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Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Preliminary Full Year 2025 Results Conference Call. I am Jota, 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 Rafael Pérez, CFO. Please go ahead. Rafael Perez: Good morning, and welcome to the Preliminary Full Year 2025 Results Conference Call of Befesa. I am Rafael Pérez, CFO of Befesa. And this morning I'm joined by our Group CEO, Asier Zarraonandia. Asier will start with an executive summary of the period. Then we will cover the business highlights for the steel dust as well as aluminum salt slag recycling businesses. I will then review the preliminary full-year financials by business, and we'll cover the evolution of commodity prices, our hedging program, and finally, cash flow, net debt, and leverage and capital allocation. Asier will close this presentation, providing an update on the outlook for 2026 and an update on our growth plan. Finally, we will open the lines for the Q&A session. As always, this conference call is being webcasted live, and you can find the link in our website. Now let me turn this call over to our CEO, Asier, please. Asier Zarraonandia Ayo: Thank you, Rafael. Good morning all. Moving to Page 5 of the business highlights. We have delivered strong full results -- year results, continuing the solid trends seen in the first 9 months of the year. Our performance demonstrates once again the resilience of our business model and the benefits of our diversified operations. Adjusted EBITDA for the full year of 2025 reached $243 million, up 14% year-on-year. The EBITDA margin improved significantly to 21% in the full year '25 compared with 17% in '24, reflecting a strong operational efficiency and disciplined cost management. Financial leverage was further reduced to 2.27 in December 2025 compared to 2.19 a year ago, well below the 2.5 target, marking the seventh consecutive quarter of deleveraging. Net income and earnings per share also increased sharply. EPS rose 58% year-on-year to 2.01, reflecting a strong profitability and improved financial performance. In our steel dust business, we achieved resilient EAF dust volume across all markets despite adverse market conditions. Performance was further supported by lower zinc treatment charges and favorable zinc prices. Our salt slag operation delivered solid performance, while secondary aluminum has been impacted by persistent challenging environment, driven mainly by the weak automotive market in Europe, as well as the usual summer period maintenance activities in the auto industry. The Palmerton expansion project was completed as expected, with the second kiln successfully commissioned in July '25. We expect '23 to be another year of earnings growth, primarily driven by higher EAF steel dust volumes in the U.S. as well as some recovery in secondary aluminum. Our financial leverage is expected to remain at around 2x by year-end 2026, supported by solid cash generation and disciplined capital allocation. Growth CapEx will continue to focus on the Bernburg project. I will comment on the outlook in more detail later. Moving on to Page 6, business highlights for the steel dust business. In Europe, steel production in the full year of 2025 has remained depressed, down 3% year-on-year, mainly due to weak manufacturing activity and higher imports from China. Despite this, our steel dust deliveries from electric arc furnace steel customers continued in line with the 2024 average at very solid levels, demonstrating the resilience of the business model. Operationally, the European plants performed strongly, achieving a 94% load factor in the fourth quarter, showing a strong performance and no maintenance stoppages. In the U.S., steel production increases by 3.1% year-on-year, driven by overall economic growth. Our U.S. plants operated at a 71% load factor in Q4, continuing a gradual improvement year-on-year. The 2 new kilns in Palmerton have been fully operational since July 2025, and new electric arc furnace steel supply contracts are ramping up progressively through the Q4, following some initial start-up delays. At the same time, cost reduction measures in the U.S. Zinc refining plant continued to deliver the expected improvements in asset profitability. In Asia, volumes in Turkey increased by 11% year-on-year, recovering strongly after a weak second quarter affected by maintenance shutdowns. In Korea, the load factor reached 76% in 2025, up 6% year-on-year, driven by higher domestic deliveries and strong operational execution. In China, operation continued at low utilization level with earnings around breakeven, reflecting ongoing market weakness. Moving on to the Page 7, business highlights for the aluminum salt slag recycling business. In our aluminum business, performance has remained mixed in 2025. Starting with the salt slag recycling business, operations have continued to perform strongly, running in line with previous quarters. Utilization levels remained above 90% in 2025, demonstrating the robustness and efficiency of our assets. In our secondary Aluminium segment, the market environment continues to be very challenging. As we have been commenting during the year, the European secondary aluminum industry remains under pressure with tight metal margins and limited production activity, largely as a consequence of the ongoing weakness in the automotive sector. However, the performance in the fourth quarter of 2025 reinforces the view that the Q3 was the lowest point of the cycle and that the recovery should be underway. Despite these headwinds, we continue to focus on operational discipline, cost efficiency, and customer diversification to preserve profitability and position the business for recovery once market conditions improve. Now Rafael will explain the financials in more detail. Rafael Perez: Thank you, Asier. Moving on to Page 9, the financial results for the Steel dust segment. Steel dust delivered EUR 212 million of adjusted EBITDA in 2025, which represents a 25% year-on-year improvement. EBITDA margin improved from 21% to 27% in the period, mainly driven by better pricing environment on treatment charges and zinc hedging. The EUR 42 million EBITDA improvement has been driven by the following factors. The year-on-year impact from volume has practically no impact, with similar plant utilization at group level around 70%, similar to last year. As explained by Asier, we have been able to run our European assets at a high utilization despite a very challenging market environment. On price, strong positive EBITDA year-on-year impact of around EUR 35 million. With the 2 main price components being higher zinc hedging price, 3% higher year-on-year, and lower zinc treatment charges, which was set at $80 per ton for the full year 2025 versus $165 per ton in 2024. On cost and other, the net positive EUR 6 million impact is largely driven by the lower operating cost in the zinc smelter in the U.S., as well as lower average coke price. These 2 positive effects have been partially offset by higher inflation costs in the recycling business as well as unfavorable FX. Moving on to Page 10, financial results for our Aluminum segment. Aluminum salt slag delivered EUR 32 million of EBITDA in 2025, which represents a 27% year-on-year decrease compared to the EUR 43 million in the same period of last year. The year-on-year EUR 11 million negative EBITDA development was mainly due to the lower aluminum metal margin, as well as slightly higher operating costs and energy prices. On volumes, overall marginally negative EBITDA year-on-year, with a decrease of EUR 3 million. Our recycling volumes of salt slag remained pretty much in line with the previous year. With these volumes, we operated our plants at a strong capacity utilization rates of about 89% in salt slag and 75% in secondary aluminum. With regards to prices, negative EBITDA year-on-year impact of around EUR 5 million, mainly driven by the pressure aluminum metal margin versus the previous year. As commented by Asier, our view is that the industry has bottomed out already in Q3 last year, and we expect positive development from now on. This was partially offset by higher aluminum F&B price with an increase of 3%, averaging EUR 2,369 per tonne. On cost and other increased pressure from higher operating and energy-related expenses. Moving on to Page 11, zinc price and treatment charges. Regarding zinc LME prices during 2025, heat zinc has traded in the range of $2,521 to $3,351 per tonne, showing a particular positive trend in the last months of 2025. The average of zinc LME price in 2025 have been $2,867 per ton, which is 3% above the last year average. However, unfavorable evolution of the foreign exchange of the euro-dollar has resulted in a slightly lower zinc price in euros, down 1% at EUR 2,542. On the right-hand side of the slide on treatment charges, in 2025, treatment charges for zinc were set in April at $80 per tonne for the full year 2025, compared to the $165 of the previous year, marking an all-time low record level. Turning to Page 12 on hedging. We have taken the opportunity of the recent rally of the zinc price to be very active on our hedging program. Our hedging book has been extended to the first half of 2028 at all-time high levels of $3,100 per ton. For 2027, the hedge is set at $3,000 per ton. This provides stability and visibility over the coming quarters and years. Average hedge prices amounted to $2,923 in 2025 and $2,990 per 2026. Turning to Page 13, Befesa energy prices. The page shows the evolution of the 3 energy sources that we have in Befesa: coke, natural gas, and electricity. With regards to coke price, which today represents around 60% of the total energy bill, the normalization that started in the second quarter of 2023 continues throughout 2025. Average coke price in Q4 was around EUR 152 per ton, consolidated its downward trend compared to the previous quarters. Regarding electricity, which today accounts for 30% of the total energy expense, price are at similar levels than in Q3 2025 after significant correction in the second quarter of last year. Finally, gas prices continue its normalization throughout 2025 with a slight increase to EUR 45 per megawatt hour in the fourth quarter of last year. Turning to Page 14, the cash flow results. Operating cash flow in 2025 has reached a record of EUR 212 million, which represents an increase of 10% compared to the same period of last year, despite higher taxes, with EUR 21 million paid taxes in 2025 versus a positive tax impact in 2024. On the EBITDA to cash flow walk, starting with EUR 243 million adjusted EBITDA and to the left, working capital consumption amounted to EUR 10 million in 2025 with a strong end of the year recovery from previous level in the first quarter, reflecting the intra-year seasonality that we explained already in the first quarter. Taxes paid in 2025 came in at EUR 21 million as a result of the final tax assessment of the previous year, in comparison with a positive tax impact in 2024, resulting in an operating cash flow of EUR 212 million in the year, making a record in the history of Befesa. On CapEx, in 2025, we have invested EUR 50 million in regular maintenance CapEx across the company, EUR 26 million in growth CapEx related to the refurbishment of the Palmerton plant in Pennsylvania, which is now completed as well as the part of the Bernburg expansion project in Germany. In summary, total CapEx of EUR 76 million in the year, which is lower than the range of EUR 80 million to EUR 90 million that we initially provided, reflecting a strong discipline on capital allocation. Total interest paid amounted to EUR 34 million, and total bank borrowings amounted to EUR 34 million in the full year. For 2025, the EGM approved in June to pay a dividend of EUR 26 million in July, equivalent to EUR 0.63 per share or 50% of the net income. In summary, final cash flow amounted to EUR 40 million in 2025. Cash on hand stood at EUR 143 million, which together with our EUR 100 million undrawn revolving credit line, provides Befesa with more than EUR 240 million of liquidity. Gross debt at the end of December stood at EUR 695 million. Net debt was greatly reduced by 11% to EUR 552 million compared to EUR 619 million in the same period of last year, resulting in a net leverage of 2.27 at closing of December '25, a strong improvement compared to the 2.9 at December 2024 and well below our initial target of 2.5. Turning to Page 15, debt structure and leverage. Following the refinancing back in July 2024 and the repricing in March last year, 2025, Befesa today has a long-term capital structure with optimized financial cost. Net leverage improved significantly, as explained earlier, to 2.27 at the end of last year. This marks the seventh consecutive quarter of leverage reduction, as well as well below our company target. For 2026, net leverage is targeted around 2x and below 2x onwards, reflecting Befesa's continued commitment to disciplined capital management. We will prioritize the growth CapEx on those projects that will deliver immediate cash flow upon completion, like the approved project of Bembur and other market opportunities that may appear. Also, we will keep the annual regular maintenance CapEx around EUR 40 million to EUR 45 million over the coming years. On dividend, we are committed to maintain our dividend policy to pay between 40% to 50% of the net income to shareholders. For 2026, the Board will propose to the EGM to pay a dividend of EUR 40 million, equivalent to EUR 1 per share or 50% of the net income. This dividend is 37% higher than the dividend paid last year in 2025. Moving on to Page 16. Befesa is entering a new cycle of low CapEx and high earnings, resulting in a strong free cash flow generation and shareholder value creation. During the last years, we have gone through a high CapEx cycle, which has allowed us to expand our operations globally into the U.S. and China. Now that this cycle is completed, we enter a new cycle of limited total CapEx below 80% over the coming years, along with high earnings, resulting in a strong free cash flow. Total cash flow after 3 years of negative cash flow, 2025 has been marked at an inflection point, delivering strong final cash flow. Total cash flow is expected to follow a positive trajectory, reflecting the company's improving a stronger underlying cash generation profile. Finally, as we have already commented, leverage is expected to be kept below 2x for the coming years, allowing greater optionality in future capital allocation decisions. Now back to Asier on outlook and growth. Asier Zarraonandia Ayo: Thank you, Rafael. Moving on to Page 18, 2025 guidance. Befesa closed 2025 with solid delivery within the guidance provided, achieving $243 million in EBITDA and strong operating cash flows of $212 million and maintaining a strict CapEx discipline, spending $76 million. The company continued to deleverage, reducing net leverage to 2.27, supported by improved EBITDA and consistent cash generation. Earnings per share rose to $2.01, reflecting a strong underlying performance and enhanced financial efficiency. Overall, the result demonstrates disciplined execution and continuous focus on long-term value creation forareholders. Moving to Page 19 on '26 outlook. Looking ahead to '26, as in the past, we will provide guidance in the first quarter once the 2026 treatment charge has been announced. However, I can provide some comments about the year. We expect 2026 to be another year of earnings growth, strong cash flow generation, and continued deleverage. Steel volumes are expected to remain solid and stable in Europe, while the U.S. anticipates higher volumes driven by new contracts with the steelmakers. In China and the rest of Asia, stability is also expected to prevail. Salt slags operations are projected to maintain stable volumes compared with 2025, supported by higher collection fees. The metal margin for second aluminum is also expected to improve gradually through the year, particularly after having bottomed out in the third quarter of 2025. The smelter has benefited from a strong fixed cost reduction achieved in 2025, and further efficiencies are expected to be realized through 2026. On the other hand, energy costs are expected to evolve more moderately. The group anticipates a slightly lower to stable overall coke prices, while European natural gas and electricity prices are projected to rise in 2026. General inflation continues to impact maintenance, ancillary materials, and personnel costs across all regions, creating a negative pressure point in the cost structure. In the treatment charge environment, the benchmark TC settled at $80 in 2025, its lowest level in 15 years. Although the concentrate market remains tight, characterized by low spot treatment charges, TCs are expected to rise in '26 toward a range of $100 to $130. Hedging activity foreseen remains stable with the average '26 hedge price set at approximately EUR 2,990 per metric ton, consistent with 2025 levels, suggesting a neutral hedging position. Total CapEx for the year will be below EUR 70 million, with around EUR 45 million for regular maintenance and the remaining for growth in expansion of Bernburg. Net leverage will be around 2x by the end of the year. Moving on to Page 20 on Palmerton. In the United States, our Palmerton plant has been successfully refurbished, marking a key milestone in our strategic growth road map. Both kilns are now fully operational, positioning Befesa to capture the significant growth expected in the U.S. electric furnace steel dust market over the coming years. U.S. electrical furnace steel capacity is projected to increase by more than 20% by 2028, equivalent to around 18 million tons of new steelmaking capacity. This expansion translates into over 300,000 tons of additional steel dust, creating a substantial opportunity for Befesa's recycling operations. With a total installed capacity of 650,000 tons across our U.S. plants, we are now well-positioned to leverage this growth. Our goal is to progressively ramp up utilization from below 70% today to around 90% by 2028 as new electric arc furnace capacity comes online. The combination of our modernized departmental facility, long-term customer relationships, and strategic geographic footprint near key steel producers ensures that Befesa is ready to capture this next phase of growth in the U.S. market. Moving on to Page 21, our expansion project in Bernburg, Germany. This is another important milestone in Befesa's growth journey as we continue to strengthen our aluminum business and expand our recycling capacity in Europe. From a timing perspective, our permits have now been obtained, and our construction officially started in August '25. We expect a 12-month construction period followed by a 6-month ramp-up phase in the second half of '26. On the commercial side, we have already secured strong customer support. Overall, the Bernburg expansion is progressing fully in line with plan. Moving on to Page 22 about the European steel industry. Europe is accelerating its transition toward electric arc furnace steelmaking, largely driven by decarbonization targets and supportive policy frameworks. Between '26 and 2030, 12 new electric arc furnace projects have been announced to come online. This represents more than approximately 20 million tons of new EAF capacity, which means 23% increase compared to the 60 million, 90 million of electrical arc furnace capacity in Europe. As a result, EAF penetration is expected to rise from the current 45% over the next 5 to 10 years, supported both by this new project and the progressive replacement of blast furnaces. Given our strong market position, established customer relationships, and ongoing business development efforts, Befesa is strategically well positioned to capture the significant volume growth expected from this strong. We are already engaged in advanced negotiations with key customers to support this expansion phase in the coming years. Thank you very much. Rafael Perez: Thank you, Asier. We will now open the lines for your questions. Operator: [Operator Instructions] The first question comes from the line of Shashi Sekhar with Citi. Shashi Shekhar: So I have a couple of questions. So my first question is on capital allocation. I just wanted to understand what's the priority here? Is it deleveraging, dividend payment, or further expansion into European steel dust business, given improved outlook for European steel segment? My second question is on China. I believe one of the plants is still burning cash. So I just wanted to understand at what point you will consider either closing it or moving it to some other province? Rafael Perez: Thank you, Sashi. On capital allocation, I think we have tried to explain many times. We want to deliver a combination of keeping the leverage below 2x. I think this year, we have made -- last year, 2025, we made great progress in our deleveraging efforts, achieving a target which is below what we initially envisaged at 227. We are targeting around 2x for this year, 2026. And beyond 2026, we expect to keep the leverage below 2x, okay? Secondly, on dividend, yes, we want to keep the promise that we made at the IPO to pay 40% to 50% of the net income as a dividend to shareholders. And then on growth, obviously, as we have explained, we are coming from a high CapEx period where we have invested heavily in China and in the U.S., and that has enabled us to expand our operations. I think the focus at the moment is for this year in Bernburg, as Asier has explained. And then we also see a clear opportunity to deploy capital in Europe, as Asier explained at the end of his speech, to capture the growth of the EAF steel market in Europe, okay? We envisage to do that through a brownfield. We will provide all the relevant details about the project at the right time. But it's a combination of capturing the growth opportunities that we see in our main market, Europe, while keeping the leverage below 2x and keeping the commitment to pay dividend. Asier Zarraonandia Ayo: Yes. Sashi, and regarding the second question about China, well, yes, we have one plant running probably levels in 50%, 60% and the other one is just 10%, 20% depending on the availability. But it's not burning cash because basically, what we have is that plant stopped under control, and even when we run in periods where we have stopped the plant, moving the people to run the business. And basically, the cash is -- we are not negative cash in general in China for the whole business. So we are doing EBITDA positive and converting into cash positive for the year. So we have some confidence to be in that way until the market comes back. Possibilities for the future, well, you talk about. I mean, we are open to see if we can move in another province. And in that case, we consider even to transfer or translate the assets. We will see. The whole thing now is that China is in a situation that we don't see the need to invest in that so far more and wait for the recovery and as well because we are not, again, making cash negative, we have time to do that. Operator: The next question comes from the line of Adahna Ekoku with Morgan Stanley. Adahna Ekoku: I also have 2. So first of all, just on secondary aluminum, there was quite a strong margin improvement quarter-over-quarter, given the market backdrop. Is this a level we should expect to persist throughout 2026? Or were there any kind of specific positive effects in Q4 here? And second, just on the Q1 outlook, could you run through the kind of key moving parts to consider here, like volumes and margins? And are there any maintenance activities we should be aware of? Rafael Perez: Adahna, thank you for the question. Well, secondary aluminum, I think that -- well, yes, I think as I reference the last quarter margins, and probably we will see this, and we are starting to see this level in the first part of the year. But still, it's a little bit early to say this is going to be there, perhaps the level even is increasing, we will see. I mean it's a good reference because we see that the last part of the part has gone. In terms of the outlook and maintenance, I think that the reference could be the last year situation for maintenance stoppages, and probably the dust and the activity volumes are going to be in line with 2025, but we think that we can improve the figures. But in terms of activity, it could be a good reference, the first quarter of 2025. Operator: The next question comes from the line of Fabian Piasta with Jefferies. Fabian Piasta: I have 3 and one follow-up. So could you give us an indication what the EBITDA contribution from your U.S. smelting business is? Are we breakeven already this year? And what are you expecting for 2026? The second one is on the treatment charge outlook. Do you think that this is more driven by capacities or the recently increasing LME zinc price, basically making smelter compete for the zinc? And the third question would be you were referring to demand from data center verticals. Is there an end market split that you can share? How do you see that? What do you expect this growth to influence volumes in the U.S. And the last one was on maintenance. Did you say that the phasing is going to be similar like last year, so more maintenance shutdowns in the first half? Or did I get that right? Asier Zarraonandia Ayo: Thank you, Fabian. So many good questions. Well, regarding the U.S., refinery is where the plan is where we thought to be and is closing to the breakeven point, and the costs are under control. Now the operation depends on the volumes as well of material we can treat there, and it's basically a control of the cost already done. Even you can gain a little bit more efficiency cost for next year. Regarding the treatment charge, it's a good question about what is affecting the most is capacity demand of about concentrates market, and it's a little bit strange. But obviously, it's affected by the rest of the factors, which affects to the zinc price. Normally, the period is still in favor of the miners. The question is where it's going to be spot TC that is not -- has not to be a real election, but it's a little bit down again. So well, all the music sounds that it's going to be another year of favor of minus. The level could be in the range as we see more than $100 now, but it has to be confirmed, basically those days with a meeting for the International Zinc Association in U.S. those days. We will see. In terms of the steel demand and so on, I think that everywhere is an expectation about the general evolution looks positive because we can see the steel share prices of everyone. I think that the expectation is that a recovery, and because the tax and custom action they are taking for -- in Europe or U.S. could have an effect in the production. If this happens, we see positive outlook for the steel in general. And regarding the last point, as I said before, yes, when we -- maintenance stoppage is sometimes not easy to move from 6 months or a longer period because yearly basis is when we do the maintenance. So more or less, what we see now for '26 is the same level than '25 with the Q1 and Q2 and then Q3 and Q4 having more volumes. This is a little bit the view that we have now, no major changes. We try to move and to do longer periods before the maintenance, but no big changes are going to come in the short term. So again, the '25 maintenance stoppage reference is a good point of your expectations. Operator: The next question is from Olivier Calvet with UBS. Olivier Calvet: I have 3. Firstly, on volumes in the U.S., what's your expectation for additional volumes in 2026, and that if you could give us a sense of the range you're thinking about, depending on when your clients' volumes come through? The second question would be on the CapEx level. So I fully understand the message on sort of below EUR 80 million CapEx going forward. But I noticed slightly higher maintenance CapEx in '25 than I think you had indicated. So are you expecting a similar level of maintenance CapEx in '26? And just the growth CapEx part related to Berenberg, I had in mind the EUR 10 million to EUR 15 million. Is that fair? And the third one, just on the zinc hedges. So great to see you've been active on hedging. So what you've added in '27 and '28 is in USD, right? In '26, I think you had hedged in euros, right? And just if you could remind us what level of exchange rate you hedge '26? Asier Zarraonandia Ayo: Thank you, Olivier. I can get the first question about the U.S. volume, which is what we do expect, is partly the same that we were expecting in '25 with the new contract. So -- and then depending on the evolution of the steel production in general for the rest of the customer, but we see more or less in the range of 60,000 to 70,000 tonnes of more volume in U.S., more or less is a good reference for you to have. Rafael Perez: Regarding CapEx, Olivier, I think we have said very clear, obviously, it's not a fixed number, but maintenance CapEx will stay between EUR 45 million to EUR 50 million over the coming years. And then growth will be based on -- in this year, for 2026, on Bernburg. We are envisaging a maximum CapEx for this year of EUR 70 million. And for the coming years, we don't see any year of CapEx higher than EUR 80 million. So what I tried to explain is that we are entering into a new cycle of limited capital, limited CapEx, and high earnings resulting in strong free cash flow. And regarding the hedging, yes, we -- for 2026, we are hedged in euros for our European volumes, in dollars for our American volumes. And for '27 and '28, the hedging at the moment in U.S. dollars. Olivier Calvet: And just on the CapEx, so the growth part of the guidance for '26 is basically only Bernburg, or is it -- is there some headroom to do-- Rafael Perez: Yes. Operator: The next question is from the line of Jaime Grivanomayes with Banco Santander. Jaime Escribano: A couple of questions from my side. The first one on salt slag. So the EBITDA in '24 was close to EUR 32 million, around EUR 29.5 million in '25. What could we expect in 2026? Also, if you can comment on the margin of Salted slags in Q4, which was a little bit low at 21%, more or less. What could we expect? If you can give us some color on the dynamics in salt slags, basically? And second question on secondary aluminum would be very much of a similar question. So EUR 2 million in 2025, which seems to be a trough. What should we expect for 2026, a number that you feel comfortable? And maybe a final question on the guidance 2026, which I know you don't provide, but if we look to the consensus at EUR 260 million EBITDA, EUR 260 million EBITDA more or less, how comfortable you feel with this number? And building on this, if the treatment charge ends up being around 100 million, 110 million, and zinc price averages above 3,000. How do you see this 260, do you see upside risk, or you're still comfortable with this number? Asier Zarraonandia Ayo: Thank you, Jaime. Starting for the salt question, yes, we have -- I think it's a business which the current normal capacity of the secondary aluminium production in general in Europe is quite stable. We do hope this reference of EUR 32 million that we have in '25 could be a reference even to increase something in '26, because we have increased fees for aluminum producers. So we see that it is a good reference, even slightly higher. The '25 number has been affected by basically the volume that you have seen that is not better, and some more weight of the cost of production because you are not increasing or compensating with the volumes. But the dynamics of the business is clear. It's very similar to the steel dust. The volumes is the key because we have the plant almost full capacity. But the current aluminum producing -- secondary aluminum producing situation is putting some stress to the plant, and we are not so efficient like in the past because the full production is the best situation to absorb the cost. We see the '26, as I say, a stable business, but probably a little bit higher, 10% or something like that could be a good reference. With regards to secondary aluminum, what we can wait or we can expect for '26. Well, the 2 million of the Q4 is a good reference. I mean, just repeating the 2 million in every quarter, we will talk about $8 million or something like that. So well, it's not coming back to the years that we have even EUR 20 million in this business, but well, [ Sala's ] reference of EUR 8 billion to EUR 10 billion is something that will be very strange for us, right? We will see if it's going to be even better because we see very difficult to be back on the worst period like it was the Q3. So yes, the Q4 could be a good reference, perhaps conservative, but repeating this, as I say, could be a reference. And with regards with the guidance, I know you guys that you like the numbers and basically one number and an average in the range, whatever, EUR 260 million, something that is the current consensus. Well, we are comfortable with this figure, but we need a little bit more time to see the evolution of TC and put our estimations. But I think that is, in any case, will be in the range, this amount, and we are not -- we are comfortable, yes, really. Operator: The next question is from Bertran Palazuelo with DLTV. Beltran Palazuelo Barroso: Congratulations all of you and the team for the strong results. I have 2 questions. First of all, regarding capital allocation, I know you answered, but I will ask again. Clearly, seeing the dynamics you're seeing and you're stating and clearly also stating the visibility you start having with the zinc prices due to the hedges, and seeing that the spot price is higher than your hedges? Well, it looks like in the future, well, your balance sheet should get stronger and stronger. So my question is, apart from paying the dividend, what is making you not start buying a little bit of shares to show the market all your, let's say, improvements. We -- from us, we would like to see the share count decrease. In 2021, you increased it at a good price. Now we want to see it decrease because the balance sheet, it looks like it gets stronger and stronger. And then my second question is apart from the -- what growth opportunities now apart from the state do you see medium to long term to allocate capital accretively. Rafael Perez: Thank you, Beltran. I think we have discussed many times. I think, obviously, share buybacks is something that we have looked in the past, but the financial profile of the company was not adequate. It is true that we expect to generate a very healthy cash flow going forward. We want to keep the leverage slightly below 2x. And yes, if we don't see any growth opportunity, we will definitely consider share buybacks, considering also the share price and the valuation of the company. So always any time that we see that the valuation of the company or the share price doesn't reflect really the -- what we believe should be the fair value of the company, we will analyze share buybacks. I don't think that's something that you can expect this year. We have another project in the pipeline, which is going to explain to you, which is in Europe, as you know very well. So it's about balancing everything. But yes, I think share buybacks are something that we are looking at, not in the short term, but more in the midterm. Asier Zarraonandia Ayo: Yes, indeed, I think Beltran is a good question. And I think that we are starting to enter in a cycle that we are going to generate strong cash, and the massive growth opportunities that we have in the past are not coming so high. So probably those considerations are on the table, and we have to see what is better is to keep growing with the projects as you are asking, or yes, to some program of say buybacks or whatever, what is better for the shareholders at the end of the day. In this regard, the project that we have in the pipeline for the next years clearly is to finish the Berburg plan as we are indicating basically in '26, and the next one could be -- or it could be -- the question is when, but probably starting '27 is a good reference and to run in '29 is the European second kiln in our French plant going on hand-to-hand with the projects of the steelmakers. We have in the pipeline as well the slab plant in the East Europe. If and following the developing of the decarbonization and the evolution of the automotive sector that nowadays, I think that is not the time to do because everything is delayed and has to be confirmed. Out of those 2 projects, we have, of course, the idea to medium term for new geographies like India, or let's say, 4, 5 years, China is back at the end of the day to see opportunities, small M&As or whatever. But it's true that this is the reason, as Rafael said, that we have to evaluate the new projects against new ways of contribution to the sales holders clearly. But anyway, we are really interesting because I think there is a very good opportunity for the Befesa evolution on the growth of the European market, and then we will see what is going on with the rest of the geographies. Beltran Palazuelo Barroso: Okay. But also, as I said in the past, and I said it now publicly, I think you have demonstrated to the market that you're extremely good, let's say, operators. Now what you have to demonstrate to the market is that you are extremely well capital allocators. I think you demonstrated in 2021. Now you have to demonstrate it going forward because if you start a share buyback of EUR 10 million or EUR 20 million in the future when the stock is at EUR 60 million, that would make no sense. So I -- you don't have to make a big thing, but I think the balance sheet is getting stronger and the stock market is not reflecting it, and all the support. Rafael Perez: Fully agree, Beltran, you so much for your comments. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Mr. Perez for any closing remarks. Rafael Perez: Thank you all for your questions. Please don't hesitate to contact the Investor Relations team of Befesa for any further clarification. We will now conclude the conference call. Thank you for joining, and have a good day. Bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call.
Marissa Wong: Good afternoon. Welcome to CLP's 2025 Annual Results Briefing. My name is Marissa, Director of Investor Relations. And with me today is Chief Executive Officer, Mr. T.K. Chiang; and Chief Financial Officer, Mr. Alex Keisser. We lodged our 2025 annual results with the Exchange today. That announcement as well as this presentation is now available on the CLP IR website. This recording is also being recorded, and you can access that a little bit later on this evening. Before we begin, please read the disclaimer on Slide 2. And this year, we've got 2 languages available; one, English and one, Putonghua for you to choose from. And for today's briefing, we'll start with T.K providing the overview, followed by Alex with the financial results, and then T.K will return with the strategic outlook. We will then conclude on with a Q&A session, and we encourage your participation and your questions. So with that, I will now hand over to T.K to begin the briefing. Thanks, T.K. Tung Keung Chiang: Yes. Thank you, Marissa. So good afternoon, everyone. Thanks for joining us. In 2025, our core Hong Kong business performed strongly, providing stability that offset market headwinds on the Chinese Mainland and also Australia and kept our overall results resilient. The fundamentals of our business remain strong. Our operational excellence continues to drive value across the group, advancing critical projects that secure energy reliability and our transition to 0 carbon. In Hong Kong, we completed our smart meter rollout and maintained world-class supply reliability despite facing a record Black Rainstorms and 14 typhoons. On the Chinese Mainland, we brought our largest wind farm to date into commercial operation, launched our first independent battery energy storage system and commissioned our second centralized control center in Shandong. In India, Apraava Energy achieved full commissioning of its 251 megawatts Sidhpur wind farm, its biggest wind project to date. And in Australia, we completed outage programs at Yallourn and Mount Piper enhancing its flexibility and reliability. Our growth momentum is aligned with energy transition opportunities in our region. With a disciplined, value-driven approach, we are advancing a pipeline of low-carbon projects that will secure future earnings. At the same time, we have taken steps to drive cost efficiency and strengthen our foundations. We completed Phase 1 of our ERP rollout in Hong Kong, advanced and enterprise-wide transformation at EnergyAustralia and optimized head office operations. We closed 2025 with healthy cash flow and a strong balance sheet. This financial resilience, combined with our growth momentum, gave the Board the confidence to increase the dividend, continuing our track record of delivering shareholders' returns. Turning to the highlights. Financially, the group's operating earnings before fair value movements were down marginally by 2% to over HKD 10.6 billion. Total earnings were lower by 11% to HKD 11.5 billion, driven by coal plant-related items affecting comparability. So Alex will provide details shortly. The Board has recommended a final dividend, bringing total dividends for 2025 to HKD 3.20 per share, an increase of 1.6% from 2024. Operationally, we achieved strong performance in safety and reliability with a lower injury rates and reduced unplanned customer minute loss in Hong Kong. On the customer front, we added more accounts in Hong Kong, while competitive dynamics in Australia led to a decline in numbers. In terms of generation, electricity sendouts declined by 3% reflecting lower coal output. At the same time, non-carbon capacity rose by 3%, driven by renewables and battery investments across the group. I'll now hand over to Alex for the financial results. Alexandre Jean Keisser: Thank you, T.K, and good afternoon. A summary of the key metrics. Earnings before interest, taxes, depreciation, amortization and fair value movement or EBITDAF was stable year-on-year at HKD 25.7 billion. Operating earnings before fair value movements decreased slightly by 2% to nearly HKD 10.7 billion. Adjusted for the fair value movements and items affecting comparability, total earnings was close to HKD 10.5 billion, a decrease of 11%. Capital investment declined 13% to HKD 16.4 billion, with higher growth CapEx offset by the absence of the headquarters acquisition booked in 2024. Total dividends for financial year 2025 was HKD 3.20 per share, representing an increase of 1.6%. Let's go now into the details. The group's performance was anchored by a strong Hong Kong business performance. Elsewhere, earnings were impacted by market pressures, transformation costs and one-off items. Fair value movements on Energy Australia's forward energy contracts were less favorable compared to a year ago. Several nonrecurring items also affected comparability in '25. A HKD 680 million impairment on 2 minority-owned coal plants on the Chinese Mainland was taken due to lower demand and rising competition from renewables. A HKD 345 million redundancy for Yallourn plant closure was also provisioned. While a positive contribution of HKD 390 million was booked from EnergyAustralia's Wooreen battery following the formation of our 50% joint venture with Banpu. I'll now take you through the detailed performance and outlook for each business unit. All balances will exclude foreign exchange to reflect underlying performance of the business. Let's begin with Hong Kong. It was another solid year. Core earnings rose 7% to just over HKD 9.5 billion, driven by continued capital investment and high operational reliability. We also proactively refinanced debt in a favorable interest rate environment to lower interest costs. Capital expenditure was HKD 10.6 billion, focused on growth and decarbonization, supporting the northern metropolis development, data center expansion, grid upgrades and completing the smart meter rollout. Electricity sales dipped slightly, reflecting milder weather and a high base into '24. However, demand from data centers continue to grow, reinforcing their role as a key structural growth driver. We continue leading Hong Kong's low carbon transition, investing and partnering across sectors from transport and shipping to building. Looking ahead, our focus remains on 3 priorities: First, continue delivering safe, reliable electricity at a reasonable tariff. Second, delivered a HKD 52.9 billion development plan expanding infrastructure in growth areas and strengthening grid resilience to support Hong Kong's future. And third, support Hong Kong's 0 carbon goal by completing the clean energy transmission system and working closely with government to increase 0 carbon imports. Now turning to Chinese Mainland. It was a challenging year shaped by transitional supply demand imbalances, softer demand and resource variability. Earnings declined 12% to HKD 1.6 billion, mainly from Yangjiang Nuclear and renewables. Yangjiang's contribution fell due to a higher share of output sold at market tariffs where prices were lower. Renewables were impacted by historically low wind resources and higher curtailment of approximately 9% across the portfolio, particularly in Jilin and Gansu. Conditions improved as the year progress in key provinces like Shandong and Jiangsu with easing tariff pressure. Our minority coal portfolio saw reduced dispatch from lower demand. Nevertheless, operational performance continues to be strong. Energy sold increased across the portfolio with Daya Bay Nuclear delivering another standout year. We also commissioned 1 new win and 3 new solar projects adding to earnings, and we received a record amount of renewable energy subsidies, boosting our cash flow. While our annual contracting GEC and PPA volume with corporate customers increase, supporting short-term earnings visibility despite a softer pricing environment. And finally, on the development side, our pipeline remains healthy at over 1 gigawatt. Looking ahead, Daya Bay will remain a stable contributor, while Yangjiang will face increasing market tariff pressure. For our minority coal assets, earnings should remain stable. Higher capacity charges under Policy 114 are expected to offset the removal of the floor price. The outlook for renewables is sound. Market fundamentals are stabilizing and tariff pressure looks manageable. Importantly, we had success under Document 136. We secured full eligible mechanism tariff volume for 4 projects, locking in attractive rates for the next 10 to 12 years, providing solid long-term revenue visibility. Our capital strategy remains disciplined, and we're exploring efficient funding options, including onshore Panda Bond and strategic capital partnerships. Two, EnergyAustralia. Overall performance was impacted by tough retail conditions and a combined HKD 300 million impact from the one-off tax expenses and upfront transformation costs. In generation, the fleet performed well. Mount Piper run reliably and our fleet operated flexibly to capture optimal pricing outcomes in a period of less volatility, effectively offsetting the Yallourn's lower output and Mount Piper's higher coal cost. Retail remained challenging. Intense competition and cost of living pressures led to margin compression, loss of customer accounts and higher bad and doubtful debts. That said, we saw improvement in the second half with early benefits from cost initiatives and recontracting activities starting to materialize. We booked upfront cost under the enterprise segment, tied to the multiyear transformation program launched in 2025. This strategic investment includes our partnership with Tata to streamline IT operation and corporate functions. Separately, we are evaluating billing and [ CRM ] platforms to simplify and digitize the business. Earnings were also impacted by the one-off tax expense arising from changing law tax that limits the deductibility of interest expenses on shareholder loan. On the positive side, finance costs declined driven by lower average debt levels and reduced interest rates. We also settled the maturing shareholder loan and put in place a smaller, more flexible perpetual note, an equity classified instrument with no fixed repayment obligation to strengthen EA balance sheet. The net result was operating earnings to HKD 85 million, reflecting the combined weight of retail performance, transformation investment and the tax one-off. Looking ahead, EnergyAustralia is focused on 4 key actions: first, optimizing our generation portfolio, leveraging our flexible fleet to respond to demand and capture value in evolving NIM with high volatility. Second, building on second half momentum in retail to improve margins through targeted customer strategies, ongoing cost out and platform transformation. Third, executing our enterprise-wide transformation to deliver a leaner, more efficient operating model by 2028. And lastly, delivering new flexible capacity. We're advancing over a gigawatt of new batteries and pump hydro projects, with Wooreen on track for 2027, laying the foundation for stability and earnings growth. Moving to India. Our joint venture platform, Apraava Energy delivered solid underlying performance. However, reported earnings were impacted by one-offs. Headline results were down 29%, primarily new to HKD 82 million one-off impairment on KMTL transmission. This compares to 2024 results that including one-off gains totaling HKD 55 million. Excluding these one-offs, our underlying operating earnings improved. Renewables delivered higher output, thanks to higher wind generation and the full commissioning of the 251 megawatts Sidhpur wind farm. Solar remained stable, and we saw additional interest income from delayed payment. Transmission had solid availability and earnings from our 2 operating lines. Our smart meters portfolio is scaling up with more than 2.5 million meters installed and growing contributions as rollout accelerate with another 7.2 million meters to be installed. Jhajjar thermal output was lower. But the plan maintained high operational efficiency and reliability. We continue to drive an ambitious growth pipeline. 18 Projects won within 3 years across a diversified portfolio for an equivalent of close to 2 gigawatt capacity. Looking ahead, we remain focused on portfolio decarbonization and sustainable growth. A key milestone will be the sale of our Jhajjar coal plant, which is on track to complete in the first quarter. The sale will unlock capital for reinvestment and is expected to generate gain. With a clear path to decarbonize and a robust pipeline, Apraava is well positioned to capture India's significant energy transition opportunities and continue to deliver value to shareholders. Finally, to Taiwan region and Southeast Asia, earnings declined to HKD 179 million. Ho-Ping's contribution in Taiwan was lower due to lower recovery of coal cost while Lopburi solar in Taiwan remained stable. We also incurred higher development and corporate expenses as we explore new opportunities in the region. Looking ahead, Ho-Ping will focus on managing fuel cost. More broadly, we are assessing opportunities with long-term contracts across Taiwan region and Southeast Asia as part of our growth strategy. These targets benefit from strong economic growth, supportive policy settings and utility scale projects offer attractive potential. We are currently evaluating opportunities, including renewable energy projects in Taiwan and cross-border development linking Laos and Vietnam and we'll proceed with the right partners and funding structures in place. Turning to cash flow. Free cash flow generation was strong, up HKD 1.6 billion to HKD 22.6 billion driven by solid EBITDAF and fuel cost recovery from declining fuel prices from our Hong Kong SoC business, alongside receipt of renewable subsidies from the Mainland. With our new headquarter completed in 2024, overall capital spend came down. Total cash outflow was HKD 22.6 billion made up of HKD 14.6 billion of capital investment and HKD 8 billion of dividend payments. Of the HKD 14.6 billion of capital investment, HKD 11.2 billion was invested in our Hong Kong SoC business and HKD 3.4 billion was spent on renewables projects on the Chinese Mainland and Wooreen battery in Australia. Cash payment for dividends was higher as a result of the higher final dividends for financial year 2024. Finally, our financial structure remains strong with a slight increase in net debt. Our liquidity remains sound with around HKD 29 billion in available facilities to meet business needs and contingency. The team has successfully raised over HKD 17 billion debt for the Hong Kong SoC business in addition to the refinancing of the USD 500 million perpetual capital securities, all with competitive credit spread. Our prudent financial management continues to be recognized by rating agency, S&P and Moody's reaffirm our strong investment-grade ratings for CLP Holdings, CLP Power and CAPCO, all with stable outlooks. And finally, Moody's is upgrading EnergyAustralia outlook to positive on its investment-grade BAA2 rating. I'll pass it now over to TK for the strategy update. Tung Keung Chiang: Thanks, Alex. Energy security and decarbonization are the critical forces shaping our industry's future and CLP is committed to leading this transition. Our strategic priorities are clear and centered on balanced growth, decarbonization and financial discipline. Hong Kong remains our cornerstone. It's stable, regulated framework provides predictable returns and dependable earnings that are fundamental to our strength. We are executing the HKD 52.9 billion 5-year development plan to deliver safe, reliable and affordable power while supporting government's economic and infrastructure agenda and accelerating the city's energy transition. Our major focus is modernizing and expanding our power system to meet future demand from the northern metropolis, a 300 square kilometer development that will house 2.5 million people to the rising needs of data centers and electrified transport. This disciplined investment delivers for Hong Kong and builds a solid platform for sustainable growth. Now building on that foundation, we are targeting growth in fast-growing energy transition markets in our region and doing it with discipline. Our strategy is firmly value over volume. Each investment must meet our minimum return requirements. The goal is to build durable recurring earnings while ensuring diversification. China led global renewable energy in 2025, adding nearly 450 gigawatts of solar and wind and now reinforced by the government's landmark pledge to reduce emissions by 7% to 10% from peak levels. We are participating in that growth but selectively. In 2025, we added 0.5 gigawatt of renewable, which is modest compared with the national scale. Reflecting our calibration to ongoing market reforms, we have adjusted our development targets from 6 to 5 gigawatts of renewable energy by 2030. We are prioritizing quality opportunities with long-term earnings visibilities. This means focusing on high-demand regions with strong resources and great access, expanding at existing sites where we already have scale, and securing long-term green power contracts or GECs with corporate customers. Encouragingly, we've had success post Document 136 implementation with 4 projects across Hebei, Yunnan and Shandong, each securing full eligible mechanism tariff volumes totaling around 1 gigawatt at attractive prices and long tenors supporting long-term revenue stability. Importantly, our growth in China is being structured to be self-funded. From 2026, we plan to tap into onshore financing, like tender bonds and bringing strategic partners through a clean energy fund. It's a model we have already proven in Apraava, and we are applying that same capital discipline here. India's commitment to clean energy is clear, targeting 500 gigawatts of non-carbon capacity by 2030, alongside massive grid modernization, for greater efficiency. This creates a powerful backdrop for Apraava's growth. As our self-funding joint venture, Apraava is scaling up across a low carbon value chain, wind, solar, transmission and smart meters. In the last 3 years, Apraava secured 18 projects across a diversified portfolio, all backed by long-term contracts that lock in stable, attractive returns. Today, it has around 2 gigawatts of low-carbon projects underway, targeting 9 gigawatts by 2030. As part of a diversified portfolio, the business will begin to explore opportunities across commercial and industrial customers and battery storage. Apraava Energy is a capital-efficient growth platform, enhancing both our earnings and long-term growth profile to Australia. In 2025, solar and wind hit new milestones, supplying over 50% of the national electricity markets in quarter 4. This is a clear sign of where the market is heading. Our focus is on firming this increasingly renewable heavy grid. We are investing in flexible capacity that supports reliability and capture value as volatility grows through Australia's decarbonization. EnergyAustralia has over 1 gigawatt of new dispatchable and firming capacity slated to come online in the next 3 years. We have made strong progress on multiple fronts. Over the last 2 years, we have secured government support for 3 key battery projects; Wooreen, Hallett and Mount Piper under the federal government's capacity investment scheme. These projects benefit not just from policy tailwinds, but also from existing lands, grid connections, skilled local workforces and EnergyAustralia's growing development capability. Our partnership model is delivering results. We launched 2 major collaborations in 2025, the 351 megawatts Wooreen battery with Banpu, now under construction; and the 335-megawatt Lake Lyell pumped hydro projects with EDF in development. EnergyAustralia will remain self-funded using partnerships and project financing for large projects, EA's balance sheet for smaller ones and long-term contracts for projects outside our asset footprint. With a clear plan to reduce costs, a more flexible fleet and a strong pipeline of new capacity, EnergyAustralia is well positioned to deliver reliability, resilience and value in Australia's evolving energy markets. Let me touch on our capital allocation approach. It can be summarized as invest for growth, but within our means while protecting financial strength and delivering shareholder returns. Our foundation is solid, a strong cash generation profile and solid investment-grade credit rating give us the flexibility to fund both operations and growth. Hong Kong's sustained asset growth underpins stable and predictable cash flow, supporting our consistent dividend. Beyond Hong Kong, we apply a disciplined lens to every investment. We prioritize capital for projects that are strategically aligned and meet our return thresholds. We also run our established businesses with the objective of financial independence, maintaining stand-alone credit profiles and tapping diverse funding sources. We will leverage capital recycling and business model options, including partnerships, such as the clean energy funds on the Chinese Mainland for efficient use of capital. By adhering to these principles of discipline and diversification, we will drive steady long-term earnings growth. Now finally, our core capabilities are what enable everything I've described. For CLP, it starts with operational excellence. That means consistently delivering strong performance across the energy value chain through efficient operations, reliable networks and great customer experience. We've strengthened grid resilience, modernize our infrastructure and leverage technology to improve efficiency, all of which underpin our reliability, cost discipline and safety performance. Two critical enablers support our strategy, our people and our digital transformation. We are investing in our teams, reskilling and upskilling our workforce and fostering a culture that embraces change. At the same time, we are embedding digital solutions across the business, a key milestone was deploying our ERP system in Hong Kong alongside a digital literacy program that has reached thousands of employees, helping to improve efficiency and decision-making. These capabilities are interconnected and reinforcing. Together, they give us the competitive edge to meet the demands of a rapidly evolving energy sector. We faced the opportunities of energy security and decarbonization with discipline and purpose and with a clear focus on delivering sustainable long-term value for our shareholders. I'll now hand over to Marissa to facilitate our Q&A session. Marissa Wong: Thank you, T.K, and thank you, Alex. We will now begin the Q&A session. [Operator Instructions] Pierre Lau from Citi. Pierre Lau: Can you hear me? Marissa Wong: Yes, we can hear you well. Pierre Lau: I have 2 questions. The first one is for Alex. If you look at Page 12, regarding EnergyAustralia, I think 2025 EnergyAustralia earning below expectation. And I can see that the sharp increase in the enterprise or the corporate expenses and also increase in depreciation and amortization expense. I want to note that these 2 number, I mean, minus HKD 177 million and also minus HKD 190 million, how much of them are on a recurring basis? And how much of them on one off basis? And also, what will be the outlook for 2026? And the second question is on Page 15. Regarding your cash flow. So this is the question for T.K. So I can see that 2025, your CapEx -- for growth CapEx, mainly in Australia and China, still up year-on-year. But obviously, 2025 earnings from both Australia and China were not so good. So are we going to increase the CapEx further for these 2 countries in 2026. And also, we mentioned that we target something like double-digit IR for China and high single-digit for Australia. Are we too optimistic in terms of our return forecast? Tung Keung Chiang: Maybe Alex can answer. Alexandre Jean Keisser: Yes, I can start with the first one regarding EnergyAustralia. So -- and I will add one point, if you allow me. So if we look at the breakdown of the 3 points that you have raised, so the D&A increase depreciation and amortization is a recurrent up to [ HKD 228 million ]. That was linked to the increased CapEx that we did, mainly in Yallourn in order to increase its reliability and able to hedge more of its energy. The one which is linked to enterprise EBITDAF, this is more one-off linked to 2 activities. The first activity is the outsourcing of our IT and corporate services to Tata. So this has been done in order to prepare future reduction in our operating costs. It's an OpEx which is done in order to improve our operation. And the second type of expense that we had is for the contracting for a new platform for our customers that has been not yet set, but for which we already had some expense. The third element that I want to raise, which we have not raised is regarding taxation. This is also a reduction in our earnings linked to a one-off as we took the decision not to deduct from the taxes, the interest payment between EA and CLP for the shoulder loan that was in place. Marissa Wong: And Alex, just touching on the outlook on EA. Alexandre Jean Keisser: The outlook, I don't provide any outlook for that. So sorry for that. Tung Keung Chiang: Okay. Now regarding question 2, the CapEx for growth, as you can see on Slide 15, it's mainly for the Chinese RE projects and EnergyAustralia's Wooreen battery. Now for EnergyAustralia, Wooreen battery will only be commissioned next year. So the benefit actually will be coming. So there is always a kind of a time difference between CapEx and asset commissioning to bring in the benefits. Now regarding the -- but maybe one data point is that you -- last year, we have 4 projects commissioned in Chinese Mainland. Total is about 400 megawatts but right now, we have 5 projects under construction. The total capacity is about 900 megawatts. So we will see more asset coming online this year. Now regarding the expected return, that's our hurdle rate, and we have been very disciplined in ensuring that the investment that we're making can satisfy the hurdle rate. As I also mentioned previously, in Chinese Mainland, we have had 4 projects with total capacity of about 1 gigawatt that have been successful in the mechanism tariff bidding process last year. For those mechanism tariffs, the tariff level actually are quite attractive, and all of those projects after taking into account the future projections of the market tariff, we are quite confident that the IRR actually is higher than our hurdle rates. So we will now continue to focus on winning these kind of mechanism tariff in our markets because having the mechanism tariff with protection on the tariffs for tenure ranging between 10 to 12 years will give us profit stability. Marissa Wong: And maybe just touching on the fact that the target has reduced a little bit from... Tung Keung Chiang: Yes, because of the fact that we want to be more selective in the Chinese Mainland market. So we have adjusted down the target from 6 gigawatts to 5 gigawatts by 2030. And we want to be more selective in picking projects in markets or in regions that have relatively higher tariffs, greater demand lower risk of grid curtailment and also funding projects that are like extension projects that we have already had our existing asset, then we can leverage on the existing infrastructure to reduce the cost of those additional investments. Marissa Wong: And maybe Alex touching on the funding? Alexandre Jean Keisser: Yes, I'd like to provide 2 more information. The first one is regarding China, we financed our project with a 70% to 80% project finance, while when we do our evaluation on the return on equity, we don't assume full recontracting of this project finance, and we assume an average of 50% debt over the lifetime of the asset, so taking a conservative approach. Second information that I want to provide is when we look at our minimum return, we don't take into account potential gain on sell down in the future. So for example, when we took the Wooreen investment, we didn't take into account the gain that we did following this on the sale to Banpu, which was of HKD 390 million for the full 100% of equity. Marissa Wong: Thank you. Alex. Thanks, Pierre, for your question. Next on line is Yonghua -- Yonghua Park from HSBC. Yonghua Park: Can you hear me? Marissa Wong: Yes. Yonghua Park: Well I have about 3 questions. So in terms of long-term planning, India will add 9 gigawatt of non-carbon energy. So this seems to increase from last year's 8 gigawatt coal. Will you increase plan capital allocation from HKD 6 billion per annum to which number? And what's the reason behind this upgrade? Have you seen any improvement in terms of project return in India? Secondarily, in Mainland China, renewable target is [indiscernible] to 5 gigawatts. So can we assume capital allocation could be also trim from 4 billion per annum last year number? And lastly, Yallourn coal-fired plant will be shut down at a point or any other point after that? I saw some news previously indicated that EA will invest AUD 5 billion for their structuring. Can you just clarify? Tung Keung Chiang: Maybe I try to answer the first question. Second question on CapEx, maybe I'll ask Alex to supplement. Now for the first question about the long-term planning in India, actually, I think this 9 gigawatt target is consistent with our long-term planning since last year. Actually, our target is to have about 1 gigawatt a year, so if you look at our existing asset and those assets under construction, so by 2030, adding 1 gigawatt a year of commitment then we can achieve this 9 gigawatt of non-carbon projects. And the capital allocation basically is based on this 1 gigawatt per year to deduce this HKD 6 billion per annum. Marissa Wong: Just on the point that Yonghua, I think you were looking at the 8 gigawatt, it was a 2028 target. So now we've added 2030 an extra year, which is now 9 gigawatts. Tung Keung Chiang: Yes. So it's consistent, yes. Yes. And then on Yallourn, basically, we are maintaining this -- retiring Yallourn by middle of 2028. That's our current plan and actually the agreement with the government. Regarding the CapEx investment, I think it's longer term, after Yallourn closure. Marissa Wong: I think Yonghua, that's -- you're referring to the Yallourn precinct investment? I assume that he is, yes. Alexandre Jean Keisser: I can try to cover here. Tung Keung Chiang: Maybe you cover the CapEx. Alexandre Jean Keisser: Yes. So first of all, on China, yes, of course, the HKD 4 billion per year will be slightly reduced by a bit more than -- by a bit less than 20% in light of the reduction of the target. One incremental information that I want to provide on this, we have taken the decision that by end of 2026, renewable activity of BU China will be self-funded with the raise of up to HKD 3 billion of Panda Bond and also the creation of a clean energy fund, we will have some partners to that. So that's regarding China. Regarding Australia, maybe that was the question is we have a target to have by 2030, up to 3 gigawatt of flexible capacity or contracted or developed, and we are not looking at developing any renewable projects, and we also plan to do this on the balance sheet of EA with similar structure for the large project that what we have done for Wooreen, which is project finance and also we're seeking the right partners in order to reduce the funding needs and increase our return on these projects. Marissa Wong: Thank you, Alex. Next question from JPMorgan, Stephen Tsui. T. Tsui: [indiscernible] The first is, can you please give some guidance on the CapEx outlook this year in terms of growth CapEx, maintenance CapEx and SoC? And about the dividend [indiscernible] because you've raised dividend by more than [indiscernible] this year despite [indiscernible] decline in operating earnings. So how about dividend growth this year given the headwind Mainland China and the Australia [indiscernible]. Marissa Wong: CapEx. Tung Keung Chiang: So 2 questions. Yes, maybe I'll ask Alex to shed some lights on the CapEx. Now regarding the dividend outlook. So basically, our dividend policy is to target to maintain a steady and growing dividend supported by sustained growth in our business. So we'll -- based on the longer-term assessment on our sustainability of our business and then decide the appropriate dividend level. So we will not give any outlook for the moment and all the dividend will be approved by the board by year-end. And maybe Alex can touch on the CapEx? Alexandre Jean Keisser: Yes. On the CapEx, so regarding the SoC CapEx, so we have a total of HKD 10 billion to HKD 11 billion per year that will be spent. Regarding growth CapEx, the growth that we had in India has slowed down slightly this year versus 2023, 2024. It's not being consolidated in any case, and it's being self-funded. The growth in terms of CapEx in China will be linked to the project that we will be able to close and the growth of CapEx related to Australia will be depending when we'll be able to start our project of Mount Piper BESS and when we'll be able to close our partnership on this. Marissa Wong: Thank you, Alex. On the line is Cissy Guan from Bank of America. Cissy Guan: I have a few questions, all regarding to the future capital strategy. First of all, you mentioned the clean energy fund in China, when do [indiscernible] on this? And what kind of partners are we looking for? Are there going to be insurance money or any specific type of investor do you think that may be interested in collaboration with us in renewable energy in China? And also secondly, India, we saw that Apraava has sold the Jhajjar power plant. So will there be any special dividend be upstreamed to CLP? And thirdly, for EnergyAustralia, first of all, are we still looking for disposal of stakes? And also can you provide an outlook as regard to the wholesale power tariff in Australia going forward? And also how will the next [ CMO ] and video reset going to be? And how will the retail competition landscape going forward? Tung Keung Chiang: Okay. Maybe for the CF strategy, Alex can help address it. maybe also including the -- what happened after the Jhajjar sale. Now regarding the EA, the Australian market. Now we do see continued intense competition in the retail sector. So this will continue. So in order to address this, so we have taken steps to improve the business performance. First is to optimize our cost of operation. Secondly is that we are looking at upgrading and replacing our customer platform. We are in quite an advanced stage, and we hope that we can confirm the technology and start execution this year. So with a new platform, we target to further improve the efficiency as well as enhancing the customer experience so as to improve our competitiveness in Australia. Regarding the power price, I think in short term, if you look at the forward price curves, it softened slightly. So we will see, this will continue in the short term. But I think maybe starting from 2028, we do see the potential of forward price increase later because of some of the changes in supply situation. Now in Australia, because of the -- actually, the whole energy transition and decarbonization for CLP Group, the capital requirement is very significant. So we want to be focusing on our core markets, in particular, Hong Kong and China. So for EnergyAustralia, firstly, it will be self-funded. Secondly, that we want to have different kinds of partnership in order to have more efficient use of our capital. So one example is the partnership in the Wooreen battery, where we have sold 50% to Banpu. This is a good example that on one hand, we can have a more efficient use of capital and secondly, that actually, the overall return of the project can be enhanced. And we are open-minded about different forms of partnership, be it at project level or enterprise level. But more importantly, I think in the short term, we want to make sure that the business, actually, the performance is -- can be further improved, both in terms of the efficiency as well as how do we manage all the risks in the market. Maybe I ask Alex to address the first 2 questions. Alexandre Jean Keisser: Yes. So I'll start with India. So the plan is when the transaction will be closed to have Apraava Energy doing it full distribution of the proceeds to [indiscernible] and CLP 50-50% over the year 2026 and 2027. CLP, however, doesn't plan to have an extraordinary dividend distribution being done following this distribution. Regarding China, we have to recognize that the CLP brand is very well recognized. The first was when we had our RMB 3 billion bond being approved by the regulators, we started to do a road show with our underwriter, and we plan to have this first RMB 1 billion being drawn upon in H1, which have been quite well received. Regarding the clean energy fund, let me first explain you what the business model. The business model that we have is looking for the partners, bringing our full expertise in terms of development, in terms of operation, in terms of market sales, in terms of project finance and keeping our brand attached to this clean energy fund, meaning that we want to sell the project once they are being built. But we want also to stay into the fund being an LP with 50% in order to have aligned interest because this is not a one-off. This is a long-term strategy that we want to do, not only for Chinese Mainland, but also for other countries. Regarding who are the different investors. We are looking for a potential insurance company to be an anchor investor. And pending that, we will look for a few others, but a limited number for a fund, which will be around HKD 4 billion fund size with a total CapEx of HKD 20 million. Marissa Wong: Thanks, Alex. I'll just note one more point on EA retail. Yes, it has been challenging conditions. But if you look at first half versus second half retail results, second half was a turnaround, and that was based on the work around customer acquisition, recontracting and the cost-out initiatives. Okay. We've got a question from Huatai, Weijia Wang. Weijia Wang: [indiscernible] The first is on market to specific [indiscernible] energy. We have all anticipated nuclear products. [indiscernible] share and also onshore [indiscernible] the next CapEx on [indiscernible]. Marissa Wong: Okay. Weijia, you were cutting in and out there. So I'm just going to assume your question. Number one is on nuclear investments. And then the second one, how that might impact CapEx in Hong Kong? Tung Keung Chiang: Yes. Okay. Now I assume that you are talking about our so-called nuclear imports in the medium term because in -- for the Hong Kong market, the government has set a decarbonization targets. And by 2035, we have to have 60% to 70% of our generation mix being known or being 0 carbon energy. So in order to fulfill that target, the plan actually is to import 0 carbon energy, mainly nuclear from the region to Hong Kong by 2025. Now for that plan, we are now still in a very early stage because importing nuclear from, say, Guangdong to Hong Kong, we need to have central government supports. And actually, right now, the Hong Kong government is discussing with the central government on identifying the right location for the nuclear power station and then how the power can be delivered to Hong Kong. Now despite the fact that this is still in the early stage, if you look at the existing Daya Bay arrangement, actually, this is -- this could be a president arrangement in which CLP invests in the Daya Bay. Right now, the arrangement is we invest in 25%, and then we import 80% of the power from Daya Bay to Hong Kong through a dedicated transmission line, which can ensure that we are clear about the source of the power as well as ensuring reliability. So this is a good reference for the future import arrangement. But as I said, I think right now, it's still very early stage. Once the -- it's more kind of -- it's clearer about where the power will be coming. Then we will enter into more detailed discussion with the relevant stakeholders in the Chinese Mainland, about the design of the network, how to bring the power in and also the commercial arrangement of the investment. But again, another reference point is that for Daya Bay, the investment in the -- the equity investment in Daya Bay is not part of the SoC CapEx. Actually, it's invest at the CLP Holdings level. And through a PPA from Daya Bay to Hong Kong. So for the Hong Kong SoC, all this will be treated as OpEx and then the return on the investment in Daya Bay is based on an ROE approach. So again, this is a reference model. And whether this will be applied, it depends on the future discussion with the relevant stakeholders. Marissa Wong: Thank you, T.K. We are heading towards time. So I'll take this as a last question from Rob Koh, Morgan Stanley. Thanks, Rob for joining us at the late hour in Australia. Go ahead with your question. Robert Koh: My first question is in relation to the customer platform upgrade in Australia. Other companies down here when they do that, they obviously do that very carefully. They take 2 to 4 years. Is that comparable time frame for EnergyAustralia? And then the second question is on the performance of the wholesale Energy segment. which saw some lower prices, but I guess the volatility capture offset that. Just want to make sure that's the right way to think about the generation performance? Tung Keung Chiang: Yes okay. Thank you, Bob -- I think Rob, sorry. Yes. Now for the customer platform, our current plan is to take about 2 years or slightly more than 2 years. So by before end of 2028 would be our current targets. Now -- but we are still working on the detailed planning right now. And as I mentioned, we are in a very advanced stage of selecting the appropriate technology. So we are working very closely with the future potential vendor on this detailed plan. So there will be more details later in the year. But our current thinking is that we will complete this before end of 2028. Now for the wholesale market, as we mentioned, in the forward price, you can see lower price level. But actually, if you look at the intraday volatility, over the past few years, this volatility actually is increasing. So that's why for EnergyAustralia, we have been focusing on investing in storage -- energy storage projects so that we can capture the benefits of this volatility in the Australian market. Marissa Wong: Thank you, T.K. Thank you all for your very good questions. And thank you, T.K and Alex for the briefing and answering the questions. Before we wrap up, I just wanted to announce the winners of our closest estimates competition. There are 2 this year. The first goes to Qi Kang from Huatai Securities, again, for the closest operating earnings. And the second for the closest annual dividend goes to Evan Li from HSBC. So congratulations to you both. My team will reach out to you about your prizes. That brings today's briefing to a close. My team and I will be available for any follow-ups. And thank you all for joining us today. Take care and goodbye. Tung Keung Chiang: Thank you. Alexandre Jean Keisser: Thank you.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Wendel's Full Year 2025 Results Conference Call and Webcast. [Operator Instructions] Olivier Allot, Director of Financial Communication and Data Intelligence will read them. I must advise you that this conference is being recorded today. I would now like to hand the conference over to Mr. David Darmon, member of the Supervisory Board and Deputy CEO. Please go ahead, sir. David Darmon: Thank you, and good morning, everyone, for this 2025 full year results presentation. As always, we're going to make this presentation with several speakers today, including Jérôme Michiels, Benoit Drillaud, Cyril Marie and later, Laurent Mignon. So to start, let me comment the Slide #4 in the presentation, which is a recap of the 2030 ambitions that we present to you in last December. We showed you that we have a pretty ambitious portfolio rotation plan and the capital allocation plan. We do intend to get EUR 7 billion of committed cash flows through 2030 through asset rotation and FRE generation and to reinvest this amount and returning EUR 1.6 billion to the shareholders in the meantime. We also announced to you back in December some good organic growth target with a 15% growth organically for the asset management platform. And we mentioned to you that we intend to create value in the portfolio investment of our principal investment from 12% to 16% per annum with the new mandate that we have given to the IK Partners team, and we'll get back to that later in the presentation. So this is the background on which we are all working at Wendel, and I will give you more details on what we achieved in 2025 and in early 2026 to achieve those ambitions. I'm moving now to Page #5. And as you can see in 2025, we made progress on our 2 legs, I will start with the asset management, where you can see that the platform really ramped up in 2025. We did close the acquisition of Monroe Capital in March 2025. The 2 platforms that we had during the years, Monroe Capital and IK Partners had a very successful fundraising cycle. They both raised a combined EUR 11 billion in a market which you know was not so easy. In 2025, we also signed the acquisition of Committed Advisors. We announced the signing in October 2025, and we do intend to close this acquisition end of Q1 2026. We believe that we now have a platform at scale, we manage close to EUR 47 billion of assets under management, including pro forma creation of Committed Advisors. And we have a target for the year of over EUR 200 million of fee-related earnings with this platform. So in less than 3 years, you can see that we have built something of scale and pretty attractive and pretty unique. Now talking about the principal investments. 2025 was also a year of transformation. We've been very active in the portfolio. We are going to come back on the various divestitures that we made recently, the various bolt-on we did in the portfolio and the change in management that has happened. But the most important information is probably this IK Partners advisory mandate that I mentioned earlier, which is changing significantly the way we operate, and we believe it is going to create much more value in the future, but I will get back to that later in the presentation. Turning on Page 6. You can see that we had a pretty busy early 2026 with the announcements of the disposals of both Stahl and IHS. Those are investments that we had in the portfolio for quite a long time. You remember that we initially invested in Stahl in 2006. IHS was a 2013 investment. So they've been in the portfolio for quite a long time. And we're happy that in this pretty tough market, we managed to secure those liquidity options. For Stahl, we signed an acquisition with Henkel, and I will give more details later on. And with IHS, we did support the tender offer that MTN announced a couple of weeks ago. Those 2 divestitures should bring EUR 1.65 billion of proceeds for Wendel, so it's pretty significant. You will see later on that, that takes our leverage down quite significantly. So it brings us some strong capability to execute on our shareholder returns policy and also to deploy capital towards the both legs, I mentioned earlier, WPI and WIM. So those sales are pretty important in that we're going to execute our strategy. Moving to Slide 7 and a few numbers on our 2025 results. First, you can see on the left side of this slide for Wendel Investment Managers, some pretty strong growth. There is organic growth. You see the plus 13% organic growth in fee-paying AUM. And obviously, with the consolidation of Monroe Capital over the period, which we didn't have in 2024, we also have a scope effect. And so the increase of 200% is due to this scope change. But beyond the M&A, you can see that organically, the platforms are growing very, very nicely. On the right side, you can see that Wendel Principal Investments today account for over EUR 5.5 billion of gross asset value. It's growing with a positive impact of listed assets and which as of today is mainly -- is going to be mainly Bureau Veritas because we secured the public to private in December for Tarkett. And as I mentioned earlier, IHS should not be in this bucket by the end of 2026. The unlisted assets have been impacted by the market multiples, and I'll come back to that later on. We did value in those numbers and in 2025 Stahl at the Henkel offer price. We did not take into account the -- our share of cash flow between signing and closing, which are due to be paid to us. But as this amount is quite uncertain at this stage, we cautiously ignore this amount in our NAV. IHS is valued at the average share price in -- before the year-end and not at the MTN offer price. So we published a NAV per share of EUR 164.20 as of December 31, 2025, which is up 0.7% over the previous quarter and up 1.17% if you include the interim dividend that we paid in Q4 last year. I'm coming back to -- I'm moving now to Slide 8 and coming back to the performance over the last quarter of this fully diluted NAV, which has been growing 1.7%, as I mentioned, so EUR 2.7. So how did we grow this NAV? First, we had a negative impact on the investment manager side, the asset management part. We had some negative impact from the market multiples of our peers despite the positive growth of the aggregates that I mentioned earlier. The Wendel Principal Investments saw some growth in terms of NAV per share, EUR 4.9. This is obviously mainly Stahl because we sold Stahl above our NAV value, and I will get back to that later on. We -- as I mentioned, IHS was valued at the share price as of December 31. And last Tarkett is now in our bucket of private assets and not anymore in our listed assets bucket. You can see that the ForEx has been negligible over this quarter, which is very different from the first 3 quarters of 2025, where the impact was pretty strong in Q4, it was pretty remote. So plus EUR 2.7 over the quarter, fully diluted and plus EUR 1.2 when you take into account the interim dividend that we introduced last year, and we paid in November '25, EUR 1.5, which has already been paid to our shareholders. I'm moving now to Page 9 and give you a bit more details on the 2 earlier divestitures I mentioned, namely Stahl and IHS. The sale of Stahl is going to bring $1.2 billion of net proceeds to Wendel and the expected tender offer on IHS should bring $575 million for the shares that we own in IHS. The combined proceeds from those 2 divestitures should bring our pro forma loan-to-value under 10%. We should also note that this EUR 1.6 billion of proceeds account for over 27% of the portfolio rotation that we announced just a few weeks ago. So quite a strong start on this program. I'm moving now to Page 10 to give you a bit more insight on the return to shareholders. We do intend to distribute around EUR 500 million to our -- sorry, to return EUR 500 million to our shareholders, both through dividends and through buyback. In terms of dividends, we are raising our 2025 dividend to EUR 5.10, up 8.5% compared to last year. As we already paid an interim dividend in November, the additional dividend to be paid in May 2026 is going to be EUR 3.6. Those combined amounts of EUR 5.10 compared to the current share price generate a yield of 5.8% based on the spot price of February 25. So a strong dividend policy and yield, combined with the share buyback program that we mentioned end of December that we are going to launch, which is going to be around EUR 340 million in terms of size that we're going to return to shareholders. So above -- around EUR 0.5 billion to be returned to our shareholders during this year. I'm going to turn now the mic to Cyril Marie to present to you the development for the Wendel Investment Managers division. Cyril Marie: Thank you, David. So I will not comment on Page 12 because the key highlights have been presented by David already. Let's move directly to Page 13 where you have the roll forward of the assets under management. So here in this chart, you have at the extreme left and right, the AUM. As you know, the way we monitor our activity, we have the AUM and the fee-paying AUM. So let's start with the AUM. In '24, as David said, we had only IK with EUR 13.8 billion of AUM composed of the NAV of our fund plus the dry powder or the money available for new investment and the co-investment. Now at the end of '25, we are at EUR 41.2 billion. So it's EUR 15 billion for IK, plus 11% and $30 billion for Monroe, up 22%, which is, I think, a strong achievement in the current environment. And in the AUM, the last information is that the Wendel Sponsor money represents EUR 500 million. So it's around 1% of the total AUM. I think it's an important information. In the middle of this chart, what you have is the dynamic of the fee-paying AUM. So it means that the fees that are paying AUM that will have an impact in '25 on our P&L. So we started the year at EUR 10 billion. Then we had the impact of Monroe. But then what is very important is the EUR 9.2 billion and the minus EUR 5.2 billion. With this, you have the new fee-paying AUM. So for IK, it's the money raised over the year, so EUR 1.3 billion and the money invested because it's not the same business model for our 2 important GP, IK and Monroe, so close to EUR 8 billion for Monroe. So with that, you have the new fee-paying AUM. And then you have the exit and the payoff so because you know what is very important for these LPs also is to return capital. So if you sum the EUR 9.2 billion and the minus EUR 5.2 billion you get the 13%, and we believe it's a good indicator of the organic evolution of our business for '25. Then let's go on the following page, Page 14. Here, the idea is to give you really the more detail on the evolution of our business with 2 things: growth -- organic growth and two, diversification. I think that are the 2 key messages here. So let's start with private equity, IK Partners. In terms of fundraising first, it was the last part of their fundraising vintage started in '23, '24. As you know, already, they have reached the up cap in all their strategies, the mid-cap, the small cap, the partnership fund. And so the fundraising was at the beginning of '25 for EUR 1.3 billion. Now their priority is to invest the money raise and also to return capital to shareholders. In '25, it was a good year. As you can see, as always, they have returned more capital than they have invested for the LPs. It's very important. The dynamic of AUM plus 11% in '25. What is also very important for us is to maintain the organic growth of the businesses. And I will present to you later on that we have reached the target in terms of FRE. But despite this, we are still investing in the business and the FTE have grown by 8% because in private equity, as you know, it's very important to have local team to understand the businesses, to invest in the operating partner. So we maintain a high level of investment in order to pursue the growth of the business. Another very important point for IK, it's the development of the retail. As you know, in the development of a private asset platform, the retail is a new engine of growth for us, and it's still ahead of us. And we are -- we have now created the first evergreen vehicle for IK called IK Private Equity Solutions. It's now available for subscription. So if you want, you can get it through all the life insurance platform. '26 for private equity priority. Now the revenue are secured because we have raised the money. I think the priority is now to deploy and to return capital to shareholders. We have a strong ambition for '26. And also, we want to pursue the implementation of IK. As you know, IK is a pan-European private equity manager. They are very close to each of their markets. They have 7 implementation, and they have in mind to open a new office in Spain in '26. I think it's very important in order to maintain the quality of the deal flows for our LPs. So that's for private equity. Private credit, here also a very strong organic dynamic. Equity raised EUR 3.8 billion. As you know, post acquisition, it's always very important to see how the LPs will react and the signal was very positive with a lot of free-up, we have maintained the client base, and it's very positive for Monroe Capital. They have raised capital also with their retail evergreen vehicles during the year '25. And if we talk about the first 2 months of '26, the flows remain positive. So we are still gathering money on our retail evergreen vehicle for Monroe. Deployment, money invested EUR 8.3 billion, a very high level of investment. It's a record year for them. They remain relatively selective in terms of deployment. If you look at all the key KPIs of the private credit, LTV, leverage, diversification, Monroe is very well positioned. And also, if we -- just to give you one figure, if we look at the performance of the underlying companies of Monroe, the growth of the EBITDA is 12%. So private credit remains a very good asset class. And it's with Monroe, they invest, as you know, they lend money mainly to small and mid companies in the U.S. and the U.S. economy is still very strong. AUM grew 22%. Here, the same message regarding the workforce. We are still investing in the business to reinforce the diversification. And the last comment on Monroe, probably '26, 2 important message. The first one, we want to develop organically Monroe in Europe. So we are working on it. We hope to be in a position to execute something in '26. And also, we are pursuing the diversification with the launch of new strategies and evergreen strategies for Monroe Capital. Last strategy for us, even if it's not closed so far, as David said, it's Committed Advisors. We expect to close it in Q1 '26. They have started the new round of fundraising with their Vintage VI, and I can tell you the dynamic is very positive. The feedback from clients is positive. The cornerstone investors are there. So the dynamic is very good, and we hope that it will contribute to our growth in '26. Now if we turn to profitability, we have 2 slides. The first one, Page 15, it's the actual profitability. So here, you have, as David said, a very important scope effect because last year, you had only 8 months of IK in '24 and in '25, you have 12 months of IK and only 9 months of Monroe. So you have -- the growth rates are very high, 177% for the revenues, 150% for the profitability. What is important is to show you here that the profit contribution to Wendel is increasing significantly, and it shows you the execution of the strategy. But what is more important probably is to go to the next page on Page 16, just to have a more analytic view of the P&L. So let's take the second column, the pro forma. What pro forma means here? It's 12 months of IK and 12 months of Monroe. And for that, so if you look at the first line, the revenues, the recurring revenues, so excluding carrying interest, the revenues tied to the FRE. So above EUR 400 million for EUR 30 billion of fee-paying AUM on average, it means an average fee rate of 135 basis points. I think it's a very good level with our mix of business as of today. So IK is closer to 180 and Monroe remains above 100 basis points because, as you know, Monroe is really focused on Alpha. So they are not chasing AUM. The idea is really to focus on fees and performance for the LPs. Then the second indicator I would like to comment here is the margin, 38%. So it's a good margin because it's a good balance between our objective of profitability. But at the same time, we maintain investment in the business in order to have a sustainable growth. And the last comment on this slide for me is the EUR 159 million. When we have announced the Monroe acquisition last year in October '24, we gave you this objective of EUR 160 million. We have reached this objective despite the dollar effect. It means that IK and Monroe have been in a position to compensate the negative dollar effect. And we are today able to announce you that we have reached this target for the full 25 years. Then last page, so '26, it's a summary of what we said previously with David. So the organic growth is there. We have now also Committed Advisors part of the platform. We have reached EUR 47 billion. As said in December, we have a good level of diversification in terms of clients, geographic areas and products. So we can maintain this pace of growth. And as you can see, it will have a significant impact also in terms of FRE growth because we have in mind to reach EUR 200 million for '26. David Darmon: Thank you, Cyril. Now I'm going to turn to Slide 19 to talk about the activity during 2025 in our Wendel Principal Investments area. I will first cover the key highlights in 2025 and with this IK Partners mandate I mentioned earlier, which went effectively in operations on January 1, 2026. So from now on, all the past controlled private investments and the future investments in the controlled private equity made on Wendel balance sheet will be managed by the IK Partners team, which sits in the IK Partners ecosystem, and so we'll benefit from the expertise and resources of IK Partners, which we believe is going to be very helpful to create more value for the group. We also have been very active in 2025, including some leadership changes at Scalian, William Rozé joined us from Capgemini with a very strong experience in the industry. And we had as well a new CFO during the year. So a strong change of leadership at Scalian. At CPI, the long tenure CEO, Tony Jace, retired during the year, and Andee Harris joined as well during the summer. She's bringing a very strong tech and commercial background, which is exactly what CPI needs today. In 2025, we also invested roughly EUR 100 million in Scalian, both to support the M&A strategy and to strengthen the balance sheet. As I mentioned earlier, in 2025, we secured the public to private of Tarkett and Tarkett became a private company in late December 2025. We've been very active in our portfolio companies and financed 16 bolt-on acquisitions, 1 at Scalian, Tarkett and CPI each and 4 for Globeducate, which has been pretty active and 9 at Bureau Veritas. So a very active year for our portfolio companies. Last, I remind you the 2 disposals of shares that happened at Bureau Veritas in 2025 in March and September. And those gains flow through our balance sheet and not in our P&L, and Benoit will come back to that later in the presentation. I'm turning now to Page 20, where we are going to come back to the sales of Stahl and IHS and give you more details. So as I mentioned, the Stahl sale is expected to bring EUR 1.2 billion of proceeds to Wendel. This sale at EUR 2.1 billion enterprise value was secured with a 20% premium above the latest NAV published in Q3 2025. And it did generate a return above 15% per annum over the last 20 years. So a strong 6.6% cash-on-cash return when you include the previous dividends that we had over the years. So a very good return over a very long period. Beyond the financial results, on the right side, we wanted to give you a bit more insight on the value creation that happened on this investment. You can see that the revenues grew nicely over this period. The EBITDA grew actually at a higher pace because we increased the margin quite significantly over the years with a strong control of cost and some operational leverage, which was combined with an upscaling of our product portfolio where we moved to higher-margin products over the years. It has been a very thoughtful process to reposition Stahl to a more attractive asset under the leadership of Maarten Heijbroek. We -- over the last few years, we made some strategic acquisition in the specialty coatings business to make the company more attractive with the higher growth prospects. And at the same time, we worked on the carve-out of the wet-end business, now which is called Muno that is going to stay under our Wendel portfolio, which is having different market dynamics, and we thought will be not as attractive as the rest of the portfolio to potential buyers. So we've been quite active, and we are very pleased with the results that you can see here. I'm moving now to Slide 21 to give you some insight as well on our investment in IHS, which has been a long-term hold as well, slightly shorter because the initial investment was in 2013, but still 13 years is quite a long investment. This is our last investment in Africa. So we are closing this chapter with this sale. We expect $535 million of net proceeds, which is around 21% above the NAV that we used for this stake in Q3 2025. It is a 0.7 cash-on-cash net multiples for this investment. The financial return is not showing the actual operating performance that you can see on the right side because IHS has been a very strong organic growth and M&A growth success. We multiply by 10 the sales and by 21 the EBITDA. But this is not showing up in terms of financial return because we did suffer both from a volatile FX environment in naira, which is the main currency in Nigeria, was devaluated over 8x over that period. So that did impact us quite significantly. And the Towers business industry did suffer some strong derating as well. So the combination of an industry derating and FX actually made this growth story in terms of operational success, less attractive in terms of financial outcome, as you can see on the left side. I'm now going to cover on Page 22 and 23 the results of our listed assets and private asset portfolio. In the listed assets, I'm only going to comment on Bureau Veritas because once again, Tarkett is now in private assets, and we don't consolidate IHS. Bureau Veritas just announced its results yesterday. They published some strong results. You can see with some good organic growth, plus 6.5% and some improvement in the margin. So we are quite happy with those results. In terms of 2026 guidelines, we expect the results to be fully in line with the LEAP 21 -- sorry, the LEAP28 strategic plan. You can also see here that Bureau Veritas did announce a new EUR 200 million share buyback program yesterday as well, which is going to be completed over the year. Moving to Slide 23 to give you more details on the performance of our private assets, and I will be starting with ACAMS. ACAMS had a very good year last year. As you remember, in 2024, we made some significant investments, both in terms of talent, in terms of technology, and we can see that in 2025, we can see some early results of those changes. Both the top line were very strong. The margins were strong as well. And we did a refinancing as well of ACAMS at the end of the year. So we secured a longer maturity for the debt and a lower financial interest expenses as well. So across the board, it was a very good year for ACAMS. CPI had a soft year in 2025. We were used to much higher growth rate in the past, plus 2% in terms of sales, plus 2% in terms of EBITDA. It's mainly in the U.S. where we saw some softness. The rest of the portfolio had some good growth. But in the U.S., there was a lot of uncertainty in the federal budget, both for health care and education customers, and that did impact the company growth profile. Regarding Globeducate, you can see that the company has grew nicely in 2025. It's a combination of both on organic growth, the enrollment in terms of students and pricing, but also in terms of M&A, as I mentioned earlier, we did some acquisition in Cyprus, in the U.K. during the year. And so the company is on track to deliver some good growth in 2026 as well. Scalian had a tough year in 2025. It's a tale of 2 stories. We had some good resilience for the large accounts and for the core markets where Scalian is a very strong niche player, namely the aerospace, defense, energy and financial service industries. But at the same time, we did had a lot of softness in our smaller accounts and IT accounts, which did suffer from a market pullback. And so the combination is this minus 5.1% in terms of sales. The company had some fixed cost basis. So the EBITDA reduced by 8.2%. In 2026, we believe we're going to see a stronger growth from those large accounts and in our core markets. We are going to work to have those IT customers to decline at a lower level. So we expect some sort of stability. And we have some strong program to reorganize the business to improve our margins. So we expect to have a different trend in 2026. You can see that Tarkett had a year with some margin improvement, and we were happy to see a plus 4% growth in terms of EBITDA. On Slide 24 and 25, we wanted to quickly show you how the portfolio of Principal Investments is changing if we include the pro forma sale of IHS and Stahl, which are ongoing. So on 24, you can see the -- what we showed you at the Investor Day actualized with December 31, 2025. So this is a slide that you know. But interestingly, on Slide 25, we did the same description of our portfolio, assuming IHS and Scalian are sold and with the newcomer Muno, which is the name of the wet-end business of Stahl that we're going to keep. What you can see is that the industrial part of our portfolio is shrinking down to 5% and the business services part of our portfolio, Scalian and Bureau Veritas is growing in due proportion. So the principal investments, including those 2 asset disposals is down to EUR 3.9 billion in terms of gross asset values and with a more balanced education, training and tech on one side and business services sector exposure on the other side. So we thought it will be an interesting view for you. I'm going to turn the mic now to Benoit Drillaud to present you the financial results of 2025. Benoit Drillaud: Good morning. I'll start the presentation of the P&L with 2 significant profits that are not booked in the P&L. The first one relates to 2 significant events of 2025 in the development of our strategy, the forward sale of Bureau Veritas shares and the block sale of Bureau Veritas shares in September. They have translated in a profit of EUR 980 million booked in the equity, close to EUR 1 billion booked in the equity. And the second profit is the change in fair value of IHS. The share price of this company has doubled over the year and it has been booked in the equity. So EUR 1.2 billion booked directly in the equity in accordance with the applicable accounting principle. If we go through the detail of our P&L, you can see that Monroe has strongly contributed to the asset management platform from EUR 42 million that was 8 months of IK to EUR 127 million, 12 months of IK plus 9 months of Monroe. The contribution from the WPI portfolio is decreasing a little bit with the earnings of Stahl and Scalian. The operating expenses and taxes have decreased by 9%, demonstrating the good cost control. Last year, we benefited from a very exceptional level of income from cash and cash equivalent because the money market rates were close to 4%. And in 2025, they were a little bit above 2%. So this explained the level of the financial income in 2024. In 2025, it's more balanced. So globally, the net income from operations that is the most meaningful aggregate for Wendel is stable at EUR 753 million. Same in group share is lower because of the earnings of Stahl and Scalian and because the percentage of interest in the net income of Bureau Veritas is lower at the beginning of 2024, the percentage of interest was close to 35%. And at the end of 2025, this percentage was 15% with the 2 block sales we made in 2024 and 2025 and the forward sale. The nonrecurring cost mainly come from the portfolio companies with restructuring costs, M&A cost, the cost of the disposal project of Stahl, the carve-out cost of Muno. And last year, we had the very significant capital gain on Constantia. The impact from the acquisition entries have increased because we had the acquisition of IK last year. We had the acquisition of Globeducate of Monroe. So these acquisitions explain why this cost -- this accounting expenses have increased. And concerning the impairment, we have in 2025, the loss that Scalian booked in June. And we also have the reversal of the depreciation we had on Tarkett because the share price went from EUR 14, if I remember well, to the squeeze out price that was EUR 17. So the total net income is EUR 345 million. The net income group share is a loss of EUR 152 million, but if we take into account the 2 significant positive entries in the equity, we have a level of equity group shares that increased from EUR 3.2 billion to EUR 3.5 billion in 2025. If we turn to the following page, the Page 28, you have here the 3 main components of our very strong financial structure. First, liquidity with EUR 2.2 billion of cash and the undrawn credit line. You have, of course, the LTV ratio that is below 10%, well below the S&P ceiling for our current rating. And you have a very long maturity profile of our bonds after we'll have repaid in the next weeks, the exchangeable bonds and the 2026 bonds that are coming to maturity. So I now leave the floor to our CEO, Laurent Mignon, for the conclusion. Laurent Mignon: Thank you, [ Michiels ]. Thank you, Benoit. Thank you, David and Cyril. Just one point to add on that and then I'll make the conclusion. The LTV, the 9.6% include the pro forma of the share buyback that we have announced today. So it's a fully -- it's full. So what can we take away from this presentation? A very strong and tangible execution of what we have announced in December for the Investor Day. We've said at that time that we will do EUR 7 billion of asset sale and cash flow generation cumulated by 2030. We already have made 27% of that through the sale of Stahl and IHS in February this year. We've said that WIM will represent 50% -- more than 50% of the Wendel GAV, excluding cash by 2030. We are already at 38%, including the acquisition, obviously, of Committed Advisors. And we've said that we will return EUR 1.6 billion to shareholders. We're going to return in '26 more than EUR 500 million to our shareholders through the dividend and the share buyback. So I think that we have strong headroom for new investment and continue to move on our strategy, create some value by creating capital appreciation through WPI and create long-term value and recurring cash flow through the development of WIM, where we think we have a good way forward with a 15% potential growth per year, and a good development altogether, and that will be in line exactly with what we said, I think, in December, and that's it. So I think we are all here to answer your question, and I pass over to the moderator or to Olivier in order to decide how to organize the Q&A session. Thank you. Operator: [Operator Instructions] We will now take the first question from the line of Geoffroy Michalet from ODDO BHF. Geoffroy Michalet: I have one question is what is -- what will be your criteria of your, let's say, [indiscernible] before deciding any new investment in WPI or in WIM? What will be the trigger? Laurent Mignon: Well, thank you for the question. Well, first of all, we have a lot of headroom as we mentioned and as evidenced by our LTV. So the criteria, we would say that we will be investing, and I think that was presented during the Investor Day, the equivalent of, let's say, EUR 300 million plus per year in the WPI, and then we will make potentially more -- some investment in the WIM. So we're -- together with the mandate that we've given with IK, so with the IK teams, we're constantly looking to opportunity to invest in WPI. Our objective when we do this type of transaction is to make a transaction that we can generate 12% to 15%, let's say, 15% of targeted return on those investments with a view of investing it at least for 5 years and potentially for more if the asset is great and we want to keep it longer, which is a little bit of our characteristic. So we're reviewing the different thing. My priority in 2026 concerning WIM is to continue building the platform. We've done a lot already, but we are working on building the platform more. And we have, as was, I think, clearly explained by Cyril, we have a lot of internal growth objectives being product, being geography, for example, for Monroe, being a product for IK. And we've got for Monroe also of being the fundraising activity of Committed Advisors that is starting a new fundraising activity has already started a new fundraising activity. So our priority is to do that, create more -- a little bit more of the sales organization, develop that, develop the -- as was said by Cyril, the retail development. So that's really our top priority. However, if we see a good opportunity, we'll look at it. We have the headroom to do it. But my priority is the one I mentioned to you. So on WPI, to make it simple, we constantly look to opportunities and we'll take benefit of the ability of the IT teams to bring us good opportunities to make some investment. And on the other side, we'll first give the priority to internal development. If we see a great opportunity that fill the expertise needs that we have, we'll look at it. Operator: [Operator Instructions] We will now take the next question from the line of Alexandre Gerard from CIC CIB. Alexandre Gérard: I have 3 questions. So the first one is related to ACAMS and CPI. I just wanted to know to what extent AI might be a threat for the business model of these 2 companies. So that's my first question. Second question, it's a question related to the Scalian and the valuation of Scalian in your latest NAV. There are similar top-notch listed assets trading on 5 or 4x -- 4x EBITDA and Scalian is also very leveraged. So I just wanted to know to what extent you've been very conservative on the valuation of that asset. And the last question is related to private credit, of course, regarding the current bad buzz around that asset class. How can you be so confident that the bad buzz will not have any short-term impact on fundraisings or withdrawals? Laurent Mignon: Well, thank you for the 3 questions. I will start and Cyril will help me complement the last one. I will take the second one also. And probably, David, you will take the one on ACAMS and CPI. So I mean, those questions are absolutely relevant and crucial question. I'll start with the easiest one because it's the most factual, which is the Scalian valuation. Scalian is, as you can see on page whatever it is, Page 24, Scalian is based on listed peers multiple. So I think the fact that listed peer multiples are trading at lower multiple, we've taken that into account in valuing Scalian. I think that the profit we've been making on -- I mean, the up value in -- we've been making by selling Stahl show you that we have a conservative approach to the valuation. And we take comparable and when the comparable move down, that affects the thing. So Scalian, the value of Scalian since we bought it has had 2 negative impact, the negative impact linked to the EBITDA, which went down and two, obviously, the multiple. So yes, we take that -- we think that there is -- this is a period of the cycle. We think that the future is much brighter. But yes, we are working on the underlying asset, and we're pretty sure that the actions we're taking are the right one in order to valuate in long term. So -- but we are taking not a long-term value. It's listed peers value, if I answer well to that. The second one is private credit. A lot of noise about private credit. By the way, let me remind you something, which I think I said during the Investor Day, but I want to say it again, is credit is not a free lunch. I mean, doing credit means risk and everybody knows about it. You're getting a return for the credit, so you need to have some risk, and it's the next banker that talks to you. So we know that. However, we feel that the way Monroe do it business is a relatively good risk/return reward way to do the credit. They're doing that to lower middle market companies in the U.S., very much linked to the U.S. economy. I don't think they're doing so -- and the way they process, I think I already said that here in this audience about the way they do origination, underwriting and so on is a way to have the most professional approach to private credit. They've been in the market for 20 years. And their performance today are good. We see some element of -- you've got -- sometimes you've got bad news. But overall, the performance of the private credit sales is good because it's a portfolio. It's a very diversified portfolio also. They're doing more than per fund. Cyril, correct me if I'm wrong, but it's more than 100 lines per fund... Cyril Marie: Exactly. Laurent Mignon: That they have. So this is the basic. They have no concentration in sectors. They've got no concentration in lines in -- so they are diversifying, which I think is a very important element of the performance. The only element of concentration that they have is that they are on the lower middle market part of the U.S. industry, which, in fact, reflect the health of the U.S. industry, which is good, in fact. So that's why we are confident. There is bad buzz. So it is true that we see less natural inflows on the retail part because people are reading press and say, well, can we -- but we first see a lot of confidence and gaining new mandates on the institutional part with very sophisticated investors that do understand the business and are very confident in the skills of Monroe and are putting more Monroe to be managed by -- more money to be managed by Monroe. And on the retail side, we think that as long as the performance will be correct, we see less strong inflows, but we still see inflows. So it is -- I think it's -- we have to just go through that period of bad buzz, as you mentioned. And then it goes from bad buzz to specific. And whenever you go to specific, then it's fine. Cyril, do I have to -- do you want to add something to what I said on that? Cyril Marie: No, no, it's, okay to me. Laurent Mignon: I was clear. Okay. AI, and then I will leave the floor to David on that because we've worked a lot. I mean, AI is a big disruption in the market everywhere. Everybody is starting to say how much AI is impacting our business model. And obviously, we have the discussion with all our investment company. This is specifically the case for ACAMS and CPI. You want to say a word, David? David Darmon: Yes. Alexandre, before I answer directly your question on the threats from AI, just a quick word on the opportunities from AI because we do believe we -- there's a lot of upside on specifically on those 2 companies. We are working quite actively, especially on ACAMS to develop a new product, a new AI product, which we believe it could be very valuable to our customers, producing and giving access to the 150,000 pieces of proprietary content that we have in a very attractive way. So we are developing a very strong and attractive product. It's probably going to have an impact on the cost base to produce our content in terms of translation, delivery, organizing the travels for the trainers, for instance, for CPI. So there is still a lot of good positives to come from AI. But back to your question on the threats and how we believe that we have some boots here and to protect those businesses. I would say both of them have -- are regulated businesses and in most places, are mandatory by the regulators, it could be the state for CPI. It could be the financial supervisors for ACAMS. That's not something that you can shift, and if the regulator is asking you to have some CAM certified people or to have people trained by CPI. You can't answer, well, I pay like a Copilot license to my team. This is not going to work for the regulators. Two, the importance of the brand, ACAMS and CPI by far are the leaders in their industry with very, very strong market share and they are the references, and that's a very strong moat. Then each of them have some specific barriers. And ACAMS, remember, this is a certification business and a body which deliver a CAM certification. So that's pretty unique. And ACAMS is really based on assemblies and community, those anti-money laundering specialists. They gather together, obviously, in trade shows, but also in local assemblies that ACAMS organize and that's really unique. And CPI has a different barrier, which is the physical part of the training for roughly half of the sales of CPI. You need to have a physical presence to deliver the training. So there will no way to get understanding on how to restrain an agitated patient or students purely online. You need to have the physical training. So I know it's a long answer, and we're really, as Laurent was saying, putting a lot of efforts to understand the implication and there will be implication. But so far, we believe that the positive are going to be above the negative on those 2 assets. Operator: There are no further questions on the phone at this time. I would like to hand back over to Olivier Allot for webcast questions. Olivier Allot: We have 2 questions about shareholder return. Will the shares repurchased through the share buyback be canceled? Laurent Mignon: For the time being, we've said that we will allocate those shares to potentially pay the potential further paid of the puts and calls that we have in IK or be in front of the long-term incentive plan that is regularly given to the management, but it can be canceled. It's not a decision taken for the time being. We just announced before we do that late December that we've canceled how much -- how many shares did we cancel in late December, Benoit, I think 3.5%, 4% of the company. Benoit Drillaud: Yes. Laurent Mignon: 4%? Benoit Drillaud: Yes. Laurent Mignon: So we'll review. We do the share buyback, we see and then we'll make cancellation of shares whenever we need in order to give us more headroom to do share buybacks. Olivier Allot: Thank you. A question about the dividend. Just for the sake of clarity, should we expect EUR 3.6 of dividend to be paid in May and EUR 2.55 of interim dividend in November? Laurent Mignon: Well, this -- the EUR 3.6, everything will be related to the approval by the shareholder meeting, which is in May. I don't expect to have non approval. But should it agree with the EUR 5.1 dividend that we have announced that we're proposing, out of the EUR 5.1, EUR 1.5 has been paid. So the remaining EUR 3.6 will be paid then just after the AGM. And as I announced, we will pay 50% as an account interim dividend we will pay in November 50% of the dividend of 2025, which is EUR 5.1, which effectively make EUR 2.55, which then will be in payment somewhere in November. So the answer is -- long answer to say yes. Olivier Allot: Question about WPI. For how long time, do you expect to keep your shares in Bureau Veritas and the other larger unlisted assets? Laurent Mignon: Well, thank you. The question is when we invest in companies is because we want to create some value, and once we feel that our -- I mean, we have created the value we wanted and that we have to pass the company needs other means to do it, we pass it. So that's what happened for Stahl, for example. We've been Stahl for many years. So if I take the other unlisted assets, the -- as I mentioned, we always have an objective at 5 years. And after 5 years, we reassess the position to know whether we want to keep it or we want to sell it depending on what we see as a perspective. Bureau Veritas is a bit of a -- so it's really what we will do for the same for Scalian, for CPI, for ACAMS, for Globeducate or for Tarkett. The situation is for Bureau Veritas. We've been a shareholder for now 30 years. We've listed the company. Now the company is listed, and we have sold some of our shares during the last 2 or 3 years -- the last 3 years based on the fact that the exposure that we had not based on the fact that we didn't like the value creation potential of Bureau Veritas but the fact that the size of the concentration of Bureau Veritas was too high compared to their own portfolio and that we need to rebalance and use that to develop our new strategy, which is to develop the asset management strategy. Today, we've done more or so. So the question is only to know do we -- are we confident or not in the perspective of Bureau Veritas. And we are confident. So for time being, we are a happy shareholder of Bureau Veritas. And we will only reduce our shares into it. Whenever we feel that the value we have in mind is achieved. But for the same being, we think that the LEAP28 plan has a strong tailwind and that the team is doing a great job and that we can create more value with Bureau Veritas than the current share price today. Olivier Allot: A technical question about Stahl consolidation. Was it 100% consolidated into Wendel's account in 2025? Can you share the 2025 sales EBITDA and usual information you publish about the company? And can you do the same about Muno? Laurent Mignon: I think it's -- Benoit, you will confirm, we are on IFRS 5 now, So it's a discontinued activities? Benoit Drillaud: Yes. So it's consolidated, but classified under a specific account, but it's consolidated. Olivier Allot: What is Monroe exposure to software investment? Have you seen any drop off in flows into private credit focused wealth product, which has been quite clearly among the scaled U.S. players? Laurent Mignon: Well, I can leave Cyril to say that. I think I already answered partially to that. But Cyril, if you want to take that? Cyril Marie: No, no. Yes, for sure. Monroe is exposed to the software industry. If you look at -- it depends on the strategies and the various vehicles. But keep in mind that what they do, it's -- they do -- they are focused on the lower mid-market. So their companies are between EUR 20 million and EUR 50 million maximum of EBITDA. So most of their exposure to the digitalization of the U.S. economy is tied to businesses close to the firm to support the digitalization of the industry, the health segment. So for sure, as David said, in AI, you have challenges and opportunities, but we do believe that Monroe is very well positioned to go through that. And there is a risk and opportunities and the team, the underwriting team is really focused on that. They are always reassessing their exposure to software in order to be sure that they monitor their exposure. And the second question regarding the inflows, as I said, there was some reduction of the inflows on the BDCs, MCIP, the main one, but it's still -- we are still seeing inflows. And we do believe that over the long term, the allocation of private market for retirees and the 401(k), et cetera, will increase. For sure, it's a bumpy road because there was some noise now. But over the long term, we do believe that the potential is there in Europe and in the U.S. Laurent Mignon: But to rephrase what Cyril said, they don't have a specific tweaks to software and so on. So they have software, not more or less globally the market. Am I right saying so, Cyril? Cyril Marie: Yes, yes, for sure. Yes. Laurent Mignon: Yes. Just to be clear on that. Olivier Allot: We have a question about the execution of the share buyback. How the share buyback program will be executed, is there a certain percentage of traded volume that will be bought every day on the market? Or will it be more opportunistic? Laurent Mignon: I think -- I don't know what I can say. We will give a mandate to a bank that will execute that. And I think they will have -- they will execute that on a daily basis based on the mandate. So once we've given the mandate, it's not us doing it. They have a time frame, which is the end of the year. They have the amount, and they will execute that by respecting the rules of the AMF and whatever are the rules to be respected. So that's how it will be done. So it's -- am I saying it the right way, Benoit? Benoit Drillaud: Absolutely. Laurent Mignon: Good. Good. But basically, it's an everyday business. It's not like buying one day and be off the market. It's -- they have -- but again, we will not be interfering into that. We've given a mandate to buy that to a bank, and that will be executed by the bank following the rules as a mandate from us. The mandate will be starting tomorrow morning. Olivier Allot: A question about the discount to NAV. How do you explain the wide discount on the NAV? Is there any specific reaction to Wendel management and track record? Laurent Mignon: Sorry, I don't understand. Is there any -- you mean -- do we do well our job? I don't know. We're trying to change the company, make it evolve. I think there are severe discount to NAV to any other investment capital heavy firms that is publishing an NAV. Is the NAV the right way to look at us? Probably not because we are becoming more and more an asset management company. So we have to think about whether this is the right way to think about us because now the asset management is representing 38% of our total business, and it's not here up to sell. So it's a different approach. It's a long-term business and should be valued on the flows. So we have to think about the way we do it. Now -- each time I see somebody, he gives me a different reason from the discount to NAV, too much concentration on one stock, then it's too much listed assets, then it's too much nonlisted assets. So the other one is the value of listed, nonlisted assets is unclear, so people make discounts. So the others -- again, what we are trying is not to focus on that. We focus on long term. We focus on value creation. We want to demonstrate that we will create value through the WPI strategy and for sure that we are creating a lot of value by the WIM strategy. The growth will be there, return will be there. Return to shareholders through dividend will be there, again, and through share buyback. So we've been very clear about where we want to go during the Investor Day, and we'll execute on what we say. And I think that the first 1.5 months of this year '26 show that when we say we will execute is that we are doing it. Olivier Allot: No more question on the web, but we turn back to question by phone. Operator, please? Operator: We have 1 more question on the line from Alexandre Gerard from CIC CIB. Alexandre Gérard: Yes, 2 follow-up questions, please. The first one on Tarkett. I mean, can you remind us what are your liquidity options on that investment? Could you trigger any put option? Or are you stuck with that stake for the long term. Second question also, it's on the FX impact on your NAV year-on-year. What was -- can you remind us what was the negative impact linked to the depreciation of the USD on your NAV? Laurent Mignon: So I'll leave that last one to Benoit. I think the impact of dollar because it's a dollar depreciation was quite [ null ] on the fourth quarter, but the full year, Benoit will give you the answer. For Tarkett, well, we are a minority investor in Tarkett alongside a family. So we're working with the family on improving the company making better developing the sports business in the U.S. -- well, not only in the U.S., but globally, improving the metrics of the company in terms of efficiency and a lot of work has been done in 2025. So we feel that Tarkett and the company and the family together with us is doing a good job. We have -- it is clear for them that we are here for -- to be on their side and to help them developing the thing and that one day we will need to find an exit, there is a clear agreement with them. I don't have to comment the legal environment to that, but I'm pretty sure that everybody, once we finalize the value creation plan that is ongoing and ongoing, we will be in a position to exit our participation in good conditions. Benoit, you have... Benoit Drillaud: Yes. The depreciation of the dollar resulted in a decrease of EUR 6.9 per share between the end of 2024 and the end of 2025, EUR 6.9. Operator: There are no further questions at this time. I would like to hand back over to the speakers for closing remarks. Laurent Mignon: Well, no, thank you very much. Not much in fact, in this. Most of what we're saying was already there. But the point I want to really stress is that we are on the move, and we're doing what we -- we are saying what we do and we're doing what we say. That's very important. And we have a lot of further things to do in '26. We're very optimistic about creating value there. And thank you for being with us today, and we'll meet you soon. David Darmon: Thank you, everyone. Laurent Mignon: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Oleg Vornik: Welcome to those joining the DroneShield investor call covering our 2025 annual results. I'm Oleg Vornik, the CEO and Managing Director of DroneShield. And joining me today are Carla Balanco, our Chief Financial Officer, on my right; and Josh Bolot, our Head of Investor Relations, on my left. Angus Bean, our Chief Product Officer, is unfortunately unable to join us today due to customer travel commitments overseas. We will aim to speak for approximately 15, 20 minutes presenting the results, followed by questions. Please submit your questions well in advance so we can start immediately with the questions following completion of the presentation. 2025 has seen a record revenue of about $260 million, about a 4x increase on the previous year. Importantly, it has been a profitable year for us of about $3.5 million profit being also $33 million of underlying profit before tax. And importantly, having $15.9 million of net cash from operations. This reinforces our aim to have rapid growth as well as being profitable and operating cash flow positive moving forward. The pipeline has slightly increased from $2.1 billion to $2.3 billion in the last month since we presented the 4Q results, and a lot of it was due to our increase in the Asia Pacific pipeline specifically. The pipeline corresponds to about 295 deals. Great diversity of deals is how we have certainty of ongoing business where there's diversification across the stages of maturity, geography, products, customers and other factors. Some of those deals are significant. There is about 18 deals over $30 million each and our largest deal being about $750 million. Previously, we advertised this deal is about $800 million, but with being European deal and the Australian dollar continuing to strengthen, the Australian dollar value of the deal has slightly reduced. DroneShield continues to be significantly well positioned to win in the exploding counter-drone market. We have 460 employees in about 7 countries around the world, and that includes over 350 engineers. We continue to invest significantly in R&D in this rapidly evolving landscape, and it's about $70 million plus of R&D that we spend every year. And we continue to have significant cash balance of over $200 million to support our growth. To recap on top of what I was saying earlier about the record revenues, the SaaS is continuing to grow, and our goal is to continue to ramp it up to the eventual aim of over 30% a year over the next 5 years. And the growth in SaaS will be reached through having multiple streams of SaaS over increasing amount of hardware in our space. We're familiar with some of the recent market commentary about some of the software companies that have been sold off. And the big difference in the DroneShield case is we have an integrated hardware and software solution, where a lot of our IP is really deeply inside the hardware as well as software. And the data we use for our software is not something you can easily just scrub off the Internet. So when you're looking at the drone signal data, you have to collect it in a number of countries, often very sensitive situations. So very high IP that cannot be easily disrupted by the likes of ChatGPT. Along with the record revenue growth, we're seeing significant matching growth in customer cash receipts and big increase also in the committed and also recognized year-to-date revenues and cash receipts already going in, into 2026. So a very strong start of the year. We talked briefly about the profit where the underlying profit before tax for 2025 has been about $33 million and then showing the significant operating leverage going forward. What I mean by that is with the roughly 65% gross profit margin as the revenues grow, that is going to outpace the growth in costs, resulting in what we're aiming to be increasingly profitable position. And the bottom right-hand chart is the NPAT to EBITDA bridge. I'll leave it as read, essentially $36 million in underlying EBITDA with $3.5 million statutory NPAT. If there are any questions on that, happy to answer that. The sales pipeline, this has largely been covered when we presented about a month ago. So one change, as I mentioned, is the increase in our Asia Pacific position where a number of countries bordering China are significantly concerned about the Chinese drone threat, and we're continuing to see increase in demand there. But overall, to recap on the key themes, U.S., we believe, will have a number of growth factors. So in addition to the military, where there is a $1 trillion record defense budget for '26 and $1.5 trillion defense budget proposed for '27, we're expecting to see significant public safety market, not just with the Safer Skies legislation enabling police to take down drones, but also significant funding applied ahead of the FIFA World Cup in June, July, and we expect to see meaningful sales between now and that time and also going forward. Importantly, we believe that police will be a bridge towards the counter-drone being seen less so strictly military type of solutions and more into the civilian solution. So then increasingly deployed by critical infrastructure operators, airports and corporates. In Europe and U.K., we have opened our sales office in Amsterdam, managing our local distributors around Europe. And both Europe and U.K. are driving our momentum significantly at the moment, underpinned by everything you read in the news about Ukraine and the general instability there. Europeans realizing they cannot rely on U.S. for their security. And being Australian is a great neutral position in terms of appealing for sales for both the European and the U.S. markets. In Australia, DroneShield has been selected on the panel for LAND 156, which is the rollout across defense spaces nationally and we anticipate for there to be a significant amount of business for us even starting from this year in this $1.3 billion program. We have approximately $79 million in inventory as of 31st of December. That combines $26 million in finished goods as well as $53 million in raw inventory, which is largely the long lead items to ensure that we can deliver to our customers in a short amount of time. We have moved to an enterprise ERP system, which enables us to really push out on our goal of moving production from $500 million a year to $2.4 billion by the end of the year, which is underpinned by the new 3,000 square meter facility in Sydney as well as our manufacturing hubs in the U.S. and Europe, which are being finalized as we speak. 2025 has seen inventory impairment of about $10.3 million, constituting 2 factors, the $8.5 million in finished goods, which substantively relates to DroneGun Mk4 out selling DroneGun Tactical. We believe it's a one-off situation because we essentially introduced 2 product lines with the Mk4 being the success to tactical within a couple of years of each other. And we do not intend to introduce successor versions to the DroneGun Mk4 and RF controllers, we believe that at the hardware level, those are essentially as best as the technology can get within those form factors and the future versions of those technologies will look entirely different. And therefore, we do not believe that similar sort of impairment is likely going forward. And the $1.8 million in raw materials, so a lot of it was linked to us moving to the new ERP, and it's in line with FY '24 impairment of $0.6 million. On the manufacturing, as I mentioned earlier, we are expanding from $500 million a year to $2.4 billion, and that includes the European and the U.S. assemblies. For those relatively new to our story, we have essentially 2 streams of products. You have the dismounted being the RfPatrol, body-worn drone detector. It's a hardware that has AI on the edge. So SaaS software that lives inside of it that we do quarterly software updates on. And then there's DroneGun, which is what we've historically been most well known for. In fact, those observing our news probably would have seen with electronic arts major game adopting DroneGun as one of its key weapons. But in fact, DroneGun has only been just under 20%, 19% of our revenues in FY '25. And in fact, the business is fundamentally moving towards being a diversified company with our on the move and fixed site DroneSentry system constituting just under 40% and RfPatrol being just over 40% of our revenues. And SentryCiv, the civilians specific subscription-based product that we launched last year, I think will start ramping up as the civilian sector grows as well. Our SaaS strategy is separated into 3 streams. You have the device level SaaS. So today, when you buy RfPatrol, DroneSentry-X that comes with RFAI detection software. And then we're currently trialing the RFAI attack, which is AI-enabled defeat software that will be a paid product from about middle of the year. Then we do AI that sits inside the cameras and then also utilize third-party AI for radars and of course, SentryCiv, which is our own SaaS as well. And then the site SaaS, so when you have a base or generally maybe critical infrastructure facility, you'll be having a number of sensors, DroneShield and third parties stitched together by our DroneSentry-C2, or perhaps commanders with tablets with our Sentry-C2 Tactical. And then our latest product that we introduced at the end of last year being our DroneSentry-C2 Enterprise when you have entire region or a country looking for patterns of drone incursions, drone attacks. So the idea when I was saying earlier about the SaaS getting to 30% of the revenues over the next 5 years being our goal. For example, you might be buying DroneSentry-X and on that, you might have our RFAI detection software and then RFAI defeat, you'll probably be pairing DroneSentry-X with a camera that will come with our DroneOptID SaaS, probably a radar as well, which will have its own SaaS. It will probably sit on a base underpinned by DroneSentry-C2 and potentially even in the region overseen by DroneSentry-C2 Enterprise. So this is an example of how multiple SaaS packages can apply to a single piece of hardware. Sometimes we get asked what's a small company at the end of the world in Sydney able to do to compete against large defense players. And historically, when you think about defense, you think about perhaps U.S., Europe, Israel, maybe South Korea, you don't think about Australia. And we have been lucky to an extent of being in this game right from the start and deploying significant engineering force on this. And also being in Australia, we knew that we cannot sustain ourselves just for the Australian market. So we became an export business from day 1. In fact, today, about 95% of our revenues are export, and I'm expecting the trend to be similar going forward. And so as a result of this truly global threat being the drone attacks, we developed distributors in about 70 countries around the world and now we have active customers in dozens of countries around the world. And with that, over time, Australia also being very good base for engineering, we developed solutions which are smaller, lighter, more effective for both detection and defeat and also those relationships with end users around the world, Australia being a great country again in terms of the relationships with these Western and Western allied countries that feed us honestly, probably more information that we can do with in terms of rapidly changing our technology roadmap to adapt to the latest drone threat. So a number of commercial and technical differentiators. In terms of specific competitors, what we generally say is that within the niches of counter-drone that we choose to compete in, we are the dominant player. So if you think about body-worn drone detection, our RfPatrol is, we believe, the leading product by number of units sold around the world. There are a couple of others. So MyDefence has a product and DZYNE has a product, but we believe that we significantly outsell them based on what we're seeing. And similarly, for handheld defeat, we believe DroneGun is the best-selling product of its nature around the world. In the on-the-move detection and defeat, the closest product to DroneSentry-X will be a product that AeroVironment has, but it's a pretty small part of their business. And if anything, in the long term, this potentially be a cooperative relationship. In terms of the C2 solutions, there are a couple of competitors. So we're listing Dedrone and Anduril, but I think we have a number of unique differentiators on both of them, and we don't necessarily compete with Anduril being a much higher cost and strictly military solution compared to DroneSentry-C2. Last thing to add here is that the traditional defense primes are not competitors and really more customers because they are not really moving at the speed and the cost base that is required to be successful in this cost asymmetric market. Cost asymmetric, meaning if you've got a $500 drone, you can't really be fielding a $10 million solution. So with that, we see the traditional primes as customers. On the corporate governance, many of you will be familiar with a lot of the media scrutiny we had at the end of last year. We have engaged Freehills, a Tier 1 legal advisor, to give us essentially gold standard in corporate governance. And with that, we have yesterday revealed a number of updates of our policies, the trading policy, disclosure policy, the minimum shareholding policy, and others. And in my view, what has actually happened is the business has been growing incredibly quickly. So on the indices front, for example, we joined the All Ords in March '24, ASX 300 in September '24, ASX 200 in September '25, and now, depending on how fast we grow, we might be knocking on the door of ASX 100. So as a result, when you grow so quickly, policies, procedures can sometimes fall behind, and this was an opportunity for us to establish gold standard for this particular area, much like we are running really quickly, recapping our -- changing our policies for a much larger business right across the company. We made a number of hires, so Head of People & Performance at the end of last year. Josh joined us in January this year, and also Chief Operating Officer, who joined us from a similar position from Thales, where he brings a wealth of that high-end operational experience. The last slide, then we'll turn to questions, and I encourage everybody again to please be asking us questions. So as we stand today, we are excited to be starting to launch the next generation of hardware across our product family, so this will be towards the second half of the year and into '27. The counter-drone market continues to have very low saturation because you think about drones, they only really came into people's minds about 10 years ago, really started having negative that sort of nefarious impact from the start of the Ukraine war. So thinking about only 5 years ago, and counter-drone is a derivative of the drone market, so military started to buy or looking to buy in any meaningful quantities only in the last 5 years, and when you're selling to the government market, the wheels can grind slowly, right? And so as a result, I would say militaries have probably sub 5% market saturation, civilian market has close to zero, and therefore, we have significant opportunity in front of us. The SaaS revenue we talked about are going from about 5% current to about 30% and continuing to expand our market share. So in addition to selling hardware and software, we'll be looking to expand into training solutions, support, counter-drone as a service, and other related initiatives to maximize, I guess, that ownership of the customer and providing the services to them. We talked about establishing of the European manufacturing facility, and also in the U.S., and we believe that the next 12 to 18 months, we'll start seeing additional -- initial material sales in the civilian space, such as data centers, potentially airports, and other key customers. We're continuing to work on our processes and systems due to our rapid growth and in a very disciplined manner, looking at the opportunistic M&A. Now, there are no competitors that we would like to buy, but we're always interested to look at emerging counter-drone technologies, in addition to what we may be doing in-house, and we're really well-positioned to assess what makes sense due to our understanding of the sector. And as we look over the next 5 years, we're looking to get to the target revenue of over $1 billion a year. This may sound like a lot, but then we quadrupled our revenues last year alone, so that will hopefully give you some sense of our ambition. And also, just the fact that the maturity of the market is still so early, and the customers are going to be putting increasing orders, hopefully. Most of our revenues are from repeat customers, right? So people placing increasing orders as they get more comfortable with the idea of having counter-drone solutions and more budgets to go with it. And continuing to have that global focus is probably the last point to say. So with that, we'll conclude the presentation part of that session and turn to any questions. Oleg Vornik: The first question is: How likely do we think is it to sign a $750 million deal with Europe, and do we have production to deliver on the deal timely? So it's not going to be trivial, we think that we're well-positioned, and it's the same customer who gave us a $62 million order in the middle of last year, and smaller orders in addition to that. So we have an existing, really good relationship with that customer. And the production capacity, so depending on how fast the customer wants to execute on the deal, if they say to us, "Go as fast as you can", I believe we should be able to deliver it in batches over perhaps under 9 months. If the customer wants to stagger it, which is entirely possible, in stages, it might be, say, over 2 years or so. So that's my best estimate at this stage. I think the next question, I'm trying to rephrase it. What is our announcement level for deals? So we continue our approach as of the past, where approximately 10% of last year's revenue has been our announcement threshold. For '26, it'll be $20 million, unless there is a strategic element to announce a smaller deal. So there's a question about $18 million of the $30 million deals. When are we going to be announcing them? Well, hopefully, once we win them, we will be announcing them. The next question is about, does DroneShield have plans to expand its drone technology into different domains, such as naval drones, used in Ukraine conflict? And do we see it as an area we could pivot to? Absolutely. So when you see us talking in our announcements about counter-drone, we actually refer to it often as C-UxS, not C-UAS, A being aerial. We consider drones being all domains, whether it's ground, naval, or flying machines. And the good news is that the technology that we use is equally valid for flying machines, swimming machines, and crawling machines, and we can be effective on all of those. The only time when the technology stops working is for the underwater drones, so UUVs, where our command and control is still effective, but for the detection, for example, you'll be most likely looking to use a sonar. If we see more of that being where the market is heading, we would simply focus on integration of most sonars and lead with our C2. But the vast majority, we believe, for the foreseeable future, will be aerial, ground, and what we see in Ukraine, as you said, being the swimming drones. So I think the next question I might pass to Carla, our CFO. The January update referenced gross margin of 65%. The statutory FY '25 number was 61% after the inventory impairment. Should we think of 65% as the normalized run rate? Carla Balanco: Thanks, Oleg. Yes, our average normalized run rate for the gross profit margin should be seen as 65%. There's obviously items that will affect this margin. And those items will be the percentage of system sales versus dismounted sales. Our systems carry a lower gross profit margin. And the reason for that is because of the external third-party componentry that is incorporated in the system, such as the cameras and the radars. Those items carry gross profit margins between 15% and 30%. Therefore, we do think a 65% average moving forward for our gross profit margin is our aim. Thanks, Oleg. Oleg Vornik: Thanks, Carla. The next question is about Bundeswehr, the German army. Are they a customer of our products, and do we have plans to supply the Bundeswehr? Yes, Bundeswehr is a key focus for us, and in fact, if you follow the German defense market, there's a high-profile defense exhibition in Germany that is just concluding now that we were at. So yes, it's very much focus for us. Germany is a key European market. The next question is, what is our current penetration of Ukraine and neighboring NATO markets? So we have hundreds of detection and defeat systems deployed in Ukraine and continuing to add more. We have systems deployed in Poland and a number of other areas. So yes, absolutely, we are deployed, I want to say probably with about 10 or 12 European NATO countries, plus obviously U.S. and Canada, as far as NATO is concerned. The next question is: Is there a goal for the stock price? I mean, as high as possible, but unfortunately, I only get to influence it so much. How much revenue do we estimate currently comes from civilian buyers? Do we estimate a shift? So today, almost all of the revenue comes from military, border security and intelligence community with a bit of public safety being police. I think the question was referring more to customers like airports and data centers. So today, those are minimal, but we're starting to see green shoots of demand. And if you looked at our total addressable market, we're estimating about $30 billion TAM, total addressable market for the military and another roughly $30 billion for the civilian market. And we think over the next 5 years, our revenues will truly become more 50-50. And once the civilian market gets going, I think it can evolve potentially much faster than the military market has. Next question, given the continuous innovation in the industry, what gives us confidence that the inventory is sound? And are we able to reduce the inventory risk in terms of moving to just-in-time manufacturing? So as I briefly mentioned, the inventory write-down this year was a bit of a unique situation, where we introduced 2 DroneGuns within several years of each other and essentially, our newer DroneGun ended up cannibalizing some of the older DroneGun sales. And by the way, we continue to sell DroneGun Tacticals, we just decided together with our Board to take a prudent approach and do the inventory write-down. Going forward, we don't expect to launch superseding versions of any of our product lines today, but rather really different product form factors. So I don't expect for there to be cannibalization, meaning if you want to have a jammer in a shape of a gun that you hold in your hand, I believe DroneGun Mk4 is kind of as good as it will get. So there will be better jammers, but there'll be backpacks, they'll need more space and so on. I don't believe that just-in-time manufacturing really works for this industry because some of our longest lead circuitry has a 25-week lead time. And I don't believe it will change much because, again, of just complexity of the technologies that we're dealing with and our buyers want to be able to fulfill small orders quickly, right? So our goal, which is largely in consultation with our sales force and customer expectations is to be able to deliver orders in single digits of millions instantly. So you probably would have seen, we did an announcement at the end of last year. We received an order about $5 million on the 30th of December, delivered it by the 31st of December, which was pretty incredible. Then the $62 million order we had in the middle of last year, we delivered within 2 months and then the $750 million order I talked about fulfillment in under 9 months. So for that, you need to hold inventory. But we're pretty happy with the raw and finished inventory we're holding. And please remember that raw, as I was saying, is largely long lead time items as well. They're not finished goods. And also keep in mind that, for example, RfPatrol and DroneGun and some other products we have, have interchangeable parts that you can use in between the products. And we're trying to have as many interchangeable parts between product families as possible. What are our plans for increasing effective range and distance of our products? I guess it's the same thing, range and distance. So my first comment somewhat flippantly is that more is not always better. So for example, for the detection, more range you get often more false alarms you get. And our customers don't necessarily want to be able to see 20, 30 kilometers out. And at some point, physics kicks in as well, right? So a lot of our work with customers if they're very new to counter-drone is saying, okay, well, if you come with an expectation of detecting a proper missile 200 kilometers away, there's nothing that will detect a small drone 200 kilometers away. So explaining that there is natural physics limitation to range. But a lot of it is just pushing the envelope of physics, right? So you're saying, okay, there's noise floor in radio frequency, how do you see through the noise floor, how do you reduce the false alarms. There are quite a lot of parameters that you want to optimize how you detect never seen before drones, how do you deal with the Chinese drones, which are hiding behind other bits of noise, which are running away from you when you're trying to disrupt it. So there are a number of challenges in addition to distance, but that is ultimately why you have 350-plus engineers working on that problem with a lot of drone signal data and just continue to get information from their customers. The next question is about, can we provide some more detail about the types of drone deployments by China, which are behind the concerns that our Asia Pacific customers have? So a well-publicized example, this is a bit dated about 2 years ago, has been of a Chinese drone landing on the deck of a Japanese naval ship. Now you imagine massive embarrassment, loss of faith -- loss of face. And so that's an example, right? So small drones are buzzing over military facilities and just generally harassing both the civilian and the military targets. So this is what our Asia Pacific customers are looking to protect against. Has DroneShield considered underwater drones and drone capabilities -- anti-drone capabilities and detection? Yes. So we actually first came upon the concept of underwater drones and what to do about them about 5 years ago. Those who have been following us for a while would have seen we introduced a partnership with a sonar company. And our job there is our command and control. So DroneSentry-C2. Again, remember, we're not a drone gun company. We are much more than that. So we make a command and control solution that various modalities of sensors plug into. And so we had a sonar compatible with our command and control system, started marketing it those 5 years ago, not a single person bought one. Now the conclusion we reached is that the market just wasn't ready for it. And my view is that the market is still not ready for underwater drones, but the threat is there. And underwater is significantly different, as I was just saying 5 minutes ago, to every other types of drones. So drones that crawl on the ground or the surface of the water that fly in the air because traditional physics of radio frequency in the air doesn't propagate well under water. So you need sonar for the detection and something else, be it nets, torpedoes, it depends really on the customer in there, the ability to deploy countermeasures for the defeat. But our role in all of this will be providing a command/control solution, which also will protect against drones from the air and the ground and so on. Can we quantify the current order backlog and how much of the revenue is expected to be awarded in this financial year? So if you look at the chart, we are sitting at a bit over $100 million in committed revenue this year, and we recognize roughly about 20-ish or so. So that means the backlog of about 80 and virtually all orders for this year, plus obviously, the revenue that we will actually secure. Now my controversial view is that I don't like backlog, backlog means a customer has placed an order and is patiently waiting or sometimes impatiently waiting on delivery from us. My goal is to deliver goods under order as soon as possible to customers. So you find that big defense primes often advertise their backlog. So they say, "Hey, I've got a 5-year contract, I'm going to deliver this and that over the next 5 years, and that is seen as a positive, great. But in our industry, it's actually negative in a sense that you want to be rapidly delivering to customers and not making them wait. So vast majority of the revenue I anticipate for '26 is not inside of that $80 or so million current backlog, but the new revenue that we will earn and deliver and recognize from now before the end of the year. What likely drone threats exist or may exist that DroneShield does not have solutions for, for example, cable drones? So I think the person is referring to the fiber optic drones. So there's a slide in our presentation, which talks specifically about why fiber optic drones are not a threat. So for example, we are effective against fiber optic drones because we offer a command and control solution that integrates with radars, which can detect anything that flies, including fiber optic drones and also depending on the customer solutions like HPM that can take down those drones. But my view is, I think I said to many of you before is that radio frequency is the backbone of drones. And fiber optics exists very much around the edges with significant limitations. You think about flying a drone with 10 kilometers of fishing line attached to it, wrapping around trees, buildings, you fly a bit too quickly, you snag the cable. It's really very much an edge case. And RF to drones, I believe, will be a bit like wheels and cars, like whatever cars will look like in 50 years, they'll probably have wheels on them because we're flat in our world and built a lot of roads. So similarly, for how much was invested in the radio frequency. Now that's not to say there will be new types of RF, which is like I was saying, the Chinese are now putting what was 5 years ago, sensitive electronic warfare techniques into $5,000 drones designed to avoid detection and defeat. We're starting to see slow rise of cellular control drones. But tethered drones, I don't believe, have that much future and our existing on-to-move and fixed site solutions already have a way of dealing with them. The next question is $28 million of our FY '26 committed revenue is the SaaS pipeline tracking 2x of '25. So about 7% of SaaS for FY '26, how are we going to get an uplift to get to 30% by 2030? Great question. So I talked before about the 3 strands of SaaS, the device level SaaS, which has a bunch of elements to it, like the detection, defeat for the radio frequency to separate SaaS, our RFAI, RFAI attack, talked about DroneOptID SaaS, the radar SaaS, the SentryCiv SaaS and then the DroneSentry-C2 and the C2 Enterprise. So today, out of the roughly 4,500 pieces of hardware deployed around the world, maybe only half actually receive SaaS, the other half being DroneGuns, which don't require SaaS by design. Going forward, as the technology continues to rapidly iterate, so hardware probably has a 3-, 4-year cycle, I would expect over the next 5 years for us to have tens of thousands of pieces of hardware, almost all of them receiving SaaS. And not just one piece of SaaS on every piece of hardware, but having like an example I was giving with DroneSentry-X, you have one piece of hardware, but then you might have RFAI, RFAI attack. It's part of the system. So it has a radar SaaS, camera SaaS and the C2 SaaS. So having multiple pieces of SaaS maximizing that SaaS element as part of the total revenue. But then also on top of that, I talked about the wallet share, right? So talking about the training and counter-drone as a service. So there's quite a lot of elements that we are actively exploring with customers at the moment. The next question is about how do we see ourselves in terms of the World Cup this year in the U.S.? So we talked about the Safer Skies Act, which enables police and public safety officers more generally to use jammers take drones down going forward. This, we believe, will really drive adoption of counter-drone technologies within public safety system that will protect those stadium venues. So we have a public safety team inside of our U.S. office run by Tom Adams, an ex-FBI guy. And we are actively engaging with a number of police agencies around the world -- sorry, around the U.S. at the moment and believe we'll have meaningful sales from that between now and the World Cup. What countries or theaters of war are considered no go for DroneShield? So pretty common sense, right? We would not work with Russia, China, North Korea, Iran. I mean, essentially, any country which is either prohibited or gray zone list by the Australian government because we do need export licenses to sell. And well clear what those are. We've been working with Department of Export Controls now since the beginning, and we have a very close relationship with them. We basically would never ship to those countries. And the processes are very strict, right? I mean, even though our products are entirely safe for humans, so none of our products can hurt human being or even the drone for that matter, the strictness of export controls is comparable to a proper weapon. So for example, a guy who runs our shipping department is an Italian guy who used to be shipping torpedoes around the world on behalf of a Italian defense prime. And so it's the same strictness of the process in terms of end users entering into paperwork not to share our equipment with anybody else. And ultimately, this is not just between us and them, but also involving Australian government. So exceptionally strict control processes. What are some of the drone-related verticals that look interesting to us from an M&A perspective? So we'll always stick with counter-drone as we want to continue playing in what we know. There are technologies like high-power microwave, which I find really interesting, and it fits in our nonlethal but complementary to drones, for example. I think there will be new methods of detection potentially relating to shock and vibration coming from drones. So essentially, the way I see this is the equipment needs to be cost effective. It's hard to justify having a $10 million piece of equipment against $200 drones. It needs to ideally protect an area, not just 200 sort of meter range around it, unless it's super cheap, so you can have mass volume of these things. And ideally non-ITAR because we want to have the market of all of the NATO and NATO allied countries. And the current AUKUS process in terms of Pillar 2 is streamlining a lot of that ITAR stuff between Australia, U.K. and the U.S. But ideally, we want to be continuing to focus on non-ITAR technologies. The next question talks about how was our exhibition at Enforce Tac in Nuremberg. So I wasn't there myself, Angus, our Chief Product Officer, was leading our delegation. We have a number of European team members who were in Enforce Tac and the download I had so far is that it's been an exceptionally positive meeting and helpful for our folks on Germany with Bundeswehr as well as the rest of the European market. So the next question is, why has DroneShield not introduced Phantom shares to attract and retain talent and not put pressure on the share price? So the Board regularly revisits what are the most appropriate structures. In my opinion, phantom shares are not an optimal structure. And so we haven't been introducing it, but the -- this is something the Board does review regularly what makes most sense. There are increasing reports of hybrid attacks at airports throughout Europe, what are our plans in that space? So we have had equipment deployed at the airports. For example, you might have seen news articles with the DroneSentry-X at Copenhagen Airport a few months ago. I think airports more generally struggle bureaucratically. So in some countries like in Germany, actually, Bundeswehr has technically a lot of influence over what gets deployed at the airport. So it just becomes of kind of too many cooks problem where you have airport, you have the military, you have government more generally kind of all coming up with what's the most appropriate solution. But I think you're right in that the pressure continues to escalate on airports to deploy counter-drone measures. As today, you imagine you stop all flights for 15 minutes, 30 minutes, an hour, and that's a significant disruption. And the alternative is even worse, plane taking off and a drone blowing out an engine, right? So we are talking to some of regulators. We're talking to airports directly. We're talking to military. So the idea is that you just keep pushing, chipping away of the stakeholders until eventually you kind of break through and start deploying gear. The next question about viewers saying they watched a terrifying video on Chinese robot advancement moving to RF control. So I mean, robots can be seen as UGVs and ground vehicles, and this is very much part of our market. So UGVs, ground vehicles, UAVs, aerial vehicles or fly drones and USVs, so unmanned surface vehicles, both essentially on the surface of the water. And the physics is exactly the same in terms of how radio frequency radars. Radars work a bit not so well close to the ground because you get a lot of ground clutter coming up, but radio frequency is generally pretty good. Have any shipping companies expressed interest in DroneShield to protect ships through conflict areas in Red Sea and Iran? Yes, we have some shipping companies using our kit already. This normally needs to be a bit of a layered arrangement of government forces being on those ships and them having our kit, which ultimately links to if you -- who can own -- possess jammers. So the law of the high seas essentially says, well, anybody can do anything. But then, of course, those ships need to come to harbor eventually. So usually, the arrangement that we're seeing at the moment is if the ship has government security on it, they'll be able to use our kit and some of them do. I'll pass the next question to Carla as it deals with the net profit margin. So I'll read out the question. I understand we're investing heavily to scale, which is importing reported net profit, but net margin is low. When do we expect net profit margin to materially improve? And what level of margin do we believe -- what level of margin do we believe is achievable in FY '26 as we continue to scale? Carla Balanco: Thank you, Oleg. So right now, our focus is, obviously, we want to grow the business and we want to increase our revenues. We know that profitability is important as well. And we are focusing on trying to improve our profitability position, taking into account that we were in an operating loss, a net loss a couple of years ago, and we've only now really started to focus on improving our net profit position. However, as you mentioned, we are scaling really rapidly. So balancing that rapid scale in terms of implementing a new enterprise risk system that we'll be doing this year, also our ERP system, opening a European office, focusing on U.S. manufacturing, European manufacturing, all of these items add costs to the P&L. And so we are focusing on trying to control costs, but focusing on increasing those revenues. And by doing those 2 things, naturally, our net profit will increase. I cannot provide any details at this stage in terms of what I forecast our net profit margin to be. But what I can say is our fixed cash costs for this year is looking at around $150 million. We have capitalized R&D and so we're looking to capitalize between $25 million and $30 million on R&D. Our gross profit margin, we spoke about already, which is 65% in terms of normalized average gross profit margin. And that is about as much as I can provide at this time. Thank you. Oleg Vornik: Thanks, Carla. Does DroneShield see Asia, excluding China and Central South America as big potential markets than European Union as they quickly adopt drones, as seen in the Thai-Cambodian conflict? And are there any difficulty selling into those regions, countries not seen as Australian allies? So I'm not sure about these becoming bigger than EU. EU is a huge driver for us, but becoming big, yes. So the key countries in Asia we're focusing on is Japan, Singapore, Thailand, Vietnam, Taiwan, and there are a couple of others as well. None of those markets have an issue with export permits with the Australian government. So we've been working there. And in Central and South America, so Mexico and Colombia both have issues with drug cartels and past that, there's Brazil, Argentina and others. So again, growing markets, especially Mexico and Colombia. And we haven't had issues in terms of export permits working with Department of Export Controls. The next question talks about competitive landscape across product lines. We're seeing new entrants and are we increasingly having to compete on price? No, we don't compete on price. It's interesting. So when we started 10, 11 years ago, there was really maybe us and 1 or 2 other companies. And then roughly maybe 5 years ago, the amount of competition really blew out. You go to defense show and every single stand is suddenly a counter-drone company, all kinds of stuff. Now we're seeing the market consolidate significantly. So some get merged or acquired, for example, DZYNE, which is a compilation of 3 or 4 companies or BlueHalo that got absorbed into AeroVironment and some go out of business just because customers basically don't buy from them because the products don't make sense. So we don't really see new entrants just because the industry is so high barrier now. We talk, for example, about drone signal data, right? Like you try to go around dozens of countries collecting drone signals in various environments. Some of these drones are very sophisticated restricted government drones, very, very difficult to build up and maintain that database, deal with relationships with military, government and customers, looking at radio frequency at the edge of physics, like, say, maybe 5, 7 years ago, the aim is to take an existing technology that has been successfully deployed in electronic warfare and cost effectively adapt it to counter-drone. Today, you are truly at the edge of like stuff that we are using is often a lot more sophisticated than any electronic warfare solution just again because we've been at it for so long and you just keep getting better and better. So it's very hard for new entrants. If anything, I would say our products will become more expensive, but also with more capability. So some of our new product lines will be launching from end of the year will be triple the cost of the existing products, but roughly keeping the same gross margin. But then the capability will be significantly higher as well. So if anything, I see our pricing trending higher rather than lower. How do we keep captured equipment from being used by the enemy? So it depends on the equipment. Most of our equipment and increasingly more and more are software-enabled. So obviously, we have ability to deny any changes in software. And then if you don't do changes in software, then the software quickly becomes obsolete. Can it be linked with laser beam technology? Can be in terms of our command and control DroneSentry-C2. But I actually have a pretty dim view on the laser. It makes for cool news headlines. But remember, right? So lasers have their place, right? So you always see militaries deploying some laser solutions. But think about mass deployments. You have systems that often cost $10 million plus that have obviously kinetic impact. You don't want to be blinding people if you're using it for stadiums. So I would consider laser in the same bucket as say, high-power microwave; an exquisite, very useful but very specific use case rather than what we are targeting most of our technologies being mass deployment to as much of the customer base around the world as possible, which has to be no collateral impact. But then if a customer comes to us and says, can you provide a laser solution? We have our great friends in AIM Defence based in Melbourne. They do amazing laser solutions. So that's what we'll be putting forward, assuming it works from an export compliance point of view. Have we considered drone protection with the making of other drones? I think anti-jamming, I'm trying to rephrase the question. So no, we don't really do things on the drones that stop other counter-drone systems being able to detect or defeat them. It's very different technology. I mean it's a bit like saying Boeing doesn't do anti-aircraft missiles, even though Boeing is great at planes, like you kind of have to stick to what you're good at. So drones and counter-drone are actually very different technologies, even though they are obviously on the opposite ends of the same battle. Are we prepared for threats to the business such as cyber attacks, theft for facilities or threats to executives or employees? So this is something we take very seriously. And also, there are government standards across physical cyber and other classes of security that we follow. So we have a team led by an experienced executive that deals specifically with cyber threats. And thankfully, knock wood, we haven't had a single successful cyber attempt, but we're continuing to see a ton, and this is something we take extremely seriously. In terms of insider threat, there is a very thorough employee vetting and also employee vetting program. We use a dedicated defense software in terms of monitoring employee actions, for example, ensuring the person doesn't download a whole bunch of stuff they're not supposed to. There is natural segregation on a need-to-know basis. So for example, I don't actually write code, so I don't have access to the code database because why should I? And a number of other kind of standard defense industry things. We don't need to reinvent the wheel here. So similar things to what the likes of Lockheed Martin or Thales or Raytheon doing, I mean, we do largely all the same stuff, gold standard and continuing to revise that as the technology evolves. In terms of threats to the executives, so yes, look, I mean, it's something that we looked at a lot. So for example, about a week or 2 ago, to give you a recent one, there was a case of somebody, I believe it was a Ukrainian guy, who got deported from Dubai, where he was based, forcefully to Russia as he was accused by Russia of killing a Russian general involved in Ukraine war. So for example, my directive internally was if you happen to be on the Russian sanctions list, which I personally am, for example, then you don't transit through Dubai. You don't stop in Dubai. And so this is something that we take very seriously. Do we have a capability to detect and neutralize drones swarms? Yes. So our detection and defeat is what you call volumetric, meaning you're scanning not just a little area at a time, but a whole wide area and you're basically staring at the sky and you can detect multiple drones at the same time, essentially, I don't want to say limited, but exceptionally large number of drones. And similar for the defeat, jamming and its advantage of jamming versus some other technologies like cyber can affect multiple drones at the same time. Next one. What do we see as the main threats to our growth and profitability going forward? Is it emerging competitors, for example? It's a great question. So I don't believe there are major blocks, right? But generally, you want to be on top of technology. So you always live in fear that our friends in China will invent something that's entirely immune to anything that we do, detection and defeat wise. But the reality is that physics are physics and as smart as engineers in China are, they still have to follow the laws of physics. So that nature limits to what parts of the bands you use and how you hide behind noise and so on. So we think we're pretty well positioned. And again, we've been in this space for 11 years. We understand the industry, and we continue to be on the bleeding edge of it. But you need to keep at it, right? Like you can't rest on your laurels. That's why you have 350 engineers out of the 460 people because you just have to keep innovating on a weekly, monthly, quarterly basis. I'm super excited about the next gen of hardware that we're releasing, the next gen of software, our RFAI version 3 that will go on top of the new gen of hardware when we release it at the end of the year. So this is all part of -- all part of that. And also, there is just general growth, right? So the organizational theory is that as you get past 30, 50, 100, 300, 500 employees, you almost have to break and remake organization. So how you follow your processes, how you communicate, all of that needs to be entirely changed so the organization doesn't sort of collapse onto itself. So that's what a lot of our focus is on at the moment. Do we need to work with CASA to certify our solutions to use in the Australian airports? So there is no such thing really I wish there was as a certification to be deployed at Australian airports. So first of all, it's not CASA. CASA used to be in charge of counter-drone security, and then it was transitioned to Airservices Australia several years ago. And Airservices ran a limited trial, we were involved in it. And since then, nothing really happened, unfortunately. And I mean, I get it. I don't want to blame Australian government. To be honest, U.S. government and all the other Western governments are doing exactly the same, meaning not doing much. But I think as drones continue to pose a threat to airports, this will just continue to become more and more a pressing issue. And I think once a few airports start deploying it, you'll be seeing more and more continue to do it because today, it's kind of easy to say, well, nobody else is deploying, no other airports are deploying counter-drones. So I just won't do anything. But I think that excuse will start going away. And so we're really excited about that eventually starting to snowball, but we're continuing to push. So in Australia, this ultimately sits with the transport minister. So we're continuing to push at the government level to have counter-drone deployed at airports. Next one. Are we seeing increasing pricing pressure with Anduril and other primes pushing into the space? So I think if anything, anything to do with primes will probably mean we're increasing our margins, not reducing given the cost structure of the primes and Anduril would be in the same bucket. I wouldn't call them the cheapest by any measure. So no, as I was saying, Anduril is really only overlapping with us on Lattice, the C2. And I don't want to say it's a competitor to DroneSentry-C2 Enterprise. It's just a different product. So there will be customers like the U.S. military where Lattice will be competing with Northrop Grumman and their environment and other dedicated C2s. And for example, the countries where we are deployed, they for various reasons, wouldn't be using Anduril C2. So I'd say -- and also, by the way, in the civilian space, Anduril doesn't really go into that space either. So I think -- or public safety, for that matter. So I think it's not really competitors, but if anything, our customers. Anduril is our customer, too, by the way, as they are the SIP, administrator essentially on the U.S. SOCOM program. We -- next question is we just released the $21 million contract. Can we elaborate? So we've been working with this Western customer for a number of years. If you read the announcement, the details are all there, had a number of contracts with them, and now they're just ramping up in terms of the deployment. And we're really excited in that particular country, we are the only counter-drone system of any significance. And it's actually a very large Western country in terms of defense budget. So now it's just a matter of continuing to sell more. We talked about low market situation to really kind of assist the customer into high situation with our equipment. Okay. Last question I'm seeing here. If there are any more, please ask or otherwise, you can e-mail your questions to us later. Are there any plans to integrate counter-drone tools directly into drones or other mobile platforms? What are the challenges of this? So not drones, but if you look at programs like AIR6500, which is Australia's mission -- sorry, missile protection system operated by Lockheed Martin. So those likes of programs where you have complete airspace awareness, so you are protecting against missile threats, but also you want to be able to protect your lower airspace against drone threats. So for example, attacks locally from drones taking out your jet fighters at Amberley or Williamtown airbases. So it's the likes of those, so call it like the larger air defense programs that we'll be looking to integrate with over time. And our DroneSentry-C2 has pretty standard APIs. So that makes the integration pretty streamlined. But ultimately, the government and customers will be driving a lot of this. The next one I'll leave to Carla. Can we talk to income tax benefit in the second half versus tax expense in the first half, what to expect going forward? Carla Balanco: Thanks, Oleg. So with regards to our taxes, you would have seen in the annual report that we have a complicated tax structure. We are tax residents in the U.S. as well as in Australia. What that means is that obviously, our tax profit and accounting profit are very different and there's items that were deductible in the second half of the year versus the first half, resulting in a tax benefit versus the tax expense for the first half of the year. Currently, we have about AUD 11 million in carryforward losses to be used against future tax profits. Oleg Vornik: Thanks, Carla. How does selling through resales impact margins? So our margins are already after the use of resellers. So essentially, the way you should think about the customer cash flow is our revenue is what we get from the reseller and the reseller would have their own margin on top. Now what we do is in the U.S. and Australia, we would influence the customer directly. But in the U.S., when you sell, you often sell through vehicles like DLA, TLS, it's just how you do defense procurement there. So there is a degree of clipping the ticket. And when you say, sell in many European countries or Asia Pacific, you have to go through distributors because these are people that have local relationships, obviously, understand the customers, the language and it saves us from trying to hire people in 70 countries around the world. So even despite the resellers, we're able to achieve very attractive 65% gross margins, but then we don't have to employ people in every country. And to be honest, some of the best guys who are resellers in terms of their relationships with the end customers, you can't employ them. They'll have their own little shops where they would sell maybe a dozen different product lines, we would often be their only counter-drone brand, but then they will be, for example, selling radars, electronic warfare, maybe drones themselves to the customers, and we tap into those unique relationships. A lot of the recent contracts are with existing customers, how we're going with converting prospects into customers, what's been experienced like bringing in new customers into DroneShield? So this is the whole art of selling to governments, right? So we lean on our distributors, but also we try to own as much of the customer relationship as possible. So you're not entirely dependent on the distributor. There is this complex web of the government budgets, which are often competing with different priorities and counter-drone is a priority. But for example, sometimes the customer may choose to buy drones rather than counter-drone equipment as that happens to get the priority. I mean, usually, customer gets a bit of both. Then you often have -- is it us or is it going to be another competitor, you normally try and ensure that the tenders are written with advantage to DroneShield in mind. Often if you see tender for the first time when it comes out, that means that it's been shaped by a competitor. So you want to be involved in the earlier stage. But generally speaking, you really want to ensure you're servicing the customer, right? You're providing that quarterly software updates is an important touch points. If there is an issue, you attend to that. And that's also expanding our fee wallet as well, as I was saying, in terms of having those support fees that we plan going forward. In terms of the new customers, so we continue to gradually expand to new customers. And so every once in a while, we -- like, for example, there was a new customer in South Africa about a year ago that we got and there are smaller customers in Asia Pacific that we would get in the last couple of months. But the goal really is to say there are -- in terms of what moves the dial, right? So there are probably 20 government customers around the world like U.S. Army that move the needle. And so the best bet for us is to focus on programmatic levels, so large-scale deployments while opportunistically going at the tactical level, so unit level to get those purchases. So it's less about kind of scrubbing and ensuring you get all the little fish. I mean you do that kind of in your spare time as best as you can of going around the elephant opportunities. And also once you have product deployed with customer, often they'll come back to you anyways for the top-up. So it's a pretty sticky position. I think that's all the questions we had, and we are over an hour. So we'll stop here. Thank you for your time. And if there are any questions, please e-mail them to us at investors@droneshield.com. Thanks for your time.
Operator: Good day, and thank you for standing by. Welcome to the Better Collective Annual Report 2025 Presentation Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Better Collective Co-Founder and Co-CEO, Jesper Sogaard. Please go ahead. Jesper Søgaard: Thanks a lot, and good morning, and welcome, everyone, to Better Collective's Full Year 2025 Webcast. My name is Jesper Jesper Sogaard, Co-Founder and Co-CEO of Better Collective. Normally, our VP of Investor Relations, Mikkel opens the call, but as he is currently out sick, I'll have the pleasure of doing so today. I'm joined today by our CFO, Flemming Pedersen, and I will provide today's business update in connection with our full year report that was disclosed yesterday. Please follow me to the next slide. We ask you to pay attention to this slide where we display our disclaimer regarding any forward-looking statements in today's webcast. Please turn to the next slide. Here you see today's agenda. I'll start by providing a business update, including some of the highlights for Q4 and full year 2025. Whereafter Flemming will take you through some of the financials before handing the word back to me for the key takeaways. As usual, we'll end the call with a Q&A session. Please turn to the next page. Let's dive into the highlights of report that for the first time is a combined Q4 report and a full annual report as we have moved the full year reporting forward by several weeks compared to earlier years. Please follow me to the next slide. Before turning to the details of Q4 and the full year of 2025, I would like to extraordinarily to take a step back. Over the past decade, we have successfully navigated multiple structural shifts across technology, regulation and market dynamics. Today, new themes such as AI and the emergence of prediction markets are increasingly shaping the industry landscape. Against that backdrop, it's relevant to provide a broader perspective on how Better Collective has evolved to reach its current position and what lies ahead. Better Collective has been built over more than 2 decades of continuous evolution in a fast-changing landscape. Our growth has come through a combination of organic growth and a series of acquisitions that have expanded our capabilities, strengthened our market presence and significantly increased our scale. Over time, this has enabled us to build a comprehensive ecosystem positioned at the intersection of sports media, sports betting and casino affiliation. The industry we operate in has never been static. I still remember the early shift from Yahoo being the leading search engine to Google gaining dominance, which was an early reminder of how quickly digital audience and traffic dynamics can change. Since then, regulation, technology and user behavior have continuously evolved and each structural shift has required us to adapt our model. We started as a small local affiliate business and quickly recognized that scale was essential to survive, which led to our transformation into a leading global aggregator. Over time, we also saw the strategic importance of owning stronger brands and direct audience relationships and gradually evolved into a global digital sports media group, while remaining anchored in affiliate marketing as our core monetization engine. Strategic acquisitions have played a key role in this journey, enabling us to establish strong positions in what are now some of the most important global markets, including North America, U.K. and Brazil, all while navigating changing regulatory environments. In parallel, we identified early that paid media would become an increasingly important acquisition and monetization channel, which led to the acquisition of Atemi and the subsequent significant scaling within the group. In essence, external change has consistently driven internal evolution at Better Collective. This long history of adapting to shifts in platforms, regulation and market structure has made adaptability a fundamental and embedded characteristic of the company. Importantly, we do not look back to anchor ourselves in the past, but to extract lessons from it. Experience across multiple market cycles provides perspective and informs how we prioritize investments, develop products and prepare for the next structural shift rather than the previous one. Today, we operate a scaled global platform with a very large audience reach, diversified monetization and strong positions across both sports betting and casino affiliation, supported by leading sports media brands and long-standing sportsbook relationships. Our positioning at the intersection of content, audience and iGaming is strategically relevant in an ecosystem that continues to converge and evolve. Looking ahead, the landscape will continue to evolve through AI, new wagering formats, regulatory developments and shifting user journeys. Our focus is, therefore, forward-looking. By learning from the past while preparing for what comes next, we believe we're strongly positioned for the next phase of industry development, supported by our scale, M&A track record, diversified business model and unique position at the intersection of sports media and iGaming. Moving back to 2025. The year has been defined by disciplined execution and structural strengthening of the business. We simplified our operating model, enhanced scalability across the organization and delivered on the full EUR 50 million efficiency program. This focus was about building a leaner, more focused and more scalable platform for long-term growth. We delivered on our full year guidance despite significant external headwinds, Brazil regulation, foreign exchange movements and sports win margin volatility all impacted reported performance during the year. Navigating through those factors while maintaining high profitability demonstrates the resilience of our diversified business. We are adding new layers to our ecosystem, strengthening engagement, data capabilities and partner value. The development within AI is on most companies and management's agendas these days. Let me also address this and its implications on Better Collective. AI is one of the most significant structural shifts in the digital landscape in decades. For Better Collective, it is first and foremost an enabler. We have embedded AI across product development, content optimization, data analysis and commercial optimization. Playbook is a clear external example, while internally AI is improving productivity, scalability and execution speed across the group. At the same time, we take a disciplined view on potential structural risks. We closely monitor AI-driven changes in search and discovery. Importantly, we remain unaffected by recent shifts and our traffic and commercial performance continue to demonstrate resilience, supported by strong brands and diversified acquisition channels. Most of our revenue base is structurally resilient. Within publishing, the existing recurring revenue share is not exposed once users have been referred to our partners. which provides a stable earnings foundation. Our advertising revenues are likewise not directly dependent on search dynamics as they are primarily driven by audience scale, engagement and direct commercial relationships. Paid media is also structurally robust. As a performance-driven, highly agile acquisition engine, we can dynamically allocate spend across channels and platforms if traffic patterns or user journeys shift. This flexibility significantly reduces platform dependency risk. [ esport ] in turn is built on strong direct community engagement and brand loyalty, making it inherently less reliant on traditional search and discovery channels. The area with the highest long-term exposure is future publishing growth, particularly related to new revenue share NDCs and CPA-driven NDC growth, where changes in search, discovery or user behavior could influence acquisition dynamics over time. We do not underestimate this risk. However, we have successfully navigated multiple structural shifts in the digital ecosystem over more than 2 decades and our diversified audience mix, strong brands and scalable platform give us confidence in our ability to adapt to future changes as well. My intention is not to suggest that AI does not introduce risks, but rather to emphasize that we are proactively addressing them and closely monitoring the development. Any potential impact is primarily concentrated in specific areas of our otherwise well-diversified revenue streams. which limits the overall exposure at group level. Another important emerging theme is prediction markets. During 2025, prediction markets have emerged as a structurally important addition to the broader sports and event-based wagering ecosystem. For us, this is an expansion of the total addressable market. Prediction markets introduce new product formats and attract incremental user segments while overlapping meaningfully with our existing sports and betting audience. Given our position at the intersection of sports content and wagering, we're structurally well positioned to support this evolution. We already have commercial relationships in place and are collaborating with relevant players. It's still early days with only a limited number of platforms live, and we expect increased competition in the coming year, which typically strengthens the aggregator position. Overall, we see prediction markets as a natural extension of our core business with the potential to diversify revenue streams and expand long-term growth opportunities. Lastly, we look forward both as shareholders and as sports enthusiasts to what is expected to be the largest World Cup in history. Importantly, for us, it will be played across some of Better Collective's core markets. Beyond its global appeal, the tournament represents a significant commercial opportunity. Historically, major football tournaments provide strong acquisition tailwinds, and we expect 2026 to be no different. The World Cup is likely to drive elevated user acquisition across our platforms as well as meaningful reactivation of dormant users and increased activity across our existing player base. This combination of new customer intake and high engagement levels supports both revenue growth and lifetime value expansion. Given our strengthened position with broader revenue mix and scalable platform, we believe we're well positioned to capture the incremental activity associated with the tournament. I'm extremely proud of the organization and my colleagues for navigating through another demanding period of change with focus and discipline. And I look forward to returning to a year of renewed growth in 2026. With that, let us move to the usual webcast. Please turn to the next slide. Overall, we are pleased to report a strong finish to the year with underlying growth and record profitability. Group revenue reached EUR 94 million in Q4, corresponding to minus 2% year-over-year and plus 2% in constant currencies. We were negatively impacted by a lower sports win margin compared to the year prior. Normalizing the sports win margin to a similar level as the year prior, revenue growth would have been 7%. Group costs were down 8% year-over-year, reflecting the disciplined execution and continued harvesting of synergies from acquisitions. We delivered record EBITDA before special items of EUR 37 million, translating into a 39% margin and growth of 10% year-over-year. In Brazil, we continue to see good activity levels in line with recent quarters with revenue above our expectations. However, the market remains affected by the marketing restrictions, which continues to dampen our ability to send new customers to our partners. In North America, revenue share amounted to EUR 7 million in Q4 as our revenue share database continues to ramp up, making it EUR 17 million pure revenue share for the year versus our own expectation of EUR 10 million to EUR 15 million. Value of deposits reached a record level of EUR 820 million in the quarter, up 6% year-over-year and 13% quarter-over-quarter. This was achieved despite being -- we continue to see strong momentum in Playbook, our AI betting solution, and I look forward to scaling the product across the U.S. and into additional geographies and platforms. Please turn to the next slide. Let me briefly put the 2025 financial performance into a longer-term perspective. Looking at the full year, revenue declined from EUR 371 million in 2024 to EUR 337 million in 2025, corresponding to minus 9% year-over-year. EBITDA before special items decreased from EUR 113 million to EUR 102 million or minus 10%. Since 2018, we have delivered a revenue CAGR of 35% and an EBITDA CAGR of 30% -- while 2024 and 2025 shows a temporary slowdown in organic growth, this must be seen in the context of significant headwinds from external factors such as foreign exchange headwinds on revenue of EUR 9 million as well as the regulatory transition in Brazil, which impacted EBITDA negatively by EUR 22 million and lower sports win margin volatility of EUR 17 million. These factors implied a combined headwind versus 2024 of more than EUR 40 million on EBITDA in 2025. Please turn to the next slide. Let me now turn to what we see as important part of the next chapter of growth journey driven by innovation with Playbook and FanReach. Starting with Playbook, we successfully introduced our AI-powered betting solution in 2025, just ahead of the NFL season. The product is designed to integrate naturally into how sports fans already consume content and make decisions. We have seen strong early engagement with millions of bets sent to our partners. Importantly, Playbook enhances user engagement and improves conversion strengthen the monetization of our existing audience while also opening new avenues for geographic expansion and product development. We will continue to invest in product refinement and international rollout to unlock further scalability. On the FanReach side, this is central to our advantage ecosystem. FanReach combines our proprietary first-party data with advanced audience segmentation, enabling more measurable, scalable and precise media solutions for advertising partners. FanReach was launched firstly in the U.S., utilizing data from selected brands, currently reaching more than 50 million sports fans across our network. We are moving beyond traditional performance marketing and adding a broader media monetization layer built on audience ownership and distribution strength. Together, Playbook and FanReach expand our monetization stack, deepen engagement and reinforce the structural scalability of the business. They are key building blocks for our next phase of profitable growth. Please turn to the next slide. On this slide, we show our new guidance for 2026 and the medium-term outlook. For 2026, we expect organic revenue growth in the range of 7% to 12%. On EBITDA before special items, we guide for growth of 8% to 18% or EUR 110 million to EUR 120 million. This reflects growth with lower cost base, continued focus on operational efficiencies and an expected stabilization of external factors compared to 2025. We also plan to execute an annual share buyback of EUR 40 million, in line with our capital allocation priorities and are confident in the long-term value creation potential of the business. At the same time, we remain committed to maintaining net debt-to-EBITDA below 3x, ensuring continued financial discipline and flexibility. Looking beyond 2026, for the 2027 to 2028 period, we expect continued positive organic revenue growth and target an EBITDA margin in the range of 35% to 40%. This margin ambition is supported by scalability in the business model, a maturing recurring revenue base, especially in the U.S. and increasing AI enablement across products and operations. Furthermore, we expect continued strong cash conversion and net debt-to-EBITDA to stay below 3x. With that, let us move to the next slide and over to Flemming. Flemming Pedersen: Thank you, Jesper, and good morning to you all. Please follow me to the next slide as we dive into the financials. Let me start by bridging the Q4 revenue development in more detail. We started from Q4 '24 revenue of EUR 96 million. During the quarter, foreign exchange negatively impacted revenue by EUR 4 million. Sports win margin volatility reduced revenue by a further EUR 5 million, reflecting more player-friendly results compared to last year. In addition, the regulatory transition in Brazil impacted revenue negatively by EUR 3 million. In total, these external factors reduced revenue by EUR 12 million year-over-year. This was partially offset by EUR 10 million of underlying operational growth across the business, mostly driven by paid media, talent-led media and sports media. As a result, Q4 2025, revenue landed at EUR 94 million, corresponding to a minus 2% year-over-year and positive growth of 2% in constant currencies. The key takeaway is that the underlying business continues to grow, but reported performance in the quarter was impacted by temporary external factors. As these headwinds normalize, the operational growth becomes more visible in the reported numbers. Please turn to the next slide. Let me briefly comment on recurring revenue as revenue share remains the backbone of our recurring earnings model and supports visibility and cash flow generation going forward. Revenue share continues to account for approximately 3/4 of our recurring revenue base. In Q4 '25, revenue share amounted to EUR 41 million out of total EUR 55 million of recurring revenue. Looking to the North American market, historically, a larger portion of the revenue share income has come from hybrid deals with a meaningful upfront component. Over the past 2 quarters, however, we see a clear transition towards predominantly pure revenue share agreements. This represents a meaningful improvement in earnings quality as pure revenue share provides stronger long-term visibility and cohort value. For the full year, we outperformed our expectations in North America. We expected EUR 10 million to EUR 15 million in revenue share, but delivered EUR 22 million. Out of this EUR 17 million was pure revenue share. Importantly, this number would have been even higher in constant currencies, highlighting the underlying strength of the region. In short, North America is scaling with an improved revenue mix, strengthening the recurring revenue and compounding nature of our earnings base. Please turn to the next page. Let me now bridge the EBITDA development in the quarter. Lower revenue year-over-year reduced EBITDA by EUR 2 million, as I just spoke to. In addition, we deliberately increased paid media investment, which impacted EBITDA by EUR 5 million downwards. This reflects continued confidence in the long-term return profile of our paid media activities, where we, to a large extent, spend to harvest the revenue later through revenue share agreements. However, these effects were more than offset by EUR 10 million in cost reductions, driven by the execution of the EUR 50 million efficiency program and broader structural improvements across the organization. And a lot of these cost savings relate to the synergies from previous acquisitions. As a result, EBITDA increased to EUR 37 million in Q4 '25, representing a 10% growth year-over-year and the highest quarterly EBITDA in our company history. This clearly illustrates the operational leverage in the model even in a quarter with slightly lower revenue, external headwinds and increased growth investments, disciplined cost execution enabled us to expand profitability and deliver record EBITDA. Please turn to the next slide. Let me now turn to 2 of our main KPIs, net depositing customers and value of deposits. As expected, NDC levels in '25 were impacted negatively by the regulatory transition we saw in Brazil. The marketing restrictions on welcome bonuses continue to deliver -- continue to limit our ability to send new customers to partners in that market, which is reflected in lower reported NDCs. However, and importantly, Q4 '25 did not show a return to growth quarter-over-quarter of 9%. Also in Q4, value of deposits reached an all-time high of EUR 820 million, showing growth year-over-year of 7%. This is a very strong outcome, especially considering the regulatory headwinds in Brazil during the year. Deposit values are reported quarterly and are not accumulated, meaning this represents actual quarterly activity. The fact that we reached a new record despite regulatory constraints clearly demonstrates the strength and loyalty of the users that we have in the revenue share databases. In combination, the graphs illustrates that while new customer intake has been temporarily impacted, existing cohorts remain highly engaged and continue to generate increasing deposit activity. Furthermore, it signals that we are -- that we continuously manage to send higher-value customers to our partners. This supports the durability of our revenue share accounts and underlines the quality of earnings. Please turn to the next slide. Now let's focus on our funding position and our considerations regarding capital allocation. From a financing perspective, we also took an important step in 2025 that further strengthens our financial position. During the year, we signed a new EUR 319 million 3-year committed club facility with our banking partners, including an EUR 80 million accordion option as well as a new EUR 50 million dedicated M&A facility. This extends our financing maturity profile through October 28 and significantly enhances our financial flexibility. Access to long-term committed financing on attractive terms has been a structural advantage for Better Collective since the IPO in 2018 and has been a strong facilitator in our M&A strategy. It has allowed us to act with speed and certainty when strategic opportunities arise while maintaining a balanced capital structure and disciplined leverage profile. In a fragmented and fast-evolving industry, the ability to combine strategic M&A with stable financing is a clear competitive advantage. Moving to 2025. We guided free cash flow at the low end to be EUR 55 million and landed at EUR 38 million. The deviation was driven by short-term working capital timing effects of EUR 15 million shifting into 2026. We also invested in new significant partnerships in Q4, where we'll see the most of the upside from 2026 and onwards. These deviations are mostly timing and growth related in nature and do not reflect any structural change in the underlying cash generation profile in the business. Cash conversion for the year ended at 92%. Board of Directors and executive management has formalized our capital allocation framework, which is as follows: First, we prioritize deleveraging when net debt-to-EBITDA exceeds 3x. Second, we invest in high-return organic initiatives and selective value-accretive acquisitions. Third, we return excess capital to shareholders, primarily through share buybacks and secondarily through dividends. Overall, we believe this balanced framework supports our focus through many years. For 2026, the Board of Directors has decided on an annual share buyback of EUR 40 million, in line with this framework. Please turn to the next page as I hand the word back to Jesper for the key takeaways. Thanks. Jesper Søgaard: Thanks, Flemming. Let me conclude with the key messages. 2025 was a year of disciplined execution and structural strengthening of the business. We delivered on our full year guidance despite significant external headwinds. In North America, revenue share ramp-up exceeded expectations. Innovation accelerated with Playbook and the continued build-out of FanReach. Looking ahead, 2026 marks a return to growth. We expect the World Cup in men's soccer to be the largest in history and played across some of our core markets to act as a big catalyst. Lastly, prediction markets is expanding our total addressable market and is becoming a clear tailwind despite it being early days. I'm proud of the organization for navigating a demanding period, and we look forward to delivering renewed growth in 2026. With that, we are happy to take your questions. Jesper Søgaard: [Operator Instructions] Our first question comes from the line of Sebastian Grave of Nordea. Peter Grave: Congrats on a strong result. And also thank you for a very comprehensive presentation. Now it's encouraging to see that you expect to return to growth here in '26 and with further top line expansion beyond that. I know you don't provide concrete numbers on the midterm target, but I'm going to try to push my luck anyway here. So the 7% to 12% growth in '26 is led by, easy comparisons in Brazil and from sports margins. And you also see significant tailwinds from a strong sports calendar here in '26 and prediction markets, as you highlight, Jesper. So I guess my question is, is this, i.e., 7% to 12% growth, is this as good as it gets? Or do you also believe that you're able to reach similar growth levels beyond '26? Jesper Søgaard: Yes, it's a bit boring, but obviously, we will not sort of comment further on the targets for '26 and 2028. But looking at the coming years and also a bit to the second half of '25, where we have seen the underlying growth in the business, we really feel we are on track to deliver this growth. And we're sort of further out feeling confident about continued organic growth. But for us, it's too early to start to put numbers to the outer years. Peter Grave: I guess it's not a big surprise, but I tried at least. My second question is on the midterm margin guidance, which you also reiterate here, 35% minimum from '27 kind of big leap from the implied margin here in '26. So how do we get to that number? And I mean, if this is just a question about scalability, well, then I guess the implied growth rates you give here for '27 is quite upbeat? Flemming Pedersen: Yes. I think the guidance, Flemming here, I can try to answer that. The guidance that we give 35% to 40%, you can say, reflects, of course, the scale that we see in the business, mentioning Jesper touched upon some of the growth areas that we see with Playbook, the AI bot that we have launched, FanReach speaking into the advantage and increased CPM revenue. And then you can say the scale from that is, of course, also reflects our opportunities for investing further to mention one is paid media, where we also can, you can say, invest part of the increased revenue into further growth when we see opportunities and of course, also in other growth areas such as talent-led media, which comes with a bit lower margin. So I think the scale is one thing. And with these, you can say examples, we see a higher margin. Actually, in Q4, we saw a 39% margin. So it's a scale that will drive this on a much lower cost base that we have seen in past years. Peter Grave: Okay. And just the last question from my side on the EUR 8 million tax effects you bake into the guidance in '26. I guess it's fair to assume a similar effect on top in '27, given the delayed impact on sports betting taxes in the U.K. Now I guess my question is, is this a gross or a net number that you provide? Meaning do you assume any mitigating actions from operators such as lower odds, et cetera? Or this is just sort of a mechanic gross impact from higher taxes? Flemming Pedersen: It's a number that we have, I would say, tried to assess as a net number also with mitigating factors because there will likely also be market factors such as lower bidding prices within paid media in the Google auctions. And you can say, in general, likely, you can say, lower competition. So there are also counteracting factors where we have a good position. So this is a net number that we have tried to assess and also continue that into the outer year guidance. Jesper Søgaard: [Operator Instructions] Our next question comes from the line of Hjalmar Ahlberg of Redeye. Hjalmar Ahlberg: Just wanted to check a bit on -- if you look at the Q4 numbers here, we see that CPM and sponsorship saw good growth at least what I could see initially here. Just wanted to hear if for the CPM part, if you already see kind of positive impact from Advantage there or what drives the CPM improvement? Flemming Pedersen: Yes. So on the sort of CPM and overall advertising developments, yes, we are starting to see effects of optimized ad campaigns and formats that is sort of part of the Advantage ecosystem. And as we already -- as I alluded to in the speak, is that we now have launched here in '26, the FanReach part of Advantage. So yes, we are gradually incrementally seeing the effect of Advantage, which we also expected that, that would be the way we could tell it in the numbers, incremental and gradual development. Hjalmar Ahlberg: Okay. And also listening to the Playbook here, it sounds like you are getting ready to expand the product internationally here. Is this something you will do during the World Cup? Or is it a broad expansion or is it more gradual expansion in new markets? Flemming Pedersen: So the view we take on this is that we obviously look at core markets and where the product would be most relevant and have the biggest impact. And that guides decisions for the launch. And yes, we have obviously in mind that the World Cup is a good event to have a product like a Playbook out. So yes, we are assessing where we will see the biggest effect from launching Playbook and have the World Cup in mind. Hjalmar Ahlberg: And then just a question on your efficiencies here. So really strong progress in cost savings during the year. Do you see more efficiency from here? Or is it more that you have the new cost base now and then the next step is maybe more to invest in growth? Flemming Pedersen: I think we are, of course, constantly driving efficiencies throughout the business, and now we have a new framework. So this is what we will go with. And you can say the primary focus is now to scale revenue from here on that lower cost base. So hence, also why the higher margin guidance for the outer years. So it's -- yes, it's a constant work in progress, but I think the big chunk we have behind us. Hjalmar Ahlberg: And then just a final one. I don't know if you have a comment on that, but looking at the kind of seasonality for the year, I guess, World Cup means that Q2, Q3 could be a bit more seasonally stronger than normal. But if you have any flavor on the seasonal effect over the year, it would be interesting to hear. Flemming Pedersen: No, you're correct on that, that the World Cup will sort of support Q2 and Q3. And then as usual, Q4 will be the quarter with the highest activity for our business. Jesper Søgaard: I will now pass to the speakers for questions via the webcast. All right. And I'll be taking those. So yes, there in Danish, I'll try and just sort of get to the essence of the questions and read that out loud. Yes. And it has always been already been answered to some extent because it relates to the margin profile in '27 and '28 and the structural drivers. And essentially, I think we will not -- like Flemming covered that just before. So I'll move to the next question, which relates to the continued buildup of our revenue share database, in particular in North America, whether we can quantify how big a part of the future EBITDA growth in '26 to '28, which is expected to come from already existing users rather than new depositing customers. And no, we are not quantifying that. But I think as the value of deposits show, there is a very high quality in the database and players already there. So in general, a significant part of the revenue and earnings generated are stemming from our databases, existing databases. And then a last question. Elon Musk implemented a new policy on X, which limited gambling affiliation marketing. Please comment if you noticed any impact on your partnership with X for Playbook. And we have seen no changes. And with that, I think we are at the end. So thank you very much for showing interest in Better Collective, and we wish all of you a very nice day. Thank you. Bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Caroline Thirifay: Good morning, everyone. Thank you for joining us today, both in person and virtually for the management presentation of our full year results 2025. I'm here with Marc Oursin, CEO; Thomas Oversberg, CFO; and Isabel Neumann, Chief Investment Officer and Chief Operating Officer. Before we begin, we want to remind you that all statements other than statements of historical fact included in this management presentation are forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected by the statements. These risks and other factors could adversely affect our business and future results that are described in our earnings release and in our publicly reported information. With that, I will hand over to Marc. Marc Oursin: Thank you, Caroline. Hello, good morning to all of you. Thank you for being here. So let's start with this page, Page #2. So you can see that we have, at the end of '25, close to 350 properties in Europe and reaching almost 1.8 million square meter of footage. Regarding the performance of the year, we have delivered another very strong one. Our revenues grew by almost 11%. We increased our NOI same-store margin by 40 bps with an EBITDA growth following the one from the revenue at 10.4%, and ending with an earnings per share growth of 1.7% versus last year despite the additional cost of debt and dilution from our scrip dividend. Meanwhile, we stay with a very solid balance sheet. We have a BBB+ rating, a leverage of 23% or 6.2x net debt over EBITDA and having an EPRA net tangible asset per share of EUR 53.3. So let's go to Page 4 for more details. So you can see on the right side of the page how the revenue growth full year of 10.8% has been achieved. We got the benefit of additional available square meters of 5% versus '24 coming from our development, renting them up by 8.8% versus '24, and combined with an increase of our in-place rent of 1.9%. When you combine all of that, you get the 10.8%. And as explained earlier, our cost management due to the efficiency of our platform allowed us to grow the EBITDA by 10.4%, therefore, in line with our revenue speed. And this performance is clearly putting us on an earnings per share growth trajectory, medium term. If you go to the next page, Page 5. So I think it is interesting to notice how the company has been able to grow physically, meaning in terms of footage and translating this square meter growth into revenue growth. So you can see on the left that we grew by almost 7% CAGR for the past 5 years in terms of number of stores, but also square meter-wise. At the same time, our revenue grew close to 11% CAGR and demonstrating that our strategy of growth delivers unique revenue increase. If we go to Page 6, and this slide is focusing on the NOI growth '25 versus '24 for the total company. It is also showing the importance of the margin generation from our so-called non-same stores, representing all the properties not yet matured and coming from organic development or M&A transactions. You can see that almost 2/3 of the incremental NOI value is delivered by our development engine, confirming our capacity to deliver profitable growth. So now let's go to Page 7. So on this page -- I think this page is really important to understand what we have achieved and how we will continue to use 2 major strengths that we have. I mean the scalability of our platform, allowing us to increase our same-store NOI margin and, at the same time, our development engine bringing profitable growth. And you can see that we got the benefit of both with a significant increase of our total NOI margin value since '21, with having the non-same-store taking the major share of this growth, 2/3 in '25, as you have seen on the previous slide, while having the same stores normalizing their NOI delivery. And Isabel, by the way, will come back later with details regarding our future pipeline. On this, I turn to Thomas. Thomas Oversberg: Thank you, Marc, and good morning, everyone. Let me now turn to the same-store performance for 2025 on Slide 8. Across our 251 same stores, we delivered a solid full year revenue growth of 3.2% at constant exchange rates, supported mainly by the continued in-place rent growth of 3.5%. Occupancy remained resilient at 89% despite the modest addition of rentable square meters during the year. Overall, demand remained steady across our markets. But as we highlighted, in several regions, market dynamics intensified during Q4, particularly in the U.K., the Netherlands, France and Germany, requiring selective pricing adjustments to protect occupancy while preserving our long-term growth. This Q4 NOI margin impact flowed through to EBITDA, as you will see later. That said, throughout the year, we were able to rely on our structural strength, disciplined pricing, the scalability of our platform and cost efficiencies delivered through clusterizations, helping us mitigating inflationary pressure, for example, of payroll and real estate taxes. As a result, full year same-store NOI grew by 3.8% and our same-store NOI margin expanded by 40 basis points, reaching 68.1% for the year. Moving to same-store NOI performance on Slide 9, where we break down the main components of our NOI growth for 2025. We delivered EUR 254.2 million of same-store NOI in 2025, up from EUR 244.8 million last year. As noted, key contributors were higher in-place rent, which added EUR 8.1 million and a EUR 1.4 million benefit from margin improvements. Rental square meters were broadly stable year-on-year, having only a marginal NOI impact. With same-store representing approximately 86% of our total NOI, this demonstrates our ability to sustain high profitability, allowing for predictable earnings growth. Slide 10 illustrates the normalization pattern, which we anticipated and communicated throughout 2025. After several years of exceptional post-COVID growth, 2025 showed the expected return to more typical revenue dynamics across our same stores. Revenue growth remained positive at 3.2%. And as mentioned, Q4 was clearly more challenging, in particular, against our very strong comps from 2024. The key message here is that the overall slowdown in revenue growth was expected. But importantly, the long-term fundamentals of our markets remain intact: urbanization, mobility and still significant undersupply. We remain convinced that our omnichannel and pricing capabilities position us well to manage through different market conditions as we have demonstrated in the past, most recently in Sweden. Turning to adjusted EPRA earnings per share on Slide 11. For 2025, adjusted EPRA earnings per share landed at EUR 1.74, fully in line with our expectations and market consensus. This performance was underpinned by a strong underlying EBITDA growth of 10.4%, reflecting the impact of our expanded portfolio and economies of scale. As noted, the performance in Q4 eventually did not allow us to expand our EBITDA margin as the Q4 slowdown flowed through to EBITDA, resulting in a decrease in EBITDA margin by 30 basis points. While interest and taxes grew in absolute amounts, we increased slightly less than what we initially estimated, resulting in a 1.7% adjusted EPRA earnings per share growth. I now hand over to Isabel, who will walk us through capital allocation and returns. Isabel Neumann: Thank you, Thomas, and let me add my good morning to all of you as well. In 2025, we have delivered exactly as guidance. We have opened about 90,000 new square meters of properties at an 8% to 9% yield for an investment of about EUR 210 million. By delivering this 90,000, yet again, we really show that we can consistently deliver this target that our development engine is working very well indeed. What I'm particularly pleased about is that we have delivered these 90,000 square meters through all the regions, across the regions and also using the different ways of growing we have. So through new developments, redevelopments and M&A. So it shows again the scalability of our platform, we can grow in all 3 ways across 7 countries. And you can really see how in 2025, this comes together quite nicely. This brings me to the next slide. We have a strong pipeline for '26 and '27 with 160,000 square meters already secured at a yield of 8% to 9%. Let me remind you that we buy our properties subject to building permit, and we don't land bank. For '26, we have 23 properties in the -- 23 projects in the pipeline for a total of 102 (sic) [ 102,000 ] square meters. And for '27, we already have 12 projects in the pipeline for a total of 56,000 square meter. We've also decided to increase the hurdle rate going forward from the current 8% to 9% to 9% to 10%, but we will come back to this later in the presentation. On the following slide, we show our strong track record in delivering the returns we set out. On the left graph, you can see how our organic projects have performed per vintage year. And on the right, you can see how our acquisition projects have performed. This is the second year we're showing these numbers. So the bars in red show the returns at the end of '25 and the bars in gray show the returns last year at the end of '24. Up to 2023, we had a hurdle rate of 7% to 8%. And since then, we have increased it to 8% to 9%. So now let's look at our track record. On the organic projects, we delivered very strong performance indeed. All vintages before 2021 already delivered a minimum hurdle rate and the younger vintages, as you can see, they continue to progress well. For the acquisitions, we generally delivered the hurdle rate with the exception of 2021, 2023 and 2024. And there are specific reasons for each of them, and let me go into that. In '21, we did the acquisition of the A&A portfolio. The A&A portfolio consisted of 4 stores in London, out of which 3 in the Kings Cross area. We have 2 topics that has impacted us on this acquisition. The first one is that we've seen a large increase of competition in the Kings Cross area in the years following our acquisition. In 2023, Big Yellow opened a very large store in the summer of '23. And in fall of '23, Access also opened a store exactly in the same area. Secondly, because of the very central location, we also -- it took us also a little bit longer to get the permits to do the work that we set out to do. So that has, I would say, caused a slight delay, but we remain confident that we will reach the hurdle rates as we have set out. Then for 2023, this is the year where we did the Top Box acquisition in Germany. But Top Box, I think, was very much like an organic project. We are 5 stores and -- 5 open stores and 2 pipeline stores, but the open stores effectively were at a very low occupancy, and we, of course, also had to build out 2 stores. So if you look at the occupancy at the time of acquisition versus the fully built-out square meters at the end, at maturity, we were only at an occupancy of 42%. So this is an organic project. This is not an M&A-type project. And therefore, if you look at the returns of 1.6% that compares in '23, that compares fairly nicely with the 1.8% on the organic side. So you can see this is just more a fact that it's an organic-type project. Then for 2024, this is the year we did Lok'nStore. We also did Pickens and Prime, and Pickens and Prime are very mature, fairly mature properties. But of course, Lok'nStore as well is a portfolio that's not mature yet. The occupancy for the existing store was about 70% at the time of acquisition, but we had quite an aggressive redevelopment program, and we also had a high number of pipeline stores. This year, effectively, we have delivered already 18,000 of the pipeline stores. And next year, we will deliver 26,000 of the pipeline stores. But if you take into account the redevelopment and the pipeline, at acquisition, we were about 50% occupancy. So you can see for 2004 Lok'nStore, it's a bit of a combination between mature and organic. This brings me to the Lok'nStore acquisition. And let me give you an update on where we stand. First of all, on the real estate side, I'm pleased to say we have fully completed the rebranding of all the Lok'nStore stores. We have installed access control, brought it up to our standard to reduce the energy consumption. So they are now, for all intents and purposes, fully Shurgard stores. Further on the real estate side, as I mentioned before, this year, we have added 18,000 square meters to the portfolio through a combination of redevelopments, remixes and the opening of 2 properties. And next year -- sorry, in this year, we will open the remainder of the stores from the L&S pipeline for a total of 26,000 square meters. So by the end of this year, the full FBO, as we had set out will be delivered. Now let me shift to the operational side. First and foremost, our occupancy is on track. We started the acquisition at 67% occupancy. And by December '25, we were at 80%, and we continue to expect to reach our target of 90% by the end of this year. Now we have said in the past that we will deliver a CAGR of about 2% of in-place rent, and you can really start to see how this is coming together, a, by an increase of the move-in rate; and two, by a decrease of the move-out rate. On the move-in rate, as we have a higher occupancy, we need less promotions and therefore, logically, the move-in rate goes up. On the move-out rate, you can really see the impact of our commercial policy of the Shurgard standardization. And therefore, you see normalization of the move-out ratio in line basically with our London portfolio. So the 2 of them together will make that our in-place rent is moving up. The last point I would like to mention is on the synergies. We have realized synergies at the high end of the range. At the time of the acquisition, we had guided towards between EUR 4 million and EUR 5 million, and you can see that we are delivering at EUR 5 million. This is through a combination of factors. First and foremost, as we put the Shurgard operating model in place, we've been able to lower the FTEs per store. All the assets have been folded under the U.K. REIT, and we have a reduction in G&A, Primarily, we have closed the former Lok'nStore headquarters. So in summary, we are delivering according to plan on the Lok'nStore acquisition. I will now hand it back over to Thomas to talk about the balance sheet. Thomas Oversberg: Thank you, Isabel. Let's now move on to our balance sheet and financing structure. Shurgard, as you know, is the only European self-storage operator with a BBB+ investment-grade rating. Our capital structure continues to be a source of competitive advantage, supporting our long-term low-cost funding. At the end of the year, our LTV stood at 23.2%, broadly stable year-on-year and comfortably below our 25% long-term target. Net debt to underlying EBITDA remained at 6.2x, fully within the boundaries of our rating. Our average cost of debt is 3.33% with a 7.2-year weighted average maturity. Liquidity remains strong with EUR 56 million cash on hand and a fully undrawn EUR 500 million revolving credit facility, giving us flexibility to fund our development pipeline. As you know, 100% of our mainly freehold portfolio is unencumbered. And this, with our commitment to our BBB+ rating, is a cornerstone of our decision-making process. On Slide 21, we outline the strategic decisions we are implementing to accelerate medium-term adjusted earnings per share growth. We have increased our investment hurdle rate by 100 basis points, as mentioned by Isabel. This means that all projects from -- approved from 2026 onwards will have to earn an NOI yield on cost at maturity of 9% to 10%. This reflects our focus on disciplined value-generating organic growth. It has no impact on the growth already embedded in our pipeline for 2026 and 2027. Further, we are discontinuing the scrip dividend options, moving to a cash-only dividend of EUR 1.17 per share. We remain fully committed to our BBB+ rating, as I mentioned. Therefore, we continue to target a long-term LTV target of 25% and below, refine our medium-term net debt-to-EBITDA target to 5x to 6x. And finally, we reiterate our commitment to continue applying a disciplined M&A framework, requiring acquisitions to be EPS-accretive in the first full year, ensuring value generating also on this front. These decisions collectively reinforce our ability to deliver sustained compounding earnings growth. Looking ahead and incorporating the current pricing and occupancy conditions and expectations, on Slide 22, we are guiding for 2026 to be a year of continuing growth. We expect all store revenue growth of 6% to 8%, driven primarily by the continued ramp-up of our properties opened or acquired in 2023 to 2025. Underlying EBITDA is expected to be in the range of EUR 278 million to EUR 289 million, reflecting our confidence in delivering operational efficiencies that offset ongoing cost pressures as the ones mentioned on the slide. As a consequence of the strategic decisions explained on the previous slide, we anticipate net interest expenses to be between EUR 57.5 million and EUR 59.5 million. Overall, resulting adjusted EPRA earnings growth will be between 1% and 6%, and is expected to translate into adjusted EPRA earnings per share between EUR 1.70 and EUR 1.81. We plan to add 100,000 to 125,000 square meters to our portfolio in 2026 with CapEx in the range of EUR 250 million to EUR 315 million. Our year-end leverage is expected to remain within the rating framework at 6.5 to 6.8 net debt to EBITDA. We expect to update the outlook throughout the year, where necessary, to ensure consistent and transparent communication. Finally, let me close with our medium-term guidance for 2027 through 2030 on Slide 23. We expect all store revenue, underlying EBITDA and adjusted EPRA earnings to reach a growth at 6% to 8% CAGR, reflecting the long-term compounding nature of our business. Our pipeline, approximately 90,000 square meter per year, will require around EUR 200 million of annual investment and continues to offer an attractive yield at maturity. We anticipate continuing to distribute EUR 1.17 dividend per share paid in cash and remain firmly committed to our BBB+ rating with landing in our target net debt-to-EBITDA range of 5x to 6x by 2030. Our model remains simple: disciplined capital allocation, a scalable platform, strong cost control and a structured demand that continues to support long-term value creation. With that, I hand back to Marc for his concluding comments. Marc Oursin: Thank you, Thomas. So in summary, Shurgard has a proven and resilient business model. If I show it, it's better. So yes, indeed, we have a proven and resilient business model, combined with a high-growth profile and, I would say, a development engine based on a real scalable platform. And that's why you've seen all these improvement in the same-store margin along the years. At the same time, as explained by Thomas, our balance sheet is solid with its BBB+ investment grade. And therefore, we have an attractive earnings growth perspective. So on that, I thank you for your attention, and I hand over to you, Caroline. Thank you. Caroline Thirifay: Thank you, Isabel, Marc and Thomas. As you can see, the next rendezvous will be the Q1 results on May 13, same day as the AGM. We are now available to take your questions. We will take first the question of the audience, followed by the question from the webcast. [Operator Instructions] We have the first question. Jonathan William Coubrough: Jonny Coubrough from Deutsche Bank. Could I ask firstly, please, on the medium-term guidance range? What is informing that current range and what's implied there for same-store growth rates? And also, whether the new guidance range reflects the new hurdle rate for yield on cost of new developments? And then secondly, on that new hurdle rate, how does that impact the opportunity set for potential new investments? Marc Oursin: Okay. So I will take the first part and you take the second part, Isabel. So regarding the -- and maybe we can share the slide of the medium term. So the medium term actually is taking into account the fact that on the same-store, we have said that many times, the normalized same-store growth should be, I would say, between 2% and 3%. That's what we have usually for this model. And then, of course, we took into account also, that's why you have a range this year. And we think it's -- we are not the only one, by the way, giving ranges. We've seen that in the U.S., and we think it's a good thing to do with the -- with you guys. So we have taken an assumption, which is on the low side, if it's not going into exactly what we are looking for. And if all the planets are globally aligned, you have the high side on the right. So that's what we are disclosing this. And the midpoint of this medium-term guidance is more or less the trajectory that we're looking for. That's for the -- I would say, the explanation to this. And regarding the hurdle rate, Isabel? Isabel Neumann: So on the hurdle rate -- so indeed, we've increased the hurdle rate to reflect our cost of capital, that is clear. With regards to the opportunities going forward, well, first and foremost, I would say 2026 and 2027 is largely already driven by the pipeline that has already been created. So there's, as such, not necessarily an immediate [Audio Gap]. We have, in the past, increased the hurdle rate from 7% to 8% to 8% to 9%, and we have still managed to find projects. However, we will only do them if they are -- they generate the returns. It means we will have to work together as a team. Our construction team will look at opportunities to lower our cost of construction, look at opportunities to lower our broker costs and so forth. So it will be a collective effort. And I would say there is a possibility that, in the first year, we will do slightly less project than we have done before, but we remain confident that we can continue to grow in an attractive way. Andres Toome: Andres Toome from Green Street. So a few questions. Firstly, on that same guidance for the medium term, and it seems it's come down in terms of what you're looking for in terms of underlying EBITDA growth, which was more in the double digits before. So maybe you can help to understand what's driving that because you -- I think you sort of alluded to the fact that your same-store guidance, implicit one, has not really changed. So is it just that the delivery on development pipeline, lease-up is under your expectations? Marc Oursin: Do you want to take this one, Thomas? Thomas Oversberg: I think we shouldn't take that conclusion from that. I think we have a very solid understanding of where we expect the markets to be. We have taken the current condition into account. And based on that, we do think that delivering in that range on a CAGR perspective is more or less in line with what we said before. I mean -- so from that perspective, we don't expect really a fundamental change in the dynamics. It's more a refinement where we see we're going to land. Andres Toome: Okay. And then I guess, looking back also on the slide with your 2024 acquisitions and the delivery there on the yield on cost so far, it looks to be lower compared to what you had, I think, when you announced Lok's acquisition in terms of just the day 1 unlevered yield on that. So I guess there are other sort of bits in that 2024 vintage as well. But just on the headline there, it looks maybe Lok'nStore is actually underdelivering on your expectations. Or is that the wrong read and there's something else included? Marc Oursin: Yes. I think it's the wrong read. If I remember, we said when we did Lok'nStore that we will deliver 8% yield on cost, '29, 2030. And that the, as explained, actually, by Isabel, when we took over, the portfolio was not at all matured because if you look at it, occupancy was 2/3, 67% of the current square meters. But with all the new ones that are coming in, especially this year, plus the expansion that we have done in the past year, the 67% is actually 40 -- less than that, 35% of the ending point of the square meters in '29, '30. So that's one. Secondly, in terms of return or let's call it, entry yield, the first year, we were saying that we were roughly below half of what we're targeting, so between 3% and 4%, which is the case shown on that slide, more or less. Andres Toome: Right. I guess from the prospectus or the sales, sort of, memorandum, I think the EV EBITDA multiple was sort of 27% on in-place income, which would be sort of at high 30% range, but... Marc Oursin: Okay. Knowing that in this, you have also other deals, you have the Pickens one, you have the Prime one plus another one we did the same year. Andres Toome: Okay. And then final question is just on your thinking around your cost of capital and how you think about net external growth because you keep on sort of plowing ahead, but your shares are trading at a pretty hefty discount. So do you have any thoughts around just because of that discount to actually sell some assets and capture any sort of private market arbitrage there might be? Marc Oursin: Well, we have said, especially in the case of Lok'nStore when we met with all of you because we had a question about the geography of Lok'nStore. And we said, we want to stick to London, the surroundings of London Southeast and therefore, Greater Manchester. So obviously, we said that we do a review of these properties. So we said, let's give us some time. It will take probably 1 to 2 years to see how the stores where Isabel has invested the money to put them up to speed are delivering. And also, are there better opportunities with this capital potentially? And you're right. So we are working on this. Valerie Jacob Guezi: I'm Valerie Jacob from Bernstein. I just have a follow-up question. If I look at your 2026 CapEx, I think you previously guided for EUR 320 million and now the number is a bit lower. And so I just wanted to understand the reason for that. And also, as a follow-up, what are you seeing in terms of your acquisition pipeline? And do you think you'll be able to offset that? Isabel Neumann: Sure. So indeed, we usually generate about 20,000 square meters in M&A. So the 102,000 that you're seeing here is organic pipeline. So M&A would kind of come on top of that. But of course, with M&A, it's always -- some years, there's lots and other years, there's less. So we never quite know where we're going to be ending up in terms of M&A in a given year. But so indeed, we have a good basis with 102,000 of organic pipeline and any M&A would effectively come on top of that. So we are expecting to kind of end up in this range that we have guided towards. Thomas Oversberg: Yes. Probably there, we always consistently have been saying we are expecting 90,000 overall, a certain amount of CapEx. And as we are not in full control of M&A, the mix might change between where we go, but the target of the square meters and the amount we are investing remains the same. Caroline Thirifay: Do we have any other questions from the audience? If not, we will take questions from the webcast. Unknown Attendee: We have our first raised hand from Vincent Koppmair. Vincent Koppmair: Congrats on the results. My first question is a little bit more information on the Q4 weakness you've seen in certain markets. Could you give a little bit more color on those, please? Marc Oursin: Okay. So thank you, Vincent. So we have seen -- as we also have said during the course of the year that the way we're looking at '25, and there's a slide actually showing this deceleration, we're anticipating the deceleration. If you remember, actually, Q1 was better in terms of results than anticipation. Q2, Q3 were in line and Q4 is not as we were expecting, to be frank. And we have seen this deceleration stronger in 4 markets: the U.K., the Netherlands, France and Germany. And I will come back to this. Meanwhile, at least 2 markets that are the Nordics, so Sweden and Denmark, did pretty well and very happy with that, of course. And back to the U.K., Netherlands and France and Germany, so the reasons are probably different. If you take Germany, for example, we have opened quite a number of stores, but especially one of our competitor called MyPlace did in Berlin, for example, in that city. And the situation in Berlin is much more -- we think, a kind of what we experienced in Stockholm some years ago. So suddenly an oversupply that the market has to digest. And therefore, in order to keep our occupancy where we want, it's what we did with Sweden, and you saw that the payoff is very good today. We are, I would say, putting more discounts. We don't see any lack of demand at all in all the 4 markets that I've mentioned to you for this deceleration. It's much more the fact that we have to do more discount to convert that demand into contracts. And why do we have to do more demand? Let's take Berlin, it's more supply and they want to fill up their properties, which is logical. And in other markets, I would say, like the U.K., for example, especially London, we have seen some competitors becoming more aggressive on their pricing, probably for different reasons. If you look at Access, for example, if you look at Safestore and the surroundings of London outside the M25, smaller players also became more aggressive. That's what we have seen. Will it last? We don't know. But what we can say is that when you start to look at the first 2 months of the year, Q1 in '26, we start to see a certain normalization on that. And the Netherlands, it's a bit the combination of both in the sense that if you go to Randstad, especially in Amsterdam area, there is openings and there is some cannibalization regarding certain properties and also some competitors being more aggressive. That's what we are experiencing. That's the answer, Vincent. Vincent Koppmair: Yes. I had one follow-up question on your 2026 guidance. I appreciate that you now give a range, so quite nice to have some more information. But should we understand, as you've mentioned that, of course, the high end of the range is the blue sky scenario, but would you, compared to the high range and the low range, aim for the middle? Or is your base case scenario a little bit closer to the higher end of the range? Marc Oursin: No, that's a good question. Thank you very much. So obviously, here, Vincent, the -- what we are looking at is to be within this range, obviously, first. Secondly, across the year that will come every quarter, and I think this is what our peers in the U.S. are doing and other companies not in real estate, you just adjust the -- where you're going to end within this range. So obviously, because year-to-date, quarter-over-quarter, you have actuals versus simply last year. So you know where you will end. So for us, we want to be in this range. And you can say that the midpoint of this range is probably where we would like to be. Unknown Attendee: Our next raised hand is from [ Stephane Afonso ]. Unknown Analyst: I'll ask them one by one. So first, regarding your 10% yield on cost, how many years does it take to reach this stabilized yield? And could you break that down between occupancy and ramp-up rents, please? Marc Oursin: Okay. So the 10% is related to maturity. So usually, this is taking more or less between 5 to 7 years, depending on the size of the property and the investment. But if you want to be on the safe side, take 7. That's one. Secondly, how do we get there between the volume effect, so occupancy first and then the rates? So occupancy to get to 90% will be between 2 to 3 years. And then the rates will start to kick in and especially the ECRI, so the increase that you do to your existing customers. And this would bring you the remaining years to this -- after 7 years to this level of targeted 10% return. Unknown Analyst: Okay. And has this time line changed, meaning does it take longer or not, no? Marc Oursin: No, no, no. Unknown Analyst: And regarding the 2% to 3% same-store annual growth that you expect, on what basis are you deriving this figure? And within the information that is publicly available, how can analysts challenge this figure? Marc Oursin: It depends on the talent of the analyst, obviously, and the knowledge of the analyst. And I think if you're the analyst, what you will do is you will look at the past first. We know that the past is not the future, but it gives you at least a good understanding how Shurgard has been able to go through the past 10 years, for example. So GFC, COVID, interest rates, high inflation. And you will see that if you are between 2% and 3%, it's, we think, reasonable. So if you want to take, [ Stephane ], something more conservative, you stick to 2%. If you are more aggressive, you go for 3%. But I think that if you are in this range, you are close to the truth as a run rate long term. Unknown Analyst: But just to understand, do you base it on inflation, for example, could be a threshold or -- just trying to... Marc Oursin: That's an interesting one because, usually, you're right, many analysts or people who are, let's say, looking at the company and this class of assets are looking at CPI. But we have demonstrated -- we have a couple of graphics in -- I think it's what we call the company presentation where we show that we have always overbeaten the CPI actually. I'm talking same-store revenue growth year-on-year. So I would say that usually, we are above CPI. And why? Because it's a need business. And that makes the whole thing very different, meaning that because you need space, and as soon as you got in, you need that space and the exit barrier to leave that space, people are sticky. So again, think about what it is, it's like having your attic or your basement in a remote location and think how you behave versus your attic and your basement when you want to leave it is because you are forced to do so. So that's why we have been able, I think, to beat the CPI for quite a long time. Unknown Analyst: And last question. If the right opportunity came up, would you be open to another... Marc Oursin: We didn't hear you at the beginning. Will you repeat, please? Unknown Analyst: Yes. Just asking one question about M&A. If the right opportunity came up, would you be open to another sizable acquisition in the short term? Or is the focus firmly on completing the Lok'nStore ramp-up? Isabel Neumann: Of course, we are very much focused on delivering the returns for Lok'nStore or any M&A that we have done. But clearly, as we have -- Thomas has also said, we are very cautious in the M&A that we do. It needs to deliver the returns that we have set out, and it needs to be accretive from the first year. So yes, of course, we will look at everything. But of course, the hurdle rate to move forward is very high. Thomas Oversberg: And let me clarify on that point also for the people in the room. We are really committed to 2 things, and that's our BBB+ rating, which defines and what we can do on the debt side and to our accretiveness in the first year. Those 2 points are not negotiable. So therefore, you will not see us coming out and saying, oh, there was this strategic opportunity and we throw everything overboard. Unknown Attendee: Our next raised hand is from Aakanksha Anand of Citi. Aakanksha Anand: I have 3 of them, and I'll go through them one by one. The first one, we're obviously speaking about increased competition and a higher level of discounts. Could you just give some color around what kind of incremental discounts are we talking about compared to previous years? That's the first one. Marc Oursin: Okay. Thank you for the question. So first, we do not disclose the intensity of discounts per market. What we can tell you is that, for example, if I would take Berlin as a reference, yes, we are increasing the discounts there. If you take usually the normalized level of discounts, we are close to 15% of the revenue. So it might go to 20%, for example, a certain period of time or less, depending -- actually, the pricing we do is per unit type in a given property. So it's very focused in terms of investing these discounts. And therefore, globally, you see this level. But it's hiding actually, very different situation per location and per type of size. Thomas Oversberg: And if I can add to that, the important part is, and Marc alluded to that, is self-storage is a need business. So what I need to make sure is that I get the people who have the need. And that means I want to give them as little hurdle to make the conversion as possible. So the prices and next to the location of convenience are the 2 really driving factors. As I don't know, who of you will stay longer than 1, 2 months, but we know that more than 60% stay with us very long, the only reasonable thing I can do is make sure I get all of you. And that's what we are trying to do. So we are always saying we want to get as many people as possible because it's a need business. It's a sticky business. So that allows us, while we are coming in at a lower price, to again increase thereafter on our ECRI. And that's really important to understand. When we are saying we're giving more discounts, this is not something which we are not expecting that is executing on our pricing strategy, which, as said, we want to have 90% occupancy because we know it's a sticky business, and we want to get as many of the customers as possible. Marc Oursin: And back to what you were saying, Thomas, with Sweden, it's exactly this is what happened. If you remember 3, 4 years ago, we had really a hard fight with one of our competitors in Stockholm mainly. And the payback today is that we were right to stick to this occupancy. Yes, it was painful in terms of revenue growth, same-store, because Sweden, the worst moment was minus 1% quarter-on-quarter, but never more than that. It's not like going to minus 5% or minus 10% -- minus 1%. And in the end, later on, you get the payback because the customer base is there, and you can apply the ECRI on it. What is your second question? Aakanksha Anand: The second one is just on the same-store revenue growth over the medium term. So which would be the top 4 geographies where you expect to see the highest, if you could rate them for us, please? Marc Oursin: Okay. So that's a -- I would say that if you look at medium term, so '27, 2030, which is the range that -- the time horizon that we have given, I would say that probably the Nordics will be on the top for -- that's one. At the bottom, I would say, probably Germany and maybe the U.K. And in the middle, I would say, Netherlands, France, Belgium. If I have to give you a ranking, I would see these 3 groups, the 3 tiers. Thomas Oversberg: If I can add some color to that, the reason why this is not an easy answer because how our pricing mechanism works is we are sort of like agnostic of where a customer is sitting because we know the customer behavior is the same in all of our markets. So what you can see is that our pricing algorithm, both on the initial pricing and on the increase to existing customers is really agnostic to that. So whenever we see dynamics which impact our occupancy, we will see that the pricing algorithms are acting on both fronts. So what Marc was therefore referring is to what you should see probably the lowest growth is where we see most of our new store own opening because we are competing with ourselves, obviously. That means we can -- we need to make investments to ramp that store up. Again, not a buck, it's a feature of our model and where we see unexpected short-term price competition by competitors. So that, I think, is the way of looking at it. But overall, because we are applying exactly the same everywhere, our model is not saying, oh, you're a U.K. customer, you're only getting X percent. That's not how we're looking at it. Aakanksha Anand: All right. And the third question, just on the investment hurdle. So the raised investment hurdle, I understand that applies to both acquisitions and the development pipeline. I think the question here is, does this mean -- I mean, are you able to find as many opportunities with that raised investment hurdle from the visibility that you have on the bolt-on acquisitions market at the moment? And if not, I guess it just basically means that the future external growth potential is going to be driven -- I mean, the share of future growth potential from the bolt-on acquisitions is going to be much lower. Marc Oursin: Do you want to take this, Isabel? Or do you want me to answer? Isabel Neumann: Well, I can start and you can add. I think the question was already kind of raised here in the room. But indeed, as we said, the pipeline for '26, '27 is kind of set, right? So there is no immediate change here for the next couple of years as, of course, we have a certain delay between the moment we do a deal and then we execute it. And our objective in terms of being accretive in day 1, this is not new. So to a certain extent, we're not necessarily changing the way we're doing it since we have done this year. M&A is always a situation whereby it's driven by effectively what is also available in the market, what is happening. And so part of it, of course, is where we want to act, but also it's what is the availability of opportunities. And that's the part we have not necessarily a control over. Marc Oursin: So to complete the answer from Isabel, I would say that you're right, the risk on the M&A is higher than on the development, organic, because as Isabel said previously, organic development, finding a piece of land, okay, dealing the land and then after that, being able to act on the cost of development are much higher in terms of capacity internally to work on than trying to negotiate a deal -- a price with a seller in order to reach your hurdle rate of 9% to 10%. So you get the deal, you don't get the deal because you are priced in at the level of the seller. That's it. So that's clear to me that probably you're right, if we are not able to satisfy the, let's say, will of the sellers, knowing that we want to be at 9% to 10% return on this M&A transaction, yes, it will diminish. But it's not a big deal to me. It's -- I prefer to be not on a bad deal than with several on a good deal -- sorry, on a bad deal. So here, organically, potentially, it might take over what we are missing on the M&A. And as said by Isabel also, in the past, we have already increased the hurdle rate. We were at 7%, 8% till '23. And as of '24, we went from 7%, 8% to 8% to 9%. So the -- let's say, the concern was the same. Would you be able to still do M&A? Would you be able to buy lands and to deliver organic at the same -- at this new hurdle rate? And the answer is yes. So I would say the coming quarters will give us a good sense of our capacity to continue to organically develop at this new level of requirement. And regarding the M&A, let's see. Isabel Neumann: And maybe one final point here is that it really shows the value of looking at our growth across M&A and organic. And there's been years whereby we've had much more organic and less M&A, and there's been years where we've had more M&A and less organic. Over the years, it all kind of levels out a little bit. But it's -- we are really depending on the opportunities, adjusting effectively how we combine the growth. Marc Oursin: Caroline? Caroline Thirifay: [indiscernible] conscious about the time. Marc Oursin: Thank you. See you in Miami. Unknown Attendee: Our next raised hand is from Ana Escalante from Morgan Stanley. Ana Taborga: My first question is also on the level of discounts. Just wanted to understand if these discounts are more focused on attracting new customers or are more focused on existing customers, meaning keeping existing customers in your properties to sustain that occupancy? And to the extent that you can comment, are you seeing those discounts being sustained into the first quarter of this year? Thomas Oversberg: Yes. So the discounts which we are talking about is indeed to attract new customers. As I said, what we are trying to achieve is that we get as many customers in and then increase their prices as long as they're staying with us. We don't see any changes in dynamics there. We are becoming, again, more sophisticated on increasing our existing customers. We're also having now machine learning tools on that running so that we are really having a risk-based approach there. But the main amount is always talking about the initial pricing, which a prospect gets to convert them into a customer. At the moment, I think we are seeing no major changes in there to what we saw in Q4. But again, that is not something which we are -- which we should have expected to see, because the dynamics -- market dynamics are not changing from one day to the other. If competitors are more competitive on pricing -- initial pricing, it's because they're obviously trying to fill up. And then it's more a question of what is the end goal. Are we dealing with a customer -- with a competitor who is happy to be at a certain occupancy and then manage the rates at that point in time? Or are we dealing with a competitor who is following our pricing strategy? We barely ever meet the ones in the second class. So at one point in time, this will naturally level out. As we also were saying, we are part of this pricing pressure ourselves because we're adding new spaces close to our existing store to enable us to plug the holes in our network and get from that the scalability effects. So again, we are obviously causing that to a certain extent as well. Ana Taborga: Okay. Very clear. Maybe also related to this, thinking medium term, do you think that there is a risk that artificial intelligence makes this sector or the price search by prospective customers a bit more transparent? Because I know that you are very clear with your first month, EUR 1 or GBP 1, but there are other competitors that are not that transparent, do you think there is a risk that AI increases the transparency here and therefore, customers become a little bit more opportunistic, not only for new customers but also existing ones trying to -- looking for cheaper alternatives and the search process being facilitated by AI advances? Marc Oursin: Okay. So Ana, here, I think, again, back to what Thomas just said and confirmed, the global revenue growth of the company is actually combining 2 engines. One engine, which is to attract new customers. That's one thing. It's where the discounts prices are public. They're on the website. The price you see is the price you pay and you have discounts after that. Discounts could be $1, EUR 1 the first month, can be additional discounts. That's one thing. And secondly, you have everything related to the ECRI, which is increasing your existing customer. And here, it's purely discretionary, it's private. So I will start with this, where AI -- actually, from a customer -- an existing customer perspective, I would say that the risk there to me are very limited because as we have said, people are sticky. You don't wake up in the morning and check every morning like a stock price if the price that you are paying for your unit can be cheaper with AI because you forget it. And that's the whole behavior of the customer. So that's very important because it's protecting actually our business, and that's key. I don't think AI will change that, to be very frank. I might be wrong. But today, with what I understood from this business after being 15 years in it, and by the way, being a customer of Shurgard before even working for Shurgard, I doubt. But where you are potentially right is on the first aspect is how, for new customers, people who are searching for a unit, how they can be, let's say, for themselves more efficient, more agile to pick up a location, a price which is closer to their home, and they can choose that. You would have told me, for example, in 2012 that in '25, 12 years later, more or less, or 13 years later, 95% of the search we have are gone through Internet and in Europe, because Google is almost a monopoly, the search engine used is Google for 95% of those, and that the people are doing that today for close to 80% with their mobile phone, when in 2012, it was 5%. I would have told you, well, I doubt. And I was wrong. So what will happen and that we have started to see is that people are using ChatGPT to search. And today, out of all the search that we have on the web within 1 year, it went from 0.1% to 0.6%. So 6x, still 0.6%. So it's a long way. And ChatGPT up to now is more than 80% of all this search in terms of tool used. So you remember, in the past, if you take the analogy with the web, you could say there was Google, there was [ Bling ] or Bing, there was -- I don't know what. And in the end, Google took over. So here, for the time being, what we see is this. So it's very early day. It will go probably quite fast. It might take also another 5 or 10 years to become more significant. There will be, I suppose, a fight between the search -- let's say, the different tools as we had with the search engine. And -- but in the end, I would say, already with the way we are pricing our products, I think that by being the cheapest in the area where we are, in the 15 minutes, that's what we are looking for, is probably the best protection. Thomas Oversberg: Yes. So probably to add just 2 sentence before Caroline stops me. So self-storage is a hyperlocal product, which means that the searches will be hyperlocal. And we are having the right network to be hyperlocal. So what is happening in the future -- in the foreseeable future is that customers are more informed making their decision. We have already pricing transparency on our website. So there's -- we are not hiding anything. So it's more difficult for the people who don't have pricing transparency. And overall, customers will have a much better understanding. It's like what does it mean? How does the contract work? How does a rating increase work? Because those are the information which you typically quest, and those are the question which AI will be able to help you. Caroline Thirifay: Do you have any additional question, Ana? Ana Taborga: Yes. Super quick, a final one. It is on your dividend, capital allocation. So you're guiding to 6% to 8% EPS CAGR in the next 4 years, but stable dividend. I understand that you want to retain cash to continue funding your expansion, right? But just wondering how do you balance that more immediate shareholder remuneration versus the long-term value creation through your growth initiatives? Thomas Oversberg: So I think that's an important point to look at. When we looked at the decisions which we took this year, we looked exactly at that conundrum of what is my cost of equity, what is my cost of debt and what are investors expecting as a return. And that led then, for example, into the fact that we're saying, okay, we need to increase our hurdle rates because the investors require a higher return there. So -- and that then, as I was saying, is we need to balance off with the earnings per share growth, which people are expecting going forward, which is obviously impacting, on the one hand, on the dilutive effect of more shares, which we have now eliminated. And on the other hand, which is then compensating is the additional interest expenses, which will reduce earnings as well. So long term, we are continuing to say, well, an investor should expect a total shareholder return, which is made of the dividend yield and the earnings growth of 10%, and we remain committed to that. Once we are seeing that there's really an imbalance where this is no longer happening, we always said and we haven't changed our opinion on that, but we are also going to change our dividend payout. But at the moment, we feel that to -- in order to deliver this growth and our strategy, we are comfortable with the dividend at the level where it is at the moment. Caroline Thirifay: So we are conscious of the time, then we will take the last question, and it's Roy Külter from ODDO - ABN AMRO. Roy Külter: It's just one from my side. I know it's a more operational real estate sector that you're operating in, but I do want to focus a little bit on property values. So we've seen the NAV per share has grown strongly, but valuation yields have remained flat. So it's basically operational performance. But we've also seen in the market some large transactions being pulled during 2025. So how comfortable are you today with your book values? And maybe secondly on that, can you give some comments on the investment market? Marc Oursin: Thomas? Thomas Oversberg: Yes. So the main increase, if you look at the value increase in our portfolio, which is around EUR 500 million, I can split that into 3 buckets. The first one is -- and they're not equal size, but for the sake of debate, let's assume they are almost. The first one is stores which we opened last year and the year before, which are ramping up. And therefore, this means that the valuation expert can reduce the discount and the risk because they are seeing that we're performing against our target. And therefore, this increases the value of our portfolio. The other part is where, indeed, we are talking about stores which we have added this year, which are under construction. So again, that results in value increases there. And the third part is, and this is not -- by far not the biggest, is the operational performance where we are delivering better performance than before. If you look now -- and on what we were saying, well, this part here, I'm talking about is mainly same stores. Same stores, as you saw in our slides, is actually performing still quite well. We're having a revenue growth there. So the NOI is growing. So everything is fine there. So we are not concerned about the operational performance that this would immediately impact our valuations. To speculate on why transaction in the M&A markets are not taking place is beyond my skill set, to be perfectly honest. And therefore, we are obviously aware of what is happening in the market. We are watching it with great interest and excitement. But in the end of the day, there's always 2, it's a buyer and a seller. And if those 2 cannot agree with each other, then the transaction's not happening. And that sounds very, very basic, but you see on the one hand, let's go to Australia where we have 2 transaction, potential transaction, which might have happened at the same time. The one was not going through because people thought the valuation was too high. And the other went through despite the fact that it's the same principle. So I think it's more a deal-specific one, but I'm surely having more experts on my left side here to deal with that. Marc Oursin: We can speak for a long time about that, but let's take it aside when we'll be with you, Roy. But I don't want to paraphrase what Thomas said in the end, it's like selling your house. I want EUR 1 million. I'm ready to pay EUR [ 700,000 ], it doesn't work. That's it. If someone is going to pay EUR 1 million for the house and taking a risk, it's a risk appetite story from the buyer. That's it. And we have precise -- and repeated what -- how we approach the risk. We have said we want the first full year to be accretive per share in terms of returns for an acquisition. So that's it. That's where we stand. Let's see how '26 will go with all these deals that have been put into the fridge. Are they coming to the microwave oven or not? Let's have a look. But thank you for the question. Caroline Thirifay: Thank you all for joining us today, and we look forward to reconnecting in this venue soon. Thank you.
Unknown Executive: Good afternoon, everyone, and welcome to Nickel Asia Corporation's briefing for our financial and operational results for 2025. My name is [indiscernible 00:00:12], Nickel Asia Corporation's Senior Manager for Investor Relations. Joining me today are our Group President and CEO, Mr. Dennis Zamora; our Chief Commercial Officer for Nickel Asia's Mining Business, Mr. Koichi Ishihara; our VP of Finance and our CFO, Mr. Andre Lu Dy; Director of our Geothermal business, [ Mr. Joseph Novos ]; and President of Cordillera Exploration Company, Dr. G. Yumul [Operator Instructions] This video will be recorded and the presentation materials. [Operator Instructions] Unknown Executive: So let's begin with our financial highlight. The last most set of bar charts here indicates our top line performance for the period and historically over the last 3 years. For 2025, our revenues, which are comprised of the sale of ore and other services increased by 33% year-on-year to PHP 29.6 billion from PHP 22.3 billion in 2024. Last year saw a marked increase in nickel ore prices for saprolite ore exports. The second bar chart in the center showcases our consolidated EBITDA for the period, which totaled PHP 13.7 billion, 56% growth from the PHP 8.8 billion reported in 2024. The right most set of bar chart shows our attributable net income for 2025 and this surged to PHP 6.3 billion, or a 91% increase from the 2024 net income figure here of PHP 3.3 billion. It should be noted, however, that the PHP 3.3 billion here is representative of core net income and attributable net income. Improvement in our bottom line performance was primarily included 2 things. The first is the higher direct shipping ore prices, which were up by 32%. And the second is the onetime income of PHP 800 million generated from the sale of our stake in Coral Bay earlier this year. If you refer to the table below the right most column indicates additional metrics on our performance for the year. The first row summarizes our gross profit margins, which stood at 63% for 2025. EBITDA margins also improved 46%. Despite operating expenses increasing by about 24%, operating income grew by about 69% year-on-year. We'll provide more details on the revenue and cost and expense variances in the subsequent slide. Next slide. So moving on to the mining highlights for this period. The first set of bar charts that we have on the left shows us nickel ore sales volume for the period in millions of wet metric tons. The green portion represent saprolite ore exports, while the orange part represents limonite exports. So in 2025, our mining sales volumes increased by 9%, totaling 18.56 million wet metric tons. Ore exports, which comprised nearly 60% of total mining sales volumes amounted to 10.93 wet metric tons, up 13% from 2024. H1 deliveries on the other hand, totaled 7.64 million wet metric tons or an increase of 4% from 2021. In the middle set of bar charts, we see the movement in average ore prices for the period in U.S. dollars per wet metric ton. For ore exports, which is seen in green, the average prices registered a higher value of $36.14 per wet metric ton or a 32% increase from last year's average price of $27.34 per wet metric ton. For limonite HPAL prices, there was a marginal increase of 2% to $10.66 per wet metric ton from 2024 $10.50 per wet metric ton. So due to these more favorable saprolite export prices, we can see in the right bar chart that combined ore revenue rose by 39% to PHP 27.5 billion from PHP 19.6 billion. If you place your attention to the table below, this will give us additional context on nickel prices. The first column indicates average nickel LME price per pound in U.S. dollars. So for 2025, this amounted to $6.86 per wet metric ton lower compared to $7.66 per wet metric ton in 2024. The chart also gives us a summary of the nickel pay factor of our ore exports in HPAL deliveries. So nickel payability for ore exports was notably higher in 2025 at 26.93% from last year's 18.03%. So despite the weaker nickel LME price, the payability for raw nickel ore exports was quite high. So the reasons for this are the tightness in nickel supply from Indonesia due to mining both the permit issues, while the demand for ore for processing still continues to be strong from Indonesia and China. Nickel factor for HPAL deliveries, however, increased from 9.87% from 9.24% last year. The reason for this is for the renegotiated prices that we have with Sumitomo Metal Mining. Next slide, please. This slide shows the revenue variance analysis. Total revenues for 2024, this is also inclusive of our renewable energy performance amounted to approximately PHP 29.6 billion, which represents a 33% increase from 2024. So as you can see here, the primary driver of top line growth was the increase in realized nickel prices. Higher saprolite ore export prices gave us about PHP 5.6 billion in revenues versus 2024. So apart from this, there was an improved nickel payability for our Rio Tuba mine for each past sales due to renegotiated prices. So nickel sales volumes grew by approximately PHP 2.2 billion in 2025. This was largely due to an increase in off-season shipments that we had from our mine in Rio Tuba and Palawan, increased exports from our Cagdianao mine and added shipments from our U.S. mines in Manicani in Eastern Samar. So these additional shipments offset the operational impacts of certain weather disruptions we had at the beginning of last year. The foreign exchange rates also had a modest impact on our revenues. The average exchange rate in 2025 declined to PHP 57.22 per U.S. dollar from PHP 57.36 in the previous year, resulting in a revenue reduction of approximately PHP 62 million. Apart from this, lower WESM spot prices also had a marginal effect on our top line figures, which resulted in a decrease of about PHP 51 million in 2024. Next slide. So this slide summarizes our cost and operating expenses in 2025 versus 2024. Cost and expenses increased by approximately 17% to PHP 18.1 billion from PHP 15.5 billion in 2024. The increase was primarily driven by mining costs, which grew by PHP 1.5 billion in 2025. Specifically mining costs in this case pertains to spending related to higher volume of nickel ore, second would be the preparation of new mining areas like in our Manicani mine. And the third was due to longer hauling distances and increased road maintenance activities due to certain weather conditions in seasonal parts of last year. The next major contributor to the year-on-year increase in costs was excise tax and royalties, reflecting the impact of higher realized ore prices. So this is higher by PHP 666 million versus 2024. Additional costs also stemmed from the ramp-up of operations at our new Manicani mine, which completed 11 shipments at the end of 2025 versus only 4 shipments in 2024. So finally, another contributor to the higher expenses was depreciation primarily due to newly acquired equipment following any capital expenditure increases. So this slide essentially show updates on HPAL. So in February of last year, we completed the sale of our 15% stake in Coral Bay to Sumitomo Mining, with the goal to strengthen our financial position and focus on resources for core projects. Year-on-year results indicate that the strategic decision to divest has reduced the drag significantly. And as shown in this slide, total losses from our equity investments have decreased by 72% year-on-year and it's now down to PHP 249 million. Next slide. So let me walk you through our balance sheet highlights for 2025. As of December 31, 2025, total assets reached PHP 70.2 billion up from PHP 61.7 billion in December 31, 2024 or up 14% increase. So the increase was driven by higher and improved collections from operations and the general increase in noncurrent assets was driven by our renewable energy projects, particularly in San Isidro, Leyte and Subic-Cawag. With respect to our liabilities, total liabilities increased by 30% to PHP 22.3 billion from PHP 17.2 billion in 2024. Short-term debt declined by 20% to PHP 5 billion in 2025 from PHP 6.9 billion in 2024. Current liabilities in general decreased primarily due to payments on short-term loans after accounting for any loan developments drawdowns during the year. Long-term debt as seen here, however, rose notably up 285% from PHP 2.43 billion to PHP 9.36 billion. So the rise is largely due to project financing of EPI, our renewable energy arm, particularly also for the construction of the solar projects in Subic-Cawag and San Isidro, Leyte. So regarding the updates to our renewable energy business and future rollout plans, we will provide a more detailed discussion of this later in the presentation. Equity at the end of 2025 remains solid, increasing 8% year-on-year. Equity net of noncontrolling interest grew to PHP 39.7 billion or an 8% increase from PHP 36.6 billion influenced by our earnings, dividend payments and reduction in cumulative transection adjustment. So as to the end of 2025, our balance sheet remains healthy and relative conservatively managed. Our debt ratio increased modestly to 0.32x from 0.28x in 2024, reflecting -- leverage to support ongoing operational and growth initiatives. So despite this, our debt-equity ratio remains comfortable at 0.47x, up from 0.89x in the prior year, indicating that we continue to operate with a strong equity base relative to our borrowings. Net debt to equity ratio in here improved to 0.05x compare to 0.07x in 2024. Next slide please. With a strong balance sheet and healthy liquidity position, we're able to train value to our shareholders this slide indicates our most recent cash dividend declaration. Yesterday, our Board of Directors approved the declaration of a cash dividend of PHP 0.14 per share of common stock. The dividend is payable on March 25, 2026 to shareholders of record as of March 12, 2026. Next slide. So for the renewable energy update and outlook, our Director for Geothermal business, Mr. Joseph, will take you through it. Unknown Executive: Thank you, [indiscernible]. Good afternoon, everyone. Moving on to our renewable energy business. This first slide is a visual of our fully operational solar power plant in Mount Santa Rita situated within Subic Bay Freeport Zone in Zambales. This is run by our main operating asset, JSI. Santa Rita has an installed capacity -- an operational capacity of 172 megawatts, making it one of the largest in the country coming from a single solar power generation plant. The table indicates the current offtake profile of Santa Rita. As of the end of 2025, 86% of the energy sales mix was from power supply agreements or PSAs with the remaining 14% from exposure to the WESM. Moving forward, the direction is to fully contract energy via PSA. Next slide, please. Here are the comparative financial highlights from JSI for 2025 as against 2024. Generation for 2025 was relatively flat, only increasing 1% versus the previous year at 226,897 megawatt hours. EBITDA for 2025 was down 16% to PHP 788 million due to lower effective tariff rates. However, because JSI sales are predominantly secured through PSAs, the decline in WESM prices during the period was mitigated by these contracts. Next slide, please. Moving on to our renewable energy pipeline. Let us go through the projects we have. First, under Green Light Renewable Holdings, Inc., our joint venture with Shell Overseas Investments BV. Next slide, please. Santa Rita project is our first project under GRHI, which is divided into 2 phases. Each phase will contribute an additional 120 megawatts peak or attributable 72 megawatts San Isidro Leyte to EPI portfolio. This project is already fully contracted. Phase 1 of San Isidro Leyte solar project achieved energization in October 2024, adding 120 megawatts peak or an attributable 72 megawatt peak to EPI's installed capacity. Commercial operations are targeted for the second quarter of 2026. For fourth quarter 2025, Phase 1 of the Leyte project already generated 15,172 megawatt hours, which translated to $66.9 million in revenues for the quarter. We anticipate that this will contribute more revenues for the renewable energy business moving forward. For Leyte Phase 2, construction of 120 megawatt peak is ongoing with testing and commissioning targeted for the second quarter of 2026. Next slide, please. San Juan Botolan is another project which we have under joint venture with Shell with a total adding capacity of 59 megawatts peak or an attributable capacity of 35.4 megawatts peak for Phase 1 and 2. As seen in the photo, the Botolan project is in its early stages. Predevelopment activities have already been completed and rights have been secured. Last October, the notice to proceed was issued, and we are targeting energization for both phases to be by the fourth quarter of 2026 and the notice to proceed for Phase 2 to be issued by the second half of this year. Okay. Moving on to projects under OCI, our wholly-owned subsidiaries. So here's a visual of our solar project in Subic, Cawag. Here, we are developing 145-megawatt peak facility divided into 2 phases. Phase 1, 70 megawatts peak. Construction is currently underway. The testing and commissioning time line for Phase 1 Subic, Cawag has moved to the first half of 2027. Phase 2 of this project is scheduled to begin construction in the first quarter of 2026. Next slide. Finally, we have our project located in Nazareno, Bataan. This is a 50-megawatt project that is currently under predevelopment activities with land based resources already secured and the EPC bidding completed. Construction is targeted to commence by the third quarter of this year. In the next slide, we will see a summary of the previous updates and outlines the expected progression of our renewable energy projects over the next few years. In the past, we have disclosed that we have -- that we wanted to reach a gross installed capacity of 1 gigawatt by 2027. If you can compare this updated bar chart from our last briefing, there is a notable decrease in the targeted gross installed capacity for 2027 and 2028, which stood at 1,109 megawatts peak and 1,289 megawatts peak, respectively. Our primary message regarding the future of our renewable energy business is that we are transitioning from volume-driven to value-focused expansion. This is in response to the changing market dynamics and to optimize its pipeline of solar power. Our plan is to integrate battery energy storage systems or BES, across our portfolio, particularly for the JSI facility, Cawag Phase 2 and Najran projects to enhance operational efficiency. Our renewable energy business is broadening its development strategy to include run-of-river hydropower projects, hybrid diesel, solar and battery systems tailored for island grid operations. These efforts are focused on flexible generation solutions capable of delivering bar supply to meet the market demand. Unknown Executive: Thank you, Joseph. Moving on to updates regarding our gold and copper exploration projects. I give the floor to Dr. Yumul, President of Cordillera Exploration Company. Dr. Graciano P. Yumul, Jr.: Cordillera Exploration Co. Inc, or CExCI, our joint venture with Sumitomo Mining continues to receive significant copper gold mineralization results in its drilling program at the Cordon project in Isabela. This slide is a summary of the work undertaken in 2025 as well as forward-looking plans regarding our gold and copper exploration effort. Unknown Executive: That's the drilling campaign that which consisted of 21 drill holes last year. So the results essentially delineated the mineralized zone. And for our 2026 plans, essentially, the goal is to build upon this. So in the first part of the year from Jan to April to complete 4,000 meters of drilling and from May to December to have an additional 6,000 meters to upgrade on this. To the next slide please. So with respect to our CapEx updates from performance and project details, we're giving you now a high-level view of last year's capital expenditures and initial guidance that we have for 2026. The figures are categorized into 3 key areas of our business, namely mining operations, renewable energy projects and exploration activities under Cordillera Exploration Company. So for CapEx mining, particularly, we spent approximately PHP 1.5 billion in 2025. Last year's mining CapEx was primarily focused on 3 main things, which are, firstly, the re-fleeting or replacing and upgrading of equipment in our Rio Tuba mine. Second is the build-out and expansion of our new mine in Manicani. And third is the construction of a new causeway in our Dinapigue Mining in Isabela, which supported better logistics and operational efficiency. Looking ahead to the rest of the year with respect to CapEx expenditure, we anticipate spending less than last year, approximately PHP 300 million less or PHP 1.2 billion with the bulk of this again being earmarked for replacement CapEx and additional fleet for Manicani. With respect to CapEx for renewable energy, CapEx last year was approximately PHP 7.7 billion. The bulk of renewable energy CapEx last year was from Subic, Cawag and San Isidro, Leyte. So to break this down for Subic, Cawag about PHP 4 billion out of the PHP 7.7 billion includes milestone payments for Cawag Phase 1, offshore and onshore contracts and milestone payments for Cawag Phase 2. For San Isidro, Leyte approximately about PHP 2.8 billion out of the PHP 7.7 billion was for milestone payments of Leyte Phase 1 and other development costs such as right acquisitions, project permits, et cetera. For renewable energy CapEx guidance in 2026, expected spend is about PHP 10.3 billion. So this is mostly spread throughout the San Isidro, Subic, Cawag, as well as Nazareno, Bataan projects. So I'll give you an initial breakdown of what the PHP 10.3 billion is going to be. So about PHP 3.8 billion for the expense for this year for our -- for the San Isidro, Leyte project. So this is largely coming from milestone payments for Phase 2 and any retention fees we have for Phase 1 of Leyte. About PHP 2.5 billion out of the PHP 10.3 billion will be for the Subic, Cawag project, mostly for construction payments. And any other unpaid costs we have for Phase 1 and any other development and construction overhead might need. Additionally to this, about PHP 3 billion out of the PHP 10.3 billion will be allocated for Nazareno in Bataan. So bulk of the payments will come in this year for those projects while for Nazareno, plan to issue an NPP by more or less midyear 2026. With respect to CapEx for Cordillera Exploration, last year we had mining exploration cost CapEx at about PHP 159 million. So for this year, we've allocated about PHP 221 million for gold and copper. Nex slide. So this concludes our formal presentation for today. Unknown Executive: [Operator Instructions] We'll now open the floor for questions. But before we entertain questions from the audience, we like to go through the questions sent in by our registration form. [Operator Instructions] The first question that we have is from Klein of Regis. Her question is, how are sales volumes and ASPs trending so far in 2026? Unknown Executive: Yes. Thanks for the question, Klein. To answer that, the market prices on a dollar per metric ton have remained elevated. I would say it's still on an uptrend given the tightness in ore that's in Indonesia. The approved quotas have still been limited. So that's still driving a lot of concern on the supply end. And then the Philippines as a country is now still closed in terms of mining. There are only a few mines. So supply is quite tight from the Philippines and with limited quotas, we expect the ore prices to remain elevated. So ASPs so far are still trending upward. Now, for volumes, we cannot comment on that yet because, as I mentioned, most of the Philippine mines will open by April. So we'll have a better feel of where volumes are once second quarter is in. But 1Q is too early to tell in terms of the volume trends. Unknown Executive: The next question is [ Philip ]. He asks, can you discuss the progress of renewable energy projects in terms of how it is connected to the grid and what project needs to be with this? Dr. Graciano P. Yumul, Jr.: Thanks for the question, Philip. So we have 2 projects that are under right now. So starting with Cawag Phase 1 work on the substation and interconnection facilities have commenced. And so this is now going to be connected to the grid for its testing and commissioning later this year. For the San Isidro projects, we are also connected. In fact, we've conducted our preliminary testing and commissioning for this project. And we hope to be able to finalize connection arrangement with NGCP as soon as we reach our maximum. We're just waiting for better weather to achieve that. Now to your question on which project needs to be with BES. But generally, most solar power projects now would really have to start seriously considering the integration of energy storage for them to be more marketable. So for the EPI projects, we are considering the integration of BES in our projects in Cawag Phase 2 as well as JSI and Cawag Phase 1. The projects in Leyte for specifically San Isidro, they are currently fully contracted as pure solar and will remain as such until the expiration of the contracts. Unknown Executive: So our next question is from Carl from S&P Global. He asks, how will Nickel Asia respond to the expected surge in demand from Indonesia following the nation's nickel ore production cuts? Unknown Executive: Yes. Carl, thank you for the question. Given that Indonesia is cutting nickel ore production for 2026, smelters are really relying on external suppliers coming from the Philippines to be able to fill the gap. Of course, New Caledonia would also play a role, but production from New Caledonia is quite limited also, but being able to ramp up and supply to China will provide some relief. But overall, even the Philippines and New Caledonia trying to fill the gap, the production cuts that were introduced in Indonesia are quite daunting. But it's -- but Philippine miners and Nickel Asia will be ready to try to take advantage of that opportunity. So we continue to focus on how we will be able to increase the tonnage that we've guided by ramping up our Manicani and Dinapigue mines and again, try to just do it at a more efficient manner. So we will be ready to be able to take advantage of this opportunity. Unknown Executive: Next question is from Franco Fernandez of Evercore ISI Securities. Given Indonesia's production cuts and the recent recovery in nickel prices, how should we think about the growth and sustainability of dividends over the next year? Unknown Executive: Yes. Thank you for that question, Franco. If you've seen our recent declaration at the minimum, our policy is 30% of previous year's earnings. And the earnings is largely driven by the average selling price of the ore and the volumes that we generate. That being said that prices are on the uptrend, I would expect that we will be able to continue to fulfill shareholders' return by rewarding them with that 30% payout. But it's also common for us to declare special dividends -- and if you've seen in the previous years, we've been able to declare special dividends also more often than not. So I would think given the situation of ASPs and our ramp-up of the new mines, one would expect that we will continue to be in a position to reward shareholders both for the regular and special dividends in the upcoming quarters. Unknown Executive: The next question is from Geraldine. Geraldine, he asks, can you share the company's income and production outlook -- and perhaps the company can disclose new investments in mining or renewable energy, if any. Unknown Executive: Geraldine for Nickel Asia, we do not give guidance for our earnings. But what we do is we give an indication of our target tonnage. And for this full year, we're targeting 20 million metric tons. We don't have any specific investments to report as of now with respect to the mining business. Dr. Graciano P. Yumul, Jr.: Thank you for the question, Geraldine. For the renewable energy business, we are in the process of shifting our focus from pure solar to a more diversified and well-managed generation mix that would be targeting mid-barage supply as well as baseload supply. So frankly, the focus of the company is to undertake all the preliminary development activities with a view of rolling out these projects progressively later this year and next year within our 5-year development time frame. Unknown Executive: So the next question is from [ Jed ]. Can net share its projected total megawatt capacity of its power generation by the end of 2026? And if you can share updates on ongoing energy project development? I seen in renewable energy gross capacity summary side that we had earlier that projected operational capacity for the end of 2026 is 450 megawatts. I'm not sure if Joseph had more of this. You want to share. Unknown Executive: I can. As I mentioned earlier, the focus of the company is to diversify its power generation portfolio. And so much of the work that we will be doing this year is to continue with the execution and construction of our existing solar projects with a view of integrating solar battery energy storage systems, the solar projects as appropriate and also to develop other sources of energy such as hydro and looking at also scale energy projects to complement our energy mix with clean nonrenewable energy sources. So much of the work that we will be doing this year, Jed, is to develop these projects with the view of completing most of them within the next 3 to 5 years. Unknown Executive: So the last 4 questions that were sent in from [ Rachin ]from Union Bank from First Metro and Alexis from AJCG Securities. All have to do with the nickel price outlook as well as any catalyst sustain the momentum. So we'll try and answer that all at once. Unknown Executive: Yes. So for these questions on nickel price outlook, I think it's more impacted now because on the supply side. So because of the Indonesia policy, and the tighter nickel ore supply, we're seeing these ASPs coming up. It started early this year. And we also saw nickel LME up as a result of this. Now on the demand side, the demand for stainless steel continues to be steady. So last year, it grew 2% as an industry. The growth continues to be dependent on, of course, China economy and the global economy, which we all know are also facing challenges. So we expect stainless steel to grow modestly around the low single-digit range. And then for the battery market, for battery materials, we expect this to grow modestly. And there will be some stabilization and normalization in battery materials growth. So putting these together, we do expect nickel to prices to remain elevated and to be on an uptrend, more impacted because of the supply side. Unknown Executive: One question we have here is, are we expecting a continuation of the previous year's bad weather patterns for Q1, which typically results in operational slowdown? Unknown Executive: Yes. That's difficult to tell. But despite the bad weather, I can tell you, Jed, that we managed to still deliver our tonnage. So that shouldn't be a thing to worry about. If you look at last year, despite the difficult weather, we were able to deliver much more exports, close to 11 million wet metric tons. So even with the same -- face with the same challenges, we'd be able to -- I have no doubt that the target of 20 million tons is possible for us to do. It's nothing to worry about really. So from Raymond, 3 questions. Excluding the one-offs, what were the income figures for 2025? Okay. The one-offs for 2025 are really from the Coral base sale. So that amounts to around PHP 800 million onetime gain. So if you deduct that, we'll have a net of around PHP 5.4 billion, PHP 5.5 billion in core. So if you look at it core-to-core, it's PHP 5.5 billion against 2024's PHP 3.3 billion if you add back that geothermal write-off. So from a core-to-core basis, it's still a big gain. And then your number 2 is on ore volumes in Q4 were quite high. Yes. Actually, what happened was there's a spillover of Q3 shipments that we delivered in Q4. So we were shipping out. We were very busy in October, November. Yes, you're right. Seasonally, we kind of slowed down by October, November, but we really had targets to reach. And like I said, the challenging weather patterns, our company has always an opportunity to adjust. And we saw weather improved in October, November, and we took advantage. So we were able to continue our shipments all the way up to November. So you would notice that 4Q had also contributed to that. And lastly, what was the split in ore sales to China and Indonesia last year? In 2025, I don't have the exact figure, but Indonesia shipments have grown. So the demand from Indonesia has been growing. And it represents about 1/3 to 1/4 of deposit 20%. It represents about 30% of our total exports. So since exports have grown totally 9% year-on-year, even the share of Indonesia for 30% of that has grown on an absolute amount. Where do we see it in 2025? Well, if Indonesia is cutting permits, they really need to buy the Philippine nickel ore. So that share might possibly go up. And then another question from RJ. Do we have plans to build our own metal manufacturing facility? I guess for the processing plants, there's always the ambition for a miner to add value and become integrated. But at the moment, we are focused on our upstream investments where we are good at and we specialize at. For downstream opportunities, I will leave it to our last disclosure on studying with DMCI mining. So that remains a project that is being studied. And we have no new updates on that. A question from [ Othel ]. Can you share your insights and feedback on the recently signed critical minerals partnership with the U.S.? And how will this benefit the Philippines? And what can we expect from the U.S. and Japan as partners? Unknown Executive: I think this is a good project for the Philippines. But I think we need to see the details of what will come out of this. So for example, if the U.S. will favor Philippine supply of materials such as battery materials, which could mean that they will pay a higher price. Then possibly it could encourage development of downstream nickel in the Philippines. But fortunately, I think this is just a framework that was signed. And I think we need to wait for the details before we can comment on whether or not it would be good for the Philippines. Unknown Executive: Are there any other questions? Would anyone like to ask a question? [Operator Instructions] Let's unmute Amos. Amos Ong: Congrats on the earnings. I just have 3 questions. My first one is if you could give a production target for Manicani this year? And do we expect to see, given the high grades of Manicani versus your other mines, any significant impact to the ore export prices? Unknown Executive: Okay. Two questions, Amos, now? Amos Ong: Yes. Unknown Executive: Okay. For Manicani mine, our permit, our ECC is up to 3 million tons. So we're doing our best to reach that this year to wrap it up. So we will try to get close to 3 million tons. Now just to give your assumptions more color, half of that shipments will be saprolite ore and half of that shipments will be limonite ore, right? So the ASPs would differ, if you assume that. The limonite ore that we will be able to produce from Manicani will be the ones in high iron. So there is a separate pricing for that, and that goes to the China market. And then while the saprolite ore can go both to Indonesia and Chinese customers. And then the grades, the grades of the saprolite ore in Manicani would range between 1.3% to as high as 1.5% nickel ore, generally higher than the other mine sites that we have today. Amos Ong: Sorry, I still have 2 more questions. My second one is on the HPAL equity earnings. From my understanding, it seems like the losses narrowed for full year versus 9 months. So that would imply a positive or HPAL equity income for 4Q. So should we expect equity income or earnings moving forward, especially in 2026? Unknown Executive: Yes. I think with the recent improvement in nickel LME prices, our HPAL losses -- our HPAL performance should continue to improve, plus the higher cobalt prices have been able to offset some of our costs better. So there are some drivers to -- there are some opportunities for the HPAL equity earnings for this year to improve. But again, it will really depend on the market will continue, whether cobalt prices can stay where they are and whether nickel LME will stay where it is. But our belief is that nickel LME is still on an uptrend. Even if it has risen to these levels, we think that there is still room for it to rerate given the situation of the supply/demand in the market, yes. Amos Ong: And then one last question for me. So in the press release, it seems like there's some initial grades on the Cordon project. I think there were some initial grades on the drill holes like 0.71% copper, 0.34 grams per ton for Baltic. Would you say this would be like the general grades of the resources for this tenement area? Or like how should we interpret these initial results? Unknown Executive: Yes. Normally, in the Philippines, the average grade copper grade will be around 0.35, 0.4. So for Cordon, I think we're doing good. If you're going to compare general Philippine copper grade. Amos Ong: Got it. And then sorry, just a follow-up on that. When do we expect for you to release the reserves and resources for the Cordon... Unknown Executive: We're still in the step-out drilling. So when we start doing the drilling, that's the time that we elevate our inferred to indicated. So 2, 3, 4 years... Unknown Executive: [Operator Instructions] Unknown Executive: We have a question from Christy, inquiring about margin trajectory given strong shipment and selling price. That is on an upward trend. So I think our margins, we can keep doing better year-on-year, especially where ASPs are today and where they look to be headed. And then in terms of volumes, like I said, our ECC for Manicani is up to 3 million. We'll do our very best to get you -- to get ourselves that figure. So margins could be in for a better year. Secondly, what has been the net effect of your effective tax rate on the new tax regime? Well, we're still waiting for the implementing rules and regulations for the IRR. So once we get that, we'll be able to file accordingly for 2027. So you're talking about full year 2026 effect. So at least for 2025, the new fiscal regime taxes or these windfall profit taxes won't be applied yet. So that may come into effect next year. And then any update on exploration, proven reserves? I think it is what Dr. Yumul had told you. We're very positive about the drilling results we've had. The common copper mines would give you 0.35. But if you look at our results, it's much better than that. So give us another few more years, and we'll be able to translate these inferred resources into to standard, which will be better valued by the market. So that's for Christy's questions. And then from Francis, are export prices have decoupled from LME prices? Right now, because of the uptick in LME prices, there is some correlation, but the reasons are separate Francis. The reasons are separate for them moving up. But I believe if you look at the raw ore prices on -- by itself, really on the ground is -- there's really no supply to work with for the smelters. So that's causing a very tight prices. Now for the nickel LME, there is still a global oversupply in nickel, but the market is forward-looking and the market prices everything ahead. And the expectation is with the tight nickel ore supply, the global oversupply will soon vanish. So it is really a forward-looking mechanism. And at this point in time, there is some correlation in both rebound in nickel LME price. From Christy, inquiring about evolving mix of overall limonite, saprolite-based production. Okay. So last year, we did 18.5 million tons. We were able to ship out close to 11 million. And then the remainder, which is 7.6 million was limonite. So that would be around a 60% to 40% split between limonite. And that should continue, Christy. Unknown Executive: Klien had a question. Unknown Analyst: Can you hear me? Unknown Executive: Yes. Unknown Analyst: So my first question is -- so I just want to make sure that I know the entire business and your assets. Do you have other mining assets apart from the ones that you're mining now as well as the ones that you're exploring CExCI, you have other mining assets that you could potentially explore and develop in the future? Unknown Executive: Klien, in our portfolio, for the nickel assets, that's it, once we've disclosed with Manicani and Dinapigue. And then for our gold copper assets, it's all under CExCI. The Cordon project is the one that we're focusing on. There are predevelopment activities for a couple of projects under CExCI. Unknown Executive: Can I add a bit? In gold and copper, we have several projects under exploration. But most -- in this industry, it's very hard to find a very good site. So normally, we don't disclose anything. And that's the reason why we started making disclosures on this Cordon project because it's something worth disclosing. So I guess that's the answer to your -- we're working on several, a handful. But we cannot say that there's a likelihood that any of them will reach the stage of development of production. Unknown Analyst: Understood. I heard that the DENR or the government plans to privatize some idle mining assets. Have you heard the same? Or is there any movement that you're seeing on the government side regarding, I guess, the privatization? Unknown Executive: I think it's always in the interest of government to maximize their assets, and they would like to give it to operators that could do it time and not wait for decades. So we've always received inquiry or feedback on whether there are assets that Nickel Asia would like to participate in. We're very much open to that. And we cannot confirm whether we've talked to the government about this. But yes, definitely, there's interest between government and private miners to be able to develop projects together to increase government and private enterprises revenues. Unknown Analyst: Okay. And also last -- well, sorry, I have another question before this. So -- after this. So just sticking to the same topic, I'm wondering if you've seen any, I guess, changes in the behavior of local government, local government, I guess, participation in mining or whatever after the passage of the fiscal regime law basically because they're supposed to get their royalties immediately already. Do you think that they're now more incentivized to issue more permits to miners and all that? Unknown Executive: I think it's a bit too early. So I personally can't say that I've witnessed any change. But your logic is correct that moving forward, it should align their interests more with the company. But I think most of the permits we need are not from the local governments. They're from the DENR, the MGB and the national government. But similarly, since the taxes will go up, they would be presumably more incentivized to support us. Unknown Analyst: And my last question is on your dividend outlook. So you declared dividend -- regular dividends today, which -- but you didn't declare special dividends. So I'm wondering if there's still a chance that you could pay a special dividend later on this year? Unknown Executive: Klien, we don't guarantee the special, the regular review. But if you look at the previous dividend declarations, we can very much do so over the course of the year. So for as long as the business is doing well and the CapEx requirements are not that substantial, then we rationalize and we also do recognize the merits of declaring dividends to give back to the shareholders. [ Technical Difficulty ] highest risk would be policy regulation in Indonesia. So while Indonesia has maintained a tight policy stance, of course, they could be flexible if the market needs some adjustments in the quota. So you need to be -- we need to watch out for that. Right now, the declaration is 250 million to 260 million tons, while the demand is 300 million to 310 million. So any change in policy to meet that 300 million will definitely shift ASP prices. So that's something to look out to. Other than that, for us, I don't think weather is a big disruptor because with the challenging weather, we were able to overcome last year. So it's really the things that are beyond our control, which is Indonesia policy on nickel. Unknown Executive: Thank you very much for joining us this afternoon. Feel free to send additional questions you might have when the final results of the year out. We also appreciate the IR team, would appreciate if you answered the survey, so we know best how to get the information. So there, thank you very much. Have a good rest of the day.
Operator: Good morning and thank you for standing by. Welcome to the Worley Half Year 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chief Executive Officer, Chris Ashton. Robert Ashton: Good morning, everybody, and welcome to the call today, and thanks for joining the half year results presentation for Worley for 2026 financial year. The results are defined by a solid revenue growth and resilient earnings outcome, once again showing our adaptability in the face of dynamic markets. As I start my seventh year as CEO, these results continue a pattern of consistent growth. Despite market disruptions, Worley continues to deliver. Our performance reflects deliberate decisions about portfolio, capability, where we compete and the agility with which we can adjust. And we have a dedicated team around the world who work to deliver the outcomes that our customers trust. Let me now give you an overview of our business performance for the period before our CFO, Justine Travers, takes you through the financial results in more detail. I'm pleased to share an early look into how we're positioning for the next phase of growth as we go through this presentation today with the strategy focused on increasing our total addressable markets and generating value for shareholders. Today, we reconfirm the outlook we provided to the market at our full year results in August last year. We continue to expect a year of moderated growth, but calendar '26 has started with renewed momentum. Some big wins recently include being provisionally named as EPCM partner on Glenfarne's Alaska LNG pipeline and appointed marine and port infrastructure technical adviser for the WA Westport program in Western Australia. We're already delivering Phase 1 of Venture Global CP2 LNG project in the U.S. and are continuing our partnership to deliver Phase 2. These wins on some of the largest projects in the world demonstrate the confidence customers have in our capability to execute major complex projects, and we continue to scale across a growing pipeline of these opportunities. Given this momentum, we're encouraged by the visible signs of growth for Worley beyond this financial year. Turning to Slide 2. I remind you to review the disclaimer shown here. I'd also like to take the time to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of the land from which I'm calling today, and I pay my respects to the elders past, present and as well to the emerging leaders. Turning to Slide 3. Let me now turn to our business performance for the first half of the financial year. And so let's turn to Slide 4. As I said, revenue has grown even while navigating challenging market conditions and earnings have been resilient. The last 6 months, we've seen solid revenue growth of 5.4% over the prior corresponding period. A number of major projects in execution phase contributed to steady earnings and bookings are up 63% on the prior period. Venture Global CP2 Phase 1 was a major contributor, but I want to highlight some of the other significant wins across the sectors and regions, like the EPC for ConocoPhillips Scandinavia for their Norwegian Continental Shelf project, the FEED for OQ Refineries and Petroleum Industries decarbonization project for the Sohar refinery in Oman, and construction for ExxonMobil's major reconfiguration project of its integrated complex in Baytown, Texas. Momentum through increased wins in the first few months of this calendar year reinforce our confidence we can deliver a stronger second half. We've taken deliberate actions to enhance earnings quality. Our cost out and business restructuring initiatives are well advanced, and we're targeting more than $100 million of annualized savings from 2027 onwards, resetting our cost base and positioning the business for our next phase of growth. We acknowledge there's been $82 million of transformation and business restructuring costs this half, and Justine will talk to this later. And finally, our balance sheet remains strong. Disciplined working capital management drove strong first half cash performance, giving us the capacity to keep investing in growth. Turning to Slide 5. Our highest priority remains the safety of our people. Our safety performance has been maintained with a total recordable frequency rate of 0.10. At Rio Tinto's Rincon project in Argentina, for instance, we recently marked more than 1 million work hours with 0 safety accidents incidents. Visiting last year, I witnessed the discipline, care and pride the team brings to their work, and it's milestones like this that reflect the safety leadership on the ground and the commitment to looking out for one another each and every day. Positive ESG progress continues too. We've maintained leading external ESG ratings, and we've strengthened our approach to preventing modern slavery. And we remain on track with our own Scope 1 and Scope 2 emissions reduction targets. We're also well prepared for the new Australian sustainability reporting requirements. Bookings are up 63% compared to the prior 6-month period. And in the first half, bookings totaled $9.8 billion, including Venture Global CP2 Phase 1, which achieved FID last July. Sole source wins also increased, reinforcing customer confidence in Worley's capability and delivery. And as I've mentioned, a number of significant project awards already this calendar year build on this momentum. Energy and resource have both grown with the Americas continue to deliver wins for our portfolio and the mix of bookings reflect increased construction, fabrication and procurement activity as these projects move into the execution phase. The quality of these bookings remains high. As noted, large complex projects where Worley is supporting customers across the full project life cycle underpin backlog quality and forward earnings visibility. Turning to Slide 7. I'll now turn to leading indicators. Backlog remained resilient at $6.7 billion (sic) [ $16.7 billion ], providing good visibility of revenue into the second half of FY '26 and into '27. Backlog is slightly lower than the reported period for June '25, and this reflects the delivery timing rather than a drop-off in demand. $6.3 billion has been added to backlog through scope increases and project wins during this period. And while work on the Baytown Blue project has paused, we've retained in the project backlog and continue to work closely with ExxonMobil on that. Project wins already in the first few weeks of calendar year '26 will add more than $3.5 billion to backlog. Our factored sales pipeline remains robust, and we continue to convert opportunities into backlog as we secure contract wins, and the pipeline keeps replenishing. Around 46% of these opportunities are expected to be awarded in the next 12 months, reflecting the extended project delivery time frame for major projects. As we target more of these projects, we're focused on opportunities in the early-stage consulting phase with potential for pull-through and consulting opportunities increased by 24% in our pipeline over the past 6 months. Turning to Slide 8. The slide shows the diversification and competitive strength underpinning our business model and earnings resilience. Our broad exposure across sectors, geographies and services reduces reliance on any single market or customer decision and revenue is well balanced across energy, chemicals and resource. It's geographically diversified with meaningful scale across the Americas, EMEA and APAC. Our services mix across professional services, construction and fabrication and procurement shows our increasing relevance to customers across the full project life cycle. And we're attracting a greater share of project capital with expanded capabilities. We also continue to differentiate through our use of digital and AI. Enterprise efficiency is a non-negotiable. Technology is transforming project delivery. Our digital and AI initiatives will reshape how we deliver projects and strengthen our competitive advantage. For customers, intelligent solutions will bring their assets into operation sooner and accelerate returns on capital. I'd now like to give an update on each of our sectors and turning to Slide 9. Aggregated revenue from energy work increased 8.8% over the prior corresponding half, and growth was driven by major projects moving into the execution phase, lifting construction, fabrication and procurement activity, particularly in the Americas. Integrated gas continues to be a growth driver. Demand for gas is supporting ongoing LNG import and export terminal developments and integrated gas work represented 25% of Worley's total revenue during the period. The variety of LNG projects we're working on around the world is notable in places like Germany, Indonesia and Australia as well as the U.S. While the outlook remains softer overall in oil, activity is increasingly concentrated in higher-margin offshore projects and selected onshore developments, particularly shale. And power is an important growth market. Structural change is driving energy demand and investment across gas-fired power generation, renewables and nuclear. Turning to Slide 10. The global chemicals market remains important to us. Near-term conditions are challenging, reflecting regional [Technical Difficulty]. Aggregated revenue declined 9% over the period with project cancellations in Western Europe and lower professional services activity across APAC and EMEA. This was partially offset by ongoing major project execution in the Americas, where construction and fabrication activity continues. Looking at specific subsectors, refined fuels remains promising, and it continues to attract investment in product slate optimization, decarbonization and asset life extension. Petrochemicals remain a major contributor to our chemicals revenue, although Western European plant closures related to global overcapacity have had an impact. Low carbon fuels present more selective opportunities where projects are commercially viable. Turning to Slide 11. Finally, resource have delivered growth for Worley in the first half and aggregated revenue has increased 12.3% over the prior corresponding period. Resources now represents 29% of our business. Population growth, urbanization and the energy transition are demand fundamentals, which will continue long term. Fertilizers remains our largest subsector. Here, demand is supported by population growth and food security. Demand for copper is driven by the need for energy transition materials and an increasing demand from data centers, cloud and AI infrastructure. In battery materials, there's been a resurgence in activity and sentiment with a focus on front-end work and commercialization of technology. And we're confident resources will make an important contribution to second half growth, and we expect this to continue beyond the next year. I'm now going to hand over to Justine for further details on the financial results. Justine? Justine Travers: Thanks, Chris, and good morning, everyone. Turning to Slide 13. Our half-year performance and execution of strategic priorities such as cost management and earnings quality, coupled with strong capital management positions us well to deliver moderate growth this year. I want to reemphasize 3 points in relation to the results we are delivering today. First, we continue to deliver aggregated revenue growth and solid earnings, supported by our global operations and strategic focus on major project delivery. Second, targeted actions to reset the cost base are underway and aim to strengthen earnings quality and resilience. And finally, we remain in a strong financial position to support growth and return capital to shareholders. Aggregated revenue for the half was $6.3 billion, up 5.4% on the prior corresponding period. We continue to see an increase in construction and fabrication revenue as we execute on major projects as well as an increase in procurement revenue. Supported by the contribution from our global operations and our major projects, underlying EBITA was steady at $377 million. Underlying NPATA was $207 million. A lower statutory NPATA at $152 million reflects the inclusion of transformation and business restructuring costs. While business as usual costs are included in underlying EBITA, these transformation and business structuring costs were beyond the scope of the normal course of business. Normalized cash conversion was 95.5%, a fantastic achievement. This continues to be an important focus for our business. Our balance sheet strength and strong cash position provide capacity to invest in growth and return capital to shareholders through our ongoing buyback and payment of dividends. Leverage at the end of the half was 1.5x, comfortably within our target range, reinforcing the strength of our financial position. Turning to Slide 14. Our aggregated revenue growth has supported steady earnings despite the challenging market backdrop. As I've highlighted, a driver of revenue growth this half was major project activity with increased volumes flowing through construction, fabrication and procurement, particularly across the Americas. This work is delivered under a lower risk contracting model and has supported a stable earnings outcome, reflecting both project delivery stage and disciplined delivery across the portfolio. As a reminder, we don't do competitively bid lump sum turnkey projects. On the right-hand side, the EBITA and margin walk highlights our continued focus on rate improvement. Margins reflect the combined impact of volume, mix and pricing with rate improvement partially offsetting mix impacts in the period. Importantly, this demonstrates an ongoing focus on margin discipline. While near-term earnings reflect project phasing, the underlying drivers of margin improvement continue to build through backlog, the cost-out program and disciplined execution. Turning to Slide 15. As communicated at the full year results in August, we're transforming the way we work by removing complexity, improving efficiency and driving consistency. This work is well underway. We acted proactively to reposition the business in response to softer conditions in chemicals and some project cancellations in Western Europe to strengthen margins and ensure ongoing business resilience. We've accelerated actions aligned with our strategic priorities, specifically resetting the cost base, scaling GID and expanding margins. During half one, we incurred $82 million of costs associated with these actions, much of this being severance and related costs, predominantly in Western Europe, where we have seen high restructuring costs due to local labor protections. We expect further costs in the second half as the program continues. However, we do anticipate these costs being lower than those already incurred in half one. The actions we've taken include repositioning capability to areas of higher demand and rightsizing where demand has softened. These restructuring actions together with our efforts to transform the way we work are setting the foundation for stronger earnings and margin quality. Our business will be supported by a leaner, more scalable operating model, supported by global integrated delivery, GID. In delivering this transformation, we are progressing at pace. With a disciplined cost-out program, we're targeting over $100 million annualized savings from FY '27 onwards. Our cost management efforts are focused on and include repositioning capability to areas of higher demand, increasing enterprise service center utilization, rationalizing our third-party contracts and adjusting our office network to reduce costs while supporting global delivery. We're also deploying digital solutions to simplify processes and improve productivity. Embedding AI across our business will be an ongoing part of our broader strategy to leverage technology and new ways of working to create sustainable value. I have been working closely with the business on this program, and it is clear to me that steps that we are taking strengthen our cost discipline and will enhance our earnings quality. We will ensure we retain the capability and capacity required to support growth and deliver for our customers with greater cost discipline, commercial agility and technology focus. Turning to Slide 17. Finally, I'd like to take you through our capital management position. Operating cash flow is strong. Normalized cash conversion of 95.5% is above our target range and continues to reflect strong underlying cash generation and a disciplined approach to working capital management. Day sales outstanding of 46.2 days remains well controlled and comfortably within our target. We have been consistently delivering returns to our investors through dividends and our buyback program. The Worley Board has determined to pay an interim dividend of $0.25 per share, which is unfranked. We continue to execute our share buyback program of up to $500 million, reflecting the confidence we have in our business. As at 31st of December, 2025, we had purchased over 24 million shares for a total consideration of $324 million. We will continue to execute on this program. During the half, we continued to invest in the business in a measured way while prudently managing debt and maintaining flexibility to invest in growth with capital directed towards initiatives aligned with our strategic priorities. Our balance sheet remains strong with leverage at 1.5x, comfortably within our target. We continue to use free cash flow to manage liquidity and support growth. We remain committed to maintaining a diversified funding base and proactively manage our debt maturity profile. We are looking at a variety of options for the group's euro medium-term note debt as it matures at the end of the year. I am getting to know our debt investors and we are confident and well placed to manage this upcoming maturity in June. Our weighted average cost of debt remains stable and our effective tax rate continues to track within our expected range. Overall, our disciplined approach to capital management remains a key differentiator and supports long-term value creation. I'd like to make a final comment on foreign exchange rates. The Australian dollar has moved over the past few weeks and we note the possibility of FX being a headwind in the second half if it remains at these levels. In summary, our solid half year performance and execution of strategic priorities, including cost management and earnings quality, coupled with consistent and strong cash conversion and balance sheet strength positions us well to scale for growth. I'll now hand back to Chris to take you through strategy and outlook. Robert Ashton: Thanks, Justine. Just moving straight on to Slide 19. But before I share the outlook for '26, I want to step through some of the fundamentals underpinning growth, and then I'll turn to our growth strategy. Worley is a diversified, resilient business with a robust foundation and demonstrated agility to adapt to market changes. And this foundation and agility gives us the confidence as we move into our next phase of growth. Our end markets are supported by strong structural tailwinds. Energy security, affordability, electrification, energy transition and decarbonization, along with the rapid progress of AI and digitalization are long-term demand drivers. And Worley's growth should be viewed independently of cyclical factors. Our growth has been secured across commodity cycles, not dependent on oil prices and continues to outpace customer capital expenditure. Turning to Slide 20. Our strategy has 3 pillars supported by disciplined capital management and operational excellence. One, we're strengthening leadership in our core markets; two, we're expanding into growth markets and along the value chain, including expanding EPC and EPCM capability; and three, we're innovating to differentiate delivery with technology. This strategy supports sustainable growth and resilient earnings. Moving to Slide 21. We remain committed to our purpose of delivering a more sustainable world, and Worley's next phase builds on our strengthen, expand and innovate strategy to secure both within and beyond our core markets. We've built a leading position across energy, chemicals and resources with sustainability solutions embedded now in the business. And now we'll grow our total addressable market by extending our project delivery capabilities to capture a greater share of spend across the customer asset life cycle. This positions us for more EPC and EPCM scopes with continued growth in consulting and value-added services from concept to completion. These capabilities mean we can target high-growth adjacent markets beyond ECR. We'll selectively expand into adjacent complex critical infrastructure where our skills are transferable. And the next phase of growth is supported by disciplined capital allocation, margin focus, which will ensure accretive and resilient growth. Turning to Slide 22. We're expanding our total addressable market by accessing a greater share of our customers' capital expenditure. The graphic on the left represents a typical customer capital program for an asset. As projects progress into execution, customer spend scales significantly. And by extending our EPC and EPCM delivery capability enabled by technology, we're positioning Worley to capture a larger share of this overall capital investment. And you can see the results of this focus as we turn to Slide 23. The major projects shown here in LNG, cement decarbonization and iron ore demonstrate our execution capability at scale and reward our deliberate shift to more EPC and EPCM scopes. And while major projects are reinforcing our confidence in this strategy, extending our ability to support customers across the asset life cycle is not just about project size. It's an evolution as we expand the services we offer all customers globally, deepening and broadening the capability of our workforce. EPC and EPCM have always been part of Worley. Consulting and other services along the value chain enabled by digital and AI differentiate how we deliver. And now we're leaning into scaling this full project delivery with intent, and we're excited by the early success shown in major projects. Turning to Slide 24. Backed by the capabilities I've described, our growth strategy seeks to strengthen our leadership in existing markets by growing market share and expanding into high-growth adjacencies. LNG and energy transition materials are areas where Worley has an established presence and a strong track record in execution, and we can further grow market share with more major projects. We're also expanding into new growth opportunities in complex critical infrastructure markets such as data center infrastructure, power, ports and marine terminals, and industrial water. These are capital-intensive markets where we have an existing or an emerging presence and can leverage transferable engineering services, EPC, EPCM and digital delivery capability. Importantly, these markets offer a clear pathway to scale. Together, these existing and new market opportunities reflect a balanced but deliberate approach, and they build on what we do well today while selectively expanding into adjacent areas of growth. And more detail of this will be shared at our Investor Day in May. Turning to Slide 25. Before I present the group outlook, I'd like to give a brief update on key focus areas. Our first is full project delivery, a key enabler for our growth strategy. And as I've outlined today, we're winning and delivering more of this work within a disciplined risk appetite. As Justine said, we will not do lump sum turnkey EPC. We'll seek to balance the portfolio with high value early-stage consulting, study, FEED and scale as we pull through to more execution phase construction and procurement work. Alongside this, we're resetting the cost base to build a more efficient technology-enabled business, targeting $100 million plus exit run rate annualized savings. We continue to focus on margin growth by targeting higher quality work and delivery excellence, scaling global integrated delivery and deploying digital, embedding AI across the business to drive capability efficiency and differentiation. And together, these deliberate efforts set us up for the next phase of our growth. Turning to Slide 26. Geopolitical uncertainty and shifting market dynamics are a reality of today's market. Nevertheless, we've continued to deliver growth in revenue and steady earnings in the first half. This speaks to our business model resilience, portfolio diversification and disciplined execution strategy. We reconfirm our moderate growth outlook for the current financial year on a constant currency basis. We're targeting higher growth in aggregated revenue than FY '25 and growth in underlying EBITA and expect the underlying EBITA margin, excluding procurement, to be within the range of 9% to 9.5%. We continue to benefit from favorable long-term macro tailwinds, and these support demand in our existing end markets with high-growth adjacent markets also identified to support Worley's growth beyond FY '26. A diversified business model, increased cost focus, commercial and financial discipline and a strong balance sheet positions us well for both the short and the long term. That concludes the formal presentation today. Justine and I are now happy to take any questions from those on the call. Operator: [Operator Instructions] And our first question comes from the line of Scott Ryall of Rimor Equity Research. Scott Ryall: Chris, thanks for the presentation and some of the color. I just wanted to follow up on your comments on Slide 24 and the energy and power slide that you were talking about before. And I'm just wondering, you've moved into new markets historically and you've had to invest money a couple of years ago. You did that across a range of different industries. Are there investments you need to make in terms of expanding into some of these new areas? How long do you think it will take? And can you just remind us on -- you mentioned nuclear in the presentation. What's Worley's nuclear capability or experience, please? Robert Ashton: Well, let's start with the nuclear first. So Worley is the engineer of record for 15% of the U.S.'s nuclear commercial power generation capacity. We're currently doing a nuclear project for -- in Egypt, the El Dabaa project, that's over 2 gigawatt nuclear facility where we own as engineer. We're currently doing nuclear work for Canada OPG. So we have a long track record of doing nuclear. So it's expanding into that. In terms of investing, we invested -- when we did the transition or the push into sustainability, we committed $100 million of investment over 3 years to support that transition. And look, and where we have -- we've got effectively there's 3 growth pathways: organic, strategic partnering and M&A. And where we need to develop -- invest in ourselves then, we're actually going to -- we're absolutely going to make sure that we commit to building the incremental capability. The reality is when it comes to power, just even look at the thermal power, we're currently doing the U.S.'s largest thermal -- in construction, the largest thermal power generation facility, over 2 gigawatts, that happens to be in the CP 2. So we've got a long history in power out of our Reading office in Pennsylvania. So power, nuclear, long history. Industrial water, we do a lot of industrial water. It's integrated part of the offering to our customers, but we see that is going to be an increasingly important part of our future. And so it's about putting focus on it. And our data center infrastructure, if you look at this really through the lens of data factories, these are becoming increasingly complex in terms of needing independent power generation and also cooling. So you look at the water and the power needs for some of these multi-gigawatt data factories, that's in the sweet spot. So we've got capability in these areas. It's about expanding them. And certainly, should it require organic investment for organic growth, we'll do that. And more will come in Investor Day. Operator: Our next question comes from the line of John Purtell of Macquarie. John Purtell: Look, just in terms of what you're seeing from customers, Chris, obviously tariffs impacted decision-making through calendar '25. What are you seeing on the ground? And maybe if you could just provide some commentary on the different segments there for you as far as Energy Resources and Chemicals. Robert Ashton: Yes. Look, I would say in the latter part of '25 calendar year and now coming into '26, we're seeing a different tone of voice coming from our customers. Clearly not across every sector, every geography, but certainly on the resources side. We're seeing a lot of interest in the major project delivery capability. But our customers in the Middle East, North Africa, definitely a sense of, I guess, stability. Last year was a lot of uncertainty around the tariffs and the customers working through that. And we did say we thought by the end of the calendar year '25, things would have settled down. I would say that's occurred. Look, the single area of softness continues to be the conventional chemical side in Western Europe and just generally as a result of overcapacity. But on the energy side, integrated gas, power, oil, that that continues -- certainly seeing a renewed interest and a renewed, I would say, buoyancy in that. On the resource side, whether it's on iron ore, copper, lithium, on the [Technical Difficulty] materials, we're seeing a return in interest or a continued buoyancy there. So I think generally, John, the tone has shifted with our customer base, from last year where everybody was thrust into a period of uncertainty as a result of what was happening in the U.S. But that seems to have [Technical Difficulty] been normalized with the decisions that our customers are making. Operator: The next question comes from the line of Nathan Reilly of UBS. Nathan Reilly: Just a few questions in relation to the restructuring activity. The number came in probably a little bit higher than what I was expecting. Was there a decision made to maybe accelerate/even increase the level of restructuring activity when you sort of previously flagged that back at the AGM? And can I just get a little bit of an update [indiscernible], I guess, the nature of some of that restructuring activity in the first half, but also what you're expecting to undertake in the second half? Justine Travers: Sure. Yes. And Nathan, you're right. The amount of work that we've done around restructuring is greater than we had anticipated. And I would say the cost of both the cost and scale is higher than what we would have initially thought we would have incurred for the first half. It is really driven by predominantly severance and associated costs that we've seen in Western Europe as we've looked to restructure that workforce and move into areas of higher demand. And so what we've seen is the scale and duration that it's taken to actually move on that restructuring was longer than anticipated. We've also taken the opportunity, though, as we looked at this, it was a real catalyst to take deliberate decisions around accelerating that shift of moving from higher cost location to areas where we would see higher demand. You'd note within a number of our priorities, we talk about scaling GID. This has really been an opportunity to say how do we accelerate in doing that and actually driving a lower cost base through the business. In terms of what we would expect for the second half of this year, we do expect continued restructuring costs in the second half. We're doing work looking across our enterprise services as part of that restructuring. We do, however, expect those costs to be lower than what we've incurred in the first half. And what we want to do is not continue to have a multiyear program of restructuring. We're really saying what can we do in FY '26 to reset the cost base and reposition ourselves strongly as we go into FY '27. Operator: Our next question comes from the line of Gordon Ramsay from RBC Capital Markets. Gordon Ramsay: Chris, just wanted to ask you about where you stand in terms of project cancellations or scope reductions. I know there were none in the second half of FY '25. Is there anything you can comment on in the first half for FY '26? Robert Ashton: I mean the only one as we talked about before was the Shell Red Green project in Europe, but that was announced at the time. So we've not seen a continuation or any sort of trend around cancellations other than the ones that we've talked about previously. And I think that's just -- that reflects a shifting confidence in the market. But yes, we've not -- there's no trend of continued cancellations. Gordon Ramsay: Just on deferrals, are you seeing companies, especially in what I call the green energy or renewable transition area, it looks like a lot of companies are kind of slowing down investment there. Are you seeing that in your work at all? Robert Ashton: I think it depends on which region you're talking about. Certainly, in the U.S., the extreme green has slowed down, but not in Europe. You saw just this week, we announced a hydrogen backbone pipeline project in Europe. So it just depends by region. But certainly, in the U.S., the more extreme green has seen a slowdown in that. And that's reflected in our future factored sales pipeline. We've actually reflected the slowing down of that. But again, no material trend around cancellations. Now there's always deferrals. And I would say the deferrals are no more or less material than they are historically at this point, yes. Certainly, in '25, as what was happening in the U.S. with the U.S. changing its position, you saw a ripple effect, but I would say that's really dropped off now. And I think we're probably in a much more -- well, we are in a much more stable environment. Operator: And our next question comes from the line of Megan Kirby-Lewis of Barrenjoey. Megan Kirby-Lewis: My question is just on the margins and by activity. So it just looks like professional services and construction dipped slightly year-on-year, but procurement has held steady. So I guess just keen for you to talk through the dynamics for each of those areas and how we should be thinking about them going forward? Justine Travers: Yes. Thanks, Megan. We don't see a structural issue with margins. And we don't see a decline in the quality of work that we're being engaged to do. I think what we are seeing is, as you said, procurement margins have hold relatively steady. Construction and fabrication, we see that more as a phasing around the execution stage of the projects that we're undertaking at this point in time. And with the portfolio of major projects, we expect to see that really normalize over a period. In terms of professional services, again it's largely driven by how we would see in terms of the stage of the projects that we're undertaking. But we're not seeing anything structural within that margin profile that gives us a cause for concern. And I think on top of that, the actions that we're doing around cost management, the efficiency within the organization, removing some of that legacy complexity that we've had is really all in service of ensuring that we maintain that margin resilience as we go through and over the next 12 to 18 months. Megan Kirby-Lewis: And I guess just as a follow-up on that, like more focused on the construction piece, but you are continually talking about moving more into EPCM and EPC. I guess just how like that will start to flow through to margin. Is there anything sort of to think about in terms of risk sharing between customer and contract -- customer and Worley and how that might impact the margins there? Robert Ashton: Well, as we grow the EPC business, the mix of what we do across, the phasing of those, the phasing of engineering against another major being in the procurement phase or in the construction phase. So it's the mix that will -- the mix of the phase of projects that will drive the margin rather than EPC alone. I think you've got to look at it as always a portfolio of projects, which, yes, we'll do more engineering procurement and construction. But it's just driven by mix, Megan. I mean, yes, I mean, I'm not sure what more. Justine Travers: No. And I'd say, Megan, we're holding our outlook position on the margin, excluding procurement, between 9% and 9.5%. So looking at that from a mix perspective, we think that's able to be maintained. I know you've covered Worley for a long time, and you will have seen over the course of the last few years that we've really gone from strength to strength in terms of our margin profile across the portfolio. So something absolutely that we're mindful of in terms of that composition of volume, mix and rate. And so we need to be doing the things that we can proactively manage around quality of what we bring into our pipeline and then through to backlog, and we need to be resilient around the work we're doing on cost discipline and margin expansion. So yes. Operator: Our next question comes from the line of Cameron Needham of Bank of America. Cameron Needham: Just one quick question for me, just on Baytown. Could you talk me through the logic of leaving that in your backlog, please? And then just more generally, could you talk through the process that you guys go through internally in terms of deciding if a project meets requirements to actually stay in the backlog versus what comes out as a cancellation? Robert Ashton: Yes. Baytown Blue has not been canceled. So it remains in the backlog. If you look at Exxon's announcement, it's been paused. And until it's been canceled, it will remain in backlog. So we have a very rigorous process of what goes in or comes out of backlog, and we consistently apply that. But Baytown Blue, if you read ExxonMobil's announcement, has been paused, not canceled. Operator: And our next question comes from the line of Tom Wallington of Citi. Tom Wallington: A quick question on customer mix and growth adjacencies. So just noting 28% of the backlog is associated with traditional work, including oil and gas. And I appreciate you've highlighted these complex critical infrastructure scalable opportunities in your priority markets. Can I just get a bit of color as to how these early customer engagements have been and how we should think about the mix of Worley customers evolving over time? Robert Ashton: I would say that the early engagement has been very, very positive. And the customer mix, I think it's an important point because we often, in conversations, have the conversation pivots around capital expenditure of customer base is shrinking or dropping off or may not be as big as the previous year. And I'm speaking generally. And it may be for the majors. But if you look at the number of customers that we're working with that are outside of that analysis, it's significant. You look at Glenfarne, Venture Global as 2 examples. These are not necessarily companies that attract when the overall market or the overall capital spend is being considered. So look, early phase conversations are fantastic and certainly a lot of interest in what we're offering, whether it's in the full project delivery side or on the power ports or marines or industrial water or even on the data factory infrastructure side. So good early engagement, very positive early engagement, I would say. And in terms of opportunity to grow, I think that there's significant opportunity to grow outside of the addressable market that are traditionally sort of assessed and associated with Worley. So we do a lot of work for customers that are -- that is outside of the majors, outside of the Rios, outside of the BHPs, outside of the ExxonMobils or Chevrons, outside of the BASFs. And we see increased opportunity for growth in that space. Tom Wallington: That's very helpful. And potentially a second question, if I can, a follow-up to Nathan's question around the restructuring costs. Noting that the scale and the scope of these costs has likely exceeded initial expectations. Just curious, going into the result, we thought that these costs would be taken above the line, noting that they are taken below the line now given they have exceeded those initial expectations. Can you give us, I guess, any color as to why the change of thinking as to how this would be treated for from an accounting purpose and potentially what this might have implied if all of these costs were taken above the line? Robert Ashton: I don't think the -- in terms of -- well, I'm going to let Justine answer the technical side. But look, there's a lot of things that go into the decision-making around this and clearly, and I have communicated, we've communicated that the cost will be taken above the line. What changed was as we got into the -- toward the end of the year, as we got into the detail of the restructuring costs, we saw an opportunity to restructure parts of the business more deeply than we initially assessed with an objective of relocating that work when the markets -- when the opportunities and the projects present themselves, repositioning and relocating it to India. So rather than keep people on the bench and do a moderate restructure, we took a strategic decision to do a deeper restructure with the intent of moving the work to a higher profit location such as India or Bogota at our GID center there. So it was a strategic decision. Now in terms of the accounting side, I think I'm going to hand over to Justine. Justine Travers: Thanks, Chris. And Tom, clearly, the costs that we've seen in the first half of the year around this transformation and restructuring are outside the normal course of business. And putting them below the line for us really and hopefully for the market provides a much clearer and more transparent view of our underlying operating performance. It also makes it much easier to look at the comparability of our results across periods. And it is a very typical treatment of costs of this nature for Worley historically, but also if we looked at our customers and/or other peers that are undertaking similar programs of work to have treated them in this way. So we believe that is very comparable to what the industry would do, what we have done historically. And it is important that it does provide a more transparent view around our underlying operating performance of the business. Operator: Our next question comes from the line of Rohan Sundram of MST Financial. Rohan Sundram: Just one for me. Following on from John's questions around the tone of customer discussions. Take on board, there's a renewed buoyancy in the market. But Chris, just can you hear your thoughts on how that's translating into higher sole sourcing on the back of all of that? Robert Ashton: Well, it is. I mean what it is, is the customers that we have strong deep relationships with and have historically looked at sole sourcing is their capital -- is their confidence around investment returns, then it's leading to an increased level of sole-source work. And sole-source work is now up to 48% of what we do. And so we actually look at this very closely. And so you look at the percentage of sole-source work, it's increased compared to the prior corresponding period. And I think that's a great sign that the customer confidence is returning and the confidence they have in Worley in terms of supporting them. Operator: Our next question comes from the line of Ramoun Bazar of Jefferies. Ramoun Lazar: Just a couple from me for Justine. Just in terms of the treatment of the restructuring costs now below the line, how should we think about the seasonality in the business in the second half? Is that going to look more like what it did last year now? Justine Travers: Yes. Ramoun, we do expect the phasing to be broadly similar with what we've seen in FY '25. We know and traditionally have seen a strengthening in the second half. And so you can assume that that would be a similar profile to what we've had if you're looking at the underlying result, just consider that phasing broadly similar. Ramoun Lazar: Yes. Got it. And within that, are you assuming any benefits from the restructuring coming through in the second half out of that $100 million annualized number? Justine Travers: The $100 million, really we see as an exit run rate, and we see the real benefit of that coming through into FY '27. We will see a little bit into the second half as we start to see the translation of that cost come through that resetting of the cost base. But the $100 million is really a reset for FY '27 and should be considered in that way. Operator: I'm showing no further questions at this time. I would now like to turn the call back over to Chris Ashton, CEO, for any closing remarks. Robert Ashton: I just want to thank everyone for joining today. And I know over the next 4 days, 5 days, we've got a number of meetings with yourselves and others on the call or on the -- dialing in on the Internet. So look, we look forward to having the conversations, answering further questions after you've had an opportunity to digest what we presented today. Look, I do think that it is a strong first half result. And look, I look forward to -- Justine and I look forward to talking to you and hopefully being able to answer the questions that you've got. So we'll be connecting with you over the next few days and today as well. So thanks, everyone, for your time and look forward to meeting. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to the investor and analyst call for LSEG's 2025 Full Year Results. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to David Schwimmer, Chief Executive Officer, to open the presentation. Please go ahead. David Schwimmer: Good morning and welcome to our 2025 full year results. I'm joined by our CFO, MAP; and our Head of IR, Peregrine Riviere. We have delivered another year of strong performance and rapid strategic transformation for the group. Revenues grew 7.6% with all businesses contributing positively and Data & Analytics accelerating. Our focus on driving efficient and scalable growth delivered 210 basis points of margin expansion, a little over half of that organic, taking full year EBITDA margins north of 50% for the first time. Adjusted EPS grew 16%, reflecting our disciplined execution throughout the P&L. We continue to invest in future growth with the Post Trade Solutions transaction in Q4. We continue to deliver strong cash conversion with GBP 2.8 billion of dividends and buybacks in the year. And today, we've announced our plan to execute a further GBP 3 billion of buybacks over the next 12 months. We see a great opportunity to invest in our own shares during this market dislocation. This strong performance is a direct result of the strong execution of our long-term strategy and the rapid transformation we're driving across our business. November's Innovation Forum provided insight into how we are innovating across LSEG as we deliver on our AI strategy. We are already seeing the fruits of that innovation. Our LSEG Everywhere AI data strategy is embedding our trusted data into the AI tooling of financial services. It's only been a few months since we launched our MCP server, but early demand has been very strong. I'll give you some numbers on that later. We're also innovating to capitalize on the accelerating pace of change in capital markets, building new platforms for growth in digital assets. We launched our digital markets platform last year and, at the start of this year, successfully piloted tokenized cash settlement via our new Digital Settlement House. The strategic partnership with 11 leading banks we announced at our Q3 results is accelerating growth and helping us unlock the multiyear opportunity in Post Trade Solutions, a great example of our strong customer relationships and partnership-led approach, creating unique opportunities for growth. Let's take a step back and look at our 2025 performance in the context of the multiyear delivery of our strategy. We have achieved a lot over the last 5 years. Financial performance has been very strong with organic growth [Technical Difficulty] improving significantly. [Technical Difficulty] all of our businesses. Across the whole group, we've driven significant revenue and cost synergies, built better products and better infrastructure, integrated the operations and unified the brand and culture. This is all still work in progress. And every day, we discover new ways to transform our business. But right now, I can see more growth opportunity in front of us [Technical Difficulty] trading, settlement and depository have huge potential for future growth. But let me take a step back. Right now, the market seems to be taking a view on the impact of AI on our business. We do not agree with it, and all fact-based evidence would indicate the negative market narrative is wrong. We feel as confident today about our products, our partnerships and our prospects as we ever have. [Technical Difficulty] entering into enterprise agreements, run some of the most rigorous procurement, risk and technology processes in any industry. They understand exactly what our products do, they know how their own workflow needs are evolving with AI, and they know the role of our data, analytics and infrastructure in their operations. [Technical Difficulty] heavily regulated and risk-averse customers are going to rely on outputs compiled from the public Internet. That is how much you should be worried about. But more importantly, let's look at the 98% of group revenues that are not from public data. I'll cover the rest of D&A in detail later. But in a nutshell, these revenues are derived from [Technical Difficulty] that are proprietary, used in regulated environments [Technical Difficulty] intelligence and particularly World-Check is an industry leader. Two things that are not well understood about this business. First, its value goes far beyond the thousands of official sources. Our customers make 200 billion checks a year across 700 million of their own end customers. And once anonymized and aggregated, we can use the decision data to improve our own detection and matching capabilities in a huge and constantly evolving content set. World-Check is the leading product in this space and we are able to continue to improve the product to extend that lead through what is in effect a massive and constant flow of customer contributions. Second, history is important. Customers need to justify decisions they made about counterparties going back decades, for example, in high-profile tax or fraud cases. We have all that history with the information that was available at the time. AI cannot create that past record for customers. And moving to Markets, 40% of our business. AI is a tailwind here, too, as more data consumption drives more insights, leading to more trading volumes and ever-growing demand for risk management. So our positioning is strong, and our strategy is working. I'll say more in a moment about our strong commercial and strategic progress and the opportunities we are seeing with AI. But first, I'll hand over to MAP to discuss our financial performance in more detail. Michel-Alain Proch: Thank you, David, and good morning, everyone. It has been a very strong year of financial execution for LSEG. So first, some headlines, and then I will unpack this all in more detail. Organic growth was 7.1%, slightly above the midpoint of our guidance and another year of organic growth above 7%. EBITDA margin improved by 110 basis points underlying plus another 100 from the Post Trade Solutions transaction. We delivered this performance through a significant improvement in our labor cost ratio. And this strong growth, combined with operational leverage, translated into EPS growth of over 15%. So that was the P&L. Now moving on to cash and capital allocation headlines. Capital intensity continues to trend down, as guided, but do note that we are still investing in our business at least twice the rate of our peers. The dividend is increasing by 15%, in line with EPS, and we doubled the rate of share buybacks in 2025. With the growth in cash flow and the reduction in share count, this translates into 14% growth in free cash flow per share, which is actually 60% over the last 2 years. In summary, we are growing our business strongly. We are investing in our future growth, we are generating significant free cash flow, and we are being very decisive and agile in our capital allocation. So let's cover revenue over the next few slides. On this slide, you can see that our growth is very broad-based with Risk Intelligence continuing its double-digit momentum and Markets growing high single digits against a huge year in 2024. FTSE Russell continues its revenue trajectory and D&A accelerated on 2024. As you know, I like to look at our subscription businesses as a whole, and here, we have achieved 6% of growth for the year, as we guided to. We will start with D&A in more detail on the next slide. We achieved good growth across all lines in D&A. In Workflows, we completed the migration from Eikon, the largest ever of its kind in financial markets. As a result, clients are using the platform more frequently, and we continue to innovate and improve it. In Data & Feeds, we maintain our strong momentum. We are adding significant new data sets, particularly in private markets, and we have launched our LSEG Everywhere strategy for AI-ready data. As David will cover, the initial uptake here is very strong. Our Analytics business is well advanced on its acceleration journey. In partnership with Microsoft, we have driven a strong acceleration through the Analytics API and have just launched the Model-as-a-Service platform with our first partner bank, Societe Generale, onboarding its own models. Overall, D&A is posting a 5% organic growth, accelerating versus 2024, as communicated during our half year results. Turning to the other subscription businesses, we continue to see strong momentum and healthy demand. In FTSE Russell, we have seen balanced growth between subscription and asset-based fees, and we expect the growth rate to improve again in 2026. Risk Intelligence had another very strong year. World-Check, which represent the bulk of its revenue, continues to innovate from its position as market leader, launching World-Check On Demand for real-time updates. This platform is increasingly deeply embedded in customers' regulated workflow. Our Digital Identity & Fraud business accelerated in 2025 with transaction volumes up 16%, and the launch of our global account verification platform. I will spend a little longer on this slide to talk about some new KPIs we are introducing for 2026, there will be an addition to ASV. And from 2027, we will report only these new KPIs and we will be retiring ASV. We are doing this to give investors more insight into our commercial progress and with measures that are less volatile than ASV. But let's come back to ASV. As you remember, I previously guided to 5.8% growth at the end of Q4, and we achieved a bit better than this at 5.9%. This reflects a very strong end to the year, which set up well for 2026. And now on the new measures. Before beginning, I shall tell you that they cover exclusively our 3 subscription businesses: D&A, FTSE and Risk Intelligence. We have given you the baseline here. Gross sales represents the annualized total amount of new business over the last 12 months, so not contract value but more annual recurring revenue across our subscription businesses. We performed strongly in H2 2025 with a rolling figure increasing around 11% over H1. On revenue retention, we already mentioned that this typically sits in the low to mid-90s depending on the product. We are formalizing that today at 92.4% on a consolidated basis, you can see that it's pretty much stable on H1. And finally, we are introducing a KPI that measures the level of innovation or newness in our product set, the new product vitality index, or NPVI. This measures the proportion of revenue from products that are new or enhanced in the last 5 years, giving you insight into how our investment into product is translating into revenues. Taken across our subscription businesses, this figure sits at a very healthy 24%, growing strongly against 2024 and H1 2025. A significant proportion of this relates to Workspace, as you would expect, and reflects the substantial enhancements to the customer experience that the new product gives to customer. In other business lines, this index sits more in the mid- to high single-digit range, which we expect to increase over time. Finally, we plan to give these KPIs, including ASV for 2026, twice a year as we see little benefit in reporting them quarter-to-quarter. Turning now to our Markets businesses. These are incredible strong franchise, which I believe do not get the attention they deserve, and they continue to deliver exceptional performance year in, year out. In Fixed Income, as I have already reported, Tradeweb had another very strong year with continued high levels of activity across all main asset classes backed up by great execution. And in Foreign Exchange, we recorded our best performance in recent years with 7.5% growth. In OTC Derivatives, our Post Trade businesses went from strength to strength, and David will detail them in a few minutes. Finally, and for ease of presentation, we have shown Equities on this slide with some other lines from Post Trade. Our Equities business had a solid year with revenue up 5.1%. We launched our Private Securities Markets with the first transaction taking place right now, and we also went live with our Digital Markets Infrastructure, built in partnership with Microsoft. So now on to EBITDA and the rest of the income statement. We translated the 7.1% organic top line growth into 11.8% growth in adjusted EBITDA, 14.3% growth in AOP and, finally, 15.7% growth in EPS. And as you can see from the main table, EPS growth was 19.4% on a constant currency basis. This is truly operating leverage at work, plus very good control in financing, tax and our share count. Let's take each of those levers to improve earnings in turn. Number one is cost control with total OpEx up only 3.5%, half the rate of revenue growth. Within this, you can see that we have really managed third-party services very effectively, down 11.6% year-on-year. This is a core part of our labor strategy. Total headcount is roughly stable, a small decrease of 700, with ratio of internal employees rising to 75%, driven mostly by engineering. As previously mentioned, this is not just about cost. We have seen significant upskilling and improvements to productivity as we build a true engineering culture. As usual, we show the margin improvement graphically on this slide. Once you adjust for FX at either end, the improvement year-on-year is 210 bps. 100 of this relates to the SwapClear revenue surplus agreement, and that leaves 110 bps of underlying. Actually, the real underlying improvement was 140 bps, taking into account the minus 30 bps of the disposal of our Euroclear stake and its related dividend income stream that ceased. On net financial expense, we saw a slight reduction year-on-year. The underlying position was broadly similar. But as reported at H1, the numbers include a GBP 23 million credit from the bond tender offer we completed in March and a one-off gain of GBP 12 million following the discontinuance of a U.S. dollar net investment hedge. We currently expect net financial expense to be in the GBP 260 million to GBP 270 million range for 2026, reflecting the effect of refinancing existing low coupon debt in 2025 by higher rates in 2026 and, obviously, the new buybacks announced today. On the next slide. Our tax rate came in at the lower end of our guidance range, and we expect the same range for 2026. So if you take all of those lines together, this is giving 15.7% growth in AEPS for the year, more than double the rate of organic revenue growth. Over the last 4 years, we smoothed out some FX impacts along the way. That's a steady compound growth rate of 11.5%. And as I said last year, we expected nonunderlying costs to come down in 2025, and they did. Integration costs fell by 41% as we came to the end of the formal Refinitiv process, and we expect them to come down again in 2026 as the other areas of restructuring continue to reduce. Now turning to cash flow. This continues to be another highlight of the business model. We posted a record free cash flow of GBP 2.45 billion. As I'm sure you remember, we guided at, at least GBP 2.4 billion at constant rates. And we beat that at current rates, absorbing the current weakness of the dollar. We are posting this very strong result despite a negative variation of working capital of GBP 400 million. There are three main reasons for that. First, a reduction of around GBP 90 million of the pay accrual for our SwapClear partners following the reduction of the revenue share; second, an GBP 80 million reduction in creditors related to the net treasury income, reflecting lower balances and interest rates; and third, we triggered around GBP 150 million of payments that we've made earlier than usual to suppliers to crystallize better procurement conditions before year-end. Anyhow, going forward, typically a working capital outflow of GBP 100 million to GBP 150 million is a safe assumption to model. Given the ongoing buybacks, this 12% growth in free cash flow translates into 13.6% growth in free cash flow per share. Turning now to capital allocation on the next slide. Against the GBP 2.4 billion of free cash flow, we deployed GBP 3.5 billion across shareholder returns and M&A activity. Total dividends were just over GBP 700 million, and we are proposing a final dividend of 103p today, up 15.7%, in line with our EPS growth. We have deployed a net GBP 700 million on the Post Trade Solutions transaction that I already mentioned. And finally, we have had a record year for share buybacks with GBP 2.1 billion completed in the year. This demonstrates our very active approach to capital allocation and reflects our strong view of the deep value inherent in our own shares. Even with this very active year, we ended 2025 with leverage at 1.8x net debt-to-EBITDA, still slightly below the midpoint of our target range. So now let's look forward to 2026 and beyond. We are very well positioned as we enter 2026 with a record fourth quarter for gross sales in our subscription businesses and very healthy volume growth already at Tradeweb and our Post Trade businesses. We are guiding to organic revenue growth of 6.5% to 7.5%, the same as in 2025, but importantly, with a steady acceleration in our subscription businesses as I have mentioned before. Within this, we also expect our D&A business to accelerate. On margin, we expect 80 to 100 bps of improvement on a constant currency basis. So if you take the midpoint, 90 bps, you will find 60 bps to complete the 250 bps improvement that we committed to for '24, '25, '26 and an extra 30 bps, which comes from the further decrease in revenue surplus share terms at SwapClear. For CapEx, the steady downward trajectory in intensity will continue, and we are targeting around 9.5% for 2026. And finally, we see this all translating into at least GBP 2.7 billion of free cash flow. And as I mentioned earlier, the tax guidance remains unchanged at 24% to 25%. On this slide, I want to take a slightly longer-term view on how our cash generation and capital allocation has developed over the last 4 years and into 2026. The most important message here is how purposeful and consistent we have been in deploying capital to build a better business. We have maintained high levels of capital intensity to invest organically in the business. We have grown the dividend strongly. We have done regular bolt-on M&A to strengthen our offering to customers. And then, when appropriate, we have returned surplus capital through share buybacks. This approach has supported strong top line growth, more innovation, improving margin and strong shareholder returns. Our plan for 2026 continue that consistency. CapEx will be pretty consistent as an amount, but reducing to around 9.5% of revenue in terms of intensity. Free cash flow will grow strongly to at least GBP 2.7 billion. Dividends will continue to go up in line with earnings. And we remain active in our search for good M&A targets depending on fit and value. And then today, we announced a further GBP 3 billion buyback over the next 12 months. So you can assume, given we have already done over GBP 400 million this year, that there will be a total of around GBP 3 billion in 2026, and then we will complete the new commitment in early 2027. And finally, we are updating our medium-term guidance today, so I mean from 2027 to 2029, after several years of strong growth and margin delivery. On revenue, we are confident of mid- to high single-digit growth, including acceleration in our subscription businesses. So after the 6% reported in 2025, you can think of it at around 6.5% for 2026, heading to 7% for 2027, as I mentioned last year. On EBITDA margin, we will carry on improving our productivity, and we are now guiding to a cumulative improvement of circa 150 bps over the period 2027 to 2029. We will drive this through continued strong revenue growth, investment in technology and other ongoing operational efficiencies, but while allowing room to reinvest in future sustained growth. On CapEx, we expect intensity to come down to circa 8% in 2029. So think of that as the absolute CapEx figure staying relatively steady at GBP 900 million, GBP 950 million while revenue continues to grow. And then finally, on cash flow, we are moving to a free cash flow per share metric, and we are guiding to double-digit compound annual growth in this important figure for the years to come. And now I will hand over to David to take you through our strong strategic progress. David Schwimmer: Thank you, MAP. Let's start with the obvious topic, AI. As we discussed at the Q3 results and the Innovation Forum, we're benefiting from our unique position at the forefront of AI-driven change, and we are excited about what that means for our customers, our people and our future growth. You've seen these three pillars before: trusted data, transformative products and intelligent enterprise. Over the next few slides, I'll update you on how we're bringing this to life today for our customers and our organization. We have a great starting point, and everything we are doing is only making us stronger. As a reminder, roughly 90% of our Data & Feeds revenues come from proprietary data and solutions. Our customers are using this data to power business-critical activities in highly regulated environments where accurate, timely, trusted data is nonnegotiable. It is often deeply embedded in transactional workflows. Our breadth and depth are unmatched. Alongside proprietary data sources and exclusive licenses, we also have a network of more than 40,000 contributors proactively contributing data, continuing to enhance the value of our products through strong network effects. The result is comprehensive industry standard data that we are constantly updating. That puts us in pole position to take share and drive growth as customers are able to interrogate and analyze more data at speed using AI. As I said at the beginning of the call, our customers can see that our solutions are more valuable in an AI world. In the fourth quarter of last year, global investment banks and asset managers, all highly sophisticated institutions like Citi, Bank of America and Standard Chartered, signed GBP 1.9 billion of long-term data agreements with LSEG. These organizations are securing their access to our data for up to 7 years invariably in contracts that step up in value over time. And they span a range of different segments: global investment banks, commercial banks, alternative investment firms. We meet their needs and they are confident we will continue to do so across Workflows, Data & Feeds, Risk Intelligence and FTSE Russell. Only LSEG has this breadth of offering. It is a perfect demonstration of why these businesses are so valuable together. The demand for and consumption of data is accelerating, and we are facilitating that growth. The history of data consumption growth is the history of technological advancement, the Internet, fiber networks, mobile, the cloud and now AI. The chart on the left-hand side shows how the amount of data or messages coming through our real-time data feed continues to grow at pace, exceeding 15 million new data points a second in December. This represents a 4x increase in real-time data over our network in the past 10 years, a trend that we expect to continue. With our direct connection to nearly 600 exchanges and venues, and our ongoing investment in technology and capacity, we are strengthening our market leadership. I often call this business the market infrastructure for all market infrastructure. It is live data delivered over our own infrastructure. AI does not and cannot replicate or replace this. If anything, it creates more demand for this data. On the right, you can see the demand for our Tick History data, an evolving data set currently spanning 100 million instruments over 30 years. It's proprietary data that links today's price moves with those of the past. This is a critical point that people often don't get. This data is valuable because it ties 30 years of market moves to the present day. And with hundreds of billions of new data points added each day, without constant updating, this Tick History becomes less and less useful. We have the past, and we have the present. That is what creates the value. No one else has the past like us, and we are the leading provider of the present. Customers find this combination highly valuable with over 5 million customer requests a month. I'll say it again, AI does not and cannot replicate or replace this. It will just drive more demand, customer demand for data that is accurate, up-to-date and comprehensive, verified and auditable is significant. That is where LSEG sets the standard. And by making it easier for customers to access and consume this data through new cloud distribution channels or AI partnerships, we're likely to sell much more of it. And we are only at the beginning of that journey. Increasingly, customers want to use our data in AI applications, opening up a new distribution channel. We're embracing that through our LSEG Everywhere strategy, delivering AI-ready data to any environment in which our customers want to work. Since we last showed you this slide, we've added a new partnership with OpenAI, becoming the first financial data provider to enable customers to access their data through ChatGPT. You should expect us to enter into further partnerships in 2026 and beyond where there is customer demand and strategic logic. These channels have only recently become available, and we are seeing very strong customer interest and engagement. Over 60 financial institutions have connected to our MCP servers directly or via one of our AI partners, connecting hundreds of users. And we have a strong pipeline of customers awaiting connection. Many of these users are new users at existing customers, by which I mean the bank or asset manager already had an LSEG data license, but these particular teams or individuals were not users of our data, proof that our AI partnerships are increasing reach within existing customers. Our AI partnerships are also expanding our distribution footprint, attracting new customers through the accessibility and ease of natural language. Already hundreds of prospective customers have attempted to access our data via our AI partners. Since no one can access our data without an LSEG license, this is creating valuable sales leads. Once connected, customers are engaging with our data and content on an ongoing basis, driving rapid growth in data consumption through our AI partnerships. This is a great start to what we expect to be an important distribution channel for our data and also a natural mechanism for cross-selling. As we make more of our data available via MCP, the user, whether that is a human, a model or an agent, will naturally discover the full breadth and depth of our data across Data & Analytics, Markets, FTSE Russell and Risk Intelligence. We're moving quickly down this path, investing in our AI-ready data and making more of it available through MCP connectors and multi-cloud environments. We have a large pipeline of data coming to MCP, as you can see on the left. We're also supporting customers in their migration to cloud-based alternatives, and that is driving meaningful new sales and displacements. Platforms like Databricks and Snowflake are helping us close big new contracts and drive increased sales of some of our most popular products like DataScope. And we keep investing in expanding the data we offer, whether that's in low latency feeds, ETF data or private markets. Turning to the second pillar of our AI strategy, transformative products. The success of the migration to Workspace means our customers are now in a modern, modular, customizable platform where we enhance functionality week in and week out. That gives us a strong foundation from which to launch transformative AI-enabled products that bring speed, accuracy and conviction to customers' workflows. As a reminder, 70% of Workflows revenue comes from trader licenses and activity. These users, humans today, maybe agents tomorrow, need real-time data, a network community and integration with a range of pre- and post-trade tools. This is regulated workflow with transactional features embedded. And to address a question that comes up from time to time, what if the number of human traders is significantly reduced by AI, could that hurt our Workflows business? We don't see that happening. But also remember that over many years, our Workflows business has been moving away from a per seat model towards one focused more on data consumption or enterprise agreements. And also if the scenario is that human traders are replaced by AI agents, then each agent will effectively be a licensed LSEG customer. In an AI world of agent-driven workflows, we will have more users consuming more data. Workspace is getting better and better with hundreds of updates every year. To name a few recent enhancements, we extended trading capabilities through the expansion of Advanced Dealing. We streamlined banker workflows with the integration of DealWatch. And we enhanced our leadership in news with a dedicated app for Wall Street Journal and Dow Jones News. This is driving real, measurable improvements in engagement. As you can see on the right-hand side, investment management and trading users are accessing roughly 25% more applications than a year ago. Let's turn now to the Microsoft partnership. We made a lot of progress in 2025, and that pace of delivery continues to accelerate. On Workflows, to continue from the previous slide, our Teams-based collaboration tool, Open Directory, is live with accounts across 3 customer communities: FX, commodities and execution. And we have more than 50 accounts in our onboarding pipeline. We're also piloting natural language functionality in Workspace interoperable with Teams and other Microsoft products. And Workspace Deep Research provides extensive AI-driven research and analysis, leveraging the full power of Workspace data. We expect to roll out both AI tools in the first half. In Analytics, we've seen great traction and revenue growth since launching the API with over 50 customers adopting the platform. And just a few days ago, we launched Model-as-a-Service with Societe Generale as the launch partner distributing its own models through our API. We're seeing great progress in Data-as-a-Service or DaaS. We are accelerating the migration of data into the new integrated architecture and expect to have almost all data sets onboarded by the end of the year. This is increasing our speed to market for new products and driving significant customer demand to access these data sets, whether via Fabric or other platforms like Snowflake and Databricks. And last point, we have launched our Digital Markets Infrastructure powered by Microsoft Azure, another growth opportunity as tokenization takes off. Turning now to the final pillar of our AI strategy, deploying AI across our own business, accelerating innovation and improving customer outcomes. I've mentioned before that we are resolving customer queries much more quickly and efficiently through our adoption of an AI-powered question-and-answer application. In December, we made that tool available directly to customers and has had significant traction already, and it will only get better. Adoption of AI-powered workflows is also driving improvements in efficiency, quality and timeliness of data ingestion. We spoke about this at November's Innovation Forum, 9x faster content extraction, 52% reduction in data quality issues and 11% increase in productivity of our engineering teams. This all contributes to the ongoing margin expansion that MAP highlighted earlier. I'm going to turn now to our Markets businesses. You've heard me say this before, but the whole premise of LSEG is this. In financial markets, data has become infrastructure. Access to data is just as essential as access to trading infrastructure. That's why these businesses belong together. Electronification of markets, growth in data-driven decision-making and more sophisticated risk management are all blurring the lines between markets and data activities, deepening their interdependency. This is driving multiyear structural growth in our transactional businesses, delivering a 5-year CAGR of over 13%. The Markets business delivered further strong growth in 2025 with double-digit growth in clearing revenues across interest rate swaps, FX, CDS and repos. Tradeweb also extended its leadership in trading of interest rate swaps, increasing its share by 180 basis points. Our FX venues saw their strongest volumes ever. There's sometimes a misconception that growth across our Markets platforms just happens. Nothing could be further from the truth. The growth we're delivering today is the result of innovation and customer partnership going back years, often decades. We build solutions that solve customer pain points and meet their critical needs, and we become deeply embedded in their core businesses. In that vein of innovation and customer partnership, we're innovating rapidly in digital markets, building the transaction and settlement infrastructure our customers will need as they increasingly adopt digital assets and tokenize traditional asset classes. As you can see in the lower right quadrant of the slide, we are doing a lot in this space. But it is a big topic, so we will tell you more about it later in the year. Another good example of our innovation and partnership in Markets is our success in the clearing of OTC products. The growth in this business over the last 15 years is extraordinary, a threefold increase in member banks, a 200-fold increase in clients and tenfold growth in notional value cleared each year to roughly $2,000 trillion. We have become the global clearing destination of choice for interest rate swaps, FX and CDS. Now in partnership with 11 global banks, we're going after the opportunity in uncleared derivatives, which is roughly the same size as the cleared space. Our members and clients want to manage their whole book in one place, bringing efficiency to their capital and margin requirements and materially simplifying and standardizing processes. We are uniquely placed to do that given the assets we have built and brought together under one roof, and we're entering 2026 with really good momentum. Revenue in Post Trade Solutions is growing double digits, we're adding new customers and the network is expanding. We're driving strong growth and building platforms for the future across our business. We've also integrated our products and platforms for our customers' benefit. This dynamic exists clearly in our data flywheel. The data we generate from our own markets infrastructure feeds into our D&A business. helping customers make better informed decisions when they trade, therefore, creating more data. Second, Workspace is becoming the fully integrated workflow through which customers can access many of our services, not only for all D&A data but now also for FTSE Russell tools, FX trading, LCH data and, in the next few months, Tradeweb. And we've established a powerful end-to-end ecosystem in FX, providing a front end in Workspace linking to the execution venues and straight through to our clearing business with FX hedging capability for Tradeweb and our data and benchmarking content adding incremental value along that trade life cycle. We have similar connectivity in swaps given the customer trust in the Tradeweb and SwapClear franchises. I spoke earlier about the strong demand we've seen for our multiyear data access arrangements. Those integrate services from across our business, from Data & Feeds, Workflows, FTSE Russell, Risk Intelligence and Analytics. And they demonstrate the competitive advantage provided by our full-service business model. As we've said before, big, sophisticated institutions want to do more with fewer partners. You can see that in the success of our LDA agreements. Through our unique model, we've positioned our business to have deep moats and highly recurring revenues in areas of growth. Our diversification across products, customers and geographies gives our business model an attractive combination of growth and stability that performs well in environments like this. Despite big swings in capital markets and the global economy in 2025, we continue to deliver strong and consistent growth, and we expect more of the same in 2026. So to wrap up, we have achieved another year of very strong financial performance, driving continued top line growth through significant investment in our products and a consistent focus on partnership with our customers. LSEG Everywhere and other innovations like Open Directory, Post Trade Solutions and our Digital Settlement House are establishing platforms for future growth. Through the transformation of our systems and the use of AI and other technologies across LSEG, we continue to deliver material operating leverage. And we are allocating capital in a thoughtful way to grow the business, drive innovation and return surplus capital to shareholders. We're very excited about the opportunities ahead of us. With our leading trusted data, ongoing investment in product and the strength of our customer relationships, we are very well positioned for continued growth. And with that, I'll pass to Peregrine for Q&A. Peregrine Riviere: Thank you, David. Before we start the Q&A, can I please ask you to restrict yourself to one question. We plan to wrap up at about 11:30. Hopefully, we'll get through them all. But if we don't, please follow up directly with me or Chris later today. Thanks. Operator: [Operator Instructions] And your first question comes from the line of Tom Mills from Jefferies. Thomas Mills: Thanks for the helpful new disclosures, and that's my question. At a recent conference, the CEO of S&P said of the AI LLM platform, I'd say that our clients are getting additional value by being able to use our data in more ways, more ways they use it, the more value it creates and the better opportunity for value-based conversation at renewal. And we talk to those customers. We've also seen really nice uptick in demand for add-ons and that's something that's helped with net new revenue. I think that ties in well with the content you provided on Slides 31, 32. But I'd be curious to hear, you touched on the point about improving the opportunity for value-based discussions at renewal. And any uptick in demand for add-ons that you're seeing via the partnership so far? David Schwimmer: Sure, Tom. Thanks. So for now, as you would expect, we are focused on adoption and just seeing the customers sign up and get access to this and seeing the usage grow. And that, as we mentioned on that Page 31, is growing very quickly, and we're really seeing a pretty significant and intense engagement there and, frankly, kind of day by day. So I think, over time, the really significant opportunity here is in the context of consumption-based pricing and really charging the customers over time for usage. And for now, we're continuing to focus on our, I'll say, traditional subscription model. But as we move over the course of the next year plus to more of a hybrid model, which is keeping the subscription, we think the subscription model is very attractive and very important, but incorporating into that the consumption-based pricing as well, that will be a very attractive way of capturing that kind of dynamic. And I mentioned this earlier in my prepared remarks, but the fact that you have a combination of humans, models and agents consuming this data, it's, I think, pretty intuitive for you all to recognize that when an agent or a model is consuming the data, they tend to consume a lot more of that data than a human might. And we've said in the past that humans barely scratch the surface of the amount of data that we have. So that's another angle here just in terms of as usage shifts to more AI-driven consumption, as we shift our model to more consumption-based pricing, we see that as a very, very attractive trajectory. Maybe actually just... Peregrine Riviere: Sorry, hold on a second. David Schwimmer: Just one other point I want to add, and I touched on this earlier, but I think it also answers your question, kind of captures this dynamic, which is I've described the AI models combined with the MCP server as a very effective cross-selling machine. And the model is not asking for data from a particular data set. The model is asking for answers to a question. And if that question can be answered by extracting data from multiple different data sets that we are making available through the MCP server, that is a great angle as well just for additional access, additional sales of additional data sets that the customer might not have originally known that we even had. So that's another aspect of this. Now on to the next question. Thank you. Operator: And your next question comes from the line of Hubert Lam of Bank of America. Hubert Lam: I just got one of them. So how should we think about pricing and ability to keep your customers? Will we expect more competition in the future from MCP? I assume MCP makes it easier for users to switch between different data providers. So would it be harder to raise pricing in the future? And would there be more risk on bundling data contracts now that users have more choice, more flexibility as to who they want to consume with? David Schwimmer: Hubert, so we see a very consistent pricing environment this year relative to last year. And I think it's about the quality of the data. If you think about the new AI channels and MCP as just another way of accessing the data, that's great for us. That doesn't mean that it is an environment where we're seeing incremental pressure on the pricing. The quality of the data remains the same. The, in some cases, proprietary nature of the data means that no one else has access to it. And so we see this as a way of accessing more users within existing customers and accessing new customers as well. And as I mentioned, from a pricing perspective, we're seeing a very consistent dynamic this year as we have seen last year and the year before. Operator: And your next question comes from the line of Arnaud Giblat of BNP Paribas. Arnaud Giblat: So my question is on capital returns. So you've announced a GBP 3 billion buyback. That pushes up your leverage ratio perhaps towards the end of the year towards 2.0x, 2.1x net debt to EBITDA. So how should we read into this? Are you still -- I suppose you are leaving yourself the opportunity to step in and do further bolt-on acquisitions. My question is just how are you seeing any potential dislocation in valuations in private markets? We've seen some significant shifts in public markets with data and software companies coming up quite a lot. Are we seeing the same thing in private markets? And perhaps does that create opportunities for you to step in, in the near term and add some more content inorganically to your platform? David Schwimmer: Thanks, Arnaud. Maybe MAP will touch on the first part of your question. I'm happy to take the second part. Michel-Alain Proch: Yes, sure. On the buyback, you're absolutely right. We have coined GBP 3 billion in order to do two things. First, having a true increase into the return to our shareholders on the basis of the inherent value that we see in our share. Remember, 2 years ago, we did GBP 1 billion; 2025, GBP 2.1 billion. And here, we're talking about GBP 3 billion. And by doing this GBP 3 billion, and you've made the calculation right, taking into account the dividend and the second part of the Post Trade Solutions, okay, altogether, this will bring us to 2x net debt-to-EBITDA by the end of 2026, so which will allow us to keep firepower for M&A that fit in terms of strategic alignment, obviously, and value. David Schwimmer: And Arnaud, to your question about sort of the state of the markets. Yes, there's obviously been some dislocation. There's clearly some stress amongst some of the private equity holders out there. And you should expect us to always be evaluating opportunities. And nothing to talk about near term, but as MAP mentioned, we are always evaluating opportunities that could make sense in terms of our both strategic fit and then attractive financial returns. And I think the buyback balances that appropriately in terms of an appropriate return to our shareholders while landing at that 2x net debt to EBITDA and maintaining the right kind of flexibility going forward. Operator: [Operator Instructions] And your next question comes from the line of Enrico Bolzoni of JPMorgan. Enrico Bolzoni: I had one on EBITDA margin, please. So it looks like you're clearly doing more than what you initially thought. I remember from calls 1 year ago or so saying that, at some point, EBITDA margin would reach a ceiling because, clearly, there's a need to reinvest in the business. And here we are with a new set of targets that actually guides us towards further improvement. So I was keen to hear your thoughts on whether you think this is just driven by the operating leverage and revenue accelerating, or you found more ways to cut cost. And perhaps, does this new target include any meaningful benefit from the deployment of AI within the organization? David Schwimmer: Thanks, Enrico. I don't think we've ever said that we were planning to hit a ceiling, but I'll let MAP address that. Michel-Alain Proch: No, no, but I understand what Enrico is saying. So just a reminder for everybody, we committed ourselves in November 2023 of an increase of margin of 250 bps. 2026 is the third year of this plan. We are delivering the 250 bps. And on top of that, we have 130 coming from our Post Trade Solutions. So 380 that we will have delivered for the period '24 to '26. Now what we've said is, going forward, because there was some question about what about after '26, that going forward, due to the operating leverage that the group has, I mean, building once and distributing many, obviously, this operating leverage, we can crystallize it into the margin or having a balance between the margin and reinvesting into future growth. And what you see, Enrico, is 150 bps by 2029 is exactly that. It's the balance between operational efficiencies that we are harvesting, our natural operating leverage, so plus-plus, okay, and the investment we make into talent and technology for future growth. And to answer the second part of your question, the answer is yes, you're right. We will crystallize in this 150 bps, you have indeed the financial consequences of what we do with AI within the company, particularly on our backbone and our -- and the ingestion of data. Operator: Your next question comes from the line of Andrew Lowe of Citi. Andrew Lowe: I have one on Tradeweb, please. Would you be willing to give an indication of how much the Tradeweb-generated data sets account for your Data & Feeds revenues? And then whether any of those data sets are exclusively distributed by LSE? David Schwimmer: Andrew, I don't think we have broken out and I don't think we intend to break out the amount of the Data & Feeds revenue that comes from Tradeweb. I can tell you that some of it is exclusive and some of it is nonexclusive. But I would also mention that, that is one of several different areas across the group, where we have very strong linkages between Tradeweb and the rest of LSEG. We've talked in the past about the benefits both to Tradeweb and to FTSE Russell from the usage in FTSE Russell indices of Tradeweb pricing, and that flows both ways. We've used -- I'm not sure we've talked about this in the past, but Tradeweb has benefited from some of our middle and back office functionality in India and in other places. We, of course, have the straight-through processing, if you will, from the Tradeweb swap execution facility into SwapClear. We've got the FX execution into Tradeweb. So a number of different areas. And then maybe the last thing I should just touch on is that over the course of the next few months, we will be plugging Tradeweb access into Workspace, which is yet another significant opportunity that should be particularly attractive for Tradeweb users. Operator: Your next question comes from the line of Ben Bathurst of RBC Capital Markets. Benjamin Bathurst: My question is on the new medium-term guidance where you're pointing to subscription business acceleration, which I think is like perimeter change versus the D&A revenue growth acceleration you've previously called out and are, in fact, restating again for FY '26. I just wondered, could you elaborate a bit on the decision to make that change and perhaps make a comment on expectations for D&A growth contribution to that total subscription business acceleration you're talking about? Michel-Alain Proch: Sure. So I mean, the reason why we're looking at the subscription business altogether is mainly for 2 main reasons. The first one is it's the same subscription model, okay, which are governing the 3 divisions. And the second, as it was presented in the slide, they are more and more intertwined. And we have true synergies in between the 3. LDA that David was mentioning at the beginning of the call is the obvious example. So now on the medium-term guidance and for the subscription business, I hope you got it from my remarks. What we expect in there is we posted 6% in '25, circa 6.5% in '26, going to 7% in 2027. And on this, obviously, D&A will be accelerating, too. I mean, just to be clear, due to the size of it, it's the main lever for this acceleration, for sure. And if I may just add one more thing, which is you see this slide, I don't remember it was 31 or 32, with this adoption of MCP. So you see that it's extremely strong and we are concentrating of usage. So for sure, AI can be an accelerator of this trajectory that I just mentioned. You see what I mean. But I mean, it is still the early days. We just switched on the MCP just before Christmas. So you see it's not a long time ago. So it's a bit early to size it. But for sure, it's in the plus category, if you want. Operator: Your next question comes from the line of Julian Dobtovolschi of ABN AMRO. Julian Dobrovolschi: You've mentioned that a large portion of your data sets are already available now via the LLMs such as Anthropic, Databricks and OpenAI and a bunch of others. I was just curious to know, what percentage of LSEG's total data universe will ultimately be available through the AI-native channels? And if there is a view to keep some of this fully in-house for various reasons? David Schwimmer: So I would expect that we are going to be making, and we've got a slide in here that touches on this, I would expect that we're going to be making as much of our data as possible available through these distribution channels and through MCP. And just to be really clear, the implication of your question is that we might keep some away to somehow protect it. But again, to be really clear, providing access to a model through MCP does not mean that the model then can get that data and never need it again. And so we can provide access through to MCP to a model and continue to protect and maintain the value and the integrity and the proprietary nature of that data. This seems to be kind of a common misunderstanding that people have. So we view this as a great channel to distribute our data, whether that's proprietary data, whether that's a linkage of multiple different data sets. And the fact that we are making it available through MCP, think of it as a very structured, disciplined gateway, and we can actually put our usage meter on top of that as well. So again, I understand your question, but I just want to make sure that I'm clarifying. There should be no misinterpretation of making data available to a model through MCP as somehow vitiating the value of that data or the proprietary nature of that data. Operator: Your next question comes from the line of Benjamin Goy of Deutsche Bank. Benjamin Goy: One question, please, on your LSEG data access agreements. You mentioned almost GBP 2 billion signed in Q4. But can you give a bit more qualitative color on these agreements, whether it was Q4 or more recently signed? Do you see any change in customer dynamics? Do you see put options or breakup clauses in those contracts now or basically same contracts as you had a year or 2 years ago? David Schwimmer: Yes. No sort of structural changes in these. We've talked in the past about how they can take a couple of years to put in place because of the way that we and our customers set them up. It takes some real top-down focus in organization and coordination and planning. But no, we view this as an increasing recognition by our big important customers of the value of the integrated offering that we are providing. They do have a line of sight not only into what we are providing today, but what we are building for them in the next couple of months and in the next couple of years. They are multiyear in nature. And I believe the ones that we have announced most recently tend to be out to 7 years. They all have extensions built into them as well. So I think it's just what you see is what you're getting here in terms of our customers really understanding the quality of our offerings and wanting to commit to that for many, many years to come. And I think just it's worth reiterating this. I understand some people might have had a little trouble hearing at the very beginning of the call. We have the most sophisticated financial institutions on the planet who have very rigorous risk management processes, very rigorous analysis of what their technology needs are, very clear understanding of their requirements. And they, after extensive work -- and I said, in some cases, these take up to 2 years. After extensive work, they are making decisions to, I used this phrase earlier, they're voting with their wallets to commit to consuming our data through our channels for the next, in many cases, up to 7 years. And so we think that is a pretty clear indication that these highly sophisticated institutions recognize the value of the content, the data, the workflow that we provide and recognize that, that is increasing in an AI world as opposed to decreasing. Operator: Your next question is from the line of Oliver Carruthers of Goldman Sachs. Oliver Carruthers: Oliver Carruthers from Goldman Sachs. Thanks for the very detailed presentation and the incremental disclosure. Very helpful. I think Slide 31 is really interesting around the growth in customers you're highlighting. In terms of those customers connecting to your MCP server, so that 67 number, I appreciate it's moving a lot, but can you give us a flavor of the types of institutions, investment banks, hedge funds, asset managers, who is using this? And any steer on the use cases would be really, really helpful. David Schwimmer: Sure. So it's lots of different kinds of institutions. Typically, we see smaller institutions moving more quickly. But in this case, we're seeing smaller institutions and large institutions. I'll give you one example. There's one very large institution that is using this service to evaluate, I'm not going to go into specific names, but to evaluate one AI functionality against another AI functionality. And the constant they are using is our data because they know the quality of our data and they know what to expect from us. So they are using us as the baseline and they are using that to make a decision as to which of the AI distribution channels they want to actually use. But that's just one example. And Oliver, as you mentioned, this is changing literally day by day. And we're kind of getting a running commentary from the team on how this is growing and how we're seeing increasing and expanding desire to access through this as well as incremental sales leads. Oliver Carruthers: As a very quick follow-up. You still own these customer relationships, even when it's not your own MCP, but even when it's a third party? This is a query tool they come to you, but you still own these customer relationships. Is that the correct way to think about it? David Schwimmer: Yes, it is. Thank you for asking that question. Let me be really, really clear about this. The way this works is that if you have a license with LSEG, you can then turn on access to LSEG via, for example, Claude or via ChatGPT. There's a little connector button when you pull up a certain window in these. And you have to flick that on to get access to LSEG data. You can only do that if you have a license with LSEG directly. And therefore, we maintain the ownership of the customer relationship we're contracting with the customers. Now when we talk on that Page 31 about over 300 prospective users, what we mean by that is that there are a number of prospective users who are using these channels to try to get access to our data. They're effectively knocking on our door through MCP. And they don't have an existing license. But the way this is designed is that we are informed of their interest. And so it's a great origination channel, it's a great sales channel for us. We then take those leads. Our sales team directly receives those leads and we follow up with those customers. Does that help? Oliver Carruthers: Yes. Very helpful. Operator: Your next question is from the line of Marina Massuti of Morgan Stanley. Marina Massuti: I have a question on the AI adoption given some of your peers have given numbers around the efficiency opportunity from internal AI implementation. Can you also provide a bit more color or be a bit more specific on how much of the current and future AI deployments contributes towards the 150 basis points margin expansion targeted in the medium-term guidance? David Schwimmer: Yes. Thanks, Marina. So we haven't put any specific guidance out there in terms of the efficiencies that we're seeing from AI. I did mention in my remarks, and on Page 36 you can see some of the stats, we are seeing meaningful improvement in productivity, in efficiency. We're seeing this in customer service. And then we are also seeing improved efficiency in terms of our engineers and our software development. We've seen up to this point, and this number is going up pretty regularly, but we've seen at this point, I think I can comfortably say, 11% efficiency in our engineers. So I would bake that into the numbers that MAP was referring to earlier in terms of continuing margin improvement in the business. But we haven't given anything specific around that. Operator: Your next question is from the line of Michael Werner of UBS. Michael Werner: Thank you for the long-term targets in particular. A question on LDAs. I was just wondering with regards to, a, the step-ups that you mentioned in terms of pricing, are they contingent upon certain deliverables? And ultimately, are these step-ups typically higher than what you see in kind of the base rate? And then also, how does MCP servers fit into those enterprise agreements? Is that already included? Or is that potential upside from a revenue generation or a client wallet share perspective going forward? David Schwimmer: Thanks, Michael. So every LDA is a little bit different. And some of the step-ups are a little bit higher than what the regular price rises would be. Some of the step-ups might be a little bit lower. They are all typically in the same general range unless there are, for example, commitments that we have made to add a specific new product or new capability. Or sometimes in these LDAs, the customer may be locked into another competitor product for a year or 2, and it takes them a year or 2 to get out of those and migrate on to ours. And there may be a step-up associated with that kind of migration. So everyone is a little bit different, but that gives you a sense of some of the different variables. To your second question, there is a defined perimeter around the LDA agreements in terms of effectively focusing on existing product, and it's well defined perimeter. And in the context of these MCP capabilities and this distribution and AI model consumption, that is, I think I can say with certainly, not included in the data access agreements that we have struck at this point. Michel-Alain Proch: Yes, yes. For none of them. David Schwimmer: Yes. So that is all incremental usage that's coming through these channels, that is upside. Operator: And this concludes questions on the conference line. I will now hand the presentation back to David Schwimmer, Chief Executive Officer, for closing remarks. David Schwimmer: Well, thank you all for your questions. Thanks for spending time with us this morning. I know it's a little bit longer than usual in terms of the presentation. We did feel there was a lot to get through. And to the extent you have any additional questions, please do not hesitate to get in touch with Peregrine or Chris. Thanks again.
Angelo Torres: Good afternoon. Thank you for joining us to review Robinsons Retail's unaudited results for full year 2025. I am Angela Torres, the company's Corporate Planning and Investor Relations Officer. The speakers for this call are Stanley Co, our President and CEO; Ms. Christine Tueres, out managing director of the Big Formats of the Food segment. Ms. Mariel Crisostomo, our Group GM for the drugstore segment; Ms. Carmina Quizon, our Group General Manager for Robinson's Department Store, Toys R Us, Sole Academy, and Spatio. Mr. Ted Sogono our Group General Manager for DIY, and Pats; Ms. Celina Chua, our General Manager for Daiso and Super50 and Ms. Mylene Kasiban, our CFO; our Chairman, Ms. Robina Gokongwei-Pe an adviser for corporate [indiscernible] executives are also in the call today. [indiscernible] is the agenda for this afternoon's call. We will provide an overview of our financial performance and share key updates across the organization. [Operator Instructions]. So with that, I turn over to our CEO, Mr. Stanley to discuss our financial highlights. Stanley Co: Good afternoon, everyone. Here are the highlights of RRHI's fourth quarter results. Net sales increased by 7% to PHP 61.1 billion. Blended same-store sales grew [indiscernible]. Gross profit and EBIT grew double digit [indiscernible] billion and PHP 3.8 billion respectively. Net earnings rose to PHP 2.9 billion up by 9.9%. Net income to parent increased by 5.3% to PHP 2.6 billion. Earnings per share grew 38.4% to PHP 2.39 per share due to the lower number of outstanding shares from the DFI retail buyback last May [indiscernible]. Here are the highlights of RRHI's full year 2025 results. Net sales up by 5.7% to PHP 210.4 billion blended same-store sales growth registered at 3.3%. Gross profit rose to PHP 51.7 billion and PHP 10.5 billion respectively. [indiscernible] earnings grew by 6% to PHP 6.7 billion and net income to parent decreased by 44.3% to PHP 5.7 billion due to the absence of the onetime gain from the BPI-RBank merger in 2025. Now a deeper look at our P&L. Fourth quarter and full year net sales were driven by strong same-store sales growth, new stores and onetime consolidation of Premiumbikes starting December 2025 under the specialty segment. EBIT increased double digits to PHP 3.8 billion fourth quarter and by 7.4% to PHP 10.5 billion for fourth year [indiscernible]. Net income to parent grew 5.3% in the fourth quarter to PHP 2.6 billion by full year decline to PHP 5.7 billion [indiscernible]. And fourth quarter earnings rose to 9.9% to PHP 2.5 billion in fourth quarter and 6% and PHP 6.7 billion [indiscernible] positive net sales growth in the fourth quarter and full year 2025 [indiscernible] large segment accounting for 79% of net sales and 82% of EBITDA in 2025. The discretionary formats, department stores, DIY and specialty stores contributed the remaining 21% of net sales and 18% EBITDA. In 2025, we opened 94 new stores, mostly under the Food and Drugstore banners and added 216 acquired stores from Premiumbikes bringing our total count 2,763. Our store count is comprised of 799 food segment stores, 1,173 Drugstores, 51 Department Stores, 234 DIY stores and 506 Specialty Stores and in addition we have 2,154 franchised stores of TGP. Passing over to Tin for the Food segment. Christine Tueres: Good afternoon. Food segment net sales grew 6.2% to PHP 35.6 billion in fourth quarter, supported by 2.9% same-store sales growth and contribution of [indiscernible]. Full year sales increased to 4.6% to PHP [indiscernible] billion. EBITDA rose 7.6% in fourth quarter to PHP 3.5 billion bringing full year EBITDA to PHP 11.2 billion up 6% outpacing revenue growth. This was driven by stronger vendor support and higher penetration private label and imported products. Now, I will turn over to Mariel for Drug Stores. Unknown Executive: Net sales for Drug stores grew double digits in Q4, reaching PHP 10.7 billion, while full year sales increased by 10.5% to PHP 39.6 billion. Q4 SSSG reached [ 8.9% ] on strong demand for cough and cold remedies bringing full year SSSG to 6.4%. Strong top line growth, higher penetration of house brands and price adjustments help lift EBITDA by 22.3% to PHP 1.1 billion in Q4 and 15% to PHP 3.5 billion for the full year [indiscernible]. Department store SSSG was minus [indiscernible] in the fourth quarter impacted by intense competition [indiscernible] stores affected by [indiscernible] PHP 5.9 billion supported by the opening of the new [indiscernible] store. For the full year SSSG was minus 1.5% while net sales grew by 1.5% to 16.9 billion. Gross profit grew by 1.1% to PHP 1.8 billion in Q4 and 2.4% to PHP 5.3 billion, outpacing top line growth [indiscernible] due to higher vendor support. However, EBITDA declined to PHP 487 million in the fourth quarter and PHP 1 billion for the full year due to negative SSSG. Unknown Executive: DIY recorded 5% sales growth in the fourth quarter, reaching PHP 3.4 billion, driven by the double growth in [indiscernible] strong demand for typhoon [indiscernible] full year, sales grew 1.8% to PHP 12 billion. Gross margin expanded by 19.1% to PHP 1.3 billion in the fourth quarter, supported by the introduction of new higher-margin items and closed the year at PHP 4 billion, up by 4.4%. EBITDA doubled to PHP 534 million in the fourth quarter. Full year EBITDA rose 9.7% to PHP 1.5 billion. Turning over to Mr. [indiscernible] . Unknown Executive: Specialty segment sales grew 20.1% to PHP 5.5 billion in the fourth quarter with the 1 month consolidation of Premiumbikes, bringing full year sales to PHP 16.1 billion, up by 9.9%. Excluding Premiumbikes, sales rose 6.4% with all formats posting growth. EBITDA expanded 13.8% in the fourth quarter, mainly driven by the higher dealer incentives from Premiumbikes. However, full year EBITDA declined to PHP 812 million, primarily due to clearance activities in appliances and mass merchandise. Unknown Executive: Moving on to the working capital, RRHI's cash conversion cycle rose to 18 days, driven by higher inventory days as 80 days and stocks of retail products increased to meet strong demand. On balance sheet, net debt rose to PHP 26.6 billion, largely driven due to the acquisition loan used for the DFI share buyback in May 2025. Despite this, the balance sheet remains sound with net debt to equity at 0.35x. ROA and ROE normalized to 3.3% and 7.1%, respectively, following the absence of a one-off gain from the [indiscernible] merger in 2024. Organic CapEx amounted to PHP 6 billion, up by 17%. Food accounted for 69%, followed by drug stores at 10%. I'll pass you on now to Stanley. Stanley Co: Now allow me to update you on some of our minority investments, namely, O!Save, GoTyme, and GrowSari and BPI. O!Save's net sales jumped 2.2x to PHP 524 million in 2025, supported by its rapid store expansion. O!Save ended 2025 with 797 stores from over 400 in 2024. GoTyme's customer base increased by 3 million to 8.3 million in 2025. The rise in customer count helped fuel the strong growth in the total transaction value. GrowSari's total platform value or the value of all its business lines increased by 13% to PHP 887 million due to the continuous growth in coverage. And meanwhile, BPI's net income improved by 7% to PHP 66.6 billion, supported by sustained loan growth and dividends per share grew by 10% to PHP 4.36 per share. Let me update you on some key corporate developments across the business. Last October 2025, the Institute of Corporate Directors awarded Robinsons Retail 2 Golden Arrow Awards during the ASEAN Corporate Governance Scorecard Golden Arrow Awards 2025, up from 1 Golden Arrow the previous year. This award [indiscernible] the company's ongoing efforts to strengthen its corporate governance practices and ensuring that our directions are guided by fairness, stewardship and long-term value for our stakeholders. Robinsons Retail was named to Time Magazine and Statista Best Companies in Asia Pacific 2026, a ranking of 500 companies based on employee satisfaction sustainability transparency and financial performance. RRHI is [indiscernible] companies included in the list. Effective January 1, 2026, we announced several key management changes in RRHI. Mariel Crisostomo has been appointed as the Group General Manager of the Drugstore business. Mark Tansiongkun has stepped down from his role of VP for Procurement and Administration and will now lead Premiumbikes following the retirement of Mr. Jo Pojol, the previous GM of Premiumbikes. Jo will continue to serve as an adviser until June 2026 [indiscernible] Ms. Angela Endrino, who is now the new VP for Procurement and Administration. Lastly, [indiscernible] has succeeded Mr. [indiscernible], who retired from his post as VP for [indiscernible] Human Resources. Gabby will continue to serve as adviser for HR until June 2026. For our full year 2026 guidance, we are targeting net store addition of 130 to 170, still mostly from our Food and Drugstore segments. Store expansion will be supported by organic CapEx of around PHP 5.7 billion. And we are also looking at a 2% to 4% same-store sales growth for the year and around 15 to 20 [indiscernible] expansion in gross margins. This ends our presentation for the full year 2025 results. We will now open the floor for Q&A. Angelo Torres: Now let me open the floor for Q&A. We have a question on the question-and-answer box. So this is from Karisa Magpayo. She's asking for the supermarket business. What was the food retail sales for fourth quarter and full year 2025, excluding Uncle John's. The food retail SSSG in the fourth quarter and full year of 2025, excluding Uncle John's and how much was it driven by transaction count and basket size? Maybe... Unknown Executive: Thank you for the questions. So Food segment, excluding Uncle John's, I'll start with [indiscernible] sales did about PHP 34 billion, that's up about 6% SSSG 3.2%, [ GP ] margin of about 23.2% and EBITDA margin of 9.7%. So that's full -- sorry, [indiscernible] 2025 is [indiscernible] for full year net sales of about PHP 119 million, up by 4.8%, SSSG of 3.6% [ GP ] margin of 22%, sorry 22.4% and EBITDA margin of 8.9%. Angelo Torres: We also have another question from Bernadine Bautista of JPMorgan. He's asking about Premiumbikes, what is the exact [indiscernible] sales, EBITDA and net [indiscernible] Premiumbikes for full year 2026. Unknown Executive: Sales of about PHP 500 million. We can only provide EBITDA, that's about PHP 60 million, but the company is positive at the net income level. For 2026, we're still expecting the company to provide -- to generate very good growth given the demand for motorcycles... Angelo Torres: Bernadine has a follow-up question. He's asking what is the breakdown of the target [indiscernible] stores opening the addition of... Unknown Executive: Okay. This is the breakdown is about [indiscernible] for the food business and then that would be supermarkets. Drugstores 70 to 80, DIY around 5, Specialty [indiscernible] that includes Premiumbikes of around 10. Angelo Torres: [Operator Instructions] [indiscernible] has a question. He's asking what's the percent contribution of private label to total sales for supermarket and drugstores in terms of full year 2024 and 2025. Unknown Executive: For supermarkets it's about 8% and for drugstores -- blended for drugstores is 10% so that includes TGP -- excluding TGP for about 4%, for Rose Pharmacy and Southstar Drug. Angelo Torres: We also have another question from [ Dale ]. What's the SSSG [indiscernible] fourth quarter? And how did it compare on previous quarters? Are we seeing any recovery in terms of SSSG? And if so, where is the recovery coming from? Unknown Executive: Thanks, [ Dale ]. 4Q SSSG [indiscernible] was actually at 3.1%. Sequentially, this is improving from the third quarter and second quarter with [indiscernible] demand basket size is also improving for the business. Angelo Torres: [ Dale ] has a follow-up question. He's asking what's the target for Uncle John's for 2026? Unknown Executive: We're looking to add maybe on a net basis, maybe 20 to 30... Angelo Torres: We have a question from [ Teresa ]. She's asking on supermarket. For the fourth quarter SSSG, how much was driven by transaction [indiscernible] basket size? Unknown Executive: Transaction by basket size for fourth quarter was about 6% [indiscernible] . Angelo Torres: [ Bernadine ] has a similar question for the food segment and [indiscernible]. So she is also asking how are SSSG [indiscernible] different for the different formats and she is asking about [indiscernible] different SSSG sales for different formats. Unknown Executive: For food basket size is 6% in fourth quarter and 5% for the full year. And then within the food formats, Robinsons Supermarket Marketplace and [indiscernible]. We also have Jonas on the line. Maybe, Jonas, you can comment on basket size and same-store sales for wholesale. Unknown Executive: Thanks for the question [ Bernadine ]. Our SSSG in the fourth quarter was around 16%, 15.9% and our basket size grew at around 11% in the same period. Angelo Torres: Next question is from Denise Joaquin. She was asking what's the interest expense for the borrowings related to the BPI share acquisition and the buyback of DFI shares for the fourth quarter and full year. And she's also asking the balances of the stores. Unknown Executive: For full year, it's around PHP 1.4 billion, which is spreading over [indiscernible] quarters. And the loan balance is around PHP 26 billion. Unknown Executive: Interest expense for BPI for full year is... Unknown Executive: Full year is PHP 1.4 billion both combined for BPI and the share buyback. So then balance around PHP 25.6 billion for... Angelo Torres: The next question we have is from [ John ]. He's asking what's the geographic breakdown for the food segment and store openings this year... Unknown Executive: Yes. In the last few quarters, we've been opening more stores outside Metro Manila. So that's about 75% to 80% or even higher for some partners outside Metro Manila. I think this will also be the [indiscernible]. Angelo Torres: So next question we have is from [indiscernible] asking for 2025 results outperformed expectations despite the narrative of weaker-than-expected demand to GDP figures. So what is the driver [indiscernible] during the quarter? Unknown Executive: It's really increase in basket sizes with inflation steady or stable, job market pretty healthy and remittances continuing to grow. This has been supportive of spending from middle class and [indiscernible] middle income to upper income households. So that's that. And then on the margin side, doing things that we can control, adding private label, adding -- or premiumizing the portfolio. So that's helping the business. But we are cognizant of the external risks... Angelo Torres: We have another question from [ Wasim ], what's the driver for the strong growth in drug stores? And should we expect the momentum to be sustained this year? Unknown Executive: It's price adjustments and higher penetration of [indiscernible]. Operator: We have another question from [indiscernible]. She's asking, we saw higher gross profit margin, but EBITDA was flattish for the Food segment in the fourth quarter. What's the cost items driving this? Unknown Executive: It's because we're adding stores for the food business. So that's putting some pressure on the OpEx side. But nonetheless, we still expect EBITDA margins to continue. So not the entire GPM expansion flows through EBITDA margin expansion, but we're still seeing EBITDA margins high. Angelo Torres: We have a follow-up from [indiscernible], she is asking what's the driving the strong SSSG for Drugstore and should we expect a high single-digit SSSG to be sustained for this? Mylene Kasiban: As mentioned earlier, driven the growth for drugstore is the price adjustment for 2025 and also the higher penetration of [indiscernible] we also anticipate that it will be still good for 2026. Angelo Torres: Thanks, Mylene. [indiscernible] asking is can management comment on the time line of its treasury shares retirement? Unknown Executive: Thank you, [ Ray ]. So just the background, we got shareholder approval to retire a portion of our treasury shares last September. We're still in the process of getting [ SBC ] approval for this one. So it's still ongoing. So the process is for the [ SBC ] to approve the amendment in our [indiscernible] of incorporation because we have to reflect lower authorized capital there. So that's still in the regulators -- still with the regulators up for approval. Angelo Torres: [indiscernible] is double checking what's the basket size growth in the fourth quarter for the Food segment at SSSG? Unknown Executive: It's around 7.5%. Angelo Torres: [indiscernible] have a follow-up on department stores. Gross profit margins appears to be flattish, but EBITDA margins were down in the fourth quarter. What are the drivers -- cost drivers of this? And any indications of how SSSG is faring so far... Mylene Kasiban: [indiscernible]. For SSSG, we're still trading below versus last year. Angelo Torres: [indiscernible] is asking how is SSSG so far this year? So I think this should be a blended basis. And what will drive the expansion in gross profit margin for... Unknown Executive: Yes, we're actually doing pretty good in Jan and Feb. We're within that guidance that we provided. In terms of margin expansion, still the same story for us. We're benefiting from scale. And then of course, we're adding -- we're also premiumizing. Angelo Torres: Has a similar question, but this pertains to the Food segment. How is it performing so far in... Unknown Executive: So just to repeat, Jan and Feb were within the 2% to 4% guidance in terms of SSSG momentum so far is good. Angelo Torres: Gear to DIY. [indiscernible] is asking, should we expect positive SSSG for the segment in full year 2026? And what are the drivers of the improvements in GP and EBITDA margin fourth quarter? Do you see further expansion for 2026? And if so, what will be the key driver? Unknown Executive: For SSSG for DIY segment, we think positive SSSG will be the same for the full year. In terms of drop in GP and EBITDA, it's because we've added a number of higher-margin new items. So we've improved the mix, plus there's less clearances sales across... Angelo Torres: Ther is a question from John on SSSG on the January and February, he is asking if this are similar to the fourth quarter number of 3.1% or even better? Unknown Executive: [indiscernible] Angelo Torres: [indiscernible] is asking any color we can share for our sales plan this year in terms of strategies for store openings? Unknown Executive: Yes, [ Jonas ]. Do you want to take this one. Unknown Executive: Sure, happy to. I mean this year is going to be a continued year of further expansion as well. We are planning to open between 300 and 500 stores across [indiscernible]. So, we continue to roll out at the same time, we also continue to consolidate this year across all aspects... Angelo Torres: Next question we have is from [indiscernible]. The question reads, could you say how much dividends you receive -- BPI for the full year? Unknown Executive: It's about PHP 1.4 billion store positive gain on BPI. Angelo Torres: Is asking what is the reason for the margin contraction in specialty segment for the fourth quarter... Unknown Executive: It's combination of some clearance sales and mass merchandise and appliances plus the 1 month contribution of Premiumbikes, it's actually a bit lower margin compared to the rest. But nonetheless, it's growing very fast in terms of top line. Angelo Torres: We have a question from [ Matthew ]. The question reads, does RRHI have a goal for private label penetration for both the food and drugstore sites. Unknown Executive: For food, we planned to -- intend to continue increasing the mix from private labels. So right now, we're about 8. We intend to bring this further up consistently every year. Same goes for the drugstore business. Angelo Torres: [ John Lam ] has a question is asking for the department store segment's average ticket size for the fourth quarter and how does it compare in the fourth quarter of 2024? Mylene Kasiban: It's about 1,100 and it's about 1.3% higher. Angelo Torres: [ Paolo Garcia's ] question reads what's the asset management's appetite for dividend this year? Are there any plans to increase your payout? Unknown Executive: [ Paolo ], the policy is 40% [indiscernible] for previous year and net income... Angelo Torres: Next question is from [indiscernible], Given the broader portfolio and capital allocation review at the [ JG Summit level ], are there any plans to do the same for RRHI? May we know what is the management view on capital allocation, dividends and improving return on equity? Unknown Executive: We're doing that regardless if the group is doing that or not. We're constantly watching over our portfolio, adding banners or brands that we think that makes sense to us. We're also continuing to grow the existing businesses. In terms of capital allocation, maybe around 30% to 35% of EBITDA -- for CapEx, 10 to 15 each for dividends, tax payments and the balance for principal repayments, working cap and [ M&As ]. Angelo Torres: We have another question from [ Paolo Garcia ]. He's asking what's the private label penetration for the Food segment in 2024? Unknown Executive: It's about 7.2%, [ Paolo ]. Angelo Torres: Has a question for the DIY segment. He's asking how we see the bottom for this segment. Unknown Executive: Yes, the view is we've seen the bottom for DIY and I think that it's going to be more positive from here on. Angelo Torres: Also has a question for the specialty segment. He's asking if the company is looking to add more brands in the portfolio? And any guidance that we could share in terms of gross profit margin with Premiumbikes embedded in specialty segment? Unknown Executive: For now, we're -- of course, we -- there's an opportunity we look at it. But for now, there's none. We're working on continuing to grow the business for Premiumbikes. In terms of GPM, as you know, the 2-wheelers gross margin would be lower than the rest of specialty. But what we're happy with this one is underlying demand is pretty good and should be able to continue to post good growth for our group. Angelo Torres: Next question is from [ Paolo Garcia ]. How many stores that will save [indiscernible] have in Visayas? And are there new store openings for both O!Save and UJ going to be focused [indiscernible]. Unknown Executive: For UJ, [indiscernible] is going to be a big focus for 2026 expansion. The target is about 10 stores. Unknown Executive: 10 stores UJ, Visayas. [indiscernible]. Unknown Executive: We have around 30 stores there at this stage. And while we will grow there this year as well, just given the number of stores that we opened in the year, still the vast majority of it will be open... Angelo Torres: At this point, there are no more questions coming in, and we can now close this earnings call. Unknown Executive: If there are no further questions, we will end the call. Thank you, everyone, for your time. We look forward to seeing you in the next earnings call. Thank you. Unknown Executive: Thanks.
Operator: Good day, and thank you for standing by. Welcome to IMAX's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Horsley. Please go ahead. Jennifer Horsley: Good afternoon, and thank you for joining us for IMAX's Fourth Quarter 2025 Earnings Conference Call. On the call today to review the financial results are Rich Gelfond, Chief Executive Officer; and Natasha Fernandes, our Chief Financial Officer. Rob Lister, Chief Legal Officer, is also joining us today. Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our earnings press release and the slide presentation have been posted on the Investor Relations section of our site. Our historical Excel model is posted to the website as well. I would like to remind you of the following information regarding forward-looking statements. Today's call as well as the accompanying slide deck may include statements that are forward-looking and that pertain to future results or outcomes. These forward-looking statements are subject to risks and uncertainties that could cause our actual future results to not occur or occurrences to differ. Please refer to our SEC filings for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information, future events or otherwise. During today's call, references may be made to certain non-GAAP financial measures. Discussion of management's use of these measures and the definition of these measures as well as a reconciliation to non-GAAP financial measures are contained in this afternoon's press release and our earnings materials, which are available on the Investor Relations page of our website at imax.com. With that, let me now turn the call over to Mr. Richard Gelfond. Rich? Richard L. Gelfond: Thanks, Jennifer, and thanks, everyone, for joining us today as we review our results for a record-breaking year and look ahead to a very promising 2026. 2025 was a truly transformational year for the company in which we firmly established IMAX as a premier global platform for entertainment and events with a powerful position among out-of-home experiences and a content pipeline that continues to grow richer and more diverse. We finished with a record $1.28 billion in global box office, up 40% year-over-year. We captured our biggest share of the global box office ever, up 700 basis points year-over-year. We achieved our highest grossing year ever for local language films with $405 million worldwide with 67 international releases from 14 countries, including 2 of our top 5 in Ne Zha 2 and Demon Slayer: Infinity Castle. And we drove significant network growth with agreements for 166 new and upgraded IMAX systems and 160 systems installed worldwide, including 8% network growth in the rest of the world. We are an unqualified winner in a complex entertainment landscape. Signs of our impact are everywhere. Studios put IMAX front and center in their marketing campaigns, driving record indexing and enormous media value for our brand. The New York Times, Wall Street Journal and Los Angeles Times have all published features highlighting our unique success. Our stock is among the best performers in global media and entertainment, up over 44% in 2025. And IMAX releases earned 58 Academy Award nominations, including 5 of the 10 best picture nominees. Every one of Warner Bros.' 30 nominations was for a film that played in IMAX, including Sinners, which was shot with IMAX film cameras and One Battle After Another, which received an IMAX 70-millimeter film run. We delivered at least 20% of the domestic opening for Sinners, One Battle After Another and F1. Our financial results reflect our progress and the strength and incrementality in our model. We beat projections across almost every key financial metrics, setting several company records. We delivered a record $410 million in total revenue in 2025. We achieved double-digit percentage beats on original consensus estimates for adjusted EBITDA and EPS with $185 million and $1.45, respectively, for the full year. We delivered a 45% EBITDA margin, a record and our first time breaking 40% since 2019, record operating cash flow of $127 million for the full year. And in the fourth quarter, we delivered record box office and over 50% growth in adjusted EBITDA and adjusted EPS. We expect another outstanding year in 2026 with a projected $1.4 billion in global box office, 160 to 175 system installations worldwide and total adjusted EBITDA margin in the mid-40s range with a floor of 45%. And through 2028, we aim to drive revenue growth at high single to low double-digit compound annual growth rate, adjusted EBITDA margin of over 50% by 2028, adjusted EPS growth at twice the rate of revenue and free cash flow conversion of approximately 50% in 2026 and growing. We believe we are far from our peak, but rather in a period of evolution and growth. With superior immersive technology and unmatched scale, IMAX is the premier global platform for blockbuster content and blockbuster content continues to grow in importance across the global ecosystem. The world's greatest filmmakers, studios and even streamers are leaning into blockbuster theatrical releases as drivers of IP and value throughout the chain. As this trend accelerates, IMAX becomes an increasingly valuable player. We're the only game in town with a global platform, content portfolio and well-recognized brand. We're able to leverage the shift to premium and consumer demand for great out-of-home experiences. And with a very strong slate booking all the way into 2029 and an expanding total addressable market for IMAX systems, we are capitalizing on our strong position and delivering for our shareholders. The slate for '26 is arguably the strongest we've ever seen, highlighted by massive films for IMAX tentpoles, headlining a record of at least 12 films for IMAX releases worldwide, including Christopher Nolan's The Odyssey, the first theatrical feature shot entirely with IMAX film cameras. Tickets for select IMAX 70-millimeter showings sold out a full year in advance, and we will have 40 film locations for Odyssey's debut in July. The Mandalorian and Grogu, the big screen debut of the massively popular Disney+ former TV series from Director John Favreau, who crafted the film with cutting-edge technology specifically for IMAX screens. Dune Part Three, the next installment in Denis Villeneuve's franchise and the first of the series shot with IMAX film cameras. And next month's Project Hail Mary, a film for IMAX space adventure that is earning excellent buzz and will screen in IMAX 70-millimeter across 16 locations, an indicator of strong indexing for recent releases. Highly anticipated family releases in a time when family films are leading the box office and IMAX is capturing a greater box office share of family films than ever before, including Super Mario Galaxy Movie, which we're hearing is testing extremely well, Minions 3 and Toy Story 5. The previous installments of these films all gross near or above $1 billion, a diverse collection of distinctive and filmmaker-driven releases that we believe hold real upside from Michael to Zach Cregger's Resident Evil, another strong offering of local language films from around the world, including the eagerly awaited sequel Godzilla Minus Zero from Japan and the Indian epic, Ramayana. And finally, Barbie Director Greta Gerwig's Narnia, a pioneering partnership with Netflix that we believe will deliver greater value to our exhibition partners. Furthermore, we are already 60% booked for 2027 with blockbusters, including Top Gun: Maverick and F1 Director Joe Kosinski's Miami Vice, which will be filmed for IMAX; Star Wars: Starfighter from Deadpool and Wolverine Director Shawn Levy. The film looks to be a throwback to the galaxy-spanning adventure of the original trilogy; the Thomas Crown Affair from Academy Award nominee, Michael B. Jordan; Avengers Secret Wars and the Batman 2. And for '28, we look forward to being involved in Sam Mendes' groundbreaking Beatles, a 4-film event. With 2 months down in '26, we feel good about our projected box office for the year as we enter one of the most promising periods. Our global box office in January was up 16% year-over-year. Avatar: Fire and Ash extended our success with that franchise, earning more than $188 million in IMAX, our sixth highest grossing release of all time and our highest indexing of the series with 13% worldwide. The Chinese New Year holiday delivered $28 million on the strength of Pegasus 3, our biggest Chinese title since Ne Zha 2 and we continue to diversify our content slate, securing an agreement with Apple to stream live broadcast of Formula 1 World Championship races to IMAX locations this season and delivering a very successful exclusive opening of Baz Luhrmann's Elvis Doc EPiC. We also continue to drive strong system sales and network growth worldwide, particularly in underpenetrated high-value rest of the world markets, where we installed a record 118 systems in 2025. We now work with more exhibition partners globally than ever before, 257 in total last year, up 28% over 2019. Surging demand for IMAX supported an expansion of our total addressable market to nearly 4,500 total zones worldwide, double our current systems in operation and backlog. To capture that opportunity, we're executing against a 4-pronged strategy: One, focusing on high-growth underserved markets. We've had tremendous success here, driving our biggest year ever for sales and installations in Japan in 2025, tripling our network in Australia since 2023 and making strong progress in France and Germany. Second, continuing to unlock new opportunities in North America. Domestic is an engine of growth for us with new and existing partners alike, dispelling the notion that this is a fully mature market. In 2025 alone, we struck agreements with each of the biggest exhibitors in the U.S., AMC, Cinemark and Regal, that advance key strategic priorities, including new locations in Los Angeles and New York with Regal and 3 new IMAX 70-millimeter film locations with Cinemark. Third, identifying opportunities to add a second IMAX location in high-performing zones. For all our success with marquee locations in major metropolitan areas, we are still deeply underpenetrated in many, presenting an opportunity to grow within our best market centers. For instance, we have only 5 IMAX locations serving a population of 1.6 million people in Manhattan, including our first new location in 15 years set to open in Battery Park. And we see a lot of opportunities in metropolitan areas, including Chicago, Boston, San Antonio and San Jose, among others. And lastly, finally, we continue to explore innovative deal structures that leverage our liquidity. Given our strong balance sheet and momentum, we can help our partners get more IMAX into their circuits quickly through upfront capital expenditures that pay for themselves given our strong market share gains and the impressive film slate lying ahead. In sum, 2025 was a transformational record-breaking year for IMAX. We exceeded our targets for financial performance and finished with a strong fourth quarter. We drove great results for our exhibition partners, breaking box office records as fans, filmmakers and studios clamor for more of the IMAX experience. We continued network expansion with significant runway to grow further even as we capture a record share of the global box office. In every way, we've leveled up our performance. With an incredibly promising slate locked in for the next several years, we continue to believe the best is yet to come. We're focused on strengthening our position, executing with financial discipline, providing the most immersive entertainment experience on the planet and delivering for our shareholders. Thank you all. And now I'll turn it over to Natasha. Natasha Fernandes: Thanks, Rich, and good afternoon, everyone. In a time of limitless entertainment options and more discerning global audiences, IMAX delivered record fourth quarter and full year results, exceeding our guidance and Street expectations across key measures. Fourth quarter box office was $336 million, up 16% versus the prior Q4 record, driving full year box office to $1.28 billion. We captured a record 3.8% of global box office, up 700 basis points year-over-year, underscoring the increasing value the IMAX platform delivers to exhibitors and to the broader industry. Strong demand for the IMAX experience also drove us to the high end of our installation guidance with 160 systems installed in 2025, up 10% year-over-year. As we keep our focus on delivering value for shareholders from a profitability perspective, our operating leverage resulted in an adjusted EBITDA margin of 45% for full year 2025, above our guidance of low 40s percent. And adjusted EPS reached a new full year record of $1.45, an increase of $0.50 year-over-year. Importantly, these results translated into our highest ever cash from operations of $127 million with cash conversion directly benefiting from the margin expansion. Our standout 2025 financial results once again illustrate the uniqueness of IMAX's operating model and position as a leading entertainment platform. And we believe the momentum is carrying into 2026 as we look toward the exceptional slate. With all the major tentpole Hollywood releases still in front of us, many with breakout potential, we believe we are well positioned to achieve another year of strong performance. We expect IMAX box office will build through the year with Q1 representing the lowest box office quarter. Specifically in China, we expect a more balanced year as opposed to 2025, where 46% of China's box office was in Q1 as 2 of the largest local language titles Once Upon a Time in the Middle East and Penghu did not make it into Chinese New Year and will likely release mid- to late this year, along with there being a more balanced and compelling Hollywood release setup for Greater China. Taking a closer look at our Q4 and full year 2025 results. We had a strong close to 2025 with fourth quarter revenues up 35% year-over-year, which drove us to a full year revenue record of $410 million, an increase of 16% over 2024's full year revenue of $352 million. Gross margin continues to grow faster than revenues, clearly demonstrating the value proposition of our business model, which enables a high level of incremental profit flow-through as we scale our platform and box office growth. Q4 gross margin was at a 58% margin, a 540 basis point improvement over the prior year period, while full year gross margin was $246 million at a 60% margin, up 600 basis points year-over-year. Looking at our results at the segment level, Content Solutions revenues grew significantly, driven by higher box office with fourth quarter revenues of $38 million or 50% growth over the prior year comparative period and full year content revenue growth of 21%. We have continuously focused on diversifying our content offerings and sought to outperform expectations and 2025 displayed the success of our strategies. Every quarter of 2025 had a different content storyline enabled by our diverse programming strategy. Q1 box office was local language driven. Q2 into Q3, our Filmed for IMAX program delivered some of our highest indexing levels in our history. Q3 benefited from a diverse mix of local language, horror titles and alternative content, and Q4 anchored the year with large Hollywood tentpoles. Fourth quarter Content Solutions gross profit was $22 million, while full year Content Solutions gross profit of $100 million grew 50% year-over-year, more than twice the rate of revenue, actualizing a proof point of the significant operating leverage in our model. As a result, we delivered a 66% gross margin for 2025, a substantial increase of 1,260 basis points from the 53% in 2024. Turning to our Technology Products and Services segment. Fourth quarter revenues were up 32% year-over-year with a gross profit margin of 58%, up approximately 500 basis points year-over-year, while full year revenues for this segment grew 16% with a gross profit margin of 57% up approximately 400 basis points year-over-year, driven by higher systems installed under sales arrangements, growth in box office driving a higher level of rental revenues and increasing maintenance revenue associated with the growing network. In the fourth quarter, we installed 65 systems, up from 58 last year. For the full year, installations reached 160 systems at the high end of our guidance, driving 3.5% growth in our commercial footprint, led by 4% growth in our domestic network and just over 8% in the rest of world, a very strong result, reflecting our growth prioritization. We're expanding in the strongest box office markets, including in the U.S., Japan, France and Australia. Japan grew almost 20%, while Australia more than doubled its footprint. We believe growing in our strongest markets will both scale our platform and meaningfully increase our network productivity. And the engine for future growth remains strong as we completed 166 system signings in 2025, an increase of 28% year-over-year. More than 25% of the signings were signed and installed in the same year, reflecting the demand by our exhibitor partners to get IMAX locations quickly up and running to capitalize on the strengthening IMAX slate. We expect the same dynamic in 2026, given the outstanding film slate in front of us. Turning to operating expenditures, defined as research and development and selling, general and administrative expenses, excluding stock-based compensation, was $29 million in the fourth quarter and $118 million for full year 2025. Full year operating expenses increased only 1% year-over-year, a much lower rate than the 16% growth rate in revenues, reflecting continued expense and cost discipline that helped to offset the impact of inflation and continued investment in the business. We will continue in 2026 to focus on optimizing our uses of technology and evaluating work processes to enhance productivity across our business as we aim to crystallize a high level of flow-through to gross profit and to the bottom line. Included in Q4 results is $22 million of onetime charges, $15 million for the strategic repurchase of over 99% of the convertible notes due 2026 and $7 million resulting from a noncash goodwill impairment of the legacy SSIMWAVE business associated with the monitoring of content quality. We continue to lean in on our core business where we see tremendous opportunity to gain share and expand the network. We have been repositioning our streaming and consumer technology business to enhance our differentiation, particularly in support of live streaming content across the IMAX platform as well as the evolution of our core DMR and system technologies. With this shift in strategy, we have also been reviewing and optimizing the cost structure of the SSIMWAVE business. Overall, our strong operational performance led to record full year total consolidated adjusted EBITDA of $185 million. Adjusted EBITDA grew 33% for the full year, more than twice the rate of revenue growth, reflecting the operating leverage stemming from higher revenues coming from both box office and system sales. This resulted in an above-expectation full year adjusted EBITDA margin of 45%, up approximately 570 basis points year-over-year and placing us above our full year guidance of low 40s percent. Full year adjusted EPS was $1.45, up $0.50, driven by the strong profit growth. 2025's results reflect a 28% tax rate compared to 13% in 2024 or a year-over-year headwind of $0.16 per share. No tax benefits were recognized for the onetime charges in 2025, while 2024's tax rate was unusually low, having benefited from an internal asset sale to more closely align intellectual property rights with its global operations. Turning to cash flow and the balance sheet. Cash flow from operations of $127 million set a new full year record, exceeding the previous high of $110 million in 2018. And full year free cash flow, which includes $28 million of investment in the IMAX network through joint revenue sharing systems, was $85 million, which equates to a record adjusted EBITDA conversion of 46% or a conversion of 61%, excluding this investment in network growth CapEx. We believe these results reflect the positive incrementality in our model as well as improvements in working capital, which we expect to continue as box office and our network expands. Turning to investing cash flows. We continue to prioritize use of our available capital to invest in the business, including partnering with exhibitor customers to grow and upgrade the IMAX network through joint revenue sharing arrangements, allowing us to benefit from the rising demand for IMAX and the stellar IMAX slate in 2026, '27, '28 and beyond. Our capital-light model and execution have resulted in a strong capital structure. As of year-end 2025, we held $151 million in cash, an increase of 50% from year-end 2024 and $289 million in debt with a net leverage of 0.7x. During 2025, we strengthened our liquidity and reduced dilution risk through strategic transactions. We renewed and expanded our 5-year revolving credit facility to $375 million, adding $75 million of liquidity. And in November, we refinanced our 2021 convertible notes with $250 million of new convertible notes at a very attractive 0.75% interest rate. And through this transaction, we simultaneously retired the vast majority of the 2021 notes with cash of $46 million to minimize dilution. Importantly, we also entered into a capped call on the new notes, raising the effective conversion price from a company dilution standpoint to $57 per share. Together, the cash payment for the outperformance in the 2021 notes and the new capped call equates to approximately $70 million, strategically spent to maximize the opportunity for shareholders to benefit from the growth we expect in the coming years and in our view, is akin in some respects to that of a share repurchase. To sum up, we aim to build on the momentum in 2025. And as Rich shared, the table is set for '26 and '27 with mega titles like Odyssey, 2 Star Wars movies, Narnia, Dune and Avengers; beloved proven family content, including Toy Story, Moana, Minions, Shrek and Frozen; large fan-based video game IP such as Super Mario, Mortal Kombat, Zelda and Minecraft; Tier 1 Superhero franchise films around Spider-Man, Batman and Superman as well as potential for new breakout IP like the upcoming Project Hail Mary film, music-centered content like the Twenty One Pilots concert and Michael and new sports ventures such as recently announced with Apple TV for live F1 races. As we highlighted at our recent Investor Day, we believe we have a clear strategy to continue to expand our entertainment platform in 2026 and beyond to bring the IMAX experience to more audiences. We are focused on deepening our relationships with leading filmmakers and building new connections with a diverse array of content creators and studios. At the same time, we are aiming to grow our footprint, box office and productivity of our network along with the value we can bring to our exhibitor partners. As we have shown, the growth in box office and our increasing network scale will positively impact our bottom line and cash flows given the incrementality in our financial model and our laser focus on keeping operating expenses as flat as possible. Given these dynamics, we expect to drive total adjusted EBITDA margin to over 50% in the coming years. That's why we believe IMAX's position has never been as strong. We are focused on executing on the significant opportunity in front of us to deliver on our guidance and expectations for 2026 and beyond and to drive ever-increasing shareholder returns. With that, I will turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Omar Mejias with Wells Fargo. Omar Mejias Santiago: Rich or Natasha, can you give us an update on the state of the Chinese box office and the early start to the Chinese New Year? We saw Pegasus 3 start very strong and outperform initial expectations. But just curious on how is the overall health of the market and the slate ahead. Richard L. Gelfond: So Omar, I don't think you could take 10 days and talk about the state of the Chinese box office. I think when you look at China, Chinese New Year was kind of, I'd call it a B slate this year and very similar to the slate in '24. And what happened was there were a number of titles that were supposed to open for Chinese New Year, and they slipped and they weren't done in production, and they moved them to this summer. So I think that's what accounted for kind of modest results during that period of time. But I think in -- the summer will be better than we thought it would be because we thought those movies will have played earlier. So I think the result is more a matter of timing than it's the result of any trends in the Chinese box office. Omar Mejias Santiago: That's very helpful. And maybe my second question on local language and alternative content. You guys had a record year in 2025 with over $400 million in box office, recently announced a new deal with Apple to air F1 races. And based on your investor presentation, it looks like you have a big slate ahead. So how much runway does IMAX has to drive local language and alternative content box office alongside Hollywood content? Is there a certain limit to the growth of non-Hollywood content box office? Richard L. Gelfond: Well, I don't think we think about it in that way, Omar. I think we try and program the best content for a particular market throughout the year. So I think one thing you're asking is, are you too stocked with Hollywood films where you can't do a lot of foreign language films. But again, it depends when things are scheduled, how they're performing. We might slide something in if something is underperforming or move something if it's overperforming. But there are a couple of very big international films this year. One is called Ramayana, which is an Indian film that the director and producer are preparing for global release later this year. And again, I don't think anybody said, well, we have Ne Zha this year last year. So you just don't know how they're going to break out. But I believe there's enough runway and enough space to accommodate more in number of international films -- local language films than we had last year. And we're pretty comfortable with how they look at the moment going out. I think that's going to continue to be an important part of our business. Operator: Our next question comes from Eric Wold with Texas Capital Securities. Eric Wold: A couple of questions on kind of just pricing. I know it's kind of come up in the past, Rich or Natasha. I know you can't directly control ticket pricing with your exhibitor partners. But can you talk about what you've seen maybe over the past year, kind of maybe an average ticket price increase for IMAX showings as exhibitors look to take advantage of kind of this shift in moviegoer demand? And does any expectation for additional increases play into your box office outlook for '26? Or could that be an incremental upside driver if they do kind of play into that demand with additional price hikes? Richard L. Gelfond: So I'm not sure what the numbers were for '25, Eric. But I do know that for '26, we've been -- again, we can't tell the exhibitors what price to charge. That's their decision. But I think given the strength of the slate and especially the number of event films coming out this year, like Mandalorian, like Dune 3, like Odyssey, that there is potential to -- for price increases in there. And I think, especially if you also look at the film releases coming out, I mean, historically, the exhibitors charge the same for film as they charge for digital and even coming out soon is Hail Mary in about 16 film locations. So I think there are definitely instances where I think you could push the price higher. And if we ran theaters, we would certainly do that. And I'm hoping that at least where there are films in great demand, of which there are a lot this year, that the exhibitors would choose to test that. Eric Wold: And then just a follow-up on that. As you build out some of these emerging markets that are maybe a little bit newer to IMAX screens and build them out, can you talk about what you typically see with the exhibitor partners there on their pricing? Do they tend to be a little more conservative given the consumer may not be fully aware of the IMAX product as much as more developed markets and then kind of ramp pricing from there? Or do they tend to be, I don't want to say aggressive, but maybe as aggressive as other developed markets at the get-go? Richard L. Gelfond: Well, we provide them as part of the sales process with what the IMAX premium is in different countries around the world. So I mean, they're aware, and that's one reason they buy in because they understand the price premium. And they understand it more as a percentage than an absolute number because obviously, in India, the premium -- the ticket price could be different than it's going to be in Japan. So they have the tools to do that. And I think the trend we've noticed is depending on the country, they charge a similar premium than they would somewhere else. So that's not really an issue. I think they understand how to maximize their profit. Operator: Our next question comes from Michael Hickey with StoneX. Michael Hickey: Rich, Natasha, Jennifer, congrats, guys, on amazing development. First question, Rich, just on your film cameras, really remarkable run here you've had with centers in '25 and getting 16 Oscar nominations is really remarkable and one battle for another as well, which I think was on your digital cameras... Richard L. Gelfond: Sorry, Mike. We got like over 50 Oscar nominations overall. Michael Hickey: Totally. I just focused on centers, but you're right. I mean it's truly incredible. And '23 was Oppenheimer. This year, you've got Odyssey, you got your next-gen cameras with Odyssey, which are quieter and lighter. One, I guess, how do you know -- I'm curious how you're going to answer this, Rich. How do you know the right films to pick? Because some are obvious, but when you look at something like centers, I mean, that was not obvious. And obviously, that's been an incredible success. How are you -- and I'm sure it's an ecosystem thing, but how are you approaching and finding the right films to pick? When you have this consistent level of success, obviously durable, what opportunities? Obviously, we see a lot of them, but I imagine your phone is ringing more than ever, there's installations, maybe a better opportunity to scale more of the 70-millimeter film opportunities or just relationships with filmmakers, talent and your competitive moat overall? Just sort of curious how this builds your overall opportunity over time. Richard L. Gelfond: So Mike, it's a perfect time to ask you that question because I've been out in L.A. for over a month right now. And I've been meeting with filmmakers, I've been meeting with studios. I've been meeting with producers, and you're quite right, the demand is very elevated from over it was before. So I'll give you a couple of categories of answer, like something that never would have happened years ago. But like well-known filmmakers who you know will approach us and will say, I want to do an IMAX film and they'll actually do like a pitch and they'll come in and they'll tell us why -- what it's about and why they want to do it in IMAX and why it's important to them. And that's a category -- obviously, I can't say who. But last week, we got pitched by some very well-known filmmakers, and it's a little bit off the beaten track. So if someone had sent in a script, we might not have been interested, but we are interested because it was very unusual. It doesn't fit in a box. Another way, which I think is really important is the relationships we have with existing filmmakers. So one example would be we've done a lot of films with Joe Kosinski over the years. And then he did Top Gun: Maverick and obviously, it was a huge success and a huge success in IMAX. And then we did F1 with him, which is not as well-known IP, obviously, and it became one of our top films of the year. So Joe is working on his next project, which is Miami Vice. And he came to us and then we started talking to him about the different opportunities to shoot in IMAX and different tools, and we're still working our way through that. And then it will be studios who will say, by way of example, Warner knows they've got 30 Oscar nominations. So they're looking at their slate, the people who run the studio, and they're going a filmmaker and they're saying, hey, have you thought of shooting this with either IMAX film or IMAX digital cameras? So there's a lot of opportunities that come in. And I think maybe the most promising one is the filmmakers who worked with us before and film for IMAX and their desire to use IMAX technology. So there are a lot of ways, but having spent the last month with a level of meetings that I've never seen before and the types of talent coming in and executives, there's lots of projects coming in. And without spending much more time on this, if you don't know the filmmaker that well, you look at their reputation, you look at other things that they've shot and what it looks like. A big thing for us is -- the filmmakers is also leaning into the IMAX of it all. And a great recent example of that was Ryan Coogler and Sinners, as you probably remember, he made a pamphlet about aspect ratios. He talked a lot about IMAX everywhere he went, and that really helped a lot. So it's all of the above. Michael Hickey: The second question, big film for you, Narnia, very important film, very important partner. And I think if anyone you sort of crack here, it seems like [indiscernible]. Just curious, as you continue to [indiscernible] or whoever on the team you're talking with, do you get the sense that they're more motivated, Rich, to make this movie. Do you also feel like that there's a bigger opportunity maybe in the future with this model that you've created here, which obviously was smart or maybe your normal model, you use your cameras. I think just to I guess, sort of your excitement for Narnia, the input from Netflix and the future opportunity you would see with that really for yourself and the broader. Richard L. Gelfond: So the first point, Mike, is that we make movies with filmmakers and studios or streamers are part of the system. So Greta, as you know, came to us because she was excited about releasing it in IMAX. And together, we planned to talk this through with Netflix and brought Netflix into the fold. So the most important thing is that Greta is incredibly excited. And when she thinks about how to make the movie and she thinks about the sets and she thinks about the magnitude and scale, she really leans in. And it's too early to see a rough cut. But from conversations with her, I believe she's making a movie that's going to look fantastic in IMAX. And that's the thing that probably makes me the most confident. In terms of the business model, I mean, Netflix has approached us about a number of projects since we did that deal with Greta. And some of them we did under different sorts of models like Frankenstein with Guillermo del Toro and a number of other things over time. And we're always talking to them about different ideas. My hope when I did this deal was this model is going to work so well, and I'm not talking about only the box office. But remember, the point of it is to create a buzz and a cultural event. And I think when Greta releases this in IMAX, it will be a cultural event. And I think they're going to get the benefit from that of increased streaming hits after that. Remember, it's a series of books. It's not a one-off, and it's going to help build an event. And I think that's what we really do. So I'm very optimistic that when the IMAX audience sees that movie, there's going to be the kind of reaction, which is going to lead to a number of good things. Operator: [Operator Instructions] Our next question comes from Chad Beynon wit Macquarie Capital. Chad Beynon: You guys at the Investor Day and reiterated today, talked about the high single-digit, low double-digit growth through '28 and hopefully beyond. I think a big component of that is that underpenetrated rest of world opportunity that you've spoken about. So Rich, what do you think the main catalyst is at this point? The business model makes more sense every year for these exhibitors. You're clearly putting up the results, local language is working. So what's the next inflection point to grow the pipeline for that rest of world? Richard L. Gelfond: So when you look at the slate going ahead this year, and I believe the financial returns that follow for the exhibitors. For us, we've talked a lot about that. But for the exhibitors, I think it just makes so much sense. And obviously, exhibition has had its challenge in its traditional industry. And I think it's certainly looking for growth opportunities for its network and its strategy. And I think they look at their box or someone else's box next door that's selling out and is getting very attractive paybacks. I think that's going to have a big influence. And using some examples for markets in Japan in 2025, the per screen average was up an enormous amount from 2024. So the returns to the exhibitors are much more attractive. So it probably doesn't surprise you that there's a lot of activity coming out of Japan in '26, and our team was over there and there's a fairly large number of deals under discussion. Also, Avatar really did extremely well in certain areas like France and Germany, where it was among the leading markets in the world and numbers that were a step change over the previous year. So there's a lot of activity this year, inquiries coming out of France and Germany. So I think in general, it's looking at performance and trying to replicate it and bring it forward. But then you add some kind of obvious things like the slate this year, and there's lots of movies, as I said in my prepared remarks, whether it's Mandalorian or whether it's Odyssey or whether it's Dune: Part Two. And I think people want to get open in advance of that. The people who opened before Avatar, we looked at the number, I don't recall, but I think we opened like 27 theaters right before Avatar opened. And you look at the performance of those theaters by being open for Avatar, their ROI and their payback period were far superior to what would have been if they waited. And our team around the world is using that data and sharing it. And I think that's what's helping create a catalyst. We're also being a little bit more flexible, as we talked about in our prepared remarks, in using some of our capital in different places in the world where we know the results are really terrific. So I'll use Japan again as an example. But the numbers were so strong and compelling. The payback periods are fairly short and the economics is very good. So we're seeding some of those markets by using a small amount of our capital to help jump start them. So I'd say all of that. Operator: Our next question comes from Steve Frankel with Rosenblatt Securities. Steven Frankel: Rich, you had a big install quarter in Q4. Given the demand situation, how much more can you ramp your team and to take that to another level? Richard L. Gelfond: Yes. It's just a question of timing, Steve. So if you ask me how many we could install in the fourth quarter? The answer is an awful lot because it's like -- analyze it like a supply chain. So can you order the parts in advance? Can you do the designs? Can you deploy the teams? So sort of in any given year, it's a much larger number than we're doing now. If you said to me, people want to open for Hail Mary in 3 weeks, it's more difficult to do that. But over the longer term, I never used the word infinite, but you certainly could open a lot more if you wanted to. There's not much constraint on that. Operator: Our next question comes from David Joyce with Seaport Research Partners. David Joyce: Given that you've got a lot of cash on your balance sheet now, how are you seeing your mix of sales versus JRSAs this year? Given that you've got more of that cash and it's a strong box office here, how are you thinking of the relative ROI between those approaches? Natasha Fernandes: David, we see it as a lots of opportunity for us to use our balance sheet, and we talked about it at Investor Day as well, but the opportunity to look at those top-performing zones and could we help the installation go faster by essentially seeding the money, as Rich was just talking about and in return, getting some sort of change in our deal type as well or change in our economic -- our standard economics so that we could get that return as well, but have the theaters open earlier. And I think that, that's the opportunity that we have with a strong balance sheet with our liquidity position sitting at $550 million. It is a significant opportunity in front of us to roll out our backlog at a faster pace and also look at more opportunities. And we talked about it at Investor Day of second screens or top-performing locations, flagships. And so we think that while we look at not only investing in our business with respect to our own technology and the way that we operate in the Filmed for IMAX program, and we invested in cameras. There's also the opportunity to look at expanding the network. And I think what's been great is this past year, we expanded our domestic network by 4%, and we expanded our rest of world by over 8%. And so we are using our capital in the right way right now, and we see the ability to ramp that up. Operator: Our next question comes from David Karnovsky with JPMorgan. Kiscada Hastings: This is Kiscada Hastings on for David Karnovsky. I just want to ask on STL installs and upgrades this year. Is there any insight you can give us on expectations regarding market mix? You've been talking about more opportunities in the U.S. and whatnot. Should we expect revenue per install and revenue per upgrade to be relatively stable year-over-year? Natasha Fernandes: So generally, yes, I think that we have a standard sort of selling price. Now the opportunity is that the box office grows, and you would have seen it in the incrementality in our model in 2025, the JV systems, we have the ability to capture more box office there and as our box office grows. And so I think that as you look at the mix, we did guide towards 160 to 175 systems with a mix of 45% to 55% sales to JV mix. So I think we're still tracking towards that. That's what we've guided publicly, and we'll keep working towards that. I think the opportunity, though, is looking at how do we capture more from those JV locations as the box office grows there as well. And that was one of the significant contributors to us not only having the over 45% adjusted EBITDA margin, but also our cash flows that came in at a record level. Operator: Our next question comes from Eric Handler with ROTH Capital. Eric Handler: Just sort of a follow-up to that last question. Wonder if you could talk about how you're thinking about capital allocation at this point. You don't have debt due until 2030. You should have more free cash flow than last year. How are you thinking about buybacks? You've had good luck -- you've had good returns with the JRSAs. Where else can you sort of invest internally that you think would get high returns as well? Richard L. Gelfond: So Eric, I think the best place we can invest is in our network growth. And that's because when you look at PSAs this year compared to last year, when you look at the films that we have in '26 to slate, but maybe more importantly, you look at the backlog of films in '27 and '28, like we have an insight that most operators around the world don't have, which is we know what our slate is going to be going forward. And we have kind of a unique perspective on how it's going to perform. And we have a perspective also on how IMAX fits into the ecosystem. So if we have an opportunity to leverage our network growth or leverage our returns through maybe steering a deal one way or the other way. We think the releveling of IMAX is probably the best opportunity there is in terms of where to put our money. Now I would also add that people didn't think of it this way, but Natasha mentioned it briefly in her remarks. But when we issued our new convert and we took out the old convert, we could have taken out the shares that were in the money in 2 ways. One, we could have given people shares; or two, we could have used cash. And we took them out with cash, which effectively lowered dilution and was analogous to a share buyback. So obviously, we're open to being opportunistic in various ways, but we're very focused on how to capitalize on our growth. Operator: Our next question comes from Patrick Sholl with Barrington Research. Patrick Sholl: Just in terms of installing into like a second screen in a zone versus entering a new market, is there sort of any difference in the return profile or the speed of getting to sort of like, I guess, a steady state of PSAs? Richard L. Gelfond: There doesn't appear to be a difference because if we're putting a second theater in a zone where the exhibitor is, it's -- you see a very successful zone and the brand is well known there. So you're leveraging off of your previous success. And I know we've been saying for a while that we're going to do more of that. But we've actually taken some concrete steps with different exhibitors and identified specific locations where we would put a second screen in and are discussing with exhibitors. And seemingly, they have a more open mind to it than they did in prior years, especially coming off the strong results in '25. So I think you should model it as a similar return profile, but I'd be surprised if you didn't see some of that materialize this year. Natasha Fernandes: Pat, the other thing to consider is that we have a very experienced team who is involved in the analysis of the returns on locations and really assessing what is best for the IMAX business. And I think that's one thing we've proven over the years is that as we continue to expand, we're expanding in locations that are returning to our bottom line as well. And we do analyze each of our locations as we look through signing new deals, signing upgrades, signing whether it's second screens or flagships and assessing to make sure that it hits our ROI hurdles. Richard L. Gelfond: Yes. And I think I'd also like to remind you that the converts we issued, the interest rate is 75 basis points. So this is a well-priced capital for us. Operator: Our last question comes from Drew Crum with B. Riley Securities. Andrew Crum: Rich, I want to go back to the discussion around alternative content and the partnership with Apple TV for Formula 1. It looks like the initial launch is U.S. only. Do you have the ability to add international screens? And more broadly speaking, how are you thinking about bringing more live sports into your programming mix? With 2026 being a World Cup year, is that a consideration? Richard L. Gelfond: Sure. So the answer is the international -- your first part of your question with F1, Apple only controls the North American rights. So we made the maximum deal we could have made with Apple. But we are exploring the possibility of looking at international races, and we are following up on that. But again, that wouldn't be through Apple. That would be through others, and we announced this in the last 2 days. So it's a little premature to expand on it yet. But yes, we would be interested in finding a way to expand that. In sports, we've been offered a lot of opportunities in all kinds of different sports. But sports is complicated. It's got to be the right formula. It's got to be the right match with the IMAX experience. These rights issues, as you know, are very complicated and expensive. So you've got to model it through and see which sports have a good return and which don't. We have had some discussions about the World Cup. But again, there's interesting issues there because the finals of the World Cup are on the same weekend that Odyssey opens. So it's not -- you can't just stick your finger in the air and say, "Oh, that would be a good idea." There's complicated issues around all of these. But again, there's a lot of interesting things going on and stay tuned. I think some of them will come to fruition. Operator: I'm not showing any further questions. I'd like to turn the call back to Rich for any further remarks. Richard L. Gelfond: Yes. So thank you very much, operator, and thank you all for joining us. I really appreciate people who have invested in us for a period of time because 2025 really brought the pieces together. And as a management team, we had high hopes and we always believe that all the pieces could come together and put us in a new place. And I've tried -- the quantitative results are evident in what we reported. And the qualitative ones are less evident to you. But if you were living my last month in L.A., they would be equally obvious to you. And it's very gratifying to be seen as a different company in such an important position, not only in Hollywood, but around the world. And I think our job is to make sure that we use that place and we use our momentum to continue the growth rate and maybe even make it higher and really capitalize on where we've come into and making sure that we take full advantage of that opportunity. And thank you all for joining us. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Natalie Davis: Good morning, and welcome to Ramsay Healthcare's financial results for the 6 months to 31st of December 2025. My name is Natalie Davis, and I'm joined today by Anthony Neilson, our Group CFO, who commenced with Ramsay in late November. After 12 months in the role, I'm pleased to report that we're making good progress on our key priorities. The refresh of our group executive is now complete, strengthening capability and supporting the acceleration of our multiyear transformation program. We remain focused on delivery against the 3 priorities I first outlined this time last year that are shown on Slide 3. First, disciplined execution of the transformation of our market-leading Australian hospital business. In the half, we've improved patients, people and doctor NPS, grown admissions with a focus on higher acuity and have lifted our theater utilization. Our second priority is strengthening capital allocation and improving returns across the portfolio. You will have seen last week's announcement regarding the proposed distribution of Ramsay's investment in Ramsay Sante to Ramsay shareholders. Subject to obtaining the relevant approvals, we believe this will simplify the group and enable focus on the transformation of the core Australian hospital business. We have also progressed the turnaround of Elysium by rightsizing the business for the current environment through site closures and reducing available beds. With Joe O'Connor joining as CEO in January, we expect the turnaround to continue to gain traction. Our third priority is evolving our culture to innovate and accelerate delivery. I'm pleased to say that our group leadership team is in place, strengthening capability and our patient and people NPS scores remain high across the group, reflecting the commitment of our teams and clinicians and the quality of the care we provide. Turning to the half year results on Slide 5. We reported 7.3% growth in underlying EBIT and 8.1% growth in underlying NPAT and that was driven by Australia. The Board has determined a fully franked dividend of $0.425 per share, up 6.3% and representing a 60% payout ratio of underlying earnings. Slide 6 shows the underlying performance across each region and the contribution to the funding group and the consolidated group results. Australia was the key driver, reporting underlying EBIT growth of 7.1%, supported by good activity growth, higher acuity, improved PHI indexation and cost management, which together helped offset the impact of the new funding mechanism at Joondalup Health Campus. The team at Joondalup have progressed a range of operational programs, including a focus on reducing agency usage, which has also helped to partially mitigate this impact. A lower underlying net loss from Ramsay Sante supported the results, reflecting growth in Sweden and performance actions in France that partially offset the government funding pressures in that market. Turning to the performance of each region and starting with Australia. Slide 8 lays out our 2030 strategy, where our vision is to innovate to be Australia's most trusted leading health care provider and to deliver long-term value for our shareholders through the 5 pillars of our strategy. Our strategy will innovate Ramsay. We will lead in local catchments, growing our services, patient care and relationships with specialists and GPs in communities around our strategically located hospitals; differentiate ourselves in priority therapeutic areas, including cardiology, orthopedics and cancer care; create One Ramsay advantages powered by digital and AI to capture the synergies enabled by our market-leading scale; connect patient and doctor journeys from hospital care to community-based care and work with our communities and partners to shape Australia's leading health care system for the future. We will measure progress with clear financial and nonfinancial metrics and early indicators include our patient, doctor and people NPS metrics, growth in admissions, cost efficiencies through One Ramsay advantages and revenue indexation that better matches cumulative cost growth. Turning to Slide 9 and through all the change underway, it's important to reinforce that our patients, people and clinical excellence remain at the heart of what we do and how we operate. We've leveraged Ramsay's strong reputation in clinical trials to launch a national Ramsay research and development network, supporting 23% growth in clinical trials activity in the first half. Growth in admitting VMOs and strong theater utilization contributed to good activity and market share gains. The changing environment in the delivery of private health care is creating opportunities for us given our strong and stable reputation and portfolio of strategically located and owned facilities. The proposed acquisition of National Capital Private Hospital is a clear example of this, delivering us access to an attractive catchment area where we're not currently represented and a hospital with a strong reputation for clinical excellence. Our focus on utilization across catchment areas has also seen some development projects postponed or reshaped with development spend now expected to be below the bottom end of the guidance range. We continue to drive cost efficiencies and maintain capital discipline through our Big 5 hospital initiatives, supported by pilot programs across the business. Following last year's review, digital and data OpEx remains on track to be at or below FY '25 spend. Turning to the Australian results on Slide 10. The business delivered top line and profit growth despite the impact of the new funding mechanism at Joondalup. Revenue from customers increased 8.2%, driven by a 3.1% increase in hospital admissions and improved indexation. Revenue from our private hospital portfolio grew 8.7%. EBIT margins, excluding Joondalup, improved by 40 basis points on the prior period, driven by higher activity levels and case acuity, increased theater utilization and improved PHI indexation relative to wage inflation. Looking at activity in more detail on Slide 11. Our core surgical admissions grew 5.7% with day admissions growing more strongly than overnight admissions. However, a higher acuity mix resulted in inpatient IPDAs increasing at a faster rate than inpatient admissions. We remain disciplined with our CapEx spend in Australia, where it's focused on projects with good returns and strategic value. On Slide 12, the major development projects in the half were the completion of Ramsay Private at Joondalup campus and the final phase of the expansion of Warringal in Melbourne due to be completed in the second quarter of financial year '27. We have 23 new theaters and procedure rooms scheduled to open in financial year '26, concentrated in major hospitals in key catchment areas. Development CapEx for the full year is now expected to be in the range of $170 million to $190 million, below our previously guided range, reflecting our disciplined approach to utilization and capital allocation. Turning to the outlook for Australia on Slide 13. In the second half, we'll continue to advance our multiyear transformation program in Australia. We aim to finalize negotiations on the Victorian and Queensland nurse EBAs by the end of this financial year. We will continue to work with our payers to recover both the gap created by cumulative revenue indexation below cost indexation and future wage inflation as well as innovating our funding to better support innovation in care models. We have one major PHI contract renewal due in the second half. We expect EBIT growth momentum in Australia to continue in the second half, driven by growth in activity in our priority therapeutic areas, revenue indexation, cost focus and partial mitigation of the impact of the new funding mechanism at Joondalup. We will continue to progress the proposed acquisition of National Capital Hospital, which is expected to transition into the Ramsay portfolio in the first quarter of financial year '27 and be EPS accretive in the first 12 months of ownership. Turning to the U.K. region on Slide 14. Both businesses operating in challenging conditions. The U.K. acute hospital business was impacted by NHS budgetary restrictions towards the end of the period. This was mitigated by a focus on high acuity and private work as well as operational initiatives. Elysium continues to face weak market demand from local authorities. The turnaround plan is underway and beginning to gain traction, including central cost reduction, agency reductions, site optimization and fee negotiation. Turning to the acute hospital business results on Slide 15. The business delivered 3.5% revenue growth in constant currency, driven by a higher acuity case mix, increased private pay admissions and tariff indexation. NHS admissions slowed and declined in quarter 2 as NHS budgetary constraints began to impact activity. Our continued focus on managing complexity and consistent operational excellence helped to mitigate the impact of lower NHS volumes. The result included backdated indexation. Excluding this impact, underlying EBIT margins improved 30 basis points to 9.3%. Turning to the outlook for the acute business on Slide 16. NHS activity outlook for the third quarter financial year '26 is expected to remain negative compared to the prior period. The U.K. hospital business will continue to focus on growing private volumes and driving operational excellence to help offset the NHS funding uncertainty, which we expect to prevail until the new NHS fiscal year. As the leading private provider to the NHS, Ramsay U.K. remains well positioned to support the U.K. government's objective to reduce elective surgery, outpatient and diagnostic waitlist when additional funding is anticipated to be made available in the new NHS fiscal year from the 1st of April with a strong pipeline of patients through its outpatient clinics. On Slide 17, Elysium has remained focused on its turnaround program informed by the recommendations of the performance diagnostic completed in the second half of financial year '25. Key priorities include site optimization, cost reduction and fee negotiation that better reflects the complexity of services we provide. This resulted in the closure of 163 beds at underperforming sites in the first half with 5 sites expected to be closed in the second half. A number of these properties have been put to market for sale. Turning to the outlook on Slide 18. Elysium's new CEO, Joe O'Connor, commenced in January and is leading the performance improvement plan. We expect the ongoing focus on the plan and the initiatives already taken in 2025 will see the turnaround continue to gain traction. Turning to Ramsay Sante on Slide 19. As announced last week, we are progressing the proposed demerger of Ramsay Sante via an in-specie distribution of our 52.8% investment to Ramsay shareholders. While this process continues, we remain focused on the performance improvement programs across the European business and particularly in France, which continues to face funding headwinds and broader market uncertainty. In the Nordics, the focus remains on continuing the performance momentum of the Swedish business and the turnaround programs in Denmark and Norway. Turning to Ramsay Sante's results on Slide 20 and the business delivered a 4.4% increase in underlying EBIT in constant currency, driven by a strong result from the Nordics region, in particular, the performance in Sweden. This was partially offset by weaker results in France, where the reduction in subsidies of EUR 20 million compared to the prior period and the inadequacy of tariff indexation continue to pressure earnings. Turning to the outlook for Ramsay Sante on Slide 21. Across Europe, the focus remains on cost control, efficiency and cash generation as well as continuing the performance momentum of the Swedish business. Activity growth in Europe is expected to continue in the second half, driven by day admissions, partially offset by the impact of a 3-day French doctor strike in January. The new contract at St. Goran commenced 5th of January 2026 for 8 plus 4 additional years on improved terms, which will assist the Nordics results. As outlined in detail in last week's announcement on Slide 22, we believe that the proposed demerger of Ramsay Sante through in-specie distribution will simplify Ramsay and enable both organizations to focus on transforming their respective businesses. We will update the market as we work towards the release of the demerger booklet and subject to receiving necessary approvals, currently expect to complete the in-specie distribution in December 2026. I'll now hand you over to Anthony to run through the financials in more detail. Anthony Neilson: Thanks, Natalie. Good morning, everyone. Natalie has already covered much of Slide 24. So I'll just highlight a few points, noting currency translation has impacted some of the movements on the P&L and balance sheet for this half. In this result, we have focused on underlying numbers given the large nonrecurring items in the U.K. region and Ramsay Sante in the first half of last year. Items excluded from underlying profit this half were $11 million negative impact on net profit and primarily relates to transaction and restructuring costs. There is a detailed reconciliation shown in the appendix. Underlying NPAT showed strong growth for the half of 8.1%, driven by activity growth across Australia and Europe, combined with higher acuity across Australia and U.K. and revenue indexation in Australia. There continues to be a focus on operational efficiencies across all regions to mitigate cost pressures. The underlying NPAT tax rate was 36%, slightly higher than last year. This reflects the impact of CVAE taxes in France, which calculated on turnover despite France being in a pretax loss position in the first half. The full year tax rate is forecast to be approximately 35%, reflecting a higher rate in Ramsay Sante. Operating cash flow on Slide 25 improved 16.9% to $350 million for the period, driven by the performance of Australia and lower tax paid than the previous corresponding period, which included the sale of Ramsay Sime Darby. Improving our cash conversion is one of our key priorities in all regions and we are all investing in systems and processes to strengthen cash collection and drive cost out and efficiency programs across all businesses. CapEx cash outflow increased from prior period, mainly due to development projects in Australia. I will touch on CapEx in more detail on Slide 31. Dividends paid increased 20%, reflecting the suspension of the dividend reinvestment plan for fiscal year '25 final dividend. Turning to Slide 26. Currency translation had a significant impact on the face of the balance sheet for this period to the tune of $84 million. Movements in working capital primarily related to Ramsay Sante and the timing of periodic true-up payments with the French government with advances repaid, reducing payables. Consolidated net debt is $5.1 billion and I'll show a separate breakdown between the funding group and Ramsay Sante on the coming slides. 67% of the consolidated group's floating rate debt in the second half of this fiscal year '26 is hedged at an average base rate of 3%. We have provided both the funding group and Ramsay Sante summary balance sheets in the appendix, so you can see the group results, excluding Sante. Turning to the Funding Group performance on Slide 27. Underlying NPAT grew 5%, which was driven by good growth in Australia, partly offset by a lower contribution from the U.K. U.K. margins were impacted by higher costs and lower occupancy at Elysium. Elysium cost efficiency initiatives began to gain momentum late in the half with continued focus on these initiatives in the second half. Total financing costs, including lease costs, increased 1.3% in constant currency due to higher average base rates and a small increase in drawn debt during the half. Moving to the Funding Group debt and leverage on Slide 28. Given the separate funding arrangements of the Funding Group and Ramsay Sante, looking at the group's consolidated leverage is not a meaningful metric. The Funding Group shows leverage, excluding Sante and is 2.22x, within our target range of less than 2.5x and interest cover remains strong. Fitch has recently reaffirmed its BBB- investment-grade rating for the Funding Group. We have adequate liquidity in place for the purchase of the National Capital Hospital in FY '27 and leverage is expected to remain within our target range of less than 2.5x. During the period, we successfully refinanced our key syndicated debt facilities, extending tenure and reducing our margin by 30 basis points. While base rates are increasing, our weighted average cost of debt has declined 20 basis points since 30th of June 2025, reflecting the refinancing of our facilities at these lower margins. We remain reasonably well hedged with 65% of our debt hedged at an average base rate of 3.65%, which is below current spot rates for the second half of the year. Moving to Ramsay Sante's debt position on Slide 29 and it remains well supported by its own separate funding arrangements with tenure extended significantly over the last 12 months. The business has EUR 391 million of liquidity available with leverage of 5.3x and the company is focused on improving cash flows and driving cost out and efficiency programs to reduce leverage over time. Turning to Slide 30 and our focus is on improving capital management, cost discipline and cash flows across the group. First, we are improving capital allocation and returns. A range of programs are underway to recycle capital into higher returning projects of the business and lift utilization of existing facilities and assets. In the overseas business, we will drive capital discipline and focus on maintenance projects and the optimization of service and assets. Second, we need to strengthen both operating and investing cash flow. We have multiple initiatives in place to improve working capital with revenue cycle management, cost out and efficiency programs being a key focus. We are also reviewing capital spend and we'll be pushing all these initiatives harder. In the near term, our priority is maintaining our leverage and our credit rating at current levels. Looking at capital expenditure in more detail on Slide 31. Our focus is on capital discipline with CapEx modified for the current environment with both U.K. and Ramsay Sante spend lower in local currency. Group CapEx increased $27 million between periods in constant currency terms due to higher Australian development CapEx with focus on development projects increasing procedural capacity in Joondalup and Warringal. We have reduced the full year CapEx range to between $755 million to $795 million, which is $40 million below the previous range to reflect the lower spend. I will now hand you back to Natalie to talk about the outlook. Natalie Davis: Thanks, Anthony. So to recap briefly, our strategic priorities remain clear: transforming our market-leading Australian hospital business, strengthening our capital discipline and improving capital returns across the portfolio and evolving our culture of people caring for people to innovate and drive performance. Our financial year '26 full year results are expected to reflect the following: in Australia, we expect continued EBIT growth momentum, driven by increased activity in priority therapeutic areas, revenue indexation, cost focus and partial mitigation of the impact of the new Joondalup funding mechanism. In our U.K. hospital business, we expect NHS activity in the third quarter to remain negative compared to prior period due to NHS budget constraints for the remainder of the U.K. fiscal year ending 31st of March. Ramsay U.K. remains well positioned to support the U.K. government's objectives to reduce waiting list and has a strong pipeline of patients through its outpatient clinics when anticipated additional funding is made available in the new NHS fiscal year from the 1st of April. For Elysium, we'll remain focused on improving performance and expect the turnaround to continue to gain traction over the second half. In Europe, we expect activity growth to continue in the second half, driven by day admissions, partially offset by the impact of the French 3-day doctor strike in January. Our net financing costs are forecast to be $590 million to $610 million and our underlying effective tax rate is expected to be approximately 35%, given the higher tax rate in Ramsay Sante. Group CapEx guidance has been reduced with spend in the second half to be lower than the first half. Finally, the dividend payout ratio for the year is expected to be 60% to 70% of underlying net profit after tax and noncontrolling interest. Overall, I'm very proud of the progress we have made and the commitment of our team members to providing excellent care for our patients while we transform and strengthen the business for the future. And with that, I'll open up to questions. Operator: [Operator Instructions] Your first question comes from Lyanne Harrison of Bank of America. Lyanne Harrison: Congratulations on a very strong result for Australia. What we saw compared to the results, the first quarter results that you mentioned at the AGM, we certainly saw an acceleration of growth, both at revenue and EBIT in the second quarter. What are your expectations as we are in third quarter now and then for the fourth quarter as well? Can we expect that revenue growth and that EBIT growth to continue to grow at a faster rate? And what would be supporting those? Natalie Davis: Thank you, Lyanne, and thank you very much to the whole team in Australia for really focusing on growth and performance momentum over the half. I think what we've guided to today is really looking at year-on-year EBIT growth momentum continuing throughout the year. I think it's important to remember that there is seasonality in Australia in some of our businesses, it works the other way. So we do tend to have a lower EBIT result in the second half because of January when a lot of doctors are on holidays and we don't do as many surgeries in the business as well as Easter has a smaller effect. So what we're guiding to is the year-on-year EBIT growth momentum will continue and we're not saying anything more specific than that. Lyanne Harrison: Okay. And as a follow-up, you've renegotiated some of your PHI contracts over the last few months and with some good fee increases. Can you comment on -- we've seen PHI premium increases in the vicinity of -- it's going to be about 4% or a little bit more from April of this year. How will those increases be captured in the fee terms on the contracts you've already negotiated? Natalie Davis: Thank you for the question. And it's been very pleasing to see that Australians have kept up their private health insurance coverage even through significant cost of living pressures. I think the minister when he approved the latest round of premium increases acknowledged the very significant cost increases and cost pressures that the private hospital sector is facing. And we would expect those premium increases to be passed along to private hospitals to cover those cost pressures. And the minister has talked about the benefits payout ratio having decreased over time since COVID and his expectation that, that would increase. And so we will be talking to all our private health insurer partners to ensure that the revenue indexation we receive on an ongoing basis reflects our genuine cost pressures. And those pressures are real and they will continue into the medium term. Operator: The next question comes from Andrew Goodsall at MST Marquee. Andrew Goodsall: Just a focus on the U.K., if I may. I guess just with Elysium, just obviously, you're doing some performance improvement there. But just wondering whether you can see that as a permanent resolution to something that might be more structural? And then secondly, on U.K., just I saw that the NHS has got this idea of a sprint to the end of the financial year with additional elective surgery, but that's not reflected in your comments. So just wondering what your thoughts were there as well. Natalie Davis: Thank you for those questions. So focusing on the U.K. and I'll take each business separately. With Elysium, we completed last year a very significant performance diagnostic and the team has gone about implementing that under the, first of all, the leadership of Nick Costa and now Joe O'Connor since he joined in January. We see a very significant improvement potential for Elysium from the current performance, which is very weak. We have focused a lot over the last 6 months on cost reduction. So central cost reduction. We've now done 2 phases of reducing FTE in that business. We've focused on reducing agency costs. And importantly, we focused on decreasing the number of available beds. And the demand that I think we've experienced throughout the half has probably been weaker than we originally expected. And so you see we've closed 163 beds in the half and we will continue to look at potentially site closures and putting properties up for sale to make sure that the services we provide really match the demand from the sector. However, having said all that, we see significant potential for us to turn around the performance and to continue focusing on both the top line through providing high-quality services for very complex patients and making sure that our fees reflect the quality and the complexity of the service we provide, improving our conversion rates, which we have improved in the half, but there's more opportunities to do that when we get a referral to making sure that we convert all of those referrals and continuing to focus on costs and we continue to see more potential for that. So we continue to be confident that, that turnaround is continuing to gain traction and we saw an improvement in performance towards the end of the first half. On the U.K. and what's happening with the NHS, we're certainly seeing -- from the end of the first half, we're certainly seeing a step back in activity across our hospitals. A number of our hospitals have activity management plans in place. In some cases, where those plans have been in place, we have managed to get effectively separate contracts to fund further activity above that activity plan level. But overall, as we said, we expect negative NHS activity in quarter 3 and then we're well positioned when we anticipate there'll be more funding provided from April to grow our business over there. Andrew Goodsall: And just a quick one for Anthony. I appreciate you breaking up the Funding Group debt. But just with the refis, just if you had any sort of separate costs associated with that and if they were taken through the P&L? Anthony Neilson: Anything was small was in the nonrecurring items for that. And we did take some items capitalized into the balance sheet. Operator: The next question is from David Low at UBS. David Low: Natalie, if I could just start with Joondalup. So you're quite specific as to the headwind there. We can back calculate from the comment about 40 basis points better. But just wondering relative to your expectations there in terms of the headwind, whether anything has changed, whether you've been able to mitigate it more than expected. Natalie Davis: Yes. So last year, we talked about the new funding mechanism at Joondalup Public and the expected impact that would have. We also said we would partially mitigate that impact on the campus itself. And we have continued to do that. And I would say that the mitigation is in line with what we're expecting. And there's a number of things we've done there. We've worked to increase activity with the government. WA like many states across Australia, experienced a very strong flu season. And so we had additional capacity that has been funded at the beginning of the financial year in that flu season. But we're also continuing to work on our operational initiatives and there's been a big focus, in particular, on reducing agency at Joondalup, which we successfully at the end of the half, ran what we call a professional pathways program. And that program attracts nurses out of nonhospital sectors, so sectors like aged care into the hospital system. We had a very successful recruitment drive. And I think around 50 nurses have started with us at the hospital, which will enable us to reduce agency at that hospital. We also -- last week, we also had the pleasure of opening Joondalup Private. So that's the expansion of the private facilities. It's a very significant expansion. It creates for the first time, dedicated private theaters in that campus. And we're now focusing on ramping up the growth in the private part of that hospital. So overall, I'd say the mitigation that we expected is on track and as we thought. David Low: Okay. Perfect. Look, the other question I had was, I think certainly, the revenue growth in Australia was a positive surprise. Just wondering, we can see the activity that you've broken out there and back calculate price increase. But within the activity, is mix a positive driver there? And can that trend continue on into this calendar year? Natalie Davis: Yes. I think what we saw in the half was pleasingly a focus by our teams on higher acuity work. And you can see that in the activity numbers, so not just in admissions, but in EBITDA growth. And the fact that our EBITDA growth was in line with admissions growth, I think, has driven that positive mix benefit. It came through on both surgery, but it also came through on some of our medical admissions. And so that's something that continues to be a focus for us. We're very focused on utilizing our theaters as much as we can and thinking about our theater utilization in terms of catchments so that our major hospitals are very much focused on attracting high acuity work. And then some of our smaller day centers and smaller hospitals can then attract the lower acuity work. And so we're trying to really optimize the way we're thinking about our portfolio within catchments to focus on mix. David Low: Okay. Great. So it sounds like that can continue as a positive trend second half... Natalie Davis: It will continue to be a focus for us. Operator: The next question is from Craig Wong-Pan at RBC. Craig Wong-Pan: Just wanted to understand about the Australian CapEx. The guidance there has been revised and your comments about being disciplined on CapEx. Just wanted to see if you could provide any comments about how we should think about the run rate of CapEx going forward? Natalie Davis: Thank you. So what we're really doing and I just explained, I think the catchment thinking that Stuart Winters, in particular, who's our new Chief Operating Officer, is bringing to the business. We're continuing to really focus on existing theater utilization, but we're also really thinking through our portfolio and how do we -- for example, in Lake Macquarie catchments, we opened Charlestown, which is a day surgery that was operationally separately managed to Lake Macquarie, which is our big hospital there. They're now all under the same leadership, and we're now developing a catchment strategy across that. The other thing that Stuart is really focused on is thinking through how do we better use the physical infrastructure that we have in our existing hospitals to be able to add procedural capacity effectively and efficiently. And I think St. George is a good example of this where we're doing a development and we're effectively taking existing space within the hospital that's an ICU and converting that into theater space, which is linked to the existing theater complex. And we're moving ICU into an area that was full of beds that were not being utilized. So what we're trying to do is, as we've said over the last year is focus very much on procedural capacity, adding beds by exception and utilizing the existing assets that we have within a catchment fully before we're increasing procedural capacity. So you'll see very selective and strategic developments from us going forward. We're not yet guiding to next year on that. Craig Wong-Pan: Okay. And then I just wanted to move to the clinical trials research and development network that you talked about. Could you just provide some more details around that and specifically the benefits that the Ramsay Group gets from having that network? Natalie Davis: Yes. Thank you. It's a small part of our business, but it's one that we're all incredibly excited about. So with clinical trials, we have traditionally run a site-by-site model and we had around about 20 sites that were providing capacity to doctors who wanted to do research in our hospitals. To give you an example, it's very common and important in cancer care. So a lot of patients when they're coming for treatment to their doctors are looking for the latest chemotherapy drugs and treatment. And if we can provide access to clinical trials, we can provide actually leading treatment for patients. And we can also ensure that we're attracting doctors. And we can actually see that doctors who do clinical trials with us actually have a higher NPS with Ramsay. So it's a small part of the business at the moment. I think it has a significant potential and it's important to reinforcing our core hospital business because it does mean that we can provide leading care to patients and also attract more doctors to working with Ramsay. Craig Wong-Pan: Okay. Makes sense. And then just my last question, one for Anthony. The comments you made about improve or having cash conversion as a key priority. Just trying to understand what you're focused on here just about faster collections or something about like claims? Yes, could you just give some color on what you're trying to do there? Anthony Neilson: Yes. Thanks, Craig. Yes, look, definitely, receivables improvement is a big driver that we have there in the revenue cycle management, looking at all of our systems and processes, both from an Australia and an international perspective to get the days debtors down and the improvement through the billing cycle and cash collection, accuracy of billings, all of those sorts of things are a big driver that flows straight through to the bottom line if we can improve that working capital position. Operator: The next question comes from David Stanton at Jefferies. David Stanton: Impressive 5.7% growth in Australia in surgical admissions. Firstly, bottom line, what's driving that? Is it the market growth at that level? Or do you think you're taking share? And if so, how is that happening? Natalie Davis: Thank you, David, for the question. We think we're probably taking market share at the moment when we look at our growth relative to the market. I don't know if there's more market statistics coming out tomorrow, so we'll see how that goes. I've spoken previously about the focus we're doing on growth across our hospitals. So over the last 12 months, we've been providing to all of our hospital CEOs data that's very easy for them to use, which enables them to do a few things. First of all, it looks at every therapeutic area by doctor and it looks at theater utilization. It gives an indication of profitability of that work. It also gives an indication of to what extent is that doctor canceling lists and what period of time do they let us know if they are canceling a list because the more time we have, obviously, the more we can then fill that theater with other work with other doctors. The other data set that we're giving to our hospitals is around catchments and more data around the specialists in that catchment that do work with us and don't do work with us as well as the GPs and the ones that are referring to specialists who work in our hospitals and other GP practices that are not. So that's been new. It's all in one place and it enables our team, therefore, to go and have conversations with doctors where we know we need to increase their utilization. And it also enables us in terms of our business development managers and our GP liaison offices to be much more targeted around where they're spending their time to be able to attract new doctors to come and work with Ramsay. And I think the other thing that's been helping us over the last 6 months is obviously this very strong clinical reputation that we have, but also our stability as a very strong business with ownership of our hospitals. And I think that's also been helping in the current environment to attract more doctors to come and work with Ramsay. And we're continuing to really focus on how do we improve and strengthen our doctor proposition and our proposition in our therapeutic areas that we're focusing on. David Stanton: Understood. And is it fair to say, given your previous commentary that with these upcoming EBAs, you believe that they'll more than likely be covered by the increases in PHI premiums? Or what should we be thinking there? Natalie Davis: So we continue to see wage pressure out into the medium term and that's coming through from public sector nursing EBAs and we have to be competitive to be able to attract the nursing workforce that we need in every state. The one that we are negotiating at the moment is in Victoria and that's obviously against the backdrop of a very significant public sector EBA increase of 28% over 4 years, but significantly backdated to November, December 2027 calendar year. So we expect continued pressure on wages across Australia. And we will continue as we negotiate with private health insurers to cover that cost pressure and it's very genuine it's being experienced by the whole sector in terms of the revenue indexation that we're receiving. In some cases, we have now got dynamic -- what we call dynamic indexation in place. There's 3 contracts where we do this and we're talking to more health insurers about this. And what that basically does is once we agree the first year indexation, the second and the third year indexation in the contract are linked to externally referenced cost benchmarks. So that those cost pressures when they're genuine and they're sector-wide will be reflected in our revenue indexation. And the importance of that apart from ensuring that we're paid fairly is also freeing up management time to actually look at the structure of these funding agreements, the way we're providing care and innovating our care models and innovating the funding to support that. So that's the opportunity for us to work with our private health insurer partners to really innovate the proposition for Australians for private health care. David Stanton: Very clear. And finally from me, we've talked to -- or you talked -- or the company talked to digital upgrades. Can you give us sort of an update on spending options and timing potentially? Natalie Davis: Thank you. So we've been in a bit of a reset, I think, on digital and data transformation. And as we said last year, while we did that, we focused on effectively maintaining and even possibly reducing the spend in that team. We've now got Dr. John Doulis, who's joined us as our Chief Technology Officer. John comes from HCA hospitals in the U.S., which I would say is one of the leading hospital health systems when it comes to thinking through how to really use technology and digital technology to drive better patient experience, team experience and business outcomes. So John joined in early November. He's now at the point where he's got some very clear priorities for where he's going to work with the team on. And they're very much aligned with the Big 5 initiatives that we've been talking about in our hospitals. So they're very much linked to operational improvement. The top 3 are really around revenue cycle management and in particular, upgrading our patient admin system or PAS, which is very outdated. That will enable us to speed up our revenue cycle management system and also improve accuracy in that system. The second one is around workforce and introducing a smart rostering system. That's something that will free up a lot of time around nurse unit managers who spend a lot of time on rostering at the moment with 3 legacy systems. It's a pretty manual process. It will also give our team more flexibility. And the third one is thinking through how do we use technology to really track prosthesis and consumables as they're being sourced into our hospitals and used in our hospitals and then charged to private health insurers. So very clear priorities and we'll continue to keep everyone updated as to our technology road map. Operator: The next question comes from Davin Thillainathan at Goldman Sachs. Davinthra Thillainathan: Just wanted to think through the Australian business and your revenue growth that you're demonstrating there. I think in the first quarter, you did a growth that was about 6.5%. And then in the half, that stepped up to 8.2%. So clearly, some better momentum happening in that second quarter. Now my understanding was in the first quarter, you had benefited from some high flu admissions and I wouldn't have expected that to continue. So perhaps could you talk through any sort of material changes that occurred over the second quarter to allow that level of growth to step up, please? Natalie Davis: Yes. So that is true. So we do benefit in that July to August period from winter flu season and that was a particularly serious flu in terms of the impact it had on Australians right around the country. So we did see more medical admissions and longer length of stay associated with those admissions. But as I've said, we continue to experience good growth through the half. And I think that really was a continued focus by our hospital teams on recruiting doctors and utilizing theaters. And you also would have seen in the results, we also shared that our public work increased a little bit. Some of that was at Joondalup, but some of that also was in New South Wales. So that continues to also be an area of focus. So I don't think there was one thing I can point to, to say it was due to that. It's a focus for us and we really continue to focus on that going forward in every major hospital and catchment that we have. Davinthra Thillainathan: Great. And my next question is on your CapEx, which you have lowered in Australia. I understand part of that is clearly you're utilizing your existing facilities better. But just thinking about other changes you've made with CapEx delivery. As an example, I noticed that your Joondalup CapEx was also lower than your budget. Could you perhaps talk through any other changes you're making on the actual delivery of all these sort of growth initiatives? And perhaps is that what's sort of helping that CapEx lower as well? Natalie Davis: Yes. I think Joondalup was a very well-delivered project. We had a good delivery partner there and it was delivered on time and on budget, actually slightly earlier and that's hard to do. So I think that was a really good example of working well with a delivery partner. But most of the decrease in our guidance on CapEx is really about us as a leadership team, myself and Anthony, who are in the capital forum that we've described in the document, really stress testing with the teams around do we need to do this development proposal and do we need to do it right now and really encouraging the teams to, first of all, focus on utilization before bringing business cases to us. So it really is more that rigor around the way we're approving capital projects. Davinthra Thillainathan: Yes. And my last one, just trying to understand the sort of digital and data spend in your P&L. I think you had about $90 million in FY '25. Can you sort of help us understand what was spent in the first half and what the expectation is for FY '26, please? Natalie Davis: Yes. I think we've said before that digital and data spend will be at or below, if we can, that level of last year and we've said that we're on track. We're not going to split that between halves. Operator: The next question is from Laura Sutcliffe at Citi. Laura Sutcliffe: Firstly, on the U.K., is the volume headwind that you've seen in the third quarter enough that you could potentially end up with revenue in the second half being flat or going backwards versus the first half? Or do you still expect that revenue to grow in the second half over the first half in the U.K.? Natalie Davis: So we're not guiding to revenue in the U.K., but I will make a few comments. We do -- as we've said in the release, we do see NHS activity being negative in the third quarter. And then we're well prepared as we anticipate new funding to come in, in quarter 4 to grow NHS activity. But we're also focusing on acuity. So acuity EBIT, and that's supporting the results that you've seen in the first half. And the team is also focusing on growing private and that includes both self-pay and our agreements with private health insurers. So all of those factors we'll be focusing on. And of course, remembering seasonality in the U.K. is the opposite to Australia. So we see a weaker summer over there, which impacts the first half. Laura Sutcliffe: Are those activities you just mentioned the mitigation activities that you were mentioning earlier? Or is there a bit more to the mitigation piece? Natalie Davis: Yes. So the mitigation is around growing our private work. So we focus very much on NHS work in that business, but we are putting more and more focus on private work, which you can imagine is more profitable for us than NHS work. We are focusing on acuity of mix and we're also focusing on operational efficiencies and cost mitigation. We'll be stepping up the cost focus as well given the uncertainty on the NHS funding front. Laura Sutcliffe: Okay. That's clear. And then secondly, looking at some of Sante's reporting and the proposed distribution, could you tell us if any of the mechanics around change of control there would potentially leave you in a position where you had to make payments to Sante or others? Natalie Davis: So as Anthony explained today, the Sante debt is nonrecourse to Ramsay Health Care. And so the debt that we hold as the Funding Group relates to Australia and the U.K. businesses. So when you think about the separation of Ramsay Sante from Ramsay Health Care, in this case, Ramsay Sante is already a separate listed entity on the Euronext. It already has its own governance structure. It has its own debt structure. And so the approvals will be happening mostly in the Australian context around our shareholders and putting proposals to them through a scheme of arrangement around thinking through whether there's value to Ramsay Health Care shareholders from effectively holding these 2 entities separately. And we do think that there is a strategic logic and it's quite strong logic around effectively Ramsay Sante is an independent entity focusing on their strategy of integrated health care in European markets and Ramsay Health Care really focusing on the priorities that we've laid out today and in particular, the continued transformation of the Australian business. So I think it's important just to understand that there's -- the debt of Sante is nonrecourse and there's no guarantees from Ramsay Health Care. Laura Sutcliffe: Okay. I just thought I would clarify because the potential amount they mentioned in their documents is quite large. Operator: The next question is from Steve Wheen at Jarden. Steven Wheen: I just had a question with regards to the Victorian EBA. We've seen your offer that you've provided to the nurses. Just trying to understand what the reaction to that offer has been and whether or not you're getting recognition from the PHIs as to that step-up that happens sort of in the back end, I think, of '28, where you're mimicking what happened in the public EBA in Victoria? Natalie Davis: So we're in the process at the moment of negotiating the Victorian EBA with the unions and with our team. And so I won't be commenting today on how that negotiation is going. Steven Wheen: Okay. Then can I ask a bit of an extension of the EBA question, which is you've mentioned in your presentation from an outlook perspective that you're attempting to close the funding gap from payers from the cumulative gap from payers versus the cost inflation. Can you talk to how that is possible? I mean, I can see with the arrangements that you've got in place already that you're covering current inflationary pressures in FY '26, but how do you claw back some of those historical underpayments from the insurers? Natalie Davis: Yes. So I think the discussion that we have with our private health insurer partners and this is a discussion that's really happening, you can see at a sector level in regards to private hospital viability. But overall, the premium increases that have been approved for private health insurers over the last 5 years since COVID have not fully been passed through to private hospitals and that benefit payout ratio has decreased over time. Now we believe that those premiums that Australians pay should be passed on to hospitals and the hospital sector is experiencing very genuine cost pressures. And so that is the discussion that we have with our private health insurer partners. And we've experienced, as I've described, an improved level of revenue indexation, but we haven't yet managed to achieve that closure of that cumulative historic gap. And that is a challenging discussion, but we will continue to strive to achieve that. And quite often, as we're entering into new contract renewals for a number of years and looking at partnership opportunities and talking about dynamic indexation in the outer years, that is the opportunity for us to work through that cumulative gap because you can't really agree to dynamic indexation unless the base is correct or the base is corrected over time. So it's a challenging discussion, but it's one that we continue to have. Steven Wheen: Okay. Great. And just some points to confirm. The coverage that you're getting from the insurers at the moment in FY '26, how much line of sight do you have for that coverage to extend beyond FY '26 relative to the EBAs that you've put in place? Natalie Davis: So we always -- when we negotiate with private health insurers, we always look at the -- effectively the cost pressures that have been effectively locked in through EBA arrangements, but we also do forecast out what we expect EBA pressure to be. And if for some reason, the EBAs end up being at a higher level, we will always go back to the private health insurers to discuss that. I think the dynamic indexation that I was describing is a way that, that becomes a very fair discussion because it's referenced to external benchmarks, which really do show whether there is genuine industry-wide cost pressure in the system. Steven Wheen: Okay. So knowing what you know now, you can still say that your PHI coverage extends into FY '27? Natalie Davis: No, that's not what I'm saying. I'm saying there's a series of contracts that we have with private health insurer partners. We're in the process of negotiating one at the moment in the second half. And so it's a rolling process. In some cases, we have existing contracts in place, but the 3 examples I've given on dynamic indexation that's in place in the outer years. But in others, we have contracts that will come up for renewal in the next year or 2 and we'll have to renegotiate that as well. So it's a dynamic process. Steven Wheen: All right. Maybe could you indicate how many of the insurers are on these -- I mean, you said 3, but are they the big ones? Or are they the more smaller ones? Natalie Davis: Yes. We've said before that the 3 that we've got at the moment are not the major insurers. Steven Wheen: Okay. Last one for me. Just with regards to the Joondalup offsets, was there any evidence of that in first half? Or are we expecting that sort of more second half and beyond? And then in addition, is there any way we could sort of get a better understanding of the sequencing of data and digital because obviously, the key point for the stock at the moment is the turnaround in margins in Australia and that can be a bit distorting unless we know what that sequencing looks like between first half and second half? Natalie Davis: So the Joondalup mitigation, I've described in, I think, a previous question. So we're on track in terms of what we planned for Joondalup. In the first half, there was a benefit from public activity, which was due to the flu season and the pressure that was putting on the health system in WA. We then obviously, over the half, focused on putting in cost and operational initiatives, including that focus on agency reduction, which we recruited that group of nurses into Joondalup around November, December, takes a period of time, obviously, for them to be trained so that we can reduce agency spend. So we're continuing to focus on it and the flu impact won't be repeated in the second half, but you'll see other operational initiatives having more impacts like the one I've just described. The digital and data OpEx, I think what we've said is this year is really one of a reset. We're keeping that spend in line with the current year or less. We're very much -- John is really focused on his priorities and developing that road map going forward. We're on track overall for the year. And we really do understand as a management team that we're aiming here to get year-on-year margin growth in the Australian business. And so we will think about very much the digital and data investments we make, ensuring that they're connected to operational initiatives that have payoffs so that we can then reinvest in further digital investment as it's required. But understanding that over time we are all focused on improving the performance of the Australian business. Operator: The next question comes from Saul Hadassin at Barrenjoey. Saul Hadassin: I'll try and stick to 2 questions. First one, Natalie, just you mentioned, I think, at the AGM that theater utilization had improved by about 1% in the first quarter of fiscal '26. I'm just wondering if you had any comments about where that went in the second quarter of the fiscal year? Natalie Davis: Yes. I thought we had given you that number and it was -- we've given you a 12-month rolling number. 130%, so 1.3% in the last 12 months in terms of theater utilization. So that's on Slide 9. Saul Hadassin: Sure. So the assumption being that it's improved into the second quarter versus the first? Natalie Davis: So we're seeing overall improvement in theater utilization and that's including the impact of new theaters that we've opened over that time. So obviously, as we increase admissions and IPDAs, that fills the existing theaters, but then we open capacity and we have to fill up that new capacity as well. So the 1.3% improvement over the last 12 months, I think, was a very strong result given that there was a very large number of new theaters opened in that time, 16 new theaters. Saul Hadassin: Sure. And then just a follow-up. I note in the presentation of the wholly owned funding group result that labor costs and contracted costs on a constant currency basis was up 6%. I just wanted to see whether there was any disparate growth rates between the U.K. and Australia in that? Or is that reflective of sort of both regions in terms of their labor cost inflation? Natalie Davis: I'm going to pass that one to Anthony. Anthony Neilson: Yes. Thanks, Saul. Look, there's nothing materially different. It's largely reflected between both regions with similar numbers, give or take, in the wages. Operator: The next question comes from Sacha Krien at Evans & Partners. Sacha Krien: Just a bit of an extension to one of the earlier questions. It looks like you've removed the reference to revenue indexation being greater than or equal to labor cost inflation. I'm just wondering if anything has changed on that front. And I think your labor cost growth in Australia was circa 7.8 or something like that? Natalie Davis: Yes. So the 7.8, I think you're referring to is the growth in the total labor dollars. And so that includes both activity and wage inflation as well as any mix impact. And activity was in the region of 3.1, excluding the impact of Peel. So you can get a sense from that as to what's happened with wage inflation and similarly on the revenue line in terms of Australian revenue and that level of implied indexation, noting that there's always a mix impact as well. Sacha Krien: Yes. But does that previous statement around '26 and '27 still stand? Natalie Davis: So I think what we said in the last statement was saying is a leading indicator that the revenue indexation was in line with cost indexation and that continues to be the case in the half. So we're definitely experiencing improved revenue indexation relative to both what we paid historically and relative to cost indexation. But as I've described on the call, it's an ongoing focus for us and we need to continue to make sure as we renew contracts that we're taking that. Sacha Krien: Yes. I guess I'm just wondering, I think that statement previously applied to '27 and I can't see it unless I'm missing it. So I mean, are you suggesting it's maybe been a little bit harder to close the gap than expected? I'm just trying to [indiscernible] if anything has changed. Natalie Davis: I think you're reading into something that wasn't there in the first place. So that comment at the AGM was in relation to the performance in the first quarter. It wasn't an outlook statement into F '27. Sacha Krien: Okay. And then second question, just on the U.K. I'm just wondering the proposed NHS tariff increase, I'm just wondering if there's any scope for that to be increased as we've seen in previous years given some of the award wage increases that have come through? Natalie Davis: Yes. So I think that is a good question. So we saw effectively the tariffs being guided to 0%, 0.03% in the U.K. That reflected broadly speaking, a 2% assumption on wages in the U.K. in the health sector, offset by an efficiency assumption of about 2%. I think a few weeks ago, we've seen a wage number come out of the NHS that's more likely to be around 3%. And so historically, when that's happened, at least over the past 2 years, we have seen effectively a backdating tariff increase. It may not be the full amount of the difference. It's not guaranteed. So Nick Costa would say that there have been some years where that hasn't been played back and backdated. So we have to wait and see. But in the past 2 years, there has been an adjustment if wages have been higher than what has been assumed, but we don't know yet. Sacha Krien: Okay. Can I sneak one more quick one in on the U.K.? Just in terms of the NHS activity, are you expecting a full rebound into '27 given some of the -- I mean, I guess, the government's recommitment to sort of closing or reducing the waitlist and using private hospitals to do that? Natalie Davis: I think it's very hard for all of us to really know. It depends very much on the budget in the U.K., therefore, the budget that gets given to the NHS. As you know, this government has previously been very clear that their election priority is to reduce waitlist and that there's a very important role for the private sector to play in doing that. And we are the largest provider of NHS services in the U.K. So we are well positioned, but it's very hard for us at this point, I think as it is for everyone in the U.K. to be certain of what will happen. It really does depend on budget outcomes and political outcomes in the U.K. Operator: The next question comes from Andrew Paine at CLSA. Andrew Paine: Congrats on the results. Just wanted to circle back to Elysium. Really just wanting to know if you think the current performance there is leading to a shift in your longer-term plans for that business? Or do you think you continue to focus on adjusting cost base and keep things like growth CapEx on hold? Natalie Davis: So for the moment, the posture is that the focus is on performance improvement. So any growth CapEx is on hold, continues to be on hold. And the focus very much is on making sure that we're managing costs and managing the services we provide to the local levels of demand. There's also a focus in the turnaround around thinking through how we actually improve the offers that we're providing into the market. So we've previously called out neuro as an area where we think we need to reposition our services towards a slightly lower complexity, lower acuity cohort where there's a bigger demand pool. The team is also focused at the moment on bespoke packages. And this really is, I think, somewhat unique to Elysium because we have a very, very good reputation of providing care to very complex individuals. And so in a number of locations, we are talking to local authorities to take individual patients with very highly complex needs. And those packages are developed with pricing that's commensurate to the effort that we need to put and the care that we need to put around those individuals. So I think we have more work to do in the future around thinking through how do we strategically position our services in the market. But very much at the moment, the focus is on turning around the business and continuing to gain momentum from that in the results. Andrew Paine: That's great. Yes, that makes sense. And just another quick one. Just any numbers you can give us around the expected contribution of National Capital. I know you said it's expected to be EPS-accretive in the first 12 months, but if you can give us any numbers, that would help. Natalie Davis: Yes. At this point, we're not giving out any numbers. So we're very excited about welcoming the NatCap team to the Ramsay family. That will happen, we think, around the end of July. At the moment, we're in the transition planning period, but it's a very attractive catchment area with high rates of private health insurance. It has a great leadership team in place. They have a good reputation with doctors and they have -- they do work in the complex therapeutic areas that we do and they have a very strong relationship with the Canberra Health Service. And so NatCap is very much a hospital which is very akin to some of our major and very successful hospitals around the country. Operator: The next question comes from David Bailey at Morgan Stanley. David Bailey: The Joondalup headwind was about $14 million. So I'll just touch on an earlier question. How much was the benefit from lower digital and data spend in the first half? Natalie Davis: So as I've said, we're not giving any half guidance on our spend. So we're on track to basically maintain or slightly lower our spend on digital and data for the year, but we're not providing any specific guidance on the half. David Bailey: Okay. But it says in the pack that it was lower. How much lower was it? Natalie Davis: I'm not providing any specific numbers on digital and data. David Bailey: Okay. Fair enough. Okay. In terms of the commentary around PHI increases, it sounds like it's offsetting wage inflation at the moment. You made the comment that participation is still holding up, but there is a significant increase in the proportion of exclusionary policies, which looks to be a drag on utilization. If we think into fiscal '27, if price is matching your cost inflation and there is potential for lower utilization on the fact that people are downgrading their policies, do you see a situation whereby you can grow your EBIT margins at 60 basis points implied by guidance and potentially 100 basis points at the top end? Natalie Davis: Thank you for the very detailed question. I think when we look at private health insurance coverage in Australia, what we have seen is downgrading, as you've just mentioned, particularly from gold into silver and bronze policies. But the overall rate of hospital level coverage is staying at around about the 45% level. Now the significant impacts of that downgrading are being felt in particular in maternity and mental health that are only available on that gold level coverage. And that has probably a very significant impact, particularly for younger people looking at whether to take up private health insurance because those 2 features are important. And so we're very much a strong participant in the sector-wide discussion that is going on around how do we maintain the proposition for Australians around affordable private mental health and maternity level coverage. And I won't be going on specific -- any specific guidance on margin in the outer years apart from saying that it's our focus as a management team and we're making progress. The transformation is underway and we will continue to focus on lifting the performance in the Australian business with all the challenges that we're facing, but also the opportunities that we have as Australia's largest private health care company. David Bailey: And just one final one for me. Just the Fair Work Commission work value case, just the status of that and expectations around potential further wage increases duration and from when they could potentially be implemented as well? Natalie Davis: So that at the moment, the fair work value case is before the Fair Work Commission. So we're also waiting to see where that eventuates. We are expecting, I think, a level of phasing to any increase that is approved in there. So -- and I previously said at the moment, when you look at our wages, we are above award wages. And we, therefore, expect that and the combination of phasing really to mean that the pressure from that in terms of sector-wide and our wage pressure will be more in the outer years rather than in the short term. So I think that might be the last question. Operator: And it was the last question, if you'd like to make any closing remarks. Natalie Davis: Thank you. Well, I wanted to thank you all for joining the call and for a really great set of in-depth questions on our business. As you've seen in the results, I laid out 3 very clear priorities for Ramsay Health Care and we are well underway in terms of the work we're doing as new group executive leadership team to really capture the potential of Ramsay Health Care and we look forward to engaging with you all on that journey. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Welcome to Perpetual's Half Year 2026 Market Briefing. [Operator Instructions]. Press the documents icon to see today's files. Select the document to open it. You can still listen to the meeting while you read. The audio queue is now open. I'll now hand over to Suzanne Evans, Chief Financial Officer. Suzanne Evans: Fantastic. Thanks, Michelle. Good morning, everyone, and good afternoon or evening to those who are joining us from other parts of the world. Welcome to Perpetual's half year briefing for 2026. Before we begin today, I would like to acknowledge the traditional owners and custodians of the land on which we present from for today. Here in Sydney, that is the Gadigal people of the Eora Nation. We recognize their continuing connection to land, waters and community. We pay our respects to Australia's first peoples and to their elders, past and present. We would also like to extend our respect and welcome to any Aboriginal or Torres Strait Islander people who are listening to this briefing. We acknowledge the traditional custodians of the various lands on which all of you work today. Presenting our results today will be our Chief Executive Officer and Managing Director, Bernard Reilly; and myself, the Chief Financial Officer, Suzanne Evans. There will be an opportunity, as you've heard, to ask questions at the end of the presentation. Can we please ask that we start with just 2 questions per person to ensure that we have time for everybody who would like to participate today. Before I hand over to Bern, we'd just like to also draw your attention to the disclaimer that's contained on Page 2 of the presentation. Bern, over to you. Bernard Reilly: Thank you, Suzanne. Good morning, everyone, and thanks for joining us today for Perpetual's First half '26 results briefing. Reflecting on the overall group performance this half, we delivered a solid result, achieving both revenue growth and underlying profit growth as well as making good progress on our strategic objectives. As you'll see from the table below, our headline results showed total operating revenue of $697.9 million for the first half, up 2% underlying profit after tax of $112.7 million, up 12%. We reported a statutory profit after tax of $53.9 million. The Board has determined to pay an interim dividend of $0.59 per share unfranked, and diluted EPS on NPAT was $0.971 per share, 9% higher than the first half of 2025. We maintained disciplined cost management, resulting in an improvement in our expense guidance for the full-year. We continue to make strong progress on our simplification program. To-date, we have now delivered $60 million in annualized savings, and we remain on track to achieve the targeted $70 million to $80 million by FY '27. In Asset Management, earnings growth was supported by improved market conditions and cost management, partially offset by currency and net outflows, primarily in global, international and U.S. equity strategies. Importantly, over the period, our Australian boutique performed well and Barrow Hanley's contribution improved. Corporate Trust continued to perform consistently, delivering strong growth across all 3 business segments and reinforcing its importance as a diversified earnings engine for the group. The business benefited from strong securitization markets and client growth throughout the half. Wealth Management showed resilience during the half by maintaining focus on delivering for clients as the sale progress -- has continued to progress. While we've made good progress with Bain Capital and are progressing documentation, there is no certainty that a binding agreement with Bain will be reached or that a transaction will proceed. Turning to the next slide. I want to now spend some time framing our asset management business in the broader industry environment. Quality asset managers come into their own during down markets and periods of heightened volatility. We continue to expect more flows between active managers. As you can see on the chart on the bottom right-hand side of the slide, flows between core active funds still dwarf flows from active to passive funds. The line between public and private markets is blurring with private capital increasingly accessed through mainstream vehicles across wealth, retirement and insurance. McKinsey also know the convergence of traditional alternative assets. For Perpetual, this underscores a clear path to growth. High conviction, differentiated active capabilities and increasingly ETF wrapped strategies aligned to new distribution channels. With that context, let me now turn to performance and flows across our boutiques. Our multi-boutique model provides earnings diversification across capabilities, client segments and importantly, regions. As you can see in some of the points on this slide, we saw pockets of strong performance across a variety of our capabilities in the first half, with 54% of strategies delivering outperformance over the important 3-year time frame, reinforcing our relevance in an environment where active flows increasingly reward demonstrated performance. During the half, we saw $22 billion of gross inflows and $32 billion of gross outflows, resulting in a net $10 billion of outflows. While collectively, we saw outflows in U.S. global and international equity capabilities, emerging markets and Australian equity strategies saw areas of investor inflows. This was supported by a strong half for fixed income capabilities, highlighting the benefits of a diversified asset management platform. Net outflows in the half were offset by stronger equity markets and foreign exchange movements, supporting earnings growth and increased AUM over the half. We remain focused on active client retention and delivering strong investment performance, which together underpin improvements in our flow profile over time. Turning to the next slide for some more detail on our Australian asset management business. The integration of our Australian distribution capabilities has materially strengthened our local platform. We now have a large and diversified footprint across both the intermediary and retail channel, which I'll refer to as wholesale and the institutional channel with $71 billion of AUM across Australia. If we look more closely at the wholesale channel, we managed $32 billion of AUM. Of the over 15,000 ASIC registered financial advisors, nearly 11,000 have holdings in Perpetual Group products. We also have key sales and distribution team members working closely with asset consultants and subchannels, including high net worth researchers and brokers. Wholesale delivered $1.5 billion in net inflows for the half. In our institutional channel, we managed $25 billion of AUM across superannuation funds, government clients, insurers, endowments and foundations. We did see outflows for the institutional channel in the half. However, we saw an improvement on the second half of 2025, and we've secured several wins in the first half. These flows include a $250 million contribution from a super client into Australian equities, $110 million contribution from a large institutional client in J O Hambro's emerging markets capability and $100 million new multi-asset mandate from a large superannuation client. Important to note, we also manage $14 billion of AUM in the cash channel. Importantly, our Australian distribution is now a unified platform with strong expertise in distributing across asset classes and boutique brands through a single coordinated team. Our team of 46 includes sales, marketing and client services and is one of the largest local distribution teams in the industry. We're also seeing the benefits of strong product development, including the launch of contemporary investment solutions, and I'll touch on them in more detail on the next slide. A key priority for asset management is ensuring our product range is aligned to evolving distribution channels and strategies where we see sustained client appetite, particularly in fixed income. During the half, we launched the Perpetual Diversified Income Active ETF, which performed well relative to other ETF launches in the period and held over $215 million in AUM as at the 31st of December. We also successfully raised $268 million for the Perpetual Credit Income Trust with assets now in excess of $800 million. In working with our client base globally, we were able to successfully launch Barrow Hanley's U.S. Mid-Cap Value Fund into the U.K. market in June with the fund reaching over AUD 165 million in assets in or $110 million by the end of December 2025. This represents a significant achievement, especially given Broadridge's global market intelligence data, which indicates that fewer than 1% of newly launched funds surpassed the $100 million of assets in AUM. Looking ahead, we have an active pipeline of strategies under development and where appropriate, we will support them through seed investments to target attractive growth areas. Suzanne will talk further about our seed capital program shortly. We expect the continued convergence between traditional and alternative capabilities to remain a feature of the industry globally, driving a forecasted $6 trillion to $10 trillion of capital reallocation over the next 5 years. To that end, our discussions with Partners Group have advanced and an early-stage product design is now being introduced to the market to assess interest. We're also looking at the launching of a direct bond SMA in Australia to expand our suite of fixed income solutions for advisers and platforms. Turning to ETFs. The U.S. active ETF market represents a significant opportunity. While active ETFs remain a relatively small portion of overall AUM, they are becoming an increasingly important channel, capturing a high share of industry flows and revenues. We will continue to build on our established ETF platform here in Australia, and we're going to apply some of these learnings to the U.S. market. We've decided to enter the U.S. ETF market in a risk-managed basis by a third-party provider of multi-series trust structures. This structure is lower in cost and offers quicker speed to market, helping us to bring scale before we need to invest more heavily. If we now turn to the work we're doing with J O Hambro. I've spoken previously about restoring J O Hambro to its heritage strength, and it remains a key priority for us. We've made progress on revitalizing the business, and this will continue through the second half and beyond. In September last year, we announced the appointment of Bill Street as CEO. Building off the work we've already started with J O Hambro, Bill has quickly commenced implementing a clear strategic direction, beginning with the simplification of J O Hambro's operating model to create J O Hambro International an aligned platform that better positions the business for growth. The future success of J O Hambro is an important component of our global offering, and we look forward to updating you on its progress over time. Turning now to Corporate Trust. On the next slide, please. Thanks. The business experienced another strong half and continues to deliver steady growth across all 3 of its business segments. The Australian securitization market remains robust, supporting continued growth in debt market services. Importantly, we continue to see growth across the non-bank lenders, contributing to a more favorable mix of mandates for us. Managed Fund Services growth was driven by custody and our Singapore business, benefiting from both new and existing client growth. Digital and Markets also delivered a 5% uplift in assets under administration compared to the second half of 2025, reflecting continued investment and expansion of our client offerings. Highlighting its strength in the market more broadly for the 10th straight year, Corporate Trust was awarded the KangaNews Australian Trustee of the Year. Looking forward, the business remains focused on executing its 5-year growth strategy, including investing in its core business and digital markets. Corporate Trust has proven time and again to be a highly resilient and growing business. UPBT has grown steadily at a CAGR of 11% from around $22.4 million in first half of '19 to approximately $49 million in the first half of 2026. The cost-to-income ratio has remained broadly stable in the mid-50s range, underscoring our disciplined investment in the business as revenue has continued to grow. This slide also illustrates what is driving that growth across each of our business segments. Notably, Corporate Trust's service-led operating model is aligned both to the credit-linked and equity market growth, which provides a stable, diversified earnings base that is less exposed to equity market volatility. That diversification is particularly relevant in the context of asset management's market sensitivity, reinforcing Corporate Trust's role as a consistent and resilient earnings business within the group. Moving now to Wealth Management. In the half, the business remained focused on delivering for its clients while the sale process continued. Underlying profit before tax was lower, reflecting expense growth. However, wealth management was resilient. Funds under advice grew by 6% over the half, supported by institutional flows and strong equity markets. It was also pleasing to see the strength of this business recognized externally. Five of our advisers were recognized in the Barron's Top 150 financial adviser list, reinforcing our position as a trusted provider of high-quality client-focused financial advice. We were again recognized as a finalist in 2 categories of the 2025 IMAP Managed Account Awards, marking our third straight year of distinction. Wealth Management is at the core of Perpetual's 139-year history and has all the hallmarks of a successful business. Strong funds under advice, 12.5 years of consecutive net inflows as well as being one of Australia's largest managers of philanthropic funds with a very strong client advocacy measure, as you can see here. In relation to the sale process more specifically, I'd like to reiterate that while we have made good progress with Bain and are progressing documentation, there is no certainty that a binding agreement will be reached or that a transaction will proceed. In parallel, we are establishing a clear stand-alone operating perimeter for the business to support a potential sale and ensure continuity with minimal disruption for our clients and for our teams. Our Wealth Management business is a high-quality profitable business with growing funds under advice, and the Board and I are focused on ensuring that any transaction that Perpetual may ultimately enter into is in the best interest of our shareholders. Turning to the next slide. Our simplification program remains on track to deliver our overall target of $70 million to $80 million in annualized savings by June 2027. Importantly, the benefits are now flowing through into reported earnings alongside a simpler, more streamlined operating model. The chart on the right-hand side of the page highlights our planned program of work, which, as you can see, is well advanced. As at 31, December, we have delivered $60 million in annualized savings, of that $26.9 million of actual savings was reflected in the first half '26 results. The majority of savings to-date have come through workforce-related efficiencies, supported by ongoing rightsizing across the global business and the removal of duplication as we simplify structures and reinforce organizational or reduce organizational complexity. We incurred $4.4 million of additional cost savings in additional costs to achieve these savings during the half, and they are recorded as significant items. Looking ahead, the areas of focus for the second half of FY '26 remain finance systems transformation, back-office simplification and the ongoing rightsizing of functions across the group. Total costs to achieve the program are expected to remain at approximately $55 million. In summary, we are pleased with the progress we've made so far, acknowledging we still have more work to do. I'll now hand over to Suzanne to walk through the financials in more detail. Suzanne Evans: Fantastic. Thanks, Bern. It's great to be able to present a little bit more detail around Perpetual's half year results for the period ended 31, December 2025. We'll start by moving just to the next slide, Slide 15, that has a summary of our results. Operating revenue of $697.9 million was 2% higher than the 6 months ended 31, December 2024 or the prior corresponding period, driven by continued AUM and further growth across the group. As noted in our recent second quarter update, revenue included performance fees of $10 million, mainly generated by our Perpetual and J O Hambro boutiques. Total expenses of $547.8 million were within our guidance of 2% to 3% growth for the financial year 2026. I'll step through some of the drivers of our expense growth and also the basis for our improved expense guidance range shortly. Underlying profit after tax was $112.7 million, 12% higher than the prior corresponding period, supported by improved contributions from asset management, continued momentum in Corporate Trust and reduced funding costs following the refinancing of our debt facilities in the last financial year. The effective tax rate on UPBT was lower at 24.9% compared with the prior corresponding period. Now this was a combination across the halves due to a write-off of a deferred tax asset in the prior corresponding period and in the current half and unrelated prior period adjustments lowering the effective tax rate. If I look forward in the medium-term, we would expect the effective tax rate to normalize around the 27% to 28% range. Significant items for the half year were predominantly non-cash in nature, and I'll cover those in more detail later. Earnings per share on UPAT was 9% higher. Finally, on the summary slide, the Board has declared an interim dividend of $0.59 per share, unfranked and to be paid on the 7th of April 2026. Now if I move to the next slide. On here, we've just got a high-level visual snapshot of performance across our divisions. I'll step through each division in slightly more detail, beginning with Asset Management. Asset Management underlying profit before tax increased 4% to $106.9 million, demonstrating top line growth, but also how our cost discipline is beginning to translate into an improved cost-to-income ratio when compared to the prior corresponding period. Higher average AUM drove higher management fees. However, performance fees were slightly lower than the prior corresponding period. Total expenses declined 2%, reflecting some of the early benefits from the simplification program that Vern has outlined. These were partly offset by foreign currency movements and continued investment in upgrades to our fund technology platforms. Now moving on to Corporate Trust. Corporate Trust experienced steady UPBT growth in the half, up $5 million on the prior corresponding period across all 3 of its business lines. Increased volumes in Debt Market Services, along with new client flows, further supported underlying FUA growth in the securitization portfolio. The result was 10% growth on the prior corresponding period revenue. Managed Fund Services revenue increase was driven by growth in custody services and continued momentum in our Singapore operations, both from new and existing clients. Digital Market Services experienced particularly strong growth with revenue up 20%. Some of that reflected an elevated level of implementation fees for Perpetual's intelligence SaaS offerings as well as continued growth in markets and the fixed income platform management solution. Operating expenses were higher, supporting growth and increased client volumes as well as continued investment to enhance digital capabilities across the business lines. Moving now to Wealth Management. Wealth Management's UPBT decreased by $5.5 million. Given the backdrop of the ongoing sale process, the business remained resilient. Revenue was broadly flat at $118.8 million. Market-related revenue increased modestly, supported by stronger equity markets, while non-market revenue declined slightly, mainly due to lower fiduciary and risk advisory income. Total expenses were up 6% with increases across staff, technology and premises costs. Funds under advice were up 6% on the first half to $21.9 billion with positive market movements and net inflows from new institutional clients. Moving now to the final division, our Group Support Services. Underlying loss before tax decreased by $3.3 million, with higher revenue over the half compared to the prior corresponding period. Revenue was supported by higher income from seed investments, interest received on cash balances and some foreign currency revaluations. Compared to the prior corresponding period, interest expense declined, reflecting the benefit of the refinanced debt facilities in May last year that I referenced earlier. Moving now to the next slide with a reconciliation between underlying profit after tax to net profit after tax. Significant items for the half were $58.8 million and were predominantly non-cash in nature. During the period, we undertook a review of significant items and began developing a clearer policy around classification, which resulted in some age projects being closed or where appropriate, moved back above the line. If I step through our results from UPAT to NPAT, the main drivers were costs relating to the Pendal transaction, the proposed sale of the Wealth Management business and our simplification program. I will call out on Pendal, these are the final costs associated with the transaction, and we're expecting no more to occur by the end of financial year 2026. The simplification program and any associated costs with Wealth Management are expected to continue into the financial year 2027. The remaining significant items are non-cash in nature and include revaluation adjustments. Reflecting the impact of these significant items, we reported a net profit after tax of $53.9 million. Now if I move to a bit more detail around our expenses. Controllable cost growth was 1%, largely attributable to expenses in Corporate Trust and Wealth Management as well as variable remuneration linked to improved contributions from Barrow Hanley and also our Australian boutiques. Now this was partially offset by simplification program benefits, which also helped to mitigate inflation-related cost pressures. Cost growth was also impacted by foreign exchange movements, albeit not as negatively as the prior 6 months. Looking ahead, we've improved our FY '26 expense guidance, and it's now reduced to between 1% to 2%, down 100 to 200 basis points on the prior guidance provided. It is important to note, however, included in this guidance is that expenses will continue to fluctuate depending on FX movements and interest rates. We've provided our currency assumptions in the footnotes to this slide. Moving now to cash flow. Free cash flow of $33.8 million for the half included $82.9 million in net cash receipts in the course of operations. There was a net increase in free cash flows in the half compared to the prior corresponding period. Borrowings did increase by $10 million over the period, but that was predominantly due to timing differences in drawings on our working capital facility relative to the upstreaming of dividends across our global operations. After paying dividends totaling $60.3 million and adjusting for timing on seed repayments and foreign currency movements, total cash at 31, December 2025 was $325.6 million. Moving now to the balance sheet. The balance sheet at 31, December 2025 remains robust and is supported by operating activities across our diverse sources of earnings. The majority of our cash is held for working capital, but also for regulatory capital purposes and predominantly in the United Kingdom. For greater clarity, we have also disaggregated the other financial assets in the balance sheet into 3 segments: seed capital, IIP balances and a loan receivable. By way of background, the IIP units is where Perpetual is hedging employee incentive obligations. Of course, there is an offsetting item in the liability side of the balance sheet. Importantly, we have $150 million of surplus liquid funds available, of which the majority relates to undrawn lines of credit. Now moving on to one of these categories, seed capital. Our seed capital is deployed to support organic growth and product development. Capital is deployed selectively, recycled actively and governed through a formal committee oversight process. The average holding period is approximately 3 years. We've included some case studies here to illustrate how seed capital can be used, whether it's to build early scale, launch strategies, develop track record and then recycle capital once external demand is established or the sometimes difficult and more challenging part to exit where scale is not achieved or commercialization does not occur. Now finally, turning to dividends. The Board has declared an interim dividend of $0.59 per share for the half, which will be unfranked and paid on the 7th of April 2026. The interim dividend represents a UPAT payout ratio of 60% for the half, which is lower than the prior corresponding period where the payout ratio was set at 70%. Dividends are expected to remain unfranked in the second half of this financial year. We will, of course, continue to assess the appropriate payout levels within our stated range, taking into a number of factors into account, including our ability to frank. I'll now pass back to Bern for some comments on the outlook. Bernard Reilly: Thanks, Suzanne. Before we move to questions, I want to spend some time talking about the progress that we've made on our strategy over the half. Thanks. Next slide. Great. Our strategy is aligned to 3 pillars, as you can see here on the page, simplifying our business, delivering operational excellence and investing for growth. We've made progress within each of these pillars over the half. Firstly, with Simplify, as I've already spoken to today, our simplification program has streamlined the group's operating model and delivered an additional $16 million in annualized savings for the half. Progress has also been made on our finance and transformation projects. Delivering on operational excellence. Our 3 businesses are now established as focused, largely decentralized business lines with greater accountability for delivery and financial outcomes, supported by continued group oversight and governance. Additionally, we have delivered on our cost commitments, resulting in an improved expense guidance for 2026. Finally, as we discussed earlier today in investing for growth, we have supported the launch of new product innovation in asset management with an example being the Perpetual Diversified Income Active ETF. Our Corporate Trust business also completed the acquisition of IAM's term deposit broking business, increasing scale in markets, broking and fixed income areas. Corporate Trust will continue to look for additional capabilities that will help drive business growth. We have also progressed AI transformation initiatives, embedding AI into core workflows to enhance decision-making, productivity and scalability across the business. These 3 pillars will remain the platform for execution for our business activity for the remainder of 2026. Now looking ahead, we have a clear and focused set of priorities. We'll continue to deliver on our cost reduction commitments. We'll retain our leadership position in Corporate Trust by investing in capability to drive further growth for that business. We'll continue to target investment in new products and capabilities across our asset management business, and we'll work to remove complexity to create a leaner, more efficient structure for the group. Thank you for listening this morning. Suzanne and I are now happy to take questions that you may have. I'll hand back over to Michelle, our operator, to manage these questions. Thanks, Michelle. Operator: [Operator Instructions]. Our first question comes from Elizabeth Miliatis from Macquarie. Elizabeth Miliatis: The first one is just on the sale of the Wealth division. If you could give a little more color on why things are taking a little longer than perhaps we'd expected. There's also been press reports that the brand is potentially up for sale as part of that transaction. Yes, just a little more color would be much appreciated. Bernard Reilly: Sure, Liz. I'll start and maybe Suzanne can add in. The process for the sale of the wealth has taken longer than I think the market would have liked. I think to put it into context, I think it's important. Firstly, this is a business that we've owned -- Perpetual's owned for 139 years, and it is intertwined in particular with the other businesses that we have, in particular, Corporate Trust. If you think about the prior transaction that we had contemplated, we were selling 2 businesses together to one buyer. Now we are selling one business to -- potential progressing selling one business to one buyer. We need to untangle that business from the broader organization to be able to do that. There's an element here of negotiating a sale while also untangling the business to be able to do that. It's actually quite a complex process to be able to do. I think the one point that I'd like to reiterate that I have said in my formal remarks, was that the Board and I are very focused on delivering the best outcome for our shareholders. So we're very focused on that, and so understanding the complexity that's in front of us, we're driving to get to an outcome of clarity for the market, but also for our team and our clients as quickly as we can. I was focused on the first bit. Really, we don't comment on media speculation, but when we thought about the sale process, brand was an important part of the consideration for us. I'll probably leave it at that. Elizabeth Miliatis: Then just the upgrade to the guidance for OpEx, so now 1% to 2% from 2% to 3%. It seems like most of that change is currency. Can I just confirm that? Then also secondly, I mean, just the rates in there look pretty conservative. Obviously, we'll see how things progress over the next 4 months or so, but potential upside risk to that number as well just because of currency? Suzanne Evans: Yes. Liz, you're spot on. In fact, that was probably one of the big swing factors in the full-year last year. Fair to say that probably has made me quite conservative as the CFO. Yes, I mean, FX is a big swing factor for us, and we've tried to capture that when we've provided the guidance. What I would say, though, is we're already 2 months into the second half, and there's a lot of things there which are still controllable costs. I think that's given us the confidence to tighten the range. Obviously, the combination of us staying quite vigilant on the expense base and also some of the benefits coming through from the simplification program, I'd like to think that we can comfortably deliver within the guidance we've given. Operator: Our next question comes from Nigel Pittaway from Citi. Nigel Pittaway: Just first question on -- just on J O Hambro. It seems as if your aims there to restore it to its heritage strength is still being somewhat hampered by the net outflows from the international and global select strategies. I was just wondering, do you feel you're any closer to be able to extend those outflows? Or is that something that we can expect unfortunately to go on for some time? Bernard Reilly: Nigel, yes, with J O Hambro, the select strategies have still -- you're right, still experienced outflows. You're 100% correct there. What we are seeing is a real focus on client retention, in particular with a lot of the wholesale clients in the U.S. The team are very focused on that. I think what drives investment outflows or inflows is performance, right? Performance there has still remained soft, and that makes that challenge a little bit harder. What I would say on the other side of that, our other global strategies and our emerging market strategies in J O Hambro have actually been receiving inflows as well. They do -- you do see some of the offset there as well. It remains a focus... Nigel Pittaway: Then just, I mean, following up, those 2 strategies, the outflows from there seem to be the main explanation as to why the revenue margin in asset management ex-performance fees dipped quite a bit in the second half last year. There seems to have been some partial recovery in that this half despite those outflows continuing. Is there anything going -- else going on within that revenue margin for asset management? I say stripping out performance fees that made it improve this half? Bernard Reilly: You're right. The margin compression that we saw in the prior half was related to the outflows in Select. You're also seeing at the margin, you're seeing the asset mix is changing. We touched on some of the strategies that we launched in the most recent half, and we've seen those fixed income strategies, which are a lower basis point average relative to equities where we've seen the inflow. You do see some of it is in that. It's not in all in outflow. We've also seen a pickup in some of the Barrow strategies as well. Suzanne Evans: Yes. I think as Nigel just called out, the way we report it includes performance fees. Operator: The next question is from Andrei Stadnik from Morgan Stanley. Andrei Stadnik: Can I ask my first question around distribution efforts in U.S. and U.K.? Are you pleased with the progress there as you are in Australia? Or what's the update on U.S. and U.K. European distribution? Bernard Reilly: Sure, Andre. We highlighted the Australian distribution in this half because we've actually spoken about the global in the prior half or the half before. I can't remember now. I thought it was an opportunity given a lot of the work in the Australian -- bringing the Australian teams together was really finalized. I wanted to highlight that and the fact I think they've done a great job in delivery on coming together as a unified team and delivering positive flows for the business. I suppose that's the first point, I suppose to explain why we put it in there for you to give you some context. I also think the size of that team and our footprint is something that we don't always talk about, and I think it's actually a great asset for the business. Reflecting that, I think, is important. It is far -- that team is far more advanced than our international distribution footprint would be a fair assessment to make. The work that we're doing with the team is continuing to drive that. Am I happy where it's at? I'm probably never going to be happy enough with where it's at from a distribution perspective. I might say the Australian team, some of them are listening have done a good job. There's still more that they can do. I suppose we're focused on continuing to drive what we can on both on -- I think the market segment piece is important. If I think about the U.S. and the U.K., I think a great example of some of the work that we've done was launching the Barrow Hanley strategy in the U.K., which was effectively a strategy we have in the U.S. that there was a real appetite for that opportunity in the U.K. The multi-boutique model allowed us to actually offer that in a different market that the Barrow team never would have been able to access had we not had they not been part of the group. I think a good fact point around the business strategy and structure that we have. An example of that. I think there's more we need to do in the intermediary space, wholesale space in the U.S. It is a little bit hampered, to be honest, by some of the outflows we're seeing in the select strategy, but that's an area of focus that I can assure you the team are clearly focused on that. The other part to, I think, think about in the U.S., given you raised the U.S. is how that market is changing. Active ETFs are clearly -- while it's a small start, right, but active ETFs garnering an outsized share of flow. We've talked about it in the past, us having a footprint in the active ETF space in the U.S. is going to be important for the future. As I mentioned in my remarks, we've made some steps there to go down the path of actually using a third-party provider. The reason we're doing that is a couple of fold. I think from a risk of execution perspective, we're taking some of the risk off the table by using someone who is using a multi-series fund. We're effectively using their scale to help us launch. It's quicker to market for us. We don't have to spend all the time building and getting approvals. We can get to market more quickly. Then we can assess the success of that and the progress of that before we look to invest more heavily. I hope that answers. Andrei Stadnik: I can ask the second question. Just on the seed capital, $183 million of seed capital. Can you talk a little bit about how that's shaped evolved over time, where you would like to see that number? How many strategies might be behind that $183 million of seed capital? Suzanne Evans: Yes to take that one. Thanks, Andre. Bernard Reilly: Suzanne is the Chair of the Committee, so she can take that. Suzanne Evans: Look, the thing is to deal with one of your questions, it is very diversified. We've got a lot of strategies that only required a relatively small amount of seed either to build the initial portfolio construction to build a track record. We've got quite a few bets in there. There'd be more than 20 capabilities that we've got ceded today. Also included in that number is investments in our CLO business via Barrow Hanley. Now those are obviously longer-term structures, so not liquid. Those ones have more duration to them. I think the important thing there is we're quite focused on, I think the size that we have deployed at the moment is appropriate. Obviously, the discipline that we're very focused on is how do we recycle. It's quite easy putting money into funds. It's sometimes a lot harder at recycling or as I sort of called out, if something isn't working, and that may just be that the market demand wasn't where you expected it to be. You have the discipline around closure and bringing that capital back. I wouldn't see us looking to materially increase the pool that we have today. I think with what we've got and with some of the recycling we're starting to think about, we'll be able to continue to support some of the innovation and product development that has spoken about. Operator: The next question is from Lafitani Sotiriou from MST. Lafitani Sotiriou: Can I start off with the wealth management business and sale process? $14 million spent in the last half is quite a lot of money for a business you may not sell in addition to the $5 million odd you spent the half before. Can you talk us through exactly what that money is being spent on? Have you got a better idea on potential stranded group costs and further separation costs if you are successful? Bernard Reilly: Sure, Laf. If you look at the $14 million pretax number, that is spent in -- there's obviously legal and other costs in there, but I think the larger part of that is around actually the separation of the business, which, to be honest, as part of our simplification strategy, we would do anyway. There's a part there where we are creating -- bringing the team into a separate perimeter and systems and other sorts of things that we are -- the technology that we're implementing that's in that number. You're right, $14 million is not an insignificant number, and it's one that we are keeping a very close eye on in addition to the $5 million you mentioned from the prior half. Suzanne Evans: I think it's a good point, Laf, because I think it's -- some of that is obviously cost that we may otherwise have incurred, but maybe in a slightly more accelerated time frame with some of the work we're doing around putting more autonomy into each of our business lines. The stranded cost, obviously, is something I'm very focused on. I would say we've already had a mind to that through the simplification program. Wherever we end up with the sale process, I'm pretty confident that those will be relatively immaterial. Now that does require us to do some more work just as we've done across the rest of the organization, but that's not something that probably touches my mind that much. The other part that around what will it cost if we are successful with the sale. I think we're going to have to progress a little bit further with that process to be able to articulate that in a way that I wouldn't be giving you a misleading number. I guess it's fair to say we have had a reasonable amount of spend already. That's some cost, which we can leverage if there is a sale that proceeds. Lafitani Sotiriou: Can I clarify? I understand that there are costs that you can move around, but one of the criticisms has been you had the strategic review and simplification cost program previously, that was over $130 million. Now you've got a new simplification program, which is $60 million. This is even separate to that, right? This wealth management $20 million spend is another one-off program that is being kept off and separated from the underlying cost. There seems to be a lack of consistency. On the one hand, you've got one-off costs for your tax you've reduced your tax cost in the underlying number this period, but it's from one-off capital gains losses that you would typically strip out, but you've then stripped out a lot of costs from your wealth business, which you still have, and you've also stripped out still $6 million from your Pendal business. I'm just not sure how we should reconcile and think about one-off costs going forward? Suzanne Evans: Yes. Thanks, Laf. Just one point of clarity and sorry if I wasn't clear before. Some of the impact that we've had in the prior period around the deferred tax asset wasn't actually a capital gain loss. We had a deferred tax asset that was sitting there, which was a timing part. We took a view around our Singapore business, and that was reversed. It's just slightly different and sorry if I didn't clarify it. I think we've definitely heard from the market views around significant items, and I made a commitment at the last half that we would start to look at that. I can't change some of the history, but I think I have been very focused on working with both the executive team and the Board around how we do have more discipline as to what gets classified as a significant item. I think there will be items from time-to-time and the potential sale of the wealth business is one of them, which I think if we don't break that out and provide some clarity around it, it is going to be very hard for people to think about the ongoing expense base. I will say we've heard you. We've heard what the market has given us this feedback, and we're starting that process. I think by the time we come back at 30, June, I think we can be much clearer as to what you should expect on a go forward in terms of the classifications for significant items. Lafitani Sotiriou: Just to be clear, so the wealth management business, some of that is actually BAU that's in that perimeter that's been separated. The teams -- that's people headcount that are part of the wealth business that are being excluded from the underlying number. That tax piece, that Singaporean thing still, whether it's a CGT thing or not, that's one-off in nature. Suzanne Evans: Yes, you're correct on the one-off. That's right. It's not people in the wealth business. We do have a team at the moment that are assisting us with the separation process. That separate team makes up some of that cost. I wouldn't categorize this as BAU spend. It is something that we're doing over and above. Obviously, if this was a BAU process, we would take a lot longer around some of these separation activities. The fact is, as Bern said, we're trying to separate 2 businesses that have operated together quite closely for close to 140 years. There's a lot of unwinding to do. Some of that's quite technical in nature around the co-sharing of licenses and operations that have existed for a long time. Lafitani Sotiriou: Just finally, so can you just clarify why the one-off tax gain is included in underlying the one-off BT Pendal-related expenses still being excluded from underlying? Suzanne Evans: The Pendal one, I think -- and forgive me if I haven't got a little of the history, but I understand at the time the Pendal transaction occurred, it was indicated that it would take approximately 3 years for those costs. In that program, as I'm aware, all of the integration work is completed, but there is still a bit of a tail around some of the incentive arrangements that is still coming through in that number. That won't be there from FY '27, which is what I called out. As with the tax, I guess what we're trying to do is mirror both above and below the line. In terms of the one-offs, those were highlighted previously in significant items. I guess it's an open call as to whether you think they're material enough to call out. Given the movement that also pushed us below what we would expect our effective tax rate to be on a medium-term basis, which, as I said, is around the 27% to 28%, we wanted to call it out. Operator: There are no further questions. I'll now hand back to Bernard Reilly. Bernard Reilly: Thank you, Michelle, and thank you, everyone, for joining us on the call today for our update on our first half '26 results. Thank you.
Hakon Volldal: Good morning, and welcome to Nel's Fourth Quarter and Full Year 2025 Results Presentation. My name is Hakon Volldal, I am the CEO. With me today, I have our CFO, Kjell Christian Bjornsen; and our Head of Investor Relations, Marketing and Communications, Wilhelm Flinder. Today, we have the following agenda. We will skip the Nel in brief section and go straight to the fourth quarter and fiscal financial year 2025 highlights. We will have a commercial update. We will talk about our new technology that we are about to launch, and we will, as usual, end with a Q&A session. Quarterly highlights. Revenue from contracts with customers came in at NOK 330 million in the quarter. We had an EBITDA of minus NOK 36 million. Solid order intake. I think it's the second best order intake in Nel's history of NOK 686 million. Order backlog increased to NOK 1.3 billion, and we ended the year with a cash balance of NOK 1.6 billion. In the quarter, we had several highlights. Among them, the PEM purchase orders from HyFuel and Kaupanes from hydrogen solutions in Norway, together with a combined value of more than $50 million. We were chosen as a technology provider for GreenH projects in Kristiansund and Slagentangen in Norway. And we received a third order for containerized PEM solutions from H2Energy in Switzerland. We also took a final investment decision on industrializing the Next Generation Pressurized Alkaline platform. Coming back to that a bit later in the presentation. Looking at the fourth quarter results. Revenue, as I said, came in at NOK 330 million. That's a 9% increase quarter-on-quarter and a 20% decline year-on-year from the fourth quarter last year. EBITDA flat versus last year and also flat quarter-on-quarter. The big difference versus last year is actually on the EBIT line with a negative EBIT in the fourth quarter of NOK 920 million compared to NOK 106 million minus in the fourth quarter last year. That is due to roughly NOK 800 million in impairment losses due to our next-generation technology influencing the value of the current platforms or the legacy platforms. I'll come back to the specifics a bit later. No cash effect, of course, on the impairment. That means we end the year and also the quarter with a solid cash balance of NOK 1.6 billion, slightly down from NOK 1.9 billion at the end of '24. In a historical context, 2025 came in below '23 and '24, but still higher than '22, '21 and '20. EBITDA losses came in at minus NOK 275 million, again, as a consequence of the reduced revenue. So not a year that we wanted. But still, in a historical context, around NOK 1 billion is decent. Alkaline was the main reason for the decline on the revenue side and also on the EBITDA side. We went from NOK 1 billion in '24 and a positive EBITDA of NOK 127 million down to NOK 562 million in '25 and a negative EBITDA of NOK 16 million. Again, this was partly due to canceled contracts or also the bankruptcy of one of our customers that was supposed to drive top line and EBITDA performance in '25. On the PEM side, we increased revenue slightly from 2024, and we also improved EBITDA slightly. More revenue is needed in order to bring the PEM business into black numbers on the bottom line. Order intake and backlog. That was a very positive development in the fourth quarter. As I mentioned, the fourth quarter was the second -- or is represented the second best order intake for Nel ever. I think we had one quarter in '22 that was better, but compared to what you can see here in '24, '25, it was a big, big step forward, of course, driven by the big contracts in Norway with HYDS. It also means that the backlog has increased from below NOK 1 billion to NOK 1.3 billion, and 2/3 or roughly 70% of the backlog is now related to our PEM technology. Order intake accumulated ended in line with previous years, below 2022, which was a very good year, but again, a big step forward from NOK 977 million in 2024. And as you can see here on this slide, most of the order intake in '25 came on the PEM side. Important for Nel is to protect our cash balance. And the cash burn rate historically has been high as the company has invested into R&D and also production assets. We have been cautious in '24 and '25 to bring down the cash burn rate. We continue to invest into technology, but there is not the same need to invest into assets as there was historically. Compared to '23, we reduced the cash burn by 35% in '24, and we have reduced it further by 41% in 2025. Again, there will be some investments into production assets, production equipment for manufacturing lines and also some investments on the technology side. But if you look at the operational losses and CapEx together, we will not go back to what we witnessed in '21, '22, '23 and '24. We will have a controlled burn rate going forward. This is driven by a reduction in, among other things, full-time employees. We have gone from 430 people in total in Nel to 346 at the end of '25. And as a consequence, we have also reduced personnel expenses from NOK 646 million in '24 to NOK 569 million in '25. That's a 12% decline. The impairments that we took in the fourth quarter actually reflect our optimism around next-generation technology platforms. We have developed a new technology that we believe in. We believe the new technology will be superior to the technology we have sold traditionally. And that means, as a consequence of this new technology, we expect demand to shift to the new platforms and there will be less demand for the old or existing products. And that means the value of those platforms will be reduced, and we have reduced also the book value of these assets. We took an impairment loss of NOK 361 million related to our atmospheric alkaline production assets, more specifically Line 1 at Heroya, and we've also taken NOK 439 million in impairment related to goodwill and intangible technology assets stemming from the acquisition of the PEM division back in 2016. Moving on to the commercial update. 2025 was not a lost year. We also had some good progress. Among the highlights, I would like to mention the partnership agreement with Samsung E&A. We became their preferred global partner for hydrogen. We received the third purchase order from a major U.S. steel producer, a nice big purchase order from Collins Aerospace for U.S. Navy stacks, where we equip submarine vessels with our PEM stacks. We sold a solution to the Aberdeen Hydrogen Hub in Scotland. As I mentioned, big orders from HYDS in Norway and a nice third order from H2Energy in Switzerland, and also the recognition of Nel as the technology provider for GreenH projects in Kristiansund and Slagentangen. Going a bit more into detail on the contracts that we signed in the quarter. This is a picture of an installation we have done in Switzerland together with H2Energy. It's in Kobel. It's close to hydrogen power station. This is not what we will develop based on the order that we received, but it shows what we have done with them. And now they have placed an order for a similar facility, and it represents the third such order to Nel from H2Energy and we take pride in that because it means that when somebody comes back to you and orders more equipment, they're happy with the performance. In the hydrogen industry, there have been lots of stories about equipment that doesn't work and suppliers that can't make plants run. This is a customer that has had the opportunity to check our equipment, test it, run it and they come back to us to buy more. I think that's a nice testimony of the quality of what we now deliver on the PEM side. The purchase order for 40 megawatts from HYDS was the highlight in the quarter. The 2 projects they will develop are the HyFuel project and Kaupanes, 20 megawatt each, and we plan to deliver the MC500 containerized PEM systems to these 2 projects. Both projects are funded partly by Enova and total contract value exceeds $50 million, and that represents the largest order for PEM equipment that Nel has received so far. And also the second largest contract we have signed in history. We will produce the solutions at our PEM manufacturing facility in Wallingford, Connecticut. We will deliver more than 20 megawatts to 2 projects in Norway that will be developed by GreenH. The minimum scope agreed for each of these projects is 10 megawatt of electrolyzer equipment plus engineering and technical support. The 2 sites are designed to supply clean hydrogen to industrial and maritime users, and they will form part of GreenH's network of distributed regional hydrogen production facilities. Again, these projects are partly supported by Enova with funding. And also size and delivery of the schedules for these 2 projects will be confirmed at a later date, exactly when they will produce it and what technology that has been chosen. If we sum up what is happening in Norway, on the maritime side is actually starting to look quite interesting. There are the 2 projects with HYDS, Floro and Egersund; there are the 2 projects with the GreenH, Slagentangen and Kristiansund; and then there's also the Rjukan project with the Norwegian Hydrogen, where they announced a maritime offtaker of the hydrogen they will produce at Rjukan. And altogether, this forms a quite interesting picture of what is happening in Norway and also the fact that you can supply now hydrogen from different sites, means that it becomes more attractive to invest in hydrogen vessels for ship owners, because you're not dependent on one site only, you have multiple sites available, and that redundancy of fueling options and bunkering options is important. In the fourth quarter -- actually, that's not correct, earlier this year, we launched the Electrolyzers for Europe initiative. It's an initiative consisting of 6 leading electrolyzer OEM manufacturers, all European, to promote electrolyzers made in Europe. Europe has more than 10 gigawatt of annual electrolyzer production capacity, but less than 1 gigawatt has actually been deployed, and that means we're lagging behind EU's target of having 40 gigawatt installed by 2030. This slow uptake is, among other things, due to unclear and/or to rigid regulations, insufficient offtake and cancellations across many early-stage hydrogen project developments. What we aim to do with this initiative is to unite the leading electrolyzer OEMs and help push for clearer frameworks, predictable demand signals, and faster policy execution. And by speaking with one voice, a unified industry voice, this initiative aims to protect Europe's technological leadership, strengthen competitiveness versus subsidized imports and accelerate large-scale hydrogen deployment. So that's a good initiative. Nel is one of the founding members of this body, and we hope more industry players in Europe will join this initiative going forward, so that we can help politicians shape the regulations that we need to drive the industry forward. Talking about or coming to the outlook section and offering somewhat a market perspective going forward, it's slightly challenging. But what we have seen is that order intake in 2025 increased by 15% versus 2024. And again, it was not evenly distributed throughout the year. We had low order intake in the first -- actually, first quarter was good, second and third quarter not so good, and then the fourth quarter was very strong. It accounted for almost 60% of the total order intake for the year. It's difficult to predict order variations between the quarters. But if we look at the long term or mid- to long-term trends, we are positive. What about the short-term trends? We continue to see several promising projects in the 20 megawatt to 150 megawatt range. And these projects are expected to take final investment decision over the next quarters. Especially on the PEM side, we see a lot of opportunities. And the reason why containerized PEM has strong momentum is that projects have indeed become smaller. They have been scaled down from maybe several hundred megawatts to something which is slightly smaller as the first phase. Developers had to start with 20, 40, 50 megawatt instead of going directly to hundreds of megawatts in order to phase in demand. And that means, with the first step of 10 to 50 megawatt, we are in the sweet spot for Nel's containerized PEM solutions. With a containerized PEM solution, you also get a proven, efficient and standardized alternative to customized solutions. And I think a lot of the customers have seen that designing a hydrogen production plant from scratch is expensive. The amount of engineering and planning that you need to put into it is quite substantial. And then having something ready to go arriving in containers simplifies overall project execution and also enables you to shorten the schedule to go to market with hydrogen. It also improves the redundancy, because you have access to multiple systems, and it's easy to build it out stepwise to scale it over time. Significant CapEx reductions on this particular solution, of course, also help. We have worked hard over the past couple of years to get the cost down. The market is price sensitive. So as a result of our cost reductions, we also see that we can enable more projects to move forward with a profitable business case. With respect to geographies, Europe is currently the most active and promising region for Nel, but we also have leads and opportunities in North America, the Middle East and Asia. Then we move on to the technology update. As I have said before, we have spent a long time developing a new generation of alkaline electrolyzers. We have spent more than 7 years developing a brand-new platform. It has taken a long time, but we really wanted to build it from scratch and build a product that is in fact better than what we have on many, many different dimensions. We wanted to be the best electrolyzer the world has ever seen. And now we are here. This is not a PowerPoint rendering, this is a picture of the prototype at Heroya. It's close to our production plant located inside the Heroya Industrial Park, where we for some time now have tested a real version of our pressurized electrolyzer. And what do we aim to accomplish with this solution? We hope that this new solution will set new industry benchmarks. We see that this solution is extremely compact. We can reduce system footprint by up to 80% if we compare it to our existing atmospheric alkaline solution. Why is that important? Well, especially in Europe where there is -- which is the most promising region at the moment, you don't have all the land that you would like to have. Land is expensive. And sometimes you need to locate your hydrogen production plant inside an industrial park or you need to develop a brownfield site. That means having a compact solution that can fit on the site that you have access to, the plot that you have available, it's important. Even more important, I would say, is to get the system CapEx down, the cost of building the entire plant, not just the electrolyzer itself, but everything that goes with it. It's the complete system cost that has to come down for our customers. With this solution, we believe we can bring the total system cost down by 40% to 60%. And that means we start to get close to a level where hydrogen becomes very attractive. Long term, of course, it's not only about the CapEx, it's more about the OpEx side. And OpEx is driven by electricity consumption. This solution will significantly improve the energy consumption for generating hydrogen. We believe that on a system level, we can get down below 50-kilowatt hours per kilogram of hydrogen. And that is a 10% to 20% improvement over most systems today. To add some color to why we are confident that we can deliver on this CapEx and OpEx improvements, I'll just touch briefly on some important points. OpEx, again, the electricity consumption, it's the design of the electrolyzer itself. We have improved the energy efficiency, so 0 gap electrode design, improved diaphragms. We have also spent a lot of time designing a smart system that limits the shunt currents that typically plague pressurized electrolyzer systems. We have a unique and patented solution for avoiding shunt currents. So all of that design work leads to improved energy efficiency in the stack itself. Also important is the fact that you can operate the electrolyzer at different loads. We have a wide operating range, meaning you can run the electrolyzer at the 100% or you can run it at 10%, 20%. So that wide operating range is important when you want to optimize the electricity cost and how much hydrogen you produce, at what hours during the day. We also had a quick ramp up and down. And that is important because it means you can respond to price changes in the market rapidly. If you spend hours bringing your electrolyzer load down, you will not benefit from the fluctuations in electricity prices. Our system has been designed to use as little electricity as possible and still give customers the opportunity to optimize the electricity consumption based on pricing in the markets and how you want to run your system. CapEx reductions are driven by the fact that our system now consists of fewer and cheaper modules. Because there is pressure generated inside the electrolyzer, gas is coming out at 15 bar pressure instead of coming out at atmospheric pressure, we can avoid modules such as scrubber and the gas holder. And we also, because of that pressure, can reduce the size of the modules. Our system has been designed for outdoor installation, which is rather unique. I'm not aware of any other pressurized alkaline electrolyzer technology that can be installed outdoor. Most are installed inside buildings. Having a separate building for your electrolyzer adds a lot of costs, because there are safety regulations linked to ATEX zones, et cetera, that drive up the cost of the building. So we avoid all of that cost. It can operate outside, even in Norwegian or Nordic climate, through the winter conditions. The footprint is small, as I commented on, and this helps reduce cabling, piping and site works linked to concrete, et cetera. It brings all of the construction costs down, because you don't need to prepare thousands of square meters. You get the small compact footprint with less work. And that means all in all, also because our system is standardized, modularized, everything comes inside 20-foot skids, we significantly reduce the engineering, construction and commissioning cost. Why is that important? Because the labor part sometimes account for more than 50% of the total CapEx for the customer. So it's not only about getting the hardware cost down, it's also about getting the labor cost down, and our system delivers on both of these things. We announced, I think right before Christmas, that we delivered first gas with solid results, confirming our anticipated business case. And that led to the Board of Directors giving us the green light for building 1 gigawatt of stack production capacity at Heroya. So very pleased with the results so far. And now it's full speed ahead to commercialize this technology. We have produced gas on the prototype plant, as we said, in 2025. We took final investment decision on the gigawatt production line in the fourth quarter. We will launch the product commercially in the first half of 2026. May 6 is the magical date when we will invite customers and partners to come observe this technology, and also share more technical data and commercial data with them for what this system can do. We aim to validate the full customer pilot in the second half of 2026 and be in position to deliver at scale. What does that mean? Well, it means hundreds of megawatts in 2027. This project is funded by the European Union. We have received EUR 135 million in grants for industrializing the concept. Doesn't mean that we will spend all of that, but we are lucky and very happy that we have a solid financial backing for building the production line and running the pilot tests from the European Union. Then we are done with the official presentation and move on to the Q&A part of the quarterly presentation. And then you have a script you need to go through first, Wilhelm. Wilhelm Flinder: Thank you, Hakon. Before we start the Q&A session, just a few practical points. [Operator Instructions]. To manage the time, we ask you limit yourself to, I think we can take 2 questions at a time. If there's room at the end, you are welcome to rejoin the queue. We will also take written questions submitted through the Q&A function if time allows. If we don't get your questions, feel free to reach out to us at ir@nelhydrogen.com. And as a reminder, we will not comment on outlook specific targets, detailed terms and conditions for individual contracts, or questions about specific markets. Modeling questions are also best handled offline. And with that, I think we can get started. Wilhelm Flinder: As of now, I see no one has actually raised their hand, but we have received some questions -- here, we have one. Anders Rosenlund, I'll bring you on the screen. Please go ahead. Anders Rosenlund: You talked about this new pressurized alkaline system with the energy reduction of some 10% to 20% compared with most systems today. And the indication of below 50 per kilo is a bit vague. But could you just give us an indication of what you think energy consumption is for alkaline today, or what the systems that you deliver are consuming? Hakon Volldal: I think the big -- if you look at PEM and atmospheric alkaline, it's usually in the 55 kilowatt hour to 60 kilowatt hour per kilogram range, depending on who the OEM is. And then there are lots of OEMs claiming to be at very low figures for pressurized alkaline. And the problem is, yes, you might be that on the stack itself, but you lose a lot of that electricity due to so-called shunt currents, so electricity spent on producing hydrogen where you don't want it, in the manifold system. So if you look at the real energy consumption, it might be 15% to 20% higher than what we stated in data sheets because of that effect. And that means you, in some cases, are well above 60 kilowatt hour per kilogram of hydrogen, which comes as a big surprise to customers when they turn on the plant and they compare the electricity consumed versus the hydrogen coming out of the plant. Anders Rosenlund: And the above 60, that applies for PEM or alkaline... Hakon Volldal: That above 60 is for pressurized alkaline technology with high shunt currents. PEM is typically around 55, I would say, on the system level. And then, of course, a lot of these systems degrade over time. So there's a degradation effect of 1% to 2% per year. And our system has been designed to minimize that degradation effect, so that you end -- after, say, 6, 7, 8 years, your energy efficiency is still okay and not just during the first couple of years. Anders Rosenlund: And just a follow-up there because you said -- you referred to the others out there with those electricity consumption levels. But I presume that also applies for your equipment, that your equipment is not materially different since this is an improvement compared to what you already are producing? Hakon Volldal: No, I would say, if you look at PEM, there were not those big variations. It's either 53, 54, 55, 56. I mean most OEMs are in that range. And then plus the annual degradation. The big unknown is on the alkaline side. We produce atmospheric stacks where you have very low shunt currents, but higher energy consumption than we will have with the new technology. The problem is related to the existing pressurized alkaline stacks on the market today. And without throwing specific companies under the bus, we can say that most of these technologies are plagued by high shunt currents, which means you might operate in the 55 to well above 60 kilowatt hours per kilogram range. So we don't have the problem with shunt currents because we don't deliver pressurized alkaline technology today. When we do, the whole product has been decided to avoid that problem, and that is the differentiating factor. Wilhelm Flinder: Thank you, Anders. I see no hands. So let's jump to some written questions. From Morten, will you sell your old alkaline stacks in the future when your new tech is available, or just deliver on placed orders and then switch to pressurized alkaline? Hakon Volldal: I think we will still sell some atmospheric electrolyzers. There are some use cases for atmospheric stacks that are quite good. But as we have said, we think the majority of the market will prefer our new technology, because it is cheaper. The levelized cost of hydrogen will be lower for many customers, and that is the reason we have done the impairment, but we will be in a position to supply customers with the old or existing products if they want them. So I think we will sell both, but over time, the majority of the demand will be related to the pressurized alkaline technology. Wilhelm Flinder: So another one from Morten, do you think there will be consolidation in the electrolyzer world? And do you think Nel will survive these initiatives? Hakon Volldal: I think we have -- I can start and then you follow up, Christian. I think that consolidation has already started. There are a couple of companies that have gone bankrupt or given up. And I think that is likely to continue. There will be fewer players out there. Nel aims to be one of the companies that remain when the dust settles. And then, of course, we are a publicly listed company. Anybody can buy us. If somebody wants to buy us and pay a very high price, I think it's up to the shareholders to consider that, but we plan to remain a leading company. We remain to be one of the key players in the industry. And with the launch of the new product, first, the pressurized alkaline product and, in a couple of years, the new PEM technology, we believe we are in a position to capture a significant share of what we believe will be a sizable hydrogen market. Anything to add here, Christian? Kjell Bjørnsen: No, nothing. Wilhelm Flinder: So will you need PEM in the future when you have pressurized alkaline solution? And if yes, why? Hakon Volldal: So we will -- PEM and alkaline technology have slightly different use cases. Some customers prefer PEM, some customers prefer alkaline. We are in a position to pick the one solution that fits the business case or the project the best. And then we are of the opinion that it's much better for Nel to disrupt itself than for somebody else to do it. That's why we continue to invest into the R&D side. The pressurized alkaline technology will cannibalize and over time, outcompete the atmospheric alkaline version. It might even cannibalize the PEM product. And then if we launch a new PEM product, it is because we believe that product either has some unique benefits that will drive demand from certain segments, or because it will even outcompete the pressurized alkaline technology. So Nel aims to bring the best technology to market that we can possibly come up with. And if that means cannibalizing the old technologies, so be it. Wilhelm Flinder: Good. Also a question from Thomas on here. And I don't think we can be very specific, of course, but maybe some general comments around it. Are there large EPC tenders where Samsung and Nel are currently jointly bidding on? Hakon Volldal: Yes. Wilhelm Flinder: Yes. Good. We've also got some questions from David Lopez on e-mail. Some of these are already taken, but will the new pressurized alkaline technology be able to compete on price for projects worldwide with electrolyzers made in China? Hakon Volldal: Yes. And especially outside China. If you go back to my comment earlier that when you look at the total cost of starting a project, if you look at the CapEx side, more than 50% could be related to labor costs. And that is engineering hours, construction, commissioning, testing, et cetera, happening on site. Whether you start with equipment coming from China or equipment coming from Europe, you need to perform that with local labor on site. So even if the hardware cost is cheap for Chinese equipment, that labor portion is still very, very high. And what we aim to do with our solution is to bring that labor cost down to a minimum. That means we can be a bit higher on the hardware side if we can be much better on the labor cost side. I believe that with our pressurized alkaline technology, we are competitive on the hardware cost side, and we are much better on the labor cost side. And that means we have a winning solution for CapEx. Over time, the Chinese will probably -- they learn fast, they move fast. We have to expect that they will have a lasting competitive advantage related to their supply chains that will enable them to beat us on CapEx. We will do as best as we can, but it's fair to say that they -- or assume that the electrolyzers coming out of China will have a lower production cost. What can we do then? Well, we can beat them on the OpEx side. The OpEx is still more important than CapEx. CapEx is the first hurdle, but for the levelized cost of hydrogen, energy consumption is key. And that's where we, with this technology, have taken a giant leap forward in terms of efficiency and where we still see opportunities to improve. And compared to what is there today coming out of China, we are many, many steps ahead on the actual performance on the electrical consumption. So I believe we have, with the pressurized alkaline system, a world-leading technology that will put Nel in a position to win projects globally. Wilhelm Flinder: Thank you. I'll do another one from David Lopez. Given the Trump administration's policies, have there been any advances in the Michigan plant project? And if the project has been halted, will we have to wait until the new U.S. election to see if the new administration is more supportive of green energy? Kjell Bjørnsen: So we've said before on this topic that we will not build an empty factory. And unfortunately, in a market situation as it is, there is no market for building that facility. So we are not actively doing anything on that side. We would have loved to, but we would need to wait until there is a market. Wilhelm Flinder: Thank you. I see we have another question from Anders Rosenlund. Please go ahead. Anders Rosenlund: Could you comment on working capital and possible efforts to bring down the very large inventories? Kjell Bjørnsen: Yes. So the key thing on the large inventory is inventory that we have because some of our customers basically stopped their projects. Some of them even went bankrupt. We are working very hard to get that over to a cash conversion, working with several concrete projects, but we are dependent on new project wins to sell that. We're not adding to the problem by producing more. Also for the PEM side, with the newly advanced orders, we are making sure that we hold back our commitments until we have money on the book. So you could say the larger than normal inventory we have is a result of some of the historical project cancellations. Anders Rosenlund: And the reason why it stays high for a couple of quarters in a row is because of lack of alkaline sales? Kjell Bjørnsen: Yes. So there's limited new large alkaline orders that are possible to both sign and then deliver on. That's one of the things we are working very hard with and it's a key priority to get that sold. Wilhelm Flinder: Thank you, Anders. It seems we are now out of questions, so I think we'll end the Q&A session here. If anything comes after the call, you're always welcome to reach out to us at ir@nelhydrogen.com. And I'll hand the word back to the management for any final remarks. Hakon Volldal: Yes. I think if we look isolated on the 2025 financials, we are, of course, not happy with the figures. We wish the performance would have been higher, but it became clear quite early that we would have a difficult 2025 in terms of top line and EBITDA. What I'm happy about is that 2025 has definitely not been a lost year. We have used 2025 to strengthen key partnerships with strategic EPC partners, Reliance, technology development partners. We have massively invested in our new technology platforms and successfully developed those platforms towards commercial launch. Because of the difficult markets and lack of demand for legacy products, we had to accelerate the R&D effort and bring the launch plans closer to us, and I am proud of the organization for its ability to deliver on that ambition. We go to market now with a new product in May. And I really, really believe in that product, because it has been designed from scratch based on the right set of, let's call it, guiding stars, so what is required to make hydrogen projects work. We have looked not only at our piece, the stack, but we have taken a system view and really tried to look at this from the customers' perspective, what can we do to bring total system costs down? What can we do to bring the cost of producing hydrogen down? And that makes me quite optimistic about 2026. Despite a difficult 2025, we had a good ending to the year with important contract wins in Norway. We still see demand for our PEM products. I think we are likely to sign more PEM contracts going forward. And then hopefully, we can get more momentum on the alkaline side through our efforts to get rid of the inventory of electrodes, but also start to build the order backlog for the pressurized technology going into '27 and '28. So with that, I think we will come back in April with even more news on the launch of the new product platform, and we look forward to maturing that.
Monica Webb: Welcome to Tucows' question-and-answer dialogue for Q4 2025. David Woroch, President and Chief Executive Officer of Tucows and Tucows Domains, will be responding to your questions. For your convenience, this audio file is also available as a transcript in the Investors section of our website, along with our Q4 2025 financial results and updated reports. I would also like to remind investors that if you would like to receive our quarterly results and Q&A via e-mail, please make the request to ir@tucows.com. Please note that the following discussion may include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. These risk factors are described in detail in the company's documents filed with the SEC, specifically the most recent reports on the Forms 10-Q and 10-K. The company urges you to read its security filings for a full description of the risk factors applicable to its business. Today's commentary includes responses to questions submitted to us following the prerecorded management remarks regarding the quarter and outlook for the company. We are grouping similar questions into categories that we feel are addressing common queries. If your questions reach a certain threshold or volume, we may ask to schedule a call instead to ensure we can address the full scope of your questions. And if you feel that the recorded questions and/or any direct e-mail you may receive do not address the full body of your questions, please let us know. Go ahead, Dave. David Woroch: Thank you, Monica, and welcome to our Q&A for our fourth quarter financial results. This quarter, we received 3 questions from investors, which we'll address here. We recognize that many of you are taking a wait-and-see approach regarding the Ting process, and we understand that perspective. The first question is, is there any update you can provide on the sale of Ting assets? Has the process been delayed as the price of such assets begins to fall with the broad market sell-off? The Ting process has not been delayed. It is ongoing, and we do not believe that external volatility has a direct impact on the time line. We continue to work closely with our financial advisers to determine the optimal path forward. Based on our experience with acquisitions and domains, transactions of this nature require a thorough diligence and coordination among multiple stakeholders, and time lines are driven by the specifics of the asset and the availability of information. We remain deeply engaged in the process and focused on achieving the best outcome. The next question is, why is the adjusted EBITDA margin on Wavelo expected to be down year-over-year as per 2026 guidance? As noted in the management remarks with our Q4 release, there are Ting Fiber and mobile customers on the Wavelo platform. Based on different potential outcomes for the Ting process, this could result in a reduction of fees for Wavelo. There is a range here, and we are conservatively forecasting that possibility in Wavelo's adjusted EBITDA guidance. Additionally, we layered in some investments midway through 2025 that are now fully annualized costs in 2026, and we're continuing to invest to grow Wavelo's top line while still remaining below the cost structure of our competitors. And lastly, we had a question on the announced stock buyback program stating, "I know you always renew this. What is the company's access to liquidity? I also assume that the window is closed until the conclusion of the fiber divestiture." As a reminder to investors, the annual buyback authorization provides flexibility, not a commitment to buy back stock, and any deployment will be evaluated against return thresholds and liquidity considerations. Liquidity and balance sheet strength remain priorities. As discussed in recent quarters, continued deleveraging of the Tucows' syndicated debt and completion of the Ting divestiture process are central to further strengthening our liquidity profile. The syndicated debt paydown is ongoing, and each dollar repaid increases available borrowing capacity up to the committed limit. A successful Ting divestiture would further enhance liquidity by improving our consolidated free cash flow and adjusted EBITDA profile, supporting greater borrowing capacity and overall financial flexibility. Capital allocation remains conservative and deliberate. We are developing a formal framework to guide the appropriate balance between continued deleveraging, reinvestment in the business, potential acquisition opportunities and share repurchases. Currently, our liquidity, excluding Ting, consists of approximately $20.9 million of unrestricted cash. Liquidity remains sound, and our immediate focus is consistent free cash flow generation and further balance sheet strengthening. Thank you for listening to our Q&A. And a reminder that if you feel that the recorded answers or any direct e-mail you receive do not address your question, please follow up with us at ir@tucows.com.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to The Honest Company's Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference call over to Chris Mandeville, Interim Head of Investor Relations at The Honest Company. Please go ahead. Chris Mandeville: Good afternoon, and thank you for joining our fourth quarter and full year 2025 conference call. With me today are Carla Vernon, our Chief Executive Officer; and Curtiss Bruce, our Chief Financial Officer. Before we begin, I will remind you that our remarks today include forward-looking statements subject to risks and uncertainties. We do not undertake any obligation to update these statements, and actual results may differ materially. For a detailed discussion of these factors, please refer to our safe harbor statements in today's earnings materials and our recent SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and accompanying presentation, which are available at investors.honest.com. Finally, please note that all consumption data included in our discussion today, unless otherwise noted, will reflect Circana MULO+ measured channel data for the 52 weeks ended January 4, 2026, as compared to the prior year. With that, I'll turn the call over to Carla. Carla Vernon: Thank you, Chris, and hello to everyone joining the call. Honest enters 2026 as a more focused and agile organization. Over the last several months, we've moved assertively to execute the Powering Honest Growth transformation we laid out last November. By exiting Honest.com as a direct fulfillment website, the apparel category and our Canadian business, we've successfully narrowed our focus to our right-to-win core of wipes, personal care and diapers. With these exits, we've also rightsized SG&A in line with this more focused revenue base. Later in the year, we expect additional financial efficiency as we consolidate our warehouse footprint. As a result of these actions, we begin 2026 with a leaner, higher-margin operating model poised for growth. Today, my discussion will be focused on the organic view of the product and channel mix that defines the resulting businesses after the strategic exits from Powering Honest Growth. As a reminder, organic excludes the impact of the exits of apparel, Canada and Honest.com fulfillment. Our execution in Q4 enabled Honest to deliver on our revised guidance for the year. In 2025, Honest delivered organic revenue of $294 million, up 5.3% versus last year and squarely in line with our long-term algorithm. Consumption growth of 5%, driven by double-digit growth in unit sales was in line with organic revenue growth and materially outpaced our comparative category growth of 2%. In 2025, our wipes and personal care portfolios delivered strong performance with consumption growth of 30% and 12%, respectively, which drove market share gains for both. This strength and momentum offset the softness in diaper performance. In 2026, we expect the growth on wipes and personal care to continue offsetting weakness in diapers. I will share more on our diaper performance in a few moments. Despite the volatile tariff environment, adjusted gross margins were 38.7%, an improvement of 50 basis points year-over-year, largely due to favorable product mix. Our 2025 adjusted EBITDA of $21.8 million was in line with our most recent guidance. We also closed out 2025 with a strengthened balance sheet, ending with $90 million cash on hand and no debt. I'm confident in the strength of our business, the discipline of our asset-light model and our anticipated future cash generation. Based on that foundation, our Board of Directors has authorized a $25 million share repurchase program. This authorization reflects deep confidence in our strategy and our commitment to delivering long-term value for our shareholders. Looking back on 2025 performance in more detail. We're particularly encouraged that momentum improved across the second half of the year with Q4 organic revenue improving by 6 percentage points over the Q3 decline and returning the business to top line growth of 1% in Q4. This inflection in revenue quarter-over-quarter was largely because we lapped 2 retailer-specific activations in 2024 that were mostly contained to Q3. Additionally, our total consumption improved by nearly 200 basis points quarter-over-quarter, driven by our higher-margin wipes and personal care portfolios. Taken together, these drivers allowed our underlying strength to resurface in the fourth quarter. We're proud that this momentum is also reflected in our all-time highest household penetration of 7.6% at year-end. This penetration growth represents an increase of 1.7 million households versus the prior year, proving that the Honest brand continues to resonate with a widening audience. And now turning to 2026. For the full year 2026, we expect to deliver organic revenue growth in the range of 4% to 6% while also driving margin expansion due to our more efficient operating model. This dual focus on top line leadership and bottom line health is central to our value creation thesis. As a reminder, we continue to drive our strategy through the 3 strategic pillars that guide every piece of our work: brand maximization, margin enhancement and operating discipline. This will be evident in our 3 growth drivers for 2026. Our first 2 drivers support our goal of brand maximization, which is how we scale the Honest brand. Driver #1 is our continued growth and leadership in the baby category. Driver #2 is our plan to accelerate our growth in households beyond those with babies. In addition to being a top baby brand, Honest also performs quite well in households beyond baby. And in the U.S., 89% of households do not have any children under the age of 6. This includes the 75% of households that have no children at all. To complement our strategy of broadening the Honest brand, our third driver of 2026 is grounded in our margin enhancement and operating discipline pillars, which allow us to make continued progress on strengthening our financial profile and operational excellence. Let me begin with our brand maximization drivers. The Honest brand is unique in its ability to travel seamlessly across categories, aisles and demographics. This was evident in our household penetration growth in 2025, which was balanced across households with no kids and households with kids. Even as we embrace this expanded approach to growth, our story always begins with babies. We believe there is no higher bar than the standard of care a parent gives to their precious babies. According to the National Institutes of Health, 42% of all parents and 49% of all first-time parents are concerned that their children have sensitive skin. This is why our Honest Standard, our rigorous set of guiding principles that help shape every step of product development, including our commitment to formulating without the use of more than 3,500 ingredients of concern resonates so strongly with our community. Honest is trusted by parents who demand a high standard of clean and refuse to compromise on safety or performance. Let me spend a moment addressing our diaper performance in 2025. The double-digit consumption declines on our diaper business had a dampening effect on the otherwise strong growth of our wipes and personal care collections. And while diapers are no longer our largest category, they are an important way to introduce the brand to the 11% of U.S. households with kids ages 6 or under. Our diaper declines were largely driven by retail assortment shifts at select brick-and-mortar retailers, the lapping of 2 large promotional events, which I discussed earlier, and macroeconomic pressures driving consumers towards lower-priced items. Because today's parents expect a value equation that balances price with performance and safety, we're strengthening that equation for our diaper business through thoughtful investment in pricing and improvements to price pack architecture while continuing to deliver the quality materials, fit and style that we are known for. Now turning to baby wipes and personal care. We are confident that our 2026 baby growth plan will deliver the ongoing strong momentum of our core products, along with a robust lineup of baby-focused innovation, much of which is rolling out this quarter. In 2025, our total Honest wipes portfolio delivered remarkable growth with consumption up more than 30%, which is 6x faster than the comparative categories. A standout performer was our all-purpose baby wipes collection, which grew consumption by 25%, materially outpaced the category and delivered the largest dollar share growth of any all-purpose baby wipes brand. One of the key drivers in this growth was trade-up to larger sizes. In response to the demand for value and convenience, we are launching our largest baby wipes configuration to date with 16 of our full-size packages for what we call our mega pack. Our baby personal care success is driven by the same demand for clean, safe ingredients we see across the Honest portfolio. With 12% consumption growth in 2025, we're building on this momentum with a strong innovation lineup in 2026. On the heels of the successful launch of our first partnership with Disney, we're expanding our Mickey & Friends bath time and bedtime items into additional retailers this year. Our baby personal care portfolio also focuses on bringing the sustainability and value that today's parents are seeking. This quarter, we are adding a new item to our collection of milk-carton-style 32-ounce refills with the addition of our fragrance-free shampoo and body wash. This gable-top packaging, which is our largest size offering, uses 89% less plastic than our standard 10-ounce bottle. And earlier this month, we launched our fragrance-free sensitive-rich cream moisturizer with a beautifully light and creamy texture that is clinically proven to deliver 48-hour moisturization for babies' delicate skin. As I shared earlier, in addition to growing with baby households in 2026, we will also bring intention and focus to our growth of Honest in households with bigger kids and no kids at all. This leverages momentum that has been quietly building. According to numerator data, 54% of current Honest buyers are in no kid households, and we have a history of appealing to those households in several ways. Many families who trusted Honest for their babies stick with us even after the kids grow up. Some of our most popular items from the baby aisle like our shampoo and body wash, body lotion or our conditioners and detanglers are favorites among households that don't have babies anymore. These are also households that discover Honest through products like our sanitizing wipes or our adult flushable wipes. Regardless of the reason, we have big plans to unlock more growth in households where the kids are older or where there may be no kids at all. The next natural step in this journey is our expansion into the section of the store dedicated to products for big kids. We know that as kids grow, they want things that show they are growing up, but that doesn't mean they lose the need for the gentle and clean formulations we bring. So we're practically cartwheeling with glee at our first launch into the big kid aisle in partnership with Disney Pixar's Toy Story. We are now taking bath time to infinity and beyond with a lineup of 6 items that add Woody, Buzz, Jessie and more Toy Story friends to the Honest family. The collection launched this month online and in stores at Walmart and will roll out at additional retailers ahead of the Toy Story 5 release this summer. In 2026, we are also poised to continue our growth in the 75% of U.S. households that don't have any babies or little kids. We have a two-pronged approach for growing with these no kid households. In many instances, we have seen that our existing items are already a great solution for these households. So in 2025, we began evolving our marketing messages to introduce these older households to our personal care items and wipes. We're also designing new items specifically with this broader set of households in mind. A great example of this success is our beautiful countertop-friendly adult flushable wipes collection, which grew consumption by 175% in 2025 and has ascended to the top 5 in Amazon's personal cleansing wipes set. Following our 2025 launch into brick-and-mortar retailers, including H-E-B and Target, we are striking while the iron is hot as we rolled out our flushable wipes into Walmart stores earlier this month. Also, in addition to our successful fragrance-free offering, we expanded the range of our sanitizing wipes by adding full-size packs in 2 new scents, grapefruit and lavender, alongside convenient pocket packs for on-the-go occasions. These are rolling into market as we speak. This strategy to grow across demographics is not a pivot. It's an advancement of what's working. Our community has spoken, the Honest brand and the Honest Standard are for everyone from babies and kids to kids at heart. And finally, we are also driving value creation through our focus on margin enhancement and operating discipline. Now that we've exited our lower margin and less strategically aligned categories and channels, we will be able to deliver end-to-end efficiencies in our supply chain, along with improvements to inventory management and reductions in SG&A. And with these Powering Honest Growth actions in place, we expect to deliver gross margins in the low 40s in 2026. We have strengthened our balance sheet, lowered our cost structure and have clear momentum in our right-to-win categories. And today, we believe Honest is better positioned than ever to deliver long-term value to our shareholders while building a stronger, bigger Honest. With that, I'll now turn things over to Curtiss to provide more detail on our Q4 and full year 2025 performance as well as our 2026 outlook. Curtiss Bruce: Thank you, Carla, and good afternoon, everyone. The financial results we are sharing today represent the conclusion of a necessary and decisive chapter for The Honest Company. While our headline numbers for 2025 reflect the deliberate streamlining of our portfolio, the underlying metrics reveal a business that is fundamentally stronger than it was a year ago. Through Powering Honest Growth, we have built a stronger financial foundation, specifically designed to power our future expansion. This program is expected to deliver between $10 million and $15 million in annualized savings, serving as a direct catalyst for margin expansion while at the same time, providing us with the fuel to reinvest and drive growth in our highest margin portfolios. To that end, our execution is moving at pace. Since our announcement in November, we have seamlessly exited nonstrategic channels and categories, taking actions to rightsize our SG&A and initiated plans to consolidate our footprint that will deliver structural improvements and efficiencies in 2026 that will endure well beyond this year. The performance and guidance I will detail today provide evidence of this continued scale for Honest. Beginning with our fourth quarter results, revenue was $88 million, down 11.8% year-over-year. This decline primarily reflects the deliberate impact of our strategic exits. These headwinds were partially offset by the continued momentum Carla detailed in our total wipes and baby personal care collections. On an organic basis, revenue grew 0.7% to $71.3 million, reflecting continued momentum in our total wipes and personal care categories, largely offset by ongoing diaper sales declines. Importantly, this was a significant inflection from our third quarter performance as we lapped select merchandising headwinds, observed continued strength in our wipes and personal care portfolios and executed on targeted investments. Gross margin was 15.7% compared to 38.8% in the prior year period. This was primarily related to a discrete inventory write-down on apparel as we finalized our exit of this lower-margin portfolio. Additionally, an increase in tariff costs was also a slight headwind compared to the prior year period. These pressures were partially mitigated by favorable product mix as we shift toward our higher-margin wipes and personal care portfolios and a decrease in fulfillment costs. On an adjusted basis, our gross margin was 38.3% and generally in line with the prior year period. Operating expenses increased $2 million year-over-year. This reflected $4.2 million of the total restructuring costs we expect to realize from Powering Honest Growth. This was partially mitigated by lower year-over-year SG&A, primarily reflecting a reduction in legal expenses. Q4 marketing expenses were consistent with the prior year period. In the quarter, the company reported a net loss of $23.6 million, primarily related to the onetime costs associated with Powering Honest Growth. Adjusted EBITDA for the fourth quarter was $3.8 million, down $4.8 million versus last year, largely due to lower revenue. Adjusted EBITDA margin was 4.3%. Turning to our full year 2025 results. Revenue was $371.3 million, representing a 1.9% decrease compared to the prior year. This top line performance primarily reflects the intentional impact of our strategic exits under Powering Honest Growth. On an organic basis, full year revenue increased 5.3%, landing squarely within our long-term algorithm and highlighting the underlying strength in our core wipes and personal care portfolios. Our GAAP gross margin for the year was 33.3% compared to 38.2% in 2024. This contraction was driven largely by a discrete inventory write-down on apparel and a headwind from increased tariff costs. These factors were partially offset by more favorable product mix. On an adjusted basis, gross margin was 38.7%, an increase of 50 basis points over the prior year, highlighting the underlying health of our core business. Total operating expenses decreased by $9 million or 5.8%, primarily driven by a reduction in SG&A related to lower legal and stock-based compensation expense compared to the prior year. This was partially offset by the aforementioned discrete restructuring costs and a strategic increase in marketing to support our growth. For the full year, we reported a net loss of $15.7 million compared to a loss of $6.1 million in 2024, with the variance almost entirely attributable to the discrete costs associated with our transformation. On an adjusted basis, net income was $8.3 million. Finally, adjusted EBITDA was $22 million, which landed within our updated outlook range and compared to $25.9 million in 2024. Now turning to our cash flow and balance sheet for the year. We generated free cash flow of $13.6 million, a substantial improvement compared to the $1 million in the prior year. This strength was driven by significant working capital improvements stemming from our focus on operating discipline. Our balance sheet ended the year in an exceptionally strong position with $89.6 million in cash and cash equivalents and 0 debt. This capital position, coupled with our asset-light operating model, provides us with significant financial flexibility. As Carla shared earlier, with this strength as the backdrop, our Board of Directors has authorized our inaugural share repurchase program of up to $25 million effective immediately. This decision is a direct reflection of our confidence in Powering Honest Growth and the substantial near- and long-term benefits we expect this transformation to deliver. We believe our current valuation does not fully reflect the structural improvements we are making to our operating model, and this program underscores our commitment to a disciplined capital allocation strategy, one that balances reinvestment in our growth initiatives with a clear focus on returning value to our shareholders. As we look ahead, the decisive actions we've taken to optimize our portfolio have created a much stronger foundation for profitable growth. We have effectively shifted our resources toward the categories where Honest has the clearest competitive advantage, and our 2026 framework reflects the early returns of that discipline. For 2026, we expect the following: reported revenue declines of 18% to 16% due to our strategic exits; organic revenue growth of 4% to 6%, in line with our long-term algorithm; adjusted gross margins in the low 40s; and adjusted EBITDA of $20 million to $23 million. To provide greater color on these figures, we anticipate sequential improvement in our organic growth throughout the year. While we face difficult comparisons in the first half of 2026, particularly in Q1 due to last year's retailer inventory buildup ahead of tariffs, our momentum will be driven by a robust pipeline of innovation and significant distribution gains established early in the year that will build throughout the remainder of 2026. For modeling purposes, it is also important to account for a high teens percentage headwind to reported sales resulting from the strategic business exits we finalized in 2025. While this impacts the reported top line, it effectively concentrates our resources on our most profitable categories. Our adjusted gross margin expectations reflect the continued success and ongoing shift in our revenue base toward our higher-growth, higher-margin wipes and personal care portfolios. As these categories represent an increasing share of our total business, we expect a consistent mix benefit to our consolidated margin profile. However, tariffs will remain a year-over-year headwind until they enter the base period beginning in Q2. Regarding supply chain efficiencies realization under Powering Honest Growth, we expect these savings to materialize in the second half of the year as we move past the implementation phase of our footprint optimization. Specifically, we are consolidating from 2 fulfillment centers into our state-of-the-art facility in Las Vegas with a focus on automated large-scale retail fulfillment. We are executing against a comprehensive project plan designed to ensure the continuity and stability of our operations. By applying our core principle of operating discipline to this move, we are focused on maintaining strong service levels for our retail partners and consumers throughout the process. Finally, our adjusted EBITDA expectations reflect the operational leverage inherent in our leaner business model. To fully appreciate the significance of our profitability outlook, it is important to look beyond the absolute dollars. While we expect our adjusted EBITDA performance to be consistent with the prior year, it is being generated off a materially lower reported sales base. The fact that we are maintaining our profit levels while intentionally shedding nearly 1/5 of our top line is a testament to the fundamental improvement in our business model. In terms of shape of the year for adjusted EBITDA, we expect performance to strengthen as the year progresses, mirroring the cadence of our organic growth and gross margin profile. When we look at the long-term earnings power of The Honest Company, we see a business that has moved past the era of structural complexity and into a phase of structural leverage. Regarding our top line potential, our 4% to 6% organic growth algorithm remains the appropriate yardstick for our long-term framework anchored in our focus on driving sustained market share gains. Just as brand maximization is a catalyst for revenue growth, we see a similarly long runway for continued margin enhancement. As our higher-margin, higher-velocity products continue to outpace the broader portfolio, we are establishing a new elevated baseline for gross margin. Additionally, the supply chain efficiencies and SG&A rightsizing we expect to realize are not onetime wins. We believe they are structural enhancements to our earnings power. As I close, I want to express my confidence about 2026 and the great future ahead for Honest. We are moving forward with a more productive portfolio, a stronger financial foundation and clear line of sight toward sustainable, profitable growth. We are committed to ensuring that the Honest brand thrives in the modern household for years to come. With that, I turn it over to Carla for final remarks. Carla Vernon: Thank you, Curtiss. Powering Honest Growth was never just about restructuring. It was about unlocking the full potential of the Honest business model and brand. In 2025, we did the heavy lifting to streamline our portfolio and establish a stronger financial foundation. And now in 2026, we build on the great momentum of our core products, our strong brand building and our great innovation lineup. This year, as always, our progress is due to the incredible execution by our team. Curtiss and I offer our sincere thanks to our employees, proudly known as our Honest Butterflies across our L.A., Las Vegas and Minneapolis locations. Their resilience and commitment as a community continues to power our success. We enter 2026 with a high degree of confidence in our ability to deliver sustainable, profitable growth. Thank you for your support as we build a stronger, more focused and enduring Honest. And now I turn it over to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: It's great to see the underlying strength of the organic business with that returning to positive territory. With the $25 million share repurchase announcement signaling confidence from the Board here, how should we think more about the cadence of organic growth building throughout 2026? Carla Vernon: Owen, Carla here. As we exit 2025, we really tried to express and indicate our confidence in the momentum we see as we're exiting the year. We leave Q4 with consumption of north of 3.5%, and that really sets us up well for the strength that you heard about on our wipes and personal care businesses, where we expect to see really continued strong performance in the year. We've got such a lineup of innovation against what we know works on those businesses. In the wipes portfolio, I talked about a bunch of the new products that are already shipping in the quarter; personal care entering that kid personal care set for the first time. So we're expecting the complement of new product innovation along with momentum on the core. But we really want to undergird all of that with the strength of our business model through supply chain improvements that we're also going to see across the year. Curtiss shared in his remarks that we're going to be optimizing our fulfillment center footprint. Some of those benefits will happen as the year runs. And our SG&A really bringing that in line with our new smaller revenue base was an important piece of progress we wanted to demonstrate on our transformation, and we'll be doing that over the course of the year. I think Curtiss can dive into more of the specifics quarter-over-quarter, but overall, we're really looking forward to seeing that continued strengthening over the course of the year. Curtiss Bruce: Yes. So let me just add the momentum that Carla is talking about that we're exiting the year with gives us a lot of confidence to be able to deliver our guidance of 4% to 6% organic revenue growth for the year. It's worth noting that, that organic growth will, however, represent down 18% to down 16% on a reported basis. In order to help with the modeling, we have provided the 2025 quarterly organic base that is in the press release. You can also find it on the website in the IR section on our Q4 [ presentation ]. In terms of the phasing from an organic growth perspective by quarter, we do expect to see sequential improvement in our growth rate as we lap the tariff inventory build in Q1 of 2025. We are absolutely confident in our ability to deliver our guidance on both the top and bottom line. Owen Rickert: Got it. Super helpful, guys. Secondly for me, with nearly $90 million of cash and no debt, how do you balance buybacks with reinvestment in maybe marketing and innovation going forward, especially with the stated goal of accelerating growth in those core categories? Curtiss Bruce: Yes. So let me start by just saying what a milestone this is for The Honest Company as a public entity to have our inaugural buyback authorization. I think that is quite an achievement, quite a milestone for us. And as we said in the remarks, it's a reflection of our ability to execute Powering Honest Growth. It's a reflection of, as you just stated, the $90 million we have in cash and 0 debt. And that $90 million was a significant increase from our balance at the end of Q3, so I think that is representative of our ability to execute Powering Honest Growth as we close the year. It also marks, I think, our confidence in our ability to execute the transformation program, our continued ability to generate cash and the confidence we have in our ability to deliver on our 2026 guidance. It also -- we believe that valuation does not reflect the potential of this business nor our ability to execute the transformation. What we will continue to do is prioritize investment in growth. We will maintain liquidity to weather any macroeconomic headwinds that could be in front of us, and we will balance that with returning value to shareholders. That is our capital allocation plan. Operator: Our next question comes from the line of Aaron Grey with Alliance Global Partners. Aaron Grey: Just want to dive a bit deeper in terms of some of the growth opportunities. In the past, we've talked about ACV opportunities, both in terms of breadth and depth. You alluded to some of the innovation earlier on the call. Curtiss, you also talked about some distribution in terms of the sequencing of the growth. So I just want to get some further color in terms of maybe you can size out how much of the growth you're expecting now is from breadth versus depth for the year 2026 and we think about some of the growth opportunities. Carla Vernon: Aaron, nice to talk to you. As we look at how we've built 2026 with a top line growth algorithm in the 4% to 6% range, that growth is driven by a really nice balance of things. I think balance is such a -- going to be such a theme for us. So the growth is driven in a very well-balanced way by innovation of core -- excuse me, innovation of new product items and gaining distribution through the launch of those new product items like we just talked about entering an entirely new aisle. The kid personal care aisle is a different part of the store than where we are, where you find a lot of bubble baths and stuff. And so we have an entire new lineup entering that aisle with 6 new items at the launch. Those already rolled out in the year. That's a great example when we say growth driven by distribution of new items. We are also seeing growth and distribution gains on our core items as well. So I love talking about like we rolled out our flushable wipes over the last 2 years, only entering brick and mortar for the first time in 2025. This quarter, seeing our first brick-and-mortar launch at Walmart of the flushable wipes, so we've got a lot of strength and engine behind core items that still have more distribution upside. That's just one example. So we have distribution of the core. We have innovation of new items. We have the momentum and velocity of the core. So the items that we already have in market are doing quite well. For example, our all-purpose baby wipes are doing very well. So as Curtiss talked about, we really want to fuel the growth of our core by making sure we have marketing investment across that as well. So it's really a three-part growth and balance as you see our growth. The other way to think about that, which I talked about today, is we're talking about household types, which is also an important unlock for us. We're also balanced in that regard. So our business is surprisingly across kid and no kid households. Today already, 54% of our revenue is from households with no kids. And our household penetration growth was also very balanced in 2025 with growth coming from no kid households and growth coming from households with little kids. So as we look at driving that growth, we drive that growth with items created for those different kinds of households as well as marketing designed to talk to those households and give them the awareness of the product. Aaron Grey: Okay. Great. Second question for me is just on the cost savings. So it moved up again. It was 8 to 15, I believe, last quarter, now 10-15. So good to see the lower end of that raised a bit. But I want to talk about maybe the sequencing of those savings and when we can expect it to flow through the P&L and then maybe some color in terms of what would move that towards the lower and higher end of the range and the key factors there. Curtiss Bruce: Yes. So thanks for the question. I just want to jump in here and reiterate the fact that we guided now to a gross margin in the low 40s. I am sure you remember back in Q2, when we crossed the 40% gross margin threshold for the first time, there was quite a bit of excitement with us on that achievement. So as we look at 2026 and we talk about the guidance, we did guide to the low 40s on an adjusted basis. Those savings are going to come or that performance is really connected to a couple of things. Number one is, as we think about the higher margin categories that are driving growth in wipes and baby personal care, we will have a sustaining mix benefit throughout all 4 quarters related to mix. The second big driver for that outsized performance will be the transition from 2 warehouses down to 1. And so that execution is planned to start having the benefit in our business in the second half of the year. We -- as you think about sort of the range of outcomes, I think the potential for more or less really comes down to the ability of the -- or the impact from a mix perspective, is there more upside on the higher-margin pieces of the business that will drive a higher mix benefit and then related to the timing and the absolute value of the savings related to the warehouse transition. Operator: Our next question comes from the line of Shovana Chowdhury with JPMorgan. Shovana Chowdhury: I wanted to delve a little bit further into the diaper. It's 30% of your sales, and you called out the decline in the diaper revenue. First, I wanted to clarify, is this decline mainly due to the general neutral print issue with Target, which should not be a headwind this year? Or is it really a factor or like worsened by the fierce competition in the category? And what is your expectation for the diaper performance in the future? And if you could also give me -- give us a sense of -- you did mention in your prepared remarks about the thoughtful pricing in diapers and improving in price pack architecture. What is the price gap that you're seeing? I understand your more premium products, there's usually a price gap. But what is this price gap? And how much are you willing to close this gap? And if you can just give us like some thoughts on the latest trends and market share performance, specifically for your diapers, that would be very appreciated. Carla Vernon: All right. Shovana, I want to make sure I break apart the different components of your question and make sure I address them. So let me start by stepping back and saying that it's been a very volatile year. 2025 was a very volatile year for the diaper category overall. And I know people are probably hearing that not just from us. The category overall for 2025 was down 1%. And we know that there are a number of drivers that are causing that to happen for the category. One of the biggest things that we're seeing is that with the macroeconomic uncertainty, consumers in the diaper category, in particular, have been shown to switch to lower-priced diaper items. And what we're seeing is category -- the category is just losing dollars overall as consumers shift to lower-priced items. And so that certainly affects us as well when we see those consumer shifts. We also know that for us, last year, we had that lapping issue that I talked about that was a real driver of our Q3 diaper declines but was pretty well sort of encapsulated to a Q3 impact. And then we know that we had the portfolio simplification over the course of the year. Some of that portfolio simplification was indeed due to the ones you brought up, Shovana, the loss of the gendered prints at one of our largest retailers. We know that retailers are doing some shifts and simplification of their sets overall. So that was among one of the drivers. As we look at the future and what we expect, we do believe that 2026 is likely to be another challenging year for Honest in diapers, and we -- that will be driven somewhat by some of the same factors, the macroeconomic uncertainty. We're going to be watching that just like everyone. I mean, there's a lot, and it's been changing quickly in the category. And there have been some aggressive moves by some of those low-priced competitors. So we'll keep our eye on that. We do believe that the portfolio simplification that we're experiencing will continue into the course of the year, but that's already in our guidance, Shovana. So what we expect from our diaper business in '26 is already reflected in this 4% to 6% top line growth algorithm. And when we think about how we want to address it in the future, you are right. We want to make sure we've got the right price value offering that makes sense for our business while maintaining our commitment to driving margin expansion as a whole. So we want to do that in the right way and in a way that means so much to our consumers. But that's also why we need to have a very balanced growth portfolio overall for our baby business in general because we have a lot of strength we bring to the aisle and a lot of margin strength we bring as a leading baby brand that is not dependent on diapers the way it used to be so much when diapers was the bigger piece of our business. You did ask me about pricing and the price gap. Our average price gap can be anywhere ranging from 20% to 30% of a price premium on an Honest diaper. We do know we develop our diaper to a higher standard of clean, always trying to push the categories that we're in to bring the Honest Standard to life through the offering we bring and with the highest expectations of our sensitive skin consumers. So that is something we need to make sure we get right in our cost structure, and that's all been built in as we've already reflected in the guidance for the year. Operator: Our next question comes from the line of Anna Glaessgen with B. Riley Securities. Anna Glaessgen: I guess I'd like to start as a follow-up to the prior question on diapers. Just curious especially given the dislocation we've seen this year given retailer actions in the category. Roughly, how should we think about consumption trends versus the industry? And then building off the prior commentary around the price premium and consumers trading down, I guess, how should we think about returning to consumption in excess of the industry in light of those headwinds to premium products? Carla Vernon: I'm going to speak to the consumption trends. I want to make sure I do totally understand your question, Anna, so if I'm not hitting on it, please let me know with a follow-up. For our 2025 performance, as we look at our diaper consumption, we did share that we had double-digit declines in diapers. Now that's not the same everywhere. That's what's been very interesting about us in our diaper performance. The category overall was down 1% as a diaper category. When we look at our diaper performance and we take out our performance at Target, our diaper consumption grew 2% for the year last year. So we definitely have seen that our diaper dynamics can be different based on the different consumer patterns at the various retailers. But overall, we are certainly experiencing the sort of broad-based challenges and headwinds that the diaper category faces. Again, I would say that as we have built our 2025 model, we've been very clear-eyed about what we expect from our diaper business and from our consumption. And as we look at our expectations to grow consumption overall across our portfolio for the year, our wipes and personal care businesses are performing so strongly, and that's one of the reasons why we are also bullish on our ability to grow with our highest margin businesses where they can drive the biggest impact on our portfolio and against the households that love what we have and want more of it. So that's why we have a very balanced approach to our growth next year. Anna Glaessgen: Got it. That's really helpful. So it seems to suggest, taking out the noise at that key retailer underlying share actually -- or underlying performance actually exceeded the category. Carla Vernon: It did. Anna Glaessgen: Okay. Perfect. And then building on a prior question on the first quarter, the commentary of sequential improvement in organic growth through the year seems to imply that the first quarter is expected to produce year-over-year organic growth. Is that fair? Curtiss Bruce: Yes, that's very fair. We do expect organic growth in Q1. We expect sequential improvement thereafter, but you heard that correctly. Anna Glaessgen: Got it. And then just one more if I could. You're now a couple of quarters into the shift from DTC. Any high-level thoughts on your expectations for transfer of those sales to your retailers and anything you've seen thus far? Curtiss Bruce: Yes. I think we had a conservative assumption on the flow back to retailers as we exited the fulfillment. What we've seen early days and I guess very complicated and complex to attribute exactly where it's coming from when you look at the -- some of the early green shoots that we've seen as we've made that change on some of the retailer dot-com sites, but it has exceeded our original expectation. And so we're happy with the early, call it, qualitative performance that we've seen. Operator: And our next question comes from the line of Dara Mohsenian with Morgan Stanley. Dara Mohsenian: Just a couple of follow-ups. A, on the diaper side, you mentioned some investments in value. Can you just give us a sense of some of the adjustments you're making from a promotional cadence standpoint, a pricing standpoint in 2026? Is that the most important intervention you're making in diapers? Or are there other things that should also drive improved performance? And is there a point where you think you can get back to consistent growth? And then just on the share repurchase side, how do you think about repurchases? You mentioned that you see greater value here than perhaps the market is. Do you expect to repurchase aggressively? Or is this more a program that's in place for opportune repurchases over time as opposed to putting the dollars to work right away? Curtiss Bruce: Yes. Maybe I'll start with the repurchase, and then we'll pivot to the first part of that question. So the repurchase authorization of $25 million was open-ended, right? And so we've got no specific time horizon that we are executing against. I think when you look at the benchmarks, however, in the industry, it would indicate that most public companies when they have an authorization program sort of reach that limit or renew their program over the course of a 2- or 3-year time horizon. We absolutely believe that the valuation is not fully reflective. We will be opportunistic. I cannot tell you specifically when and how much, but we believe that is undervalued and we have an opportunity. Carla Vernon: And I'll -- let me just hit the -- let me hit the diaper. I think you were asking about diaper pricing and diaper value overall. So I know you know, but obviously, retailers set the pricing strategy that's in the market. And we don't discuss in advance any of our specific approaches to where we're going to execute and advance merchandising or promotional support against our categories. What I would say is, in this category, in the diaper category right now, we do see that when we look at the overall performance of the category, the observation you can make is that consumers are shifting to lower-priced diaper offerings, many of which are manufactured in China. And so we can take from that, that bringing consumers the right value equation is important. What we also see is that, last year, when we take out the impact of one of our large retailers, our diaper business did grow. So what that tells us is that our diaper business has a good value offering for the people who want the kind of diaper that we offer. What's important as we look ahead is making sure we've always got that right, that we balance benefits and price with our overall responsible business model strategy and that we also understand that the Honest brand has become very scalable across many categories and that that's one of the reasons why we're shifting towards higher margin, higher growth areas because this business will grow forward with baby households against a very broad array of categories like baby personal care, like wipes, like lotions. So we feel very good about our baby strategy, and we will keep our eye on the right way to manage our diaper business. Curtiss Bruce: And if I could just wrap that up, I just want to just reiterate that we have taken modeling several multiple different scenarios on how our diaper business moves or doesn't move throughout 2026. And all of that is reflected in the guidance that we provided today. Operator: I'll now hand the call back over to CEO Carla Vernon for any closing remarks. Carla Vernon: I just want to thank everybody for joining us for the call today and giving us the opportunity to tell you about the confidence we have about 2026. I look forward to talking to you all next quarter. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good afternoon, and thank you for standing by. Welcome to Soleno Therapeutics Fourth Quarter and Full Year 2025 Financial and Operating Results Conference Call and Webcast. [Operator Instructions] As a reminder, today's webcast is being recorded. I would now like to introduce Brian Ritchie of LifeSci Advisors. Please go ahead. Brian Ritchie: Thank you. Good afternoon, everyone, and thank you for joining us to discuss Soleno Therapeutics' Fourth Quarter and Full Year 2025 financial and operating results. Please note we'll be making certain forward-looking statements today. We refer you to Soleno's SEC filings for a discussion of the risks that may cause actual results to differ from the forward-looking statements. On the call with me today for Soleno are Anish Bhatnagar, Soleno's Chairman and Chief Executive Officer; Meredith Manning, Soleno's Chief Commercial Officer; and Jim MacKaness, Soleno's Chief Financial Officer. With that, I will now turn the call over to Anish. Anish Bhatnagar: Thank you, Brian, and thank you, everyone, for joining us for our fourth quarter and year-end results call this afternoon. As has been our practice, following my brief opening remarks, Meredith will review the company's commercialization progress to date, and Jim will cover the company's financial statements for the fourth quarter and for the year. Then I will spend a few minutes outlining our thoughts and plans on expanding beyond Prader-Willi Syndrome, after which we will open the call for questions. We finished 2025 on a very strong note, driven by a continuation of many of the positive trends that we have seen since VYKAT XR was commercially launched in the second quarter of last year. Consistent with our preannouncement press release from January 12, total net revenue for the fourth quarter was $91.7 million, which brings our total net revenue for the full year, which was less than 9 months of sales to $190.4 million. We achieved profitability with positive net income for the year of $20.9 million, became cash flow positive including generating $48.7 million of cash from operating activities in the fourth quarter and ended the year with over $500 million of cash, cash equivalents and marketable securities. All of these are outstanding results. This has been an incredibly successful launch made possible by the entire team at Soleno who come to work each to help fulfill our mission of improving the lives of people with serious rare diseases. We are very pleased to see such durable and exciting growth 9 months post launch. Looking ahead, our leading indicators are strong. Since launch through December 31, 2025, we received 1,250 patient start forms, which represents approximately 12.5% of the U.S. VYKAT XR addressable market. And as of December 31, there were 859 people on active treatment. We believe we can sustain our current momentum and capture an additional approximately 1,000 start forms over the next 9 to 12 months. This bodes well not only for the thousands of people with PWS and their caregivers who struggle with the significant daily burden of hyperphagia, but also for our company, which is poised to generate significant long-term value. Importantly, the real-world safety profile of VYKAT XR continues to mirror our expectations and the clinical long-term safety profile of the drug. This is significant when you reflect on the complexity of PWS and also serious comorbidities of the very vulnerable and fragile patient population. The cumulative launch to date discontinuation rate of VYKAT XR related to adverse events was approximately 12% as of the end of the fourth quarter and the total discontinuation rate was about 15%. As stated earlier, we expect a long-term discontinuation rate of 15% to 20%. We are now seeing more and more success stories emerge as individuals with PWS related to hyperphagia have been on therapy for multiple months, and we are seeing interest spread across all stakeholders, particularly among caregivers we endure a very significant burden in caring for someone with PWS who exhibits hyperphagia. We believe this dynamic will build as we progress through 2026. I would now like to provide a brief update on our activities and support of potential approval of DCCR in the EU. Last May, we announced the submission and EMA validation of our marketing authorization application. We subsequently received Day 120 questions, and all responses were submitted before the end of the year. As we've indicated before, the nature of the key questions centered around the adequacy of the data to improve efficacy based primarily on our randomized withdrawal study. The next step is for us to receive Day 180 questions from the EMA around the end of February. We continue to anticipate a decision in the midyear 2026 time frame, and we are considering a range of commercialization options in the EU and have continued to develop our own team and capabilities on the ground. It is a significant market opportunity. We have said previously that we believe that there are about 9,500 people living with PWS in the U.K. and EU. Further, perhaps more [indiscernible] in the U.S., it is a concentrated market driven by centers of excellence, and there is strong thought leader support for VYKAT XR. We look forward to keeping you apprised of our progress over the next few months as we approach the regulatory decision and potential commercial launch. Now I'd like to turn the call over to Meredith for a detailed commercial update. Meredith? Meredith Manning: Thank you, Anish, and good afternoon, everyone. As Anish mentioned, 2025 was an important year for the PWS community and Soleno as we brought to market the first FDA-approved medicine for the treatment of hyperphagia in adults and children 4 years of age and older living with Prader-Willi Syndrome. We are encouraged that 1,250 new patient start forms were submitted for VYKAT XR from launch on March 26 through year-end, which included 207 in the fourth quarter. This represents approximately 12.5% of the total U.S. VYKAT XR addressable market. At the end of the fourth quarter, 859 individuals were being actively treated with VYKAT XR, up from 764 at the end of Q3, indicating that VYKAT XR is being adopted into clinical practice and reflecting our ability to convert start forms into treated patients. On the prescriber side, our efforts to raise awareness of VYKAT XR's availability and clinical profile have driven strong engagement. In Q4, we added 136 new prescribers, bringing the total unique prescribers to 630 as of December 31. We continue to hear that VYKAT XR delivers meaningful clinical benefits and physicians plan to proactively discuss the first-to-market therapy with caregivers and patients as they consider treatment options. Our field teams are not only educating but also activating the prescriber base by providing comprehensive support on therapeutic expectations, monitoring and dose modification where necessary. These are critical elements that give physicians the confidence to initiate and maintain patients on VYKAT XR and to integrate our medicine into routine clinical practice. A few things stand out when we look at who is being treated and who is prescribing. While most patients are between 4 and 26 years of age, we are also seeing meaningful utilization in adults particularly those 27 to 45 years old. This speaks to VYKAT's relevance across the PWS population. Side effects reported in the real-world study have been consistent with those observed in our clinical trials and with the FDA-approved label. And as patients settle into their optimal target dose, adherence has remained high, with a launch-to-date discontinuation rate related to adverse events of approximately 12% at the end of the quarter. We are also leaning into a real-world experience to support demand. We are systematically capturing success stories with VYKAT XR to highlight its impact on hyperphagia and to support more proactive treatment discussions. Through community outreach, including patient webinars and live events, where families hear directly from others treated with VYKAT XR, we are sustaining strong interest and supporting ongoing launch momentum. Our January patient webinar attracted over 200 registrants, nearly 60 more than our November event, underscoring growing interest in VYKAT XR. We are also collecting feedback from families who have attended these programs. And while still early, we have already heard of families who after attending these events have proactively asked their physicians about VYKAT XR, encouraging signals that our education efforts are helping to drive appropriate demand and convert interest into active treatment. Looking ahead to 2026, our priority is to deepen experience and adoption across leading academic and endocrine centers, specifically among PWS experts who shape practice patterns, while further broadening the prescriber base in the community where many people with PWS are treated. We are seeing growing confidence among these key experts in utilizing VYKAT XR, and we have made important strides in creating champions among both HCPs and PWS families, which we believe will continue to support wider uptake over time and advance our goal of making VYKAT XR the standard of care for appropriate patients with PWS-related hyperphagia. We continue to secure broad coverage for VYKAT XR across all channels: commercial, Medicaid and Medicare, resulting in policies that covered over 180 million lives at the end of the fourth quarter. Additionally, we have strong coverage of reimbursed claims from approximately 45 state Medicaid programs through Q4. Payers continue to recognize the seriousness of PWS, understand the true unmet need in treating hyperphagia and appreciate the meaningful value VYKAT XR can deliver. And we are seeing this clearly play out in the reauthorization process. As a reminder, payers typically require reauthorization every 6 to 12 months for rare disease medicines. And we are pleased to see the overwhelming majority of claims for patients have been quickly processed and continued on paid products. In summary, we believe 2025 has established a solid foundation with patients, prescribers and payers for VYKAT XR. Looking ahead, we are committed to deepening adoption and expanding our prescriber base in both the KOLs and community settings, while keeping families and individuals with PWS experiencing hyperphagia at the forefront as we realize the full potential of the first approved treatment for this condition. I will now turn the call over to Jim for a review of the company's financial statement for the fourth quarter. James MacKaness: Thanks, Meredith. Total net revenue for the fourth quarter ended December 31, 2025 was $91.7 million, representing sequential growth of nearly 40% from $66 million in Q3. For the full year 2025, which, as a reminder, represents less than 9 months of commercial availability, total net revenue was $190.4 million. VYKAT XR was approved in March of this year, and therefore, the company generated no revenue for the 3 or 12 months ended December 31, 2024. We generated $48.7 million of cash from operating activities for the fourth quarter and achieved profitability with positive net income of $20.9 million for the full year 2025. At the end of the year, we had $506.1 million of cash, cash equivalents and marketable securities. Please note, this is after our investment of $100 million in the accelerated share repurchase program that we announced in November. Our strong balance sheet ensures that we are sufficiently capitalized to continue to execute an effective U.S. launch of VYKAT XR while in parallel progressing towards regulatory approvals and commercialization either on a stand-alone basis or with partners in the EU and other geographies and to begin investments in possible new indications. Cost of goods sold was $0.9 million for the fourth quarter and $2.7 million for the full year. As a reminder, prior to FDA approval, costs associated with manufacturing VYKAT XR were expensed as research and development expenses. As such, a portion of the cost of goods sold during these periods included inventory at 0 cost. Going forward, as we continue to sell VYKAT XR, we will deplete our 0 cost inventory and replenish it with at-cost inventory consequently, cost of goods sold as a percentage of revenue will increase. Research and development expense for the fourth quarter was $9.6 million, which included $2.8 million of noncash stock-based compensation compared to $21.5 million, which includes $10.1 million of noncash stock-based compensation for the same period of 2024. The cadence of our research and development expenditures fluctuates depending upon the state of our research activities, clinical programs and the timing of manufacturing and other projects necessary to support submission of regulatory filings. For the full year 2025, research and development expenses were $40.6 million as compared to $78.6 million for the full year 2024. Selling, general and administrative expense for the fourth quarter ended December 31, 2025 was $40.9 million, which includes $8.7 million of noncash stock-based compensation compared to $37.3 million, which includes $19.7 million of noncash stock-based compensation for the same period of 2024. The increase in expense after removing stock-based compensation reflects our ongoing investment in additional personnel and new programs to support the VYKAT XR commercial launch and in support of our increased business activities. For the full year 2025, SG&A expense were $132.1 million as compared to $105.9 million for the full year 2024. Total other income net was $3.8 million for the 3 months ended December 31, 2025 compared to total other income net of $3.1 million in the same period of 2024. For the full year 2025, total other income net was $11.5 million as compared to $11.8 million for the full year 2024. Net income for the fourth quarter was approximately $43.4 million or $0.82 per basic and $0.80 per diluted share compared to a net loss of $56.0 million or $1.27 per basic and diluted share for the same period in 2024. For the full year 2025, net income was $20.9 million or $0.40 per basic and $0.39 per diluted share as compared to a net loss of $175.9 million or $4.38 per basic and diluted share for 2024. Please note, with regards to KPIs, we intend to share patient start forms, a number of unique prescribers and lives covered in our Q1 2026 earnings call, which will mark 12 months of results. And our intention is to retire these metrics at that time. And this concludes the financial overview. But on a personal note, I would like to let everyone know that I am retiring at the end of March. It has been my great pleasure to work with Anish and the team over the last 6 years. It's been a fantastic journey. We've accomplished so much, and I feel the company is in an excellent position to ensure future success. We have an outstanding replacement, [ Jennifer Volk ] who will take over as CFO in the coming weeks and I will move into a consulting role to ensure a smooth transition. And now I'll turn the call back over to Anish for additional thoughts, Anish. Anish Bhatnagar: Thank you, Jim, for the incredible work over the last 6 years to get us to where we are today. With the launch of VYKAT XR well underway, we turn our attention to what's next for the company and to begin with what's next for DCCR. We continue to pursue additional metabolic rare disease indications with high unmet need where the probability of success is high and the mechanism of action directly applies. The first of these indications is glycogen storage disease type 1 or GSD 1, which is a rare metabolic condition characterized by the accumulation of fat in the liver and kidney, resulting in extremely low levels of blood glucose. It impacts approximately 1 in every 100,000 live births, resulting in a prevalence of greater than 7,000 patients globally and approximately 3,000 to 4,000 of the patients residing in the U.S. There are currently no FDA-approved therapies. GSD 1 represents a natural and logical extension of our VYKAT XR franchise beyond PWS. The predominant physician call point for GSD 1, namely pediatric endocrinologists is the same for PWS. The mechanism of action of VYKAT XR uniquely addresses the severe clinical manifestations of GSD 1. People affected by GSD 1 lack the ability to convert stored glycogen into glucose and live at the constant risk of life-threatening hypoglycemia. They are dependent upon external sources of glucose, in this case, daily consumption of cornstarch multiple times a day in order to survive. However, the precise timing of cornstarch consumption is critical, especially during periods of fastening between meals and during the night, as missed doses can lead to potentially fatal hypoglycemia. In addition, long-term use of cornstarch can lead to severe GI issues, metabolic dysfunction and very poor quality of life. VYKAT XR's ability to innovate insulin secretion with its fast onset and repeatable and tailored dosing could maintain proper levels of glucose throughout the day and night and reduce the person's dependency on cornstarch. DCCR has orphan designation for GSD 1 in the U.S. as well as in the EU. Our plan is to file an IND in the first half of this year and to initiate a clinical program later in 2026. More details will be provided during the year as we approach the start of the trial. We look forward to sharing future updates on these programs as they merge. In closing, we are very pleased with the success and trajectory of VYKAT XR and we will continue to work tirelessly to make the safe and effective therapy available to as many patients living with PWS-related hyperphagia as possible. We're excited about expanding into new indications, leveraging our existing knowledge and skills. And with that, we'll now open the call for your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Paul Choi from Goldman Sachs. Khalil Fenina: This is Khalil calling in for Paul. Congrats on the quarter. I suppose I just wanted to start a quick one with us on the 1,000 patient start forms that you guided for the next 9 to 12 months. Can you remind us what the cadence of that is expected to look like? Is there going to be a bolus at the start of the year? Is it going to be -- is that going to be late in the year due to the adjustment -- seasonal adjustment in 1Q. Just help us understand the cadence there. Anish Bhatnagar: Thanks for the question, Kai. I think it's fair to say that we want you to think of this as over the 9 to 12 months, not necessarily on a quarter-to-quarter basis. So it's hard to think of a bolus at this time. I think it's fair to say that the start forms will come in over the year. I'll let Meredith address it further in terms of how she thinks the cadence is likely to be. Meredith Manning: Yes. Thank you, Anish. I agree with Anish, that obviously, we're looking at 1,000 over the next 9 to 12 months. That's our goal in order to continue the sustained momentum of the very strong launch. And as I mentioned in the script, we're really doubling down on broadening our experience with KOLs, getting out into the community setting and also activating the caregiver population. Khalil Fenina: Got it. And Jim, congrats on your retirement. We're sorry to see you go. James MacKaness: Thank you very much. Appreciate it. Operator: Your next question comes from the line of Moritz Reiterer from Guggenheim Securities. Moritz Reiterer: This is Moritz for Debjit. I got first a question on PWS. At peak, what percent of the market do you think could be accessible in the U.S. at this point? And then the second one about GSD 1. What do you think about dosing in GSD 1? Do you think the dose will be similar or lower? And how do you think tolerability of the drug would impact adoption in that disease? Anish Bhatnagar: Sure. So your first question was about what is the likely peak penetration in PWS. It's a good question. And I think you have to put it in the context of the fact that no other treatments exist today. So many of these treatments, you look at 40%, 50% penetration in these larger rare diseases. But I think if we are 3, 4 years out and the competitive landscape looks like the way it does today, I don't think it's unreasonable to expect a higher penetration than that. In terms of GSD, your question around dosing, we have to -- so part of our first trial is going to be looking at dosing in these patients. We do know that it's a pretty sensitive -- insulin is pretty sensitive to diazoxide. So we expect the dosing to be likely in the range of where we are today. It is important to know though that even though the unmet need is really great here, it's really about the precise dosing to increase blood glucose levels enough. And these patients don't have the sort of comorbidities that you see in PWS patients. So they're unlikely to be significantly obese, they're unlikely to be significantly diabetic, et cetera. So I think there will be more room to dose in that patient population, but that remains to be seen [indiscernible] the subject of the first trial. Operator: Your next question comes from the line of Yasmeen Rahimi from Piper Sandler. Unknown Analyst: This is Shannon on for Yas. Congrats on the progress, guys, and thank you so much for taking our question. Just two from us. Could you help us understand a little bit more about the refill rates that you're seeing now that you have a larger proportion of patients who've been on the drug for several months? And then the second question is, how do you expect the average weight of new patients coming in to change over time? If you're seeing more older patients, do you expect the average rate to increase? Anish Bhatnagar: Sure. Shannon, I'll take the second question, Meredith will take the first one. In terms of the weight over time, as you know, our clinical trial average weight was 61 kilograms. The age was about 13 years. What we have said more recently is that the predominant number of patients coming in are in the 4- to 26-year age group and in general, likely heavier than what we are seeing in the clinical trial population. So the average WACC for a clinical trial patient would be about 488. We have said publicly that we're looking at averages in the higher than 500 range. We are also seeing more older patients coming on at this time, and we expect that over time, therefore, the total weight will be going up as well. So again, these are not likely to be large step-wise inflections, but think of it more as sort of gentle increases over time. Meredith do you want to talk about refill rates realizing that it's early, and we don't really have that much data. Meredith Manning: Yes. Thank you. And similar to what I said in my prepared remarks, if you look at as the patients are settling into their optimal dose, we're very pleased with the high adherence rates and seeing that we are 9 months in at the end of Q4, we're seeing patients who are able to stay on therapy and reach a longer time frame. So we're very pleased with the refill rates. Operator: Your next question comes from the line of Kristen Kluska from Cantor. Kristen Kluska: Congrats, Jim. It's been an absolute pleasure working with you and always wishing you the best. So you talked about longer term maybe factoring in a 15% to 20% discontinuation rate, I'm wondering how you're thinking how efficacy will ultimately play into this? At what point in the launch do you think you'll have a good sense of percent of patients that are dropping out due to lack of efficacy. And then I'm curious, as you are collecting some of these real-world anecdotes, if the efficacy looks similar or different amongst patients, meaning are there some that are responding to hyperphagia? Are there some that are responding on behavior? And what's really the factor that will keep somebody on the therapy longer term from an efficacy standpoint? Anish Bhatnagar: Thanks, Kristen. I think it's fair to say that when you look at our experience in the clinical trial, which as you know, lasted for many years, if you stay on therapy, you are likely to see benefits. And as you can imagine, you're unlikely to stay on therapy if you have significant adverse events. So what we have seen to date is that patients who have stayed on drug for some time are seeing efficacy. I think it's fair to say that discontinuations for lack of efficacy are few at this time. And I would not expect that to change too much because if you stay on drug, we expect you to have some levels of efficacy. Kristen Kluska: Okay. And then just on what that efficacy actually is in the real world? Is it looking different in patients, meaning are some responding to hyperphagia or some responding to behavior? Or is it like a mix? Anish Bhatnagar: Yes, it's a good question. And as you know, we don't have the same precise gauge on efficacy in the real world as we do in the clinical trial. So we're not doing efficacy analyses per se. But the anecdotes that we're hearing certainly primarily relate to changes in hyperphagia and the downstream effects of it. So as you know, hyperphagia itself gets mixed up with anxiety related to food, behaviors, aggressive behaviors around food. So as long as we are targeting something around hyperphagia, we think that is the primary effect. I think the other effects will -- time will tell. It's hard for us to measure those even in the trials. But we do hear anecdotes that talk about being more calm, having better social interactions, having less anxiety and things like that. So yes, there is an element of that as well. Operator: Your next question comes from the line of Tyler Van Buren from TD Cowen. Tyler Van Buren: I'll add my congratulations to you, Jim, on your retirement and the success you've experienced at Soleno. You'll be missed. Wanted to just follow up on the 1,000 start forms over the next 9 to 12 months that you guys reiterated, which is, of course, encouraging. And earlier, you spoke about the cadence in response to the question. But wanted to maybe hear you elaborate specifically on what has been observed so far during January and February in the New Year with the launch? And then as a follow-up, are you expecting any meaningful level of Q1 seasonality? Anish Bhatnagar: So Tyler, as you know, we were not able to comment on Q1, but we can tell you that it is interesting to launch a drug into a completely new indication, and we are learning as we go. Thanksgiving, Christmas was interesting. It was interesting to see some of the summer camp related things that happen, people going away to camp. So we'll have to see what the cadence is like. I'm going to let Meredith answer the rest of the question. Meredith Manning: Yes. Thanks, Anish. And I concur 100% with you that it is interesting to launch. This is the first ever FDA-approved medicine for the treatment of hyperphagia and so we're learning a lot around some of the aspects in the home or the family or what will bring them into the office to get seen by the practitioner. Also, I think I've mentioned several times on our last earnings calls that we also are looking at some of the physicians who are increasingly more interested and excited to treat PWS, because there actually is a treatment for hyperphagia now. And so they're opening up clinical practices or PWS-specific clinics. So we're hoping to see some of the availability of clinicians, improving as we go forward and really strengthening the care that's being delivered out there. So it's exciting. We'll hopefully be able to provide you more details as we go along, but strong interest out there. Anish Bhatnagar: I will say that on the seasonality front, Jim, would you like to add something? James MacKaness: Sure. Tyler, thank you for the good wishes. Yes, I'd never like to miss an opportunity on the revenue side of Q1 to point out seasonality that impacts all commercial drugs. And it shows up in the gross to net. So Tyler, as you're aware, but just to communicate again, what tends to happen with folks on, particularly on commercial plans is they'll reset their co-pays. So that means that's more out-of-pocket that they would incur except that we offer Soleno ONE, and we will effectively reimburse them for those co-pays. So that increases the discount, if you like, on the gross to net. And then the other phenomenon that can happen is in the disruption of changing plans, your employer might change plans, you may choose a different plan. There's an opportunity where you may move from what we would call our paid bucket of active patients into the free bucket of active patients. So maybe you'll receive 4 to 6 weeks of free drug before you move back to paid. It's a seasonality. It doesn't change the underlying growth in active patients, but it's just something that does impact the revenue because it will impact the gross to net discount for Q1. And we'll obviously be able to give you better color once we get through Q1, and we'll be able to cite it at that stage. Operator: Your next question comes from the line of Leland Gershell from Oppenheimer. Leland Gershell: Thanks for this update. And Jim, just wanted to add my sentiments as well. Wish you all the best as you move on. I wanted to ask at the time of approval, as you were entering the initial launch, I guess, this is a question directed at Meredith. You had said, I think, that you'd identified that there are about 300 physicians who were direct treaters of about 20% of PWS patients and who also influence the care of another 20%. And I think there were about 80% of pediatric endocrinologists who had expressed willingness to prescribe VYKAT XR. Just wondering if you could provide us a picture of where that landscape is today with respect to physicians uptake of VYKAT in their practices? Meredith Manning: Yes. Thank you very much for the question. I appreciate that. The phenomena is still there. As we look at the top 300, we think that's the best way to focus on the market and target where we can have deeper penetration. We are seeing strong uptake among the top 300, and the majority of them have more than one patient, so they're repeat writers, which is very exciting to see. And we're continuing to see that those individuals are influencing the treatment patterns across the country. I've mentioned before that we have peer-to-peer programs, so we're doubling down on that. We also have an expert on demand, where many community physicians can reach out to those top practitioners and get guidance on patient selection and what to look for with regard to setting expectations on efficacy and dosing and monitoring, et cetera. So that's been very exciting. And then as we look at moving forward on focusing in on the caregiver aspect, as I mentioned, we're doubling down on webinars and live events and hoping to see that, that will drive caregivers to come in and ask for VYKAT XR. Leland Gershell: That's very helpful. And then just kind of a higher-level question on company's philosophy going forward in terms of the expansion maybe with through business development and the like, you obviously have a continuing and growing stream of cash coming in. It may cost you some to commercialize elsewhere and also advance your next program. But it seems like you'll have firepower to do beyond that. Just wondering if you could give us initial thoughts as Soleno continues to evolve and develop its footprint. Anish Bhatnagar: Yes. Thanks, Leland. I think the most important thing remains successful commercialization of VYKAT. And I think it starts with the U.S., but the next step is outside the U.S., EU, other geographies, et cetera. And then the next thing is, I'd say, the lower-hanging fruit of using VYKAT itself or other things, which are high likelihood of success, situations like GSD1. So those are our primary targets. And we obviously continue to look at things on the outside. I don't expect imminent activity on that front, but we certainly will in the longer term, look at doing that, too. Operator: Your next question comes from the line of Brian Skorney from Barnett. Brian Skorney: Jim, congrats on the retirement as well. Sorry to see you go. You have six patents listed in the Orange Book for VYKAT with the four longest duration ones going out to 2035. I think when you got approval last year, we talked a little bit in vagaries about the label creating some opportunity for even longer dated IP. So just wondering if you could give us your current thoughts on exclusivity of VYKAT based on where you are across patent prosecution. And just real quick on COGS. I just wanted to get guidance of what we're seeing is product that was already expensed through R&D and if there will be sort of a true-up this year in terms of the gross margin? Anish Bhatnagar: Sure. Let me take the first part, and Jim can take the second part of it. So on the exclusivity front, you're right, when we got approved, we had talked about the possibility of extension of IP beyond where we are today. And I think what you saw with the listing of the 2035 patent is a step in that direction. So it's a patent that's specific to methods of treating hyperphagia and food-related behaviors. That particular family, the related patents have the ability to be extended into the late 2030s. We have also stated that we have filed additional IP, although we have not discussed the details of that. So stay tuned on that. So yes, that's the plan on exclusivity. Jim? James MacKaness: Yes. So Brian, to your point -- and thanks for your wishes. To your specific point, we still do have a little bit of, if you like, the zero cost inventory flowing through. So inventory that was in the supply chain prior to approval. So anticipate that COGS will just generally nudge up. They should stay in mid-single digits. So they'll just nudge up as we get full cost through the supply chain. Operator: Your next question comes from the line of James Condulis from Stifel. Unknown Analyst: It's Mark on for James. Yes, I guess, as it relates to the EU side of things, I think it's interesting, we've now seen SKYCLARYS get approval and trofinetide trending in the negative direction with the vote. I guess in the context of that, how are you thinking about these as potential analogues and EMA's overall comfort with perhaps maybe imperfect clinical data in the rare disease space and just kind of your overall broader comfort with the EU approval? And then the second question also on EU is when do you think you'll kind of have the 180-day questions in hand for the filing? Anish Bhatnagar: Yes. On the EU approval, you're right. I think it's fair to say that decisions on the rare disease side go in one direction or the other. And we've seen other examples. Translarna is another example, which was approved in Europe for a long time, did not see an approval here. So these things are always custom rare disease data sets are never perfect. So we have to just play out the process and see. So we have day 120 questions. We responded to day 120 questions in a timely manner. Expecting the day 120 questions by the end of this month, so imminently. And we'll see what they say. So I think as we have said in the past, the nature of the key questions were around the proof-of-efficacy using randomized withdrawal as the key trial, the fact that the same patients were in the early as well as the late part of the study, and does that create potential for bias, et cetera. So clearly, these are questions that the FDA asked us as well, and we were able to prevail. So we will attempt to do the same here. Hard to predict the outcome, though. In terms of timing of the 180 day, I would say imminently, I think they're supposed to be February '26. Operator: Next question comes from the line of Katherine Dellorusso from LifeSci Capital. Katherine Kaiser-Dellorusso: Congrats on the strong quarter. And congrats, Jim, on the retirement. Yes, I guess just a few more follow-ups on Europe, just given that it's possibly around the corner. Yes, just thinking about just the potential launch trajectory in Europe versus U.S., are there anything key learnings that can be had from the U.S. experience that could accelerate the uptake? And I guess if you were to commercialize on your own, any comments on the sales force that you think you would need there? Anish Bhatnagar: Meredith, would you like to take that? Meredith Manning: Sure. Happy to take that. So we're still looking at what the size of the field force would look like. Most specifically, we're focusing in on potentially Germany and Austria, the first to launch. So we're looking at what the marketplace looks like there. Additionally, I think... Anish Bhatnagar: U.S. launch experience. Meredith Manning: Yes, U.S. launch experience. Yes, I think the one other thing that Anish had mentioned in his comments about Europe is one of the phenomena is that there are more centers of excellence and tighter treatment over in Europe. And so that's a little bit different than here in the U.S. But with regard to launch success, obviously, it's making sure that there's strong education of the treaters and making sure that they understand exactly the patient population that they'll be treating and the selection of that patient population has been really key in the United States. Operator: Next question comes from the line of Yale Jen from Laidlaw & Company. Yale Jen: First, Jim, congratulations on your retirement, and hopefully, you can enjoy the good life going forward. So my first question is that given that the drug has a great start for the first year. And do you guys feel that for the next to -- getting the next wave of patients, is that more difficult or just a different approach to accomplish that? Then I have a follow-up. Anish Bhatnagar: Sure. Meredith, do you want to take that? Meredith Manning: Yes. I'm happy to take that. Yes. So I think what we're pleased to see is that we're getting a spectrum across the patient population. I mentioned that the majority of patients are coming in ages 4 to 26, but we're also really pleased that we've reached greater penetration in the younger adults, I'll say, even up to 45. That population definitely has more comorbidities, if you will, as they get older. But we're seeing a broad spectrum. And so we continue to see a broad -- we believe we'll see a broad spectrum as we move into 2026.. Yale Jen: Okay. Great. That's very helpful. Maybe just one in the product development or life cycle management questions which is that -- are you guys also thinking about maybe the next-gen product follow the DCCR? And if so, what sort of attribute you think that may you want to have? Anish Bhatnagar: That's a good question, Yale. As you know, what we are doing is a once-a-day pill. So there are limits to what you can do with regards to improving upon that. That said, we do have some internal programs on life cycle management, which I'm not able to discuss today, but we do hope to discuss later this year. Yale Jen: Okay. Maybe last question here. In terms of DCCR, the mechanism of actions for GSD, could you elaborate a little more? Anish Bhatnagar: Yes. As you know, the critical problem in GSD is life-threatening hypoglycemia. And we know that when you target certain channels on the beta cells of the pancreas, you can suppress the secretion of insulin, which means that you can elevate levels of glucose. So the problem that occurs in GSD is that in order to keep glucose levels higher, these patients are required to take very regular feedings of cornstarch all day, including through the night. And what is very desirable is to be able to elevate those blood glucose levels enough that they don't get hypoglycemic. So there is actually interesting information in published data using the parent molecule, and we've spoken with KOLs who have tried it. It works. But as we know in situations like CHI as well, the side effect profile is such that it's difficult to tolerate. But when we are looking at VYKAT XR, DCCR and the low stable level that we will have in the blood, we expect a very different side effect profile and should have the ability to elevate levels of glucose very precisely. Operator: Your next question comes from the line of Derek Archila from Wells Fargo. Derek Archila: Jim, congrats, wishing you well and great working with you. So yes, just two brief ones. I just wanted to clarify. So on the seasonality component, you talked about kind of impact to price and kind of free drug rate, but how much of an impact do you expect in terms of the patient visits and scripts in the first quarter? Anish Bhatnagar: Meredith? Meredith Manning: Yes. I think what we were saying is that we're not really commenting on the first quarter numbers as of right now. But with regard to seasonality in the gross-to-net, I think Jim talked about it. As you know, a lot of patients are coming in. So what we didn't see we launched in March of last year. Now we're going into January where the co-pay will re-up for a lot of the commercial patients. And so as Jim mentioned, with Soleno ONE, we offer co-pay support for commercial patients, and we pay down to 0 on the co-pay. So that's a potential what we'll see in the gross-to-net. Derek Archila: So yes, let me ask this a different way. So I guess for typical Prader-Willi patients, do they tend to have seasonality in terms of their patient visits with their physicians? Anish Bhatnagar: So Derek, I think, again, I'll point you back to the fact that we're launching the first hyperphagia drug in the space. And we're learning as we go. What we know about visits that patients have based on claims data is that the younger patient population, which is a 4- to 26-year-old age group, has about 4 to 6 touch points with healthcare providers over the year. And what we know from conversations with KOLs, people who run these top 300 practices or top 10 practices is that their practices are pretty crowded and you schedule your appointments a year out or more. So the visits do happen, and there is this particular cadence of visits, whether it's different in the first quarter or not, we'll find out. Derek Archila: Got it. And then just a follow-up, just wanted to know in terms of inventory and stocking in 4Q, if there's any comments there? Anish Bhatnagar: Yes, we work with Panther, as you know, one specialty pharmacy. They just went through the holiday period. We'll have to sort of do a deep dive to really understand anything, but nothing untoward that we're aware of. Operator: Your next question comes from the line of Kalpit Patel from Wolfe Research. Kalpit Patel: Just on the active patients number that you gave, the growth in quarter-over-quarter is not keeping pace with the growth in new patient start forms. Is that mainly driven by insurance-related delays? Or is that more of a function of the discontinuation rate? Or is it a mix of both factors? And how should we think about this gap moving forward? Anish Bhatnagar: I think a very important consideration is the time it takes for benefits assessment. So when we get a start form, you don't instantly start somewhere on drug. So they go into a benefits assessment time, which will take 30-ish days give or take. And we don't think there is any issues with reimbursement that have been encountered that are significant. And there will always be a lag between the number of new patient start forms and the number of patients who will be active for that quarter. So Meredith, anything to add to that? Meredith Manning: No, I think that was perfect answer. I think that we're looking at a little bit of a mix of all of the above, but we're pleased with, as I mentioned, the ability to convert start forms into patients and reimburse claims. So we're going to continue to do that and double down on that in 2026 and believe that we'll be very successful. Kalpit Patel: Got it. And one more on our end. I know you mentioned the long-term discontinuation rate. But do you forecast the discontinuation rate meaningfully fluctuating between now and the end of the year? And how might that affect the active patient growth in 2026? Anish Bhatnagar: Good question. We have to see -- I mean, what we have seen so far, I think, is very acceptable for a drug that's treating such a significantly comorbid condition. So if we remain in this zone of 15 to 20 thereabouts, I think that's a really good outcome. It's difficult for us to predict if it changes between now and the end of the year. I'm sure it will go up and down, it will fluctuate. But I don't see a reason why there would be major changes during the year. I'm not sure if that answers your question. Kalpit Patel: Yes, that answers it. And congrats, Jim, on the retirement. James MacKaness: Thank you. Operator: [Operator Instructions] Your next question comes from the line of Ram Selvaraju from H.C. Wainright. Raghuram Selvaraju: I just wanted to ask about whether you are evaluating other disease indications in which to explore VYKAT XR beyond glycogen storage disease? And if so, what some of these indications might be if, for example, there's any plan to potentially revisit the utility of the drug in Smith-Magenis syndrome or other conditions of that ilk? Secondly, I just wanted to clarify whether you anticipate any potential pricing flexibility impact if you were to launch the drug yourself in Europe or through a partner if there might potentially be any spillover to the U.S. pricing paradigm? Or if ultimately this is a non-factor given the rarity of Prader-Willi Syndrome? And lastly, I don't know if you can comment on any underlying dynamics with respect to the discontinuation rate that you are seeing, if it's plateauing, if you are seeing any evidence that it is, in fact, declining as there is more experience with the drug over time in the PWS population or if you're seeing the actual percentage rate increase. And if it is increasing, by how much? Anish Bhatnagar: Lots of questions, Ram. Okay. I think I got those. So the first one is other indications. And what we've said in the past, just to remind you, is that there's two categories of rare diseases that we think DCCR could be useful. One is conditions like PWS, where things like hyperphagia and food-related behaviors are a problem. You're right, Smith-Magenis syndrome is one of them, Fragile X. About 10% of Fragile has the PWS phenotype. Some patients with Angelman have it. They're SM-1 obesity. So there's various other indications where we definitely continue to think that it could be useful, and we are continuing to evaluate it. In terms of the pricing impact of self-launch versus not, I think the challenge is right now is that it's a moving target. I think if we had to make a decision today, it would probably say that pricing flexibility is optimal if we control it both here as well as in Europe or outside the country. I'm not sure that it's a non-factor due to the rarity, because even though there has been some conversation about an orphan exclusion, in MFN. We haven't seen that actually become reality yet. In terms of the discontinuation rates and are they plateauing? The one phenomenon that we're following very closely is to see if the cadence of discontinuation is going to be like what we saw in the clinical trials, which is to say that if you stay on drug through titration and some period of time after you are very likely to stay on drug. And I would say that the early indicators are that, that is indeed the case. So we think that's very encouraging, but it's something that we are following very carefully and we'll continue to update you on. Operator: We have no further questions at this time. So I'm going to turn the call over back to Anish Bhatnagar for closing comments. Sir, please go ahead. Anish Bhatnagar: Well, thank you all for dialing in today, and we look forward to continuing the conversation with you all. Have a good evening. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.
Amelia Lee: Good morning, everyone. Thank you for joining us at Seatrium's Full Year 2025 Results Briefing. My name is Amelia, and I take care of Investor Relations for Seatrium. This morning, we have with us our CEO, Mr. Chris Ong; CFO, Dr. Stephen Lu. Chris and Stephen will bring us through a short presentation before we open the floor to questions. Chris, please? Leng Yeow Ong: Thank you, Amelia. Good morning, and thank you for joining us today at Seatrium's Full Year 2025 Results Briefing. Before I start, I'd like to wish everybody a very happy and a healthy Lunar New Year, good year ahead. I'm pleased to report a strong set of results in our second full year since merger with robust revenue growth driven by strong project progress and doubled the net profit that is an undeniable reflection of our laser-sharp focus on driving margin efficiencies and execution. For the first time, we have recorded a positive 1-year total shareholder return of 5.2% as we strive to continue driving lasting value for all shareholders on strengthened fundamentals. Our strong performance also comes on the back of heightened geopolitical and macroeconomic uncertainties that companies around the world had to grapple with. Despite some delays in investment decisions in several markets in the first half of 2025, we still secured over $4 billion of new orders in FY 2025. This replenished our net order book that stands strongly at $17.8 billion as at 31st of December 2025. Meanwhile, we are actively pursuing more than $32 billion in pipeline deals, which reflects sustained investments by our customers to meet growing energy demand that is fueled by technological advancements, including AI. Third, we are today stronger and leaner than before. We have spent the last few years transforming our business and cost model, the way we work and the way we do business. 95% of our net order book today is made up of Series-Build projects that offer lower execution risk for both ourselves and our customers. Non-FPSO legacy projects, which are relatively lower margin and higher risk compared to post-merger contracts now constitute just over 1% of our net order book. We have also achieved our synergy and cost saving targets, accelerated noncore divestment to reduce overheads and importantly, brought closure to Operation Car Wash in FY 2025. This allowed us to move forward with greater clarity and step forward with larger strides as we leave legacy issues behind us. Today, these achievements reflect the merits of our strategy and that we are ready to build real sustainable momentum for the future. Turning to our financial performance. We delivered a second consecutive year of strong top line growth with revenue growing 24% to $11.5 billion from $9.2 billion a year ago. This reflects the strength of our order book and the disciplined execution that continues to drive reliable delivery to our customers. Net profit came in at $324 million, more than double of $157 million in FY 2024, outpacing revenue growth and underscoring the strong progress that we are making in expanding margins, which Stephen will talk about in greater detail. Our progress is best reflected in how we execute for our customers. Let me now highlight 2 projects that showcase the power of our One Seatrium global delivery model. First, FPSO P-78. We have achieved first oil in record time on 31st of December 2025, and first gas is expected in first Q 2026. Being built across our yards in Brazil, China and integrated in Singapore, this accelerated progress is a strong testament of our One Seatrium global delivery model and also showcases the expansion of our end-to-end delivery capabilities from engineering to offshore commissioning. P-78 is the first of 6 advanced greener P-Series FPSOs and it sets a strong benchmark for subsequent units. Next, on Empire Wind. The project is now over 97% complete and is situated on site in U.S., on track for delivery this year. Once operational, it will deliver 810 megawatts of clean energy to New York, enough power to power more than 500,000 homes. Both the topsides and jacket were built across our Singapore and Batam yards, demonstrating our integrated delivery capability. The remaining exposure in our net order book to the U.S. offshore wind has reduced to less than $10 million with Empire Wind and offshore substation for [indiscernible] very close to completion. The WTIV for Maersk Offshore targeted to complete end of the month. In fact, we are in discussion to deliver her within the next few days. Our future is taking shape with clarity, strong order book today for near-term earnings visibility and a resilient pipeline that sets us up for sustained growth tomorrow. We have been disciplined in ensuring we win high-quality contracts with world-class customers, with mid-teens risk-adjusted project margins and progressive milestone payments. Our ability to win these projects reflect the strong trust customers place in us across conventional energy and renewables. Amidst a tough macro environment, we secured over $4 billion of new orders, supported by returning customers and new partnerships. This include our first collaboration with Penta Ocean Construction, marking our entry into Japanese offshore wind market and DolWin 5, our fourth 2-gigawatt HVDC project with TenneT and our first for Germany under the 2-gigawatt program. Next, our net order book of over $17 billion is equivalent to over 1.5x of our very strong FY 2025 revenue. 6 P-Series FPSOs, 3 U.S.-bound FPUs and major HVDC and HVAC platforms are all progressing well, demonstrating the strength and depth of global delivery model. We have been transparent about the challenges we face from non-FPSO legacy projects, which now constitute just over 1% of our net order book. In the same spirit of transparency, we also like to share that the delivery of Naval project NApAnt has been delayed to 2027 instead of the original 2026 schedule. We are working closely with the customer to navigate this specialized shipbuilding project to manage execution risk. With a declining proportion of lower-margin non-FPSO legacy projects, we expect an improving mix of higher-margin post-merger contracts and a reducing trend of provisions moving ahead. Moving ahead, we still see ample market opportunities as we actively pursue $32 billion in the pipeline deals. Despite the lower oil price environment, it is widely established that the breakeven price of deepwater fields remain well below prevailing oil prices. Alongside strong demand for energy, the ongoing energy transition and the need for energy security, especially in Europe, where we are seeing some favorable wind developments for offshore wind, this gives us a long runway to capture high-value work across the full energy spectrum. We have been asked how are we positioned competitively to capture a good share of these pipeline opportunities. Despite being just formed 3 years ago during the merger, we have under our belt 60 years of proven track record and a unique ability to deliver projects with consistent safety standards and quality across a large global manufacturing footprint that presents scalability, geopolitical diversity and some cost arbitrage opportunities. These are not competitive levers that many players around the world have, but we do not ever stop evolving. We have been in business for over 60 years. We are not new to change. We are still standing strong today because we have successfully evolved alongside the industry, which is essentially critical now as the whole world is in transition towards cleaner energy sources. This is only possible with robust capabilities in technology development, where we take a practical market-led approach to innovation, to stay ahead and maintain our long-term competitive edge. Today, we own proprietary designs such as FlexHull that we are already using in active FPSO tenders to sharpen our competitive edge where proposed designs are evaluated as part of the bid. We also developed our own designs for FLNG and offshore substation, which has recently attained AIP. Longer term, we are also developing solutions for floating wind and other emerging energies to ensure we remain ahead of the curve. Our Series-Build approach, design once do many reduces execution risk, short-term schedules and improve margins, ensuring projects are delivered safely, on time, on quality and within budget. Today, about 95% of our net order book comprises Series-Build projects, underscoring the strength and scalability of this approach. On top of the existing franchises in gray, where we established the Series-Build strategy, we're expanding this to powerships where we see strong potential as well as applying the same principle to FSU FSRU conversion, especially since we already done 90% of the world's FSU FSRU conversion, which is an unparalleled track record worldwide. Last August, we signed an LOI with a long-term partner, Karpowership for the integration of 4 new generation powerships plus the option for 2 more, a strong endorsement of our capability and scalability in this adjacent segment. Integration works will start 1Q 2027. The LOI also includes conversion, life extension and repairs of 3 LNG carriers into FSRUs. These are examples of higher value work that we are refocusing our repair and upgrade business on. These capabilities and high-value franchises will position us well for the next wave of opportunities. Our $32 billion opportunity pipeline over the next 24 months is diversified across segments, geography and asset types, some of which offer distinct market cycles for business resilience. Many of these opportunities are also aligned to our Series-Build franchises. Over the next 24 months, we are pursuing $23 billion in oil and gas opportunities, driven mainly by Americas region. We still see strong opportunities in Brazil where our long-term customer has disclosed its pipeline for the next 5 years. This is also where we have strong leadership for local content through our 3 established yards. We are also well positioned in Guyana for high-value integration work and topside fabrication, where we have participated in all of the FPSO work for the Stabroek Block so far. Apart from the usual opportunities that the market expects, we are also pursuing opportunities in FLNGs and fixed platform in the Middle East and Africa region, and to a smaller extent in Europe and Asia Pacific. For offshore wind, Europe remains the largest and the most developed market, driven by its energy security needs. TenneT continues to be an important customer for us as we pursue opportunities in both Netherlands and Germany. With the award of DolWin 5, it demonstrates TenneT's confidence in our ability to deliver, and we are ready to scale up and take on more HVDC projects when the opportunity arises. Meanwhile, we will also continue to pursue opportunities from other European TSOs as well as HVAC deals in Asia. We have also identified $2 billion in conversion opportunities such as those with Karpowership that I mentioned earlier. All in all, we are well positioned and confident in our ability to capture a healthy share of these pipeline opportunities that will fuel our ability to deliver consistent performance. I shall now hand over to Stephen to bring you through the financial review. Hsueh-Jeng Lu: Thanks, Chris. Next, I will dive deeper into our financial performance for FY 2025 and highlight the progress that we have made to shape a stronger, leaner and more competitive Seatrium. We delivered a set of solid numbers for 2025. The 25% rise in revenue was driven by a steadfast execution of a healthy, well-diversified order book, which provides strong visibility and resilience amid the evolving market conditions. Our gross margin, which I think is a reflection of the true operational performance has more than doubled to 7.4% in FY 2025 from 3.1% last year. We've continued to make significant progress in streamlining G&A expenses and lowering finance costs. As a result, net profit has also doubled to $324 million in FY 2025, up from $157 million in FY 2024. We also saw operating cash flow grow by about 4.5x to $440 million from $97 million, excluding one-off payments relating to legacy issues. And on the same basis, FCF doubled to $443 million. After taking into account these one-off payments, we still generated almost 46% more cash from operations year-on-year of $142 million from $97 million a year ago. We have also taken decisive steps to streamline our asset base by divesting noncore assets. This disciplined approach sharpens our focus, enhances operational and cost efficiencies. Diving straight into the key revenue growth drivers. The 24% growth year-on-year was mainly driven by a strong progress registered by both the offshore wind -- the oil and gas and offshore wind segments. Revenue from Oil & Gas Solutions grew 24% to $8.1 billion, underpinned by steady execution, progressive revenue recognition of the 6 new build Petrobras FPSOs. Notably, P-84 and P-85, which commenced work in the second half of '24. Offshore Wind Solutions also increased its revenue to $2.1 billion, driven by our 3 TenneT 2-gigawatt HVDC platform projects. The repairs and upgrade business registered lower volume and revenue due mainly to trade-related uncertainties and weaknesses in the LNGC market. We are, however, continuing to focus the business towards higher value projects, such as FSRU conversions and the integration of powerships that Chris mentioned earlier. In the meantime, our 23 long-standing strategic partnerships with large global customers continue to provide a steady baseload revenue of a more recurring nature. In the other segments, increased contributions from specialized shipbuilding, chartering as well as rig kit sales and MRO projects delivered through Seatrium offshore technology or SOT led to a 55% jump in revenue. While this business is small today, SOT capitalizes on our unparalleled track record and rigs expertise to monetize proven design IPs. It delivers a healthy margin, and we see growth potential ahead. Next, let's take a look at gross margin. Year-on-year, gross profit increased to $848 million in FY 2025 from $291 million, and gross margin increased sharply by 430 bps to 7.4%, driven by an improved mix of higher-margin projects, higher asset utilization, improved productivity as well as cost discipline. This was partially offset by provisions to the U.S. projects, where the final project was delivered subsequent to year-end and a little bit from a NApAnt, which Chris mentioned earlier. Other operating income was lower in FY 2025, mainly due to a one-off provision relating to the Admiralty Yard restoration before its return to authorities in 2028, net FX movement, lower scrap sales and a nonrecurring settlement gains that was recognized in 2024. G&A expenses as a percentage of revenue declined by 50 basis points to 3% compared to 3.5% in FY 2024 as we benefited from the continued cost optimization activities. Net finance costs also dropped by 18%, driven by debt repayment and lower financing costs, offset by a decreased interest and dividend income from equity investments such as the Golar Hilli, which we divested in 2024. Overall, net profit more than doubled to $324 million in FY 2025 from $157 million in FY 2024, underscoring the significant uplift in our core performance powered by revenue growth, stronger margins, sustained cost optimization and disciplined execution. As mentioned, we also reported much stronger cash flows in FY 2025, which is the reflection of the discipline that goes into ensuring that all our projects on our progressive milestone payment terms and robust project cash flow management throughout each project. Consequently, operating cash flow increased to $142 million in FY 2025 from $97 million. Excluding the effect of one-off legacy payments, operating cash flow rose 4.5x to $440 million, reflecting the level of cash generation that we expect moving forward. Investing cash flow was largely neutral with $122 million of project and safety-related CapEx, such as that for Batam yard to prepare for the 2-gigawatt HVDC projects, balanced by asset divestment proceeds. We will continue to be measured in our capital expenditure, which is mostly focused on investments that will enable growth. All in all, we generated $443 million in free cash flow excluding one-off legacy payments. This is more than double that of FY 2024. And we are confident in the execution and the cash flow of our post-merger contracts. Moving on to capital structure. We continue to adopt a prudent and disciplined approach to enhance resilience and afford us the financial agility to position for growth. Our gross debt decreased 5% year-on-year to $2.5 billion as at end December 2025. And through active refinancing, our cost of debt has declined from 4.9% at end December 2024 to 3.4% at end December 2025, driven both by lower base rates and tighter margins. We continue to broaden our funding sources and leverage our improved credit profile to secure favorable refinancing outcomes. Our liquidity position remains strong with $3.1 billion in cash and undrawn committed facilities, giving us ample headroom to support operations, pursue growth opportunities and other capital allocation requirements. In summary, our balance sheet remains robust with a low net leverage ratio of 0.8x and a net gearing of 0.1x as at 31st December 2025. With the FY 2025 performance covered, I'd like to touch on the efforts that we've been taking to transform our cost and margin profiles that will have lasting impact into the future. If we take a step back in FY 2023, when both companies first came together, Seatrium have focused on integration and harmonization. And so the new company can start on a clean slate. In FY 2024, our full financial year since merger, we quantified the benefits and scale of coming together, providing market guidance on 2 targets, $300 million on synergies, on cost savings and $200 million in procurement savings. These targets reflect the efforts that started from the moment the 2 companies came together. We looked at our cost items line by line removing what we didn't need and leveraging our combined scale for economic benefits. These changes have fundamentally reduced our cost levels and will continue to have a lasting impact moving forward. We are today in year 3, and we are pleased to share that we have exceeded those targets and the proof is in the numbers. Gross margins has turned from negative 2.9% at FY 2023 to 7.4% in FY 2025, alongside an improved mix of higher-margin Series-Build projects. G&A expenses as a percentage of revenue has also declined from 5% in FY 2023 to 3% in FY 2025. And as mentioned earlier, the cost of debt has also significantly declined from 5.7% to 3.4%. And we are not done yet. Initiatives implemented late last year have not seen its benefits fully baked into our financial numbers yet, and we also continue to drive greater cost discipline and internal efficiencies by embedding digitalization, AI and machine learning meaningfully into the way we work across our global business. We believe this will greatly improve visibility, control, risk management and operational efficiencies that will reflect in our margins and financial performance in the time to come. As I've alluded earlier, gross margin is an indication of our operational performance. And we are starting to see the fruits of our labor in FY 2025, and our reported gross margin of 7.4% is a vast improvement from where we started. But it is a reflection of what Seatrium is capable of. We are just getting started. As we continue to streamline operations and tighten overheads, we see accelerated pathways to further expansion through our ongoing divestments of noncore assets. This is an important lever to really reshape our cost structure to unlock efficiencies that will strengthen our long-term resilience and competitiveness. Since 2023, we started divesting assets on our books that are not really required for our global operations. And these assets are broadly categorized into yards and other assets such as vessels and floating cranes. We've accelerated the pace of these divestments in FY 2025, including Amfels and Karimun yards, GNL, our PSV vessel fleet of tugboats, floating docks and the Crescent yard that is expected to complete very soon. The sale of the Amfels yard and GNL vessels have already been completed and the rest are expected to complete by first half 2026. These transactions will deliver more than $50 million in annualized cost savings. These assets would have otherwise laid idle on our books are also expected to unlock more than $230 million in gross gains and over $330 million in cash proceeds, of which $110 million was received in FY 2025. We plan to do more, having identified more than $200 million additional noncore assets to divest by 2028, alongside the scheduled return of Admiralty Yard. Together, the transactions already -- with the transactions already announced, we expected the cumulative to generate cost savings over $100 million by FY 2028. As our business needs evolve, we will continue to review and evaluate opportunities to drive greater efficiencies. These structural improvements will enable us to reduce overheads and drive operating efficiencies, which will, in turn, bring us closer to our target margins, enhancing our business resilience and offering stronger fundamentals, which will deliver sustainable long-term returns. With that, let me now pass back the time back to Chris. Leng Yeow Ong: Thanks, Stephen. To reiterate, Seatrium is at an inflection point today, and we are now ready to commit to creating tangible lasting value for our customers, shareholders and other stakeholders. This year, we are proposing to double the dividend to $0.03 per share, in line with doubling of our net profit in FY 2025. We also plan to continue our share buyback under our existing $100 million program, reflecting our confidence in the business and in the momentum ahead. You can clearly see the fruits of our labor. Total shareholder returns have turned positive at 5.2% and ROE has nearly doubled to 4.9% in FY 2025. These are early signs of the value we are unlocking as our strategy takes hold and we believe that there's further room for growth. Most importantly, we are balancing reinvestment for growth with consistent capital returns. This is how we will drive long-term durable value creation for our shareholders. Let me close by bringing this all together. Our strategy has always been clear and consistent from driving organic growth to executing strongly and transforming our cost structure for margin expansion, ongoing financial discipline and allocating capital prudently to enable sustainable long-term returns. Our value creation framework captures all of this, aligning everything we do from the way we deliver projects for our customers to how we manage costs to how we plan to deploy capital for sustainable return. On capital allocation, our priorities are disciplined and focused, investing for growth in areas where we have clear competitive advantage, optimizing our balance sheet, ensuring the right debt structure to support long-term value creation, returning capital through dividends on share buyback as we grow and exploring strategic M&As that strengthen our long-term position and business resilience. This framework keeps us focused with clear progression towards our FY 2028 steady-state financial targets, we are on the right trajectory to building a stronger Seatrium designed to outperform for the longer term. Thank you. Amelia Lee: Thank you, Chris. We'll now open the floor to questions. For those of you in the room with us, please raise your hand to ask a question. Zhiwei please. Zhiwei Foo: Zhiwei from Macquarie. Congrats on a wonderful set of results. Two questions from me. The first one is regarding your order book, right? I think you're roughly about $17 billion of order book and you have a revenue run rate of about $11 billion this year. So how do we think about your revenue run rate and your order replacement rate? Because from the looks of it you'll run down this by if you don't have a similar amount of order intake? The second question is more on your margins. Now your gross margin is what -- I think you reported 7.4%. And then if you were to just look at second half and net out the provision on onerous contracts to get to about 9%. Then assuming you execute on all your cost savings, that's another $100 million. And then if I'm generous, that adds another 1% of gross margin, which takes us to 10%. So assuming that your cost saving programs work through, you don't -- have no recurrence of provisions. Does that mean that we can start to anchor our thinking of 10% gross margins going forward? Leng Yeow Ong: I think I'll take the order book question. I think you asked the same question the last half, I remember. And I think that the key thing is about getting close to the customers and home running the opportunities that are out there. This is order book business. And the key thing is about how do we take a look at getting quality -- balance between quality projects that we can get and get it in. The $11 billion, I will say that it will roughly be around there moving forward. This shows that the capacity -- our capacity management has been very sharp because I believe that about 2 years ago, the question from all of you was that, are you sure you can consistently produce $10 billion. So that's out of question. But it will basically hover around there. We think that the capacity would allow us to do that. And if you look at the burn rate, it's not linear. The $17 billion doesn't burn down just like that. So technically, it's also a mix of building up to the order book. And as mentioned last year, even as a very challenging year, we're almost half a year or more than that, that are quiet because of obvious reasons. We still manage the home run quite a bit towards the end of the year. So technically, there are good pipelines in the market. And again, I always said I can't control the FID timing. But we are quite confident that based on the diverse product line that we have now and the franchises that we have seen, we will continue to be the go-to person for some of these more complex projects. So it is a zero-sum game. You have mentioned that we are confident that we are able to maintain that resilience when the projects -- I guess the real answer is that when the projects come into the order book. Hsueh-Jeng Lu: So on the second question, let me take this. I think if you look at FY 2025, your calculation is correct, right? But I think the bigger picture is this. There are a few factors that we are -- that move in our favor, right? One is you would have seen the legacy projects, the proportion of that is coming down. The contracts that we secured post merger with risk-adjusted mid-teen returns are becoming more important, two. Three, the cost and productivity measures, I think you talked about with the divestment of the yards and all that, that will take out costs directly from overheads. I think the other factor that you have to consider is as projects move along. I think we mentioned this before, when you hit critical milestones, the contingencies that we -- which are costs that we've set aside for certain risks that we anticipated, if they don't materialize, then that will also be released. So I think the margins will continue to improve from where we have achieved today. I think it will -- we've guided towards a project margin of mid-teens. But as you know, there are some overheads in production side, which is related to basically underutilized capacity. So there will -- the number will move towards 15%, but it won't hit 15%. So I think that's the -- that's where we're looking at right now. Leng Yeow Ong: And just to touch -- come back to the point on order book. At $17 billion, if we've taken a look back in history, it is still one of the highest for the last 10 to 12 years, both combined. But what is different today is that I think you all will appreciate that it's not based on one product. And it is based on milestone payment that it basically is a high-quality order book right now for us to execute. The other thing -- the other point is that we have also been sharing that getting on to the franchise when we signed the very first or the second FPSO or HVDC, there were also a lot of doubts and question whether is it -- are we capable to build on that? I think today, that should put it to rest. What we are -- what I hope everybody sees that the ability to actually deliver a very complex product straight to Brazil field and start operating in 2 months, that actually builds on the reputation and our ability to get the customers on the table in a very short time. Zhiwei Foo: If I have 2 follow-up questions. You mentioned the contingencies. I understand that they are significant. Could you share some color about how big it may be so that we can appreciate what that actual underlying margin is? Otherwise, the second question is, what would your underlying gross margin be if we were to just look at your project and take out all your other inefficiencies right now? Hsueh-Jeng Lu: Contingency is commercially sensitive, because -- but there are risks. So each contingency item is tagged to amount, right? And so when the risk goes away, it will be released. Amelia Lee: Next question from Mayank, please. Mayank Maheshwari: Yes. Chris, a question -- more subjective question here. There has been a lot of commentary by your largest customer around how they are tightening their screws at their end. Like in terms of conversations you had and considering you were showing the order book being a large part still sitting in LatAm. How do you think about the path going forward? And what are the kind of conversations you're having with them around their objectives and how you are aligning to it? So that was the first question. And the second one, to the CFO, I think congratulations on reducing the interest cost quite a bit. But if you think about it, your interest cost and the finance cost still has a reasonable gap. I think there are lease liabilities and a few other things in there, which are still quite chunky. Can you just give us a bit of an outlook of how you're kind of tightening your screws there? Leng Yeow Ong: I will take the part on customer conversations. I think tightening of screw whether it is a challenging environment, my customers always tell them that their screws are very tight with us. The key thing is about how then do we sit across the table and determine the work value because it's a balance for them also. There's no lack of competitors and especially after we have proven that our formula worked and we are able to deliver a functioning FPSO directly to the field and startup, and that's a very powerful signal. If you talk about LatAm, obviously, you're talking about mainly Brazil. Of course, they have various different formula now. One is the build, operate and transfer. And it is now mixed with eventual EPC projects coming online. The key thing is about it has different risks, it has different approach. But the fundamental is the ability to execute because all these projects takes many years to execute. And you can see that from their ambition, they have printed out the 5 years of ambition. To be very honest, one of the biggest questions that they had to ask themselves is that can I expect the FPSO to arrive because right now, especially so when you talked about the challenges of the market is very unpredictable and oil prices it can fluctuate and volatility is quite high. But they have their investment case all set up. So I think that you will come online. But the key question is that when will the cash flow be realized, and that is really around the assets that's going to flow there. So I think we have proven ourselves that we are able to execute right on time and able to deliver compared to our competitors deliver something that operates directly with them. The key right now is of course strategy around who we partner up for BOT, the strategy around how can we also make sure that it's seamless. And then for EPC, of course, it's all about cost and price. So I think that, that part itself, I'm happy that we are not starting from ground zero. I think that we have now a very clear database and the organization is very clear on how to execute these type projects. So that is the type of conversations. And even with or out of LatAm, it's the same conversation with majors like Exxon, for Guyana, even new prospects in Africa is basically down to certainty, the ability to provide solution because mega projects, you will have excitement of technology hiccups and all this, how do you then help them to overcome that and still be able to maintain the predictability at the end of the day. That, I think, is a huge value. Hsueh-Jeng Lu: Mayank, on the second question, look, I think if you look at our finance costs, the largest component is still interest costs, right, to banks and et cetera. I think the key focus for us here is actually around deleveraging. I think we've done a substantial amount of refinancing with the support of our banking partners, but we have to delever. I think you would have seen the operating cash flow significantly improve so then we had to think about where we can allocate capital. Do we use that for growth because we're returning capital to shareholders, but it's also important to delever over time because I think the leverage on a gross level is still relatively high. Amelia Lee: Next question from Pei Hwa. Pei Hwa Ho: This is Pei Hwa from DBS. Congrats on the strong results. Just 2 questions from me. One is for Stephen, it's on the provision for your onerous contracts, this is amounted to $96.5 million. Could you give us a bit more color on the breakdown of all this, especially for legacy contracts, it was so close to completion that we didn't expect to have this much. I think second is on the project pipeline, especially from Petrobras and TenneT. Maybe you could give us a bit more color and how based on a conversation with our customer is TenneT on track? Or they still as per plan, will continue to award some contract this year? And also maybe some -- also, I mean, in general, how we think about your order pipeline and the conversion from the $32 billion pipeline to this year? Hsueh-Jeng Lu: Chris, maybe I'll take the first question first. I think the provisions of our $96 million that relates principally to 3 projects. That's the 2 U.S. projects, which we have since delivered. So you can think of that risk as have gone away, right? I think the reason for additional provisions is because the project took a little bit longer than we wanted, and so there were additional costs associated with that. On the third project, which I mentioned in my speech earlier, was around NApAnt, which was a legacy specialized ship building project that we're delivering in Brazil. And so there were -- the project has delayed and so there are some provisions relating to that. But it's a relatively small project. I think its our initial contract value was about $200 million. And so we're working very closely with the customer to sort of manage that risk going forward. Pei Hwa Ho: When is this project going to be delivered? Hsueh-Jeng Lu: 2027. So initially, it was supposed to be end 2026. Now it looks like 2027. Leng Yeow Ong: I guess for Petrobras, TenneT, and you mentioned about conversion pipeline I wouldn't repeat what I said for Petrobras. I think that's very clear on their development plan and what's going to come online. For TenneT, your question was around whether they are still on track. And the short answer is that as far as we know, yes, because as promised they have gone through the same allocation and competition end of last year. We're quite happy that we are able to land DolWin 5 for -- that's the first Germany unit that we are getting. So that also sets up our potential and production line for both the Netherlands projects and the Germany projects. This year, if my memory serves me correct, and please check and don't quote me because there will be projects coming online for tender in Germany and also followed by Netherlands. When they were FID that when they will start engaging us, that depends on when they are ready. But those projects are real through our conversation. Now on conversion pipeline. As mentioned, the team has worked very hard to deliver value to the customer. We have proven that when we said that we will deliver this way and when we have proven to the customer as One Seatrium, we are able to do that. Customers are also seeing that they are able to assess the different capabilities of different facilities and different teams within the group. So in a very short time within 3 years, we have come together and delivered very differentiating value in terms of being able to provide solutions to the customer. And that's not all talk, and we have delivered that to them. The key thing around conversion of cost is also the -- because of this ability to prove that we are able to do this. There are many people that are trying to come online as competition. So that segment actually is -- but as mentioned in my speech, there are certain segments that we have a very commanding track record. Again, there's no difference from the new build because it's complex, because it requires capability, it requires safety, basically practices within and quality, ability to deliver quality products. We think that this is an exciting area every year. As mentioned, Powership, if you take a look at this segment, why we highlight that, if we believe that the world is starved of power and also digital, AI, the growth of it, I think the floating assets is something that is very sound. The concept is sound. We just have to make sure that our customers are able to take a look at the financial ability around the economics around that. There's also a floating data center. There's many things that in the market that may be too premature for us to say. But all this $2 billion of conversion prospects, I think it ties into the whole energy type of products. And why conversion is because the speed to market is very important. So again, the ability to execute, the ability to engineer on the go and deliver them safely with quality is our hallmark and customers know why they come to Seatrium and why we're able to build on that will be then a track record in the convergence space. Amelia Lee: Thanks, Chris. Pei Hwa, I hope that answers your question. Next, we will take a question from online. Luis from Citi. Luis Hilado: Congrats on the good set of results. I just had -- most of everything has been asked. Just 2 housekeeping questions, please. Just to clarify on the $50 million annualized cost savings. Since most of the -- it will conclude in the first half. So it's essentially $25 million savings in the second half. So -- at least in the second half. Is that the way to look at it? And the second question is just I know it's difficult to discuss arbitration cases in terms of timing, but we have a feel for amongst those, which ones can resolve sooner, not when, but which would resolve sooner? And are your legal fees material at all on an annual basis? Hsueh-Jeng Lu: Luis, you had 2 questions, right? Okay. On the first question on -- sorry, what was that? Leng Yeow Ong: $50 million. Hsueh-Jeng Lu: $50 million. Yes, $50 million. A part of that divestments were completed towards the end of '25, right? So that -- a portion of that will be fully baked in from the 1st of January. The MFLs you would have seen we completed in January, and so that will be another component. So I think if you're looking at it over the full year period, it's probably -- if we can complete everything this month, it will be closer to the $50 million than the $25 million. Leng Yeow Ong: Arbitration, depends, but if you want to ask for which one would probably be settled first. It is all basically time based, right? P-52 will probably be the first one. that will be settled, and we hope that we will have a conclusion this year. You asked whether the legal fees is material? It depends on material against what. But it's never -- of course, that's not always the first avenue that we will go for. But I just want to impress upon that. Actually, arbitration is a professional way of basically settling differences. And usually in this industry, we are able to differentiate what we need to settle while we professionally advance on our both interests on ongoing projects. So yes, P-52 will probably be the first one that we are targeting. Amelia Lee: Thanks, Luis. Next question, also online from Amanda. Amanda Battersby: Yes, I'm here. Great. Amanda Battersby from Upstream. Thank you very much for the frank results, statements and sharing as always, Chris and Stephen. A couple of questions, if I may, please. You mentioned that the potential for BOT FPSO contracts, specifically in Latin America and one would think with Petrobras. Are you actively bidding for any BOT work for floaters? And if so, would you be looking for a partner on a project-by-project basis or perhaps a more formal arrangement to allow you to tender to go forwards, please? And the other 2 shorter questions, if I may, do you foresee any more sort of legacy arbitration contracts lurking in the wood work after sometimes more than a decade? And thirdly, please any more plans to rightsize the headcount as some of your projects come to completion? Leng Yeow Ong: Well, I'll take those questions. Thanks, Amanda. We are missing you here. Well, for BOT contracts, we will definitely need to have a partner and bidding strategy. Whether you'll be project-by-project basis or whether there is a long-term type of tie-up, we have both strategies in place. And it depends on time and space also, right? We have to look at -- I guess the fundamental is that we are in for the bid, and our focus is to win. So it's likewise for partners. Our operating partner would also have the same driver. So it will depend because timing of the tender and potential on both sides on the tender really decides how we choose our partners. Whether we will partner somebody for long term and across all projects, it depends whether the interests align at a point where we are signing up. So I can't have a clear answer, but we are in on the BOT bid for the BOT projects and definitely with an operating partner. On arbitration legacy, I think what I can promise you is transparency. As of now, as mentioned, we do not see that there are any that are lurking. But like what we mentioned, when there are any disagreement that we need to settle is always professionally been elevated to settle an arbitration if we cannot come to terms. So it's very hard for us to actually forecast. But all I can say is as of now, we don't see any. Now about rightsizing I would actually approach the rightsizing question as less of a manpower issue than I think more on the operational excellence angle. I think we have always mentioned about what is our strategy going forward. And I remember 3 years ago, when we talked about integration topic and we talked about how we optimize and during the first year, we did not even remove any headcount. And I think that all of that has basically actually worked out. Our first stance is always to make sure that we take care of our people. When projects are completed or when we get more efficient and our processes get more efficient, retraining has always been the first one, all right? So we are not approaching from a headcount and hire fire approach. But of course, when we look at our yards and our future footprint, which we have always been very transparent in sharing, that is strategic, right? That's strategic. And it's about trimming down the noncore, building on the core and, of course, have an eye of capability building, depending on what products that we are looking at. As we have mentioned, we further invested in the Batam yard to make sure that we have lines ready for offloading -- building and offloading 30,000 tonnes of topsides, which is mainly our HVDC today. We expect to eagerly contest to build a more stronger pipeline behind each of them. So there are a lot of ways that we are looking at rightsizing. The other thing is that one of the actions that we are taking, of course, is in the national news that Admiralty Yard is going to be redeveloped. And we knew that even way before Seatrium was formed. So we are taking that proactive step to actually rechannel resources. And that's the strength of the One Seatrium delivery model. We actually rechannel resources not only to Tuas Boulevard, but also a lot of our high ports and young managers are now in Batam, helping to build up the capabilities over there. So there's many dimensions to that. But I guess the main driver of this question is, I guess, about cost efficiency. And I think that has been the top line strategy that we have always said. We are very sensitive to cost but we are also very sensitive to capabilities, retaining capabilities, retraining capabilities and getting ahead of the curve to be able to service our customers. I think that will differentiate us very strongly. Amelia Lee: Next question, Siew Khee, please? Lim Siew Khee: Can I just follow up on the onerous contracts? So given that the U.S. projects have been delivered, can we expect a significant drop in the overall provision for onerous contract? Hsueh-Jeng Lu: Yes. Lim Siew Khee: Will it be lower than 2024 because 2023 was high and in 2024, it was not? Hsueh-Jeng Lu: As I explained earlier, I think there were 3 projects, right? So the remaining risk around NApAnt, but as far as we can see today, there is no need for additional provisions. Lim Siew Khee: Okay. So within your order book, there's nothing that is looking that you think could delay? So therefore, that would actually help to pave the way for better margins as you execute. Leng Yeow Ong: Yes. So as I explained earlier, right, I think the key risk was always around the premerger contracts, I think that portion has come down significantly. Lim Siew Khee: Okay. And just wanted to just check, you mentioned that you hope to all settle the arbitration. Is there a need for any provisions if it's concluded this year? Leng Yeow Ong: No. Lim Siew Khee: Is there any need for provisions for any other litigation that you might see be in negotiation? Leng Yeow Ong: No. Usually, when we talk about provisions, it's about legal opinion on the chances, right? So as of now, whatever that we reported that there's no need for further provision. Lim Siew Khee: And then just on your order pipeline target. Why did you raise from $30 billion to $32 billion so specific? What's that $2 billion? Leng Yeow Ong: Well, the other pipeline depends on what projects come into the market. We didn't raise it. It's a customer wanting in the market to basically look at development. These are real projects that are out there. Lim Siew Khee: Is there anything significantly different or new from compared to when you told us vessels of $30 billion now arriving to $32 billion. So what is the optimism coming from? Hsueh-Jeng Lu: Maybe I'll take that. So in that... Leng Yeow Ong: Hang on. It's not optimism. Again, I say that it is the projects that are out there and the real targets that we are going after. So when you talk about what are there any difference, of course, there is no secret that there are a lot more production assets, contracts that are foreseeable in the market and that is basically public. The other point that we are trying to make is, of course, there are also conversion projects. As we mentioned, they are out there in the market. So as we get knowledge and those are the projects that we are going after, we actually actively put it in the pipeline and say that, okay, these are all the go get, but that's to convert into order book. Hsueh-Jeng Lu: If I may add, the number there is we have an internal pipeline that we track and our commercial teams update very regularly. And so we just summed up that total and then gave that to the market. So these are all actual projects that we are chasing, right? So I think if you were talking about the change, I think, between the $30 billion and the $32 billion, there were some projects that we won, DolWin and then the BP project. And then those were replaced by other projects that customers have now inquired with us on, we want you to submit a bid or we're in bilateral negotiations with them. So it's our actual projects that we are chasing and not managed up, that's what we were trying to say earlier. Lim Siew Khee: Okay. Just last 2 questions, just on housekeeping wise. So the $50 million cost savings you mentioned, where can we actually see it more significantly, in G&A or of sales? Hsueh-Jeng Lu: It is in a different -- some of it will be in cost of sales, some of it will be in G&A and some of it will be other operating income. So it's actually in different areas. Lim Siew Khee: Is there any -- is there one that is like maybe higher, perhaps in cost of sales? Hsueh-Jeng Lu: It's mostly in the cost of sales because if it's relating to the yard, all of that goes into the COGS line. Lim Siew Khee: And my last question is, so the divestment gain that you actually guided. $160 million, if it is completed in 2026 will be recognized in 2026, is that right? Hsueh-Jeng Lu: $150 million. Lim Siew Khee: $150 milliion will be recognized in 2026. Hsueh-Jeng Lu: Yes. So $70 million was recognized in FY 2025, another 50 -- and $150 million in 2026. Amelia Lee: Thanks, Siew Khee. With that, we've come to the end of the briefing. Unfortunately, we've run out of time. For the 2 questions that we received online, we will reach out to you directly on e-mail. For further questions, if you require any further clarifications, please feel free to contact us at our Investor Relations e-mail address. Thank you very much for joining us this morning, and we wish you a very pleasant day ahead. Thank you. Bye.
Operator: Greetings, and welcome to the ARKO Corp. Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordan Mann, Senior Vice President of Investor Relations. Thank you. You may begin. Jordan Mann: Thank you. Good afternoon, and welcome to ARKO's Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. On today's call are Arie Kotler, Chairman, President and Chief Executive Officer; and Galagher Jeff, Chief Financial Officer. Our earnings press release and annual report on Form 10-K for the year ended December 31, 2025, as filed with the SEC are available on ARKO's website at www.arkocorp.com. During our call today, unless otherwise stated, management will compare results to the same period in 2024. Before we begin, please note that all fourth quarter 2025 financial information is unaudited. During this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please review the forward-looking and cautionary statements section at the end of our fourth quarter and full year 2025 earnings press release for various factors that could cause actual results to differ materially from forward-looking statements made during our call today. Any forward-looking statements made during this call reflect our current views with respect to future events, and ARKO is under no obligation to update or revise forward-looking statements made on this call, whether as a result of new information, future events or otherwise, except as required by law. On this call, management will share operating results on both a GAAP and a non-GAAP basis. Descriptions of those non-GAAP financial measures that we use, such as adjusted EBITDA and reconciliations of these measures to our results as reported in accordance with GAAP are detailed in our earnings press release or in our annual report on Form 10-K for the year ended December 31, 2025. Additionally, management will share profit measures for our individual business segments, along with fuel contribution, which is calculated as fuel revenue less fuel costs and exclude intercompany charges by our GPMP segment. And now I would like to turn the call over to Arie. Arie Kotler: Thank you, and good afternoon, everyone. 2025 was a pivotal year for ARKO. We continued to execute on our transformation plan, fortified our foundation and sharpened our focus. We continue to optimize our retail footprint. We improved our cost structure and we positioned the company for continued accretive growth across our 4 segments in 2026. Our strong fourth quarter results reflected that progress. Adjusted EBITDA grew 16% year-over-year to $66 million. Same-store merchandise sales trends improved and margin expanded 140 basis points to 34.4%. Retail sites operating expenses were down 16% compared to the prior year period, and retail fuel same-store gallon trends improved as we exited the year with higher CPG. Let me be clear, these improvements are not to be viewed as driven by the macro environment. The consumer is still cautious. They're still value focused. What you're seeing is execution across dealerization, remodels, NTI retail stores, food service and loyalty. We are running a better business, and the results reflect that. Earlier this month, we closed the IPO of our subsidiary, ARKO Petroleum Corp., or APC. We issued approximately 11.1 million Class A shares at a price to the public of $18 per share, and we own 35 million Class B shares, currently representing 75.9% of the economic interest in APC. This was a major milestone. This listing shine a spotlight on what has become a large, growing and highly profitable wholesale fuel distribution and fleet fuel business. We've consolidated our wholesale, Fleet Fueling and GPMP segments under the separately listed subsidiary. The result is greater transparency, clearer economics and what we believe is meaningfully unlocked value for shareholders. Until 2020, we were a pure-play retail operator. Over the years, through acquisition, we built a large wholesale and Fleet Fueling platform. These assets have been strong. However, they complicated understanding our overall story. Our creation of APC allows both the retail business and the wholesale and Fleet Fueling businesses to stand on their own. We issued $200 million of new equity in the IPO to quality investors. Those proceeds were applied to reduce debt. Our balance sheet is stronger, our flexibility is greater. We're positioned to execute. So what does post-transaction ARKO 2.0 look like? A core stronger retail business concentrated in markets where we believe we are positioned to win, a stand-alone publicly traded wholesale and Fleet Fueling business with an anticipated high conversion from adjusted EBITDA to discretionary cash flow. A conservative balance sheet, strong cash position, ample liquidity at a very attractive cost of capital and continued access to the capital markets, and a structure that offers investors greater visibility into each business and allows the market to value each business on its own merits. This is not just a structural change. It's a strategic inflection point. We now have 2 public companies, clear capital allocation and a better ability to focus on what we can control in retail while working to drive consistent returns across both ARKO and APC. Here is the opportunity in APC. APC is one of the largest fuel distributor in North America, over 2 billion gallons distributed in the last 12 months. And yet, we have roughly only 1% market share, 1% in a highly fragmented industry. The runway for growth is substantial. We see strategic accretive opportunities to expand this platform, and we believe APC will be a key growth engine for ARKO going forward. Now let's talk about dealerization. This remains one of the most important levers in our transformation plan. As of year-end, we had completed 409 conversions. We have approximately 120 additional sites committed either under letter of intent, under contract or already converted since year-end, and we expect to complete those plus additional conversion by the end of 2026. This realization strategy is delivering exactly what we said it would, reducing fixed costs, reducing maintenance CapEx, improving cash flow, and creating a more focused and regionally concentrated retail base. The Q4 results validate the strategy. The operating leverage is real. The cost improvements are showing up. We are now seeing tangible benefits from stores converted in the last 12 months as reflected by a more than $5 million benefit to operating income in the fourth quarter before G&A savings. Bottom line, dealerization has sharpened our focus, improved execution, and it's now flowing through to financial performance. Turning to loyalty. Our fas REWARDS platform and Fueling America's Future campaign continue to central to how we drive enrollment, engagement, trip frequency and basket size. In Q4, loyalty members outperformed across the board with enrolled members spend more than 48% higher than non-enrolled members. Loyalty customers also made 51% more trips to our stores than non-enrolled customers. Through 2025, since Fueling America went live, average daily enrollment is up 38%. This is consistent with what we said all along, loyalty is not just a promotional tool. It's a margin driver, a traffic driver and a retention engine. In 2026, we're working on accelerating enrollment and launching a new version of the app with enhanced personalization and vendor-supported benefits. Loyalty remains underpenetrated across our network. We see significant runway ahead. Now to remodels. We're very encouraged by the early results from our food-forward remodel program. In Ashland, Virginia, our first remodel reopened in June 2025. In the first 6 months, on an average daily basis, sales grew 14%, gallons grew 12%, average daily sales more than doubled in 4 different categories, and the stores outperformed its pre-remodel period across 20 different categories. In Mechanicsville, our newly remodeled store opened later in 2025 and through year-end, sales improved over 10%, gallons have grown over 20%. And post remodel, the store has grown in 15 categories and doubled in 2 categories. We're targeting double-digit returns on remodels and early performance is tracking at or above those targets. Additionally, we are in the planning stages for approximately 25 remodels, which will feature the fas craves food and beverage elements. We're also expanding food and beverage in non-remodel stores where space allows. Food penetration across our network of stores is growing. Every project is measured on ROI and food is the differentiator. Now to NTI retail stores, our new-to-industry stores. These are purpose-built newly designed stores, the blueprint for our future. We opened 2 NTI retail stores in 2025 and a Dunkin' store, one more NTI retail store earlier this quarter and another one earlier this week. One more NTI retail store and 3 Dunkin' stores are to be added later this year. We're targeting double-digit returns and the 2 we opened in 2025 are already ahead of plan. These are high visibility locations with simplified operations and food forward layouts. On capital allocation, our priorities for 2026 are clear. We plan to further scale high-return remodels, expand NTI retail stores selectively and invest in NTI cardlock location in our Fleet Fueling business. This NTI cardlock location typically generate attractive mid- to high-teens returns with minimal labor, while the cost to build is only $1 million to $2 million. We are targeting 20 NTI cardlock locations this year in our investment CapEx plans and have already identified and are working on 10 of these NTI cardlock locations. On the macro environment and Q1 2026 trends, the consumer is still value focused. People are making deliberate choices. Baskets are being won through relevance, promotions and convenience. We picked up market share in every nicotine category in 2025. OTP for the year was up 4% and energy drinks were up 8%. Trends improved through the back half of 2025. We built momentum in Q4, and that momentum has carried into 2026. In January and so far in February 2026, we saw mid-single-digit growth in same-store merchandise sales and positive same-store gallons growth before winter storms at the end of January and the beginning of February created some disruption. We're not going to overextrapolate from early data, but directionally, trends are improving versus where we were in early 2025. Bottom line, we believe that we have a lot of growth ahead of us with a strong balance sheet and ample liquidity to execute our strategy. Before ending the call off, I want to address an important leadership update. In December, we welcomed Galagher Jeff as our new CFO. Galagher brings deep retail experience and importantly, deep expertise in convenience and fuel sector. He held senior roles at Walmart and Dollar Tree, and Galagher was most recently CFO at Murphy USA. I also want to thank Jordan Mann for stepping in as interim CFO and supporting the transition. With Galagher now leading the finance team at ARKO, Jordan served as CFO of APC while continuing as ARKO's Senior VP of Corporate Strategy, Capital Markets and Investor Relations. We're excited about the leadership team we assembled and what Galagher brings to ARKO at this pivotal time. With that, I will turn it over to Galagher to walk through our financial results and outlook. C. Jeff: Thank you, Arie, and good afternoon, everyone. I am grateful to be here at ARKO and excited to work alongside Arie and this entire leadership team. In my short time here, it's become quickly evident to me what an immense opportunity we have to scale the ARKO platform and dramatically enhance the growth and financial performance of this company. First, I want to thank and recognize the team. I've been impressed by the dedication, the talent and the operational discipline in the field and at the support center. There's a strong foundation here that will take us forward. Second, I'm encouraged by what I'm seeing in the stores. We are improving our stores, and it is showing. Our trends improved as we exited 2025, and we continue to see momentum into early 2026, even with some weather disruption. Third, and this stands out to me. It's a level of analytics and rigor in decision-making, particularly around capital deployment and evaluating returns on every dollar we spend. That discipline is critical as we focus on the highest return levers in the business. Overall, I believe ARKO is entering an important phase. The work to simplify, reposition and strengthen the company through transformation is largely behind us. Now it's about translating that into consistent growth and improved financial performance. With that, let me walk through our fourth quarter and full year results and then discuss the outlook. Turning to our fourth quarter and full year 2025 results. Net income was $1.9 million for the quarter, reversing a net loss of $2.3 million for the prior year. Adjusted EBITDA was $55.7 million for the quarter compared to $56.8 million for the prior year, an increase of 16%, reflecting the results of our transformation efforts that we are improving merchandising margins, generating strong fuel performance, streamlining our business through dealerization and building significant expense discipline across the organization. For our Retail segment, we delivered merchandising margin of 34.4%, an increase of 140 basis points versus the prior year. Same-store merchandise sales were down 3% for the quarter and down 4.1% for fiscal year 2025. And same-store merchandising sales, excluding cigarettes, were down 1.8% for the quarter and 2.7% for the full year. As Arie mentioned, our merchandising sales trends strengthened over the course of Q4, and that momentum has carried us into early 2026. Retail fuel same-store gallons also improved in Q4 and were down 4.1% for the quarter and down 5.4% in fiscal year 2025 versus the prior year period. Retail fuel margin cents per gallon improved in Q4 to approximately $0.445, reflecting disciplined pricing in a relatively volatile environment. We remain focused on operating expenses. For the fourth quarter of 2025, site operating expenses decreased by $29.5 million or 15.7% compared to the prior year period, primarily due to $31.1 million of reduced expenses related to retail stores that were closed or converted to dealer locations. Same-store operating expenses were nearly flat, up 0.6% as tight labor management and cost discipline in stores mostly offset increases in rent and wage rates. Turning to our Wholesale segment. Wholesale fuel contribution increased 8% to $24 million in the quarter compared to $22.3 million in Q4 of 2024. Wholesale gallons also increased by 4% to 249 million gallons and fuel margin was approximately $0.097 per gallon for Q4. For the full year 2025, wholesale generated $94.5 million of contribution, a 5% increase from $90.4 million last year, with total gallons increasing 4% to $989 million and fuel margin cents per gallon of approximately $0.096. Moving to Fleet Fueling segment. Fleet Fueling fuel contribution was $15.9 million for the quarter compared to $16.3 million last year. Fleet fueling gallons totaled 34.9 million gallons compared to 36.1 million gallons and margin was $0.456 per gallon. For the full year, Fleet Fueling generated $65.7 million of fuel contribution on 142.8 million gallons with a margin of $0.46 per gallon. This compares to $64.3 million of fuel contribution on 149 million gallons last year. Fleet Fueling margins remain strong and continue to reflect the durable cash flow profile of this business. Adjusted EBITDA for the year was $248.7 million, flat to the $248.9 million in 2024. While top line performance remained pressured, structural improvements in margin and strong cost control helped offset volume headwinds. Net income was $22.7 million for 2025 as compared to $20.8 million for 2024. We are seeing results from the execution of our strategy and our performance in nearly every area strengthened as we finished the year. Merchandising margin was 33.7%, up 90 basis points year-over-year. Same-store retail operating expenses remained flat for 2025 versus 2024 with our productivity initiatives and lower credit card fees overcoming headwinds with wage increases, expanded food programs, higher maintenance costs and higher snow removal expenses. Merchandise same-store sales were down 4.1% for the year, and retail fuel same-store gallons were down 5.4% for fiscal year 2025, but both improved as we entered and exited Q4. Looking to the balance sheet. We finished 2025 with $305 million in cash, and our balance sheet remains strong. Following the successful IPO of ARKO Petroleum Corp., we received approximately $184 million in net proceeds, which we used to reduce debt and enhance liquidity. The transaction positions us with a stronger capital structure and greater financial flexibility to execute our strategy as we enter 2026. Regarding capital allocation, we remain disciplined and focused on high-return investments, including dealerization execution, retail remodel expansion, retail NTI development, technology and analytics, and cardlock growth in our fleet platform. We remain comfortable with our leverage ratio and have more than enough cash and liquidity to deliver our strategy and continue to build momentum with our capital initiatives mentioned above. Turning to 2026 guidance. We currently expect 2026 adjusted EBITDA to range between $245 million and $265 million, with an assumed range of average retail fuel margin from $0.415 to $0.435 per gallon. For sensitivity purposes, every $0.01 change in retail same-store CPG is estimated to result in $8 million to $9 million of adjusted EBITDA. We believe 2026 same-store retail sales will be relatively flat and will improve several hundred basis points versus our 2025 results. We are planning same-store margin between 35.5% and 36.5%, also an increase versus 2025. As stated in ARKO Petroleum Corp. prospectus, we expect our APC business to deliver approximately $156 million in adjusted EBITDA in 2026. As a reminder, APC includes the results from our wholesale, Fleet Fueling and GPMP segments, including a $0.06 fuel margin on fuel distributed by our GPMP segment to our retail stores. Our estimated gallons for the forecast period include an assumption that we will add an additional 50 million gallons in volume for the year ending December 31, 2026, as a result of our acquisitions from third parties of businesses or assets in our Wholesale segment, offsetting an estimated decline in gallons from comparable wholesale sites consistent with historical trends. Finally, we will continue to manage all of our controllable costs in both stores and in our office. ARKO will be a low-cost operator. To summarize, we are executing our transformation strategy, and it is working. So we fully expect to continue to show momentum and improve our performance in nearly every key metric in 2026. With that, I'll hand the call back to the operator to begin Q&A. Operator: [Operator Instructions] Our first question comes from the line of Bobby Griffin with Raymond James. Robert Griffin: Arie and team, I guess the first one for me is maybe on the merchandise sales for retail. Your guidance includes some notable improvement here further in '26. We're getting towards the later innings of the dealerization program. So can you maybe unpack some of the drivers of the further improvement? Is there more contribution coming from remodels? Just anything there to help us kind of get visibility into the confidence of that versus some of the trends we see here in 4Q? Arie Kotler: Good to have you with us over here. So I think that the first thing is, of course, execution and our marketing initiative. As I mentioned, we started with a Fueling America campaign back in the end of Q1 2025. And given that customers are looking for value, as we continue to move forward with this campaign, we saw an increase in loyalty transaction. We saw an increase in loyalty enrollment. And those draws, of course, customers to the core categories. That's the reason if you think about that, you saw a huge improvement. We actually gained market share in almost every nicotine item in the category. OTP was up 4%. Energy drink was up 8%. And if you think about it, those categories are high-margin categories. So we believe that all of the marketing initiatives that we had during the year, as we continue to basically to improve our initiative and improve those categories, I think that's what actually drove the margin increase in customer engagement within the stores. There's no question that food service help us as well. There is no question that every time when we remodel a store or build additional NTI that are actually progressing above our expectation, there is no question that those things drive directly to the bottom line. But it's not just one item. It's every little thing that we did this year. And as I said, most of it is really engagement through our loyalty program. And I think customers keep coming because of those -- basically those promotions that we are actually putting out there. We just upped our promotions from $2 per gallon to $2.50 per gallon, given the 250 years American birthday this year. So now customers can actually save up to $50 for every 20 gallons that they are being -- they're actually buying. So again, we believe those initiatives are the ones that drove basically sales or at least drove margins inside the store. And as you mentioned, I believe that given that the cost of fuel dropped during Q4 and was actually at the $2.50, I actually feel that because of that customers coming more often to the store. Robert Griffin: Okay. Very good. Maybe switching gears and talking about the remodels some. I don't want to extrapolate out early results from only a few stores, but it does seem like the trends are promising. Can you explain a little bit on what's the cost of capital for that remodel? And then it seems from the release, maybe there's an opportunity for kind of a partial redesign where you talk about taking some of the fas craves food, formatting change and taking a few of those and putting them into other stores, but maybe not a full remodel. So can you talk a little bit about the capital of that type of remodel and what ultimately the opportunity could be? Arie Kotler: Sure, sure. So as you can assume, the first couple of remodels that we did, it was a major remodel. It wasn't only the food, it was the entire store from the outside to the inside, curb appeal, adding some space to the stores. So those are the first remodels that we did. And the cost of a typical remodel like this is approximately $1 million, around $1 million -- between $900,000 to $1.1 million, but let's call it $1 million. There is no question that many of the other stores can go through a soft remodel, just adding the fas craves. And as a matter of fact, if those 25 locations that we are working on, we're really price engineering everything right now how to reduce costs. There is a big difference between working on a couple of stores versus working on 25 stores at the same time. But I believe at the end of the day, we can go to a soft remodel that will cost us around $0.5 million or so, something between, as I said, $400,000 to $700,000 is probably a good number to speak. Robert Griffin: Okay. That's helpful. And I guess, Arie or whoever on the team, when you kind of look at your retail base that you're going to own post the dealerization, I understand that you've given us some targets, but there's also some more. What size or what percentage of the stores post all this dealerization that you're going to own, do you think need a remodel of some sort? Arie Kotler: I don't have the percentage, Bobby. I think that most of the stores that we are actually keeping have less capital intense in terms of what they need. I think those remodels, it's really not about just a [ curb appeal ]. It's really how do we add food service like fas craves into those stores. And if it's not food service, what are the other categories that we can actually improve or actually we can add to the stores. So I think the business itself, the stores that we are keeping are -- many of them are stores that money was invested over the years. So I don't think it's really a question of capital. It's really a question of what do we want to drive from these stores. And as I said, foodservice is being one of the biggest initiatives over here. So we are concentrating on stores right now that may not need a remodel, but we're probably going to just invest money in foodservice. Any place that we will be able to add fas craves regardless of the remodel, we will add actually fas craves into those stores. And there are plenty of them. C. Jeff: Just to build on that a little bit, Bobby, to your question before, from the remodels, we're also trying to understand which elements of those remodels are working and driving results. So like Arie said, there's a lot of stores with some space, and we can take a low-cost approach to add the right assortment, add the right elements in those stores that don't require full remodel and so we get a lot of the benefits. So it's not a high capital expense. It's really trying to find the right elements that customers are responding to, mostly around the fas craves and the food and getting those into more stores. Robert Griffin: Understood. I'll jump back in the queue. Best of luck here on the first quarter and congrats on the announcement about your APC business. Operator: Our next question comes from the line of Daniel Guglielmo with Capital One Securities. Daniel Guglielmo: In your opening remarks, you mentioned a still cautious consumer. And then in the prior quarter call, you highlighted the Midwest and other select markets as under pressure with other regions being healthier. Are you still seeing that pressure in the Midwest? Or is it more kind of broad-based now? Any additional color would be helpful. Arie Kotler: I think the pressure in the Midwest continue to be probably the main pressure. I think I see some ease in the rest of the country. And that's going back, Daniel, by the way, to the point I made earlier, which is the minute the price of fuel broke $2.50 or went below the $2.50, we saw all of a sudden, customers coming more often to the store. We see an increase in basically in gallons. We see an increase in transaction, in baskets. So I really think that -- I'm not an economist, but I think that given the price of fuel dropped below $2.50, I think that, that is some of the spending with our customers. So I don't think anything changed from, I'll call it, from a region standpoint or from what I discussed earlier in the year. I just think that the initiatives and the promotions that we have out there are just screaming to the customers. And I think that the customers are coming in and taking advantage of those promotions. Daniel Guglielmo: Okay. I appreciate that, and that makes sense. And then on the initiatives and the promotions I saw, you all put out the $3, $4, $5, $6 value meal deals. Do those meals at those prices drive merchandise margin expansion on their own? Or is it more of a way to kind of get customers in the door to increase basket size, do other things? Arie Kotler: Yes. That's a good question, Daniel. So just to be clear, those promotions are being 100% supported by our vendors. So this is not promotions in order just to drive customers and actually lower margins. Our margins stay the same. Those promotions are being supported by our vendor partners. But there is no question that when you have those promotions that involve foodservice, those promotions not only bringing customers in, they're actually driving the rest of the categories, which is OTP, for example, candy, energy drinks. So I think those promotions just continue to gain momentum with the other categories. And like I said, those promotions bring customers, those customers turning to buy higher-margin core category items. And the more they come in and concentrate on the core categories, cigarettes becoming a much smaller piece of the business. So it's much more a small piece of the pie of what the customers are purchasing within our stores. But Daniel, I just want to be clear. This is all hard work by the team. The merchandising and marketing team thinking every day how we can actually be different than the competition across the street and how we can bring customers in. So that's a lot of work. I want to be just clear. That's a lot of work being put into this with loyalty, with food service. And that's what drove the results in Q4, as you can see. And that's, I believe, what drove basically sales in Q1 so far. Operator: Our next question comes from the line of Hale Holden with Barclays. Hale Holden: So I had 2 quick questions. The first one is on the APC side of the business. If you could sort of talk about what the M&A opportunity is there now that you have a separate currency and balance sheet to expand into fuel distribution? Arie Kotler: Sure, sure, sure. So I don't know how much -- I'm sure that some of you knows how big is the industry. We're talking right now about a wholesale business, a fleet business within an industry of over 195 billion gallons. And I mentioned it on the call, we only sell 2 billion gallons. It's a lot. We are one of the largest ones in the country, but it's only 1% of the industry. We believe with APC, with our -- basically with our capital that is available at a very low cost. We have over $635 million available for acquisition. Our leverage is very, very low. And I think we have the track record of doing acquisition. We did 26 acquisitions involved retail over the past 11 years. And I think in this fragmented industry, which is much more fragmented industry than the industry that we saw in retail, I believe that we're going to be able to gain a lot of momentum over here. In addition to that, we are one of the largest cardlock operator in the country, that's the fleet business. And this is an industry that is also fragmented. We have -- we're targeting 20 new cardlocks in 2026. We already identified 10 of them. To build the cardlock, it's not expensive. It's around $1 million to $2 million, and we're targeting mid- to high teens returns. So again, we believe that the opportunity is now when we have APC on its own, we believe that -- that's going to be a big, big opportunity for us to continue to do accretive acquisitions moving forward. Hale Holden: Great. And then just kind of a dumb accounting question, but you gave us the EBITDA guidance for the company and then the EBITDA guidance for APC that was in the S-1. Am I right in just implying that the retail business EBITDA is about $100 million for 2026? C. Jeff: Hale, this is Galagher. There is some elimination there for the intercompany sales. So you can't just 1 plus 1 equals 2. So part of the wholesale business sells into our retail stores, we do eliminate that as a transfer. So it's not exactly that simple. We do break down the segments in the release, so you can compare the segments and build the model. So we're also going to be a lot more transparent as you would expect with APC going forward. So shortly, we'll be providing separate information and releases for those. Hale Holden: I figured it was not as simple as it was in my head, so I appreciate that. C. Jeff: We're happy to help if you need help. Operator: We have reached the end of the question-and-answer session. And therefore, I'd like to hand it back over to -- the floor to Arie Kotler for closing remarks. Arie Kotler: Thank you, operator. Before we disconnect here, I want to speak directly to our employees. The great results we discussed today are a testament to your hard work and resilience. Your dedication and commitment drive our progress every day, and we are deeply grateful for everything you do to support our mission and serve our customers. Thank you for your efforts and for being the foundation of our continued success. To our shareholders, thank you for your trust and partnership. Your continued support enables us to pursue our strategic goals and deliver value across our businesses. We are committed to maintaining transparency and working diligently to meet your expectations as we move forward together. As we head into 2026, our financial position remains robust, and our commitment to expanding through value-enhancing acquisition is stronger than ever. We appreciate your time. Have a great evening, everybody. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.
Operator: Good morning, and good evening. First of all, thank you all for joining this conference. And now we will begin the conference of the fiscal year 2025 fourth quarter earnings resulted by KEPCO. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2025 fourth quarter earnings resulted by KEPCO. Si-young Yang: [Interpreted] Good afternoon. This is Siyung Yang, Head of Finance Department of KEPCO. I'd like to thank you all for participating in today's conference call for the business results of the fourth quarter of 2025 despite your busy schedule. Today's call will be conducted in both Korean and English. We will begin with a brief presentation of the earnings results, which will be followed by a Q&A session. Please note that the financial information to be disclosed today is preliminary consolidated IFRS figures and all comparison is on a year-over-year basis unless stated otherwise. Also, business plans, targets, financial estimates and other forward-looking statements mentioned today are based on our current targets and forecasts. Please be noted that such statements may involve investment risks and uncertainties. Now we will begin with an overview of the earnings results for the fourth quarter of 2025 in Korean, which will be then consecutively translated into English. [Interpreted] I will first go over the operating items. The consolidated operating income in 2025 stood at KRW 13,524.8 billion. Revenue increased by 4.3% to KRW 97,434.5 billion. Power sales increased by 4.6% to KRW [indiscernible] billion. Overseas business and other revenue decreased by 1.8% to KRW 4,429.9 billion. Cost of goods sold and SG&A decreased by 1.3% to KRW 83,909.7 billion. Fuel costs decreased by 13.8% to KRW 19,036.4 billion and purchase power costs decreased by 1.8% to KRW 34,052.7 billion. Depreciation expense increased by 2.3% to KRW 11,667.8 billion. Next, I will go over the nonoperating items. Interest expense decreased by KRW 325.6 billion Y-o-Y to KRW 4,339.5 billion. As a result of the foregoing, the 2025 consolidated annual operating income stood at KRW 13,524.8 billion, and net income was KRW 8,007.2 billion. Taeseop Eom: [Interpreted] Good afternoon. I am Taeseop Eom, Head of IR team. Now I will go over the matters of interest. First, I will talk about the performance of power sales and its outlook for the remainder of the year. Annual power sales volume due to economic downturn and as a result of that, given the industrial demand has decreased. The total sales volume was 549.4 terawatt hour, which is a 0.1% decrease Y-o-Y. In 2026, the economic growth rate and number of operating days increase should lead to a slight increase in the total sales volume. [Interpreted] Next, I will go over the fuel price by fuel source and S&P trends. In 2025, if you look at the annual trend of the fuel prices for bituminous coal Australia, the price was around $105.7 per ton. For LNG, JKM was KRW 980,000 per ton and the S&P was around KRW 112.7 per kilowatt hour. [Interpreted] Next, I will go over the [indiscernible] company. If you look at the annual 2025 generation mix, the capacity factor of nuclear power increased and thus, its contribution to the mix increased as well. For coal, the capacity factor increased and thus, the contribution in the generation mix increased. For LNG, the installed capacity decreased. And due to the increase of baseload power generation, the contribution to the mix decreased. For 2026 on annual basis, we expect the contribution of nuclear power to increase, coal to decrease and LNG should largely remain flat. In 2026, the capacity factor for each fuel source should be as follows: nuclear power around mid- to high 80%, coal around mid-40% and LNG should be around early to mid-20%. [Interpreted] Next, I will go over the RPS cost. In 2025, annual RPS expense on a consolidated basis was KRW 3,989.7 billion. And on a stand-alone basis, it was KRW 4,818.8 billion. Last, I will go over the funding situation. As of 2025 Q4, consolidated total borrowings was KRW 129.8 trillion. And on a stand-alone basis, it was KRW 84.9 billion. [Interpreted] Now we will move on to the Q&A session. Since we will be conducting the Q&A session in both Korean and English, please make your questions and answers clear and brief. Operator: [Interpreted] [Operator Instructions] The first question will be given by Jong Hwa Sung from Securities. Jong Hwa Sung: [Interpreted] I am from LS Securities and my name is Jong Hwa Sung. Please understand my sore throat today. I have 2 questions. Number one, it's about the contribution of the nuclear power generation in the generation mix. So I think largely fuel cost and power purchase cost was in line with expectations. But nevertheless, the operating income was underperforming expectations by around KRW 1 trillion. I think this is largely because of other costs. I think other cost was around KRW 1.2 trillion higher than what we expected. I believe this is mainly coming from the recovery of nuclear power generation sites and costs associated to carbon and greenhouse gases. it seems that these cost items were concentrated in Q4 in 2025. However, if you look at other years, sometimes it's booked in Q2, sometimes it's booked in Q4. And so the seasonality is not stable. So on an annual basis, how much do you expect these other cost items to be generated or incurred every year? And then second is about the contribution of the nuclear power generation. So in Q4 2025, on a Y-o-Y basis, I think the nuclear power generation contribution went down by around 6%, which is unusual given that for the first 3 quarters of 2025, nuclear power generation contribution was higher than that. So when you say -- or you said in your keynote that the contribution of nuclear power will probably increase in 2026. Is it compared to Q4 2025? Or is it compared to the first 3 quarters of 2025? In other words, in Q4 2026, will nuclear power generation contribution be slightly higher or significantly higher than 2025 Q4? Unknown Executive: [Interpreted] Yes. So I will first address your first question regarding the other cost. So the provisions related to greenhouse gas emissions went up by around KRW 120.6 billion to KRW 340.6 billion. As for the provisions regarding the nuclear -- provisions regarding the recovery of the nuclear power generation sites, it went up by KRW 411.2 billion, resulting in a negative KRW 4.6 billion. So there was actually write-backs. As to the exact timing of when we book these type of provisions and costs, I think we will discuss internally, and I'll get back to you later on. Unknown Executive: [Interpreted] Yes. Regarding your second question, we mentioned that the capacity factor for nuclear power should be around mid- high 80% on an annual basis. So maybe towards the end or early part of the year, the capacity factor may seem lower than that. But on an annual basis, I believe that it will be higher, especially given that we have nuclear power plants who are going through and completing its preventive maintenance process, which should come back online. And also the addition of new power plants should add to the higher capacity factor of nuclear power in 2026. Operator: [Interpreted] The following question is by Kyeong Won Moon from Meritz Securities. Kyung-Won Moon: [Interpreted] My name is Kyeong Won Moon from Meritz Securities, and I have 3 questions today. One, if you compare the consolidated operating income of Q3 and Q4 and the stand-alone operating of the 2 quarters, I believe that the stand-alone operating income is relatively higher numbers or relatively better -- showed better performance. I believe this is largely driven by the adjustment coefficient. So is that the main reason? What is the main reason behind this? And what would be your expected adjustment coefficient for Q1 2026? My second question is regarding the before tax profit. So compared to the operating income, the before tax profit seemed to have performed quite strongly, both for consolidated and stand-alone numbers. What would be the reason behind this? Were there any one-off P&L items in other categories like the finance and other businesses? My third question is related to the dividends. So I believe that -- so the dividend was just announced. And if you look at the dividend payout on the stand-alone net income basis, it seems that it actually decreased compared to last year. So how did you come to this DPS number? What is the logic behind that? And what would be your expectation or outlook for the dividend payout of 2026? Do you think it will be higher than 2024 and 2025? Unknown Executive: [Interpreted] Yes. So regarding your first question, it may seem that the stand-alone profits are stronger than the consolidated numbers because there are some costs associated with our subsidiaries, which is booked under consolidated financial statements, but not on our stand-alone numbers. [Interpreted] Regarding the adjustment coefficient, in Q4 last year, the numbers were slightly higher than previous average quarters. [Interpreted] And the coefficient for 2026, we expect to be slightly higher than 2025. Unknown Executive: [Interpreted] And regarding your question comparing the operating income and the before tax income. So for our subsidiaries, there were some lease liabilities that could not be hedged due to the decrease in the FX rates. And so because of the FX -- in the process of the FX conversion, there were some valuation losses and gains that needed to be booked that impacted the numbers. Unknown Executive: [Interpreted] And regarding your question on dividends. So last year, the payout was 16.5%. And this year, it was 13.65%. So like you mentioned, it did decrease. However, I'd like to note that the size of the net income on a stand-alone basis increased significantly. So the absolute amount of dividends that were paid out will increase. And DPS also increased to around KRW 1,541 per share. As for 2026, as you know, we are subject -- we are a public corporation and subject to the relevant legislations, we need to discuss the dividend strategy with government departments. So at this point, unfortunately, we are not able to comment on the direction of 2026 dividends. Operator: [Interpreted] The following question is by Jaeseon Yoo from Hana Securities. Jaeseon Yoo: [Interpreted] I am Jaeseon Yoo from Hana Securities, and I have 4 questions. My first question is provisional liabilities related to used fuel -- used nuclear fuel. So in January, I read news that the unit price has gone up. And so maybe can you give us a little bit more color on this topic? And my second question is also related to this as well. What was the total amount of the used nuclear fuel-related provisional liabilities booked by KHNP in Q4 2025? And third, there was a 15% decrease -- price decrease that was subject to a grace period, and that grace period is coming to an end. I believe, therefore, the bituminous coal price can go up. So what would be the associated cost that you are expecting in regards to the end of the grace period? And fourth is related to the bond issuance limit. So what would be the outstanding amount of bonds issued? And how much room do you have in comparison to the cap? Unknown Executive: [Interpreted] I'll try to address your first 2 questions at once. So the provisional liabilities that were booked for the recovery of nuclear power sites was KRW 904.5 billion -- increased by KRW 904.5 billion to KRW 24,769 billion. As for the used nuclear fuel, it decreased by KRW 178.4 billion to KRW 2,745.3 billion. And as for the mid- and low level nuclear waste associated provisions and liabilities, it went up by KRW 10.2 billion to KRW 1,077.2 billion. Unknown Executive: [Interpreted] As for your third question regarding the grace period of the individual consumption tax coming to an end and how that would impact our cost. So we do have an internal estimate, but unfortunately, we are not able to disclose those numbers to the public in the market. So we ask for your understanding. Unknown Executive: [Interpreted] Yes. And regarding your final question on the bond issuance cap. So that can -- the final exact number can be calculated after the dividend is finalized at the Board and shareholders' meeting. But we believe that it will be something around just over 3x once all of those dividend-related activities are finalized. Operator: [Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question is by Jong Hwa Sung from LS Securities. Jong Hwa Sung: [Interpreted] I have 2 questions. First is regarding the nuclear power generation export strategy. So I believe that there is a process currently ongoing to streamline the Korean nuclear power generation export strategy. So maybe can you elaborate a little bit on how that is moving forward? And second, I believe that there is some court case in the international mediation courts by KHNP regarding the additional KRW 1.4 trillion construction cost that was incurred during the BNPP construction project. Has that been already reflected in the financial statement? And if so, if KHNP is able to recover the cost from the UAE government, will that have impact on the financial statements? Unknown Executive: [Interpreted] Yes. I will address your first question regarding the export of nuclear power plants of Korea. And so we are -- I believe that the research project has been outsourced by the Ministry of Industry, and they are currently waiting for the results. KEPCO, of course, will be closely cooperating with the government to ensure that high-quality nuclear power plant export strategy can be developed to maximize and satisfy the global customers. Unknown Executive: [Interpreted] Yes. And your second question regarding the dispute between KEPCO and KHNP. So we are currently in conversation and negotiation with them. And I think both parties are making utmost effort to resolve this conflict in a stable manner. However, please understand that we are not able to disclose any specific numbers. Operator: [Interpreted] The following question is by Yoon Cho from UBS. Yoon Cho: [Interpreted] I have 3 questions. One is regarding the tariff. So the press recently has reported that there may be some differentiated price scheme applied to industrial power. And currently, you are thinking of, for example, different pricing per time or offering weekend discounts for the industrial use. There are also talks about regional pricing schemes for the industrial power. And these elements have been mentioned by the Minister of Climate, Energy and Environment. So can you elaborate or give us a little bit more color on these schemes? How do you think it will impact the average unit price of power, overall? And when do you think that these new schemes can be introduced? My second question is regarding to your comments earlier today. You mentioned that in Q4, there were some cost associated subsidiaries that were booked. Were there any unusual one-offs that we should be aware of? And my third question is about the SG&A cost. What was the exact amount consolidated basis for Q4? Unknown Executive: [Interpreted] Regarding your first question, with the increase of the solar PV power generation, the overall load patterns are changing. And to reflect this change, we are currently developing seasonal and -- seasonal pricing schemes and also different pricing schemes for time period. We are also considering the balanced growth of the overall national economy and regions and also working to distribute or disperse the power demand nationwide. And these are the reasons why we are also developing a new pricing scheme that can better reflect the regional situations and regional demand. We are working closely with the central government to develop a reasonable and rationable new pricing scheme, reflecting all of these elements. However, as to its impact on unit price and the exact time line, I believe it's a little bit early. We are also listening to the opinion of the corporates and overall business and industry community as well. So once we have a better idea on the specifics of this matter, then I think we can disclose some other information. But currently, we are under close negotiation and discussion with the government. [Interpreted] And regarding your second question, I think all we can say at this point about the cost booked by subsidiary is that it is related to overseas businesses. Unknown Executive: And as for your final question regarding consolidated SG&A cost. So currently, we are in the process of closing the books. And so we do not have the final exact numbers right now. But once the audit report is released, the number will be included in the financial statements. Operator: [Interpreted] The following question is by [indiscernible] from JPMorgan. Unknown Analyst: [Interpreted] I only have one question. I believe that in the past, there were some discussions on reflecting the individual elements in the fuel cost of the ASP. So have you continued those discussions? Do you have any updates that you can share with us? Unknown Executive: [Interpreted] Can you please elaborate on that question, please? Unknown Analyst: [Interpreted] Yes, I believe currently, when the tariffs are determined, KEPCO would make a proposal to the government, maybe around plus/minus 51. And ultimately, the government would make the decision. However, I believe that there were some discussions on finding the legal mechanism to ensure that the cost pass-through system can work like other utility companies outside of Korea. And so if the fuel cost would go up, this would naturally be reflected in the tariffs through the cost pass-through mechanism. So I was wondering if there were any progress in those discussions with the government. Unknown Executive: [Interpreted] Yes. So currently, we have implemented -- we have in place the cost pass-through system. So on a quarterly basis, the fuel prices are reflected in the tariffs. But we are also working to improve how it is being implemented. We are discussing with the government and listening to the voices of the related parties and industries to find ways to further improve the cost pass-through system going forward. Operator: [Interpreted] Currently, there are no participants with questions. [Operator Instructions] [Interpreted] As there are no further questions, we will now end the Q&A session. If you have any questions -- additional inquiries, please contact our IR department. This concludes the fiscal year 2025 fourth quarter earnings resulted by KEPCO. Thanks for the participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]