line in American Falls to make sure that we have the right customer fill rates and support our customers the right way is a great kind of breadcrumb to how we're feeling about the business. Bernadette Madarieta: Yeah. And I think it's important to note that while volumes in the first quarter did come in above expectations in North America, that does partly reflect a timing shift in the ramp-up of those new customers that was planned for later periods. So that was planned in our original guidance. It just came a little bit faster than expected. Operator: And we'll move next to William Royer with Bank of America. William Royer: Hi. Good morning. I just have two. The first, on the new customer wins, is some of this creating customer-specific products that may not have margins that are as high as your existing customers? I guess, how is the profitability of the new additions? Mike Smith: Yeah. I'm not gonna speak to the profitability on specific customers. Just know that we are picking up new customers. We're doing it the right way and with pricing that makes sense for the P&L moving forward. William Royer: Got it. And then just secondarily on the CapEx going forward, $500 million this year. When we look to out years, I think you mentioned $400 million this year of maintenance and $100 million of environmental. Should that be the range that we should be thinking about over the next two or three years subsequently? Bernadette Madarieta: Yeah. That's in the general ballpark. You know, I think we previously shared that we've got a five-year plan with the environmental expenditures. Currently planning for about $100 million per year over the next five years. But, again, we're continuing to look for ways that we might have opportunities to extend deadlines or, you know, work on other areas to reduce the cost of that compliance. Got it. But in total, you're correct. William Royer: Perfect. Thank you. Operator: Thank you. And ladies and gentlemen, that concludes our Q&A session today. I'll turn the conference back to Debbie Hancock for any additional or closing remarks. Debbie Hancock: Thank you, Lisa, and I want to thank everyone for joining us today. The replay of the call will be available on our website later this afternoon. Have a great day. Operator: That concludes our call today. Thank you for your participation. You may now disconnect. Have a great day.
Operator: Good afternoon, everyone. Welcome to NIKE, Inc. First Quarter Fiscal 2026 Conference Call. You will find it at investors.nike.com. Leading today's call is Paul Trussell, VP of Corporate Finance and Treasurer. Now I would like to turn the call over to Paul Trussell. Paul Trussell: Hello, everyone, and thank you for joining today to discuss NIKE, Inc. First quarter fiscal 2026 results. Joining us on today's call will be NIKE, Inc. President and CEO, Elliott Hill, and EVP and CFO, Matt Friend. Before we begin, we will make forward-looking statements based on current expectations. Let me remind you that participants on this call and those statements are subject to certain risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed in NIKE's reports filed with the SEC. In addition, participants may discuss non-GAAP financial measures and nonpublic financial and statistical information. Please refer to NIKE's earnings press release or NIKE's website investors.nike.com, for comparable GAAP measures, and quantitative reconciliations. All growth comparisons on the call today are presented on a year-over-year basis and are currency neutral unless otherwise noted. We will start with prepared remarks and then open the call for questions. We would like to allow as many of you to ask questions as possible in our allotted time, so we would appreciate you limiting your initial question to one. Thank you for your cooperation on this. I will now turn the call over to NIKE, Inc. President and CEO, Elliott Hill. Elliott Hill: Thank you, Paul. It's great to be here with everyone today. Before we begin, I want to start with a thank you. I want to thank my NIKE, Inc. teammates around the world. Because of their passion, commitment, and determination, we made tangible progress from where we were eleven months ago. Driven by our win-now actions that focused our team on our culture, product, brand marketing, marketplace, and our ground game. This quarter, our win-now actions drove momentum in the areas we prioritized first: Running, North America, and wholesale partners. It showed that we are making the right choices. Consumers are responding. We are getting some wins under our belt. What you cannot see in the results is the effort that I have seen in our stores, distribution centers, and offices around the world. Since my return, not a day has gone by that I have not asked each of my teammates to commit themselves fully to building a better NIKE. That takes a lot of work. And this quarter in particular, we asked even more from our teams as we realigned approximately 8,000 teammates to our sport offense, which I will explain shortly. It's a massive achievement for everyone involved. What I want this audience to know is that our teams also understand how much we still must do to meet our full potential. Because the truth is, NIKE's journey back to greatness has only just begun. There is significant work ahead, especially in the areas of sportswear, Greater China, and NIKE Direct. And as I have said to the team, progress will not be perfectly linear, but the direction is. On our last call, I said it was time to turn the page. And I believe this quarter reflects the many ways we are doing just that. You have heard me say, it's imperative to bring our entire organization closer to the athletes we serve. That's why the sport offense is going to be so critical to our success. This new formation and ways of working will align our three brands, NIKE, Jordan, and Converse, into more nimble, focused teams by sport. We will gain sharper insights to fuel innovation in storytelling and connect with the communities of each sport in more meaningful ways. Collectively, we will have a better-coordinated attack with each brand forming a distinct identity and delivering a clear intention to serve different consumers. In the marketplace, organizing more by sport gives us a much clearer point of view. The House of Innovation in New York is a great example where we redesigned a retail experience by sport. I walked the floors in early September, and we are now able to take a consumer into a world of Jordan, a world of NIKE running, or a world of NIKE global football. It's an immersive sport experience. And the refresh has already led to double-digit revenue increases. That clarity works in small format doors as well. We recently redesigned our South Congress store in Austin to focus only on running and training, and sales have significantly increased. Ultimately, the sport offense will maximize NIKE, Inc.'s complete portfolio. It is designed to drive growth across all our dimensions. With three distinct brands, we believe the opportunity to serve so many athletes across sports, in retail channels at every price point is an advantage that no one else has in our industry. Now let's take a deeper look and tell where we are driving progress. Our running business gives us an early window into the kind of impact we expect out of the sport offense. Our running team moved fastest into our new formation and was the first to get sharper on the insights of their athletes. It turns out runners mostly want three things from their running shoes: Big cushioning, stability, or an everyday shoe that returns energy. In response, we have moved with a sense of urgency and completely redesigned the Pegasus, the Structure, and the Vomero to solve for these three insights. Integrating our industry-leading innovation platforms like NIKE Air, Flyknit, ZoomX, and ReactX. Having a consistent structure of silos and price points allows us to introduce at least one new major running footwear style each season. Our running business continues to be a strong proof point of progress. We are getting back to delivering a relentless flow of innovation that serves real athlete needs, and we are pulling it all the way through the marketplace in consumer-friendly ways. The early results have been positive, with NIKE running growing over 20% this quarter. Our opportunity is to quickly seize the benefits of a sport offense and apply them to more sport and sport culture, including global football, basketball, training, and sportswear. I will remind you that each sport is in a different stage of development. Our global football team is preparing for the energy of the 2026 World Cup and is ready to move forward. We will utilize the world's biggest sports stage to debut an exciting new apparel innovation platform that will later be leveraged across other sports. And we will connect with a younger consumer by launching several football streetwear collections. As we are doing in running, football boots are also fueled by three silos at multiple price points addressing the needs of three different styles of play. This quarter, we relaunched the revamped Phantom six with great sell-through and will follow that up with a new Tiempo in Q3 and a new material in Q4. And finally, we reset the football brand identity this quarter with our scary good campaign. From a football innovation and brand standpoint, we are ready to go. In the marketplace, we are moving quickly to improve our position to tell football innovation stories in more inspiring ways at point of sale. The longer-term vision is for the impact of the sport offense to be felt far beyond the traditional sports where we currently compete. We now have dedicated teams to bring our creativity to additional market opportunities. These are spaces for us to take design risk, to be innovative, and to be irreverent, which is so important to our brand's DNA. NIKE ACG, for example, has brought an athletic youthful approach to outdoor product for nearly thirty years. As more people stay active outdoors, we will invest in NIKE ACG to address the opportunity. This quarter, we launched an elite ACG race team who have helped us make high-performance outdoor product. Together, we just revealed some exciting innovation: A breathable apparel innovation platform called Radical Air with the ACG UltraFly and a trail-tuned super shoe. ACG professional racer, Caleb Olson, wore both innovations in his victory at the Western States one hundred race, finishing with the second fastest time in the history of the race. Our new partnership with SKIMS is another opportunity to bring something unexpected to a new consumer. NIKE's innovation expertise and SKIM's dedication to inclusive apparel has the potential to create performance training products with a very different look. We debuted the product line last week with 58 silhouettes, and early consumer response was very strong. The opportunity exists to create more dimension around the most established sports as well. Look at this year's US Open of Tennis as an example. Over the course of the three-week tournament, we celebrated the wins and on-court looks of Alvarez and Saba Lanka. We designed custom dresses for Naomi's incredible comeback and for Sharapova's induction into the tennis hall of fame. We excited sneaker fans with a retro launch of Agassiz Tech Challenge sneaker and we brought it all together in New York's house of innovation in an immersive tennis experience. In the past ten months alone, as part of our win-now actions, we have activated 12 sport takeover moments that connected the inspiring performances of our athletes and teams to commercial assortments in the marketplace. This quarter, that included the England women's national team winning the European championship, centers, Wimbledon title, Scottie's open championship title, and Chelsea, winning the Club World Cup. Sport, and the world's greatest moments will always be NIKE's runway. And only we can bring it all together across three brands, so many sports, performance, and lifestyle. This is NIKE maximizing the full power of our portfolio. While the sports performance teams are finding a higher gear, our sportswear teams have work to do to get sharper on the consumers we are serving. And we see it in our results. Our business continues to decline. Continuing to build a clear product construct in sportswear, as we are doing in our performance sports, remains a priority. We do have pockets of strength, especially in our deep vault of look of running footwear, but we are still in the process of putting our largest classic franchises into a healthier position for the NIKE, Jordan, and Converse brands. Air Force One is stabilizing. Air Jordan one inventory levels are returning to health. The dunk continues to be managed aggressively down in all geos, and the Chuck Taylor is in the early stages of a global market reset. With Converse, we just put new leadership in place and we are going to take aggressive actions to better position the brand for profitable growth in the future. Of the priority win-now actions, elevating the full marketplace is in the early innings. The positive is that North America, where we invested first, took some big steps forward this quarter. The team continues to give more consumers access to the brand in more premium environments. We reset over thirteen hundred running spaces in the quarter, from Dick's to Nordstrom's to Heartbreak Hill. And we are also pleased with the launch of the NIKE brand store on Amazon, where we are driving stronger engagement and sales than anticipated. While our North America teams are setting the tone, we are still far from our ultimate goal of elevating an integrated marketplace. Digital, and physical, wholesale and NIKE Direct, in all geographies. Greater China, as I mentioned on the last call, is facing structural challenges in the marketplace. Our business was down 10% for the quarter. Seasonal sell-through continues to underperform our plans, requiring larger investments to keep the marketplace clean. My leadership team and I were in China a few weeks ago. We traveled to three cities, spending time with our Greater China leadership team, consumers, and our partners. We are even more committed to the opportunity for growth in China. They are a nation that's passionate for the games of basketball and global football, and a nation that is embracing a healthy lifestyle through running and training. When we lead with exciting innovation, like the Vomero 18 or the Jordan game shoe, or have athletes like Jah and LeBron visit key markets, we drive traffic and demand. It is even more clear that our path to winning in China is through sport. Our team is moving with urgency to develop consistent plans across all sports and refresh some of our retail environments into distinct sport experiences. With over 5,000 mono brand stores in China, this will take investment, and it will take time. Globally, NIKE Digital is still working to find solid ground. We made the strategic decision to become less reliant on classic franchises and pull back on our promotions for the long-term health of our brands and marketplaces in all geographies. Organic traffic has slowed. We are working to find the right assortment and marketing mix to consistently bring consumers back to our digital ecosystem. For a company our size, with three brands that serves consumers in nearly 190 countries, not all sports, channels, or countries will recover on the same timelines. I spent a lot of time reflecting on the last several months. What keeps me grounded is every time I return from a major sporting event, meeting with athletes, or being in the marketplace, I'm even more convinced that the win-now actions are absolutely the right focus for our teams. With that said, we are also realistic that we are turning our business around in the face of a cautious consumer, tariff uncertainty, and teams that are still settling into the sport offense. We know we have a lot left to prove. What gives me confidence is that through the sport offense, we are hyper-focused on the athlete. The creative ideas keep coming. And we are covering a lot of ground in the marketplace. Like I said at the start, the NIKE team, we have a lot of fight in us. I look forward to what we are about to do together. Thank you, and I'll pass it to Matt. Matt Friend: Thanks, Elliott, and hello to everyone on the call. Ninety days ago, I said the '25 would reflect the largest financial impact from our win-now actions. And that we expected the headwinds to revenue and gross margin to begin to moderate from there. At the end of our first quarter, we are encouraged by the progress that we have made, as reflected in our results. And yet we still have much work to do. Today, I will review our financial results. Then I will highlight the progress we have made with our win-now actions across the geographies. Last, I will provide guidance for Q2, as well as some additional insights to bring shape to our near-term financial performance. I'll begin with our financial results. This quarter, revenues were up 1% on a reported basis and down 1% on a currency-neutral basis. NIKE Direct was down 5%, with NIKE Digital declining 12%, and NIKE stores down 1%. Wholesale grew 5%. Gross margins declined 320 basis points to 42.2% on a reported basis due to higher wholesale discounts, higher discounts in our NIKE factory stores, increased product costs, including new tariffs, and channel mix headwinds. 1% on a reported basis. This was driven by lower brand marketing expense reflecting prior year investment around key sports moments, partially offset by higher sports marketing expense. Operating overhead was flat compared to the prior year. Our effective tax rate was 21.1%, compared to 19.6% for the same period last year, primarily due to decreased benefit from stock-based compensation. Earnings per share was 49¢. Inventory decreased 2% versus the prior year as we have made steady progress on our plans for a healthy marketplace by the end of the '26. As I shared last quarter, and as you just heard from Elliott, our geographies are at different stages of progress against our win-now actions. And business recovery is trending on different timelines. Therefore, I will focus my geography remarks on the specific context and insights of our win-now progress. In North America, Q1 revenue grew 4%. NIKE Direct declined 3%, with NIKE Digital down 10% and NIKE Stores flat. Wholesale grew 11%, EBIT declined 7% on a reported basis. North America is building momentum through sustained brand activity across sports, leveraging our leading portfolio of sports marketing assets. North America is furthest ahead in taking steps to elevate and transform the marketplace for future growth. Running, training, and basketball each delivered double-digit growth. Sportswear grew in the quarter, but there is still work to do. With momentum in apparel and looks of running footwear, while managing a 30% decline in our classic footwear franchises. As it relates to the North America marketplace, wholesale returned to growth in the quarter, partially due to shipment timing in the prior year as well as higher liquidation volume to value channels. Additionally, the strategic actions taken to expand distribution and reach new consumer segments contributed to growth, are showing initial promise. Headway was also made in repositioning NIKE Digital, reducing the number of days of site-wide promotion by more than fifty and lowering markdown rates as well as increasing share of demand at full price. On inventory, North America drove continued progress through the first quarter. Units declined versus the prior year, while dollars were flat primarily due to the US tariffs. Closeout mix is approaching normalized levels. In EMEA, Q1 revenue grew 1%. Wholesale grew 4%. NIKE Direct declined 6% with NIKE Digital down 13% and NIKE stores up 1%. EBIT declined 7% on a reported basis. EMEA has largely cleaned the marketplace, even as promotional activity has increased across the industry. NIKE's momentum is building in sport, and with our wholesale partners. EMEA is furthest ahead in repositioning NIKE digital to a full-price business. However, traffic and demand remain soft. In Q1, our performance business continued to build momentum, driven by double-digit growth in running, and low single-digit growth in global football, and training footwear. Sportswear declined low single digits, as headwinds in our classic footwear franchises more than offset growth in apparel and new dimensions of footwear. Over the last ninety days, we've seen promotional activity increase in key countries across EMEA. In order to stay aligned with our partners and manage marketplace inventory, we selectively leveraged additional discounts on NIKE Direct. With respect to inventory, EMEA closed the quarter with units down mid-single digits versus the prior year and a normalized level of closeout mix. In Greater China, Q1 revenue declined 10%. NIKE Direct declined 12%, with NIKE Digital down 27%, and NIKE stores down 4%. Wholesale declined 9%, EBIT declined 25% on a reported basis. Greater China created energy with consumers in the quarter through new product innovation and NIKE athlete activations on the ground with Jaw, Sabrina, and LeBron. Aggressive marketplace actions have reduced owned and partner inventory. However, store traffic and in-season sell-through continues to be a headwind. Running is a bright spot in China, growing high single digits in the quarter, with strong consumer response to new innovations such as the PEG premium and the Vimero 18. In the marketplace, traffic declined versus the prior year. In both NIKE-owned and partner stores, resulting in lower in-season sell-through rates. Digital remains a highly promotional marketplace in Greater China, with consumer shopping moments extending longer on local platforms with deeper discounts. Inventory was down 11% versus the prior year. However, closeout mix remains elevated. Our priority in Greater China is to improve seasonal sell-through trends by refreshing store concepts around sport, creating greater brand distinction at retail, with more productive merchandising assortments, and reducing the mix of aged inventory with our partners. In APLA, Q1 revenue grew 1%, NIKE Direct declined 6%, with NIKE Digital down 8%, and NIKE stores down 5%. Wholesale grew 6%. EBIT declined 13% on a reported basis. APLA continues to deliver mixed results across countries, with pockets of elevated inventory requiring higher levels of promotional activity and proactive management of supply in the marketplace. In the quarter, Performance Dimensions delivered strong growth, led by double-digit growth in running, and high single-digit growth in training. This momentum was offset by low single-digit declines in our sportswear business. In the marketplace, NIKE Digital delivered sequential improvement in markdown rates across all territories. Inventory across APLA grew high single digits this quarter. And so we are taking additional actions to rebalance inventory levels with retail sales trends in certain countries and tightened buys on NIKE Direct. Next, I will spend a moment to provide an update on tariffs. Last quarter, I shared that the newly issued tariffs represented a meaningful cost headwind for NIKE. Since the new reciprocal tariffs are stacked on top of the mid-teens rate NIKE already paid on imports. And I also outlined the actions we are taking in response. Balancing impact on the consumer, our partners, our win-now actions, as well as the long-term positioning of our brands in the marketplace. Since our last earnings call, new reciprocal tariff rates have been increased for certain countries. And so with the new rates in effect today, we now estimate the gross incremental cost to NIKE on an annualized basis to be approximately $1.5 billion, up from the $1 billion we shared ninety days ago. Given the magnitude and timing of the most recent rate increases, we now expect the net headwind in fiscal 2026 to increase from approximately 75 basis points to 120 basis points to gross margin. We continue to evaluate and implement the actions I described last quarter to mitigate these new costs over time. We are monitoring developments closely, and I remain confident in our ability to leverage our strengths, our scale, and the deep experience of our leadership team to navigate through this disruption. Now I will turn to our second-quarter guidance. As Elliott said, we are operating in a dynamic environment, both for consumers and our global business. We remain focused on what we can control, principally to make forward progress on our win-now actions for the long-term health of our brands and to activate our sport offense. Our outlook reflects our best assessment of these factors based on the data that we have available today. We expect Q2 revenues to be down low single digits, including one point of benefit from foreign exchange. We expect Q2 gross margins to be down approximately 300 to 375 basis points, including a net headwind of 175 basis points from the new incremental tariffs. We expect Q2 SG&A dollars to be up high single digits, with an acceleration of demand creation investment and low single-digit increase in operating overhead. We expect other expense net of interest income to be an expense of $10 to $20 million in the second quarter. We expect the tax rate for the second quarter and the full year to be in the low 20% range due to anticipated changes in earnings mix. Finally, with an additional ninety days of execution against our win-now actions, I'll close with some insights that should bring shape to NIKE's financial performance for the balance of fiscal 2026. We see momentum building with our wholesale partners. Our spring order book is up versus the prior year, with growth led by sport. And as a result, we expect wholesale revenue to return to modest growth for fiscal 2026. At the same time, we continue taking steps to reposition NIKE Digital as a full-price business. Organic traffic continues to decline double digits. With a business in the prior year that was more concentrated on classic footwear franchises and sneaker launch, as well as a higher mix of off-price sales, traffic comps will remain under pressure. And so we do not expect NIKE Direct to return to growth for fiscal 2026. As it relates to our operating segments, we expect North America will continue to lead our global recovery, while Greater China will require more time due to the unique marketplace dynamics Elliott and I have outlined. Converse is under new leadership and resetting its marketplace and brand. Therefore, we expect revenue and gross margin headwinds from Greater China and Converse to continue throughout fiscal 2026. We have made steady progress on our plans for a healthy marketplace by the end of the first half. And so we expect to begin to see a modest headwind to revenue across both wholesale and NIKE Direct as we lap aggressive clearance activity in the prior year. Foreign exchange has become a tailwind to reported revenue, but we expect minimal benefit to gross margin in fiscal 2026 due to our hedged positions entering the year. We continue to expect SG&A to grow low single digits in fiscal 2026. Our win-now actions contain investment to reignite growth in the business, particularly in demand creation, as well as rebuilding both our sport and commercial offense. Overall, there are several puts and takes across different dimensions of our portfolio. We are encouraged with how we have started the year, but progress will not be linear. And there is still work to do to return to driving consistent, sustainable, profitable long-term growth. With that, I'll pass the call back to Elliott. Elliott Hill: Thanks, Matt. I'm going to close it out with some perspective on a special sport moment from the quarter that I believe represents the power of a unified team with a singular mission. In late July, I was at the final of the UEFA Women's European Championships in Basel, Switzerland. Defending champion England had already lived through an emotional roller coaster throughout the tournament. They lost their opener to France. They came back from a two-goal deficit to beat Sweden and scored in the final minute of extra time to beat Italy in the semifinal. And now they face Spain in the final, who beat them in the last World Cup final. I was sitting with the FA, the governing body of football in England, for the third straight knockout match the lionesses started slow. They were on their heels instead of attacking. They went into halftime down one nil. We began to question if they had anything left in the tank. But coming out of the half, something clicked. Coach Serena Wiechmann made the right substitutions, as she had all tournament. Chloe Kelly came off the bench, and pace picked up instantly. Hannah Hampton made several key saves. Lauren Hemp was flying all over the pitch. And everyone contributed. England's pressure led to the equalizer in regulation. And after a draw in extra time, Chloe proved to be clutch one more time to score the winning penalty kick in the shootout. The crowd erupted, her country erupted. And there they were, champions of Europe once again, delivering England's first major football trophy on foreign soil. The NIKE London team took that insight and built a campaign around the importance of home that stretched from billboards, T-shirts to the airplane that brought them back to their awaiting fans. The national pride for the lionesses was everywhere. NIKE was right there with them. When I talked to my team about passion, commitment, and determination, we do not have to look much further than England. It's a group that embraces their roles, an experienced coaching staff who adapts in the moment, players who refuse to give up. I mean, I found out later that Lucy Bronze played the entire tournament with a fractured tibia. A fractured tibia. That's resilience. That is a team that knows what it takes to make a comeback. We were all inspired here at NIKE, and you could be assured we're taking their lessons to heart. We're unified under the sport offense, and we're clear on what it will take to win and on the size of the prize ahead. With that, I'll open it up to questions. Operator: Thank you. If you would like to ask a question, please press 1 on your telephone keypad. If you are in the queue and would like to withdraw your question, simply press 1 again. Please ensure that your phone is not on mute when called upon. As a reminder, we ask that you please limit yourself to one question. Thank you. Your first question comes from Michael Binetti with Evercore ISI. Your line is open. Michael Binetti: Hey, guys. Thanks for all the detail today. Congrats on a nice quarter. Nice to see all the progress. Elliott, if you look at the spring order book and then that said it's positive, can you help us think about that within the context of the holiday book that you said was positive last quarter, maybe just qualitatively, even what's incremental on the build and composition of spring so you can track the progress out of season? And then last quarter, Matt, you said there's a commitment to returning to double-digit margins over time. Obviously, I'm sure you're looking at historical levels as a goal. It was a helpful backstop. How are you thinking about the medium-term margin levels you can target and maybe some of the phases of recovery and the inputs we should look at as you start that journey? Elliott Hill: Michael, thanks for the question. Here's what I'd start with. Let me start first with product. I think what we're doing a great job is we're getting back to leading with a sharp focus on sport. We're making certain we can leverage the entire portfolio, and you can see that whether, you know, how we're approaching performance and sportswear. NIKE running, I think, gives us our very best example of where we're having some success, and we did just announce that we grew over 20% in the quarter. So great success in running, and our teams are taking that offense. And how we're the learnings that we have in running, and we're applying it to other parts of our business, and we're running that playbook global football training, basketball, etcetera. We do have work still to do in sportswear. But I think the team is getting much sharper on the consumers that we're serving there. And so I'm really excited and encouraged by the work that we've done around the product. We've continued to work really hard from a brand marketing perspective. And then ultimately, clearly, we gotta pay it off like you're asking in the marketplace. And I think the team's doing a really nice job of elevating and then growing the entire marketplace. And so, you know, our goal is to serve consumers wherever and however they choose to shop across, you know, multiple channels, specialty sporting goods, athletic specialty, department store, family footwear, and NIKE Direct. And I think, again, the teams are seeing the power of running the complete offense across the entire marketplace. And North America, again, is our best example. Where we're seeing growth there. Overall, I know, our partners are gaining trust in us, and it shows our spring order book is up year over year. So excited with the progress that we're making from a product perspective, a marketing, and positioning perspective. And then how we're paying it off in a more thoughtful and integrated marketplace. Matt Friend: Michael. I would just add that the other dimension we provided last quarter is that, you know, North America, EMEA, and APLA order book is offsetting the headwinds that we have in Greater China. And we continue to see that trend carry through into the spring order book as well. As it relates to our margins, you know, the way I think about it is that fiscal year '26 our margins and the pressure on our margins are really reflective of three dynamics. We've got short-term product and channel mix headwinds, we've got the transitory impact from our win-now actions, and we've got the newly implemented tariffs. And the impact that that's having on our business in fiscal year '26. Given the progress that we're making, the steady progress on exiting the first half with a healthy marketplace, we do expect the benefit from less inventory clearance to start to take shape in our margins in the second half of this year. But I would say that our outlook for margins for '26 overall have moderated. That's because of the new tariff rates and the impact that that has on our business this fiscal 2026 before all of the actions that we're taking are able to annualize as well as some of the headwinds that I referenced related to the timeline to return to profitable growth in Greater China and Converse. As I look longer term, I think that, you know, we continue to believe that double-digit margins are something that are achievable. And we look no further than our history, you know, different size of business, different mix of business, different shape of business, different geography mix, different product mix. And, you know, I think we're getting clear on what the path to getting back to double-digit margins looks like. And it starts with reigniting organic growth. It requires us to see significant improvement in the full-price mix of our business, which the win-now actions that we're putting into place are setting us on stronger footing to do. And then lastly, as we return to organic growth, we will drive operating leverage on our supply chain costs, on our retail overhead, and on our general operating overhead. And while the new tariffs are creating near-term pressure on our margins, we have outlined the actions that we're taking there to address it over time. And while it's going to take us a little bit of time, we're confident that the win-now strategy actions are the right things to move us in this direction. Operator: The next question comes from Piral Dattania with RBC. Your line is open. Piral Dattania: Okay. Thank you very much for taking my question. Apologies if there's any background noise. I was just wondering if you could give any update as to how September has progressed because we're seeing mixed indicators out there in the marketplace and potentially some evidence that there was a bit of pull forward in terms of consumer demand into the back-to-school period in August, which should have benefited your Q1? So just curious about how you're seeing the current marketplace in September trading, if possible? Thank you very much. Elliott Hill: Yeah. Thanks for the question. Yeah. Here's what I'd say. There's no question that the environment in which we're working in and operating in is dynamic. And my message to our team is to continue to control what we can control. I'm confident that our teams and product brand marketing and the marketplace are closely monitoring our consumers around the world. We're watching for signals. We're staying close with our partners and we're looking at it even reading, you know, of course, our own door and digital performance across geos and countries and cities and, you know, it is dynamic, and I just keep telling the team remain focused on inspiring through sport because when we do line up, innovative product and emotional storytelling across the integrated marketplace, consumers respond. I mean, there's some great examples this quarter. Even into September, you know, when we did launch around running Vomero and the Vomero Plus, we had good sell-throughs. The work we did around the US Open, and on the ground and emotional storytelling, we had good sell-through. John LeBron in China. You know, when we do that, the consumer shows up. So yes, it's a dynamic environment. We're keeping our team focused on the win-now actions and really, that's our fastest path back to growth. And to hit on the timing element, you mentioned pull forward. I guess what I'd say is that our performance in the first quarter didn't have anything to do with pull forwards. I referenced wholesale growth in North America. Wholesale was up 11%. And one of the factors in the quarter was the amount of the fall season that we shipped in Q1 versus what we shipped in Q1 of the prior year. And so that did create a timing benefit year on year. As we look ahead to Q2, we guided revenue down low single digits. And I'd say that there are probably two drivers to that that are most significant. One is because we started the win-now actions following the holiday season last year, NIKE Digital is facing a more significant headwind in Q2. And we significantly cut back on the amount of promotional activity that we were doing in the channel. As we're lapping that this year, there's going to be a bigger headwind in Q2 than we had in Q1. And then secondarily, we're only planning for one point of FX benefit in Q2, whereas we saw two points of FX benefit in Q1. So, hopefully, that helps provide a little bit of dimension on some of the seasonality. The last thing I would say related to the seasonality or the comparison is that the actions that we're taking on the dunk that Elliott and I both referenced are more significant in Q2. And so that's also creating a quarter-over-quarter comparison, if you will, as you compare Q1 to Q2. There was a lot of dunk business in Q2 of last year, and we're managing that franchise back as Elliott mentioned and feel great about our plans. Operator: The next question comes from Matthew Boss of JPMorgan. Your line is open. Matthew Boss: Thanks, and congrats on the progress. So, Elliott, maybe could you help elaborate on some of the early wins under your belt that you cited? Notably the return to growth in North America and the material acceleration in running. And with that, I guess, could you speak to the structural foundation that you've now built that you believe is the key to expanding the strategy to other parts of the portfolio? Elliott Hill: Yep. Matthew, let me start. You really have to think about it at a high level in two parts. First part is the win-now. Those are the actions that we put in place. The focus that we gave our team within the first sixty days. And then the second part is what we just activated in early September, which is what we're calling the sport offense. And I'm going to try to outline the two, but you gotta think about them both together. Let me start first with win-now. You know the priorities there, but we put five priorities out there. Putting the athlete at the center of everything we're due, it came down it's about innovative, coveted products. It's about telling emotional inspiring stories. It's about paying it off in an integrated marketplace. And then activating our ground game. And we're seeing signals that it's working. You know, first and foremost, it's where we focus running, which we talked about in the prepared remarks. Up 20%. Our wholesale partners, we have growth there. Spring order book is up, and then North America. So that's where we're seeing some great success. Feel good about the brand impact. Our team is doing. Around sport moments, brand launches, brand campaigns. Some of our key product launches, etcetera. So good success against the win-now actions. With that said, we still have work to do in some parts of our business that we've touched on. We've got plans in place against China, our NIKE Direct digital commerce business, and our sportswear business. So that's what the teams are working on from a win-now perspective. When you think about the sport offense, and this is rather than us being organized by men's, women's, kids, we flipped the entire organization in early September to be aligned on the product creation side and the brand marketing side by brand and by sport. By country and account. Wholesale and direct, digital, and physical. And the whole idea is that those small cross-functional teams gain the insights from the athletes or the consumers that they serve in each segment, and then that will help us drive a make us more competitive and have stronger consumer connectivity. And, again, there's no question in my mind that putting sport and the athlete back at the center of everything that we do puts us back on offense. And, you know, again, while we have some great things underway, through our priority sports and the efforts to elevate the marketplace, we still have a lot of work to do but what inspires me most is our teams. They're embracing the change, and we're ready for the challenge. Operator: The next question comes from Brooke Roach with Goldman Sachs. Your line is open. Brooke Roach: Good afternoon, and thank you for taking the question. Elliott, as you contemplate the traffic headwinds you're seeing today in NIKE Digital, how much of the pressure is attributable to the strategic reduction in promotion, versus other factors? And as you look ahead, are the most important milestones we should be watching for to return that business to profitable growth? Elliott Hill: Brooke, thanks for the question. I'm going to step up above just a little bit for a second. On the NIKE Direct digital business. And what I'm challenging, Matt and I and the entire leadership team are challenging our team to do is to elevate and grow the entire marketplace, not just NIKE Direct Digital Commerce. We need to be and serve consumers wherever and however they choose to shop for our brands. And it really starts with that what I just touched on, the innovative relentless flow of innovative products. Across all three brands and all sports. And in every channel of business in which we do business. Specialty, sporting goods, athletic specialty, department stores, family footwear, and NIKE Direct, because being sharp on the consumers we're serving in each location, digital or physical, wholesale and direct, that drives consumer right assortments in the right depth, and we are elevating the presentations by at point of sale and that drives profitable growth for NIKE and for our partners. And, again, we're seeing some really good successes of that in North America. EMEA is coming and APLA. So, again, I'm excited about the team and the way we are elevating the entire marketplace. And, again, in terms of NIKE Direct, Digital Commerce, Matt, do you want to hit on anything? Matt Friend: Sure. You know, I referenced and have been referencing for a couple quarters now that we expected the organic traffic to be down double digits. And that's primarily because of the actions that we've taken to reposition the business fiscal year '26. We, you know, we highlighted this quarter that we've made progress across all of our geographies. We've reduced promo days. We've improved the markdown rates. We've reduced the classic show business. We've reduced the launch share of business. And we pulled back on paid media as it was largely driving bottom of funnel traffic to our platforms. EMEA and North America started first, Brooke, and they're the furthest ahead. APLA is making progress, and Elliott and I both referenced that Greater China marketplace is structurally different. And so the dynamics there are different from a digital perspective. I think that, you know, the progress that we're making is real. And I think one of the ways that you can measure that progress is looking at the momentum we're actually building with our wholesale partners because we needed to reposition digital alongside our partners and stop competing with our partners in order to be able to start building momentum on wholesale. And we're starting to see the early indicators and the early signals of that success alongside a strong product pipeline. So, you know, it's going to take us more time we both highlighted. We don't expect direct to return to growth in this fiscal year. But we do believe that direct should be a healthy part of our business in the future and it should be a more profitable part of our business in the future as we reposition it. Operator: The next question comes from Lorraine Hutchinson of Bank of America. Your line is open. Lorraine Hutchinson: Thank you. Good afternoon. I wanted to see if you could focus on China for a minute. Can you talk about the strategies that you're using to turn the digital business? And then also the cost and timeline of the store refresh? Elliott Hill: Lorraine, thanks for the question. Let me start maybe a little bit bigger picture on China really quickly. We believe in the long-term opportunity in China, and I said it in my prepared remarks, it starts with us leading with sport. You know, we see that sport continues to grow. It's a tailwind in that country, and we think it'll unlock further growth. We were just there, Matt and I and the leadership team, and we left with an even stronger belief in the future of the market. And we're confident that the win-now actions that were put in place will help us return the market over time back to growth. But as Matt said, with this year, we've got some work to do. You've already touched on it. There are structural differences in the marketplace. And that's why, really, China's on a different timeline. But here's how we think about winning in that marketplace. When we lead with sport, and starting with innovative product, running, training, basketball, especially outdoor basketball, and football, and when we supplement that assortment with our GeoExpress lane, which is our local for local product, we are seeing good results there. When we tell better stories, not only utilizing our global assets, but our local athletes, that also is paying dividends. And we're elevating the overall marketplace. As you pointed out, the digital marketplace is promotional. Those big consumer moments, eleven eleven, etcetera, and we're working to find the right path forward for our digital business. The physical marketplace is a monobrand. We're testing and resetting new consumer concepts. But we've got to be stronger operationally in those physical doors with the right assortments and the right depth, stronger presentation, and service, and that's how we're going to get back to driving sell-through. And, again, as I touched on, when we do do it right, it does resonate. We had some really good successes in running this quarter and then some basketball successes around John LeBron. So overall, you know, we're definitely in a bit of a turnaround, but Matt and I have been involved in some of those turnarounds before. Our teams are focused, moving with urgency, taking the right actions to clean up the marketplace, elevating overall model brand and digital, and we've got quarter by quarter plans in place to elevate the overall integrated marketplace. Matt Friend: And then cost and timeline, Lorraine, I would just say that we've made some significant investments in the China marketplace over the last three quarters in order to clean up inventory and set the business up for a foundation of success. When I look at our inventory being down NIKE's inventory being down 11%, versus the prior year, I think we're seeing the fruit of that, and we feel good about where marketplace inventory levels are as well. The challenge is what Elliott highlighted, which is that while we can invest to keep the marketplace clean and healthy, it's an expensive operating model if sell-throughs don't improve to the level that we need to see on a season in and season out basis. And so all of the actions that Elliott referenced are really our focus on trying to improve sell-through to create brand distinction in that marketplace, which will result in or should result in greater profitability. But in the near term, we think it's going to take time. And so that's why we believe that China will continue to be a headwind on the top line and on margin for the balance of fiscal year 2026. Last quarter, we referenced a few pilots that we were working on, and that our teams are working on, and we had a chance to see them when we were in China a few weeks ago. We're actually encouraged by the progress that the teams are making on these initial store pilots. But there's a little bit more work that needs to be done because while they're outperforming the broader fleet, we'd like to see them do a little better before we start to scale with our partners. And we've got great relationships with our partners in that marketplace. And so we're confident that once we get these pilots performing the way that we want to, both we and our partners are prepared to invest to turn the business in the direction that we want to head. Operator: The next question comes from John Kernan with TD Cowen. Your line is open. John Kernan: Thank you. Good afternoon, and congrats on the momentum with the turnaround. Matt, inventory down 2% on the balance sheet I think would imply units down even further. How would you characterize inventory in the wholesale channel and the timing of when wholesale discounts I think have been a pretty sizable headwind on gross margin when will they begin to pay? Matt Friend: John, I'd say that we feel really good about where we landed on inventory this quarter. Units were down in North America, EMEA, and in Greater China. We did see an increase in units in APLA, and that's the area where we're going to focus. We're pleased with the progress that we've made and the actions that we put into place to exit Q2 and enter the second half in a healthy position. I think that we would expect or we do expect that we should start to see some gross margin benefit in the second half from lapping these aggressive actions. We are expecting to see improvement within the wholesale channel. I think our partners' inventory, we feel really good about. And what I keep saying is that the best indicator of that is the forward-looking order book. Because our partners and we have a plan together as we've been driving sell-through, as we've been investing to move through inventory and get ourselves to a healthy place. And that's ultimately so that we can create capacity in our partners open to buy for the newness and the innovation and the things that our teams are most excited about, particularly on the performance side of the business. But also some new things that we've got coming on the sportswear side, like the Haver Rover and some of the other products that we've started to see some momentum with there. So I think overall, we feel really good about the progress that we're making there. I'll remind you that, you know, there are some other headwinds to gross margin in the second half that are going to mute this, and I referenced those earlier on the call. As it relates specifically to the way that we're managing the marketplace, we continue to be pleased with the progress we're making on the plan that we set. Elliott Hill: Here, how about if I just close it out really quickly with just some comments? We are more confident than ever that our win-now actions are the right path forward. In the first quarter, we saw progress in the areas that we prioritized first: running, North America, and wholesale. We're in the early stages, and our comeback will take time. And our progress won't be linear, especially in the areas such as sportswear, NIKE Direct, Greater China, and Converse. We are going to accelerate the win-now actions by activating our sport offense that I spent some time speaking to. As a reminder, we are organizing ourselves into smaller cross-functional teams by brand and by sport, by country, and by channel, wholesale and direct, digital and physical. Our teams are energized. They're inspired. And they're ready to compete. We're getting back to leveraging NIKE, Inc.'s unmatched portfolio of brands, sports, and countries to drive deeper consumer connections and profitable sustainable growth. Thank you very much. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the conference call by MA's management team regarding its H1 2025 results. It will be structured in 2 parts. First, a presentation by emeis management team represented by Mr. Laurent Guillot, Group CEO; and Mr. Jean-Marc Boursier, Group CFO. [Operator Instructions] I will now hand over to the management team. Gentlemen, please go ahead. Laurent Guillot: Laurent Guillot speaking. Good morning to all of you, and I'm with Jean-Marc Boursier, our CFO. Thank you for attending this conference related to the presentation of our H1 earnings figures at the end of June '25. I hope it may sound clear to you along this presentation that we are particularly happy to deliver this set of figures, which provide not only the evidence of the turnaround underway in our operating performance. This is what we showed already at the end of July, but also mark a significant milestone since our disposal target have been once again largely exceeded. All of this news brought confidence embedding our financial structure improvement for the coming quarters and allowing us to provide midterm outlook for the years ahead. A few months ago, you may remember why we were publishing our full year earnings figures, we told you that the resumption of our sales growth and the rise in occupancy rate seen started to support our operating margins recovery from the beginning of the second half '24. We were particularly happy to show you the evidence that this operational recovery is well confirmed in the first half of '25. Occupancy rate have improved further everywhere and quite significantly, now nearing 88% on mature perimeter. With the price effect captured again this first half, the organic growth of our revenues posted a solid performance at 6.2%. This positive momentum on top line is mechanically feeding our operating margins, thanks to the good grip we had on operating expenses, leading to 29.5% growth in EBITDA at 79% on into like-for-like basis. For the first time for a while, at least a decade, our cash flow has turned positive. We are also happy to tell you that particularly active this past month with numerous operations, of which the announcement of the new real estate partnership [indiscernible] along with the creation of a new [indiscernible]. With relative cash from this operation of EUR 761 million our disposal target close to EUR 2.1 billion of disposals since mid-'22. As a remember, we communicated end of July EUR 1.15 or EUR 1.5 billion target before year-end is already achieved and then largely exceeded. This will mechanically improve materially our financial structure, lowering net debt significantly and improving our leverage ratio sharply. Jean-Marc will come back on these elements later. Last but not least, we not only confirm the outlook for '25, but we are able to confirm the supporting trends expected for '25. We are able today to confirm that this supportive trend expected for '25 will continue with a midterm outlook to 2028 on revenues and EBITDA on like-for-like basis we expect CAGR between '24 and [indiscernible] between 12% and 16% EBITDA. The positive momentum is set to continue ahead. So let's dig a little bit in the detail. We've already shown you the numbers in terms of occupancy rate improvement. Year-to-date, the upside capture is a bit stronger on nursing homes with occupancy rate in average a bit less than 200 basis points in 12 months. This positive momentum is not fading out, and we expect this to continue in Q3. This is obviously the result of multiple new processes we put in place, focus on quality and service policy who policy mention different patients and then [indiscernible] disease and special issue and the if you look at the performance we had in France, Jean-Marc will come back on that. This is significantly different compared to [indiscernible]. We are not only showing a continuing supporting momentum on revenue, but we are also posting a positive momentum on operating on operating performance , along with our recurring facts after reaching a trough in H1 '24 EBITDA has now entered its way toward normal with almost 80% growth in 1 year at constant perimeter. My point is to share with you today our confidence that this momentum will continue to feed our growth later this year and for the years ahead. We do expect positive contribution to our performance from the following elements. First, occupancy rate should be driven by favorable momentum, providing capacity -- providing the capacity to capture further positive price effect. Segmentation are reviewed regularly so to tell there are emeis offers to residents need and purchasing [indiscernible]. Operating expenses are increasingly monitored with a relative good ensuring a good allocation of workforce and cost. New processes and new tools should enhance our efficiency and better adapt our business to the reforms that we have seen the past years in different countries. We have also defined for each underperforming facility or underperforming unit dedicated action to restore performance in line with expectations. We share the best practices and [indiscernible] every day more efficient. It's fair to say that the set of figures is a good milestone on the road to an embedded recovery and we confirm our confidence for '25 and beyond. We did go up on added software EBITDA expected to go online collects between 15% and 18%. The trajectory for revenues and between 25% is how we expect going to do the momentum ahead of 25%. So we see increasing confidence for the future we have decided to go to get today midterm outlook for '25 and '28. The average annual growth of revenue on a like-for-like basis is now expected to be between 4% and 5% between '24 and '28. And the group average annual growth rate for EBITDA on a like-for-like basis is expected to be between 12% and 16% per year between '24 and '28. Before handing over to Jean-Marc, I would like also to share with you some of the major achievements we have secured so far in Q3. Since the end of July, we have secured EUR 1 billion in new disposal transaction. This is mainly due to the real estate partnership we announced last week with the creation of a new real estate company. The transaction will result in EUR 761 million in cash for the emeis group when it closes expected towards the end of the year. You may have understood that this innovative deal is expected to strongly enhance our financial structure, but it is also structured so to keep the likely benefit from the upside we can reasonably expect from the real estate cycle and from the recovery phase of our sector globally and [indiscernible] in particular. On top of this transaction we have secured a little bit more than EUR 200 million of other real estate deal since the end of Q3. At the same time, our team has been able to increase access to liquidity by more than EUR 200 million, notably through 2 factoring sectors, which is also enhancing our financial profile. These 2 transaction overall are major milestones that significantly strengthen the solidity of our financial structure, and this gave us even greater confidence in our operational performance, which is set to continue improving for the coming years. So now I hand over to Jean-Marc for a little bit more details on the numbers. Jean-Marc Boursier: Thank you, Laurent, and thank you all for attending this call this morning. We understand that the sound is not super good, so I will try to speak out loud and clear as possible. We are very pleased to present the publication today that we believe is particularly strong. 6 main points stand out in this publication. First, a very positive growth momentum in our revenue. Second, a significant improvement in operating margin. EBITDA is up, for instance, 72% and EBIT has improved by EUR 116 million in 1 year. Three, our net income is still negative, but the trend is improving significantly. Losses have been reduced by EUR 120 million in this semester, feeding our confidence for the coming quarters. Fourth, our free cash flow generation has improved sharply. The group, as said by Laurent is now free cash flow positive, an improvement by more than EUR 200 million in 1 year. Five, our net debt, excluding IFRS 16 and 5 is stable compared to the end of 2024, but is already down EUR 233 million when including IFRS 5. I remind you that this is a related to assets held for sale, so considering transaction for which negotiation are at very advanced stage. This decrease in net debt will continue even further by year-end when the closing of certain transactions such as the creation of our real estate company will occur. And sixth and final, the leverage ratio is also improving considerably even before considering the secured transaction that we -- let's start with hotels. I will be relatively quick on that slide since elements were already published for H1 at the end of July. Sales posted a substantial organic growth of 6.2%, driven by a combination of 3 factors, all of which having a positive impact. First, a price effect of plus 3.4%, in line with Q1; second, an occupancy rate effect of plus 1.8% and finally, for 0.9%, the effect of the ramp-up of recently opened facilities. This favorable growth trend can mostly be observed on nursing homes, plus 8.6%, while clinics have been more muted at only plus 1.8%. The group average occupancy rate rose by 1.7 points year-on-year to 87% versus 85.3% at the end of June 2024, continuing the gradual recovery in aggregate that began almost 18 months ago. This recovery was mainly driven by nursing homes, where the average occupancy rate rose by 1.9 points year-on-year to 86.5% versus 85.3% at the end of 2024 and even 82.1% at the end of 2023. As you can see on this graph in Central and Southern Europe, the levels achieved are now above or close to 92% pre-COVID levels, especially if we remove those computations, the ramp-up sites whose occupancy rates are obviously lower than those of mature sites for the time being. Note that excluding ramp-up facility, occupancy rate for the whole group would have been today at 88.2%. Although still below our ambition, we are happy to see this supportive momentum to be continuing. A few words about our 2 largest markets, Germany on one hand and French nursing homes. In France, it is interesting to note that the improvement in occupancy rate for nursing homes is gradually confirmed quarter after quarter since more marked each quarter versus the previous one. The gap in occupancy versus the previous year is growing every single quarter and is now 2 points while it was only 0.5 points above a year ago. This acceleration clearly illustrates, and you can see on the top right hand of the chart that the recovery in France is well underway since 2024 and is gaining momentum. This provides confidence for the coming quarters. In Germany, the recovery is following a steady and constant pace. Here again, the momentum doesn't seem to fade out, thus confidence in this market as well. In terms of operating margin, the improvement in performance is considerable. EBITDA, which we break down on this slide is up 18.4% and 19.5% on a like-for-like basis. So if we exclude the effect of the disposal of our activities in Czech Republic. By isolating pure operational performance, so excluding the effect of disposal, change in perimeter, change in real estate capital gains and exchange rates, for instance, we see that the performance is increasing by EUR 94 million on the first half of this year compared to last year. And this is a particularly strong trend, which is the result of solid organic growth on one hand and a limited increase in operating expenses, as you can see, only plus 3.1% like-for-like, whereas turnover is up 6.2%. As you can see on the next slide, if we look at the cost as a percentage of sales, you can see that staff costs have been reduced by 1 point, reflecting the measures that we progressively implemented during the past 12 months to optimize the allocation of our human resources. But at the same time, we also benefited from the initial effect of our cost rationalization measures in H1, which have led to a reduction in the intensity of all the costs as well. As a result, these measures are enabling us to maximize the conversion of revenue growth into operational profitability. Our EBITDA margin, although still below our target has increased consequently from 12.1% in H1 last year to 13.8% in H1 this year. And if we add on to that the steady performance of our rental expenses, we can rationalize the improvement in our EBITDA margin, which rose by more than 2 points to 5.4% EBITDA margin. Move the same here on the next slide, this chart illustrates that operating margin have started their way toward normalization. In million euro this note that the positive upside in sales plus EUR 136 million in H1 was largely transferred into EBITDAR by EUR 62 million and EBITDAR by EUR 66 million as an evidence that the operational leverage to the upside is strong and should continue to be strong again early. It's interesting to note that when looking at the EBITDAR by geography, the 2 main contributors to this growth in France and Northern Europe, given that Germany posted the most significant growth in Northern Europe. It should also be noted that the growth momentum in Central Europe is particularly masked by the sale of our activity in Czech Republic at the end of March. Indeed, EBITDAR in France grew by 36% and by 21% in Northern Europe. And there is still a significant room for further growth ahead since you can see on the right-hand side of the chart that EBITDAR margin in those markets are still largely lower than what we have as a reasonable target for the coming years. Although still below our ambition in terms of percentage of sales, the margin are everywhere moving in the right direction. If I continue our analysis of the P&L below EBITDA margin, the momentum remains very positive for us on almost every single line of the P&L. First, because external rental expenses excluding IFRS 16 have declined. This is due to acquisition finalized in 2024, notably in Italy and France, which brought real estate assets operated by the group into the group scope while previously owned by third parties. And as you can see, EBITDA excluding IFRS 16 rose by 72% and even 79% on a like-for-like basis. Second, when looking at EBIT, EBIT improved significantly as well and is now positive. It rose by EUR 16 million to EUR 102 million in H1 2025. And this is interesting to note that underlying depreciation and provision recorded a positive amount in the first half of the year. This is a sign that our provision for liability and charges have been historically prudently valued and that the risk environment is indeed improving for EBIT. Below EBIT, I would like to raise your attention on 2 things. First, financial expenses have continued to benefit from the effect of the latest capital increase carried out in February 2024 and financial expenses are down EUR 16 million versus H1 last year. Second [indiscernible] due to noncash adjustments such as certain residual depreciation on a few items possibly intended for sale. Let's move now on the cash flow statement. At the end of June compared to the first half of 2024, EBITDAR has increased by EUR 66 million to EUR 158 million. Net current operating cash flow has increased by EUR 74 million to EUR 62 million and free cash flow has improved by more than EUR 200 million to EUR 26 million. The lower you go on this slide, the strongest increase you will find. And this is, if I may, the result of the particular attention we pay to every single line of the cash flow statements. As a result, free cash flow is strongly increasing now into positive territories as a result of the combined effect of the group improved operational performance, the stability of maintenance CapEx and working capital, the successful execution of our divestment program and the gradual reduction in development CapEx, and I will come back to it in a few moments. The improvement of our cash flow generation is not a one-off. As you can see on this slide, this is part of a gradual trend that has been ongoing semester after semester since last year, and that should continue ahead. The graph on this page speaks for itself, illustrating the gradual result of our effort and the momentum that has characterized this first semester again. It is particularly interesting to note how capital intensity has been driven in recent years. First, it should be noted that maintenance CapEx and IT CapEx have remained quite stable overall. We share the conviction with Laurent that it is essential to maintain our assets in a condition that is consistent with the quality of care that we owe to our customers. At the same time, we have deeply reviewed the group's development strategy. Development CapEx have been reduced by nearly 80% in 2 years, reflecting our willingness to reduce project payback and therefore, increase development selectivity. I would also like to remind you that we have developed innovative and CapEx partnership, for instance, the forward sales scheme that allow us to maintain the operational benefits of certain projects while not having to bear those real estate CapEx on our balance sheet. A few words now about our disposal strategy. As Laurent told you earlier, we have been particularly active since the beginning of the third quarter, securing nearly EUR 1 billion in new disposals. The main contribution of this achievement is the creation of new real estate vehicle open to third-party investors for a total consideration of EUR 71 million. This day brings together assets with an operating value of EUR 1.2 billion at the end of 2024 for an average yield of around 6%. So the investment received from these investors represent approximately 62% of the total value. The 68 assets concerned located in France, Germany and Spain, as you can see on the map. Half of them are nursing homes and half are. The partnership, which is planned for at least 5 years, grants investors a minimum annual remuneration of 6%. In addition, depending on the value created by the [indiscernible], the value creation will be shared between them and the emeis Group. Our partners are targeting a total IRR of 12%, above which 90% of the value created will be retained by emeis. The governance of this [indiscernible] will allow the group to retain exclusive control of it, which means that it will be fully consolidated in our consolidated financial statements. This innovative preferred equity structure is particularly relevant for emeis, first, because it will strengthen our financial structure with an impact of approximately EUR 700 million reduction on the group net debt upon closing of the transaction. a significant decrease in our leverage ratio, which should fall to almost 13x pro forma versus 15x published today and I remind you, 1.5x at the end of December 2024. Second, because this structure is a strategic move for the group. This [indiscernible] is designed to provide real estate solution in the future. emeis will therefore be able to size the opportunity offered by the sharp increase in care needs over the next decade. And in the medium to long term, this [indiscernible] should attract new investors and should become the real estate operator that will meet real estate needs. And third, because this [indiscernible] is also an opportunistic move considering health care real estate cycle likely to -- the deal is structured to benefit from the expected upside for the coming years on real estate valuation and value creation. Because we strongly share the view that our midterm perspective are promising as our midterm guidance and the likelihood of seeing property valuation again is significant, we believe that the potential revaluation uplift on these assets is particular significant over the coming years. This deal structure will provide part of this upside contrary to more classical [indiscernible] operations. As a result, the wording of disposals completed or secured to date has reached EUR 2.1 billion since mid of 2022 as explained by Laurent. This is therefore largely above our initial target of EUR 1.5 billion with nearly EUR 1 billion in new transactions secured in Q3 and nearly EUR 1.6 billion in disposal that should be collected in the coming months, the majority of which by or around the end of the year. As a result of everything we said earlier today, the financial structure will continue to strengthen significantly in the coming months. While net debt, excluding IFRS 5 and IFRS 16 remain broadly stable between the end of December and the end of June. A reduction of nearly EUR 300 million resulting from the application of IFRS 5 provides an initial indication of the strengthening of our balance sheet. We cannot be much more precise than that, but this is linked to very well advanced negotiation ongoing today. In addition, the creation of the real estate partnership should reduce the pro forma net debt to around EUR 3.8 billion, representing a very significant reduction, and this is already underway expected around year-end. At the same time, the leverage ratio is improving very significantly also from 2x in H1 '24 to 19.5x at the end of December last year, then 15.5x at the end of June 2025, and this is mainly due to the operational recovery of our activity, resulting in a strong EBITDA growth. If we take into consideration the new real estate partnership, this ratio would be lower even further now approaching 13x. Thank you very much for your attention. And I hand over to Laurent to continue this presentation. Laurent Guillot: Well, thank you, Jean-Marc. I think I will try to speak a little bit louder apparent well the first discussion. What are the lessons from this presentation? First, the positive trend on top line continues with a strong organic growth, 6.2% overall and 8.7% on nursing home, supported by positive momentum on occupancy rate and positive pricing effect. So second is a strong momentum on operating margin, plus 19.5% for EBITDA and EUR 79 billion mostly driven in absolute terms by France and Northern Europe with strong performance, especially in our 2 biggest countries. As a consequence of this and along with other components, our free cash flow turned positive this semester for the very first time for a long time. Third, our EUR 1.5 billion disposal target before year-end '25 is now largely exceeded with EUR 2.1 billion now achieved or secured. This was reached partly thanks to a major real estate partnership recently signed, bringing EUR 761 million to the benefit of operation or also other transactions. Four, this will accelerate further the strengthening of our financial structure with a pro forma net debt of around EUR 3.8 billion versus EUR 4.7 billion 1 year ago and a leverage ratio nearing now 13x versus 23 last year in the same period. And fifth, the positive trend seen in H1 '25 is continuing. I reiterate our guidance for '25 expecting EBITDA to grow between 15% and 18% at constant perimeter and [indiscernible] to deliver midterm outlook. We are now expecting revenues to continue growing ahead between 4% and 5% again at constant perimeter from '24 to '28. And EBITDA dynamics is also set to go here on the same path as we go. We've got [indiscernible] with a CAGR between 12% and 16% at constant perimeter over the same period in between '24 and '28. So thank you for your attention. And now we'll be available to answer your questions you may have. Operator: [Operator Instructions] Laurent Guillot: First question, what is the plan in terms of distributing the proceeds from the '25 [indiscernible] disposal, EUR 1 million in Q3 that I was mentioning. Well, the purpose is really definitely to strengthen the financial position of the company. So it goes to reducing the debt and [indiscernible] no plan for proceeds and neither no plan to accelerate being CapEx stand or acquisition [indiscernible] of balance sheet. Another question. Can you elaborate on what is happening in Ireland [indiscernible] change management or would change your season procedure. People do not know we had the TV report a few months ago. Well, this was in, I would say, in frame of a political debate on the legitimacy of the private sector for the [indiscernible] sector. And also, we say very close to 20 years after a big event on the sector that happened in Ireland also and I would say what we did after this report is clearly we obviously both at the same time, the two facilities involved and the '26 [indiscernible] that we have in Ireland show that all our procedures, all our processes are well in place in this [indiscernible] over a period of time to stop the admissions in some activities and most of the cases because the process and the procedures have been very high [indiscernible] cooperation with a local authority, which is HIQA, we decided to reopen this [indiscernible]. So we are very confident and the team in place in Ireland is doing a great job that is improving [indiscernible] with small changes but at the same time, the job that we are doing in Ireland a good job. We never celebrate in our facilities any deviation from our standards. And when we find this, we obviously hire, then the people go there or the people that are involved. But I can assure you that we have always focused on of what we are doing in all the countries and Ireland is not different from the other countries. We strongly believe that this TV report was a not completely fair to the situation of our [indiscernible] in Ireland that's part of our business. But as always, we have [indiscernible] measures to improve discussion with the operators. What are the potential tax costs associated with the transfer of release of assets in connection with the creation of the real estate company. Jean-Marc, you've given the numbers in the presentation [indiscernible]. Jean-Marc Boursier: Yes. As you have heard me say, so we are receiving EUR 61 million from the investments, but the net debt is only around EUR 7 million and the difference is relating to three components. The first one is real estate duty and property taxes. The second component is income tax because assets are valued at a higher value than the book value. So we generated some income tax in some countries. And third related to [indiscernible] related to these conditions are around EUR 6 million. Laurent Guillot: [indiscernible] the back end loaded or rather linear, whether the underlying assumption on price of occupancy per year, what is the debt maturity level of reimbursement [indiscernible]. I take the first question, you take the [indiscernible]. We are still in a phase of the recovery is progressive. So you see that our guidance in terms of EBITDA improvement from '25 is 15% to 18%. And if you look at the guidance for the midterm, it's 12% to 16%. So it's more front-end loading because the recovery is faster at the beginning that had driven. And yet, while at the same time against that theory, we have towards 27%, 28%, we will have more pricing power because our facilities will be more, I'd say, occupancy where we've increased to reach almost normalized level. And this, at that time, we have more pricing power. So you see a little bit more coming from the cost at the beginning and a little bit more coming from the prices at the end with a positive impact throughout the period of occupancy rate improvement. And with regards to the second part of the question, what is the debt maturity and what are the amount of reimbursement for '25, '26 and '27. This hasn't changed and you will find all the details on Page 43 of this presentation. So we have recycled our debt maturity and reimbursement schedule as an appendix of this vision. Next question, where do you stand at debut financial covenant and what is the plan for 2027 [indiscernible]. We have one covenant, as you would already know, which is a minimum liquidity quarter after quarter of EUR 300 million, this hasn't changed. The net debt to EBITDA covenant that we had with some [indiscernible] have been renegotiated last year. So that was the existing at most. We are currently in negotiating with banks. The answer is yes for one single reason as you have noted in our press release for the real estate agent, there are two conditions precedent to the creation of this vehicle. The first one is an internal one. We need to obtain the approval by our unions, and we see [indiscernible] which we are doing in the proper way and second, we have to obtain also the approval by our creditors because some of these -- some of those assets have been pledged under the current credit agreements. So we need to obtain release of security that we are going to get some other assets in exchange, so we are currently negotiating the securities with our creditors to make sure that all of that can be finalized before [indiscernible] would be done in quick and efficient manner. I read the question with also a question for you so that we both can answer this one. Is there room for additional provisions also in H2 or in '26, could tell us a bit more nature of nonrecurring agents in the P&L of EUR 7 million to EUR 9 million, okay. So there are two questions in this question. The first one is related to provision tolerability and charges and net flows in our EBIT. As you have noticed, we have really some provision that was historical risk that we were facing in France, both as investment more precise than that, and we think that we will [indiscernible] could be potentially contemplate additional provision release [indiscernible] too early to say [indiscernible] we are well covered and why we are going to enjoy some provisions. With regards to nonrecurring expenses I told you this is a largely due to non-cash adjustments, little bit of costs related to the new transaction I was explaining with the vast majority is related to a noncash adjustment. [indiscernible] for some depreciation related to certain assets that we are intending to say that seem to too significant. Could you elaborate on Q3 outlook regarding the occupancy rate. [indiscernible] 3 weeks or 4 weeks from now, we have notification on our Q3 numbers, so we will we have more sales. But clearly, on the occupancy rate, the trend that we have seen till now is continuing with a real improvement and rate of increase compared to what we experienced in H1 is not very different. We continue to have a strong [indiscernible] in our main country, in Germany [indiscernible] so good trend and we continue to see a recovery in France in environment that involve an improvement [indiscernible] also in Q3 compared to investor. As you know, summer is always where we have a better win rate than the average of the year. So you should expect in Q3 compared to Q2, an improvement. What will be the level of maintenance CapEx in '25, '28 and development CapEx in the '26, '28. As you know -- a few things. Probably maintenance CapEx and IT CapEx that Jean-Marc showed you before, are at a low point, and we increase progressively this maintenance CapEx, modernize and continue to push for price increases of our services. It is pretty bold to be sure that we maintain a good level of maintenance and that we continue to enable service with more IT investment. So this kind of CapEx will increase a little bit more to a reasonable amount of money, and we'll continue to be looking to be a very, very control of our cost, so very slight and whether it's an increase on these networks and IT. On the other side, on development part, we have been very, very selective, most of the development now is happening through asset light projects where we have contracts with partners. And from that point of view, the vehicle, we just set up with our partners can be a way to do for further development with being at the same time free in this. So we continue to have some development CapEx. We continue to be very in control. You should not expect overall on the strong [indiscernible]. With your 4% to 5% revenue growth CapEx, how much [indiscernible] to improve occupancy rate pricing effect and also [indiscernible] if they are including in our target. You -- I mean, we do not communicate wholly on the shipment then but we can explain that maybe less and [indiscernible] then price effect, I gave some detail earlier, where you will have a little bit lower pricing effect at the beginning and an improvement in pricing effect on the significant path. And new openings, you have some remaining new openings obviously from the past and growth that are at the beginning of the period towards the end of the year, you have some impact bothering on new openings that have been done mostly asset free. Are you now done with these results; we will be open to [indiscernible] at a good price in order to continue to push ahead with [indiscernible]. This is exactly the point -- the question is mainly with what we are currently heading, I would say we have done with our project and with our commitment, so now, and as I was saying already in July also, we will be very opportunistic, should we have good prices, we would move on, at unattractive prices, we will keep with the asset now, very, very, very selective and very, very, very opportunistic should proposal come at a good price. How will the partnership be structured; has it been working rights or preferred shares [indiscernible]. Jean-Marc, do you want to take this one? Jean-Marc Boursier: And then maybe disclose [indiscernible] event. But just keep in mind that majority of working right with the retail [indiscernible] and this is the a reason why we will have the full control of this [indiscernible] consolidated in our books we might share the [indiscernible] we'll be doing something that we need [indiscernible] majority of the working rights with the capital values. Laurent Guillot: How should we model the growth in fiscal expenses [indiscernible] what would be the midterm categories. We don't probably provide guidance on this one, but clearly, given our cost structure, you look at them and you compare with our peers. The growth rate of [indiscernible] would be far below the CAGR of our top line is one of the reasons why we will have begun to move the EBITDA moving forward. This is particularly the case in France, where our staff ratio is still quite high and due to the -- I mean the decisions that we have taken at the beginning of the refoundation of the company to staff much better our facilities. Now we are entering a [indiscernible] we reduced this in ratio [indiscernible] especially in France than offshore. So we benefit from that also on the occupancy rate improvement. What consequences from the current political mess in France, security funding, pricing valuation, implementation of [indiscernible]. Well, I would not -- I don't know if this is a proper word, I would not use mess. We have huge [indiscernible] I have had 8 different Minister for [indiscernible], so you know it's not a particularly new situation that we are experiencing now. Generally, we would welcome any new initiatives and more resources to nursing home and health care system, especially from the private sector as we are more efficient, far more efficient in this sector, we'll wait to make savings, knowing the political environment in France, the forecast that we have given for the next few years is not improving any significant improvement of the regulatory environment for us in the next years. We are planning and we are working on self-help measures to deliver this performance, not on outside environment improvement. At the same time, we are working with our peers, private, public, NGOs to try to improve the regulation framework in France, but we don't count on it in the forecast given for the next quarters. Are you planning to pay the EUR 300 million physician payments [indiscernible]. Yes, onshore. No doubt about that. We planned [indiscernible] on the evolution of market share in the French sector. We will increase occupancy driven by the increase in market share [indiscernible] market share from. Yes, we are gaining market share. That is we start from a lower level compared others and at the same time, the company was in a turmoil in 2023. So from some respect, we are gaining back our share, and we are not playing out on prices on the overseas. We continue that this has been very significant decision from the beginning to decline prices, [indiscernible] for the long term, the best solution. So really, we are recovering our normal market share on occupancy rate. And we are not doing that on the extent of price [indiscernible] the answer is yes. As you have understood, there will be at least EUR 60 million about the [indiscernible]. Any further questions? Can you go back? Well, do you have any other points? Has that been very clear to you? Well, assume that there is no further point, so let me summarize very, very quickly. We continue to show a good business recovery, and we continue obviously to confirm our target for '25 but also, we've given new numbers of midterm outlook with a growth rate of 45% and EBITDA growth of 12% to 16%. At the same time, we have strongly improved our balance thanks to a significant transaction that will lead to a very significant deleveraging and again giving us a lot of trust and confidence for the future. So now we are all set to face the growth on this market because the needs in front of us both in terms of dependence and [indiscernible] surging very important in the next 5 years, and already we have a right balance sheet and we have the business recovery rate, so we are willing to tackle this growth period in front of us. Thanks, a lot. Thank you.
Antje Kelbert: Welcome to the Half Year Update call for HORNBACH Holding. My name is Antje Kelbert, Head of Investor Relations. Earlier today, at 7:00 a.m., we published our financial results for the first half of fiscal year 2025/'26, covering the period from 1st of March until the end of August 2025. I'm especially pleased to welcome our new Chief Financial Officer, Dr. Joanna Kowalska. With our deep industry expertise, and many years of experience in financial management, at KPMG and within the DIY retail sector at OBI Group. Joanna will be a great addition to the HORNBACH team. Since mid-August, she has taken over responsibility for the finance result and will be presenting today's results, guiding us through the presentation. We are also joined by CEO, Albrecht Hornbach, who has served as interim CFO during the transition period. Albrecht will be available for your questions during the Q&A session. Please note that this conference call, including the Q&A session will be recorded and made available along with the transcript on our company website. Kindly also take note of the disclaimer, which applies to the entire presentation and the Q&A session. [Operator Instructions] With that, I'm delighted to hand over to Joanna to walk us through the key developments and financial highlights of the first half year. Please go ahead. Joanna Kowalska: Good morning, everyone. Thank you, Antje for the kind introduction and a warm welcome. I'm truly delighted to be part of the HORNBACH team and to join you for today's half year update call. Since stepping into the role of the CFO about 6 weeks ago, I have been deeply engaged in learning about the many facets of our business. It's an exciting time, and I'm grateful for the support of my colleagues, especially Albrecht, who has been instrumental in helping me during the transition process. To HORNBACH, I bring over 17 years of experience within the European DIY retail sector alongside dedication to financial management and operational improvement. During my time at KPMG, I advised and audited many listed companies, and I'm truly delighted to contribute to HORNBACH's continued success as well as to long-term value creation for our shareholders. And I also look forward to getting to know all of you meeting with you over the coming months and continuing the open and constructive dialogue that HORNBACH is known for. And now let's dive into the key development and financial highlights. At a glance, we delivered further profitable organic growth in the first 6 months of our current fiscal year. Net sales grew by 4.4%, driven by a very satisfying spring season and solid summer period. In addition, we saw continued higher customer footfall. This growth was further supported by the store openings in Nuremberg and Duisburg, both in Germany around the start of the fiscal year. On a like-for-like basis, HORNBACH Baumarkt sales rose by 3.6%. Gross margin increased by 4.6%, in line with the sales growth. And the gross margin come in at -- sorry, 34.9%, matching the level from prior year's period. This development contributed to the adjusted EBIT growth of 2.5%. CapEx reflects the active execution of our expansion strategy with a focus on acquiring attractive properties and building a state-of-the-art DIY store network. Nevertheless, we achieved a good free cash flow. We are pleased with our performance in the first half of the current financial year. And despite ongoing macroeconomic burdens and soft consumer sentiment, particularly in Germany, we have achieved solid results, which are in line with our expectations. They also reinform our confidence in strength and resilience of our business model and underline our relevance to our customers. Therefore, we're confirming our full year guidance today. Before we dive deeper into financials for the first half of the fiscal year, let me start with a brief operational update. As you know, customer satisfaction is one of the most important KPIs to our business, a clear indicator of meeting our customer requirements and we truly believe that a great shopping experience and assortment, combined with a highly efficient operational setup is what drives our market relevance and long-term profitability. That's why we are especially proud of the results from the latest customer service. In Germany, the independent survey Kundenmonitor, ranked us #1 for overall customer satisfaction in the DIY sector. We also came out on the top in several other categories, including web shop, assortment relevance, selection, quality of the goods and private labels as well as service offered. In the Austrian addition of the Kundenmonitor, customer survey, we secured a leading position as well. We were ranked #1 overall in customer satisfaction, achieving strong results across multiple categories. And also in Netherlands, the survey Retail of the Year, named us The Best DIY Online Shop. That's an important recognition of our team's hard work and a clear sign that we are on the right track. We are also continuing to invest in infrastructure to support our organic growth and improve the shopping experience for our customers. Just recently, we opened 2 new stores, 1 in Bucharest, Colentina in Romania and another one in Eisenstadt in Austria. Both are modern big box DIY stores designed to give our customer everything we need for rare home improvement projects. These openings follow the launch of our new store in Duisburg, Germany, which opened in March, and there is more to come. Another store is set up to open in Timisoara in Romania, just tomorrow. All of these new locations demonstrate our commitment to expanding our store network and growing across all HORNBACH regions. With that in mind, let's take a closer look at the sales figures for the reporting period. As mentioned earlier, group net sales in the first half of the year were up by 4.4%, driven by a strong spring season and solid summer. Compared to the same period last year, we saw increased demand for our gardening products and construction materials. Customer frequency increased by 3.3%, reflecting a positive trend in store traffic. We also recorded a slight uptick in average ticket. After 2 years of stable performance, we are now back on a growth stat. And now let's shortly have a look at HORNBACH Baustoff Union, our subgroup has mainly serves professional customers in the construction industry. Looking at the sales development, we saw a slight sales decline of 0.8%. That said, we believe the construction sector in Germany may have reached its lowest point and could now be starting to recover. The latest official statistical figures show a modest upward trend in both order intake and building impairments. Looking at the geographic split on the right. Slightly more than half of the HORNBACH Baumarkt revenue, 52.7% comes from the 8 European countries outside of Germany representing an increase of approximately 1 percentage point compared to the previous year. Now let's turn our attention to like-for-like sales growth. Generally speaking, underlying demand across most European countries in the first half of the current fiscal year benefited from warm and mostly dry weather. That said, July was quite rainy in Central Europe, which had some impact on -- in Q2. For the group-as-a-whole, like-for-like sales growth reached 3.6% clearly above last year's period. Germany contributed 1.5%, which put us ahead of the German DIY sector that saw a slight overall decrease in sales of 0.7%. In other European countries, delivered a strong 5.6% growth rate. Here, the Netherlands really stood out with growth of over 10%. We successfully strengthened our position as a big box player in Netherlands. Customer particularly value our outstanding product availability in large quantities, which set us apart from competition. Thanks to store openings in recent years, our locations in Netherlands are younger in [indiscernible] and showing their [indiscernible] growth contribution. In Q2, all countries saw positive like-for-like sales development with the exemption of Germany, where performance were impacted by 2.8 fewer business days. Let me now present the most recent market share improvement. We continue to focus on growing our market share and strengthening our position across Europe. In all HORNBACH countries where market share data is available, we managed to expand our footprint in January and July 2025. In Germany, our largest and most competitive market, our share has now reached 15.5%, an increase of 0.6 percentage points compared to the prior year period. In the Netherlands, driven by a very positive footfall development, we gained 1.3 percentage points, bringing our total market share to 28.8%. In Czechia, we continued our positive momentum, increasing our market share to 38.5%. Austria and Switzerland also showed positive development. This truly reflects the dedication and outstanding performance of our teams on the ground who consistently go above and beyond to serve our customers. Let's now continue with a closer look to our E-commerce business. Customer engagement across our interconnected platforms remained strong, which confirms that these are now well established sales channels. E-commerce sales at HORNBACH Baumarkt grew by a strong 10.1% in the first half of the year. That pushed our E-commerce share of total sales up to 13.1%, both Direct Delivery and Click & Collect performed well, with growth rate of around 11% and 7%, respectively. And with that, I would like to take a closer look at costs and expenses in the P&L. Our gross profit increased by 4.6%, which is mostly in line with the growth in the net sales. Gross margin came in at 34.9%, matching the level of the same period last year. This reflects a good product mix and an innovative assortment. Now let's take a look at expenses. We are now seeing the full impact of wage increases across all countries, which led to a rise in absolute personnel costs. Personnel expenses totaled EUR 580 million, representing a 5.7% increase. This development is in line with expectations given the wage adjustments. While selling and store expenses increased in absolute terms, the expense ratio remained stable relative to total sales. And the same applies also to general administrative expenses ratio. Preopening costs rose by EUR 4 million, driven by new store openings. All of this contributes to a positive development of our adjusted EBIT, which I will present to you on the next slide. Overall, we improved our adjusted EBIT by 2.5% compared to the first half of last year, driven by successful spring season and solid summer performance. As a result, the adjusted EBIT margin remained broadly stable at 7.6%. Countries outside Germany contributed 62% to adjusted EBIT, making a 4 percentage point increase year-over-year. Once again, there were no significant nonoperating items or adjustments in the first half of the year. And now let's now move on to the cash flow statement. Our cash flow from operating activities increased significantly compared to previous year. The main driver was a lower cash outflow from changes in working capital. This was predominantly due to reduced use of our [indiscernible] program as well as stronger reduction of inventories than in the prior year period. Funds from operations remain at the same level as last year. Capital expenditure in the first half of the fiscal year totaled EUR 107 million, up from EUR 51 million in the same period last year. As planned, 56% of that was invested in land and real estate, mainly for the new store development. The remaining portion went toward store conversions, equipment and software. Free cash flow after net CapEx and dividend improved to EUR 129.6 million, reflecting the changes in working capital I just mentioned. Now let's take a look at our balance sheet. As of the end of August, HORNBACH once again delivered a robust balance sheet. The total balance sheet stood at EUR 4.6 billion, unchanged compared to February. Decreased inventories reflect the usual seasonal reduction after Spring. Our equity ratio increased slightly to 46.9%, maintaining a strong and healthy position. Our net debt-to-EBITDA ratio improved to 2.4x. All in all, that underlines the strength of our financial foundation and the resilience of our business model. We are confirming the guidance for the fiscal year '25/'26. We continue to expect net sales to be at or slightly above the level of prior year and adjusted EBIT to remain at the same level. However, given the strong earnings performance in Q1 and the solid development in Q2, we currently expect adjusted EBIT growth within the upper half of our guidance range. Before we open the floor to questions, I want to take a moment to highlight our continued focus on strategic priorities, cost management and sustainable growth. Through target investments and operational efficiency, we are building a solid foundation for the future. With our strong private labels, everyday low price strategy and clear commitment to sustainability, we aim to support our customers, maintain market leadership and deliver long-term value to our shareholders. In summary, we're well positioned to navigate the current macroeconomic and geopolitical challenges and to size medium- and long-term growth opportunities in the home improvement sector. That gives us strong confidence in HORNBACH's continued successful development. As I mentioned at the beginning, we are satisfied with our results for the first 6 months which are in line with our expectations. And with that, I will conclude my presentation and hand back to Antje for the Q&A session. Antje Kelbert: Thank you, Joanna for your views and remarks on our results. I now hand over to Bastian, our operator, to explain the technicalities of our Q&A session. Please go ahead. Operator: [Operator Instructions] So the first question comes from Thomas Maul from DZ Bank. Thomas Maul: Thomas Maul, at DZ Bank. I've got 2. The first one, you achieved a nice increase in gross margin. Maybe you can elaborate a bit more on the drivers, especially with regard to the innovative products you just mentioned. And what is actually the share of private labels in your assortment? And second question, can you please shed some light on current trading in September with regard to footfall, leverage basket sizes in Germany and abroad and yes, what are your expectations for gross margins in the months to come? Joanna Kowalska: Thomas. Thank you for your question. And happy to answer. I will take the first one on the margin. We improved our margin at, of course, in connection with the -- with our innovative product. During the year, we always change our assortment, nearly 20% of our assortment is changed during the year. And with the innovative assortment, we, of course, reach a better margin. And this is an effect of our, great [indiscernible] department. The second one -- the second question was how is -- how we expect the margin development in the half of the -- when I get you correctly? Thomas Maul: Yes. It's actually on footfall and basket size and also, yes, the development of gross margin. Joanna Kowalska: Okay. Okay. Thank you for the clarification. The footfall, we increased -- the footfall is increased in the first half of the year. We are gaining our market share in all countries. Therefore, of course, we hope that also there's a trend with -- remain also for the next half of the year. Of course, we are -- it's pretty clear that in Germany, the DIY sector faces near macro challenges, particularly in customer sentiment due to layouts in industry, many people are cautious about large projects. But nevertheless, nevertheless, customer traffic remained really strong, showing continued relevance of the DIY and Gardening. And we are pretty sure that our everyday low price strategy and strong private levels position us well, and we gained further market share -- we will again also cover market shares in the next half year. Your question was also about the private label share. So let me comment on this point. So this is about -- about 20%, yes. So in Germany, a little bit more -- sorry, I'd say it was 28% and in Germany, 28% and in average for the HORNBACH something about 2024. Operator: The next question comes from Jeremy Garnier from ODDO BHF. Jeremy Garnier: I have 2 questions. So yes, you begin to have strong market shares in all countries you're present in Europe. Do you plan to open new countries soon or to accelerate in some countries? And also M&A is still not an option for you? Joanna Kowalska: Jeremy, thank you for your question. Let me comment. Yes, we -- it's too early to go into the detail. But yes, we already announced the new country. So -- but I hope you can understand that we cannot comment in very detail at the moment. Jeremy Garnier: Okay. And regarding the working capital, it will improve during H1. Do you still have room to continue to improve the deliver of inventory and [indiscernible], what is your target? Joanna Kowalska: Of course, we always look for the working capital. And retail is about working capital management. And of course, we have a deeply look always at this issue. Of course, we have to consider the current situation also with the assortment changes therefore, sometimes you have a little bit more inventories, sometimes a little bit lower level. But nevertheless, of course, we have closed -- we look very, very focused on this issue. And we plan very good initiatives in respect of AI solutions with this matter. Of course, it will not be effective in this fiscal year. But nevertheless, our strategy is to use the AI solutions in the future to really focus on the working capital management and to really plan even better than in the past, the distributions, the logistic processes. We are on a good track in this matter. Operator: The next question comes from Ralf Marinoni from Quirin. Ralf Marinoni: First question is about your store in Romania. You mentioned that HORNBACH provides more than EUR 2 million for the expansion of public infrastructure to support development in the area and you have also created 120 new shops for the new market. So the question is, did you receive any government subsidies or tax benefits for this? And my second question is about the 4 new openings. Can you quantify the annual sales potential of 4 new markets when they are running at full steam? So I estimate it's clearly above EUR 100 million. Antje Kelbert: So I think the infrastructure you're mentioning -- sorry, it's Antje. The infrastructure around the normal stores. So we have streets and all those things that help us to connect also the store to our network to make it efficient and to help us around that. I think this is meant with the infrastructure thing. With respect to those subsidies, I'm not sure about that. We can take that afterwards, I think. Sorry on that. And expectations, for sure. But we do not disclose our business for each and every new store that will go on stream. However, we assume that this is a very good location because you know that the key thing to select location for us to have a good area, to have a good a little bit around -- surrounding there and so we expect that this will be a good addition there. Joanna Kowalska: And the second question was, what does a new store brings in terms of revenue, yes? Ralf Marinoni: Exactly, exactly. Joanna Kowalska: It's a -- it really depends on the location, on the square meters in -- on the country. We are happy to open each store, yes. But and it's always based on a detailed business case. So yes, the decision is made very, very cautious. And -- but I would don't like to disclose very detailed information on each contribution of the each market or store. I hope you understand. Ralf Marinoni: I understand. But maybe you can give us an indication with regard to profitability in your market in Romania. On the one hand, we have less purchasing power from the people there, which leads to less revenues compared to the stores like Germany also. But on the other hand, we have much smaller personnel cost. So maybe you can give us an indication for the EBIT margin and profitability in these stores in Romania. Antje Kelbert: Yes, you know that we do not disclose on a base of the different countries? So what you see is that the contribution from outside of Germany is very good. And as you can assume, we are also on track in Romania because it's a very interesting and attractive market. So this will also help to contribute that. Joanna Kowalska: I can only add. Of course, there are countries which contribute more and would contribute less. But nevertheless, all countries are on a very, very good track. We are really happy with the development and also in Romania. It's really, really good country and therefore, we have attractive location there, and we are happy to expand in this country. Operator: Next question comes from Miro Zuzak from JMS Invest. Miro Zuzak: I have a couple of questions. I'll take them one by one, if I may. The first one is regarding the situation in Germany. You mentioned during the presentation that you expect the German construction and renovation market to bottom out. Can you please substantiate this and elaborate on this? And what the indicators are that you're looking at? Antje Kelbert: Okay. So I think you're referring to construction market versus DIY market. I think this is an important thing. Joanna Kowalska: The building sector shows early signs of recovery, like a recent increase in building payments and orders, but we expect that activity will only start to increase next year. However, with HORNBACH Baumarkt, we are mostly active in the renovation and modernization business, which is -- which has different dynamics than the new construction. In this matter, we need to focus on such topics as renovation backlog, need for energy-efficient upgrade and demographic challenges. And this is what what we are looking very positively towards this issue because the need is there. We increased our market share. And therefore, even in Germany, we see really chances for us. Even... Miro Zuzak: But you don't feel like at this moment already a recovery, it's just an expectation that in the future next year or so, it will recover? Antje Kelbert: Yes. Albrecht Hornbach: Albrecht Hornbach speaking. It's more or less a sentiment, which leads to the meaning that beginning maybe with 2026, the construction market will rise again and that the [indiscernible] is reached now in the moment. But this concerns HORNBACH mainly, and it's not a matter for Baumarkt for the Do-it-yourself business. Do-it-yourself business, it's more contributed to renovation and what Joanna explained just before. And fortunately, we are rather independent from construction markets in 96% of our turnover. Miro Zuzak: Okay. Super, very clear. Another question regarding costs. If I look at the OpEx, just basically, the cost between gross profit and EBITDA, I see a jump of EUR 30 million in Q2 versus last year Q2. This was a much higher jump compared to the EUR 15 million in Q1. So the OpEx seems to have increased much more in Q2 compared to Q1. Is this going to continue in Q3 and Q4? Was there any like special effect or reason in there, which led to this higher increase compared to Q1? Joanna Kowalska: So the most important point is the increase in the personnel expenses, of course. As you know, last year, we had a lot of increases of the wages nearly in all countries, especially in Germany. And the effect, of course, we see now in the comparison of the half year. So the wages increased, of course. We -- just for your information, the total cost amounts to 5.7%. And we had an increase in full-time employees in connection with the new store openings. Therefore, we have 2 effects. The first one is the amount of the people and employees and another one is the increase of the wages itself. To your question, whether we expect more increases during the next months, I would answer the question like in this way. Of course, we do not expect such big increases as last year. Last year was something special, especially in Germany. We were talking about 7% increases in the wages. This is not planned for Germany now. Of course, there will be some increases to balance somehow the inflation rate, of course. But we expect lower increases than 3%. This is the most point which explains the difference. And there are 2 other points also which unfortunately contributed to our EBIT -- to our result. We had FX effect. As you know, we have derivatives, U.S. dollar derivatives and from the evaluation of the derivatives we have now. Last year, it was plus. And now we have lost from the derivatives. Therefore, we are talking about an effect of EUR 5 million, which is big, of course. And ... Miro Zuzak: Where are they booked -- sorry, by the way, are they in [indiscernible] or are they booked in the [indiscernible] are they in the financial results? Joanna Kowalska: They are booked in the financial result. Miro Zuzak: So that's below EBIT. Joanna Kowalska: Yes, yes. Yes. I thought your question was about the EBIT, EBITDA. Miro Zuzak: Well, I was asking about the OpEx, which would typically be above EBITDA. But anyway, No, that's fine, it's good to know, that would have been your next question. Joanna Kowalska: Okay. Okay. So the most effect is really the wages and the personnel costs. Miro Zuzak: Okay. I have 2 more questions -- I have one more question and one suggestion. So the first one is the U.S. dollar change, which was like significant, right? How much will it contribute to the gross profit margin in the next quarters to come? Or to put the question the other way around, how much of your [indiscernible] of your purchases are in U.S. dollars? Joanna Kowalska: It's a good question, and I'm really happy to answer this. We are lucky we are lucky in this respect that our -- we do not source a lot of products in U.S. dollar. Therefore, yes, it's even a lower amount than the 5% of our assortment. Therefore, we are not really impacted by the U.S. dollar in the margin. Nevertheless, of course, there are some. And our policy is always to hedge our direct U.S. dollar purchasing volume. 90% of our volumes are hedged. Therefore, for the future, I do not expect really changes in the margin. Jeremy Garnier: Okay. Maybe you can get some points of price decreases from your European suppliers, who buy in China or in the U.S. area, right, which is now 10% or 15% plus expense. One more -- just one suggestion, you have on Page 13 in your free cash flow definition. You don't include leasing, which makes a big difference. I think just -- it would be a more meaningful number from year list to include leasing because you show EUR 130 million free cash flow of the CapEx and dividends, I would include -- it's just my personal opinion. I would include leasing there, which brings the free cash flow to a more accurate EUR 70 million instead of EUR 130 million. That's probably more accurate. Joanna Kowalska: Okay. Yes, it's [indiscernible] you to hear your view on that. So thank you for this. Miro Zuzak: HORNBACH is always very solid and humble in terms of capital markets presentation, which I like. And therefore, I would show the lower number rather than a higher number in this case. Joanna Kowalska: Okay. Thank you for your [indiscernible]. Operator: So as there are no further questions at this time. I will hand back to Antje for any closing remarks on this conference call. Antje Kelbert: Yes. Thank you very much for your question. And I think we have at least I'll address. I would also like to thank you, Joanna, and Albrecht for your valuable contribution today. And in the coming weeks, you'll find us also at various capital market conferences. We are very much looking forward to engaging with you in personal conversation. So please come to us if there are any further questions arise. And the details of our plans for [ IR traveling ] is also available on our website. And as we now head into Autumn with its rich variety of colors and abundance, perhaps it will inspire you also to start a fresh DIY project around home and garden. Thank you again for your interest and time this morning, and we hope to see you soon and until then, take care. Thank you very much.
Operator: Good morning, and welcome to the Card Factory FY '26 Interim Results Presentation. Please welcome to the stage, CEO, Darcy Willson-Rymer. Darcy Willson-Rymer: Good morning, everybody, and welcome to our interim presentation for FY '26. Thank you for joining us today, especially those that are here in person with us at UBS, but also thank you for joining us online. So I'm Darcy Willson-Rymer. I'm the CEO of Card Factory. Joining me today is Matthias Seeger, who's our Chief Financial Officer. So following an overview of highlights from the first 6 months, Matthias will then provide a financial performance update for the first half of FY '26 and an outlook for the remainder of the year. I will then provide an update on the positive progress we continue to make delivering on our growth strategy. Matthias and I will be happy to answer your questions at the end. So the first half of this financial year has seen continued momentum across the key building blocks of growth. In particular, the acquisition of Funky Pigeon was a significant milestone for our business, and we're excited about the growth potential that this will unlock. We are now well positioned across our stores, online and U.K. and international wholesale partnerships program to deliver on our growth strategy as we develop Card Factory into a leading global celebrations destination. As we enter our busiest period of the year, there is confidence across the business that our value and quality offer will continue to resonate with customers looking to celebrate Halloween and the festive Christmas season. Many colleagues are listening today, and I'd like to personally thank each and every one of you for your unwavering commitment to the delivery and the energy, pace and dedication that you show day in and day out. Thank you. The first half of FY '26 saw resilient revenue performance with our core stores business continuing to perform positively. This was underpinned in half 1 by new store openings and a robust seasonal trading, which offset the impact of a softer summer high street footfall as a result of the warmer weather. In addition, the businesses we acquired in the U.S. and the Republic of Ireland last year are performing in line with expectations. As a result of this resilient performance, we are pleased to announce the interim dividend of 1.3p. As mentioned, a highlight of our growth strategy progress in the first half of FY '26 was the acquisition of Funky Pigeon, which supports our vision to create an online celebration destination for customers. With the acquisition complete, we can now work to accelerate our digital strategy, particularly in the card, attached-gifting market as Funky Pigeon provides us with increased operational capability, a quality technology platform and a large established customer base. Work is underway to unlock annual synergy benefits of more than GBP 5 million through the optimization of manufacturing and fulfillment, the integration of technology platforms and strategic project ranging, all of which are expected to be achieved through the remainder of this year and the next financial year ending January 2027. Looking ahead to the peak second half of the year, our expectations for the full year remain unchanged and building on the success of our half 1 seasonal performance, our peak trading plans are in place to deliver our expanded celebrations offer and strong value proposition, particularly across Halloween and the important Christmas season. As stated in previous announcements, PBT will follow a similar second half weighting profile as we've seen in FY '25, and this reflects the seasonality of sales, timing of investments and realization of inflation mitigation across through our Simplify and Scale program. So for more detail on this and our financial performance for the 6-month period, let me hand you over to Matthias. Matthias Seeger: Thank you, Darcy, and good morning. I'm going to take you through the results for the first 6 months and provide some additional perspective on the second half. We continue to write our own story. It's one of resilience, balanced growth, successful strategy delivery and of value creation for our shareholders. Our business has delivered a resilient financial performance despite a challenging economic environment. Total group revenue increased by 5.9%, which is at the top end of our guidance of mid-single-digit percentage growth. The underlying cash generation of the business was strong with free cash flow productivity within our target range of 70% to 80%. As discussed in our recent trading update, a decision to bring forward efficiency-focused investments, including an upgrade to our point-of-sale till systems contribute to adjusted PBT for the first half being down by GBP 1.3 million. The benefits of our Simplify and Scale program largely offset the impact of the significant increases in national living wage and national insurance contributions. The 2 acquisitions completed in the U.S. and in the Republic of Ireland in the second half of last year contributed positively in line with our expectations and the acquisition economics. Continuing our journey of delivering predictable, sustainable and growing returns to our shareholders, we are declaring an interim dividend of 1.3p per share. As I mentioned, total group revenue increased by 5.9% from GBP 233.8 million to GBP 247.6 million. Our core business, stores in the U.K. and in the Republic of Ireland, which account for 92% of sales delivered total store base growth of 2.9% with robust like-for-like sales growth of plus 1.5%. We added 30 net new stores to our estate in the last 12 months, accounting for 1.4% of the store base growth. Total greeting card sales remained strong, growing in the low single-digit percentages. Our partnership business more than doubled, underpinned by double-digit organic growth and incremental contributions of the 2 acquired businesses in the U.S. and in the Republic of Ireland. We're very pleased with the performance of these additions to the Card Factory Group. Online sales were negatively impacted by the closure of Getting Personal at the end of January this year as anticipated. At the prelims, we talked in detail about our unique retail business in the U.K. and the Republic of Ireland. To reiterate, at the heart of our business success is a business model built for resilience and long-term profitability. We help people celebrate life's occasions at affordable prices backed by a strong value proposition. We have been extending our product offering to achieve non-card categories to grow average basket value and drive like-for-like sales even when footfall is softer. We're reaching more customers in more locations by opening new stores in underserved areas. And our strategy is working. We had robust store base growth of plus 2.9% in the first 6 months with like-for-like growth and new stores contributing in roughly equal parts. In the first half, our share of gift and celebration essentials increased to 53.4% and the average basket value rose to GBP 4.95 this year from GBP 4.75 for half 1 last year, reflecting our evolving range. Our store network grew by 30 net new stores in half 1, including our milestone 1,100th store. As of the end of July, we had 1,103 stores with additional store openings leading to a total of 1,111 stores operating today. And we are well on track to deliver our target of 25 to 30 net new stores this fiscal year. Every new store extends our reach to more consumers and more locations and delivers high returns using our low capital model. Adjusted profit before tax is down versus last year, as we indicated in our August trading update. Excluding the net impact of the largely contained inflation and the accelerated investment in our point-of-sale upgrade, underlying performance showed strong progress driven by sales growth. We substantially mitigated the H1 inflationary headwinds of 4.4% on our total cost base through the benefits of our Simplify and Scale program. The recent acquisitions of Garven and Garlanna contributed positively as did the closure of Getting Personal. Half 1 PBT margin of 5.3% compares with last year's PBT margin of 6.2%. We expect PBT margin in half 2 to increase by more than 10 percentage points as it did last year. Half of this increase will be attributable to the half 2 operational leverage with the remainder delivered by a combination of the net benefits of Simplify and Scale and sales growth. I mentioned it before, we cannot control inflation, but we can control how we respond. Inflation will add again more than GBP 20 million to our cost base this year. This is a cost increase of 4.4% on total cost. Over the past years, we have proven we can mitigate inflation through our structured multiyear Simplify and Scale program. Simplify and Scale program focus on efficiencies, productivity and range development, including pricing by eliminating non-value-added and manual activities, reducing duplications, streamlining operations and optimizing ranges. All plans are in motion to fully offset the cost price inflation for FY '26. As with last year, most benefits will materialize in the second half. In half 1, we delivered total efficiencies of GBP 9 million from streamlining our end-to-end operations and optimizing our range, including pricing. This included in-sourcing, printing and distribution of store merchandising materials, optimization of warehousing and agency labor and achieving a 9% improvement -- efficiency improvement in our stores. Key plans for half 2 include automating support center back-office tasks and processes as well as further store labor efficiencies enabled by the new point-of-sale till system, including streamlining back of store activities and hybrid tils. Let me now provide some further perspective on half 2. The profile of revenue and profit between half 2 and half 1 this year is largely in line with last year. As a reminder, the phasing of the inflationary headwinds and investments has a disproportionate impact on the first half, while H2 benefits from the positive impact of the Simplify and Scale program, higher sales, operational leverage and stronger margin. We anticipate H2 sales at a similar rate as growth as in H1, including the additional -- excluding the additional sales from Funky Pigeon. The growth in the second half will be underpinned by total store sales growth and continuous contributions from previous acquisitions. Store sales growth reflects the net new store openings and the like-for-like growth supported by a strong product offering and trading plans. Turning to cash generation, use of cash and debt. Underlying free cash generation of GBP 37.9 million was strong over the past 12 months with a free cash flow conversion of 78% versus earnings. Capital expenditure of [ GBP 19.3 million ] was materially in line with our guidance of GBP 20 million to GBP 25 million. We invested in our new store openings, store refits and upgrading store layouts, PoS till system upgrades and enhancements to our online experience. Debt service remained broadly consistent with prior periods. We paid GBP 16.9 million in dividends, reflecting FY '25's interim and final dividend payment. Surplus cash after payment of dividends was reinvested in M&A and the acquisition of Garven and Garlanna as well as the onetime transaction cost of Funky Pigeon. Over 12-month period prior to the end of July this year, net debt increased by GBP 4.3 million due to the one-off items unrelated to business performance. Half 1 cash generation and use followed the typical seasonal profile as we build stock ahead of the main trading period, but performance improved substantially compared to last year due to improved working capital. For H1, capital expenditure of GBP 7.6 million was slightly up by GBP 1 million versus the prior year. Our leverage remains low at 1.0x at the end of July, well below our maximum leverage target of 1.5x and broadly in line with last year. At period end, the group had cash and headroom in its debt facilities of GBP 46 million with a GBP 75 million accordion option. After period end, we increased the group's RCF facility from GBP 125 million to GBP 160 million using GBP 35 million of the accordion option to part-fund the acquisition of Funky Pigeon and provide further headroom for the growth of our business. We are committed to creating value for our shareholders by delivering on our business growth strategy and plans. We deliver our plans and financial targets in a disciplined, balanced and sustainable way, returning cash to shareholders while investing to deliver the strategy and maintaining a strong balance sheet. We will grow sales in the mid-single-digit percentages and profit before tax in the mid- to high single-digit percentages. We are a highly cash-generative business with free cash conversion of 70% to 80%. Delivery of our target is underpinned by store like-for-like growth, new store openings, growth in online and partnerships in combination with mitigation, our cost price -- the cost price inflation through the Simplify and Scale program and a disciplined approach to investments. Our capital allocation policy has 4 guiding principles. We maintain a strong balance sheet within a clearly defined debt leverage range. We invest in a disciplined financially sound way to support our growth strategy. We provide regular progressive returns through interim and final dividends, and we fund dividends from free cash flow, managing surplus transparently and returning it to shareholders where appropriate. We are committed to providing attractive shareholder returns, as I mentioned, as the value of our business increases behind the disciplined execution of our robust strategy and plans and by returning cash to our shareholders. Predictable progressive dividends are a cornerstone of our capital allocation policy. Therefore, we are declaring an interim dividend of 1.3p per share. This is based on an expected progressive full year dividend, maintaining a cover ratio of approximately 3. Furthermore, we are announcing the intention to start a share purchase program. The objective is to mitigate dilution to shareholdings. The annual scope will be 3 million to 4 million shares. This will enhance EPS by about 1% every year. On the 14th of August, we completed the acquisition of Funky Pigeon. Darcy will provide you with a broader strategic perspective shortly. I will briefly summarize the key financials of the transaction and its impact on our guidance. The purchase price was GBP 24.1 million, implying an EBITDA multiple below 5 based on annual EBITDA of GBP 5 million. The acquisition was funded by extending our extended RCF debt facilities from GBP 125 million to GBP 160 million. Funky Pigeon adds GBP 32 million sales and GBP 5 million EBITDA to the group. Furthermore, we expect to generate more than GBP 5 million synergies through optimizing manufacturing, fulfillment, technology, operations and product ranges. These synergies will be delivered over the next 12 to 18 months and will fully materialize from February '27, i.e., in our fiscal year FY '28. For FY '26, we expect that 5.5 months of Funky Pigeon trading will increase sales by about 3% versus current guidance. Our guidance for FY '26 profit before tax remains unchanged as additional profit offset by additional financing and transition and integration costs. In this context, our leverage at the end of this fiscal year and January is expected to increase by 0.3x to about 1.0x, still well below our target of 1.5x. Our mid- to long-term guidance remains also unchanged with mid- to high single-digit PBT percentage growth every year. In summary, Card Factory sales performance was resilient against the backdrop of challenging market conditions and softer footfall. Our recent acquisitions are performing well and are accretive to the bottom line. We are well positioned to continue our growth in the second half. Our Simplify and Scale program has been instrumental in containing cost price inflation in half 1 with all plans in motion for half 2. We acknowledge that the second half is crucial. This weighing has been the new normal, and we have proven last year that we deliver our plans in half 2. We are excited about the high level of product newness and our strong commercial offering. And we are on track to deliver our plans for Simplify and Scale. Therefore, we remain confident to deliver on our full year expectations. And with that, I will hand back to Darcy for the strategy update. Thank you. Darcy Willson-Rymer: Thank you very much, Matthias. Let me now provide an update on the continued progress that we have made delivering on our opening our new future strategy in the first half of FY '26. Our strategy is transforming Card Factory into a leading global celebrations group with an extensive U.K. and Republic of Ireland store footprint and a growing international presence. We are building upon the continued growth and profitable performance of our store estate and our leadership position in the U.K. card market, where we continue to deliver year-on-year revenue growth. By continuing to successfully expand into the gift and celebration essentials categories, we are addressing a GBP 13.4 billion celebration occasions market. This will be further accelerated by the acquisition of Funky Pigeon as we deliver on our online vision of creating a digital destination offering an extended and complementary offer to our stores. Our partnership strategy is enabling us to build out our points of purchase in the U.K. and Ireland, reaching customers beyond our existing retail footprint. Internationally, we are looking to disrupt the English-speaking markets where we've identified an GBP 80 billion market opportunity, of which North America is the significant majority. Let me start by outlining how our growth strategy is enabling us to increase our share of the celebrations market in the U.K. and Ireland. To unlock this GBP 13.4 billion opportunity, we continue to evolve our range, which in the first half of this year saw 49% newness across all categories as we respond to changing consumer trends. Range innovation remains at the heart of our planning across all categories. This follows a test-and-learn approach, which most recently saw us launch a new in-house designed premium card range, which is allowing us to broaden our appeal to a more affluent demographic. By doing so, we are sustaining a higher average selling price while continuing to deliver superior value to our competitors. The success of the range development continues to drive category growth. A few highlights in the first half included 28% growth in our baby gift sales to GBP 1.3 million, a 23% growth in tableware to GBP 2.5 million and a 20% growth in stationery to GBP 3.2 million. To enable this growth in key celebration occasions category, our strategy closely aligns range development with store space optimization. So as an example, in half 1, this approach saw us condensed, but updated milestone age gift range introduced, which freed up additional space for new stationery ranges. So together, this contributed to a 20% like-for-like increase in stationery sales in half Y '26 and a 7% year-on-year uplift on our milestone age range despite the lower space allocation. Our growth strategy is enabling us to reach more customers in the U.K. and internationally, both in more store locations and online. In the U.K. and Ireland, we continue to expand our profitable store estate with 13 net new stores opened in the half year '26, surpassing the milestone of 1,100 stores. Our wholesale strategy continues to deliver success for our partners and ourselves, delivering double-digit revenue growth of 15.7% in half 1. The successful U.K. rollout of our full-service model to the entire U.K. and Republic of Ireland elder estate in FY '25 has seen the breadth of our offer expanded to cover seasonal card in the first half of the year across Mother's Day and Father's Day as well as gift bags as part of their special buy offers. We're also in the midst of our first international full-service model rollout to The Reject Shop in Australia, having successfully onboarded a third-party logistics provider in the region. This has also supported an initial entry into the New Zealand market via wholesale distributor arrangement. Whilst a modest regional expansion, this is in line with our target market growth strategy. On North America, we've made good progress in establishing the foundations for growing our business in this key territory, which is a card market 5x larger than the U.K. Our ongoing trial with a leading U.S. retailer has successfully demonstrated market demand, providing -- proving that our value-focused card offer resonates with the U.S. consumer and has enabled us to create a robust operational capability to service retailers in North America. We were delighted to announce the completion of the Funky Pigeon acquisition in August. This is a significant milestone for our business as it accelerates our digital strategy, which I've previously stated was not developing at the pace we desired. So let me provide you with the rationale behind the acquisition. While we are the leading card retailer in the U.K., we have headroom to grow our online market share. In particular, we have wanted to deliver a convenient and great value card with gift-attached offer online that leverages our existing market strength. At the same time, we want to take full advantage of our nationwide store estate where we have already made headway through our existing omnichannel capabilities. And as we continue to develop as a leading celebrations retailer, the opportunity is to extend our store-based party and celebration offer by providing both our in-store and online customers with the ability to seamlessly access an extended range through our omnichannel services. Whilst our direction of travel was clear, we were not making the progress at the pace we wanted. And the purchase of Funky Pigeon met the challenge by upweighting our technology capabilities and accelerating our card and gift-attached online offer alongside the benefit of a large established customer base. And as well as accelerating our digital strategy, the acquisition also creates a structurally profitable online business within Card Factory with a strong foundation for the strategic growth that we are seeking. As immediate near-term priorities, integration is well underway, and our focus is on 3 things. Firstly, we are reconfiguring the manufacturing and fulfillment approach to make best use of our manufacturing facility in Yorkshire, combined with the existing Funky Pigeon fulfillment facility in Guernsey. This will provide the flexibility we need to offer a seamless direct or in-store collection service for our customers at advantageous costs for us and our business. Secondly, we are undertaking at pace the strategic planning that will determine how we take full advantage of the Funky Pigeon platform. And finally, we're undertaking an extensive product review and planning so that we are offering the right range. These priorities will be achieved through the next 12 to 18 months. In addition, plans are in place to enhance data collection from our 24 million unique Card Factory store customers. This will allow us to increase our share of their celebration spend by leveraging data across the Funky Pigeon digital platform and our existing omnichannel offer. Looking ahead, I'd like to start by summarizing our plans for the important half 2 trading period. We enter our peak trading period extremely well prepared and best placed to meet customer needs due to our value and quality offer. Ahead of the key Christmas season, we have significantly expanded our great value Halloween range. This is now available in our stores with supporting online ranges and is fully aligned to consumer trends for this growing celebrations occasion. Our new Set to Celebrate program has rolled out ahead of peak trading period in all of our stores. This will drive high standards of operational execution and ensure a quality and consistent customer experience in our stores. We have a strong Christmas range built around our value proposition, which features over 80% newness on gift, 95% newness on celebration essentials and an expanded premium card range as part of our 30% newness on card. Operational preparations for the Christmas trading period are well advanced with a stock build on schedule and optimized replenishment processes in place. So in summary, we have delivered a resilient top line performance for the first half of FY '26 due to the positive performance of our stores, especially within the key spring seasons as well as the effective execution of our growth strategy and the positive contribution we are seeing from our acquired businesses in the U.S. and the Republic of Ireland. Initiatives identified through our continuous Simplify and Scale, productivity and efficiency program have mitigated almost half of the more than GBP 20 million FY '26 headwind cost inflation. This has included significant rises in national living wage and employer national insurance contributions as well as wider inflationary pressures. Robust plans are in place to mitigate the full impact through half 2. Despite the challenging consumer environment, our expectations for the full year are unchanged as we continue to deliver on our expanded celebrations offer and strong value propositions. PBT is expected to follow a similar profile to FY '25 with delivery weighted to the second half, reflecting seasonality of sales, timing of investments and the realization of inflation mitigation benefits through our Simplify and Scale program. Therefore, for the adjusted PBT in FY '26, we expect to deliver mid- to high single-digit percentage growth increase. By delivering on our growth drivers, we will continue to deliver sustainable, progressive returns to our shareholders. So thank you again for attending our results presentation. And Matthias and I will now be happy to take any questions that you may have. So thank you. There's a -- for the benefit of those who are online, there's a microphone in the side. So if you could use that, that would be great. We'll take questions in the room first and then go to a line. So Kate? Kate Calvert: Kate Calvert from Investec. I'll go for the traditional 3 questions. First question is just on your new store opening plans going into next year. Are you still planning for another net 25 to 30 stores? Do you want to [indiscernible] the question we just did or we'll just do them one -- Okay. Second question, you talked about leveraging your store data with Funky Pigeon data. Are you hinting at a loyalty card at some point given also the new EPOS system? And my third question is just on partnerships. Have you actually grown your business with your U.S. retailer year-on-year as you're going into the second half? And also, can you just update us on South Africa because I don't think you mentioned it at all as what's going on there? Darcy Willson-Rymer: Very good. Do you want to do stores then I'll do... Matthias Seeger: Yes. I mean we -- the answer -- simple answer is yes, yes. We are -- as we communicated, our plans are to open 25 to 30 net new store every year for the foreseeable future. We are on track to deliver this at this rate this year. Over the last 2 years prior to this year, we opened 58 new stores. So yes, we are on track, and we have line of sight of that. Darcy Willson-Rymer: And then in terms of your second question, in terms of the point about leveraging data, one of the things that we've got plans in place and we're working on is how do we collect the data from our 24 million unique customers that use us and therefore, collect the data in the way that we can then talk to them appropriately based on their needs. And the point of that is if the average U.K. person spends about GBP 258 a year on their celebrations of which we get about GBP 22. So it's about how do we get more of their celebration spend and how do we leverage both our stores and the online platform in order to do that. The specific mechanic of the data value exchange, we will test sort of various mechanics. On the specific point about loyalty card, a traditional loyalty card that sits in your wallet, probably not, given we're EDLP, but it's about how do we get the loyalty to get more of their celebration spend. In terms of partnerships, the year-on-year comparison actually have for that particular customer, we don't basically split it out. There isn't a like-for-like comparison because last year, all we did was put in sort of 40 to 50 Christmas cards across all stores in this year. We're trialing the -- in about 100 stores. What I can say is that the products that we're seeing -- so we are alongside another card supplier. We're seeing really good rates of sale. The particular customer we're dealing with is actually really happy with it. And so the range is resonating. And then sort of the next step is for us to convert that to the full service model, but that requires -- that just requires some technical work. So we're doing Aldi first, TRS second, and we'll do that 1 next. And then in South Africa. South Africa is a work in progress. We're seeing some good traction on getting some new business. So one of the large retailers that this business -- that the South Africa business never sold, we will be shipping to them sort of early next year, really good progress there. There's still quite a bit of work to do on the back office, which the team are on with. Go on. Hai Huynh: It's Hai from UBS. I have 3, if you don't mind. On the volumes perspective, so you've got 1.5% like-for-like. And you quoted 4.1% average basket value increase. Now I know that's partly range, partly pricing, but how do I read into the volumes behind that? Is that flat? Is that negative? And to meet your targets, how are you seeing that dynamic on pricing and volumes in the second half? Second question, could you walk me through the shape of the contribution from Funky Pigeon, if I'm interpreting this right? So you've got 5.5 months of revenue top line contributing this year. 5 -- and then the full contribution of PBT from that level in 2027, but the synergies will only start coming in, in FY '28, right? Or is there already some synergies expected towards the second half of FY '27? And lastly, CapEx going forward, there's a slight increase year-on-year, but that's partly due to the point of sale. Do you see it normalizing going forward given your leverage? Or what's your view on CapEx going forward? Matthias Seeger: Thank you for your questions. So first to address your questions on half 1, you stated correctly that our like-for-like was 1.5%, driven by ABV of 4.1%. About half of that was behind pricing. As we look forward into half 2, we expect one to see a normalization of footfall, though we expect it not to be at the same level as last year. But our multiyear experience -- historical experience is that during the festive seasons, footfall has been around the same level. Second, we do have a very strong program, both in product offering and trade program. Darcy has commented on that. Behind that, we do expect to see also a strong ABV progress, of which part of it will pricing. So looking at the round of all our commercial plans, including what we know historically from the season, we are very confident on our half 2 -- the execution of our half 2 plans. Let me take the CapEx question first. Our guidance has been and remains CapEx spending of GBP 20 million to GBP 25 million. Last fiscal year, we were at GBP 18.7 million below that over the last 12 months, straddling to fiscal year, it was GBP 19.3 million. That's well within the guidance, and we don't expect an update on the guidance with regards to that range of capital spending going forward. On Funky Pigeon, we've been completing the acquisition 6 weeks ago. We started the integration work. We are progressing on fine-tuning the plans to deliver our synergies. And what we are confident in that is that we will bring these synergies to the bottom line in their full scope starting February '27. What happens in between, we will need to further fine-tune to optimize the execution of the plans. Therefore, at this moment, I think it would be too early to comment on that. Adam Tomlinson: Adam Tomlinson from Berenberg. The first one is just on the cost savings for H1. So I think you've talked to about GBP 9 million cost savings achieved in H1. Just a little bit of color on that would be great just in terms of the breakdown. And within the EPOS system, I think it's Phase 2 now you're on for that. So just, again, a little bit of detail in terms of the benefits to come through from that will be very helpful, please. Second question is just on stores. With those new openings, just some color on where you're finding those sites, that split between maybe high street retail parks and the relative performance of those would be interesting. And then a question on gross margin. So that's coming down, I think, in H1 due to that mix impact. So just your expectations in terms of how we should think about that going forward? Matthias Seeger: I guess I get all the fun today. Cost savings, yes, indeed. As we discussed, we do have a multiyear structured savings program. And I think that's important to highlight that we are looking at -- in a systemic way about opportunities to -- that are unique to us across our end-to-end value chain and how we drive efficiencies for all our parts of the business. Out of the GBP 9 million, there was obviously a carryover -- small carryover effect from last year, savings that we initiated in the second half this year, complemented by new programs. We mentioned a few during my part. One was the in-sourcing of printing and supply of [ merching ] materials for our stores. The second one was the optimization of warehouse and agency labor. We also changed our -- by the way, our logistic partner, which resulted in savings. And we drove more efficiency into our store operation by reducing store hours by 9% year-on-year. All of what I just mentioned will carry on into half 2, obviously, and will be complemented by further savings. You mentioned our point-of-sale savings. We have completed the rollout of the PoS upgrade in early August through our acceleration. And that will give us tangible benefits in what I would call Phase 1 because it helps us to streamline our back of store activities and also the efficiency at the till itself. But equally important, it lays the foundation for better engagement with customers in the future, capturing customer data and offering additional services to customers in the future through the system. On store locations, I mean, we do have a proven approach of identifying -- a data-based approach of identifying underserved locations and as you know, we have a very thorough methodology of assessing the potential -- sales potential of a specific site as we operate so many sites in the U.K., and we have reference case and we assess each store opening on its own merit, including potential cannibalization to nearby stores and requiring a payback of less than 2 years based on a moderate low investment capital spending of GBP 80,000 to GBP 90,000 a year, which will give great returns to our shareholders because we operate a store much longer than 2 years, as a matter of fact, in excess of 10 years on average. With respect to the locations of store openings, we have been quite successful in opening stores in the Republic of Ireland to a disproportionate degree. But we are finding locations also in the U.K. across shopping centers, outlets, high street. I wouldn't single out any specific location that sticks out of that. With respect to the last question on gross margin, as we integrate new businesses, gross margin, product margins will slightly change versus our previous operations as costs show up in different lines of the P&L. Our partnership business obviously doesn't have to carry store costs. So you will see differences in product margin all the way trickling down to gross margin. What we are focusing on is making sure that they are earnings enhancing and therefore, increase our PBT. And for the recently acquired businesses of Garven and Garlanna, they are definitely increasing or enhancing our PBT margin. Unknown Analyst: Yes, 3 from me, please. If we come back to the product gross margin question first, actually. I mean, I think the year-on-year performance was down nearly 300 basis points. I was wondering if you could differentiate between what was mix, including partly through acquisitions and maybe talk a little bit about how your product margin performance has been on a like-for-like basis and whether or not there are any one-off factors in there, maybe including some x range clearance, any factors like that, which could be a factor to think about going forward? Second question, just in relation to working capital performance. It looks like you had a good earnings in the first half. How much of that is permanent? And how much of that is maybe some phasing benefits, which will just wash through over the year? And do you think that across the enlarged group with Funky Pigeon, do you think there's some opportunity to realize some efficiency across working capital, let's say, over a couple of years? Sorry, there was a third question just in relation to the savings as well, the efficiencies. Could you just quantify what, if any, year-on-year benefit you had within business rates? Matthias Seeger: All right. I'm going to continue to have all the fun. Right. You're right. When you look at the total company, product margin has been down year-on-year by about 200 basis points on the product margin level. The large part from that was on the mix effect that I referenced. But you also keenly noticed that we did have some sell-through programs, sellout programs and the range change that contributed part to that, that we would consider a one-off. We had a hard change on some of the range changes. We are moving to a soft change going forward. So I would consider that a one-off. And we also had a sellout program for some remnants, which I would also consider a one-off. And I think that neatly dovetails into how we look at working capital and one of the main components being inventory. Being -- having this end-to-end supply chain, we should have full visibility of all the inventory at all parts. And we do have major progress against that, but we still have further opportunity to really get to the full end-to-end, which means that we have more opportunities to optimize our inventory levels, and that's one of our focus points going forward to ensure that we have the right stock in the right place at the right time in the right amount. And therefore, yes, we see more opportunities and efficiencies in that area. And that includes in the future, of course, Funky Pigeon. So that includes stores, online as well as partnership. On the business rates, what we have seen is when we renewed our -- or putting it from a cost of occupancy, when we renewed our leases year-on-year, as you know, we have about 250 lease events, renewal events every year, we still see an opportunity to get to better lease terms. With respect to the business rates, they haven't changed, and we don't know yet, of course, going forward, what the detailed change in the business rates will be. Darcy Willson-Rymer: The only thing I'd add on the business rates before everybody gets too excited, of course, we have warehouses. We've got the factory as part of the vertically integrated model. So we'll see if the chance goes ahead with what is planned, we'll see some ups and downs in that before anybody gets carried away. Should we move to online? Operator: Yes. So we've had a large number of questions come through online, Darcy, Matthias. So we'll group some of these together into some common themes to try and get through as many as possible in the time we've got. So first up, are you still on track to deliver group total revenue of GBP 650 million and 14% PBT in FY '27 as outlined at the Capital Markets Day in 2023? And if not, can you please add some color as to why and what your revised expectations are? Darcy Willson-Rymer: Great. Thank you very much. So I think we spoke about this in quite some detail at the prelims. Effectively, given off the -- 2 things around the Capital Markets Day target and what we spoke about last time was, first of all, just given the very high inflationary environment that we landed ourselves in post COVID that wasn't in the plan. And also, of course, when we wrote the plan, we're in 2025 now. We know a lot more now than we knew back then. And effectively, at the prelims, what we did is we updated our guidance to basically say from that point onwards, you should expect mid-single-digit sales growth and mid- to high single-digit profit growth. And yes, so that's that. Operator: Okay. Thank you. And the next ones relate to questions that we've had around the online business. So firstly, what do you need to start competing more successfully in the online market? Is it technology, operations, marketing? And secondly, why was online not developing as desired? And what makes it tough to compete online? Darcy Willson-Rymer: Yes. I think the online story, I think, is reasonably well documented. But I think the challenges we face are -- you need to go back into the history, which is when sort of around about the IPO when Card Factory first went into online, they did it through the acquisition of Getting Personal, which was just a premium products business. That business model was based around paid search and the platform wasn't right for personalized card sort of, et cetera. So -- and then when they set up cardfactory.co.uk, it was set up as like a big store. So the majority of sales were coming through our store products, whereas in actual fact, that's not what we want online to be. So we have clarified the strategy around the 2 missions of direct recipient with attached gift and then the broader celebrations. Clearly, Funky Pigeon allows us to basically make a step change in that. And our view is it was better to buy rather than build. And now it is about the integration of that and the -- basically the execution of the strategy, and that is really about -- it's a combination of all 3, having the right technology, having the right product, having the right marketing. And of course, the big opportunity for Card Factory is leveraging the 24 million unique customers that we have that visit our stores because it's the same customer that shops in store that shops online, but yet we don't get a significant amount of their online spend. And it is about how we go about doing that. That's the mission and that's the challenge for us. Operator: Next up, can you please explain the FX derivative loss you've recorded during the period? Darcy Willson-Rymer: Great question. Matthias Seeger: Great question. Listen, we know how to develop celebration products. We know how to manufacture them. We know how to sell them. We are not professional FX traders, which is why our Board has approved a hedging policy, which ensures that FX doesn't impact our -- or the volatility in FX doesn't impact our business. As part of that, we are hedging over a 3-year time horizon. And we have essentially locked in this year and large part of next year. That helps us to ensure that we deliver on our PBT guidance. Now as part of that, we have derivative contracts, and we recognize them in line with the accounting guidelines at each ending day of a period. The dollar is at $1.35 and our derivative contracts are in the high $120s. Therefore, we have to recognize a loss that is a hypothetical loss and in that sense, will never materialize because -- well, the way to look at it, it's like forgone opportunity benefits, right? If the market stays at $1.35, then we would only benefit from a lower exchange rate. However, if the market changes and the dollar comes down to $1.30, actually that balance sheet loss will go away. So it's a bit of a complicated, unhelpful perspective to really understand business performance, which is why we are adjusting it or excluding it from our adjusted profit. Darcy Willson-Rymer: I think also just the most important point here is our ForEx policy about giving certainty to what we're doing and how the business has benefited from that over the last 5 years. Operator: There's a number of questions that have come in regarding acquisitions. So a couple to reel off here. Firstly, can you provide specific EBITDA margin and revenue growth projections for your 2 most notable recent acquisitions, Funky Pigeon and Garven over the next 2 to 3 years and outline the risks to their scalability in the U.S. and online markets? Secondly, will you be breaking out any sales from the recent U.S. acquisition? And can you share more information on its performance and integration and what the exact model is there? Beyond the U.K., do you have any plans to grow your online offering in other territories? And if so, which markets are you considering? And finally, are there any other acquisitions planned? Darcy Willson-Rymer: Very good. I think just to open up on the will we provide specific margins across particular customers in particular countries? The answer is no, we're not going to split that out. I think for reasonably obvious reasons in addition to the competitive sensitivity as well. But what I -- so -- but let's talk about some of them. So I think if we look at the Garven business. So we acquired that last year. That business is in the celebration essentials market. It's mostly roll, wrap and bags, but it does a little bit of gifting and a little bit of party, and they are selling to premium retailers, mostly own label. So they design, arrange for the manufacturing and then we sell at the factory gate to the U.S. retailers. So the U.S. retailers basically pick it up and pay for shipping and any tariffs due. So it's largely a design-led range in those categories. And that business is absolutely on track with the acquisition economics and our plans and it was slightly down because of tariffs, but up because of the opportunities that the team there found basically as a result of a bit of volatility in the market, and that business is performing well. And the sort of plans is to complete all of the learnings that we need to do on the card side, particularly when you make the changes we need to be able to migrate to a full service model. And then at some point, we'll back cards into the Garven business. And then our U.S. entity, it will be sort of -- we'll be ready to scale. I think in terms of what are the risks, the risks are, it's a large market with 2 incumbent players and compared to them, we're a small U.K. sort of business. And just the sheer way this is done in geography, that's where most of the risks lie. However, we remain confident, given how our product resonates in the market, how it compares in pricing plus the learnings that we've taken sort of out of Australia. So we remain confident of the opportunity in the U.S. In terms of online offer in other territories, not at this moment, I think we have to deliver on the integration of Funky Pigeon and we have to deliver on our growth plans for the U.K. market. And when we're satisfied that we've got the right momentum, we can then potentially think about something else. I think -- are any other acquisitions planned, I think we've always said the point of acquisitions was about things that will help us accelerate the strategy, that are accretive to shareholders, but our current focus now is on the integration and the delivery of the things that we have in order to accelerate the strategy. Did I -- yes. Operator: So penultimate question in relation to Funky Pigeon, 2 parts to this. Are you going to merge the tech platform and share developers across the Funky Pigeon and Card Factory online? And can you provide some more color around how you will drive value from Funky Pigeon and turn around the online offering? Darcy Willson-Rymer: I think in terms of -- we are definitely going to have one tech platform, and it will be the team are basically working through exactly how that's going to look and how that's going to be. But one of the synergies is around merging basically the tech platform. And then effectively, how do we drive value from it. It's the things that I've already mentioned. It's basically the strong online direct recipient offer that Funky Pigeon has, developing the extended party and celebrated range, leveraging both the existing Funky Pigeon customers that they have plus the marketing machine there and the 24 million unique Card Factory customers. So that's -- those are the plans. Operator: And final question, I appreciate we are at time. So apologies for any questions we've not had time to get to online. But the final ones related to buybacks. So when do you plan to start your share purchase program? And is there any plan to implement share buybacks as a way of returning capital to shareholders? Matthias Seeger: We announced a share purchase program. Again, the intention is to mitigate the dilution through the employee share issue program. We -- the order of magnitude is 3 million to 4 million shares every year. We intend this to be an annual program and it will start before the end of this year. Any further return of cash to shareholders will be discussed and agreed by the Board at the right time. But as we always have iterated, we are not in the business of holding back retaining cash. We will return -- either we will use surplus cash to invest to drive future growth of the business, delivering rate of returns beyond what a share purchase program, share buyback program could deliver and/or we look at other ways of returning cash to shareholders considering all options, including share buyback. Darcy Willson-Rymer: Brilliant. Thank you, everybody. Thanks for attending. Thanks for those that have joined us online and safe onward travels. Matthias Seeger: Thank you.
Greg Peterson: Good morning to those of you joining us for our webcast and for those of you here at the Fendt production facility in Marktoberdorf, Germany. My name is Greg Peterson, I head up Investor Relations for AGCO. It's my pleasure to welcome you to AGCO's sixth annual technology event. We're thrilled to have you with us as we showcase the innovations that are shaping the future of agriculture. These two days are all about transformation, how AGCO is leveraging technology to empower farmers, drive sustainability and unlock levels of productivity across the globe. Our focus will be on innovation, technology and our plans to grow the PTx business. We're hosting this event in Germany, the home of our high-tech Fendt brand for two reasons. The first is to showcase Fendt's or AGCO's high-margin growth initiative as we globalize the full line of our Fendt brand. And the second is to highlight the attractive demographics of the European market. With that, let me handle the safe harbor information. We will make forward-looking statements this morning, including statements about our strategic plans and initiatives as well as our financial impacts. We'll discuss demand, product development and capital expenditure plans and timing of those plans and expectations concerning the costs and benefits of those plans and timing of those benefits. We'll also cover future revenue, crop production, farm, income operating expenses, tax rates and other financial metrics. All of these are subject to risks that could cause actual results to differ materially from those suggested by the statements. Further information concerning these and other risks are included in AGCO's filings with the Securities and Exchange Commission. The SEC report that we filed, including AGCO's Form 10-K for the year ended December 31, 2024, and subsequent Form 10-Q filings include the risks that we are facing. AGCO disclaims any obligations to update any forward-looking statements, except as required by law, and we'll make a copy of this webcast available on our website. So this morning, we'll start out with an overview of our Fendt operations and the European demographics or the European market that make it very attractive. Christoph Gröblinghoff, who runs our European Fendt business will start off in that first section. Following Christoph, Eric Hansotia will give us a brief overview of AGCO's strategic initiatives. And then Andrew Sunderman, who's our General Manager of our PTx Trimble joint venture will have a deep dive on our PTx business. And then at the end of our presentation, we'll have about a 15-minute Q&A session. So with that, let's get started. [Presentation] Christoph Gröblinghoff: Good morning, and welcome at Fendt here to the AGCO TechDays. Good morning, Eric. So my name is, as Greg has said, Christoph Gröblinghoff, I'm Vice President and Managing Director of Fendt team. And I'm doing this with my three colleagues, what I just want to introduce. This is Ingrid Bußjäger-Martin, Dr. Josef Mayer, you have just seen him in the film; and Ekkehart Gläser. So we are running Fendt team. So thank you for being here also. What I now want to see here on the next three slides is to have an overview about what is AGCO in Europe markets, an overview about what Fendt is doing and maybe some cool experience what we are doing on Fendt customer experience. So let's move on to the first one. Europe is really a mature and innovative-driven market with strong demand for sustainable and precision technologies. The last 3 years, Europe was representing 28% of the EUR 170 billion revenue of global ag machine market, and this is really underscoring its strategic importance. Especially Western Europe leads in adoption of GPS-guided tractors, autonomous implements and IoT-enabled systems. Farm consolidation, especially here in Europe, is creating a growing need for precision tech and Fendt technology. Our market is less cyclical than all other markets. We have really a focus on sustainability, which will drive investment in precision technology and Fendt for smaller farm size and diverse activities of the farmers. And the farm, what Greg mentioned, you will see tomorrow is an example of that, where they not only produce farm crops, they also be active in renewable energy with the solar panel and biogas. And AGCO has really a strong foothold in the region. Last year, Europe was contributing 58% of our EUR 11.7 billion revenue and is making our largest and most resilient market. Let's have a deeper look inside. The competitiveness advantage in all regions are the following. AGCO is a market leader in a growing lead, and this is doing with Fendt, with Massey Ferguson and Valtra. And we have the strongest dealer network with 755 independent and strong viable business partners. And we have the widest coverage of OEMs in Europe through PTx. Why that competitiveness advantage will continue and grow in the future? This is clearly leading to the huge investment, what AGCO has really done in the last 5 to 10 years, the big investment in the CVT production here and the extended capacity in Marktoberdorf, the strong footprint of our parts depot in Ennery; Hohenmölsen, where we're producing a lot of cool products; Beauvais 4 now, the new Massey Ferguson Experience Center; and also our investment into Linnavuori, the heart of our eco engine is representing this. And as you can see down from the graph, Europe/Middle East has a narrowed range of year-over-year change in the tractor sales above 80 horsepowers, just only 28 percentage points. And now have a brief overview about what Fendt is. First, Fendt products are available in all markets really for professional farmers and contractors. And we are producing these machines and the factories are belonging to the Fendt brand in total in 11 sites. Let me begin from the West to the East and see first the 3 sites in U.S. It's Jackson, where we are producing the track tractors and the Rogator 900, a little below is Beloit, the Fendt Momentum, the plant for the U.S. American market will produce there in Hesston for our big square balers. Going down to the south to South America, it's Ibirubá, where we're producing the momentum for the South American market and Santa Rosa for our IDEAL. Then moving to the right, 6 factories in Europe. Beginning in the South, it's Italy, where we're producing our IDEAL combine and the straw walker; followed then by Asbach-Bäumenheim, close to this site here, we are producing caps and hoods; Feucht, the production site for tedders, rakes and mowers; Hohenmölsen, the assembly line for our Katana self-propelled forage harvester, the Rogator 600 and also be producing for components; Wolfenbüttel for the round baler; and last but not least, the heart of Fendt, it's Marktoberdorf, where AGCO is producing all this wonderful Fendt worldwide wheel tractors. On the next slide, we see what I mentioned before. Everything was founded in 1930. So you can remember what will happen 2013 and we are distributing all these wonderful products through 480 distributors worldwide and of them are 220 in Europe. We're doing this with more than 10,000 employees, 6,500 roughly are here in Europe and 4,800 here in Marktoberdorf in the Fendt home. And we have 11 product groups, and this is really representing and you can see Fendt is a real full liner. We have everything what farmers need now also be with the technology product of PTx. Let's then come to some examples of Fendt experience, what is really different for Fendt. And we will please begin with this topic. This year is Agritechnica. Every 2 years, the most biggest and really leading trade fair agriculture show is happening in Hannover. This year, we'll also be introducing 5 new product lines. It's beginning with the 300 series followed with a completely brand-new 500 series, which we also will, see an update on the 700 series, the completely new 800 series where really farmers are waiting on and an update on the 1000 series. And how we are doing this, I want to highlight here. For sure, we are doing this with press cons. We are inviting journalists on the field and having shown this. But what Fendt has done this year completely new was a Creator Day. So we have invited 24 creators or influencers coming also be into the field, close to Berlin. And also we're having the experience to drive and to test all the machines. And the coolest one was really after only 2 weeks, we had more than 19 million views or 1.4 million engagements. So it means comments, share links, et cetera. And we have streamed this on Instagram, TikTok, YouTube, whatever you want. And for us, influencers, I would say, not new, but we are playing that very successful, and they are the multipliers who directly spread out our new worldwide notes and that's really important for us to do this. And the coolest statement from the influencer was in the field, do you have enough streaming capacity? Yes, for sure, we put Starlink pole into the earth and all these influencers are testing everything and streaming out of the machine into the worldwide net. And another cool example I want to share here, maybe it's also been new for you, Fendt holiday weeks. What is this? In the summertime, we are closing, we have to close the factory here for 4 weeks, Ekkehart's factory for maintenance and refurbishment, everything that then for the other 48 weeks, the factory is running smooth. But we are taking the opportunity and open this big forum here for young families who have mostly have a farming background. And this year, it was completely record, more than 30,000 visitors was here, 23,000 have bought something in the merchandising shop. We have made a merchandising revenue of EUR 350,000 on caps and T-shirts and so on. We have given the younger generation you see down right, 8,300 pedal tractor driver licenses and a huge turnover wherever. And the point is why we are doing this, and this is really unique in our industry is kids are the next generation of farmers, and this is our customers. You cannot really imagine what it really means for us to do this. The last one I want to share here is we are now this year celebrating 30 years of anniversary of our transmission, our Vario transmission. And we are doing this also beyond Agritechnica this year. Everything has started exactly for 30 years on Agritechnica, 1994, 1995, sorry, where we then presented the tractor with a continuously variable transmission. It was a global sensation in the industry, and we have done this with the first 926 model, and this old model will also be stay this year on Agritechnica. Since this time, we have constantly developed the transmission. It's really still the best and best performing CVT gearbox in the industry. No one else has it. It is still our biggest advantage. And today or by the end of the year, we will produce more than 450,000 of the CVTs. And to mark this anniversary, we have restored 14 technical models, and these are really milestones that have enabled us to tell the story of Fendt. This has really happened this year in summertime. All these 14 models you see has worked well in the field and here, a small teaser of them. [Presentation] Eric Hansotia: Thank you, Christoph, and the whole Fendt leadership team. It's so clear why leaders drive Fendt. You just can start feeling the Fendt experience, and you'll be able to experience a lot more of that during the day as we tour the factory and get on some of the product. I'm going to hover up a little bit now and talk about the overall strategy of the company and some really big important milestones that we've crossed over the last few months. There's a diagram here that shows how all 5 things are coming together at the same time. The heart of it is our PTx business, our Precision Ag leadership business. Now when our leadership team came together, when we took over the leadership of the organization, we said, you know what? We want to set a vision for the company to be the trusted partner for industry-leading smart farming solutions. Essentially, that means we want to do a better job than anybody else for our farmers at having intelligent machines that can do difficult things for themselves. So that started with an acquisition of Precision Planting. We made 6 other acquisitions of small tech companies, doubled our engineering budget, but it really came home when we were able to acquire that ag assets of Trimble and bring that in and form the collection of all of that, which is now what we call PTx, precision technologies multiplied. Bringing those pieces together has created a $900 million starting platform, but that's not where we're headed. We're headed for a $2 billion outcome when we really start having the synergies and value come together from all of this. We're going to expand on that a lot today. But that's the first major pillar and the primary focus of the company. When we made this PTx acquisition about 1.5 years ago, it allowed us to make a second portfolio change. And that is to exit our lowest growth, lowest margin business, we call the Grain & Protein solutions. So we brought in a high-tech business, high margin, high growth, high value to customers and exited one that was a bit of a distraction for us. It wasn't so synergistic with our products, with our channel, those kinds of things. So we said we're going to be totally focused on Precision Ag. The third portfolio shift was that we were able to resolve all of the challenges we've had with the TAFE organization. So we've changed the supplier relationship and got a much more flexible supplier relationship for our farmers, but also changed the shareholder relationship. And we now have the opportunity to do share buybacks. First time under my leadership that we're able to do that. Now we know the investors, that all of you represent have said that's something that's important to you. And so with this change, we've announced $1 billion share buyback to show you the strength we're placing behind this shift in our portfolio. So those are the three things that changed what is AGCO. But then inside of that, there's two other changes. One is something we call Project Reimagine. It's something we started about 2 years ago, and it was the notion of saying, some of these new modern tools, let's rewire how we do all the work inside the company. So we've automated a lot of our work, outsourced some of it and offshored other bits. When you put all that together, there's been 700 projects. Every one of those projects not only makes us more efficient at a lower cost but makes the outcome better. Something gets better for our dealers, better for our farmers or better for our employees. They have new features, longer coverage, something like that. When you add all those up, it's essentially a $200 million reduction in our cost base off of about a $1 billion start. So fundamental rewiring of the company. And that's been really important under these uncertain times with tariffs and everything else. And finally, the other big strategic element that come in together is FarmerCore. FarmerCore is a whole redesign of the distribution strategy. So for 100 years, we've had the farmer come to the business, come to a brick-and-mortar business. All of our competitors have done the same. We said, well, wait a minute. That's not how the farmer wants to interact. We want -- the farmer wants the business to come to them. And so that's what we did. We invested in digital tools, working with our dealers so that they can invest in service trucks instead of brick-and-mortar and have all the work done on the farm. We service not only our products, but all of the products on the farm, servicing the farmer, not the product. So those are the five big strategic shifts that we have been working on a number of years, and they're all coming together now to form the company that we we've wanted. Today I talked about our vision. Today, we're going to have that come to life -- today and tomorrow, we're going to have that come to life for you. We're going to have you understand we aim to be the most farmer-focused company in the industry. And so in order to do that, we often talk to farmers about what their pain points are. And that's what we're going to start off with you folks. We want you to be able to understand the pain points in farming because since we don't do this every day, we want to make sure that, that's our foundation. Those are challenging things that the farmer has to do that are either complicated or very difficult to do manually that a machine can do better. Then we want to show you how by putting a technology solution to that issue, not only are we helping the farmer and solving it, making them more productive. But we're helping AGCO because the value we generate for the farm turns into value generated for the company, higher margin, more sales, more stickiness. So we'll show you impact, pain points, solution benefit to the farmer and benefit to AGCO. We feel like we've really now, with the PTx investments that we've made, we are of a mindset that is unlike anything else in the marketplace. On the one hand, we are dedicated -- now we have dedicated teams to solutions all the way around the cropping cycle broader than anybody else in the industry. We start preplanting with water solutions, soil -- automated soil sampling and data analytics. We're the leader in planting. We know planting better than anybody else in the planet. Then it goes into fertilizing and crop care during -- managing the crop during its growing cycle and then harvesting. And at the center of this is our new FarmENGAGE data platform that takes data from the machine and from the farm all the way around that cropping cycle to help the farmer analyze and optimize their farm. The big thing that's different about FarmENGAGE is it does this for all brands. So it ingests data from any brand of equipment, helps the farmer analyze that and then deploys data to any brand of equipment. We're unique in that regard. And the bringing on of the Trimble group, what makes us the largest, most powerful, most successful mixed fleet precision ag business and team in the planet. So there's a couple of elements that we've kind of put together to make sure that we're differentiating our approach on solving farmer problems. The first one is we're designing for autonomy first. So this set of teams that's been working all around the cropping cycle, for those of you who have been around AGCO for a while, you've heard me talk about the fact that we're automating one feature after another. We've listed all of these pain points. We've got over 300 of them that were trying to automate for the farmer. Put that in autopilot mode and let the machine handle it itself. Well, as you automate a number of features, you can group them together and automate a full task. And once that's available, you can let the machine handle that task on its own without an operator involved. So we're working on that mindset of automating features on the path to autonomy so that we're thinking autonomy first. At the center is this mixed fleet data platform because these machines are generating data. We want to be able to have a great platform for the operator to interface with and the farmer to interface with. And then the other unique thing is our retrofit channel. Again, this is something that only AGCO is investing in. We have our machinery channel for these fantastic Fendt and Valtra and Massey Ferguson machines. But separate from that and unique to us is an entirely separate set of dealers that all they focus on is the retrofit solution for the mixed fleet for any -- putting new technology on any brand of equipment that's out there. So they don't sell combines or planters or tractors. They only sell technology. They are a group of individuals that understand agronomy, farmers' pain points and how technology can solve those things. It's a different makeup of background. It's a different makeup of channel to solve a different type of farmer problem. We're the only ones in the market that have that. And so those are our differentiating secret sauce elements. We've been talking a lot about our growth drivers. AGCO is clearly focused on growing our business, adding more value in the marketplace. We've been talking about three primary areas. Now Christoph got you fired up about the Fendt experience. That's where we're starting here today. Fendt has historically been a European tractor business, if we think way back. So the group of us said, let's change that. And let's make it not a European tractor business but a leader in the global full line of equipment. So two dimensions changed. On the first hand, innovation happened all the way around the cropping cycle to deliver a full set of solutions that Christoph talked about. And secondly, we've invested in the distribution channel, especially in North America and South America, to be able to have the best of the best experience, best of the best product and best of the best dealer experience wherever -- we want to make sure that the most demanding farmers, no matter where you are in the world, get the very best Fendt experience. We've grown significantly. So you see our track record over the past years, and we're on pace to achieve our target of $1.7 billion by 2029. The second one we're going to talk a lot about today is Precision Ag. I talked about our history. We've grown steadily. And we're well on track to delivering our $2.0 billion target by 2029. And the third one that we're going to talk about today is parts and service. Now parts, we're already the leader in what we call parts fill. When the customer comes to the counter and asks for a part, is it there? If the answer is yes, then we get a yes on parts fill. If the answer is no, it's no. We lead and it's not our data, it's Carlyle data. It's an independent third-party organization that measures us versus all our competitors. Year after year after year, we are absolutely the leader in parts fill. We want to continue to grow on that. That was our foundation. On top of that foundation is a shift from reactive, hey, something happened, now I need a part, to proactive. We're going to anticipate when the customer needs a part, either for maintenance or for repair. So the shift from reactive to proactive along with continued data analytics, having our analytics engines be able to anticipate what our dealers need to stock and what farmers will need to purchase, had us very confident in this growth up to $2.3 billion. So kind of keeping the messaging the same, the strategy is right down the middle of where we've been talking about year-over-year in terms of our growth drivers. So let's talk a little bit more about our Fendt business. We've been -- the innovation team at Fendt has been spinning very, very fast. I talked about the need to grow our portfolio from a fantastic best of the best tractor product line to the best of the best full product line, and they've been doing this over the last few years, so much so that a little over half of our innovations have been for the North and South America market 23 launches, 12 of them for North and South America. I want to talk a little bit then about the circles on the right side of the chart here. You can see the three regions from top to bottom and then how much the product covers that region on the left and how much the dealer covers the open territory on the right. So let's start at our bottom. This is our most mature market. We've got the full market covered with dealer coverage, 99%. And we cover 84% of the products that the farmers want. There's a few things like planters and tillage equipment that we don't provide. We think the market is well covered there. But we provide everything else. So that's the framework. Now as we move up, in South America, we've got 80% of the market covered in terms of territory but 96% of what the products needed by our farmers. And finally, in North America, 81% of the market covered in terms of geography and 79% of the products covered. So the point being here is we've gone from nearly 0 a few years ago in terms of product and market coverage to nearly full coverage of product end market. And in fact, the product portfolio we have is the product portfolio that we intend to have. We're very happy with the product coverage. We're going to continue to evolve in an iterative way now on market coverage. But our big focus is not so much filling in those last few points of open territory. It's about penetrating successfully the territory we already have. You can see visually here a picture of the significant amount of investment and delivery of products all the way around the cropping cycle over these past several years. It's been a constant flow. Christoph talked about the number of launches we're going to have at Agritechnica. That's just what happens from the Fendt team, every year lots of product coming out to satisfy new solutions. But you don't want to just hear this for me. I think it's much more powerful to hear from one of our customers. So I've got a couple of them that volunteered to talk to you today. [Presentation] Eric Hansotia: And the second customer. [Presentation] Eric Hansotia: So there you go. We had talked about 3 growth drivers. That covers our Fendt growth driver. We're going to cover 2 more now, precision agriculture and service parts. And with that, I'm going to invite Andrew up here to talk about our growth in PTX. No, I'm going to do service parts. Sorry. So service parts, let's talk about service parts. There's -- I talked about the importance of parts fill and the importance of moving from reactive to proactive. This is a little bit more of a financial look at the service parts business. The red line reflects our growth in service parts each year, and you see that every year, it's positive. Now sometimes a little bit less, some years a little bit more compared to the black line, which is machinery growth. And you can see that's much more volatile. That moves with the general ag market. And so what we like about the growth in our service parts business predominantly is we're serving farmers. But secondly, for our investors, it provides a smoothing element of less volatility, and it's about twice the margin of the rest of our business. So that's why we want to -- there's just everybody wins as we grow this part of our business. Historically, we've been at about 15%. Our target is to get to about 20% of sales. We're on track to do that this year. And you say, well, what's going to drive that? I've mentioned a couple of areas, having the right part at the right time, that's parts fill. We've been demonstrating that over the last several years, but we've been building on it with some of our AI tools. So these -- we look at an installed fleet of machines out in the marketplace, and we say, what should a dealer stock to make sure that they've got just the optimal set of parts to make sure that they can serve the customer? So using machine learning models to be able to do really good recommendations to our dealers, it's called dealer managed inventory. More and more of our dealers sign up for that. We've got almost all of them on that now. And what they tell us is their part stock actually goes down but their parts sales go up. They're not investing in the wrong parts. They're investing in the right parts and they're making sure that they've got what they need. We've also been significantly investing in just the infrastructure of our parts business. I visited our parts business here a few months ago, and we're building out huge -- just did groundbreaking on a huge new parts warehouse in France. That's going to be the hub to serve not only predominantly the European market, but also a hub that supports our other markets as well. Also a lot of other automation and infrastructure in terms of $12 million investment there. And we've been investing in reman in Europe and in South America. Reman is essentially taking a component that's been used taking it back to a facility, refurbishing it and then being able to sell it to a farmer at a reduced price. It's fully upgraded to capabilities, but it's at a lower price point. And as farmers are putting more and more hours on their machines, reman is a bigger and bigger solution for them, especially in the higher locations of South America. And then finally is just more on-farm capabilities. As we're remotely monitoring the machine, we want to be able to anticipate, hey, we see you coming up on a service interval for maintenance. Why don't we help you order all the parts? Or we see -- through proactive alerts, we can see when there's air codes coming off the machine and say, we think that there's a component that's going to fail. Why don't we replace it before the failure? Those kind of proactive solutions are what's really helping our dealers grow their business but our farmers stay in the field more consistently. And now I've covered two of the three, we're going to turn it over to Andrew to cover the third on Precision Ag. Andrew Sunderman: Very good. Well, good morning, and good to be with everybody. If you're like me, there's no more exciting place than to be here in Marktoberdorf Germany to see the heart of the Fendt brand. And so I'm excited for you to experience the products and see the factory later today. As Eric mentioned, my name is Andrew Sunderman. And over the last 18 months, I've had the privilege of sharing our PTx strategy with you and providing you updates as we progressed on this journey. And this morning, I hope to do the same thing. As I get going though, I think it's important that we take a step back and really understand why we have the strategy that we have. This is a unique strategy that we have at AGCO and for PTx. And so it's important to understand how these growth drivers allow us to really deliver on what we've committed to in these strong growth aspirations. But PTx is centered around the customer, and so I want to start right there with the farmer. If we look at the bottom of the right-hand of this slide, you'll see the three things that really make our retrofit first strategy a key enabler for our growers. We focus on raising farmer profitability by solving some of their most challenging problems and doing so in a way that provides a fast return on their investment. We focus on driving sustainability, doing more with the resources and inputs that they have, driving higher yields, providing that return that our customers know is needed for a more profitable operation. And we really focus on how our farmers can continue to build off of the products one after the other that we allow them to incrementalize their investments, building the strongest precision ag and equipment portfolio for their operation, again, improving the efficiency and profitability better than any company out there. But it's not just about what we deliver for our customers. It also presents new opportunities for us as AGCO and for our dealers. We're able to increase our addressable market through our retrofit first approach, solving needs for both new equipment as well as the existing pieces of machinery that farmers have in their operations today. We're enabled to enhance our speed to market, delivering these solutions in a faster way that allows us to grow and demonstrate the abilities of these technologies year after year, becoming more mature and more advanced in our reliability of our product offering. And it also allows us to accelerate our overall precision adoption as we can get these products into the hands of farmers faster and allow them to improve their operations in a more meaningful way. Now we've talked about a couple of times how PTx is really serving as the backbone of AGCO's technology offering. But this isn't just through our retrofit offering of our PTx Trimble and Precision Planning products. These also serve as the backbone of the technology offerings for our Fendt, Massey Ferguson and Valtra brands as well as over 100 OEM customers, some of which will be with us here on Thursday to experience many of the same technology products that you'll see in the field tomorrow. So speaking about distribution, let's talk about this channel transformation that we've been undergoing for the past 18 months. Our PTx distribution strategy is built around the industry's only dedicated precision ag dealer network. Think about that, a group of dedicated dealers that are experts in the field of precision agriculture connecting with the needs of farmers, connecting with the needs of farmers to the technology solutions available from PTx. This is a unique part that really will enable the growth of PTx. Now we do this through two strong types of dealers. First is our PTx Elite dealer network, our dedicated precision ag dealers that are unmatched when it comes to matching the needs of customers' problems with the technologies that we offer and supporting precision ag technologies to keep farmers up and running in their most desperate times. These elite dealers have grown significantly since the start of PTx, and we still have a long way to go this year as, in 2025, we'll double our coverage of our PTx Elite dealers this year. But our PTx Elite dealers are complemented by a broad number of base technology dealers. Now our base technology dealers are oftentimes equipment dealers that utilize technology to enhance their existing -- their customers' existing machines or improve the capabilities of the machines that they deliver to new customers. Our base technology dealers are oftentimes made up of Fendt, Massey Ferguson and Valtra dealers as well as other OEM dealers, specifically those that carry case and new hauling equipment. This year alone, we've added more than 250 Fendt, Massey Ferguson and Valtra dealers as PTx-based dealers, improving our coverage and the availability of PTx products to dealers around the world. But as we've talked about, our strategy isn't just about serving customers through our dealer network, but also for those customers that look to purchase PTx technology on a new piece of machinery. We are the proud provider of technology to more than 100 OEM customers around the world and throughout the crop cycle. These OEMs look to PTx as their source for precision ag technologies to bring new enhancements and new capabilities to machinery from guidance and steering systems on tractors to planting solutions, seeding solutions as well as harvesting solutions. These two key levers from our distribution strategy really allow us to grow our market expansion and globalize this product portfolio that we have come to develop over many years. So speaking of product development, we've had a very fast-paced year all around innovation. When we set out on this journey, we were bringing to market on average 2 to 3 new products to the market in any given year. We then said we think we could be faster. We think we can be better, and we think we can deliver more value to customers. And so we set our targets on 5 new products to market in 1 year. This year, I'm excited to announce that we will deliver 11 new products to market from our PTx Trimble and Precision Planning brands that all provide clear return on investment and clear profitability improvements for our customers. Some of the products that I'd like to highlight are rooted in our Radicle Agronomics platform, transforming the way of nutrient management, bringing better data and insights into a decades old process; our OutRun autonomy product that you'll be able to see in the field tomorrow, which is revolutionizing the agriculture industry by allowing tasks to be completed in a fully autonomous manner; as Eric talked about, FarmENGAGE, which is connecting the mixed fleets, allowing our farmers to plan, monitor and analyze all aspects of their farming operation through one digital platform that I'll talk about more later; and our Symphony product, a new line of -- a completely new line of liquid application tools for sprayers around the world. These four product categories completely transform the PTx business and provide new platforms for us to develop on top of not just today, but for many years into the future. But these products provide more than just a benefit to our farmers. They also provide us to enable -- or they also enable us to have new revenue streams for us as a business, things such as recurring revenue models that we have implemented with our correction services, our OutRun autonomy products, FarmENGAGE, Panorama and Radicle, allow us to serve farmers in new ways that allow us to fit their buying preferences today and well into the future. As I talked about, one of our key products that we've launched this year is our FarmENGAGE data platform. Now this is a product that we've talked to you about many times before and it's something that we have been executing on our strategy on since late in 2024. For those of you that were able to join us at this year's Farm Progress Show, this product was launched to the global markets at the North America Farm Progress Show and really delivered on the first phase of our strategy. This first phase was all about connecting our platforms and connecting machines through one dedicated precision ag tool. We're able to provide common login, common user interface and really provide a way of enabling farmers to get their data into the hands of their trusted advisers through our connectivity center product offering. As we look forward to this year, we'll be adding a completely new set of capabilities to our FarmENGAGE product portfolio as we consolidate features from across both the task data management, the agronomic data management and now the machine data management all into one consolidated platform that we call FarmENGAGE. As we look to the future in our Phase 3, we'll bring this all together under a new unified look and feel that makes sure that farmers have all of the data at the tips of their fingers to better utilize this in their planning, monitoring and analyzing of their farming operations. This is something that as we've launched this to farmers, farmers have certainly seen the benefit of our differentiated approach that focuses on connecting any brand of machine in the farming operation, not just the brand of machinery that they purchase from their dealer. So we've talked about our channel strategy. We've talked about our product offering, but I want to talk a little bit about the markets that we're serving. As we look at our precision ag uptake and adoption across these various markets, not only do our channel strategy and our product offering give us the confidence to deliver on our growth aspirations, but so does the markets that we serve. As you look across the graph on the side of the slide here, you'll see there's a varying range of adoption of precision ag products across the varying regions. Europe and North America represent fairly mature markets for core precision ag products such as guidance and steering systems. But we have great opportunities in terms of how we control implements for the better use of the inputs and the outcomes from a yield standpoint that we look to offer, in Europe specifically, around our better control of chemical application and seeds presents us a great opportunity with our Precision Planting product portfolio. North America is oftentimes the tip of the spear for PTx in introducing new product innovations as we look across our nutrient management portfolio and our autonomy offering with OutRun. But also connected with our Fendt product portfolio, we now have the pairing of the most innovative tractor brand in the world together with the world's most innovative technology brand in the world. As we move to South America, we really have a great frontier of growing our PTx business and our Fendt, Massey Ferguson and Valtra brands. Together, these technology offerings, paired with a strong machinery product offering, allow us to engage with farmers in new ways, building off of a more localized expertise with our local manufacturing paired with technology that is designed specifically for the needs of South American markets, focusing on soybeans, sugarcane and many other local crops. But what's really driving, especially for our North America and South America markets, is not just the product offering, but also the way in which we bring these technology solutions to market with our FarmerCore initiative that Eric talked about a little bit earlier. Our FarmerCore initiatives allows us to meet farmers at where they are in their farming operation, bringing our technology solutions and machinery solutions directly to their farm for more localized on-farm support. These growth drivers will really allow PTx and AGCO to deliver on the growth aspirations and improve these technology adoptions, especially in these markets that are underserved today. Now we've talked a lot about many of our products, and we've shown you OutRun many times before. But I want to just highlight one video here with our OutRun product and how we're bringing autonomous capabilities to really transform agriculture in a way that is not only more accurate, but allows farmers to better utilize the labor and the resource pool that they have accessible in their market. So let's watch a quick video. [Presentation] Andrew Sunderman: Great. Well, I'm excited about the future of agriculture with products such as OutRun. And I hope that you'll see tomorrow and in many of our other events just what autonomy can mean for the future of agriculture. With that, I'm going to go ahead and hand it back to Eric to talk about how AI is transforming AGCO and agriculture. Eric Hansotia: Very good. Great job, Andrew. So you can see with all of the things going on and the track record we've already developed in PTx, we're very confident in the future of our differentiated approach delivering fantastic results for farmers and our investors. But with AI being such an important tool, we also wanted to just touch real quickly on the fact of where we're applying AI. It shows up in our product, it shows up in our business, and it also shows up directly with our customers. So with our business, we have got this thing called AI farmer. It essentially ingests all of the data from either industry sources or whenever we go visit a farmer and puts that into a data library. Then you can use essentially a large language model targeted right at that data set for engineers and other people to query that data and ask the data set about what features farmers would prefer and how they want to interface with machines where they're going with their business. So it's a great way to collect a lot of complicated information and help our engineers get more targeted solutions. In terms of development, our software engineers are using AI copilots to help create software much more fast and allow them to spend more time on innovation, get the base software from AI and then develop the innovation part on top of that. In terms of our products, Andrew talked about a couple of them, the precision planting SymphonyVision. That's the camera system that looks down at the crop, looks at 75 images and processes them per minute and identifies the difference between a weed or the plant and then directs the command to the nozzle to spray only the weed, saving about 70% of the chemical. And then our grain quality camera in our combine, constant looking those images, helping the combine self-adjust to make sure it's doing a perfect job of a clean green sample with little damage. And then similar to some other industries, we're also using AI in our customer support. And you think about all these machines that Christoph showed over all this time horizon, and someone calls it and say, I've got this model of machine with this certain issue. And the customer support first thing to do is to look, find the manual and the diagnostic then the repair then the parts. Now AI can just serve that up to the support person and speed that issue up, but also start handling a lot of these issues automatically. So AI is essentially working its way through the entire company. We want to be a frontier firm in terms of the use of AI. I've already covered that. We talk a little bit about the technology stations on the farm. You're going to see real-time machines that are doing everything that we talked about here today, all the way around the cropping cycle. There's going to be 5 stations for you to really witness firsthand. There's going to be a plan and prep stage where you're going to see autonomous tillage and then also another side of autonomous fertilizer application, where there's nobody in the tractor, the tractor gets driven to the field and then it figures out its optimal path and does the job without anybody in it. Second station will be about the most automated planter on the planet, and that's precision planting. We just know planting better than anybody else. So you'll see all of the automated features in terms of depth and seed spacing and hybrid and fertilizer treatment. And all of the things that the planter can do all on its own to make sure it's doing a perfect job in every spot on the field. Third one is going to be about crop protection. This is one I talked about, vision systems that can identify the weed and save 70% of the chemical. And finally, is the harvesting solution where you'll see the autonomous grain cart in operation. And at the center of this is going to be a station fully dedicated to FarmENGAGE. We'll talk about FarmENGAGE just outside the room. You'll see that action in the field, being able to design a task, send it to the machine, have the machine operate according to that task and then send as applied back to the farm data management system. So we'll be able to see a lot of this. Each station we'll be able to see the impact to the farm, what challenging issues were solved and what the impact was to the farmer. You add these all up and it's essentially a 17% gain in productivity or profitability for the farmer. It builds, you'll see, every bit of our tech stack in action, autonomy, automation, logistics, connectivity, guidance and sensing, all in real life. So with that, we've presented kind of the coverage of our three growth platforms, a deep dive on each one of them. We'd like to open up for any questions that you may have of us. Greg Peterson: And since we're webcasting, please wait for the microphone to get to you so the folks listening can hear the question, over there. Unknown Analyst: So one of your slides, I'm sure you saw this coming, but one of your slides, you talked about recurring revenue and various types of subscriptions and so forth. So I'm curious if you've evolved your thinking about how big an opportunity that can be for AGCO, and maybe you can add where you're starting from now. Eric Hansotia: Yes. So inherently, farmers in general has historically not liked subscriptions because they want to buy a machine when they have profitability and not buy a machine when they don't. But they're willing to do subscriptions in things that are evolving over time, where they can see the item gets better each year through over-the-air software upgrade. So FarmENGAGE is like that. Our soil sampling data is like that. Our autonomy kits are like that. So as you saw several of these solutions coming to market that behave that way for the farmer, we think that a subscription model is probably going to be one that they're going to prefer. So that's growing in its importance. Those are all still kind of at the bottom of the S curve, but we think it's going to be a meaningful portion of our business, several points of our overall business, but we haven't set a target exactly yet in terms of what it will be. But we think it's growing. Unknown Analyst: In one of your slides, you highlight mixed fleet data connectivity and the ability to gather data from some of your competitors. I think it was the last point in terms of those developments. Can you just talk about potential resistance from that kind of connectivity and what you're doing to counter that resistance? Eric Hansotia: Yes. We've got full access to the data availability of our main competitor machines. We don't see any resistance showing up there yet, and there's a big thirst from our customers because most of our customers have a mixed set of equipment on the farm, either multiple brands or multiple ages of equipment. And so this allows us to connect their entire fleet of equipment. Some customers -- some data platforms will ingest more than one brand, but essentially none of them send data back out to more than one brand. So this is the only two-directional mixed fleet data platform in the market and our farmers are very, very excited about this. So we think it's a big differentiator for us and a big help for our farmers. Kristen? Kristen Owen: I wanted to ask a little bit about the FarmENGAGE platform and sort of your goal for that is. Is that just table stakes? We see that this exists in the market, and so we have to have a solution. Or is there something else in terms of engagement or sort of getting deeper into the brands that, that platform serves for you guys? Eric Hansotia: Well, at first, I would say it's becoming a larger and larger value statement in terms of the buying behavior of our customers. They've loved our machines, but they say, but how good is your data platform? Those two things have to go together. And the importance of the data platform has been going up and up and up as these machines generate more and more data and the farmers become larger and larger. So we knew we had to be a leader, to be -- if we're going to be a leader in precision ag and smart machines, we had to be a leader in data platform. Of course, we're going to make it a mixed fleet data platform because that's our strategy for all of our precision ag business. And so it puts grease in the gears of our existing business, but we're also confident that it's going to open up new doors. We're going to sell this as its own subscription model to those farmers that don't have any of our equipment yet today. So it will open up doors to other farmers that we haven't served yet. We think that the value we're going to generate with this mixed data platform will be an entry point for us to be able to engage with new farmers that then opens a door to other solutions. Unknown Analyst: The penetration slide you showed, technology penetration, how much of that is the result of farm size versus resistance? What's driving and also meaning availability of products to serve the unique needs of the farmers in those individual regions? Eric Hansotia: Yes. So the -- I think that was the one -- you're referring to the one that Andrew covered, different penetration by region. It's a little bit of a mix. The farm size certainly helps because as you buy a module that costs, $25,000, let's say, the larger the farm you have, the more acres you're able to -- you get a faster ROI. So farm size consolidation, and consolidation is happening in every region, so that helps. But then there's just also how hungry is the farmer for improvement. And especially those areas where there hasn't been a lot -- there's two drivers of that. Either regulation forces it or lack of subsidies requires it. So in those markets where there's not as much subsidies, the farmers are exposed to the raw market and they just have to get more productive to be able to stay viable. In some of the more highly regulated markets, the regulations are pushing farmers saying, you have to do farming with less inputs. And so they figure, well, okay, I got to use technology to be able to still get good outcomes with less input. So those are the two main drivers, regulation and necessity because of less subsidies. Unknown Analyst: Just following on from that question. In terms of the 17% increase in farm profitability as a result of these measures. How has that trended over the last 2 years, given the difference in financing costs and everything else? And how would that differ between the different regions given the different types of sizes and farms? Eric Hansotia: We alternate between North America and Europe each year with our tech demos. And essentially, what we want to sell is those products are either in the market or will be soon. So that's one element. Those are all real life solutions. They're not science fair projects. They're also shown to those kind of results are for a typical farm in the area we are. So the results we're showing there, although they can be used everywhere else, they're showing up for a typical farm in Germany. We'll do the same thing when we're in the U.S. for a typical farm in the U.S. So those numbers you can kind of anchor into a farm size. We talked about hectares for acres. That was a little over, I think it was like 3,200 acres. That gives you a size of how big that farm operation is and the kind of returns that, that kind of a farmer would expect. Unknown Analyst: So you guys talked about the distribution transformation that's been underway for the last like 18 months or so. So I was wondering if you could unpack that a little bit more, what additional work do you need to do. Where -- I think you talked about three different kind of verticals with three different channels. Where is the biggest growth opportunity? And what are some of the KPIs that you are using to measure progress there? Eric Hansotia: And you're talking about PTx specifically? Or are you talking about FarmerCore? Unknown Analyst: PTx data. Eric Hansotia: I'm going to have Andrew take that one. Andrew Sunderman: Sure. Okay. So a question around distribution, so as we look at what's a key growth driver for that, I would say the first major unlock is our PTx Elite dealer network. So this is -- our elite dealer network refers to our dealers that once we're selling either only Precision Planting or only PTx Trimble products, that we are now working to say we want to build a dedicated network of dealers that sell both PTx Trimble and Precision Planting products. If we look at what that means, the Precision Planting network has been historically very strong in North America. The PTx Trimble dealer network has historically been very strong in Europe. And so by cross-activating, as we call it, these dealers, we increase our coverage of PTx Trimble products in North America and increase our coverage of Precision Planting right away in Europe. One of the -- certainly, from a metric standpoint, there's a couple of things we look at. One of those is coverage, although coverage says how many customers can we touch. But the more important metric that we measure our channel based off of is penetration. And so we want to make sure that our dealers are serving farmers in the markets that they are in and doing so in a very proficient way. When we look at that addressable market that I talked about, the addressable market isn't just a number of new machines sold, it's all machines in their local markets. And so making sure and supporting our dealers to make sure that we're walking on the farms, even though it may not be selling a new machine, is really important for that dedicated precision ag channel that we call our elite dealers. Does that answer your question? Great. Eric Hansotia: And maybe just to add a couple of numbers to that. If you take a look at -- like Andrew said, we had essentially two different networks coming together to form PTx overall. If you say, can a farmer get access to both product lines today, even if they have to go to two separate dealers, maybe we have over 90% coverage in all the regions except for South America and it's about 85% coverage in South America, meaning the farmer has now access to the full portfolio. What we're working on now is melting those two channels together into one full line channel, which is what Andrew talked about. And so that's the evolution of -- that's our next -- first metric was coverage. Next metric is now elite dealer penetration. What else? Question back here. Unknown Analyst: This isn't a technology question so I apologize for this. This level of subsidization in Europe, I mean, the stability given diversification, et cetera, is really remarkable and a real asset to your business. Do you worry about the risk that's being created by subsidies with -- is it caught up in some of these trade spats that are happening? How do you think about it? Eric Hansotia: I don't think it's so much caught up in the trade disputes going on. But I do -- we do have a close eye on it relative to affordability of that subsidy as it relates to Europe spending more on military defense. I think that's probably the bigger issue, that as Europe is making choices to increase the amount of spending they're doing on military, that has to come from somewhere. And there's some debate about what the impact may be on what's called CAP, the common agriculture policy that governs the subsidies in Europe. So we're watching that. The farmers have a huge powerful lobby in Europe. And so there's been attempts to change the diesel subsidies or change some of the impacts on use of pesticide and fertilizer. Those have met with a lot of resistance with farmers and the regulatory bodies have pulled back. So I think there's a good tension in the system to make sure we find the right balance, but that's probably the thing to watch more than a trade impact. Kristen, anything else you'd say? Okay. Kristen Owen: I also want to ask a little bit about distribution or more specifically, sort of bringing the Precision Planting technologies here to Europe, knowing that Trimble had sort of a legacy distribution channel here. How ready is that Precision Planting portfolio to bring to Europe given different crop types, different size of machines, et cetera? How should we think about that migration of Precision Planting now into the European Trimble channel? Eric Hansotia: Yes. So if you start the foundation, I'll have Andrew jump in here, but I'll get a start on it. About 5 years ago, something like that, we started installing a European base for Precision Planting. So we started doing field trials just like many of you who have been to our PTI farm in Illinois where we do about 200 trials a year on a 400-acre farm, we set up multiple farms all the way from France to Ukraine and did farming in Europe under European conditions to see side by side how does this technology compare to the competitors here. Because there's some different companies that compete here. So gathered a foundation of agronomic data, which is the foundation of everything that we do in PTx, so that's been established. Then secondly was to be able to create retrofit kit adaptations to the planters that are in the marketplace, so HORSCH and Vaderstad and Kinze and some of the brands that you see here that you don't necessarily see so much in North America. That was step two. Step three was establishing a dealer network. We are on our way. That got significantly accelerated with PTx Trimble. So those are the three ingredients that needed to come together. The last step now is to add what's called ISO bus compatibility to the technology. It makes it easier to interface with a lot of the European farming operations. That's in process. So those are kind of the four key ingredients, Andrew, anything else that I missed? Andrew Sunderman: Just the one that I would add is also solutions around the crop cycle. So as we look at the Precision Planting business, historically, that has been almost 100% rooted in planting technologies. As we've moved throughout the crop cycle, really focusing on Europe as well, having the seeding solutions, fertilizer application solutions and bringing to market our spraying solutions really now complement that product portfolio where we know that the planter market is not as large in Europe as what it is in North America. Eric Hansotia: Great add. Steve? Stephen Volkmann: Since we have you on a webcast, wonder if you might want to make any commentary about thoughts about where we are in the cycle, what '26 might look like. Just any comments in that area. Eric Hansotia: Yes. No, thank you for that question. Yes, I love this question. So in reality, I would say that in the 3 of the 4 markets, we still feel about where we did, Europe, North America -- Europe, South America and Asia. In North America, we've already said that it's probably the most wide range forecast situation we've had maybe ever. And as we look into the data and the behavior of our farmers, the sentiment index, boards, all those kind of things, the likelihood of us having a down year next year are increasing. So previously, you've heard me say we're probably going to see a recovery, an up year in all four markets. That's under pressure in North America. And I think there's a higher likelihood -- we haven't come out with specific guidance yet, but there's a higher likelihood that it will be a small down next year compared to and up next year. Just fundamental uncertainty is very strong right now. And the farmers, there's -- with the U.S. potentially supporting, Argentina in a bailout, that's got the North America farmers very upset because Argentina is now the supplier of soybeans to China. So there's just a lot of dimensions to this topic and has the U.S. farmer on hold. Greg Peterson: Time for one more. Unknown Analyst: On autonomy, what do you anticipate a farm looks like in 10 years and 15 years? And what is the journey to autonomy look like in terms of when does the farmer ultimately step off the field figuratively speaking? Eric Hansotia: I think they're going to start stepping off the field this year. So we're selling autonomous kits for harvesting and we're going to be -- you'll see them in tillage right behind that. So there's this intersection of technologically what can we automate. I talked about we have to automate all of those features, and you get a batch of features, then you can automate the task. But the other intersection is where can farmers trust us or trust the operation, trust the solution to step away from it? And so we've said we've got the most automated planter in the industry. It pretty much does everything on its own. So the technology piece is high, but the farmers' willingness to actually step away from planting and not be right there watching it all happen is still low. Because if you get planting wrong, there's nothing else in the cropping cycle that can make up for it. So it's -- we're watching for the intersection of those two things. But we've got the sequencing such that we said we're going to automate an element of all the way around the cropping cycle by 2030, and we're still committed to doing that. So we think as like guidance happened, once you, like, well, I don't know if I really need guidance. I get in an experience like I'm never going away from this. That's what farmers reaction has been to our autonomy kits. They see it in the harvesting application like, I'm not sure. Then they get in. And they're like this is fantastic. Why would I ever do it any other way? We think the same thing will happen with tillage. And then one after another, there will be -- the confidence will rise and rise and say, this just works. And it takes away a complicated task. So I can be doing something else. So I think if your question was 5 or 10 years from now, I think many of the more progressive farmers are going to having many of their tasks automated. Now they may still do certain applications and there's many different tasks on the farm. So I think there'll still be interaction, but this is going to grow, I think, steadily over the next few years. Greg Peterson: Thank you, Eric. Eric Hansotia: Thank you, everybody, for your engagement. We sure appreciate all that you've done and coming over here with us and hearing our story. But we're really excited to show you the factory and the field operations. Thanks, everybody. Greg Peterson: Great. For those joining us on the webcast, thank you very much for your attention, and that concludes our program for this morning. Thank you.
David Guengant: Head of IR of Solaria. I'm joined today by Arturo Diaz-Tejeiro Larranaga, our Chief Executive Officer. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. During this presentation, we'll begin with an overview of the results and main highlights and main development during this period given by our CEO, Arturo. Following this, we will move on to the Q&A session. I would also like to highlight that you have to submit all your questions via the web. So thank you very much again, and I will now hand over the word to Arturo. Jose Arturo Diaz-Tejeiro Larranaga: Thank you, David, and thank you to everyone joining this conference call. Like always, I will move extremely fast on the slides and the presentation, and we will go to the Q&A part session. And of course, in first half 2025, we have increased significantly exponentially our net profits. We have grown close to 100%. That is a record in the history of the company. And we have installed -- this is something significant because you know that during the last 2 years, we have done enormous efforts in order to connect new installations. We have connected during this quarter 300 megawatts. That is one of our key targets for this year, and we have connected during this quarter 300 megawatts. From an operational point of view, our business is running great because we closed, as you know, during this first half, a great deal with Stonepeak for Generia. And our infrastructure business is running great, and we have good numbers in this quarter that comes from our infrastructure division and generation is going in a good situation even with the low price situation that we are living in Spain. But we maintain same level if you compare first half with -- last year, we maintained the same level of generation. That is good because we haven't included new assets during the first half. The good point is that finally, we have connected 300 megawatts. And hopefully, during this quarter and next quarter, we are going to complete 3 gigawatts of capacity constructed and connected to the grid that it will be a great successful for the company. Points or key points of this presentation. And all the market is talking about batteries and new business that is growing in Europe, especially in Spain around batteries. Solar absolutely will be there. And during our Investor Day, we will give great -- we will give our business update about batteries business. And my comment about batteries is we are the key player today in Spain with batteries under construction that will be connected to the grid during October. For our Investor Day, we will have batteries connected to the grid. This is a great successful for the company because we will be able to play the game of battery in Spain and with high volume of batteries connected to the grid. And we will talk about our new division of data center during the Investor Day. And it's something that we are extremely exciting around data center business and the growth of this business. Today, first half presentation numbers in order to go directly to the numbers, growth, 3 gigawatts installed that we will finish for the end of this year. We are going to finish this year with 3 gigawatts of capacity connected to the grid. It's a great successful probably from volume point of view, Solaria will be the leader from volume point of view in the Iberian region of solar photovoltaic technology connected to the grid, 3 gigawatts, 3,000 megawatts connected to the grid. Under construction. Today, we have around 4.4 gigawatts of capacity connected to the grid or under construction. We have added new developments to our under construction pipeline. Oliva, Mantia, Villaviciosa, large installations that will be constructed during 2025, 2026 and 2027 and that will add 1.4 gigawatts of additional capacity during 2026 and first half of 2027. It's significant because it's an enormous volume of megawatts that includes not only solar, include BESS, include batteries, that jointly it's a great combination from business point of view, solar with batteries that will optimize price of electricity. Batteries, as I have mentioned, 3 important points around battery business. I could say like in the solar technology that solar probably is the best-in-class from a CapEx perspective, EUR 75,000 per megawatt hour, all connected. That is a record from a CapEx perspective view. And as I have mentioned, during October, we are going to connect our first battery to the grid. And for the Investor Day, we will have batteries functioning connected to the grid, and it's a great successful for us. It's something that changed completely our history because we are going to optimize the price of electricity. We could entry at night or in the afternoon with the situation, especially in Spain, high price of electricity in the afternoon, at night, and we could obtain enormous profits associated to these batteries. We are going to install more, absolutely. We are going to invest more in batteries. We are developing enormous volume of batteries globally in Spain, not only in Spain, we have included in this presentation slides associated with Italy, Germany, with the United Kingdom, but obviously focusing in Spain. We have an enormous volume of megawatts per hour of batteries that will entry during 2025, 2026. And we will be the leader in the short term in batteries in Spain. And this is extremely important short term. Battery is a great business today. We need to use this opportunity and timing is critical. You need to be the first and you need to be the most efficient. Not only batteries, wind, data center, the global business plan of Solaria, the global idea of Solaria is a global energy player that supply solar electricity, wind electricity that has demand that comes from data centers and that has demand that comes from batteries. And it's a global solution for customers that includes technology of generation and technologies of demand. And globally, in Europe, not only in Spain, focused in several countries of Europe, Spain, Italy, Portugal, Germany, United Kingdom. Generia. You know that 2 years ago, it sounds like a dream, Generia land company. Today, it's a real company that is functioning, and that will give to all of our shareholders strong successfuls because as you know, we have got a great agreement with Stonepeak. It's functioning. We are developing the pipeline of Generia. We are executing, and we are closing acquisition of land. It's the beginning. Obviously, the plan is extremely ambitious. And during 2025, 2026, 2027, you will see a lot of deals associated with Generia. Obviously, if you want to construct all of these assets, if you want to construct new batteries, new data centers or whatever you need financing, good financing terms. This is a good example like all the quarters we show to the market that we have a strong capacity to raise money, to raise project finance debt with our banks and partners. We have closed -- presently, we have closed a new deal with Sabadell Bank, 175 megawatts of solar PV capacity. The key points of this deal is probably 22 years, close to EUR 100 million of debt. That is a global CapEx of EUR 0.50 something and link with 70 megawatts PPA data center project. We will extend and we will give more information during the Investor Day. But in all case, this is something signed, real and that is functioning now, and we have under construction today the project associated with this deal. Europe, we have included several slides because usually people say solar is extremely focused in Spain. You are not out of Spain. It's not the truth. Spain today is obviously our key market in Europe, but we don't forget other countries that are critical for us, that are going to grow around batteries, data center, solar and wind. Italy. In Italy, we have made a strong effort during the last years. And I think that today, we have a really good pipeline. Hopefully, before the end of this year, we will receive final authorization for close to 1 gigawatt. That is a great successful because to start with 1 gigawatt will be great for us. It's a diversification of our business. In my mind, the perfect photo for the company should be to stay in Spain with global volume, but to maintain good volume in Italy, in Portugal, in Germany and to install generation in these 3 countries, in Italy, Portugal and Germany. And the Italian business is in a good situation today. Probably, as I have explained for the full year's presentation, we will give an update with 1 gigawatt ready to start with the construction. And it's great. At the same time, we are developing batteries, we are developing data center. And Germany. Germany is the same. In Germany, we are more focused in generation, especially in solar and some applications of wind, but especially in solar, is the beginning. We have a good amount of megawatts. It's in my mind, it's easier than Italy or Spain. It's different market, really professional, really mature market. And I think that in the past, we had a strong successful in solar in Germany, and we are going to replicate. And today, we have more than 500 megawatts in a good situation, fully authorized, and we will start construction soon, probably in 2026. Portugal. Portugal, this is a real global project. As you know, we have assets functioning today in Portugal. We have done several projects in the last years in Portugal with great successful. In Portugal, we have fully authorized a global project with close to 500 megawatts of solar and 200 -- close to 200 megawatts of wind. We are waiting for the final substation that should be done or that is depends of government -- of the national agency and depends of government. Hopefully, we could start with the construction in 2027. From permitting process point of view, it's fully complete. The key point here is that we depend on the connection infrastructure that should be constructed by . And I think that 2027, it's conservative schedule for starting with the construction. U.K. In U.K., we are not going to be involved in generation. We are going to be involved in other activities, other activities. Today, we are only talking about batteries, and we are only talking about data center. But I talk about other activities, and I'm not including here all the activities that we are working on in United Kingdom. Not in generation, we are not going to stay involved in generation. We are interested in other activities that we will explain to the market. Numbers I have mentioned, and I will move extremely fast. EBITDA, record of EBITDA, EUR 140 million. In order to give additional information to the market. As you remember, we gave a guideline for the year of EUR 245 million, EUR 255 million for the end of this year of EBITDA. I can say that we are extremely comfortable with this number. What does it mean? We have strong visibility that we are going to accomplish with the guideline of EBITDA for 2025. During the Investor Day, the 17th of November, we will give guideline for next years and the global business plan for next year. Production, we maintained levels of production. As I have explained at the beginning, we have maintained similar numbers from a generation point of view. Small reduction on production associated with less than radiation, especially in the first half of this year. I can say that the third quarter was good from radiation point of view on price is good. And especially second quarter of this year was not good from radiation point of view, small decrease associated with this solar radiation. Average selling price, even I could say -- I can say that it's better if you compare first half 2024, first half 2025. Contracted merchant, 75% today is contracted, 25% is merchant. And as we have explained, and it's not a surprise, we are going to maintain this mix and we are going to sign additional PPA contracts. And we are going to maintain this proportion of 75 -- sorry, contracted 25% merchants. EBITDA continues growing and is affected by 3 different activities by Infra business, by generation, by Generia. And I can say that as I have explained at the beginning, it's around 1/3 per activity. And it's -- all the activities are functioning great. Why I'm saying this because I have visibility of third quarter and I think numbers are functioning great. And as I have said previously, we have extremely high level of comfort of our guideline of EBITDA. Cash, we maintain the same level of cash like always. As you know, we are not rich, but we continue making strong investments, and we maintain our discipline around CapEx. That is one of the key points of our strategy. We have a global CapEx of less than EUR 0.38 per watt. That is probably best-in-class. And in my mind, we are going to improve in the next quarters. I think that probably for the first quarter of 2026, we will achieve a record in CapEx. When I talk about record, I think that number is going to surprise to the market, but we are going to improve a lot even our CapEx. And this is critical for us because, as you know, we are covering all of our CapEx with project finance. And this is critical for us to be effective, not only in the construction of solar installation in batteries, in wind, in all of our applications. And of course, EBITDA evolution is great. If you compare the last 5 years, it's impressive. It's not as we want to get because we want more, much more. We want to grow more. We want to be the leader. And unfortunately, during the last 2 years, we had delays in the construction. The good point today is that we are in the good moment, connecting megawatts, and we are going to finish with all the megawatts under construction connected to the grid, and it's great. And it's part of our guideline of last year, and we are going to accomplish. Solaria transformation plan sounds ambitious, but we are ambitious as always. And in November 17, we will present to the market our view about data center, batteries, where we are, where we'll be and what we are going to do for financing all, and it will be extremely interesting. You know Solaria today is a key player in Europe, focused on solar, wind, data center and batteries, and we will try to explain our global view of the market and where we are going to stay the next 3 years and where will be the company in the next 3 years. And before to entering the Q&A session, in order to give more information, we will be focused in the remuneration of the shareholders. We think that is something that we need to improve, and we need to stay focused there. We will continue acquiring shares. And as you know, in the first quarter, we have announced a program -- share buyback program. And we have today 2% of the shares of the company, and we are going to continue with the acquisition of shares at least until 10%. And we are going to maintain this discipline, and we are going to execute. And at the same time and in order to be fair with the market, understand this comment, but probably company in the next days could sign contracts, impressive contracts that will give visibility to our business plan and to all the activities of the company. And we will explain during the Investor Day of the 17th of November. Q&A, if you want. Operator: So thank you, Arturo. I will now open for Q&A session. And once again, thank you for your time. Just let us 1 minute. So the first question comes from Fernando Garcia from RBC. David Guengant: Could we elaborate on the sentence evaluating additional options to boost shareholder returns? Jose Arturo Diaz-Tejeiro Larranaga: I have explained that we want to stay focused on the remuneration of shareholders. And as I have mentioned, in the first quarter, we approved a share buyback program that we are executing, and I have given the details, and we are executing and we have 2% of shares of the company actually. About new remuneration on new options, we will discuss during the Investor Day, the 17th of November in London. David Guengant: Next question from Fernando. You have many of value creation avenues in solar PV, batteries, DC, international expansion and real estate. But you have less than EUR 50 million of cash position. What are your plans such as partnerships to avoid jeopardizing these growth optionalities? Jose Arturo Diaz-Tejeiro Larranaga: I think that we have demonstrated during last years that even with not too much cash that sometimes I recommend the company is to maintain not too much cash because when you have too much cash, you spend a lot of money. But this is my view that is not probably -- you are not agree with my view. But in order to explain, we have demonstrated that the key point from managing perspective, in my view, is to be efficient on CapEx, not to spend too much money and to be able to maintain a good CapEx that should be covered with project finance. This is my obligation. And we have demonstrated to the market during the last years that we are able to construct 3 gigawatts that we are able to develop a pipeline globally in all Europe, not only in Spain, that we are able to construct and to acquire batteries that we are able to acquire land, that we are able to acquire connection points for data centers and to acquire land for data centers. And we haven't sold nothing and not increasing capital. And this is a really good discipline that we have established inside the company. Our discipline will be maintained because it's the generation of value. You need to generate value to the shareholders, and it's my obligation. But you have seen with the Generia deal, for example, that we are able to generate value and to generate cash position with joint ventures. And I'm extremely satisfied with the joint venture closed with Stonepeak that is a key player in the market. And it's a great joint venture that will give enormous profits to the shareholders of Solar in the future. And we have raised EUR 125 million for the acquisition of land. And the valuation of the platform and the valuation of our pipeline and our capacity was good. I think that this kind of partnership, this kind of joint ventures are really good for Solaria that gives cash, gives support in the growth and recognize the value of the platform and the value of our pipeline. And it's something that we could repeat in data center, we could repeat in batteries, and we could repeat in other activities. But in order to answer correctly the question, yes, we are open to sign and to close joint ventures for batteries, for data centers and we are talking with players and we are working on it. David Guengant: Next question comes from Philippe Ourpatian from ODDO. Looking the Slide 6 related to our operating and under construction asset, is the time frame of 6.2 gigawatts dedicated to 2026 or later? Jose Arturo Diaz-Tejeiro Larranaga: And operating and under construction, 3 gigawatts will be connected to the grid for the end of this year. 1.4 gigawatts, it's under construction. We will announce probably during October, November, but it's something that in my mind is completely solved. We will announce a project finance associated with Villaviciosa and other developments that we have included that we have under construction, and we will cover with project finance, no problem. We -- it's a deal closed, but we will announce during October, November. And it's under construction, probably will be constructed during 2026 and 2027 connection. And we will add, especially in the third quarter and in the last quarter of this year, additional capacity to our construction pipeline that will be executed during 2026, first half of 2027. And now the innovation, if you want or something new is that we are going to include at the same time, batteries construction and batteries construction schedule. And today, our business has -- we have -- we are seeing here an extension of our business. We are not going to talk only about gigawatts of solar capacity. We are going to talk about gigawatts of solar capacity, gigawatts per hour of batteries and wind. It's like Solaria will be transforming a global player, constructing batteries, solar and wind. And as I have explained, from batteries point of view, for the Investor Day, we will have connected to the grid a number of batteries. David Guengant: Next question is coming from Beatrice Gianola from Mediobanca. Do we expect to sign new PPAs? Which is the outlook in terms of price for PPA in the Iberian market? And can we elaborate on returns expected for investment in battery storage in Spain? Jose Arturo Diaz-Tejeiro Larranaga: New PPAs, absolutely, yes. We will sign new PPAs, and we will announce to the market. And let me let me keep some information in my pocket. Let me keep some information in my pocket. Let me keep some information in my pocket. Let me surprise yourself. Let me surprise yourself and all the market in the next days, in the next days, in the next weeks. And we will talk. About batteries, I think that the return today in batteries in Spain is like it's unbelievable. Why? Because if you see price at night and you see price of electricity, especially at 12:00 in the evening or 11:00 in the evening, 10:00 in the evening, it's like it's crazy because today, we are suffering price of electricity of EUR 140, EUR 150. If you see these numbers that in my mind, it's crazy. The return of the battery is less than 1 year or 1.5 years with the current CapEx. It's always the same. It depends on your CapEx. And in CapEx, we announced a deal a few months ago with a price that we have renegotiated. We are improving prices of batteries. I think that we will see like in module, strong improvements in price of batteries. And from a CapEx perspective, I'm extremely quiet. I'm not nervous because we will be the key player from CapEx perspective on batteries and the return, I think it will be great. But reasonable return, double digit. We always are looking for double digits. If we don't have double digits, we don't invest. If we don't see a high level of double digits, when I talk about high level in solar assets is 12%, 13% project IRR in batteries, we are obligated to obtain more than this number. David Guengant: Next question from -- comes from Alexandre Roncier from Bank of America. Any update on the capacity market for Spain and timing? Jose Arturo Diaz-Tejeiro Larranaga: It's true that Spanish government is going to approve a capacity market. With the actual situation of prices, it's not necessary, but of course, welcome. If they approve, finally, it will be welcome. And it's an improving -- it's something that will improve the numbers around batteries. And it's not only battery, government is touching several points of the law. And if they modify, I think that is going to improve generation business. It's going to improve batteries business, probably will improve globally to all the renewable energy market. But market government, you depend on the government require time. I know that they are working on it, but who knows, if they are going to approve now or in October, November or whenever. We want -- I think that we need to move without any new law that could be approved like for our numbers, we are not including this capacity market. David Guengant: Next question coming from Fernando Lafuente from Alantra, Arthur Sitbon from Morgan Stanley, regarding storage revenue. What will be the price strategy for the first battery connected? Will you -- will we sell the electricity merchant, secondary market? And Arthur is also asking, can we break down some revenue source of the first batteries that we can connect to the grid this year? Jose Arturo Diaz-Tejeiro Larranaga: We are studying all the proposals for batteries. We have some proposals of people that wants to acquire our business, other people that wants to make a joint venture with us and to participate to give money, equity and for the acquisition of the batteries and to recognize value in our platform. That is probably the largest platform in Europe for batteries or the second one, I think, because from a private player had great successful in United Kingdom. But I think that probably Solaria in the stock market is the global player in Europe for batteries. And we are studying all the options. Today, for the batteries that we have under construction that will be connected to the grid in October and that for the Investor Day will be connected to the grid. Our strategy is to go to the merchant market and to obtain strong profits in the next month. I think that it's an easy job today. In the future, we'll be more sophisticated. Today, it's extremely simple business with the situation of price of electricity. But I'm not saying that deals will be our long-term strategy. I'm saying that we are going to use the exceptional situation of merchant price in the short term, but we could sign a joint venture associated with batteries. David Guengant: Next question is coming from Alberto Gandolfi from Goldman Sachs. Is 1 gigawatts of solar Villaviciosa, Oliva, Mantia, all permitted? If not, which permit do we have? And when do we plan to receive all the authorization? Jose Arturo Diaz-Tejeiro Larranaga: All permitted and under construction. We have explained the deal associated with Sabadell that cover a small part and it's associated with -- it's associated with the solar PV asset of Oliva. And it includes a data center of 75 megawatts. And you will see the evolution of this, but it's under construction, fully permitted. Villaviciosa, it's in the same situation, fully permitted, under construction, and we will announce the project finance deal in the short term, probably October, November, probably October because it's done. And we will announce the bank that is going to stay with us in this project. That includes Villaviciosa and other small projects that you have mentioned in your question. David Guengant: Next question is coming from Temi from Barclays. There were an article recently on the grid on Spain being 83% saturated. Can we please confirm our latest secure grid connection on the generation side? Jose Arturo Diaz-Tejeiro Larranaga: I think that we have a lot of grid connection secured in -- on the generation side. We have a lot of grid connection secured for data centers. We have a lot of grid connection secured for batteries. We have a lot of grid connection permits for wind. It's like from grid connection permitting point of view, we have get a great, great successful. You know because we have given all the information to the market during the last 2 years, but from generation for wind and solar, we have a lot of generation connection points. For data centers, we have close to 1.5 gigawatts and growing. It's like probably we are the key player in Iberia region. But I'm talking about Iberia all the time, but I think that we should start to talk about Europe because it's not only associated with Spain. But Spain today sounds good. And I think that at the end of this year, we will give more visibility in other countries. But we are a global platform in Europe. And Spain, obviously, we have -- I think we are probably the king from connection point of view. David Guengant: Last question comes from Jorge Alonso from Bernstein. What is our view on the Spanish market if BESS are massively adopted? How the power price will look like? Jose Arturo Diaz-Tejeiro Larranaga: Projection of power price is difficult and the projection of the situation of BESS in the long term is difficult because we have left a lot of bubbles around all the different business associated with renewables in Spain, but we will see the evolution. In batteries, in my mind, you need to be the first. You need to connect, not to talk, you need to connect. And to the -- the key point here, the key point today over the table is that we are going to stay in London the 17th of November with batteries connected to the grid. I will talk about the numbers and the EBITDA that we are residing in real time. And this is something that is value. And our effort is focused today on this. Connection, construction of new batteries. In the long term, if we suffer a massive volume of new installation of batteries, we will see. But battery is something that should have a strong return because if you don't have a strong return, you could have troubles in the long term. Our view is focus on CapEx efficiency and to be the first. And this is our view to be the first to construct with the best CapEx and to be extremely efficient in order to maximize value. And we will see evolution. Power price and power prices of electricity. It depends on demand. It depends on demand. This is a question associated especially with demand. Data center vehicles, electrical vehicles, industrial demand is growing. During this year, we have seen that the demand is growing. The electrical demand is growing. It's not in a bad situation. It's better than a few years ago. It's growing, but probably could grow a lot if Europe entering the data center business, for example. And not only focus on data center in the industrial part, we need to develop industry. And you received the message from my colleagues from the utilities from Endesa, Iberdrola and Naturgy, they receive massive questions of industrial players that wants to get connection points on the grid because they want to receive electricity, renewable energy, electricity. And Spain has a strong advantage from price point of view. We have cheap price of electricity, and it's an enormous advantage for the industry. And I'm completely sure that the situation will improve in the next years. And it's not only the demand come. When I talk about industry, I talk about hydrogen technology. Hydrogen is going to make enormous consumption of electricity. I'm talking about new industries. But I think that we are optimistic about the future price of electricity in Europe and Spain, Portugal, Italy and all the countries of Europe. It's like demand is going to answer, is answering, and we will see a strong demand in the future. Thank you very much and for being part of this conference call. And our Investor Relations team, David, will be available for any additional information that you may require. And hopefully, I hope to see you -- all of you in London, the 17th of November with a lot of surprises and news and business plan for the future and a lot of renewable energies. And we will see you in London. Thank you very much.
Antje Kelbert: Welcome to the Half Year Update call for HORNBACH Holding. My name is Antje Kelbert, Head of Investor Relations. Earlier today, at 7:00 a.m., we published our financial results for the first half of fiscal year 2025/'26, covering the period from 1st of March until the end of August 2025. I'm especially pleased to welcome our new Chief Financial Officer, Dr. Joanna Kowalska. With our deep industry expertise, and many years of experience in financial management, at KPMG and within the DIY retail sector at OBI Group. Joanna will be a great addition to the HORNBACH team. Since mid-August, she has taken over responsibility for the finance result and will be presenting today's results, guiding us through the presentation. We are also joined by CEO, Albrecht Hornbach, who has served as interim CFO during the transition period. Albrecht will be available for your questions during the Q&A session. Please note that this conference call, including the Q&A session will be recorded and made available along with the transcript on our company website. Kindly also take note of the disclaimer, which applies to the entire presentation and the Q&A session. [Operator Instructions] With that, I'm delighted to hand over to Joanna to walk us through the key developments and financial highlights of the first half year. Please go ahead. Joanna Kowalska: Good morning, everyone. Thank you, Antje for the kind introduction and a warm welcome. I'm truly delighted to be part of the HORNBACH team and to join you for today's half year update call. Since stepping into the role of the CFO about 6 weeks ago, I have been deeply engaged in learning about the many facets of our business. It's an exciting time, and I'm grateful for the support of my colleagues, especially Albrecht, who has been instrumental in helping me during the transition process. To HORNBACH, I bring over 17 years of experience within the European DIY retail sector alongside dedication to financial management and operational improvement. During my time at KPMG, I advised and audited many listed companies, and I'm truly delighted to contribute to HORNBACH's continued success as well as to long-term value creation for our shareholders. And I also look forward to getting to know all of you meeting with you over the coming months and continuing the open and constructive dialogue that HORNBACH is known for. And now let's dive into the key development and financial highlights. At a glance, we delivered further profitable organic growth in the first 6 months of our current fiscal year. Net sales grew by 4.4%, driven by a very satisfying spring season and solid summer period. In addition, we saw continued higher customer footfall. This growth was further supported by the store openings in Nuremberg and Duisburg, both in Germany around the start of the fiscal year. On a like-for-like basis, HORNBACH Baumarkt sales rose by 3.6%. Gross margin increased by 4.6%, in line with the sales growth. And the gross margin come in at -- sorry, 34.9%, matching the level from prior year's period. This development contributed to the adjusted EBIT growth of 2.5%. CapEx reflects the active execution of our expansion strategy with a focus on acquiring attractive properties and building a state-of-the-art DIY store network. Nevertheless, we achieved a good free cash flow. We are pleased with our performance in the first half of the current financial year. And despite ongoing macroeconomic burdens and soft consumer sentiment, particularly in Germany, we have achieved solid results, which are in line with our expectations. They also reinform our confidence in strength and resilience of our business model and underline our relevance to our customers. Therefore, we're confirming our full year guidance today. Before we dive deeper into financials for the first half of the fiscal year, let me start with a brief operational update. As you know, customer satisfaction is one of the most important KPIs to our business, a clear indicator of meeting our customer requirements and we truly believe that a great shopping experience and assortment, combined with a highly efficient operational setup is what drives our market relevance and long-term profitability. That's why we are especially proud of the results from the latest customer service. In Germany, the independent survey Kundenmonitor, ranked us #1 for overall customer satisfaction in the DIY sector. We also came out on the top in several other categories, including web shop, assortment relevance, selection, quality of the goods and private labels as well as service offered. In the Austrian addition of the Kundenmonitor, customer survey, we secured a leading position as well. We were ranked #1 overall in customer satisfaction, achieving strong results across multiple categories. And also in Netherlands, the survey Retail of the Year, named us The Best DIY Online Shop. That's an important recognition of our team's hard work and a clear sign that we are on the right track. We are also continuing to invest in infrastructure to support our organic growth and improve the shopping experience for our customers. Just recently, we opened 2 new stores, 1 in Bucharest, Colentina in Romania and another one in Eisenstadt in Austria. Both are modern big box DIY stores designed to give our customer everything we need for rare home improvement projects. These openings follow the launch of our new store in Duisburg, Germany, which opened in March, and there is more to come. Another store is set up to open in Timisoara in Romania, just tomorrow. All of these new locations demonstrate our commitment to expanding our store network and growing across all HORNBACH regions. With that in mind, let's take a closer look at the sales figures for the reporting period. As mentioned earlier, group net sales in the first half of the year were up by 4.4%, driven by a strong spring season and solid summer. Compared to the same period last year, we saw increased demand for our gardening products and construction materials. Customer frequency increased by 3.3%, reflecting a positive trend in store traffic. We also recorded a slight uptick in average ticket. After 2 years of stable performance, we are now back on a growth stat. And now let's shortly have a look at HORNBACH Baustoff Union, our subgroup has mainly serves professional customers in the construction industry. Looking at the sales development, we saw a slight sales decline of 0.8%. That said, we believe the construction sector in Germany may have reached its lowest point and could now be starting to recover. The latest official statistical figures show a modest upward trend in both order intake and building impairments. Looking at the geographic split on the right. Slightly more than half of the HORNBACH Baumarkt revenue, 52.7% comes from the 8 European countries outside of Germany representing an increase of approximately 1 percentage point compared to the previous year. Now let's turn our attention to like-for-like sales growth. Generally speaking, underlying demand across most European countries in the first half of the current fiscal year benefited from warm and mostly dry weather. That said, July was quite rainy in Central Europe, which had some impact on -- in Q2. For the group-as-a-whole, like-for-like sales growth reached 3.6% clearly above last year's period. Germany contributed 1.5%, which put us ahead of the German DIY sector that saw a slight overall decrease in sales of 0.7%. In other European countries, delivered a strong 5.6% growth rate. Here, the Netherlands really stood out with growth of over 10%. We successfully strengthened our position as a big box player in Netherlands. Customer particularly value our outstanding product availability in large quantities, which set us apart from competition. Thanks to store openings in recent years, our locations in Netherlands are younger in [indiscernible] and showing their [indiscernible] growth contribution. In Q2, all countries saw positive like-for-like sales development with the exemption of Germany, where performance were impacted by 2.8 fewer business days. Let me now present the most recent market share improvement. We continue to focus on growing our market share and strengthening our position across Europe. In all HORNBACH countries where market share data is available, we managed to expand our footprint in January and July 2025. In Germany, our largest and most competitive market, our share has now reached 15.5%, an increase of 0.6 percentage points compared to the prior year period. In the Netherlands, driven by a very positive footfall development, we gained 1.3 percentage points, bringing our total market share to 28.8%. In Czechia, we continued our positive momentum, increasing our market share to 38.5%. Austria and Switzerland also showed positive development. This truly reflects the dedication and outstanding performance of our teams on the ground who consistently go above and beyond to serve our customers. Let's now continue with a closer look to our E-commerce business. Customer engagement across our interconnected platforms remained strong, which confirms that these are now well established sales channels. E-commerce sales at HORNBACH Baumarkt grew by a strong 10.1% in the first half of the year. That pushed our E-commerce share of total sales up to 13.1%, both Direct Delivery and Click & Collect performed well, with growth rate of around 11% and 7%, respectively. And with that, I would like to take a closer look at costs and expenses in the P&L. Our gross profit increased by 4.6%, which is mostly in line with the growth in the net sales. Gross margin came in at 34.9%, matching the level of the same period last year. This reflects a good product mix and an innovative assortment. Now let's take a look at expenses. We are now seeing the full impact of wage increases across all countries, which led to a rise in absolute personnel costs. Personnel expenses totaled EUR 580 million, representing a 5.7% increase. This development is in line with expectations given the wage adjustments. While selling and store expenses increased in absolute terms, the expense ratio remained stable relative to total sales. And the same applies also to general administrative expenses ratio. Preopening costs rose by EUR 4 million, driven by new store openings. All of this contributes to a positive development of our adjusted EBIT, which I will present to you on the next slide. Overall, we improved our adjusted EBIT by 2.5% compared to the first half of last year, driven by successful spring season and solid summer performance. As a result, the adjusted EBIT margin remained broadly stable at 7.6%. Countries outside Germany contributed 62% to adjusted EBIT, making a 4 percentage point increase year-over-year. Once again, there were no significant nonoperating items or adjustments in the first half of the year. And now let's now move on to the cash flow statement. Our cash flow from operating activities increased significantly compared to previous year. The main driver was a lower cash outflow from changes in working capital. This was predominantly due to reduced use of our [indiscernible] program as well as stronger reduction of inventories than in the prior year period. Funds from operations remain at the same level as last year. Capital expenditure in the first half of the fiscal year totaled EUR 107 million, up from EUR 51 million in the same period last year. As planned, 56% of that was invested in land and real estate, mainly for the new store development. The remaining portion went toward store conversions, equipment and software. Free cash flow after net CapEx and dividend improved to EUR 129.6 million, reflecting the changes in working capital I just mentioned. Now let's take a look at our balance sheet. As of the end of August, HORNBACH once again delivered a robust balance sheet. The total balance sheet stood at EUR 4.6 billion, unchanged compared to February. Decreased inventories reflect the usual seasonal reduction after Spring. Our equity ratio increased slightly to 46.9%, maintaining a strong and healthy position. Our net debt-to-EBITDA ratio improved to 2.4x. All in all, that underlines the strength of our financial foundation and the resilience of our business model. We are confirming the guidance for the fiscal year '25/'26. We continue to expect net sales to be at or slightly above the level of prior year and adjusted EBIT to remain at the same level. However, given the strong earnings performance in Q1 and the solid development in Q2, we currently expect adjusted EBIT growth within the upper half of our guidance range. Before we open the floor to questions, I want to take a moment to highlight our continued focus on strategic priorities, cost management and sustainable growth. Through target investments and operational efficiency, we are building a solid foundation for the future. With our strong private labels, everyday low price strategy and clear commitment to sustainability, we aim to support our customers, maintain market leadership and deliver long-term value to our shareholders. In summary, we're well positioned to navigate the current macroeconomic and geopolitical challenges and to size medium- and long-term growth opportunities in the home improvement sector. That gives us strong confidence in HORNBACH's continued successful development. As I mentioned at the beginning, we are satisfied with our results for the first 6 months which are in line with our expectations. And with that, I will conclude my presentation and hand back to Antje for the Q&A session. Antje Kelbert: Thank you, Joanna for your views and remarks on our results. I now hand over to Bastian, our operator, to explain the technicalities of our Q&A session. Please go ahead. Operator: [Operator Instructions] So the first question comes from Thomas Maul from DZ Bank. Thomas Maul: Thomas Maul, at DZ Bank. I've got 2. The first one, you achieved a nice increase in gross margin. Maybe you can elaborate a bit more on the drivers, especially with regard to the innovative products you just mentioned. And what is actually the share of private labels in your assortment? And second question, can you please shed some light on current trading in September with regard to footfall, leverage basket sizes in Germany and abroad and yes, what are your expectations for gross margins in the months to come? Joanna Kowalska: Thomas. Thank you for your question. And happy to answer. I will take the first one on the margin. We improved our margin at, of course, in connection with the -- with our innovative product. During the year, we always change our assortment, nearly 20% of our assortment is changed during the year. And with the innovative assortment, we, of course, reach a better margin. And this is an effect of our, great [indiscernible] department. The second one -- the second question was how is -- how we expect the margin development in the half of the -- when I get you correctly? Thomas Maul: Yes. It's actually on footfall and basket size and also, yes, the development of gross margin. Joanna Kowalska: Okay. Okay. Thank you for the clarification. The footfall, we increased -- the footfall is increased in the first half of the year. We are gaining our market share in all countries. Therefore, of course, we hope that also there's a trend with -- remain also for the next half of the year. Of course, we are -- it's pretty clear that in Germany, the DIY sector faces near macro challenges, particularly in customer sentiment due to layouts in industry, many people are cautious about large projects. But nevertheless, nevertheless, customer traffic remained really strong, showing continued relevance of the DIY and Gardening. And we are pretty sure that our everyday low price strategy and strong private levels position us well, and we gained further market share -- we will again also cover market shares in the next half year. Your question was also about the private label share. So let me comment on this point. So this is about -- about 20%, yes. So in Germany, a little bit more -- sorry, I'd say it was 28% and in Germany, 28% and in average for the HORNBACH something about 2024. Operator: The next question comes from Jeremy Garnier from ODDO BHF. Jeremy Garnier: I have 2 questions. So yes, you begin to have strong market shares in all countries you're present in Europe. Do you plan to open new countries soon or to accelerate in some countries? And also M&A is still not an option for you? Joanna Kowalska: Jeremy, thank you for your question. Let me comment. Yes, we -- it's too early to go into the detail. But yes, we already announced the new country. So -- but I hope you can understand that we cannot comment in very detail at the moment. Jeremy Garnier: Okay. And regarding the working capital, it will improve during H1. Do you still have room to continue to improve the deliver of inventory and [indiscernible], what is your target? Joanna Kowalska: Of course, we always look for the working capital. And retail is about working capital management. And of course, we have a deeply look always at this issue. Of course, we have to consider the current situation also with the assortment changes therefore, sometimes you have a little bit more inventories, sometimes a little bit lower level. But nevertheless, of course, we have closed -- we look very, very focused on this issue. And we plan very good initiatives in respect of AI solutions with this matter. Of course, it will not be effective in this fiscal year. But nevertheless, our strategy is to use the AI solutions in the future to really focus on the working capital management and to really plan even better than in the past, the distributions, the logistic processes. We are on a good track in this matter. Operator: The next question comes from Ralf Marinoni from Quirin. Ralf Marinoni: First question is about your store in Romania. You mentioned that HORNBACH provides more than EUR 2 million for the expansion of public infrastructure to support development in the area and you have also created 120 new shops for the new market. So the question is, did you receive any government subsidies or tax benefits for this? And my second question is about the 4 new openings. Can you quantify the annual sales potential of 4 new markets when they are running at full steam? So I estimate it's clearly above EUR 100 million. Antje Kelbert: So I think the infrastructure you're mentioning -- sorry, it's Antje. The infrastructure around the normal stores. So we have streets and all those things that help us to connect also the store to our network to make it efficient and to help us around that. I think this is meant with the infrastructure thing. With respect to those subsidies, I'm not sure about that. We can take that afterwards, I think. Sorry on that. And expectations, for sure. But we do not disclose our business for each and every new store that will go on stream. However, we assume that this is a very good location because you know that the key thing to select location for us to have a good area, to have a good a little bit around -- surrounding there and so we expect that this will be a good addition there. Joanna Kowalska: And the second question was, what does a new store brings in terms of revenue, yes? Ralf Marinoni: Exactly, exactly. Joanna Kowalska: It's a -- it really depends on the location, on the square meters in -- on the country. We are happy to open each store, yes. But and it's always based on a detailed business case. So yes, the decision is made very, very cautious. And -- but I would don't like to disclose very detailed information on each contribution of the each market or store. I hope you understand. Ralf Marinoni: I understand. But maybe you can give us an indication with regard to profitability in your market in Romania. On the one hand, we have less purchasing power from the people there, which leads to less revenues compared to the stores like Germany also. But on the other hand, we have much smaller personnel cost. So maybe you can give us an indication for the EBIT margin and profitability in these stores in Romania. Antje Kelbert: Yes, you know that we do not disclose on a base of the different countries? So what you see is that the contribution from outside of Germany is very good. And as you can assume, we are also on track in Romania because it's a very interesting and attractive market. So this will also help to contribute that. Joanna Kowalska: I can only add. Of course, there are countries which contribute more and would contribute less. But nevertheless, all countries are on a very, very good track. We are really happy with the development and also in Romania. It's really, really good country and therefore, we have attractive location there, and we are happy to expand in this country. Operator: Next question comes from Miro Zuzak from JMS Invest. Miro Zuzak: I have a couple of questions. I'll take them one by one, if I may. The first one is regarding the situation in Germany. You mentioned during the presentation that you expect the German construction and renovation market to bottom out. Can you please substantiate this and elaborate on this? And what the indicators are that you're looking at? Antje Kelbert: Okay. So I think you're referring to construction market versus DIY market. I think this is an important thing. Joanna Kowalska: The building sector shows early signs of recovery, like a recent increase in building payments and orders, but we expect that activity will only start to increase next year. However, with HORNBACH Baumarkt, we are mostly active in the renovation and modernization business, which is -- which has different dynamics than the new construction. In this matter, we need to focus on such topics as renovation backlog, need for energy-efficient upgrade and demographic challenges. And this is what what we are looking very positively towards this issue because the need is there. We increased our market share. And therefore, even in Germany, we see really chances for us. Even... Miro Zuzak: But you don't feel like at this moment already a recovery, it's just an expectation that in the future next year or so, it will recover? Antje Kelbert: Yes. Albrecht Hornbach: Albrecht Hornbach speaking. It's more or less a sentiment, which leads to the meaning that beginning maybe with 2026, the construction market will rise again and that the [indiscernible] is reached now in the moment. But this concerns HORNBACH mainly, and it's not a matter for Baumarkt for the Do-it-yourself business. Do-it-yourself business, it's more contributed to renovation and what Joanna explained just before. And fortunately, we are rather independent from construction markets in 96% of our turnover. Miro Zuzak: Okay. Super, very clear. Another question regarding costs. If I look at the OpEx, just basically, the cost between gross profit and EBITDA, I see a jump of EUR 30 million in Q2 versus last year Q2. This was a much higher jump compared to the EUR 15 million in Q1. So the OpEx seems to have increased much more in Q2 compared to Q1. Is this going to continue in Q3 and Q4? Was there any like special effect or reason in there, which led to this higher increase compared to Q1? Joanna Kowalska: So the most important point is the increase in the personnel expenses, of course. As you know, last year, we had a lot of increases of the wages nearly in all countries, especially in Germany. And the effect, of course, we see now in the comparison of the half year. So the wages increased, of course. We -- just for your information, the total cost amounts to 5.7%. And we had an increase in full-time employees in connection with the new store openings. Therefore, we have 2 effects. The first one is the amount of the people and employees and another one is the increase of the wages itself. To your question, whether we expect more increases during the next months, I would answer the question like in this way. Of course, we do not expect such big increases as last year. Last year was something special, especially in Germany. We were talking about 7% increases in the wages. This is not planned for Germany now. Of course, there will be some increases to balance somehow the inflation rate, of course. But we expect lower increases than 3%. This is the most point which explains the difference. And there are 2 other points also which unfortunately contributed to our EBIT -- to our result. We had FX effect. As you know, we have derivatives, U.S. dollar derivatives and from the evaluation of the derivatives we have now. Last year, it was plus. And now we have lost from the derivatives. Therefore, we are talking about an effect of EUR 5 million, which is big, of course. And ... Miro Zuzak: Where are they booked -- sorry, by the way, are they in [indiscernible] or are they booked in the [indiscernible] are they in the financial results? Joanna Kowalska: They are booked in the financial result. Miro Zuzak: So that's below EBIT. Joanna Kowalska: Yes, yes. Yes. I thought your question was about the EBIT, EBITDA. Miro Zuzak: Well, I was asking about the OpEx, which would typically be above EBITDA. But anyway, No, that's fine, it's good to know, that would have been your next question. Joanna Kowalska: Okay. Okay. So the most effect is really the wages and the personnel costs. Miro Zuzak: Okay. I have 2 more questions -- I have one more question and one suggestion. So the first one is the U.S. dollar change, which was like significant, right? How much will it contribute to the gross profit margin in the next quarters to come? Or to put the question the other way around, how much of your [indiscernible] of your purchases are in U.S. dollars? Joanna Kowalska: It's a good question, and I'm really happy to answer this. We are lucky we are lucky in this respect that our -- we do not source a lot of products in U.S. dollar. Therefore, yes, it's even a lower amount than the 5% of our assortment. Therefore, we are not really impacted by the U.S. dollar in the margin. Nevertheless, of course, there are some. And our policy is always to hedge our direct U.S. dollar purchasing volume. 90% of our volumes are hedged. Therefore, for the future, I do not expect really changes in the margin. Jeremy Garnier: Okay. Maybe you can get some points of price decreases from your European suppliers, who buy in China or in the U.S. area, right, which is now 10% or 15% plus expense. One more -- just one suggestion, you have on Page 13 in your free cash flow definition. You don't include leasing, which makes a big difference. I think just -- it would be a more meaningful number from year list to include leasing because you show EUR 130 million free cash flow of the CapEx and dividends, I would include -- it's just my personal opinion. I would include leasing there, which brings the free cash flow to a more accurate EUR 70 million instead of EUR 130 million. That's probably more accurate. Joanna Kowalska: Okay. Yes, it's [indiscernible] you to hear your view on that. So thank you for this. Miro Zuzak: HORNBACH is always very solid and humble in terms of capital markets presentation, which I like. And therefore, I would show the lower number rather than a higher number in this case. Joanna Kowalska: Okay. Thank you for your [indiscernible]. Operator: So as there are no further questions at this time. I will hand back to Antje for any closing remarks on this conference call. Antje Kelbert: Yes. Thank you very much for your question. And I think we have at least I'll address. I would also like to thank you, Joanna, and Albrecht for your valuable contribution today. And in the coming weeks, you'll find us also at various capital market conferences. We are very much looking forward to engaging with you in personal conversation. So please come to us if there are any further questions arise. And the details of our plans for [ IR traveling ] is also available on our website. And as we now head into Autumn with its rich variety of colors and abundance, perhaps it will inspire you also to start a fresh DIY project around home and garden. Thank you again for your interest and time this morning, and we hope to see you soon and until then, take care. Thank you very much.