加载中...
共找到 8,161 条相关资讯
Operator: Thank you for standing by, and welcome to the Xero Limited 2026 Interim Results Conference Call. I am joined by Xero's Chief Executive Officer, Sukhinder Singh Cassidy; and Chief Financial Officer, Claire Bramley. [Operator Instructions] I would now like to hand the call over to Sukhinder Singh Cassidy, Chief Executive Officer of Xero. Please go ahead. Sukhinder Cassidy: Good morning from Sydney, Australia. Thank you for joining our investor briefing today covering Xero's financial and operating results for the half year ending September 30, 2025. I'm Sukhinder Singh Cassidy and I'm with Claire Bramley, our CFO. Our first agenda item is the summary of Xero's performance for the half year. I'll then pass to Claire to cover our financial results in more detail before I finish with strategic priorities and Xero's outlook. After that, we'll move to Q&A. So moving to a summary of our results on Slide 5. We are very pleased with our H1 fiscal '26-year results, which clearly demonstrates our sustained revenue momentum and execution against our strategy. We continue to achieve strong revenue growth across our 3x3 portfolio. This, along with another meaningful increase in profitability, enabled us to again deliver above the Rule of 40, demonstrating strong cash generation. I'm going to touch on the key metrics here, and Claire will cover them in detail later in the presentation. Operating revenue grew 20% year-on-year to reach $1.194 billion or 18% in constant currency. This strong growth comes despite a tough prior period comparison. Adjusted EBITDA was $351 million or up 12% year-over-year. Finally, our solid operating results and strong cash generation resulted in a Rule of 40 outcome of 44.5%, an increase of 0.6 percentage points year-over-year. I'll now spend a few minutes outlining the regional contributions to revenue growth. We saw each of our largest markets, Australia, the U.K. and the U.S., make a strong contribution. ANZ remains a core component of our portfolio and continues to deliver robust quality growth off a large base. You can see the sustained performance reflected in our results. We delivered 17% revenue growth year-over-year. This was the result of continued subscriber and ARPU expansion with subscribers up 7% and ARPU growing 12% year-over-year. Australia continues to drive strong revenue growth, up 19%. Subscribers were up 9% year-over-year. Australia is making good progress in a highly penetrated market, continuing to add new features to support ARPU expansion while delivering solid subscriber growth off an already large base. Its GTM playbook is evolving to progress new customer mix. But as we've said before, moving the back book of existing customers is a longer-term opportunity. New Zealand delivered quality growth in what is our most deeply penetrated market. Revenue grew by 8%, with net subscribers up 4% year-over-year. This is a positive result and ahead of economic growth in this mature market. Overall, the performance of ANZ reflects the strength of our core market relationships and our ability to drive growth through strong execution and a focus on customer value. Turning our focus now to the International segment, which covers the U.K., North America and our Rest of World markets. I want to note that this segment is fundamental to our future scale and is executing strongly against our strategic priorities. International revenue grew by 24% year-over-year. Looking at the individual markets. In the U.K., we delivered a robust performance with 25% revenue growth. Subscriber growth remained strong at 13%. We saw early indications of tailwinds related to HMRC's regulatory changes flowing through. We anticipate the majority of the market benefit will come over the next few periods. We are excited as this will support subscriber growth, but we would remind you that there is a negative impact on ARPU as smaller businesses adopt our lower-priced compliance offerings. North America continues its momentum, delivering 21% revenue growth despite the headwind of no revenue from Xerocon this half. Adjusting for this, growth was 26%, a great result. Subscribers grew 15%, a good outcome in what is typically a seasonally weaker half. I will talk about our Melio acquisition shortly, but keep in mind that the deal immediately provides a step change in the scale of our U.S. business and we're really excited about its ability to accelerate growth in the U.S. Finally, our Rest of World markets grew revenue by 22% with subscriber growth of 11%. In summary, strong execution in the International segment is building a solid foundation for sustainable, high-quality growth in these markets. This slide brings the key financial outcomes together, showing how we are successfully balancing growth and profitability, while delivering above Rule of 40 outcomes. We're consistently delivering EBITDA and free cash flow growth, which is contributing to strong cash flow generation. The free cash flow margin reached 26.9%, which you can see on the middle chart. Adding this to revenue growth, where we use the 18% constant currency metric, resulted in our Rule of 40 outcomes increasing another percentage point to reach 45%. We are very pleased with this result, which demonstrates our ability to deliver sustained revenue growth supported by disciplined investment to grow profitability while at the same time adding value for our customers. Before I hand to Claire, I want to briefly acknowledge the completion of the Melio acquisition in October. We're incredibly excited to bring our 2 businesses together, and I'll discuss this in more detail later in the presentation. Now I'll hand over to Claire to walk us through the financial results. Claire Bramley: Thank you, Sukhinder, and good morning, everyone. It's a pleasure to be here to present our financial results for the first half of fiscal '26. We have delivered another strong half. As Sukhinder said, our results show sustained revenue momentum across our portfolio of businesses and the effective execution of our strategy, allowing us to deliver another above Rule of 40 outcome of 44.5%. Starting with revenue. We have a large recurring revenue base spread across a global portfolio, which enables us to consistently deliver strong top line growth. Despite the tougher prior period comparison, we maintained strong revenue growth this half of 20% year-over-year. Subscriber growth was 10% to reach just shy of 4.6 million subscribers at the end of the period. ARPU growth was 15% on a reported basis, noting that our ARPU disclosures are based on the end-of-period foreign exchange rates. On a constant currency basis, ARPU growth was 8%. The continued balanced growth in both subscribers and ARPU drives our AMRR, which I'll talk about on the next slide. AMRR reached $2.7 billion. This represents a 26% year-over-year growth or 19% in constant currency. AMRR, like ARPU is calculated using end-of-period foreign exchange rates. The AMRR exit rate sets a strong foundation for growth. The short-term discounts and hedging are excluded from this number and will impact how this translates into full year '26 revenue. We saw both impact our revenue growth in the first half relative to AMRR growth. We are continuing to deliver very healthy gross profit, with gross profit margins of 88.5%. The slight reduction year-over-year reflects our continued investment in our customer experience. Now let's look more closely at the drivers of our 10% ARPU growth in the first half, which you can see on Slide 12. Price changes reflect amortization of the significant value we have added to Xero from new features and capability improvements. Price increases typically happen in the first half of the year by our Australia, New Zealand and U.K. regions. So we expect pricing to contribute more significantly to ARPU during this period. The specific price changes across our plans reflect a more strategic and segmented approach. This is evidenced by our decision to hold prices flat on all lower end Ignite plans in each of these markets. Moving to product mix. We are seeing positive results from our go-to-market strategy with new customer mix incrementally improving in the U.K. and the U.S. as our targeted sales motions become embedded. In Australia, there have been some headwinds as we added payroll back into our lower tier plans. This has seen some customer shift towards these plans. While overall, we have made progress on our new customer mix, as Sukhinder mentioned, back book progress remains an opportunity in the longer term. Across all regions, we are continuing to evolve our direct go-to-market channel to support our focus on mix. We are successfully targeting higher-value customers through applying short-term promotional discounts and deepening our lead generation through avenues such as partnership and affiliate marketing. Finally, platform revenue growth continued to drive ARPU expansion, largely due to strong payments progress. So let's turn to that. It is worth reminding you the payments contribution in the first half was entirely from our existing accounts receivable offering as the Melio acquisition did not complete until October. We continue to see excellent momentum with payments revenue growing 40% year-on-year, mainly from continued strong TPV growth of 35%. This revenue have been generated across our 3x3 and reinforces our confidence in the value of providing integrated payments and accounting to SMBs. Employees paid through Xero Payroll increased 5% year-on-year. This lower growth rate reflects the deep penetration and large existing customer base we have in Australia. We are looking forward to the opportunity to start driving payroll penetration in new untapped markets, such as in the U.S., where our embedded offering with Gusto goes live in December. Now let's look at customer retention. MRR churn was 1.09%. This remains below our long-term pre-pandemic average of 1.15%. The slight increase from the last half, in part reflects our decision to incrementally allocate investment to the direct channel as well as target growth in our International segment. As we've noted before, while these segments have structurally higher churn, they also typically attract higher ARPU customers, which aligns with our strategy to optimize the total value of each subscriber. Our focus on the value of a subscriber is shown in our LTV, which expanded to $19.56 billion with LTV per subscriber increasing to $4,261. With regards to our acquisition metrics, customer acquisition cost per gross add was $757, with a healthy and efficient payback of 15.2 months. The increase in CAC aligned with our strategic focus on attracting higher value subscribers to drive mix rather than just focusing on volume. We are investing in data-driven tools and building our internal capabilities across digital performance marketing to drive our direct channel. We are also continuing to leverage our partner-facing teams to better support our accounting and bookkeeping customers. This resulted in an LTV to CAC ratio of 5.6, slightly down from the prior period, driven mainly by the ANZ region, which remains at an industry-leading ratio of 10.7. Let's move to our operating expenses. The OpEx ratio, excluding acquisition costs, was 72.8% in the half. We have revised our fiscal '26 outlook and now expect the full year ratio to be around 70.5%. Within this, we've added Melio, adjusted for currency and importantly, realized some efficiency benefits while continuing to fund investments for growth. Our capital allocation framework remains disciplined and returns based, which in turn aims to deliver improvements in efficiency, as you can see through our revenue per FTE, which increased 16% year-on-year. As we realize this efficiency, we are able to decide the proportion that we reinvest in line with opportunities we see and our Rule of X approach. Now let's turn to the key investment areas for the half. Sales and marketing costs were 31.7% of revenue, a reduction of 0.3 percentage points year-on-year. This reflects disciplined investment in digital performance marketing as we continue to strengthen our internal capabilities. Product design and development costs grew 18% year-on-year, equal to 28.2% of revenue. Gross product spend, which includes capitalized costs grew 24%, equal to 34.6% of revenue. This reflects our continued focus on product velocity, including hiring domain experts to support our new AI capabilities. Our capitalization rate was higher at 47.4%. This was driven by more developer time being spent on releasing new products and features, many of which we announced at Xerocon Brisbane. General and administration costs were 12.9% of revenue, an increase of 2.4 percentage points. As we flagged at our fiscal '25 results, this increase was expected and is primarily due to higher executive personnel costs associated with the accounting treatment of option and sign-on equity grants announced last year. The majority of these noncash costs are not expected to recur in fiscal '27. Moving down to the bottom line. Our sustained revenue growth and disciplined capital allocation delivered an adjusted EBITDA of $351 million for the half, a 12% increase year-on-year. Our adjusted EBITDA margin was 29.4%, down 2 percentage points, driven by the nonrecurring G&A expenses and investment in sales and marketing previously mentioned. Adjusted EBITDA, excluding total share-based payments, improved by 0.8 percentage points to 38.8%, demonstrating the continued positive operating leverage in the business. Our profitability and discipline translated into strong free cash flow. We generated $321 million of free cash flow in the half. This represents a free cash flow margin of 26.9%, a significant step up from 21% in H1 of fiscal '25. The high-quality recurring nature of our business continues to deliver very strong cash realization from customers. Our payments to suppliers and employees grew only by 10%. This lower cash outflow relative to OpEx growth was partly due to the timing of some vendor payments as well as the higher proportion of noncash share-based payments. We saw a $25 million increase in net interest received, reflecting the higher cash balances held prior to completion of the Melio acquisition. This benefit is temporary as we have now completed the transaction. Finally, there was a limited impact from tax payments in H1 as we depleted prior year tax prepayments. We will enter a more normal New Zealand corporate tax payment rhythm in the coming periods, which will impact future cash tax payments. It's worth keeping these factors in mind as we head into the second half. Our strong cash generation further strengthens the balance sheet. We ended the half with a net cash position of $3.2 billion, supported by the net funds raised for the Melio acquisition. Following the completion of the Melio acquisition, our pro forma balance sheet shows a net debt position of approximately $0.5 billion with a pro forma net debt-to-EBITDA of approximately 0.9x. This reflects our commitment to maintaining a strong balance sheet while also creating a clear pathway of meaningful deleveraging. It also ensures we retain flexibility to continue pursuing our build, partner and buy approach to capabilities. It is important to note that the shift to a net debt position will increase interest costs and reduce interest received in the second half of fiscal '26. This change in our balance sheet position will create a headwind to our Rule of 40 performance in the second half of the fiscal year compared to the first half. With regard to the completion of the Melio acquisition, Slide 21 outlines the consolidated go-forward business showing Melio included on a pro forma basis for the first half of fiscal '26 compared to the same period last year. The disclosure here is intended to help with the understanding of the combined business on a like-for-like basis. We won't be providing separate performance metrics for Melio going forward. Its revenue contribution will form part of the new U.S. region, of which you can find more details in the appendix. In the first half of fiscal '26, underlying Melio revenue growth reached 68%, driven by the addition of around 7,000 new customers since the second half of fiscal '25 and by an increased usage per customer. Together, they delivered an 18% lift in underlying TPV. This strong growth will support the scaling of our U.S. business, as shown in pro forma revenue growth of 53% year-over-year. Turning to profitability. Pro forma EBITDA reflects Melio's current scale and maturity. I'll walk through a few of the key drivers of this result and why we remain confident in the scale opportunity and the returns it can generate over time. Melio's gross margin has been broadly consistent with fiscal '25. That's mainly due to the timing of product-led syndication additions. We are clear on the drivers to expand margin going forward through leveraging scale, syndication, payment mix and subscription growth. Operating expense growth reflected a planned investment in sales and marketing to support this growth opportunity. We expect to see scale benefits come through as Melio continues its rapid growth. There are also 2 future considerations not included in the pro forma that I want to call out. First, it doesn't reflect the shift to a net debt position or the noncash amortization of acquired intangibles we highlighted at completion. Second, the accounting treatment of Melio's management earnout and incentive plans will add about $10 million in operating expenses in the second half of fiscal '26, which isn't reflected here. The pro forma Rule of 40 came in at 39.8%, a really solid outcome. While it does face some headwinds from the shift to net debt, we remain very confident in our ability to deliver against fiscal '28 Rule of 40 and revenue growth aspirations. To close, the first half has been another strong period of execution for Xero. We're delivering high-quality revenue growth, strong cash generation and remain well positioned to keep investing with a disciplined Rule of X framework to capture the significant opportunity ahead. Thank you for your time. I'll now hand back to Sukhinder. Sukhinder Cassidy: Thanks, Claire. I'll now talk to our FY '25 to '27 strategy and update you on a few recent news we've made. As you know, our vision and purpose are constant at Xero. Successfully delivering against these is key to achieving our aspiration, which I'll cover in a few moments. Our winning on purpose strategy, which you saw us lay on Investor Day in February 2024, has 4 key pillars: win the 3x3; build a winning GTM playbook for Xero's next chapter; win the future, which is about focus best on innovation; and lastly, unleash Xero and Xeros to Win. These 4 pillars are underpinned by our disciplined capital allocation framework for investment. This tightly aligns with our strategy, our Rule of 40 aspirations and our build, partner or buy approach to pursue organic or inorganic opportunities. We're making great progress executing against our strategy with focus and purpose to deliver tangible value for our customers. We've made a number of moves in the last 6 months, which we highlight on Slide 24. There are 3 key moves here that I want to spend some time on. Firstly, we continued our strong product delivery momentum through working hard to build product ourselves, but also through partnerships and our acquisition of Melio, which I'll discuss shortly. We've made significant progress this half in delivering important product features to help customers across our 3 largest markets, Australia, the U.K. and the U.S., to complete the 3 most important jobs to be done, accounting, payroll and payments. A few of the key product highlights rolling out are Analytics Powered by Syft across U.S., U.K. and Australia as well as launching our new customer homepage currently in beta to give customers an insight rich view of their business performance. In addition, we're announcing today the beta launch of our embedded payroll solution through our partnership with Gusto to provide U.S. payroll capabilities. Secondly, we implemented a series of changes to strengthen our go-to-market playbook. Our core focus has been increasing the sophistication of our sales motion to improve mix. As Claire noted, we've made encouraging progress on this, especially in the front book, and we're intensifying our efforts on the back book for existing customers. Thirdly, we're allocating capital for long term as we look to win the future through strategic investments in AI and mobile. We're really excited about the next evolution of JAX, our AI financial superagent. I'll spend some more time on this in the next few slides, but I'll call out one key highlight, which is our decision to partner with OpenAI to bring search capabilities for financial information inside the Xero product. We also continue to improve the mobile onboarding process and make mobile payments easier by rolling out tap to pay and adding mobile bill upload and simple invoice template setup. And we're also enabling our people to move faster for customers and do the best work of their lives, so we can unleash Xero and Xeros to Win. We're empowering all Xeros with AI education and tools to automate repetitive tasks, increase internal efficiencies and drive better value for our customers. We now have over 70% of engineers using AI in their daily workflows and nearly 50% of customer support responses are drafted by AI. Alongside this, we continue to invest in our purpose and performance-based culture with improved employee development opportunities for all Xeros. So you can see our investment is disciplined and aligned to our strategy. Coming back to our investment in AI. On the next slide, I'll talk to this in a little more detail. As a leading global SaaS business that has long been powered by machine learning and traditional AI, Xero continues to see AI and generative AI specifically as a significant opportunity to innovate and invest, all with the goal of unlocking significant value for our customers. At Xerocon Brisbane in September, we were thrilled to announce the evolution of our AI financial superagent, JAX, Just Ask Xero. JAX is built on Xero's AI agentic platform, which orchestrates multiple specialized subagents across Xero. Our vision is simple, to reimagine financial management using AI to help small businesses and their advisers work smarter together. This vision is supported by 4 unique pillars. The first is reimagined experiences. We're leveraging AI to reimagine the Xero experience. The goal is to have JAX help our customers interact with Xero seamlessly across multiple touchpoints from xero.com and mobile to tools such as e-mail and messaging. We've already begun leveraging this strategy with the beta launch of our new homepage. It has JAX embedded in a customizable insight-rich design, quickly showing users what to focus on so they can take action sooner. The second pillar is automated actions and workflows. JAX is designed to save our customers' time by automating routine tasks and workflows such as invoice creation and automatic bank reconciliation. We launched the beta for automatic bank rec in October, which tackles one of the most common and time-consuming jobs on Xero. Users retain full visibility and control via the new reconciled page. This single view allows users to see and understand JAX's reasoning, easily make corrections and manage supporting documents. The third pillar is actionable insights. JAX unlocks advanced financial insight for our customers by combining data from their own business with information from connected apps. This also allows them to explore their data and dig deeper into their finances. JAX also brings them answers from beyond their business, incorporating real-time external data from across the web on topics like market trends, thanks to our collaboration with OpenAI. The fourth and perhaps most important pillar is to be a trusted partner. JAX is built on a foundation of security, privacy and decades of accounting expertise, offering a trusted partnership to our customers. Its accuracy is superior to AI, relies solely on large language models. This ensures greater reliability and confidence in the output. So to summarize, we told you at our last result, we have an ambitious AI agenda in FY '26, and you can see we're pursuing this and adding customer value at pace. We have strong confidence in the value of this technology. Our key focus for now is helping customers engage and realize that value. This will in turn further inform our approach to monetization. I'm excited to dive into the next steps for integrating Melio, but first, let's quickly recap the powerful rationale behind this acquisition. It's what fuels our confidence in the significant value creation opportunity ahead. First, there's a critical customer need in a large and growing market. SMBs and their ABs watch their accounting and payments together. It creates efficiencies, improves their cash flow and importantly, saves them time. And this is reflected in the significant TAM for U.S. SMB payments. Secondly, the combination is a powerful strategic fit for Xero. Acquiring Melio aligns with our 3x3 strategy and gives us a step function change in our U.S. product proposition, scale and monetization opportunity. Third, this is a best-in-class asset. Melio has a world-class team and platform. Many of you have already met Matan. The quality he and his team bring to Xero is significant, and this is demonstrated in the exceptional growth and strength of the Melio offering. Fourth, and most importantly, together, Xero and Melio is a compelling value creation story. These are 2 complementary platforms that can drive significant scale together. Melio's growth trajectory in U.S. penetration uplifts our scale in the U.S. business from day 1 with much improved unit economics and a larger and stickier ARPU. As this business continues to scale at pace and is powered by Xero's growth engine, we have strong confidence in meeting our aspirations and capturing a very attractive value creation opportunity, and we are moving quickly to accelerate growth and capture this value. We are very pleased to announce our first key integration milestone, the launch of Melio bill pay inside of Xero, which is now scheduled for December 2025. This will immediately enrich our U.S. offering, providing small businesses with a seamless and powerful bill payment solution directly within the Xero platform. It will give Xero customers access to Melio's payment functionality to help them save time and optimize cash flow, including multiple ways to pay and visibility on payment times. Our ability to move at pace on this integration is a testament to Melio's platform and the efforts of both the Xero and Melio teams to drive towards realizing the value of the acquisition. In addition to this, we're moving quickly to leverage Melio's GTM capability and reach to drive Melio's stand-alone growth and cross-sell opportunity to xero.com. I'd now like to move to our FY '26 outlook. As Claire said, we have lowered our OpEx guidance and now expect total operating expenses as a percentage of revenue to be around 70.5% in FY '26. As we have previously explained, there were some nonrecurring elements in this, and we expect the ratio to be lower in H2 than H1. This ratio now includes Melio but excludes the impact of transaction costs. Incorporating Melio provided a small benefit with other drivers, including improved efficiencies contributing the majority of the reduction. Of course, in addition to this, we continue to pursue our aspirations which we updated when we announced the Melio acquisition. We expect the combined business to significantly accelerate U.S. revenue growth and give us the opportunity to more than double Xero's FY '25 group revenue base in FY '28, and this is before synergies. And we continue to anchor on our Rule of 40 aspirations and deliver a balance of both growth and profitability at the group level. This revenue growth outcome is anticipated to support the achievement of greater than Rule of 40 outcomes for the group in FY '28 with the dilutive impact in the interim as we continue to invest in Melio and as business scales. Our operations are strong and they are credible, and we're really excited about achieving these. I'd now like to wrap up. There are 3 key themes from today's presentation, sustained strong revenue growth across our 3x3 portfolio, continuing to deliver a greater than Rule of 40 outcome with strong cash generation and the successful execution of our strategy, securing key wins across our 3 core priorities. This momentum is consistently enhancing the value we deliver to our customers as we continue our journey to become a world-class SaaS leader. Before I conclude, I would like to acknowledge our teams around the world. And I really want to thank them again for their hard work as we continue to do all we can to support our customers and partners. That concludes our presentation. I'll now pass over to the moderator for your questions. Operator: [Operator Instructions] The first question today comes from Eric Choi from Barrenjoey. Eric Choi: Could I just do 2. Sorry, it sounds a bit of a long-winded one, but just the share price is down today, and I think it's because there's an implied accounting EBIT downgrade versus consensus. Just wanted to expect at an operational EBITDA hit and actually maybe an even top line upgrade. And so if you just bear with me on the logic, like if I look at your revenues and AMRR of the base business, it actually implies second half revenue growth is accelerating versus the first half, which consensus didn't have. And then Melio grew 68% on an underlying basis, and so market growth of Melio was below this as well. So revenues are clearly ahead. And then on cost, and if we just take accounting D&A out of it for a second, you've actually lowered your core cost to sales, which offsets growth in the kind of Melio's gross margins holding flat. So at that EBITDA level, it actually doesn't need to move much. But then at this accounting EBIT level, which incorporates D&A, sell side, including myself we're kind at bad modeling amortization and purchase price amortization and all these other things. So just that D&A ends up being high and therefore, you've got an accounting EBIT business. So I guess the overall question is, operationally, it's actually doing in line to better, but you've just got this accounting EBIT miss. Is that right? Claire Bramley: Eric, this is Claire. So yes, thanks for your question and laying that rule out. I think the first thing I would say is we're really pleased with the strong execution that we've seen in H1. And to your point, really strong top line growth coming from the Xero standalone business and then a lot of momentum as we move into the second half. So you're absolutely right. You can use that AMRR as a kind of foundation for that momentum that we see as we exit the first half, and then that really strong Melio growth that we reported, put those together for the second half. We're really excited about the growth opportunity, not just for the second half but also in the medium to longer term. So I think that's really important to note, and gives us a lot of opportunity. From a cost standpoint, yes, I'll just double-click into the reduction in the OpEx ratio guidance that I gave. I just want to know, we have included Melio into that, but Melio does have a very limited impact. And also from a CapEx standpoint, we were anticipating in H1 that the CapEx rate would be higher. That is always aligned when we do like a Xerocon event. We published, as Sukhinder suggested, in our prepared remarks, we've been publishing a lot of new product features and great product velocity. So that was factored into our overall original outlook for OpEx. So as you think about that reduction, that's actually coming -- little is coming from Melio. None of that improvement is coming from capitalization, and it's actually coming from other areas, the key factor being operational efficiencies but also revenue. So this should be a strong improvement from an overall EBITDA. I'd stand to your point, in terms of rolling through that D&A. But I think it is really important that we are anticipating those capitalization rate to reduce in H2 and so that this improvement that we're seeing is really coming from underlying operational efficiencies, some currency and very limited impact from Melio. Eric Choi: Can I just do a quick follow-up, and I realize you never go into exact numbers, but just to kind of say future variance, just a rough framework for how we should all think about FY '27. I guess if you use your cost to sales guidance for FY '26, it's pretty easy to get to an EBIT number. And if you add some D&A back, you're kind of in the $740 million to $750 million EBITDA range for FY '26. And then you've told us that $45 million comp impact falls out next year. And then obviously, you get operating leverage on any revenue growth that you deliver as well. I mean it seems like a fairly obvious question, but FY '27 EBITDA would still have to be in the 800s. Just high level, have I missed anything there? Claire Bramley: No. I think as you think about the EBITDA, clearly, as you said, I'm not going to be giving an outlook statement for fiscal '27. But I think what I would do is kind of double down on the fact that we are continuously focused on that overall acceleration of revenue growth and remaining high revenue growth, and we see a huge opportunity with Melio. If you add that into the fact that we are continually focused on efficiency, you've seen great, I think, historical track record in the last couple of years of Xero, reducing its overall OpEx ratio. And then I've done that, again, adjustments today with lower OpEx ratio. And I think the advantage of that is that we're investing. We're continuing to invest in profitable growth, but also doing it in a very efficient way. And I think if you think about scale, you think about the excellent gross margin, I mean, we're above 88% on Xero underlying gross margin and you think about that OpEx efficiency ratio moving forward, a lot of good indications in terms of the opportunity ahead. Operator: The next question comes from Bob Chen from JPMorgan. Bob Chen: Just a quick one on the churn. Obviously, it's ticked up a bit. And I think your comments earlier is that, that has been driven by that focus on business edition. I mean when we think about subscriber growth from here because of that shift towards focusing on business edition, you get that sort of high change, could we naturally expect your incremental subscribe from you just to be a little bit lower, but with better ARPU outcomes? Sukhinder Cassidy: Thanks for the question, Bob. It's Sukhinder. So a couple of things. First of all, I think that, as we've noted, churn is still below historic pre-pandemic levels, and we feel good about kind of where churn sits overall. I think a couple of factors are obviously driving that, that are ones to think about. While we don't break out the difference between the direct channel and the partner channel, we have said that direct is really performing. And that and the nature of that channel is that it does have higher churn. Performance marketing will bring more to the top of the funnel and more will churn out. In that, historically, our partner channel has lower churn and direct as we allocate to it, has higher ARPU, higher lifetime value, but also churn. So there's a mathematical reality. So that's the way I would think about it. I also just think we continue to feel very good about our overall balance on quality of subscribers and quantity of subscribers. If you note, that is a very explicit shift that we made in the strategy on Investor Day. It was coupled with our long idle removal. And it really speaks to, like we're always going to be keeping an eye on the quality of the sub and obviously, continue to want to build share and look at overall absolute subscriber numbers. So I'd say we feel very good about the overall trend, where churn level sits and recognizing that the direct channel will drive both a higher LTV customer but also higher churn mathematically. Bob Chen: Great. And just a quick follow-up to that. We've obviously seen ARPU increase significantly over the last few years. Has that also played into that sort of churn number as well? Sukhinder Cassidy: In what regard? I mean I think the business edition is, again, driven disproportionately by our direct channel, and that already has a higher ARPU. So again, I'd say it's a mathematical outcome more than anything else. But I think when we talk about churn, it's not really about ARPU. It's about having a big performance funnel where you're inviting a lot of prospects into the product. And then you will see an increase when you do that, have that do paid motion for direct customers, you tend to see higher churn in the first 90 days as an example. As more people -- lookie-loo is not quite the right example, but they're really just trying the product. Like I said, I think it's more a function of that than ARPU specifically. Operator: The next question comes from Garry Sherriff from Royal Bank of Canada. Garry Sherriff: Just focusing on North America. The revenue missed market estimates, and it sounds like it's mainly Canada being weak and also cycling Xerocon revenue. I mean is there anything else we're missing there in North America? I mean was discounting higher than usual? Or is it just pretty much all Xerocon revenue that you're cycling? Sukhinder Cassidy: Sure. I think there are 3 things. First of all, you are right, if you back out Xerocon, the underlying growth you feel very good about and then if you back out Canada, you get to something north of 33% -- about 33% growth in the U.S. And so I think it's a function of Xerocon. Canada remains subdued. I think we continue to say that. Now you will have seen in this -- and in the last 30 days, there's been an announcement that open banking may finally be coming to Canada. We await that as a good positive, maybe momentum driver in the market. But to date, I'd say the move to cloud has been really suffering from lack of open banking. And the other piece is, remember, H1 is seasonally a weaker half for the business, for the North America business, given when taxes get filed. So I would note that we felt particularly good given it's a weaker seasonal half. And when you look at that U.S. growth, it's, as I said, back out Xerocon, U.S. alone is about 30%. Garry Sherriff: Got it. Okay. And just a final one on Melio. Just wanted to clarify the numbers that you've reported. Does that include the Intuit subs that are to be exited? I just wanted to try and understand whether that was the case? And if so or if they're still in there, can you maybe just remind us how many need to be exited and when that's expected? Because I'm just trying to get an organic like-for-like growth for Melio. Maybe you already reported. I'm just not clear myself. Claire Bramley: Yes, no worries, Garry. I would point you to the disclosures in our Investor Relations. We have given it to you on an underlying basis. So as you look at that kind of the new pro forma numbers we've given for H1 of '26, you can see that, that on an underlying basis, that is increasing. So we have adjusted for the -- for that kind of syndication partner exiting. And I think even on that underlying basis, you can see some really strong growth, both year-over-year and half -- over half both in the number of customers, in the TPV per customers, in the take rate. And I think we also mentioned that underlying revenue growth of 68% is clearly really, really strong. Operator: The next question comes from Kane Hannan from Goldman Sachs. Kane Hannan: One simple one. Just the comment in there around the combined business significantly accelerating U.S. revenue growth. Is that relative to the 49% pro forma number that you've done? Or is it more the 33% Xero stand-alone U.S. growth that you did in half? Claire Bramley: Yes. I think if you look at the additional disclosures because you now see U.S. broken out separately and you see that in our appendix slide. So like you can see that the Melio growth in the first half is more than double our fixed Xero growth. And from a scale and volume standpoint, it's actually 4x. So yes, that kind of more than doubled you can see that just as we've disclosed those pro forma numbers in H1. And all of our announcement came for -- to make a finer point on it. When we said significantly accelerate, remember, we were comparing to Xero stand-alone at the point of announcement, right? So... Kane Hannan: Yes, that's helpful. And then just the comments on Melio's GP margin sort of being flat. They're calling out the drivers extension being firmly in place. I mean does that mean you should be thinking about margin expansion in the second half? Also what are we waiting for, looking for, for that GP margin to start to tick up if the drivers are in place? Claire Bramley: Yes, I think there's multiple things to think about when you think about gross margin for Melio. You've got the benefit of scale and the additional margin dollars that come through. And clearly, when you've got a growth rate at 68%, there's a big opportunity there. And then there would be areas with regards to the margin expansion. We are anticipating in the kind of short term, there to be a little bit of noise on the rate. But what we're pointing to is that we really do see those opportunities to expand both from a volume scale standpoint and a margin expansion over the medium to longer term, which gives us that confidence in hitting the aspirations that we laid out and getting above the Rule of 40 on a combined business in fiscal '28. Sukhinder Cassidy: Yes. One other thing, Kane, I think, to Claire point, remember that there is margin take rates, and we talked about in this half, Melio having higher take rate products, improve like mix type of payments. So obviously, payment mix on melio.com is driver. Let's also remember though that a lot of GP driver is syndication. And syndication, this is where Claire says there will be noise. When partners come online, your syndication line also has a gross profit and attractive gross profit. So part of it is what you do on melio.com. Part of it is the puts and takes of partners deploying. And remember, Melio does not entirely control when partners deploy. This is why we have a lot of confidence over the medium term and the guidance -- not the guidance, the aspiration that we gave for '28, but I would remind you that partner syndication timing is not entirely Melio's control. So this could create noise within a quarter or a half, certainly. Operator: The next question comes from Roger Samuel from Jefferies. Roger Samuel: I've got 2 questions. First one, just on ANZ. I understand that you to invest more into the direct channel, but the LTV to CAC ratio is coming down. I mean 10.7x is still a very good number, but it's coming off 14. And do you think that it's becoming harder to attract new subscribers into the base? And where do you expect the LTV to CAC ratio to land? Sukhinder Cassidy: Sure. Well, first of all, I think, Roger, you hit the key point. 10.7 is still a very attractive number. And I think it's fair to say when you're in a market that's very saturated, where you have high brand awareness, on a marginal basis, the next customer may be more expensive than last one. On an absolute basis, it's still attractive to go get them. And that's exactly what you see in our numbers. So we always need to make a call. Unlike look, on a marginal basis, would we rather pay this for the next customer, not get it, and our choice continues to be, we're going to be very mathematical. And if there is another subscriber to go get on an absolute basis, we're going to go after it, and we continue to see that opportunity. Now over time, I'm not going to give you an LTV number today. But as you know, we've also included that over time, we see the to further penetrate this market with more mix. We also see the opportunity to drive more attach of payments and other products. We just announced BGL and Workpapers. So we're going to continue to also drive I'd say, more penetration of different products for ABs and SBs through this business that over time, we hope continues to accrete to LTV. Roger Samuel: Okay. And maybe a follow-up question on Melio. So if I back out Xero stand-alone looks like Melio incurred losses of about $56 million in the first half '26 on a pro forma basis, that's lower than minus 60% in the PCP. So I suppose the question is, when do you expect Melio to be breakeven? I mean if you look at the guidance which is yet to reach a Rule of 40, you're pretty close to that Rule of 40 already as a combined business, plus or minus the adjustments to interest expense and earn-outs. So yes, just wondering when you can expect Melio to -- Melio business to be breakeven? Claire Bramley: Yes, I'll take that. So first of all, to your point, we did have a great combined Rule of 40 result in the first half. But as I mentioned in my prepared remarks, there are some future impacts that will negatively impact that as we move forward. However, we -- I think all of these numbers just give us that confidence in the profit opportunity that we see ahead in the Xero and Melio combined business. I think we're not going to give an exact date in the sense of when does Melio become profitable. I think we're months into owning them. We are extremely happy with the performance that they had in H1. The integration of the business into Xero, whether it's the getting that go-to-market, those go-to-market opportunities running, whether it's the product announcements and the Melio on Xero coming out in December, there's so much progress being made, which just gives us that extra confidence to deliver on those aspirations. And I think I'd come back to the fact that we are very optimistic about the opportunity from a profitability standpoint that we get from both the scale but also that margin expansion, but it's over time. Operator: The next question comes from Rohan Sundram from MST Financial. Rohan Sundram: One for me. On the operating environment, how are you seeing the state of demand from SMBs at the moment? And how would you compare it to 6 months ago and whether there's been any changes or improvement? Sukhinder Cassidy: Thank you for the question. First of all, I'd say we see continued good demand, strong demand for the Xero product. And I think when we look out to indicators like XSBI, which as you know is our data set, we just published Australia and New Zealand results as well as -- and what we saw in both markets as well as the U.K. is Australia showing nice signs of recovery, New Zealand showing some signs of recovery, U.K. holding steady. And then in the U.S., we haven't published our next generation of XSBI yet, but we look to the NFIB Optimism Index, which stays at sort of all-time highs despite, I would say, that optimism index also showing a lot of uncertainty. So from what we can tell on the macro, there is some signs that Australia and New Zealand sentiment is getting better among SBs when we look at their real-time sales data in XSBI. U.S. optimism remains strong despite uncertainty and, as I said, U.K. holding steady. Operator: The next question comes from Nick Basile from CLSA. Nicholas Basile: Just a first question on Melio. I just want to clarify, I think one of the points Sukhinder made around integration. Can you talk to, I guess, what your expectations were on that. I think you mentioned bill pay was coming in December. Was that 2025 or next year? And then just in general, how you're thinking about Melio's performance in recent months relative to your longer-term targets to double revenue? I guess just one confirmation that you feel that the business is on track to help support that goal? Sukhinder Cassidy: Sure. Well, first of all, we feel very good about the integration. As you can imagine, I would say, the integration of Melio bill pay into Xero actually gives us more functionality than we currently have with the partner that we're exiting, and it was done faster than anticipated. So I would say we feel really good about the integration. And I think that's a testament actually to Melio's platform. It is very easily integratable. And obviously, our teams started planning for this summer. So I think that we're really happy to get out a richer product functionality in both workflows and bill pay into the Xero product this soon. So that's December of this year, less than 30 days away. Number 2, I think when we look at Melio, what we've said is Melio performed in H1 in line with our expectations. And so we're really pleased about that. Claire Bramley: Yes. I think I'll just double down on our confidence in meeting those longer-term aspirations. I think the performance that we've seen in the first half and the momentum that we've got going in the second half and beyond just gives us even more confidence in being able to be more than double our fiscal '25 revenue in fiscal '28, excluding synergies and back above the Rule of 40 by fiscal '28. Nicholas Basile: Yes. No, that's very clear. I think from my perspective, December 2025 sounds like you're ahead of schedule. That's why I got that clarification. The second question. On operating leverage in the core business kind of if you think about it, whilst we still can, excluding Melio. The guidance feels like the ability to provide lower OpEx to sales, as you called out, is being driven by some degree of operating leverage or cost efficiencies in the core business. Can you just help unpack that in a little bit more detail? And again, as that '26 guidance kind of relates to the '28 sort of 3-year glide path to maintaining Rule of 40 whilst you're embedding Melio, which is currently loss-making? Claire Bramley: Yes, absolutely. So that 70.5% new OpEx ratio is incorporating Melio. I'll just remind people that Melio does have a slightly different P&L to our Xero core business in the sense of the margin and the OpEx ratios are slightly different. So there's a slight benefit but it is limited from incorporating Melio into that 70.5%. The key factor I would highlight of that reduction is those operational efficiencies. And it was good to be able to drop those benefits through to the bottom line. And I think it's something that I -- we're really focused on here at Xero, and you've seen it in our historical trends is continuing to drive operational efficiencies at the same time as we're investing back into growth. And I think you can see that in our H1 results and the momentum as we go into H2, strong revenue performance, strong operational efficiencies at the same time as continued investment. And that's a philosophy now we're executing against that, and we'll continue to focus on that as we move forward. Nicholas Basile: And sorry to make you clarify, but just when we're talking about operational efficiencies, should we be thinking more about product development side, sales and marketing or sort of equal mix of both or G&A? What sort of buckets are we seeing that benefit from? Sukhinder Cassidy: Sure. So I think there are 2 things, this is Sukhinder, driving the operational efficiency. First of all, I think while it will show through in all those ratios. Number 1, I'd say headcount discipline, speaking frankly, like just being clear on the allocation of capital when we sort of -- when we think about fixed costs, our fixed cost base, we want to be clear that like when we add to our fixed cost base, that we believe it's adding in places that drive revenue leverage, right? So if we're going to add FTEs to product, we want to know that there's a clear line of return to building products that will -- that customers will value. So I'd say it's about being very kind of, I'd say, while we are -- we'll continue to grow our cost base, it's the allocation of our fixed cost dollars to the things that drive real value for customers. That is like a very clear way that we think about driving increases in our cost base. Number 2 is, it's very, very early days for AI internally, but I would say we are encouraging productivity usage by our employees to really get more work done through all of these tools and capabilities. And so I'd say we're really pleased, if you look at some of the numbers we reported. I would say Xero's adoption of AI, whether that's in P&T or sales and marketing, where they're creating more assets using AI or the average Xero who's using things like Gemini, and I'd say, improve their mastery of their work and save time. I'd say that is like -- it'd be hard to put a percentage on it, but I'd say that's another operational efficiency push we have here. And all those things drive through, we think, improved revenue per FTE, right? So that is a core metric that we use as a guide internally for like how are we creating operating leverage. So we want to come -- always come back to like what's the use of those efficiencies. For us, it's the ability to reinvest in the highest revenue growth opportunities and customer value opportunities. But that's sort of where the efficiencies are coming from, if you like that way. Operator: The next question comes from Siraj Ahmed from Citigroup. Siraj Ahmed: Can you hear me okay? Sukhinder Cassidy: Yes, we can hear you fine. Claire Bramley: Yes, yes. Siraj Ahmed: First one on Melio. Sukhinder, just to comment on [Technical Difficulty] something that's slowing there from that whole rollout of CashFlow Central? And the second part on Melio, I mean, can you give us a view on annualized revenue at the end of the half, just to look at second half revenue and whether some of the CashFlow Central revenues is coming through in the second half, right? Sukhinder Cassidy: So Siraj, you broke up for quite a while there. I think you were asking about CashFlow Central and Fiserv rollout. Is that correct? Siraj Ahmed: Yes. So just -- sorry, my network is not great. Just in terms of -- you sort of said syndicate partners are not within your control, just wondering whether something slowed with Fiserv [Technical Difficulty]? Sukhinder Cassidy: Because you're breaking up again, I'm going to take my best guess at answering this question. And obviously, we can follow up offline if we don't get it right here. I would say that we are -- we continue to be very excited about CashFlow Central and Fiserv, and so are they. I think if you look at even their own commentary on the importance of this product, it is in their encouragement of their own customers to roll out and adopt, it's quite strong. All I noted is its timing, right? On any partnership, it's always about the timing of those rollouts. So that was my point more on short-term noise. When somebody said, well, what are we waiting for? You could be waiting for a partner to deploy when it comes to within a half or within a quarter. That was my only commentary. But I think we continue to feel very excited about CashFlow Central, so does Fiserv, and I think they see it as a very important part of their stack. Operator: The next question comes from Paul Mason from Evans & Partners. Paul Mason: I had maybe a follow-on to Siraj's question there. Just are you able to provide any color on sort of how many banks Fiserv has been able to convert across so far was my follow-up. And then I was hoping you guys could comment a bit on thoughts around AI monetization, whether you've sort of settled on potentially using tiering or add-on or just embedding it in the core price over time as to how you monetize, that would be great. Sukhinder Cassidy: Got it. Why don't I start with the AI question and we'll come back to the other. So I think on AI, I think what we've noted is we are not monetizing AI this year explicitly. I think we think the pricing model is still early. We're seeing others take a combination of approaches. Some are doing consumption-based, some are doing tiered. I don't think we have landed, Paul, yet on what model we will use this year. For us, it's all about rolling out those key features like auto bank rec and getting utilization. But I don't think we have landed on a model yet. I think we'll have to find, I think, the cornerstone between simplicity and also the opportunity to make sure that the model of pricing reflects the value delivered, and this is going to be the balance. So right now, I think on Fiserv, Fiserv has talked publicly. So I think what we can talk about is what they've talked about with 96 partners signed up since 2023 and 20 implementations underway. So those are Fiserv's own numbers, and that's all we're allowed to disclose. Operator: The next question comes from Andrew Gillies from Macquarie. Andrew Gillies: Can you hear me? Sukhinder Cassidy: Yes, we can hear you. Andrew Gillies: I was just hoping you could expand on the commentary on improving mix, particularly in the back book. You mentioned some traction on the front book. And I think in the deck, there was some commentary around more sophisticated sales motions. Like what are the opportunities there in the back book? And how can you address those? Sukhinder Cassidy: Sure. Great question. So I think as we noted when we were at Investor Day, I don't know, about 18 months ago, the first thing we needed to do, and I think we've made good progress there, is get our sales teams to also be incented to drive value, not just volume. And the first moves have really been about improving the mix between PE and BE, business edition, in the front book, and we feel quite good about those. I think that the sales teams have made noticeable inroads. I think you can see it read through even in ARPU. You can see some mix shift in ARPU. And I think that -- and that's both a combination of our direct business as well as movements in the front book on the partner channel. I think the back book is a longer move because you've got only 4.5 million customers now. And so even if you move an increment to them, to move the entire ARPU stack is quite hard. And what you're really doing is learning new motions, and you're learning new motions with new features. So when we say it's more complex, we're giving our sales teams training on Syft. Syft just rolled out in all of our products. So now our sales teams are learning the different Syft features available at different levels of plans. And a reminder, then you need to go to your back book and figure out which of their customer cohorts are even eligible for the right candidate. So you're now looking at a combination -- I mean these are very specific motions, right, about sales teams knowing the products, but also cohorting your back book to even identify who's eligible for upgrade. So this is why we say it's a set of sophisticated motions. It's both data, it's orchestration, it's sales education, it's sales incentives. These are the kind -- and that's just on Syft, then you think about payments. In the U.S., you think about Melio. So when we say sophisticated motions in back book, we mean it's often a combination of segmentation, orchestration, digital marketing, physical marketing, sales training, sales education, sales incentives. Now you get hopefully, a picture of why we say the back book is a set of more sophisticated motions and orchestrations that unlocks over time. So I don't think you're going to see some dramatic one-half shift in ARPU, it's going to look more like steady motion and unlocking cohorts of customers who are eligible and the right targets for some of these products. Andrew Gillies: Perfect. And then just a quick follow-up to that. I mean we've spoken about improving back book mix. But if I think about the significance of the Melio launch in December, you've got the Gusto beta going live soon. It seems like delivery is coming forward. The extent of churn to reduce as you get complementary software products being sold to the same customer. Like have you done any internal modeling on like the impacts to LTV or how you should think about the economics and how maybe we should start thinking about that? Sukhinder Cassidy: We've done the modeling, yes. I think we -- this is what gives us comfort in providing the overall aspiration. If you recall, and I think you hit the nail on the head, when we think about Gusto plus payments plus accounting together in one stack, a, you have the opportunity to play from an ARPU. And in the U.S., which actually has the smallest back book, right, just by virtue of its size, you're playing as much to win the next customer as sell through the back book. And so yes, I mean, our ability and confidence to give the aspiration statements we did was built on revenue synergies in both better front book acquisition with more to play for on ARPU plus Melio stand-alone business, plus some penetration of the back book. But as we said before, in the U.S. specifically, it's probably far more of a front book opportunity just given the size of the back book is not that big. Operator: The next question comes from Lucy Huang from UBS. Lucy Huang: I've got 2 questions. Sorry, another one on Melio. You guys mentioned that Melio bill pay will be available from December 2025. And I think Andrew just mentioned Gusto integration is on the way as well with the beta version. How should we think about -- is there going to be a change in go-to-market strategy with Melio in the U.S. come end of this year? Should we think there'll be a bit more brand marketing to sell that there is extra functionality? Or are you still going to focus on performance marketing in the short term? Sukhinder Cassidy: Sure. Well, first job, as you noted, is get that bill pay product and Gusto product out and we noted Gusto's beta. So our first job is like get customers on the product, make sure they're happy with it. That is the job of this year. As we think about the go-to-market motion, I think we have optionality on brands, but let's also just talk before we talk about the optionality on brand to talk about the integration of our GTM teams. One of the things we're excited about is we do have more sophisticated GTM motions than the Melio team. We have a bigger team. And I think part of the improvement in performance is our ability to obviously performance market, not just xero.com but also melio.com, improve the performance marketing there, and bring our muscles there. We have a very good performance marketing team, which alongside theirs, we think, can improve even exposure of performance marketing to their brand. Number 2, we've got our AB sales force also able to introduce Xero plus Melio, but also Melio. If the customer only wants Melio, that is another synergy opportunity. So I'd note, first and foremost, the integration opportunities in performance marketing and in the AB channel are not to be overlooked. Those are first yield opportunities. And then I think if you've looked at the OpEx guidance for this year, we're happy that we're able to realize more efficiency in the core because it gives us the optionality to think about what to do on brand, right? We talked a lot about that, hey, we'd like to be able to reinvest to growth areas. We've talked about brand being an opportunity for '27 that we're looking at. And I think if you put those 2 together, we're excited. Lucy Huang: And then just one last one for me. I think you mentioned -- made a comment around having to include payroll into Australia into the lower end plans, and we saw a bit of spinning down from customers. Just wondering whether that is going to change? Or how are you thinking about product mix being a bigger driver of ARPU growth moving forward? Or should we see product mix being a more slower and steady contribution over the next few years compared to, say, the last 2? Sukhinder Cassidy: Yes, it's a great question. So first of all, I think you were right to note the very deliberate decision to reinclude payroll and our lower plans. That was really a reflection of us taking in customer feedback and basically saying, okay, let's make sure we're doing what's right for the customer. So we reversed that decision. So that would have led this year, obviously, to a bit of pressure on ARPU in Australia as more people then went back to those plans. So that's kind of a short-term effect. I think the way to think about ARPU long term in Australia is, I'd say, very steady as she goes, when it comes to improving front book attach. But remember, Australia has a big back book. So this is a place where it will be very much those sophisticated motions we talked about across both Syft and payments in Australia, leading to sort of consistent, kind of steady ARPU improvement. And then, of course, every year, what we decide to do on price is a big factor in ARPU in any given year. This year, we made a very deliberate choice. In addition to adding payroll back, this year, we did not take up the price on our bottom-most SKUs in Australia. So that's pretty notable in this year's ARPU, right, for Australia. It did not include a price rise on the bottom 2 SKUs. Lucy Huang: Yes. And so in terms of ARPU growth in Australia for this year without the bottom plan price rises, like where would the growth come from? Sukhinder Cassidy: Yes, we did make -- as we said, ARPU is a factor of a mix of items in any given market. This year, ARPU would be a mix of the plans that did get price rises in Australia, front book and back book, any mix improvements. It would be a function of payments attach. Remember, we have a big invoicing business. where we are attaching payments also to invoice volume. And that business grew last year -- this year, it grew 30%. I don't have the numbers handy. Somebody remind me what it grew. It is more like... Claire Bramley: 35%. Sukhinder Cassidy: 35%, sorry, guys. I was just grappling with the numbers in the deck, among all the numbers we have. So remember, we also have payments attach of our invoicing payments in that number. So those are all the contributors that are -- and then we have currency effect, obviously, at the group level, also creating some ARPU movement. Operator: The next question comes from Sriharsh Singh from Bank of America. Sriharsh Singh: I've got 2 questions. One, can we -- just following up on Xero and Melio integration time lines. And wondering how long would it take you to integrate the Xero accounting solution into CashFlow Central product suite? And do you need a full integration on that to realize the real full benefits of cross-sell and syndication network? And just on that time line, I'm wondering if the CashFlow Central integration could happen faster than the Syft Analytics integration, which you've just done and rolled out? And second question, the latest round of pricing increases was really interesting. You kept pricing flat for the lower-end subscription plans. However, the higher-end plans have gone up by 11% to 15% in Australia at least. So should we expect more of that? And what do you need to grow with the higher-end customers? Do you need some M&A there? Or do you think you have a product which can allow you to grow with the top of the funnel customers? Sukhinder Cassidy: Okay. I think there were 3 questions in there. So let me take them in hand. First of all, I want to take the Melio integration question. You might have noted in the half that Xero announced its first embedded accounting deal with Bluevine in the U.S. This is the first time we are embedding our accounting stack in someone else. And we talked on the Melio announcement about the opportunity to also, if appropriate, embed Xero in the Melio stack. Now keep in mind, that was, we said, upside to the plan. We didn't say that. We said that's something we're going to do, but we didn't factor into our numbers because we needed to figure out which of Melio's customers would want embedded accounting. Some of them might just want bill pay. Some of them might be happy to do a referral deal and some of them might want to have accounting in their stack. So we always talked about that as experimental and upside, and that's the same way we've talked about the Bluevine deal that we just announced. We're really excited to get it out and see what it does. But I would say we factored it into our financials. So that's -- I'd say, we'll see where that goes, and we're excited to innovate and try. Number 2, on Australia, as you said, you noted that we were more granular in our pricing moves. I think you can expect us to be more granular. At any point in time when we do pricing, I think we have moved in the last several years from like a one-size-fits-all price rise to very much by segment, by market, looking at the features we've launched our competitive placement in market, and we like that. I mean I think the customer deserves that granularity. So we made granular decisions and I think we feel like we always want to be looking at kind of a positioning range of different segments and SKUs in market against the alternatives and for the value we've delivered. And that leads to Point 3, which I think is about you noted that we did a double-digit price rise on our higher end. Look, when you look at the value we deliver at Xero compared to the size of that customer and willingness to pay and the type of features and delivery, I mean, think about the fact that we have now multiple levels of Syft functionality across our plans. I mean these are products that if you were to buy them stand-alone, would be expensive in their own right, a lot of the functionality that we're now incorporating into our higher-end plans. So I think willingness to pay always factors into how we price as well as the product feature delivery, which I think leads to your last point B, is there more to do in the higher end? Yes. I think there certainly is. We see customers who are on our top SKUs, and we have relatively low penetration of our top SKUs even in a place like Australia with a lot of room to deliver more features and functionality. They ask us for things like transaction limits or permissions or multi-entity reporting. By the way, multi-entity reporting is in within Syft, multi-entity consolidation. There's a long list of features that I think are still opportunities for Xero to go drive higher penetration in -- of those top higher-end customers and our higher-end SKUs. Operator: Thank you. That does conclude the Q&A session. I'll hand the conference back to Sukhinder for closing remarks. Sukhinder Cassidy: Of course. Thank you again to everyone who joined today's call. We appreciate the time and the support and of course, look forward to connecting again soon. Operator: Thank you for joining the Xero Limited 2026 Interim Results Conference Call. If you have any further questions, please contact the Xero Investor Relations team. If you are a media representative, please reach out to the Xero's Corporate Communications team.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Generali Group 9 Month 2025 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Cleva, Head of Investor and Rating Agency Relations. Please go ahead, sir. Fabio Cleva: Hello, everyone, and thank you for joining our call. Here with us today, we have the Group General Manager, Marco Sesana, the CEO of Insurance, Giulio Terzariol; and the Group CFO, Cristiano Borean. Before opening for the Q&A. Let me hand it over to Marco and Cristiano for some opening remarks. Marco Sesana: Hello, everyone, and good morning, and thanks for being with us today. So today, this set of results confirm the Lifetime Partner 27 driving excellence plan is starting on a very strong footing, thanks to, in particular, to the excellent performance of our P&C business. implementation of the strategy and of its work stream is the key focus of the entire group. One of the most relevant changes that we made in this strategic plan is reinforcing the role of the center in orchestrating more organically strategic business initiatives. Each management -- each group management committee member is sponsoring one of the planned strategic initiatives with the key head office function working in close cooperation with our business unit. We are reaping the benefits of being a group. As part of this approach, the whole GMC is very focused in sharing best practices and scaling up local initiatives. I could list many exciting developments I've seen over the past 9 months as part of this interaction, but let me just highlight 3 that I found particularly compelling. First, sophisticated Nat Cat modeling in major countries such as Italy, France and Czech Republic. So we developed a machine learning model for wind storm, severe convective storm combining internal claims data with external weather data through machine learning systems. And this approach will be soon be scaled to other countries. Second, claims automation in Austria. A great example of automation and speed of automated health claims reimbursement, which have now reached 56% of automation for invoice processing, and pharmacy invoices are settled in just 18 seconds. And finally, our group Geospatial platform. This provides advanced geospatial capabilities for underwriting purposes. This is already live in Italy, France, Spain and across the world in our global corporate and commercial business with further expansion in other business units planned for 2026. When I see this initiative on the ground, delivering tangible results, I'm very confident in our journey of delivering excellence. So let's now focus on our 9 months results. P&C continues to show positive momentum in terms of both top line up over 7% and margin expansion with the undiscounted combined ratio improving by over 2 percentage points compared to last year. At the beginning of the year, we told you that we were very confident about our development, thanks to the combination of larger volume coming through and sharp portfolio repricing in an environment where frequency is declining and claims inflation is under control. As you can see, we are very much on the right track to achieve our undiscounted combined ratio target well ahead of schedule. The top management team is thinking strategically about cycle management to ensure a continued improvement in the combined ratio, supported by our historical and reinforced technical excellence and to make today's underwriting margin resilient in the future. You can see this in the discipline we apply to underwriting. You can see this in our country-specific pricing approach and you will increasingly see this in the benefit we expect to generate across the P&C value chain from new digitalization and automation. In this quarter, as Cristiano will later explain, you can also see this in an even more conservative approach to initial loss peaks and clearly even more visible in the prior year development. What we see is an insurance sector that has been disciplined and continues to be disciplined. I want to reassure you that as part of the sector, Generali will be a force of discipline as the cycle progresses. Our P&C top line is continuing to grow and is mostly driven by the price effect, which we measure as the improvement of the average annual premium for the retail and SME segment. This pricing effect remained very significant at 9 months at plus 6.4% for motor and plus 5.2% for non-motor retail and SME. Looking at the technical margin. We achieved continued improvement in the average earned premium in comparison with that of the risk premium resulting from the combination of claim frequency and claim severity. In Motor, which represents around 1/3 of our P&C portfolio, the average earned premium increase for our top 10 market exceeded 10% at 9 months while the risk premium rose around 1%, thanks to decreasing claims frequency in most of the countries, coupled with well-contained claims inflation. In non-motor, the industrial KPIs point to a movement in the current year attritional loss ratio of around 1.2 percentage points very much spread across the majority of the business unit. At 9 months '25, the non-motor combined ratio is at 91.4%. These dynamics are at the core of a significant improvement in our P&C profitability and will continue to drive the improvement in the combined ratio. I thought it was helpful to provide you this context, and we are happy to help you bridge the P&C industrial KPI with our reported combined ratio in the Q&A. Now moving to Life. Let me remind you of our target together between EUR 25 billion and EUR 30 billion of cumulative Life net inflow in our Lifetime Partner 27 plan. We have exceeded EUR 10 billion at 9 months with a very good result for Protection & Health with EUR 3.7 billion and hybrid and unit-linked with EUR 4.7 billion. The improvement in the Life net inflow is a function of both the effectiveness of our distribution and the evolution of our product offering. Life net inflow also improved, thanks to the reduction of surrenders. Just to give you a sense, surrenders at 9 months compared to the same period of last year, were down by almost EUR 2.6 billion in Italy and by over EUR 500 million in France, consistent with our previous comments on the improvement in lapses. In the first quarter call, we gave you a new business margin guidance for the remainder of the year between 5.25% and 5.75%. In the second quarter, we had 5.64 new business margin. And in this quarter, we recorded a 5.74 new business margin. This demonstrates we have done quite well, not only in terms of volume but also in terms of margin. You will have noticed that at 9 months, the growth of new business value has also turned positive year-on-year. In addition to volume and marginality, let me also confirm the underwriting discipline of this new business with some key data points on the quality. Over 73% of our new production has no guarantees compared to 66.4% in the same period of last year. The share of new production coming from capitalized products is close to 85%. So to summarize, we continue to have a strong net flows with improving margin and confirming our underwriting discipline to ensure long-term resilience of our in-force book also thanks to the ongoing quality of the new business. Now moving investment portfolio. As you know, we have an allocation to private market, there is more limited that one of our main peers is around 18%. We do see value in a diversified portfolio. And therefore, we continue to aim at increasing our allocation to alternatives in a disciplined way. Our portfolio of alternative is balanced with strong safeguard to ensure it meets our strict criteria. When you look at the private debt portfolio of around EUR 19 billion, almost half of it is in real estate debt and infrastructure debt, both having a high-grade credit quality. Around 3/4 of our private debt portfolio is secured by collateral and our exposure to single borrowers is very limited. The allocation to direct lending, which has been the focus of the market recently is around half of our private credit portfolio and is therefore less than 3% of our general account. Also, the vast majority sit in Life portfolio with policyholder participation and very low guarantees. Only 23% of our private debt portfolio is in the U.S. And thanks to our strict investment guideline, we have had hardly any exposure to credits, which have been in the news recently. Given this strong framework, we are very comfortable with our portfolio. We continue to believe that there is value in gradually diversifying our government bond exposure into credit as I explained to our Investor Day in January. Our strategic asset allocation move is also well informed by the trends we are seeing in the government debt market, where there were also some downgrades recently. So to summarize, a very strong start of our strategic plan, coupled with the prudence we are exercising across the board, provide us with confidence that this trajectory will be maintained and will prove its resilience to a volatile external context. Thank you for your attention. And let me now hand over to Cristiano. Cristiano Borean: Thank you, Marco, and hello, everyone. Let me provide you some additional color on our financial performance as well as some indications about the direction of travel in the fourth quarter. Let me start with P&C. As Marco described, the business performance has been very good and we are working to make sure that the strong margins you see in the current attritional combined ratio today will continue to improve in the future. In the last couple of years, the insurance industry and Generali have had a severe Nat Cat experience. Our 2023 and 2024 Nat Cat impact before insurance were well above the expected yearly losses. As you have seen, historically, the second and the third quarters are the most relevant in the terms of Nat Cat seasonality in our portfolio. So far, 2025 has been quite benign and well below our ex ante 2.8 percentage points Nat Cat budget. In light of this, we thought it appropriate to exercise an even stronger prudence on our reserving, always within the range of reasonable best estimate. This translated in a much lower prior year development as well as even more prudential -- prudent initial loss peaks for both the attritional and the Nat Cat component. Therefore, we further strengthened our balance sheet, making Generali very resilient in future years. Together with the accelerated trajectory observed in our P&C performance compared to the plan. This approach increases our confidence to exceed the Lifetime Partner 27 driving excellence key financial target. There is an old saying in financial markets. The income statement is your past, the balance sheet is your future. Having a balance sheet with a low debt solid solvency, high quality of capital and reserving makes me very comfortable that Generali is well positioned to prove its resilience. The fourth quarter Nat Cat experience has been benign so far, too. If this continues until the end of the year, in the fourth quarter, you should expect a prior year development pattern similar to this quarter. This would imply a full year 2025 P&C operating results of around EUR 3.6 billion. A more dynamic interplay between Nat Cat and prior year development is in our mind, the sensible thing to do when managing the business for the long term. Therefore, looking ahead in 2026 and beyond, we will calibrate our prior year development dynamically, always within the boundaries of the best estimate approach. I hope this clarifies the very low prior year development contribution this quarter and provide you a perspective on our thought process, which will always prioritize long-term sustainability of results versus short-term impacts from volatile components. This approach also enhances earnings predictability and mitigate P&L volatility. Let me now move briefly to the Life business. When looking at the 9 months 2025 results compared to last year, the 1.8 percentage point growth of the operating result should be read as a 4 percentage points of growth after accounting for the stricter discipline on cost allocation from nonoperating to operating result for around EUR 30 million. And excluding the lower investment income from Argentina. As of the end of September 2025, the group enjoyed strong new business volumes and positive economic variances, both supporting our CSM development. This was only partially offset by some operating variances in the region of EUR 200 million due to a tax regulation change in Germany affecting health business profit sharing and some model refinements. Looking ahead, as I've mentioned to you previously, during the fourth quarter, we performed the full annual review of all actuarial assumptions on longevity, morbidity, lapses, expenses as well as model refinements. The discussion on these are ongoing and will be finalized by year-end. Just to give you an indication, I would expect negative operating variances for less than 1% of our reported Life system stock. Moving to nonoperating results. Let me anticipate to you that we expect additional restructuring charges in the fourth quarter, and we may also see some impairments on real estate portfolio. This will be partially compensated by a lower tax rate as we have some positive tax one-off expected in the fourth quarter. When you take all these one-off effects into account, I think that with the information available as of today, an adjusted net result projection for year-end '25 of around EUR 4.25 billion would probably be a good ballpark. Moving to our capital position. The group solvency ratio remains solid at 214%, thanks to our healthy normalized capital generation and already fully embedded the EUR 500 million share buyback program. Looking ahead, let me share with you some of the key factors that we expect to impact our solvency in the fourth quarter. In addition to the standard review of the actuarial model assumption, First, the acquisition of MGG is expected to have a minus 2 percentage point of solvency impact. Furthermore, as we stated in our half year presentation, and should already known that in the fourth quarter, there will be a temporary effect related to the loss of the internal model application for Spain as part of the Liberty integration, which is a reverse merger, as we said with an impact of around minus 4 percentage points. This is expected to revert in 2027 being completely temporary. In the fourth quarter, you should also factor in noneconomic variances of around minus 1% or minus 2 percentage points impact on solvency, mainly stemming from the ongoing implementation of the SAA optimization, which Marco was referring. In addition, the rating downgrade of the Republic of France that occurred in October is expected to reduce our group solvency ratio by almost 1 percentage point. Regarding subordinated debt movements, the EUR 500 million redemption in November will be offset by 500-ish million issuance of our inaugural restricted Tier 1 bond. Before closing, let me summarize. We manage the business for the long term with a focus on sustainable value creation for our investors, also reflected in an EPS that is growing 16% year-on-year. The Lifetime Partner 27 driving excellence plan has started very well and the whole management team is focused on building on this momentum with a clear objective to do our best to exceed all our key financial targets. Thank you for your attention. Operator: [Operator Instructions] The first question is from David Barma, Bank of America. David Barma: Firstly, on P&C, could you come back, please, on the average gap between written premium growth and loss trends? I'm not quite sure I got the numbers that you gave in the opening remarks, Marco, and if you could highlight the main country drivers within that, it would be great. And then staying on P&C, on the expense side and particularly on the administration expenses. Could you give some color on how that developed in the quarter and whether you expect some of the measures that Marco, you discussed in the intro to already benefit the expense ratio in 2026, please? And then lastly, on the Life business. So sales were obviously really strong and the mix too, you're getting close to your 2027 new business margin target already. Are expenses, the main piece missing to get you to bridge that to 6%? Cristiano Borean: Thank you very much, David. The first question, of course, is for Marco. The second one is for Giulio, and the third one is for Cristiano. Marco Sesana: I go back to what I said during the speech. So what I mentioned was the growth of nonmotor average premium at 7%. And the growth of the risk premium was at 1%. So let me just give a word to clarify what we mean when we say when we give these measures. So we are measuring in motor, what we see coming through as the average premium of the single risk, right? So that's the -- that's what we see showing up and we measure the risk that we have in the portfolio. So when we give these 2 measures, what is important is to see that there is a margin gap between how much the risk is growing and how much the average earned premium is growing. In this case, 6% is very significant in terms of spread and in terms of margin. That means that in the portfolio that we have in the different business unit, there is an underlying potential to deliver more improvement in the loss ratio. So where do we see this? I would say we can go into the different details. But I would say that this is very spread across the top geographies. In some cases, it's more I would say, it's more pronounced. In other cases, it's less pronounced, but I hardly see any cases where we are not in this situation. So I could mention 2 geographies that I think are interesting. One is Germany because we focus -- like in the last 3 years, we really focused during this call in showing how much we were repricing the portfolio and the effort done by the German business unit is really significant, which, by the way, I want to thank the colleague for this. So we have done 3 consecutive years of double-digit price increase and I think the results are showing up, and we do see a significant improvement in the portfolio. The other geographies, clearly, Italy, which is going really well in terms of repricing versus the increase in risk. And also there, we see a margin into the portfolio that is really significant. So if you want, then we can go on more detail. But this is the picture that we see for motor. And I think this is what I mentioned. And I think it's a really positive news for the future. Giulio Terzariol: Thank you, David. On the question regarding the expenses. Maybe let's start from the expense ratio. The expense ratio for the 9 months is going up 50 basis points. Here, we need to keep in mind that we have the impact of the purchase price allocation coming from the Liberty acquisition and also that we made some reclassification of expenses from nonoperating to operating. So if you adjust the expense ratio basically the expense for these impacts. The expense ratio is flat. Now to your question about the admin expense ratio, we are measuring the GEX ratio, which is basically the component of the expense ratio, which are not commissioned or incentive and that number is going down by 50 basis points. So that's an improvement. We don't see the same improvement in the expense ratio because of a little bit of mix, but also there is some conservative provisioning from the business units. So moving forward, we'd like to see clearly a better alignment between the improvement of the admin expense ratio. And also the end of the year anyway, we are going to report also the admin expense ratio so that you can see the development of the KPI. And then clearly, we are going to provide you also some more transparency about the movement or the other line items going into there. But from an efficiency point of view, we are definitely improving, there's going to be also a driver of improvement as we think about 2026 and 2027. Cristiano Borean: David, regarding the Life sales and the driver. I would say, at the first 9 months already, higher growth compared to the acquisition cost is impacting 16 basis points onto this improvement. But the further way to project forward should embed also the focus on our protection business, which is something running at almost double-digit present value new business margin, and this is supporting a much better marginality. And this together with product features where you can even simply improve the features adding extra value not only managing on the part of the cost is driving it. But we are already on that trajectory. There will be also an extra focus on this topic, but it will not be the only driver to get there. Operator: The next question is from Michael Huttner, Berenberg. Michael Huttner: I just had 2. One is on the solvency, there are so many negative numbers. I came away with the conclusion, which I didn't add them up, but clearly, it will be down quite a bit. So let's say it's down 10 points. I mean, just rounding it. And I just wanted to hear, can you remind us are there any positive offsets? So clearly, operating capital generation, probably 5 points a quarter. And then I have no idea maybe you can say whether some of this resiliency or prudency you're building in, whether that's in the -- included in the operating capital ratio or not? And then, of course, the Solvency II review. So just a little bit would be lovely. Then on cash, I always like cash in here. Everything is doing so nicely, I'm just wondering whether Switzerland is returning your EUR 400 million now. And then the final one is on net inflows, which is an outstanding number, even [ Poste ] doesn't have such a good number. I just wonder whether you can talk a little bit about what's driving this and what it could mean for earnings growth going forward? Because clearly, this isn't in earnings, it's in OCG, but not in earnings. Fabio Cleva: Thank you very much, Michael. The first question on the solvency movements and the one on the Switzerland remittance are for Cristiano while the one on net inflows is for Giulio. Cristiano Borean: So first of all, I think I start from a point. What happened already is the Spain from October 1, 2025, has lost temporary I already said, up to 2027, the internal model eligibility. It is a 4 percentage point solvency group impact, which was already signaled at half year so it's not new. And I see also the projection by all of you for the year-end are pretty much embedding all what I already said. I think the 2 points of MGG were already signaled also in the press release is something known. I don't -- I think the only point, which I repeat in 2027, Spain will reverse this 4 points. Probably the downgrade of France, which is slightly less than 1 percentage point is something not in. But this has already happened. And if I just look at November 10 solvency ratio, which was the last updated number, we are basically 210%, and this is already embedding both the MGG acquisition, both the France downgrade and the 4 points of Spain. Clearly, what I was highlighting is you need to take 1 to 2 points on the SAA for the asset allocation improvement for the year to come. So it's not a huge number, and I think you are perfectly in line, and I think given the November is giving you. Let me speak a little bit about the Solvency II also review going forward. And one of the things which I think it is relevant for the Solvency II review, as we always said, is that we were between the 10 to 15 percentage points of benefit. I would say that the latest version of the delegated act, which has been approved and still needs in any case, a discussion with the college of supervisors on very minor topic, which has some uncertainty bring us I would say, on the top end of this range of the 10% to 15%, which is, I would say, positive also to allow us implementing our EPS accretion investment. Speaking about cash for Switzerland. For Switzerland, we both are extremely focused, you and me and not only you and me and many people in our company on this, I can confirm you that in the plan, we are going to start seeing a repatriation of excess capital, including remittances and capital support done, it will be gradual. And I think you should see this more coming in the end of the plan from 2027 onwards. There will be some positive 2026 potential expectations supporting our cash flow, but it is a gradual process. The company is fully focused now to increase the business results, and that will be further supportive out of this. Giulio Terzariol: No. Thank you, Michael. Your question about the net inflows. Yes. Actually, the development is pretty good, and it's better compared to our plan because we were not planning to cross the EUR 10 billion threshold this year. But now, as you see in the 9 months, we're already about EUR 10 billion, so you can imagine also that we are going to have positive inflows in the last quarter. From a composition and inflows point of view, we see basically growth across all the different lines of business. From a geographical point of view, I can tell you, Italy is up EUR 1.3 billion, EUR 1.4 billion compared to last year. What we see in Italy actually is not so much the premium up. It's more than the surrender down significantly. In France, we are about EUR 300 million better. Also here, we have a similar situation. So from a premium point of view, we are relatively flat, but surrender much down. And in Germany, we're also up here, we have growth in premium and less surrender. So we see a similar dynamic in the different markets. If you look at the last quarter also, there was a good dynamic on the inflows. So quarter-over-quarter, you can see also that the present value in the business premium in the third quarter was ahead compared to last year. So we went from negative growth in present value new business premium to positive growth. Also the new business value is going into positive number. So really working in the right direction. From a profit point of view, you know the concept of the tab of Cristiano that if you feel the tab, you're going to get more profit. So basically, this is going -- this is reflecting anyway in a better composition between the release of the CSM and what can be the increase of the CSM due to new business also how the lapses are going down. Remember that last year, we had negative variation, negative experience variances due to lapses and this year, the negative variances due to lapses are nonexistent. So that's a positive that translates into better CSM release eventually. Michael Huttner: Just one thing. I love the explanation. France, what was the figure? You said something lower 300 or 900? Giulio Terzariol: France is about EUR 300 million plus of inflows, EUR 300 million plus of the inflows coming from hybrid and unit-linked products. That's what we say basically in France and protection is also a nice contributor. Operator: The next question is from Iain Pearce of BNP Paribas. Iain Pearce: Just one for me. I think in the introductory remarks, you mentioned some benefits from frequency, I was just wondering if you could elaborate what you're seeing on frequency sort of if you're seeing some different trends by market and also if you are viewing this as a long-term lower frequency trend or if there's anything abnormal in what you're seeing in frequency at the moment. Fabio Cleva: Thank you very much, Iain. The question, of course, is for Marco. Marco Sesana: So let's start with the general picture. We do see the decrease in frequency very broad in the different markets. So we -- I couldn't pick one single market that is an outlier. So this is really showing off in every single market. So whether this is a trend that we are going to see in the future, it's a different question. So let me elaborate. So I do think that we are going to see this again in the future, but let me explain you why. So we have 2 set of drivers, I would say. So the first is frequency is historically coming down in every market. So we are seeing a long-term trend of decreasing frequency in all the Western European markets. And I would say it's also Eastern European market. So it's consistent. And so therefore, I think this is going to happen in the future. There is a second driver, which I think is really important to mention because sometimes we always think that frequency is an external factor, but we have worked a lot on the quality of the portfolio. We have worked a lot on a few initiatives. One is loss prevention. So we are trying to put on the ground tools to make sure that we evaluate correctly every single risk that we take. The second one is pruning. So we have cleaned the portfolio from all the tail part of the portfolio that were unprofitable or as a prediction would look unprofitable. So this is something that we have driven that we think is going to give us benefit in the future in terms of frequency. And so when we think about frequency, you should always think a long-term trend, but also the type of active work that we have been doing over the past month in the quality. By the way, if you want a proof point of this, you could look at the trend of the man-made losses that really came down in the last quarter, thanks to all the initiatives we have done. That's it. Iain Pearce: If I could just quickly follow up. Do you have a view of how much the combined ratio is benefited at 9 months from lower frequency versus your expectations? Marco Sesana: So I would say in terms of industrial KPIs. So as we said, it's always -- there is always a link between the industrial KPI and the financial KPI. But clearly, then we -- you need to look at the different prudence that has been taken and everything, probably in the risk premium that we have, this has been the main factor of benefit that we see in the risk premium. Operator: The next question is from William Hawkins of KBW. William Hawkins: I've got 3 questions. I hope I can be brief. Thank you already, Cristiano, for what you said about the conservatism in your loss picks. I get the idea of what you're saying. I'm still not quite clear in the 9 months attritional combined ratio, how much -- how many percentage points of conservatism was there in that pick? Because before PYD, obviously, that ratio improved. It just would have improved more if you haven't been prudent. So I'm not quite sure the percentage point drag from the prudence. Secondly, please, now that you're very clear that you're managing your combined ratio, I think it is a reasonable question to ask, therefore, how many -- how much is it expected to improve per year because you're clearly managing so as you said, it will improve per year? And I don't know if we're talking 20, 50 or unlikely 100 basis points? And adjunct to that, how are we ever going to know when the underlying environment is making that improvement less sustainable because it's great that you're now managing the number, but I'm not quite clear how I'm going to know when you're losing the capacity to manage the number in the future. And then thirdly, please, the -- you've already talked a lot about the great Life new business results. I'm still not quite clear the thing that stands out to me is the present value of new business premiums seemed seasonally very, very strong in the third quarter. Normally, everyone is on holiday so that number dips 10% or even 20%. This time, it only dipped about 5% from the second quarter. And that can't be anything to do with surrenders because it's PVNBP. So what was the explanation for that? And is this the new normal? Is 3Q now going to be a lot stronger than it's been in the past few years? Or should we go back to seasonal dips in the future? Fabio Cleva: Thank you very much, William. The first question on the conservative business is for Cristiano. The second one is for Giulio, while the third one on the levy business again for Cristiano. Cristiano Borean: Thank you, William. So clearly, as we didn't exactly mathematically disclose the conservativeness of the prior year, but you can reverse back it yourself in any case. I try to answer with a different angle. The industrial development that Marco is seeing has an improvement, which is 0.4 percentage points better than the one you see in the accounts, which is a way to try to second guess your question, I think, to help you extracting at this point. I go to the second one, Giulio. Giulio Terzariol: Thank you, William. Your question about the improvement in the combined ratio, first of all, from a price environment point of view, we think that next year, clearly, the gap between the price change and what we call the risk premium is going to narrow but is not going to vanish completely. So we might still have a little bit of room in Motor, potentially also in Motor, where we see also that the frequency tends to go lower, which is a consequence also of the action they were taking. So we might still have a benefit there, which is not going to be as strong, clearly, as what we are seeing right now. But let's say, there is still a little bit of way to go. Then the other improvement should come over time from the initiative that we have on the claims side. You remember, we discussed that also in January that we have initiative on the efficiency and the effectiveness in claims. And here, we have all the work we do on the network's theory, on anti-fraud, all these kind of elements. Price sophistication might help also to get more granular on some pricing. And then one driver moving forward of improvement in the combined ratio, that's going to be definitely something where we need to focus is the space ratio. So we go back to the improvement of the expense ratio that we are already seeing from an admin point of view, and we want this improvement to continue in the next years and reflect also in the total expense ratio that you see. So it's a combination of still some way to go some additional -- I think also about, by the way, the work that we are doing in Switzerland, Switzerland is, at the moment, having a combined ratio of 100% is not going to be the future. So also, we're going to have some improvement on some turnaround, some improvement coming from claims initiative than the expense ratio. So let's say that's our journey to improve our marginality, which is already very strong, is not finished. Cristiano Borean: Just to clarify, I was speaking about the basis, not the delta, the basis before the 2 in order that you get that we increase this basis to answer to your first question. The question on the PVNBP. First of all, the third quarter is still compared to other quarters. I know that in the third, as you said, people should stay on vacation on the summer component. But I would say still weaker than the previous quarter. I've seen 3 major drivers of improvement, which are geographically aligned in especially France, where you had a very strong third quarter, and I think it is related to the very positive and stable return you can get from the saving component of our hybrid products, and that was clearly also linked not attractive anymore [ levy ] return given to the, let's say, low afferent to retail. On top of this, we had a small kickup from a new distribution agreement, which is opening up in Portugal with our postal partner Bank CTT. Together with the strong growth, which you've seen our basically all over the board and it's not generally specific, but we are seeing in both Hong Kong and Mainland China, which is a kind of market trend. Operator: The next question is from Farooq Hanif at JPMorgan. Farooq Hanif: First question, you kind of partially answered that, but you gave the average premium versus risk premium numbers for full year -- sorry, for 9 months, what is it in 3Q? We are already seeing a closing? That's my first question. Secondly, given everything that's gone in Italy, are you willing or able to talk about the bancassurance opportunity for you now in your Life business? You've been very quiet about that. Obviously, stuff happened -- stuff could have happened and didn't happen, just wondering whatever you feel like you can say about that? And the last question on nonoperating. So you're indicating a slightly higher restructuring cost, which will limit your adjusted net result. But I remember back at the CMD, you talked about how the nonoperating kind of holding expenses line is too high and will come down over time. How should we think about that going forward? Because it's obviously a big component of your adjusted net result. And I think we don't -- all of us especially me, spent a lot of time thinking about it. Fabio Cleva: Thank you very much, Farooq. The first question is for Marco. The second is for Giulio while the third one is for Cristiano. Marco Sesana: Yes. So let me say that, yes, we have disclosed the number for the 9 months. What we see in the third quarter is broadly in line with what we see in the 9 months. Clearly, again, we could go in much bigger detail on the different geographies. So there are some specific. So for example, when we -- I can tell you about Germany, where you have renewal of the portfolio that is clearly in the first part of the year, the third quarter looks a little bit how can I say, weaker in terms of development, and that is fine. So historically, that is the case. So I would say we tend to give the 9 months result because we think over the year are more stable and are more indicative of the different development so that's about it. So Italy is still very strong. Probably in France, we had to do some pruning. So the average premium, it's probably weaker, but overall in line with the development of the year. So I couldn't spot in the third quarter, anything that is like normal or it's diverging from the trend that we have shown on the 9 months. Giulio Terzariol: So your question about bancassurance. First of all, as you know, we are very proud of our footprint from a tight agency point of view. So that's clearly the bread and butter, but this does not mean that we don't do bancassurance. So we have a few cases Cristiano was just referring to the new agreement in Portugal. We have a joint venture now in India with the bank. So we are going to push bancassurance also in India, we have a successful relationship with bancassurance in Spain, and you should not forget Banca Generali, which is also a bancassurance relationship. And clearly, if there are other opportunities in Italy, we're going to look at that. So there is -- our belief is if you have a business model centered around bancassurance that can be a little bit tricky. But if bancassurance is clearly selectively use it can enhance the franchise value and also the scaled operations. So from that point of view, if we find the right partner, we are very happy to engage with these business partners. Cristiano Borean: So going to the nonoperating part. First of all, I confirm you that by year-end 2025 versus year-end 2024, EUR 80 million of nonoperating costs will be -- there has been already 60 because it's pretty linear throughout the year, evenly split between Life and P&C will be booked in the operating and have already been booked into operating result from the nonoperating like it was last year. So -- and this is done and is going already to reduce the expected project, the nonoperating charge going forward from the next years. In this quarter specifically, there has been one effect, and as Giulio was referring to Portugal, I'm referring back to India where probably you read, we set up a joint venture with our partner, and the cost of this setup was having a one-off charge related also to set up the marketing effect of around EUR 60 million, which is clearly related to a specific business development. Having said that, speaking about the restructuring costs. And by the way, this is a PV take. So it's one for now and not anymore what I was referring in India because it's taking the full charge projected in PV. So with regards to the restructuring charges, we are in a year where we have already exploited Germany restructuring, which will allow to better improve the GEX ratio, general expenses ratio for the future years and allow the improvement and digitalization of the company with the relative efficiencies. On top of that, we are in the process of implementing the Liberty integration, and we are in advance towards that. So that's why we can see something more in the fourth quarter, together with other countries where we are accelerating potential restructuring. That's why I was mentioning the fourth quarter with further restructuring charges, clearly, these will be counterbalanced by a much better tax rate because of some one-offs. So I would say there are 2 kind of form of one-offs, but the first one is forward-looking projecting the restructuring acceleration to have a better trajectory, and I confirm you that the nonoperating charges are materially going down for the next year. Operator: The next question is a follow-up from Michael Huttner, Berenberg. Michael Huttner: It's -- so here is my difficulty or my challenge. So your earnings are -- I look at your consensus sheets and look at what you're saying it's like it's the same number, right? Or I mean, there are small variances but it's -- there's a lot of accuracy here. But listening to you guys, it's like you're bubbling with excitement and stuff. And for me, the difference is, I think with Giulio you were trying to explain to remind me of is there's a difference between IFRS, which is CSM, which is incredibly slow. You have to fill the bathtub and wait for ages for the tap -- the water to come out. And then local GAAP, which is not IFRS. Now the reason I ask this is always cash. So is there more upside potentially in the cash than we're seeing in these numbers at the moment? Fabio Cleva: So Michael, of course, this question is for Cristiano. Cristiano Borean: So Michael, let me say, related to the CSM bathtub point that you were mentioning, not necessarily a higher life production materializes in a better CSM versus a local GAAP because, as you know -- sorry, a better local GAAP versus CSM because CSM sometimes has a revenue recognition and this revenue recognition is a pro rata temporary, sometimes in the new approach, you forget about the acquisition cost when you do many business and you have them immediately to be paid on the cash side. So clearly, on the CSM, this is amortized for the revenue recognition. This is called contractual service margin because you amortize it for the time of the service you give to the client. So the point is the CSM is a present value, while the local GAAP takes into account of the actual amount that you are usually paying. So it's a slightly more prudent in the Life. What -- so there is a gap usually negative between the service -- contractor service margin result and cash in a growing business. Clearly, if you are just making a company to run off, which is not the case of Generali, you can have the opposite but that is a different business model, especially for other integrators or run offers, let's call them. But what regards the cash element, the positive trend should come, in my opinion, you should read it from the acceleration of the P&C trajectory versus what we were projecting in the plan. And that because one thing I always report to the Board is the exactly almost equivalence between finance expenses discounting at this level, these 2 noncash item of the operating results, P&C, P&L, are canceling each other. So the results you are seeing is cash. That will be a better driver together with the improvement on some, let's say, cash trap as our favorite Switzerland topic. Operator: [Operator Instructions] We do have a follow-up question from Michael Huttner, Berenberg. Michael Huttner: Really sorry, it's a tiny question. In the past, you've always mentioned Argentina as a kind of negative adjustment as it were. And I think this morning, I don't think -- I'm not sure you mentioned it in your introductory remarks but when I was speaking to your wonderful IR, really wonderful IR. They did mention, and it sounds like Argentina is now turning to be a positive. Is there something there? Cristiano Borean: Michael, I think in the third quarter, you observed a fluctuation. There was a positive contribution from, I think you are referring to the P&C component for Argentina. And instead of having a negative delta in the investment result, you had a small EUR 7 million positive in this quarter. Be mindful that Argentina is extremely, let's say, volatile in nature because of the way it does not follow the basic financial textbook rules but we know last year. First of all, when you manage Argentina P&C business, you have basically, in your investments, all inflation-linked because you need to be able to carry up -- catch up with the cost of your liabilities. And so the investment are mainly inflation linked in that environment. Last year, we had a huge spike of inflation, huge -- materially huge. I'm talking about something in the order of 200%. And that was getting to a point where the exchange rate was not following the international official party. So we were having massive positive contribution of inflation-linked component in the investment result without having a deep equivalent depreciation that basic finance should tell you should be followed. That's why we had this push up, okay? When you look at this topic into isolation and you isolate investment results versus the other part of the P&C, you can get things which could be completely offsetting, but you are seeing a very huge number on one side and on the other. If I take the P&C operating result at 9 months of Argentina, it's EUR 14 million. So I hope this helps for you to better understand. But last year was a very, very peculiar year because of that effect. By the way, the movement of the excess capital from Life in Argentina in the fourth quarter '24 that we made is affecting us in the Life investment operating result EUR 39 million this year on a like-for-like basis. So it was not an immaterial effect due to this, let's say, paradox or nonrational movement between inflation and FX rate. Operator: The next question is from Elena Perini, Intesa Sanpaolo. Elena Perini: Yes. I've got only one actually. Considering that you are improving your P&C trajectory, and you mentioned that some further cash can come from this improvement. Are you going to use part of it to make other, I don't know, bolt-on acquisitions to strengthen your presence in some markets? And then can you elaborate a bit on what could be the potential targets? Fabio Cleva: Thank you very much, Elena. Giulio, would you like to take one? Giulio Terzariol: First of all, really the good thing is to add the capital, to add the liquidity from an M&A point of view, I'll just tell you, right now we don't see much in the pipeline. So from that point of view, clearly, we can find a good target. We would definitely look into that. As you know, our preference is to do acquisition where we can realize cost synergies. We can strengthen the franchise. Tell you, Liberty is a great example of an acquisition where we can really create value. As of now as of the moment, I tell you there is not really much happening. On the question between then, clearly, every time we do an M&A, we are measuring the M&A against the buyback. And when we say we are measuring the M&A against the buyback, it's not just a comparison of the IRR because, as you know, the IRR can be very dependent on the terminal value but that's really about the EPS accretion that we get 3 or 4 years, let's say, 4 or 5 down the road. So if we find anything which is interesting, we're going to go for that, making sure that we can create real value. But at the moment, there is not much. Operator: There are no more questions registered at this time. Fabio Cleva: So thank you very much for dialing into today's call. Should you need any follow-up, please feel free to reach out to Investor Relations. Have a nice day. Bye-bye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good day, ladies and gentlemen, and I warmly welcome you to today's conference call of the Friedrich Vorwerk Group SE following the Q3 figures of 2025. And as always, I'm delighted to welcome CEO, Torben Kleinfeldt; and CEO, Tim Hameister. So the gentlemen will speak shortly and guide us through the presentation and the results. And afterwards, we will be happy to take your questions if you may have. And having said this, Mr. Kleinfeldt, the stage is yours. Torben Kleinfeldt: Thank you very much, and also a very warm welcome from my side. My name is Torben Kleinfeldt, CEO of the Friedrich Vorwerk Group SE. I'm on board Friedrich Vorwerk already since 2001 from profession civil engineer. And I'm responsible of the total overall strategy of the company group and also still focused on a lot of hydrogen projects, which are in progress here in our company's group. Yes, a little bit about Friedrich Vorwerk in detail to all of us who have not seen us yet, Friedrich Vorwerk Group is active since 60 years in the industry of energy infrastructure. The company group is very well represented in the northern part of Germany with 40 locations, about 2,200 employees by today. And we can look back on a very strong growth over the last 5 years with an annual growth of above 20% each year. Our main markets here in Friedrich Vorwerk is, as I said, energy infrastructure, mainly covering natural gas, electricity, hydrogen and we have a -- other piece of adjacent opportunities where we cover all our expertise and services in biomethane treatment and also in district heating. And the business update will today will shine another light on some upcoming projects, which would be within our adjacent opportunities here as well. Main customers, of course, the large TSOs operating here in Germany. So on the electricity side, we see TenneT, Amprion, 50Hertz. On the gas side, it's more Open Grid Europe, Ontras, Gascaribe, these are our main customers, but for very special services also serving the chemical and petrochemical industry here in Northern Europe. Due to the energy transition going on here in Germany and in Europe, we can look back on a very strong order backlog today, still having more than EUR 1 billion of orders in the book by today. So what is Friedrich Vorwerk actually doing? Very short update on that or not an update, but a very short introduction to our business. This slide basically represents what we are doing. On the top, you can see our activities within the natural gas infrastructure. So usually, we are able to set up LNG plants or cross-country pipelines and cross-country stations where Germany is taking over natural gas from various sources outside Germany. Then we are able to engineer and also construct large diameter pipelines to transfer the natural gas to, for example, storage facilities or compressor stations, which are needed roughly all 200 to 300 kilometers in the pipeline to boost the flow of gas and finally bring the natural gas to the consumers. And right at the edge of the consumers, which could be a big city or an industrial plant, it requires also gas pressure, let down and regulator stations to supply the natural gas in the right pressure and the right volume. And of course, there, it needs to be metered for later invoicing as well. So Friedrich Vorwerk is basically able to engineer and also set up, maintain and operate all these components of the natural gas split. Pretty much the same activities. We can supply on the future hydrogen grids, which you can see at the very bottom of this slide, except that, of course, hydrogen cannot be found in nature. So it has to be made by splitting water into oxygen and hydrogen. This is basically done by large electrolyzer stations, where we are also able to supply engineering services, and we have a full range of small to medium electrolyzer arrays from 1 megawatt to 5 megawatt, which we can supply to the market. Business in electricity infrastructure, which is shown here in the middle of this slide, looks a bit different. Usually, our services start when we take over underground cable lines from offshore units. So when new wind farms that are situated outside in the North and the Baltic Sea, cables have to be transferred to land. There's a so-called landfall, which is typically done by a horizontal directional drilling method to under board the crucial environmental areas on the shores of the North and the Baltic seas. And then we are able to engineer and also run underground cables to the next transformer of converter stations with laying cables, we can handle up to 525 kilovolt in transmission voltage. And we are also able to engineer and set up transformer inverter stations, inverter stations unnecessary to switch the current from AC to DC. And of course, in today's grids, we can also connect the electricity grid to the heat grid. So we are also able to engineer and set up large-scale power to heat stations. Okay. Short business update, this time, not on our core markets, electricity, natural gas and hydrogen, but on some adjacent opportunities, which came up lately. First of all, I want to focus on what we call the NATO grid. The NATO grid here in Northern Europe has been set up in the cold war area. So in the -- starting in the '70s and '80s, on the right hand, you can see a sketch of the existing NATO pipeline grid, which is basically transferring jet fuel to crucial air fields of the [indiscernible] and the allies as you can see, basically, the NATO pipeline grid ends pretty much in the -- at the former inner-German border. And now since activities are going more to the east, this nature pipeline grid will be expanded by another 300 kilometers towards the Polish German border and then also into Poland and possibly also to the Baltic states. Since this is the pipeline system, pumping fuel, this is, of course, within our scope and it's a very nice addition to our usual portfolio estimated costs to set up this pipeline grid is roughly EUR 5 billion and also the first steps and the signing of contracts with Poland has been done in October. So we really see that this project is being kicked off, and we'll probably see tenders from the NATO grid in 2027. Next and also very interesting for us is decisions made by the German government concerning ramp-up of hydrogen activities here in Germany. First of all, of course, German government has emphasized that they're still looking for further investments in the pipeline infrastructure and also the plant infrastructure mainly focusing on setting up new electrolyzers to fill the hydrogen core grid, which is planned to be set up here in Germany until 2035, which, of course, requires not only the import of hydrogen, but also the production of hydrogen. They also made decisions to accelerate the tenders by digitalization and which is, I think, the most important decision which has been taken that they also accept not only green hydrogen, but also other colors of hydrogen to be transferred in the corporate and make it available for the consumer. So that's very important decisions for our hydrogen activities. And at the moment, we really see that both on the pipeline side and on plant construction sites, new projects pop up, and we received quite a bit of inquiries for setting up electrolyzers and also pieces of pipeline grid, which is summarized under the core grid here in Germany. And the third outlook I want to show is activities in CO2 transport because also here, very important decisions by the German government have been made in early November. So for example, they've agreed in general that we are able to split up the CO2 for certain industries, which cannot eliminate the emission of CO2. So for example, the cement industry is one of the core industries where you cannot get rid of the CO2 except to capture it and then transfer it to a storage facility. And of course, one of our largest customers, Open Grid Europe is already looking into the future CO2 grid, which will connect the emitters of CO2 to the neighboring country, Belgium and Netherlands because these countries are able to take CO2 and pump it in former gas and oil wells to store there for a long, long time. And also one of the CO2 clusters, which is planned is the so-called Elbicluster, which is pretty much in front of our doorstep to transfer CO2 from the cement industry to the ports on the North Sea and then, there it will be liquefied and brought by shipped to Norway, and Norway is able to take over the CO2 and also store it in old natural gas wells. That's it from my side for the moment. And with the update of our future -- possible future activities, and I would then hand over to my colleague, Tim, who will present the financial performance of the company's group for the third quarter. Tim Hameister: Yes. Thanks a lot, Torben . Good afternoon, ladies and gentlemen, and a very warm welcome to our earnings call and the Q3 figures. My name is Tim Hameister, CFO of Vorwerk. And I'm very pleased to walk you through our extremely strong Q3 figures and the updated outlook today. After reporting record revenue in the second quarter, we once again managed to beat that figure in the third quarter, achieving quarterly revenue of more than EUR 200 million for the first time in Vorwerk's history. Despite ambitious year-on-year figures, this represents growth of a fantastic 39%. Although the start of the third quarter in July was mixed due to challenging weather conditions, this was more than offset in August and September. The continued success in recruiting contributed significantly to this, enabling us to hire more than 100 new employees in the third quarter alone, also including a small M&A transaction consisting of roughly 35 employees. From a project perspective, the largest revenue drivers in Q3 were, of course, still the large-scale Anord project, followed by a number of pipeline projects, such as the EWA pipeline as well as several large volume gas pressure regulating and metering stations, which ensured high capacity utilization for our plant construction division. Consolidated revenue for the first 9 months of the year amounted to EUR 505 million, representing growth of 49% compared with the previous year. In both percentage and absolute terms, our electricity segment was once again the growth driver. However, it's also noteworthy that absolute revenue in the natural gas segment increased slightly again compared to the previous year, particularly due to the high number of plant construction projects. Revenue in the clean hydrogen and adjacent opportunity segments is roughly on the same level as the previous year. However, the development of profitability in the third quarter is particularly remarkable. Once again, the already very solid EBITDA margin of 21% in the second quarter was improved by another 4 percentage points to 25.4%, compared to the previous year, this represents an increase of 8 percentage points and a doubling of absolute EBITDA to over EUR 50 million. The EBIT margin even rose by 5 percentage points to a new record high of 19.1%, corresponding to EBIT of EUR 45 million alone in Q3. All segments contributed to this improvement in earnings are the largest increases that were achieved in the pipeline construction projects. In addition, the share of profits from joint ventures, [indiscernible] doubled compared with the previous year due to the higher number of projects awarded in this specific contract structure. Accordingly, the 9-month period closed with EBITDA of EUR 105.8 million, corresponding to a margin of 20.9% and adjusted EBIT of EUR 87.3 million or an EBIT margin of 17.3%. These fantastic results include minor catch-up effects in the mid-single-digit million euro range from variation and change order negotiations, but as already in Q2, the vast majority was achieved with our ongoing projects fueled by our high-quality order backlog. Now let's take a look at the development of order intake. In addition to the conventional order intake figure, we've introduced a new KPI with the half year figures, the total project volume acquired. And I would like to use the opportunity to once again explain the differences between the two key figures to all shareholders who were not present at our last earnings call. So there are basically two different types of project structures. In Option A, Vorwerk acts as a general contractor and handles the entire project through its own P&L statement, which means that 100% of the order value goes into order intake and later into revenue. And the second option, the client awards the entire project to a joint venture. And in this constellation, we do not show the proportional share of the total order volume and conventional order intake. Instead, we are only allowed to show the supply of personnel and equipment to the joint venture, which can, in some cases, be significantly lower than the proportional share of the total project. The order intake figure, therefore, does not reflect the actual project volume handled by the Vorwerk Group, which is why we also report this new K figure. And this KPI also includes the proportionate project volume from the joint ventures in which Vorwerk involved. And therefore, in our opinion, provides a more transparent view of the actual order situation, regardless of the type to contract structure. So the total project volume acquired rose by 45% to EUR 886 million in the first 9 months of 2025, while conventional order intake at EUR 419 million is around 20% below the same period last year. The main reasons for this are, on the one hand, the shift in the order structure toward joint ventures, especially in H1 2025. And on the other hand, our already well-filled order book. Nevertheless, we've also acquired many new and attractive projects in 2025. Some of them, Torben will present later in this call. The order backlog, which corresponds to order intake declined slightly to EUR 1.1 billion for the reasons stated before and currently consists of around 70% order volume attributable to the electricity segment. In addition to the strong development in both revenues and profitability, the development of net cash is impressive as well. Compared to Q3 2024, we've increased net cash by EUR 80 million to EUR 112 million. And thereby creating an excellent basis for further organic and acquisition-driven growth. The main reasons for the significant increase are, firstly, significantly higher profitability. Secondly, an improved negotiation position with regards to the payment terms in the contracts and thirdly, improved working capital management with regards to our internal processes and project controlling. Yes. And based on the strong performance in the current year and especially in Q3 and an unchanged positive outlook, we raised our guidance already for the second time this year, a few weeks ago. We now expect revenues in the range of EUR 650 million to EUR 680 million with an EBITDA margin of 20% to 20%, 22%, which corresponds to a margin improvement of 5 percentage points at the midpoint year-on-year. Now let me now hand it back to Torben for some updates on the ongoing and upcoming projects before we open the floor to your questions. Torben Kleinfeldt: Tim, thank you very much. Yes, very proud to present another major pipeline project, which will be executed in 2026. It is a project driven by German Gasunie division. The project is strongly in conjunction with the ETL 182, which is a 56-inch pipeline running from Stuttgard at the river banks of the Elbit towards the city of Bremen. In the end, this pipeline will be constructed also by a joint venture driven by Friedrich Vorwerk to bring regasified natural gas from Stuttgard to a hub in close to Bremen and the ETL 179.200, which has been awarded in the last month also to the same joint venture will basically connect the Dow Chemical facility, which is located in the northwest of the city of Stuttgard to this new pipeline grid. It is a 900 so 36-inch pipeline, roughly length is 18 kilometers, very difficult terrain for constructing pipelines. But since it is tight conjunction with the ETL 182. This is a very nice top-up to the existing project and we are actually managing this project also with the same resources as the other project. So second project I would like to represent is the TenneT project, which has already been ongoing this summer. It is one of the landfall projects, which is driven by TenneT, basically a framework contract where we are entitled to cross different islands north of the mainland of Germany in the North Sea by means of horizontal directional drilling. We have to execute in total 39 boreholes for the later use of -- with the cable -- with the high-voltage cables. We have already executed five drillings under the island of Baltrum this year and basically stopped operations now over the winter and we'll continue with the operations on the island of Baltrum next year in May when the window for working in the [indiscernible] is being opened. And once all the cables under the island of Baltrum have been laid, we'll shift to the next islands and then also to Buzon, which is shown here on the top right side of the picture. Friedrich Vorwerk and [indiscernible] share here in this joint venture is roughly 40%. So we'll also be entitled to do most of the drillings, which are necessary to complete all landfalls. Third project I want to focus on today is also from natural gas or hydrogen market. It's a plant construction project, a rather large gas metering stations and pressure letdown station, which is located at the compressor station in Boa, which is in former Eastern Germany. This project is set up by Ontras Gas Transport, and it is necessary to transfer hydrogen, which is taken over from the YAGAL pipeline and will be supplied into the grid of Ontras Gas Transport, where it is then transported to numerous industrial consumers in Sachsen and Sachsen-Anhalt. Friedrich Vorwerk not only has the contract to set up this plant, but also to do the full detailed engineering scope. And we have already started executing the engineering part of the project and will then be executing the actual project in 2027 and 2028. So here also a very nice project for our Plant Construction division, not only here in Halle Saale, but also in [ Vismore ] for the prefabrication activities, which are necessary to perform this project. Final project I want to focus on is another district heating project. You know that we have just finished the so-called [indiscernible] in the city of Hamburg, which is a large diameter district heating system, bringing heat from industrial producers in the port area of Hamburg to the north. And the follow-up project is, so to say, the -- it's called the [indiscernible], which in the end then transports the heat from these industrial consumers more in the middle of the city of Hamburg. This is a project in tendered in 3 lots. We have actually been awarded with lot number three. Pipeline here is also flow in the return line, diameter DN600 and 700 millimeters right in the middle of Hamburg. So very difficult inner city terrain to execute. But since we have a very well trained and very well executing district heating team here, we are really happy to have won this project so they continue -- they can continue their good work from the previous projects. And also looking in the future, there will be numerous district heating projects, especially in the city of Hamburg. For example, we are at the moment working on the tender for constructing also a large diameter pipeline grid towards the airport of Hamburg, which will later on supply the actual airport and also the Lufthansa facilities, which are located right at the Hamburg Airport. Yes. Now final slide from my side, at least on the technical part, is a short update on our newly developed welding system, the so-called PX2. PX2 has been developed and is also operated by our subsidiary, 5 CTECT welding system, fully automatic, being able to trace the actual well, so it can adjust automatically. It doesn't need an operator anymore to be run around the pipeline. system has first been tested on the EWA pipeline this year and has now continued on the pipeline. First experience, very high productivity, very little weld defects. We had a defect quota of below 1%. So repair rate below 1%, which is very unusual in the past with other welding systems, we had almost double-digit repair rates. So we are very, very happy to have developed the system, and we were already able to receive contracts outside Germany, for example, in Croatia and Turkey. And at the moment, we are actually supplying welding services in Turkey to a 40-inch pipeline and quite happy with the production. We are doing almost 100 wells a day, which is a very, very good performance and still with a very low repair rate. So the investment in the development of the new PX2 system is, in general, very good for us and opens up a complete new market also on international projects. And of course, finally, switching back to our HR department, I think Tim already focused on it. We have grown by more than 13% in the third quarter of 2025. So taking on a lot of new employees. And in the end, that has really helped for numerous projects, and we are -- we hope we can keep up the pace with our employees and hope with all these people on board for a very successful 2026. This is the end of our presentation, and we are, of course, very happy to take your questions. Operator: [Operator Instructions] We received the first question, or hand from Mr. Stueben. Lasse Stueben: I'll have three questions, please. First of all, the margin profile in the natural gas segment, it was really high again in Q3. I know that's probably in part due to those negotiation payments. But I'm just wondering, can you just give some more explanation to that? And what we should be looking for in terms of the margin profile going forward? The second one is you spoke in the past about a potential delay on the Anord project. I just wanted to ask how that is looking or if there's an update there and what the possible impact is for you? And the third one is the duration of your backlog now. That EUR 1.1 billion that you have in terms of the phasing, does that already cover you for potential double-digit growth in 2026? Or is there still, I guess, some gaps to fill with some short-term projects for 2026 to potentially achieve double-digit growth? Tim Hameister: Yes. Thanks for joining today, Lasse. I would like to start with the first question regarding the segment profitability. In Q3, there were actually two drivers for the strong margin for the natural gas margin. On the one hand side, I already mentioned, there were some negotiation one-off effects from change in variation orders from past projects. And the second effect here was the high share of joint venture profits because this structure is mainly used at the moment in pipeline construction projects. Regarding your second question, Anord, I still foresee that there will be delays in construction due to a lack of building clearance, especially in terms of missing permits, and we are still in constructive discussions with the client to adjust also the relevant targets for the bonus-malus clause since it's not our risk here in the end. So the customer is responsible for obtaining the permits. And we expect to have a result here on this before Christmas this year. Regarding the third question, the backlog. There are just a few projects such as the [indiscernible] project, Torben , as presented, the [indiscernible] duration until 2028. But apart from that, the majority of the backlog will be transferred into revenue in 2026 and 2027. And therefore, we have a very strong basis for further growth in both of the 2 years. Operator: All right. Thank you so much. Yes, no, we did not receive any further questions. So having said that, we received -- yes, just go ahead with you. The follow-up. Lasse Stueben: Yes. Just a follow-up, please. And then just on guidance, revenue guidance for this year. I mean, we've seen in last year, I know it was probably a bit special with Q4 being stronger than Q3. Guidance this year implies that Q4 is quite a bit weaker. So I'm just wondering, sort of -- what the thoughts are behind that and what that kind of means in terms of also potentially a contribution from Anord. I saw it was roughly EUR 180 million in 9 months. I think originally, you were guiding for I think, EUR 250 million or above for this year. So I'm just wondering if that's still current or if we should be modeling a bit less than EUR 250 million from Anord. Tim Hameister: So based on the current forecast and the Q3 figures, this would imply revenues between EUR 145 million and EUR 175 million for the last quarter this year. When you think about the usual seasonality of our business, Q4 is easily weaker than Q2 and Q3, although we had an extraordinary strong Q4 last year. But in general terms, it's are more likely to expect a weaker Q4, at least in terms of revenue due to the weather conditions and less working days since we usually close the construction sites mid-December. And of course, we also try to reflect risks and uncertainties from our project business within the guidance. Regarding Anord due to the missing permits on some of the sections on the track. There will be shifts of revenue to 2027 as well, at least to the first half of 2027. And therefore, we expect that the revenue contribution this year will be a bit lower compared to previous expectations. Operator: And in the meantime, we received questions in our chat box. And the first one is, to put it simply, which is the better leading indicator of future revenue recognition, the order intake or the new KPI total project volume in your opinion? Tim Hameister: So in our opinion, it's of course, the total project volume acquired. That's the reason we have introduced this figure because can transparently show how much project volume is in the end, handled by the Vorwerk group. Although it's important to say that the total project volume is not the figure that will translate into revenue in the next years. Only the order intake will translate into revenue. However, you will see higher profit shares from these joint venture constructions so that in the end, the total EBITDA will be the same regardless of the contract structure. Operator: Next question, how likely is it that you will be able to generate revenues with the CO2 transport network already next year, assuming the Federal Council's approval is greater this year? Torben Kleinfeldt: We do expect not to have any revenues in CO2, at least not in the pipeline business because the first project is being set up here between cement industry farm in [indiscernible] in the Port of [indiscernible] We do expect that public permits for this projects will be applied for next year. We expect to have a duration of about 12 months to get the permits approved. So construction will probably be '27, '28, '29, but we already have some revenues in the CO2 business, we are delivering CO2 purification and liquification plans, especially as an add-on to our biomethane treatment plants. So this liquefied CO2 goes in the food and also in the beverage industry. And we have already supplied a couple of CO2 electrification plans to the market until today. Operator: And the next question, what are your plans for share buybacks? Tim Hameister: Well, we have plans for at least capital allocation, not necessarily for share buybacks our priority number one, to use our cash is, of course, still organic growth, which means that we continue to invest primarily in technical equipment and machinery. In addition, we have to take into account the working capital swings across the year and maintain a very solid balance sheet at all times as this is part also of the pre-liquification processes for our projects. Yes. In addition, we are keeping certain amounts of cash available for potential M&A transactions. And we also expect to pay a higher dividend in the next year since this is linked to the net profit of the company. Operator: And another last question. Do you expect a higher margin in the electricity segment from H2 2027 onwards. Once Anord is completed and follow-up projects will not be executed via IPA? Torben Kleinfeldt: Yes, of course, once the dilutive effect from the Anord project has run out in the next years, and there are no follow-up projects with this specific contract structure. We will, of course, expect higher margins in electricity as well. Operator: So with you now chat and in the queue, there no further question pops up and that seems, we will come to the end of today's conference call. So thank you, everyone, for your showing interest in the Friedrich Vorwerk Group SE and also a big thank you to you, Mr. Kleinfeldt and Mr. Hameister for the time you took today. It was a pleasure to be a host, wish you all a lovely remaining day or evening and hand back for some final remarks, which concludes our call. Torben Kleinfeldt: Yes. Thank you very much for hosting us. Also thanks for listening today. And I can only say let's keep fingers crossed that the weather stay with us to make it a very, very successful year here in 2025 for Friedrich Vorwerk and hope to come back with good news in the beginning of next year. All the best and bye-bye.
Operator: Welcome to the Dürr conference call for the third quarter of 2025, followed by a Q&A session. Let me now turn the floor over to your host, Mathias Christen. Mathias Christen: Thank you very much, and welcome to today's call, ladies and gentlemen. The corresponding presentation is available on our website, and I assume you have it in front of you. Our CEO, Jochen Weyrauch, will start on Page 5 before Dietmar Heinrich, as CFO, will take you through the financials. Jochen, please go ahead. Jochen Weyrauch: Thank you, Mathias, and good afternoon to all participants on the call. As our main focus is on profitability, I would like to start with pointing out the high earnings level in Q3. The EBIT margin before extraordinaries increased to 6.6%, which is almost 2 percentage points more than last year, based on earnings growth in all of our 3 divisions. In the year-to-date, the margin amounted to 4.9%, which means that after 3 quarters, we are almost at the midpoint of the full year guidance. Order intake continued to be impacted by heightened macro uncertainty caused by geopolitical and trade conflicts. However, we expect Q4 to be much better. Sales accelerated in Q3 after the moderate first half and should gain more traction in Q4. Free cash flow continued to be strong in Q3, bringing the year-to-date figure to a high level of EUR 85 million. The recent months were also marked by pushing ahead with our sustainable automation strategy. We successfully closed the sale of environmental technology and thus completed the process of turning into a lean company with only 3 instead of 5 divisions. At the same time, we began to streamline our administration, aiming at cost savings of EUR 50 million. The guidance given in March and partly revised in July is being confirmed. Let's turn to Page 6. Regarding the 29% drop in order intake in the first 9 months, please keep in mind that last year's figure was extremely high due to a unique EUR 500 million contract and further large orders. Sales were slightly lower than last year. We saw sequential improvement in Industrial Automation and woodworking in Q3. Automotive should benefit from an accelerated execution of large projects in Q4. I already touched the positive trend in operating EBIT. With regards to earnings after tax, please note that this position is burdened by the EUR 120 million goodwill impairment in Q2, whereas last year's figure included a EUR 19 million book gain from the sale of Agramkow. Adjusted for both special effects, net income was up a good 50% this year. Slide 7 shows the same key figures for the group as a whole, still including the discontinued Environmental Technology business. Page 8 shows our quarterly order intake. After a decent start to the year, the effects from the high level of investment uncertainty in Q2 and Q3 are playing to see. However, there were some positive aspects in Q3. Industrial Automation [Audio Gap] than in Q2. And in general, I would like to emphasize that despite the macro turmoil, customers are not paralyzed. Many of them are pushing ahead with large investment projects, and the pipeline looks solid. This is true, for example, for strategic projects in the automotive industry, but also for HOMAG's timber house construction business. Q4 has the potential for several large orders if our customers stick to their timing. Let's move to regional order intake on Page 9. New orders in Germany dropped sharply as last year's figure was boosted by the huge EUR 500 million contract. The increase in Asia without China was driven by India and Saudi Arabia, which has become a very attractive market for Dürr. Next one is the Automotive division on Page 11. Q3 order intake was marked by the absence of large orders, but this does not mean that there are no such projects being planned. It's rather a characteristic timing issue of our plant engineering business. There are quarters with no large orders, and there are quarters with several big-ticket orders placed all at once. The EBIT margin before extraordinaries exceeded last year's high levels in Q3 and in the year-to-date, based on the good margin quality of the order backlog. Revenues were up sequentially in Q3 and should further accelerate in Q4 as the execution of large orders is speeding up after customer-induced delays in the first half. Page 12, please. Industrial Automation saw a good Q3 with order intake and sales clearly exceeding low Q2 levels and returning to the encouraging Q1 levels. BBS Automation picked up with continued strong MedTech business and improvements in the other business. The EBIT margin before extraordinaries almost doubled year-over-year and clearly exceeded the full Q2 level, spurred by volume effects and the recovery in service business. Please note that for 9 months figures, there is limited comparability as last year's figures still included the Agramkow Group that was sold on July 1, 2024. Reported EBIT was burdened by the EUR 120 million impairment in Q2. As the battery business has been suffering from poor market conditions, we initiated restructuring in Q3 to lower fixed costs. Slide 13 is on group working. The division has implemented a number of self-help measures and thus successfully strengthened earnings resilience. This is testified by the fact that the operating EBIT margin increased by almost 2 percentage points on slightly declining sales in the year-to-date. Order intake was impacted by the tariff uncertainties, causing additional investment restraint in the furniture industry. As of now, the exact timing for market recovery is hard to predict. This is why HOMAG's improved earnings resilience is so important. Looking at the timber house construction business, the outlook is brighter as we see an increasing demand and good opportunities for large orders in part already in Q4. Slide 14 gives an overview on Environmental Technology. As this business was effectively sold 2 weeks ago, there is no need to comment on the figures. Next one is Slide 15. Service sales recovered in Q3, beating the Q2 level by 14%. Under the impression of the tariff chaos, many customers immediately cut service spending in Q2. So it's good news that there was sort of normalization already in Q3. Now it's time to hand over to my colleague, Dietmar Heinrich, who will explain the financials. Dietmar Heinrich: Thank you, Jochen, and a warm welcome to everybody also from my side. Let me start with Slide 17 and our key financial indicators. As Jochen has already touched a couple of them, I will limit myself to gross profit and net income. We managed to increase gross profit by 5% despite slightly lower sales. This was mainly an effect of rising margins in the equipment business due to the value-before-volume strategy, as well as capacity adjustments and lower extraordinary expenses. Net loss in the 9-month period was marked by the goodwill impairment in Q2. In Q3, net income stood at EUR 26 million versus EUR 21 million 1 year ago. However, last year's figure included a EUR 19 million extraordinary book gain from the Agramkow sale. Adjusted for this, net income was up by almost 50% in Q3 2025. Slide 18 is on sales. In Q3, we came close to the prior year figure and exceeded this year's low Q2 level. The latter was mainly based on sequential improvements in Industrial Automation and woodworking. Automotive is expected to speed up revenue recognition in Q4, which in terms of sales is usually the strongest quarter. On Slide 19, you can see the strong margin performance in Q3, which was supported by all divisions, with Automotive achieving an outstanding figure of 8.7%. The EBIT margin before extraordinaries for the first 9 months increased to 4.9% and clearly reached the full year target corridor of 4.5% to 5.5%. In terms of absolute EBIT before extraordinaries, Q3 was by far the strongest quarter, not only in 2025, but also compared to last year. In the first 9 months of 2025, we saw an increase of 9% based on the higher gross profit. Overhead costs were up 2.6%, mainly due to higher R&D costs. Slide 20 shows that after a strong second quarter, free cash flow was clearly positive also in Q3 and climbed to EUR 85 million in the year-to-date. The main driver for this was lower CapEx spending. Please note that EBIT and DA were marked by the impairment in Q2. Our guidance for free cash flow is EUR 0 million to EUR 50 million. This implies a negative figure actually in Q4. But if you ask me if this will really happen, my answer is we stay on the conservative side, as free cash flow is difficult to predict in our business, but I can't rule out the possibility that free cash flow might develop a bit better than guided. Slide 21 is on net working capital. Compared to the end of 2024, there was a 16% decline and an improvement to 31 days working capital. Positive effects resulted from well-managed contract assets and considerable prepayments that are reflected in higher trade liabilities. These 2 effects overcompensated the temporary rise in trade receivables. Net debt shown on Page 22 was stable at a level of EUR 480 million in 2025. In Q1, liquidity was reduced by EUR 97 million payment for the acquisition of 2.5 million HOMAG shares after our cash settlement offer had ended due to a final court decision. Net debt will strongly decline as of December 31 as a consequence of the gross proceeds of EUR 290 million to EUR 310 million from the environmental technology transaction that was closed on October 31. Let's look to Page 22 and our funding situation. The funding situation is comfortable, and it will additionally benefit from the environmental technology proceeds, which are not yet reflected on the chart. The maturity profile is also favorable. We repaid Schuldschein tranches of EUR 55 million this year. The next maturity will be the EUR 150 million convertible in January 2026. So far from my side, I'm now passing back the word to Jochen, who will continue on Page 25. Jochen Weyrauch: Thank you, Dietmar. I would like to briefly comment on the sale of our Environmental Technology business. My personal judgment is that we were able to conclude a very good deal for Dürr and its investors, but also for the environmental business that will benefit from better growth perspectives. Enterprise value and proceeds clearly met our targets. We will use the proceeds to further strengthen the balance sheet and bring down net debt to presumably less than half of the pre-deal level. Please note that the EUR 290 million to EUR 310 million are gross proceeds after having acquired the 25% reinvestment share and before tax payments that will be mainly due in 2026. We anticipate a book gain of EUR 160 million to EUR 190 million after taxes, which is at the higher end of expectations. Moreover, the transaction was a major strategic step to finish D's transformation into a lean group with a clear focus on highly automated and sustainable production processes for our customers. Slide 26 visualizes our transformation. Within not more than 1.5 years, we divested the non-core businesses of Agramkow and Environmental Technology, consolidated our automotive business in one powerful division, integrated the automation business under the BBS brand, and reduced the number of divisions from 5 to 3. The new Dürr Group acts under the motto of sustainable automation with automation as a joint technology platform and further synergies, for example, bundled purchasing, cross-selling in the auto sector, shared services, and business locations, as well as best practice processes in order execution. And on top, we are more focused and easier to understand for our investors and analysts with only 3 divisions. Page 27 shows the result of our transformation process. This structure is the right setup for the coming years. We are not planning any larger M&A transactions, but will put the main focus on further improving efficiency. Our target is an EBIT margin before extraordinaries of 8%. Even though we are not yet there, we have already done a lot of homework. The Automotive division reached its mid-cycle margin target of 8% last year and is set to repeat this in 2025. Woodworking has strengthened its earning resilience and will return to an 8% plus margin under normal market conditions. In 2026 and beyond, we will put special attention on improving the margin of Industrial Automation. There is still work to do. Nonetheless, I'm fully convinced of the potential of our automation business, especially as we continue to expand the well-performing activities in the medtech sector. Slide 28, please. A consequence of our lean group structure is the planned resizing of the administrative sector. As outlined in July, we are planning to cut 500 jobs to make admin structures leaner and more efficient. This goes in line with empowering the 3 divisions and give them more entrepreneurial leeway. We are targeting for cost savings of EUR 50 million, which requires provisions of EUR 40 million to EUR 50 million in Q4. We have already started to reduce the admin workforce abroad and entered into negotiations with the Works Council in Germany. Page 30 brings us to the outlook. We are confirming the targets set in March and partly revised end of July. The order intake guidance requires a strong Q4. There is still work ahead of us, but I'm very confident that we will be successful, as there is a good level of investment activity on our customer side. Regarding sales, we are confident to reach the lower end of the EUR 4.2 billion to EUR 4.6 billion target corridor, backed by a strong Q4, especially in automotive. The EBIT margin before extraordinaries almost reached the guidance midpoint after 9 months. So it's fair to assume that last year's level should be exceeded. Regarding free cash flow, Dietmar found the right words before. We maintain a conservative approach, even though there is an opportunity to beat the upper end of the guidance. Given the book profit from the Environmental Technology sale and the good earnings performance since Q3, we are confident regarding the net income guidance of EUR 120 million to EUR 170 million. The target for net financial debt is absolutely realistic, given the environmental technology proceeds. Slide 31 is a rather technical one, designed to help you to follow the guidance, especially the information on the influencing factors for net income may be helpful. The divisional guidance on Page 32 is unchanged compared to August 7, when we made some adjustments marked in blue. We are confirming the divisional targets, especially the improved earnings performance in Q3 is a sound argument to be confident. Slide 34 brings me to the summary. The sale of the Environmental Technology business was a milestone, not only because it was a financial success, but also because it represents the final element of our transformation. Dürr has become a lean engineering group. Our leading competence for highly automated and sustainable production processes is a distinguishing feature that sets us apart from the competition. We are confirming our guidance and expect a high order intake in Q4, provided that there will be no customer-induced delays in order placement. The good performance in Q3 underscores our earnings resilience and our ability to brie margins even in a challenging environment. Free cash flow and net financial debt should meet the targets set in our guidance, maybe even more. We continue to improve earnings resilience and margins with the planned adjustments in administration, targeting for annual cost savings of EUR 50 million. And after having reshaped the group, we will direct our focus even more on improving efficiency in 2026. Ladies and gentlemen, thank you for listening. Dietman and I will now be happy to answer your questions. Operator: [Operator Instructions] And the first question is from Sven Weier, UBS. Sven Weier: I just have one regarding the order intake and what you said on Q4. I mean, with a view to the group guidance, is it also fair to assume that it's more likely that you will end up at the lower end of the range? And I was also curious how you see that on an individual divisional level. Jochen Weyrauch: Thank you, Sven, for asking the question. Yes, that's fair to assume in terms of rather the lower range of the guidance. And from a divisional perspective, we see some momentum in HOMAG, but the bigger part at this point is assumed to come from automotive. Sven Weier: So HOMAG is also going to be more towards the EUR 1.3 billion level, I guess? Jochen Weyrauch: Let's see. I would guess rather somewhat above, but let's see. Operator: The next question is from Nikita Lal, Deutsche Bank. Nikita Lal: First, congratulations on the strong profitability we saw in this quarter. Is this a run rate we can expect for the next quarter? Or what is it dependent on? My second question is on any comments on dividend already. Should we expect a payout ratio of roughly 40%? And the third one, when we think about 2026, do you see any improving KPI for HOMAG? Jochen Weyrauch: Thank you, Nikita, for your questions. Let me start with the run rate for the remainder of the year. If you make the math with the midpoint of the guidance, which we've now reached, we would expect Q4 probably not be exactly at the Q3 levels, but at least to a point that it -- I shouldn't say easily, but that it well confirms what we've guided. On the dividend, no, we have not yet discussed anything. But I would say we are probably known for some sort of continuity, whatever that means at the end of the day. And then your last question was on HOMAG, I think, for next year. Let's see how things develop. HOMAG has made good steps this year. And you can clearly see, I mean, HOMAG is up almost 2% compared to last year, that we've made our homework in terms of efficiency, and the effect of our restructuring program kicks in. But next year, to some extent, really depends on the outcome for the remainder of the year. And being at this year's level would already, I would say, is -- would be a good starting point, and let's see what's possible. Operator: And the next question is from Adrian Pehl, ODDO BHF. Adrian Pehl: Actually, a couple of questions. Well, first of all, on HOMAG again, actually, you're phrasing it a little bit differently. Since in the past, we have been talking a little bit about the quality of discussions that you had with your clients. And I was just wondering if there was some sort of incremental change on that, hopefully, towards improvement, but happy to take any color you might share. The second one is on -- as you were referring in your presentation to probably not pursuing bigger M&A transactions. Nevertheless, I wanted to hear your thoughts on the proceeds that you will be collecting from the sale of the environmental business. Is that -- will you pay down debt with the money? Or how should we think of the respective capital allocation here? And thirdly, before I might have a follow-up, on the phasing of the cash out on the restructuring, maybe you could remind us how this will unfold starting Q4 going into 2026, that would be helpful. Jochen Weyrauch: Okay. Thank you for your questions. I will answer on HOMAG, and Dietmar will probably take over for M&A proceeds and the phaseout of the restructuring. On HOMAG, the -- yes, obviously, it's -- I've been burning my tongue a few times on this topic, always looking at when things would become better. It's twofold. It's very difficult to guess action from the discussions I have with customers. So we're careful when it comes to furniture at the moment. I don't think there is more room to go down, but still, you don't see any real recovery in the numbers. I think there is with some customers in Europe, maybe discussions become a bit more positive. On the other hand, we see some uncertainty in the U.S. from customers who now, of course, have to suffer from tariffs. How this will play out in the end and when really there will be momentum upwards, downwards, I don't expect any -- hard to say. Where we see definitely activity is around wooden houses and timber processing. And there, we really are discussing with a number of customers on significant projects. And there, I'm quite optimistic. Dietmar Heinrich: So I will pick up as Jochen already mentioned, the other 2 questions in regard to the use of the proceeds of the Environmental Technology sale. We are going to use it for debt reduction. We have the maturity of the convertible bond coming up in January of next year, and we have another Schuldschein then coming up in April of next year, and we are targeting actually to repay this through debt. In regard to the cash out for the restructuring, then in the administration area that Jochen explained, we are targeting to build up the provisions in the fourth quarter of this year. We are already getting closer to the negotiation results with the works council. And so I'm confident that we will build up the related provisions in Germany, but also outside of Germany, until the end of this year. In regard to the cash out, I do not expect the real cash out to happen within this year. The majority will for sure be done in 2026. But depending on the individual agreements and the impact that we are having in there can also be that some portion of the payout still will be done in 2027. We can provide more information in regard to this when we are really having the progress in conjunction with getting the agreements with the individual employees who are targeted to leave the company. Adrian Pehl: And then last question from my side again on automotive, just also probably a bit more color, just to what you said already. I mean I took obviously, and the order intake in Q3 was pretty low. But I want to hear your thoughts. Is that just a function of shifts in projects that, on the other hand, are very likely to materialize anytime soon? Because I'm actually asking you referred in the press release to, I think that was a half sentence saying that if these projects are then finally been signed, so there's still a high level of uncertainty, obviously, and there might be some shift into 2026, but anything on color, clients, regions, investment behavior would be helpful. Jochen Weyrauch: Yes. Thanks for the add-on question. We have a few -- a bit -- yes, some large orders that are very much progressed in terms of the negotiations. And so still not signed, but it gives us the confidence that we have expressed in our comments before. On the regions, I ask for your understanding that it's also from a confidentiality point of view, and you know that the market is quite sensitive at the moment. I would rather comment on that we have booked the orders. Operator: And the next question is from Philippe Lorrain, Bernstein. Philippe Lorrain: I wanted to bounce back a little bit on automotive. From today's point of view, would that be fair to assume that the kind of order intake level that we could expect for Q4 kind of matches the one that we've seen in Q1? Jochen Weyrauch: It very much would match, yes, what we had in Q1. Philippe Lorrain: And then a second question to specify a little bit more what you were saying on the adjusted EBIT margin guidance. So I take it that you are saying, okay, you are very confident with the midpoint of the range, but the midpoint of the range at 5% would imply actually, like another 5% or so in Q4, if I'm not mistaken. So to circle back with your comment, like saying, okay, if we look at Q3 and maybe we assume that it's not exactly the same level of margin that we can generate for Q4, that would imply actually that we'll land well within, let's say, the upper half of the margin range. So is that fair to see it that way? Dietmar Heinrich: Yes. Maybe, Philippe, I take this question in that regard. As you know, we are always a bit conservative, and projects have sometimes their own dynamics. So we stay on the conservative side. And then we stay to what Jochen explained before, staying at a very -- or we stick to staying with the guidance, we are in the midrange of the guidance. We will feel comfortable in that regard; in case we perform better, of course, that will be the case. But I don't want to raise the bar right now that would not be reasonable. Philippe Lorrain: And my last question, again, on -- probably a bit more on automotive and to some extent, also on HOMAG, but now with the trend that we've seen that Q2 and Q3 were slightly longer in terms of order intake, how should we expect actually sales to evolve in the coming quarters? And I'm trying to extrapolate a little bit further than just Q4. Dietmar Heinrich: Yes, especially in automotive, we still have a very good backlog. So the orders we are now fighting for are rather further down in '26. So there, we have a nice buffer independent on whether we get one of the bigger orders a quarter earlier or later. HOMAG, we'll have to see. I mean our -- you can see it in the numbers. The order backlog has somewhat come down. This is even more visible on the furniture side. So we will have some measures in place already for Q1, which should help. And you've all -- I mean, we've seen a similar thing this year. So we're working -- I mean, we're working from, how would we say, hand to mouth. And -- but that's why I said expecting something similar to start with for next year, compared to this year, I think, is a fair assumption. Philippe Lorrain: But on a full-year basis, probably still continue on an improvement trend margin-wise? Dietmar Heinrich: That would be our aim, definitely, but let's see how the market helps us or doesn't help us. Operator: At the moment, there seem to be no further questions. [Operator Instructions] And the next question is from Holger Schmidt, DZ Bank. Holger Schmidt: Just one question on the battery side. Could you give us an update on your battery business? I mean you are making some capacity adjustments at the moment. Do you see any kind of improvement of -- or potentially deterioration of the business? Jochen Weyrauch: Yes. Thank you. Good question, Holger. No, it's tough to be quite fair at the moment. That's why we are restructuring. We see a challenging market. We still believe that there will be some activities coming back. There is a few smaller orders, but nowhere near to what we've been planning for. This is why we make significant capacity adjustments. And this is where we obviously see some earning issues at the moment. But we are adapting the team. It's not too huge anyways, and then see what we can get out of it. But it definitely is an issue at the moment, and that's why we already announced significant restructuring, and let's see how it goes forward. Fortunately, it's not a big ticket in total. Holger Schmidt: And let's assume the market would remain weak at the current level, would you also consider to step out of this business? Jochen Weyrauch: We don't do that right now. Let's see how things develop. If you listen to what is said in public, there is a confirmation that, especially in Europe, that we need some sort of a supply chain in the battery business. There is some projects. And actually, we are hopeful also to collect a few orders, at least 1 or 2 double-digit. So we will, in a way, deal with what we have. Hard to rule anything out, but at the moment, that's not our plan. Operator: And the next question is from Elizabeth Weisenhorn, Portikus Investment. Elisabeth Weisenhorn: Mr., Jochen, you very often go to China, as I noticed. And I would like to know what you think about the competition there. I read and see pictures about the automation degree that is going on there and how competitive it is. Jochen Weyrauch: Yes. Thank you for the question. Yes, indeed, I go to China quite often because it's an important business for us. And China is very competitive in any industry. And in automation, definitely, there is a number of very strong players, obviously, including us, because the majority of our employees in production automation are sitting in China, mainly in Suzhou and Kunshan, and we're playing a significant role. That's why it is important to play in China to learn what's happening there, but the dynamics are incredible. I can really only say -- and that's why, again, it is important to be there to be successful, and we are successful in our automation business with our strong local team, but you have to continuously develop, be efficient, be cost-driven. And this is why the business that we run and the competition we play with in China makes us also quite strong for the business outside of China. I hope that helps a little bit. That's all I can say at this point. And it's -- I'm always impressed. Operator: Then we come to the last question. It's a follow-up from Philippe Lorrain, Bernstein. Philippe Lorrain: Just wanted to follow up with 2 little more questions on automotive. So the first one was just like to make sure I understood you were saying your, let's say, confidence with regard to the statement speaking about an improvement in Q4 order intake trends is based more on the fact that you see orders being like nearly assigned. But how about orders that you've signed, maybe at the beginning of Q4? How has been like current trading, so to say? And the second question would be -- and perhaps it ties also together a little bit with all of that generally. But I remember you were speaking about a bit of a slowdown in execution this year. However, it seems to pick up, especially with regard to Q4. Would you say that all these issues are now behind us? Or has there been like a structural shift somewhere? Jochen Weyrauch: Yes, on auto and bookings in Q4, in general, our pipeline overall doesn't look very bad, I must say. Actually, let me turn my words around. It looks quite solid. And that is not only Q4. It is -- we're always watching the next 12, 18 months. And this is what I can say. It is solid. Is it fantastic? Probably not, but it's very solid, and there is enough projects out there to feed the organization at this point. When it comes now to Q4, there is 2 to 3 larger orders that would turn the needle. And on most of them, negotiations have progressed quite well. And then based on that, let's see how things turn out. Does that help a bit, Philip? Philippe Lorrain: Yes, perfect. So I understand it's really, yes, something that needs to be signed. And with regard to the question on the pace of execution on sales. Jochen Weyrauch: Sorry, I missed that one. I would say we are running a relatively normal pace at this point. There was a few orders or a few projects where there was some modifications at customer ends. There was a few delays on progress of buildings, which, by the way, can happen always in that business. But what we are currently seeing is, I would say, normal project execution. Operator: And as we have no further questions from the audience, I would like to hand the floor back over for closing remarks. Mathias Christen: Well, thank you, Heike. Thank you, ladies and gentlemen, for your questions and the discussion in today's call. If there are follow-ups, please don't hesitate to contact me. We are looking forward to meet some of you on the investor conferences during the next few weeks. Take care and have a wonderful end-of-the-year season. Bye-bye from our side.
Operator: Good day and thank you for standing by. Welcome to the 3i Group plc Half Year Results Presentation Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand over to the Chief Executive of 3i Group plc Simon Borrows, to open the presentation. Please go ahead. Simon Borrows: Good morning. Welcome to 3i's interim results presentation. This was another good half for 3i. We delivered a total return of 13% and that gives us a net asset value per share at the end of September of GBP 28.57 compared to GBP 22.61 at the interims last year. That's after the payment of 42.5p per share second dividend and a 78p per share gain on foreign exchange translation. We ended the half with a gross investment return of 14% from private equity and 9% from infrastructure. Private equity delivered another good return with 98% of the portfolio by value, growing earnings in the 12 months to the end of June 2025. Action continued to deliver a very good performance, and we saw good growth from the broader consumer portfolio. We secured 2 good realizations in the first half as well as a significant capital restructuring and distribution from Action in October. Our private equity portfolio is defensively positioned, and is generally trading resiliently. The challenges we see for a limited number of assets are reflected in their valuations. We remain cautious about the general macro environment and continue to be careful in evaluating new investment opportunities. Earnings growth across our top 20 private equity portfolio has been good. Companies making up some 86% of the portfolio value have been growing earnings by more than 10% over the last 12 months. We have only 4, mostly smaller companies where earnings have declined over this period. We saw earnings momentum drive positive portfolio value moves in the half, and there were no notable write-downs in this period. Action has continued to expand and grow. In the first 9 months of the year, net sales were up 17.4% and operating EBITDA up 16.3% to GBP 1.563 billion. Like-for-like sales to the end of September were up 6.3%. Once again, the volume of transactions has been the prime driver of like-for-like growth across Actions estate. LTM operating profit at the end of P9 grew to EUR 2.3 billion. P10 was a challenging month. That's due in part to last year's very high like-for-like growth. And perhaps this year's unusually mild and very un-Christmasy weather. Net sales to the end of October stood at EUR 12.54 billion, year-to-date like-for-likes to the end of P10 were 5.7%, reflecting the high growth hurdle from last year and the continuing softening consumer environment in France, in particular, Upturn including last week, we've added 272 new stores. We're now on track to add approximately 380 new stores by the end of the year. That will be a 13% increase in store numbers over the calendar year. We now have 180 stores in Italy and 90 stores in Spain as well as 8 in Switzerland and 5 in Romania. These 2 new countries have started very well. We do believe Action's like-for-like sales of 5.7% are well ahead of many European retailers, a number of whom are experiencing negative nonfood like-for-likes. And that performance by action is very impressive when you set it against Actions cumulative 56% growth in like-for-likes. Over the previous 4 years, Action's low prices and mix of necessities and surprising products continues to attract a growing volume of transactions in all 14 countries where we operate. The French like-for-likes are positive to the end of P10, but they are some way below the rest of the group. France accounts for about 1/3 of like-for-like sales. That means that the non-French network is delivering like-for-likes of almost 8%. So France is a challenge, but we are well set for a big sales season to come with a strong Christmas assortment, good availability from the supply chain and some very competitive prices. 3i acquired a further 2.2% stake in Action in September from GIC. We settled that transaction by the issuance of 19.9 million shares and took our holding up to 60% of Action at the end of the first half. Action completed another financing in October, raising EUR 1.6 billion in the U.S. and European debt markets. Once again, demand for Actions debt was strong. Over 2/3 of that new debt was fixed at an all-in euro cost of under 4.6%, and pro forma leverage stood at 3x at the end of October. Action also took the opportunity to undertake EUR 3.1 billion of leverage-neutral repricing and extension of part of its current debt package, that delivered a further interest cost savings of EUR 14 million on top of the EUR 33 million we've achieved previously. We used GBP 755 million of our GBP 944 million distribution to increase our stake in Action further to 62.3%. That left us with net proceeds of GBP 189 million from the share redemption. And I'd like to end this section on Action by commenting on Action's March CMD guidance. Firstly, this year's store opening program is going well. And as I said a minute ago, we now expect to open approximately 380 new stores. That's an increase over the March guidance we gave you. It is also worth highlighting that trading from these new stores, which are not in the like-for-like numbers has been ahead of our expectations so far this year. On like-for-likes, while most countries in our store network are broadly in line or ahead of plan, the market in France, our largest store network is clearly challenging. We've seen a meaningful step down since the second week in September, which continued through P10. Food inflation is very challenging for those on low and average incomes, and the savings rate is at an all-time high in France, reflecting those with more cash having concerns with the political situation. So there is a risk that France pulls us below the 6.1% like-for-like guidance for the year. But frankly, it's too early to tell. On EBITDA margin, the sales mix is supportive. We've had good higher-margin category performance over the first 3 quarters and good trading from new stores. But the final outcome as with like-for-likes will be determined by trading in the last period given its very high level of sales and very high level of margin. Okay, I'd now like to move on to Royal Sanders, our second long-term hold asset. Royal Sanders is having another strong trading year. They've delivered good organic growth and excellent cash flow so far this year. Our private equity portfolio, ex Action and Royal Sanders was valued at GBP 4.7 billion at the end of September. The portfolio is invested in broadly equal parts across our 4 sectors. And as I said earlier, we're seeing good overall momentum in the private equity portfolio despite anemic growth in Europe and the challenges of the U.S. tariff policy. We certainly have more than our fair share of companies which are still able to grow in this tricky environment. And we secured 2 good realizations with healthy uplifts over their marks and returns well in excess of our 2x target. The Infra team is also producing a good performance with some excellent returns from their portfolio and a good level of fee income. On that note, I'll hand over to James who can fill you in on more detail. James Hatchley: Thank you, Simon, and good morning, everyone. Our total return on equity for the half year was 13%. Again, that demonstrates the ability embedded in our portfolio to deliver consistent compounding returns year after year. You can see the details here. The increase in NAV was principally driven by value growth of 250p per share. During the half, foreign exchange movements were positive, driven by the depreciation of the pound against the euro. That gave us a positive contribution of 78p the dividend payment in the half-reduced NAV by 43p. That meant we closed the half with an NAV per share of GBP 28.57. You can see the components of the 250p per share or GBP 2.5 billion of value growth here. As Simon said, Action continued its growth trajectory with the contribution of GBP 2.1 billion in the half. The PE performance increases of GBP 219 million, significantly outweighed the performance decreases of GBP 43 million. And that was despite a challenging macroeconomic background in many of our core markets. Royal Sanders and Audley were the standout contributors to the GBP 219 million increase. There were no material detractors in the half. As part of the valuation process, we took 4 multiples down, but the combined impact was relatively modest to GBP 24 million. The quoted investment portfolio had a good half. with a positive contribution of GBP 139 million. That came from the combination of increases in both the 3iN and Basic-Fit share prices. The uplift to imminent sale of GBP 25 million relates to the premium we received on the sale of MAIT. The portfolio ended the period with a value of GBP 29.3 billion. We continue to apply our valuation process consistently and markets have been broadly supportive over the period. So starting with Action, we continue to value Action on a post-discount multiple of 18.5x LTM run rate EBITDA of EUR 2.5 billion. As at 30th of September, that gave us an enterprise value for Action of EUR 46.9 billion. The value on the 3i balance sheet, which takes into account our increased shareholding level, as of 30th of September of 60% was GBP 21.5 billion. If we look back a year to September 2024, when Action was valued as an EV of EUR 38.2 billion and compare that EV to the outturn for the LTM run rate EBITDA this September, you arrive at a forward multiple of 15.1x. These are then the multiples we consider when comparing action to the peer group. These are the usual 2 charts we present this time covering the period from September 2024 to September 2025. Whilst there have been some movements within the peer group. We continue to see that the average multiple is stable. So we remain comfortable that Action with its strong operational KPIs should trade at a premium to the average. The other important point to note is that there have been 2 third-party trades in Action's equity since our last year-end, one in September with GIC and one in October with a broader group of LPs. In that second case, there were both buyers and sellers among the LP group. Both transactions were completed at valuations corresponding to the -- to Actions June NAV, which reflected the 18.5% multiple we use today. Let's now have a look at the valuation multiples of the rest of the portfolio compared to the peer sets. This chart shows the valuation multiples for our PE assets in dark blue and the average of the multiples from the relevant valuation peer sets in light blue. The red arrows highlight assets for which the multiple was actually reduced in the half. In each case, these decreases reflect company or market-specific factors in combination with an assessment of proximity to exit. The weighted average multiple ex-Action is 13.1x, which for a portfolio aiming to double value over a 4- to 6-year time period, we think is fair. During the period, we secured the sale of MPM and MAIT, those transactions reinforce the integrity of our valuation policy. We gave the detail behind these transactions at the recent CMD presentation, so I won't go over that again. It is, however, worth noting that both assets were sold at good premiums that opening book values. In MPM case has commanded an 18% premium and to MAIT a 34% premium. Whilst this has been a consistent feature of nearly all 3i exits over time, I think it is particularly impressive when you consider that these transactions were executed against what remains a alleging environment for exits. So turning back to the business line performance for the half year. Our private equity portfolio generated a gross investment return of 14% for the half. The gross investment return was GBP 3.2 billion. Of that GBP 3.2 billion, GBP 805 million was the positive impact of FX. The cash realization of GBP 391 million was mainly from the sale of MPM. Investment of GBP 732 million included our purchase of an additional 2.2% of Action in the period. The overall PE portfolio value ended the period at GBP 27.1 billion. In terms of the leverage position, we show that on the next slide. As of 30th of September, there was very little change from the position of the full year. For completeness, I've added a couple of extra bars setting out the pro forma leverage position, including the action refinancing, which took place in October. The maturity profile continues to be very well managed. I'd also like to remind you of our overall approach to leverage across the portfolio. Our debt team covered this in detail a couple of years ago in the PE CMD in September 2023. We favor a prudent approach to leverage assessed on a company-by-company basis. Action remains one of the largest names in the syndicated leveraged loan market in Europe, and today, Action now has a meaningful presence in the low market in the U.S. Its debt is well syndicated with over 150 leveraged loan investors. For the PE portfolio, ex Action, we value a diverse mix of lender types, but we're always focused on simple senior-only financing structures with over 2/3 of overall lending provided by relationship banks. Just to be clear, today, we have no external subordinated debt or unitranche lending in the portfolio. So on to Infrastructure. It was a better result for the Infrastructure segment in the period. That improvement was largely driven by the performance of the 3iN share price, which increased by 14% over the period. The underlying 3iN Infrastructure portfolio as a whole is doing well, and TCR is a standout performer. Despite some continued weakness in the freight market, Scandlines also continued to deliver a robust performance. Including Scandlines, our infrastructure portfolio is valued at GBP 2.2 billion, and it produces a very useful cash income contribution, as you can see on the next slide. Overall cash income totaled GBP 87 million, and we ended the period with a small GBP 12 million cash operating loss. Our expectation remains for a cash operating profit for the year. So now let's take a look at the balance sheet. The group's approach remains one of conservative capital management with net debt of GBP 772 million and gearing of 3%. We remain well within our trend lines. A slightly larger RCF gives us liquidity of over GBP 1.6 billion at the end of the period. As of 11th of November 2025, the group's cash balance was GBP 777 million. Before we leave the balance sheet completely, I thought I'd give you a quick update on the net exposure by currency and the hedging position. In the 6 months to September 2025, we experienced a currency tailwind of GBP 802 million. That principally reflects the 4% depreciation of sterling against the euro during the period. Hedging has reduced this gain by GBP 31 million, resulting in a net gain after hedging of GBP 771 million in the half. That GBP 771 million compares to a net currency loss of GBP 466 million in the same period last year. As you know, sterling has continued to weaken. And you can see the updated sensitivities net of our hedging program at the bottom of the slide in the banner. So finally, let's turn to the dividend. Here, you can see our dividend policy. In line with that policy, we will pay our first FY '26 dividend of 36.5p per share in early January. That 36.5p per share, is half of last year's full year dividend total. Now before we get into Q&A, I will hand back to Simon. Simon Borrows: Thank you, James. As I said right at the start, this was another good first half for 3i, and we're expecting a second half of more good progress. Action and Royal Sanders are 2 long-term hold investments are both trading well, and they remain focused on their long-term growth plans. Actions expansion is ahead of plan this year and most retailers I know would give their eyeteeth for 5.7% like-for-likes in these markets. Let me put the very recent like-for-like numbers in some perspective on this next slide. We've seen very strong like-for-like over the last 4 years. This is a compounding measure and results like that are bound to moderate as Action store base grows. Nonetheless, we remain convinced a strong retailer should be capable of compounding like-for-likes at 5% over time in a low inflation environment. But as you can see here, the like-for-like performance has been completely eclipsed by new store growth at Action. In fact, we estimate the net store growth will amount to 13% this year. This is the largest driver of Action's growth and is likely to remain that way for many years to come. While like-for-likes are a good measure of the health or pulse of a retailer, are you winning share? The ability to roll out a format unchanged across multiple countries is the holy grail of retail. And that's the real power of the Action format who successfully opened in 14 countries to date. Ultimately, the ability to do that supports decades of substantial growth as ALDI, Lidl and IKEA have demonstrated over the last 50 years. So when we model Action's development over time, we use these basic assumptions. 10% store growth per year, 5% like-for-likes, high free cash conversion and a nudge to the EBITDA margin every so often. These 4 elements are all you need to confirm the enormous potential of Action. Action's extraordinary growth over the last 5 years has been a key contributor to 3i's compounding returns. And we are confident that Action will continue to support strong returns for 3i as a result of its customer focus, white space potential and remarkable store payback periods. With that, we will now close the presentation, and we'll open the lines for questions. Thank you. Operator: [Operator Instructions] We will now take the first question from the line of Manjari Dhar from RBC. Manjari Dhar: I just have 3, all on Action, if I may. My first question is just on the seasonal performance. I suppose, given the softer seasonal start you've seen I just wondered about how you're thinking about the ability to sell through seasonal ranges for the remainder of this period and how you feel about the likelihood that Action might have to clear some of that product at lower margins later on? And then my second and third question are both on France. So I just wondered if you could give some color on margin mix by country and maybe how the French margins compared to group average? And then finally, I just wondered, given the challenging backdrop of France and the fact that France is such a significant part of Action's sales exposure, does that change the way that the Action thinks about distribution of future store openings near term or sort of do you think that maybe you might shift those openings away from France now? Simon Borrows: Thanks, Manjari. I think on the seasonal performance, I mean it when I say it's simply too early to tell. We really can't tell how much people are holding back from these more seasonal Christmas categories because they've literally got no money or because it's the weather or because it's something else. But these -- you often get Christmases where trading can be pretty back-end loaded. So we need to wait and see, frankly. In terms of seasonal write-downs, we have a very modest history of this. We've got a great set of products for Christmas, and I would be surprised if it means anything significant in terms of seasonal write-downs. . In terms of the France margin mix, it sort of reflects a lot of features. There is a good level of FMCG purchasing that goes on in France, which takes the margin in one particular direction. But we have some of our -- many of our biggest, highest volume stores in France, which trade at very strong margins given the sales leverage and sales densities those stores achieve. And they're almost unmatched anywhere else. But we do see more of those sorts of store contributions cropping up in some other urban centers in other countries, as well as in the Swiss stores, which are very much ahead of that. So it's a curious mix, France, but the margin is still a very healthy margin in terms of store EBITDAs, et cetera. In terms of the store expansion, we were still set on opening 1,200 stores in France. It's a remarkable business for us, and we believe it will continue to be so. we are still, in our view, taking share even at the current like-for-like level. And we've been voted France's favorite retailer for the last 3 years on the trot, so the customers clearly like us. Operator: We will now take the next question from the line of Haley Tam from UBS. Haley Tam: Could I ask one on Action or a couple of Action, please? So to start with, just to clarify on the like-for-like slowdown in October, which was clearly focused in France. Can we just confirm whether like-for-like was negative in France in October and perhaps help us to understand what the particular challenge was for you in France? Because I think we've heard from some other retailers that consumer confidence and political uncertainty clearly had an impact on higher value spend, but there's been more resilience in staples. So just trying to understand why your experiences differed. Second question, just in terms of the increased stake in Action, which is now 62% approximately. Could you give us any update on the split of the remaining 38% in terms of what portion might be LPs versus other GPs and how long on average or the spread of duration of investment that there is in the other 38%. And then if I can just ask a final question actually. In terms of very clear comments you've given about 2025 on Slide 13. Thank you. And Simon as well, thank you for your longer-term comments towards the end of the call. I just want to clarify, again, then, therefore, there is no change in your medium-term ambitions for Action. Simon Borrows: Thanks, Haley. Let me talk about our French like-for-likes in October. They were indeed negative, and that's why the group was at a low single-digit positive number. As I said, they are about 1/3 of the like-for-like sales basket of stores. I think the 2 previous P10s in France have both been 13% and 13%. So these were very significant sales levels to be on top of and unlike previous October, we saw very little buying of the seasonal products focused on Christmas. So they had really quite a lean year, and that's made all the difference. We haven't seen as big a difference in other categories. But that's where we really saw the difference. And having seen lighter baskets at certain periods of the month prepay checks and things like that in prior months, as we've talked about before, we saw lighter baskets in all weeks in France. So that was another defining moment. And we've seen that since the second week in September. So they are the reasons for that, I would say. Our knowledge is that some of the domestic discounters have got very significant negative like-for-likes throughout the year. and some of the supermarkets despite food inflation have negative like-for-likes as well. So we don't think this is necessarily at odds with what's going on in the rest of the market. In terms of the stake, so the other 38%, broadly speaking, 13% is held by Hellman & Friedman and the balance by the LPs with some smaller stakes held by management. And then the last question was our ambition, et cetera. There's no change to the ambition at all. The white space ambition is as big as it's ever been and is only likely to get bigger over time, the more we see how strongly the stores are received in new markets. Operator: Our next question comes from the line of Gregory Simpson from BNP Paribas. Gregory Simpson: Again, a few questions on Action from my side. Firstly, on the 380 new store target, can you give some color about how this is mixing by country, Spain, Italy versus Eastern Europe? Second question is on gross margin. It was just over 40% last year. How has that trended this year? And can you give some color on what you're seeing in the supply chain in terms of pricing from China and outlook into next year? And then finally, just any update on Action U.S. thought process, time line? Simon Borrows: Thanks, Gregory. The 380 new store target, I -- the country which is having the most new stores opened is Italy, there's a good number of new stores in Southern Europe generally. There are a good number opening in Poland, in Germany and in France, so it's the usual crowd. It's the 5 big markets and then there's a consistent number of other stores occurring in the smaller markets as well. But the big opening number, along with our new DC is in Italy this year, which is trading very strongly indeed. Gross margin is slightly above 40.0%, it's slightly higher than that because we have actually had very good category sales in the higher-margin categories this year. So that has moved that across a bit. In terms of pricing from China, we've bought very well this year, in particular, relative to previous years, but that stock is going to be coming into the stores next year rather than this year. And we've got nothing to add to Action in U.S., but I know management is going to speak about that at the CMD in March. Operator: We will now take the next question from the line of Andrew Lowe from Citi. Andrew Lowe: Just stepping away from France. It's been about 3 months, I think, since Lidl opened its non-food, sort of Home & Living store, sort of test concept in South Germany. I wondered if you could talk a little bit about that and sort of what you've seen in terms of any change of consumer behavior around those stores and just what you think they may be doing there, trying to defend against you guys. And then the sort of second question is just a clarification. I know that you said that we need to wait until March to hear more on the U.S. But could you just clarify, do you have any employees in the U.S. at the moment? That would be great. Simon Borrows: Sure. Thanks, Andrew. I mean on the Lidl store, we're obviously aware it's opened. We've visited it. It is reflecting much of the private label categories, if you like, it is only 1 store. We obviously have over 600 in Germany. So I don't know whether they're going to continue to roll it out. It's really not clear to us. So I can't really add any great insights to it. But I don't think it raises any major issues for us at the moment. I'm pretty sure that we have employees in the U.S. carrying out our research. As you know, we're doing a research project there. And we're sort of -- we're dipping into various pools of capability when we assess the market. So there will be a range of people that are working on that project. Andrew Lowe: Great. That's really helpful. And then just maybe on that latter point, just to clarify. So there are sort of employees rather than like consultants that you might be using? Simon Borrows: Yes. But whether they've got their house there at the moment or anything like that, I don't have that detail, Andrew, but we certainly have people on the ground consistently doing some work on the market, as we would in any new market. . Operator: Our next question comes from the line of Jeremy Kincaid from Van Lanschot Kempen. Jeremy Kincaid: I just have one more on France. Obviously, France has gone through political unrest in the past. And maybe 2018 or 2019, is a nice parallel with the yellow vest movement. So I was just wondering if you could share what's the like-for-like sales growth for Action was like during that period? Is the current political situation worse or not quite as bad as that? And the second part is how long does it usually take for your like-for-like sales to improve when the political situation stabilizes? Simon Borrows: Jeremy. We certainly had difficulties during the yellow vest periods. And in some ways, logistically, it was more of a challenge because we had a number of our DCs barricaded and we were not able to supply stores. So in individual regions, we saw a very material drop off in sales as a result of that set of disturbances that lasted for several months. So -- and we saw a little bit of that in September with some of the general strikes that were called. I would say this is slightly different. This is clearly a -- we're seeing a ratchet up of a problem that's been in France for some time. We talked about this going back some months, which is people there are very highly taxed at all levels, and they don't have much spending money. And it is affecting a large part of the population. And when you put high food inflation into that mix and high services inflation and various other things. I think it is leading to people being careful. Now how quickly that's turned around because of a different government or a different leader? Who knows. But it's still a very big market for us. We sort of represent the market now with 900 stores, and we believe it will come back. We've seen this sort of thing before. We had similar instance of this in the late teens where we had some very low like-for-like periods. So it's nothing that you don't encounter from time to time in retail, and we'll just grind our way through it, and I'm sure we'll come out a bit at some point. But when that will be, I'm not sure. Operator: Our next question comes from the line of Christopher Brown from JPMorgan. Christopher Brown: Yes, just a couple of quick questions. So in France, just wondering whether the new stores there that you've opened over the last 12 months or so, were they faring any better in terms of like-for-likes? Simon Borrows: Yes. As we said, the general category of store openings has been very positive. I don't -- we've opened about, I would say, getting on for 40 stores in France to date. I don't have the detail of that. I've only seen the aggregated numbers, Chris. Christopher Brown: Okay. And just moving on away from Action on to realizations. I mean a lot of your private equity competitors are talking up the sort of realization environment. And clearly, you've had a couple of really good realizations. Can you say a little bit more about what might be in the pipeline on realization front over the next 12 months or so? Simon Borrows: Yes. I mean, we would certainly expect to be bringing some other companies to the market on sort of 12-month time scale. I think in terms of the broader environment, I don't know which markets people are talking out. But it has still been a generally very quiet and bitty period for realizations, particularly in Europe. There have been some mega deals done in various places, which maybe skew some of the statistics. But in general, it's pretty subdued. I think the banks are receiving more mandates towards the end of this year for stuff to happen next year, and some of them have received stuff from us. So there is going to be a pickup I would expect, but I think it's much more about next year than about this year in reality. Operator: Thank you. We have no further questions on the line. So I will now hand over to Silvia Santoro, 3i Group Investor Relations Director to address any questions submitted online via the webcast page. Silvia Santoro: And first of all, there's a question on a clarification on France. Could any of the weakness be attributable to maturity? And can you evidence that perhaps with performance in other mature markets? Simon Borrows: The best comparison to make is with the Netherlands, where the store estate really dates back to the early 1990s. And we're seeing very good like-for-likes there this year in line with -- broadly in line with the group average, I would suggest. So we don't believe age is the issue. We believe it's to do with the macro in France. Silvia Santoro: And another question is what needs to happen over the next few months for you to hit your like-for-like guidance? And how would that compare to prior years? Simon Borrows: I haven't done the detailed math. But if we were around budget or slightly better, we'd be pretty much in line with guidance. So we're not looking at anything truly exceptional, but there does need to be a focus on some Christmas purchasing in France, in particular, to turn this around. Silvia Santoro: The next question is, can we extrapolate the improved store growth for March 2026 into March 2027, i.e., can you grow store openings by another 30 stores to open 410 stores. I think they mean probably calendar year '26. Simon Borrows: I think I don't want to steal anyone else's thunder, but the intention is obviously to open more stores next year on top of this year's number. And that doesn't sound completely crazy to me, but I'll leave that for the management to talk about. Silvia Santoro: Can you provide any update on the trading seen so far in November? Simon Borrows: We don't have -- we're not giving out that update. P10 is pretty, pretty darn recent. So we're not going to go further than we've gone already. Silvia Santoro: Can you expand on the traction you are seeing in Switzerland and Romania? Simon Borrows: Yes. I mean in Switzerland, where we now have 8 stores, we're seeing very high sales per store. So it looks very encouraging and perhaps reflects how expensive that market is and how attractive Actions prices are in that market? And in Romania, likewise, we now have a couple of stores and people have been buying way ahead of our expectations in those stores. Silvia Santoro: How much more of Action is there to buy? And over what time period might you be able to buy it? Simon Borrows: Well, we don't own 38%, so that might be one number out there. But we only get opportunities now and then to buy more equity we have an ongoing appetite to do that, and we have the resources to do that. So we will take advantage of it. But it's very hard to predict when others will want or will need to realize their position in Action. Silvia Santoro: Are you taking any specific measure in France to improve like-for-like or do you think it's entirely macro related and nothing needs to be done? Simon Borrows: I think we're making sure that the availability is very good that the whole supply chain is working in a very slick manner, and we are rechecking all our pricing to make sure they're as sharp and as competitive as possible. So we're doing all the things that you would expect as we move into our biggest sales season of the year. And it's really the next 6 or 7 weeks, which really makes the outcome or not in that market given the year we've had to date. Silvia Santoro: What gives you conviction in the 5% like-for-like in the medium term? Can you give color in terms of the different levers, example, basket size, frequency, geographies, et cetera? Simon Borrows: We've studied other great retailers and some of those retailers that sit above us in the valuation charts have decade runs of like-for-likes, which are in excess of 5%. So we've made a study of that, and we feel confident that we can emulate what those people have achieved over a very long-time scales. Silvia Santoro: Can you share some color on the EBITDA multiple at which the additional action shares were published -- were purchased from GIC and other LPs? Simon Borrows: As James said, it was purchased at the June valuation. Silvia Santoro: Please, can you talk about how you think about allocating capital to Action versus investing in existing portfolio or new assets? Simon Borrows: We are not short of capital. So we look at new investments and we look at investments into situations where we already have an ownership position and Action is one of those positions. They always have the benefit of us having a deep and real understanding of the performance under our ownership. So they are pretty straightforward judgments to make. And as I said before, we see very long-term compounding coming out of Action, and that is a particular attraction that you find particularly difficult to find. So that is always near the top of our priority list. Silvia Santoro: On the U.S., could you give a general comment on how you view the competitive landscape, especially against stores like Walmart, Amazon, Costco, that are very entrenched and dynamic? Simon Borrows: I mean it's a very competitive place. It has, by comparison with France, at the moment, it has very high levels of disposable income. So shopping dollars are much, much bigger. There are all sorts of formats there, but there are no formats quite like Action, interestingly enough, Dollar stores are quite distinct from Action. Costco is obviously very distinct from Action. Walmart is very distinct from Action. So there are some very strong businesses there. There are some less strong businesses there, but there's actually nothing there that's quite like Action. Silvia Santoro: You have spoken to your relative performance versus strange supermarkets. The Carrefour traded broadly in line with your recent like-for-like performance in France. Should we now think about the French business trading in line with the market from here? Simon Borrows: I don't think we trade like supermarkets. I think supermarkets have been beneficiaries of inflation. Broadly, our store is slightly cheaper this year overall than it was previously. So we don't really benefit from inflation in that way, and we have some much higher margin categories than many of the food categories in our stores. So I would expect us to be able to trade above the supermarkets, but I'm not sure when this persistent food inflation is really going to come to an end. I guess people have to eat first, and that's something that's affecting the French market. Silvia Santoro: There don't seem to be any further questions from the webcast. Operator, back to you. Operator: There are no further questions on the telephone line. Please continue. Simon Borrows: Okay. Well, let me just wrap up. We appreciate the interest, and we appreciate all the questions. Thank you for joining today. Have a good day. . Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Ampco-Pittsburgh Corporation Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kim Knox, Corporate Secretary. Please go ahead. Kimberly Knox: Thank you, Gary, and good morning to everyone joining us on today's third quarter 2025 Conference Call. Joining me today are Brett McBrayer, our Chief Executive Officer; and Mike McAuley, Senior Vice President, Chief Financial Officer and Treasurer. Also joining us on the call today are Sam Lyon, President of Union Electric Steel Corporation; and Dave Anderson, President of Air and Liquid Systems Corporation. Before we begin, I would like to remind everyone that participants on this call may make statements or comments that are forward-looking and may include financial projections or other statements of the corporation's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties, many of which are outside of the corporation's control. The corporation's actual results may differ significantly from those projected or suggested in any forward-looking statements due to various risk factors, including those discussed in the corporation's most recently filed Form 10-K and subsequent filings with the Securities and Exchange Commission. We do not undertake any obligation to update or otherwise release publicly any revision to our forward-looking statements. A replay of this call will be posted on our website later today. To access the earnings release or webcast replay, please consult the Investors section of our website at ampcopgh.com. With that, I'd like to now turn the call over to Brett McBrayer, Ampco-Pittsburgh's CEO. Brett? J. McBrayer: Thank you, Kim. Good morning, and thank you for joining our call. This was a strong quarter for Ampco-Pittsburgh, both in our underlying financial performance and in the decisive strategic actions we've taken to transform the company. As reported in our press release, consolidated adjusted EBITDA for the third quarter was $9.2 million, up 35% from the prior year. This was driven by the best year-to-date results in our Air and Liquids segment's history. Our third quarter adjusted earnings per share of $0.04 are up $0.14 from the prior year. This strong underlying performance gives us a solid foundation, and we have taken major steps to quicken that momentum into 2026. After the quarter closed in October, we accelerate the exit from our U.K. facility. We are also nearing completion of our exit from a small steel distribution business, AUP. The impact from our U.K. exit alone is expected to improve full year adjusted EBITDA by $7 million to $8 million. These 2 actions remove our most significant operational drag and positions us for dramatically improved profitability as we move forward. For further details regarding our segment performance, I'll turn the call over to Sam Lyon, President of our Forged and Cast Engineered Products segment. Sam? Samuel Lyon: Thank you, Brett, and good morning. For the third quarter of 2025, FCEP's net sales were $71.5 million, $6.4 million lower than Q2 2025 and $4.3 million ahead of Q3 2024. We had our typical summer shutdowns of our European facilities in Q3. The Q3 revenue includes about $0.9 million in tariff pass-throughs. Segment adjusted EBITDA, which excludes the exit charges associated with the U.K. cash facility and the AUP steel distribution operations was $7.1 million higher than Q2 and $0.3 million better than Q3 of 2024. FEP demand and shipments have improved. Year-to-date, FEP revenue increased approximately 40% to $14.4 million compared to $10.2 million last year. We continue to raise prices on this product, improving margins as import barriers have increased. Looking at the roll market in North America, some customers temporarily postponed roll purchases due to tariff uncertainty and as a result, have lowered their existing roll inventory. This supports our view that a return to more normal roll ordering patterns is approaching as inventory levels deplete. Overall, tariffs are expected to have a neutral impact on roll demand in North America as our U.S. customers will benefit. Conversely, tariffs will negatively affect our Canadian and Mexican customers as their imports into the U.S. are affected. To date, we've passed all tariffs on to our customers. The tariff environment for our European imports remains a key focus. Our imports to the U.S. from Sweden now face tariffs between 15% and 27%, and products from Slovenia faced rates as high as 50%. The Castrol market in North America continues to exceed domestic capacity, so long-term demand for our European cast rolls should not be affected by these tariffs. We expect that the roll tariff effect will be temporary. In addition, our European customers have lean inventory. Any uptick in demand will require additional roll orders. Europe recently announced plans to modify its quota and tariff system for steel, which when implemented in July of 2026, will result in dramatically increased utilization of European mills. The quotas will reset to lower volumes and any steel imports above these quotas will be subject to a 50% tariff, up from 25% currently. This new system has the potential to be a significant tailwind for our roll business. Long-term fundamentals remain strong, construction spending, automotive production and can sheet demand are all expected to grow at mid-single-digit rates over the next 5 years. As formally disclosed, we have placed our U.K. Castrol plant into administration. The insolvency commenced on October 14, 2025, and is being managed by appointed administrators. This action accelerated our time line for closure. Our losses stopped as of October 14, much earlier than our original solvent wind-down plan, which had us operating through the first quarter of 2026. We now expect the U.K. facility to complete all work in process inventory and ship these orders by year-end 2025, minimizing disruption to our customers. As a result of the U.K. closure, our Sweden plant will run at a higher utilization rate in 2026, improving its profitability. To further improve the CEP segment, we have decided to wind down our small unprofitable and noncore alloys unlimited steel distribution facility. That exit will conclude by the end of November. The actions we took this quarter to address underperforming assets will deliver meaningful improvements in operating income and adjusted EBITDA for the segment. Brett, back to you. J. McBrayer: Thank you, Sam. David Anderson, President of Air and Liquid Systems will now cover his segment's results. David Anderson: Thank you, Brett. Good morning. 2025 continues to be a positive year for Air and Liquid. In Q3, revenue was 26% higher than prior year, while year-to-date revenue was nearly 7% above prior year. The Q3 revenue increase was driven by higher revenue in all product lines. while year-to-date revenue was higher due to increased revenue for pumps. Segment adjusted EBITDA in Q3 was $4.4 million versus $3.4 million in the prior year. The 31% increase versus prior year was driven by higher revenue and improved product mix. Year-to-date segment adjusted EBITDA of $12.1 million was the highest in Air and Liquid's history and a $3.1 million increase over prior year. We continue to see positive activity in the nuclear market for our heat exchange product line. Orders and shipments have already exceeded any prior full year. from restarting legacy plants to the new small modular reactors, nuclear power appears to be at the beginning of significant long-term market growth. Our engineering and manufacturing capabilities positions us well as this market continues to grow. There continues to be strong demand from the U.S. Navy, and we expect this demand to continue as the Navy moves forward with fleet expansion plans. The manufacturing equipment installed in 2024 has already increased manufacturing capacity for our pump product line, and there is more capacity expansion in process. In the weeks ahead, new manufacturing equipment from the Navy funding program is expected to arrive at our facility, and there will be more equipment arriving in 2026 from the same Navy program. This equipment, along with the equipment we installed in 2024 will position us to meet the expected growth in this market. Demand for custom air handlers remains strong. from upgrading existing facilities to increasing research and manufacturing capabilities in the United States. There continues to be tremendous demand in the pharmaceutical market for our custom air handling products. Tariffs continue to be a major subject in the last few months. The tariff on copper, which is a main component of our heat exchangers, has been in place for a few months now. We've been able to adjust our supply chain to avoid most of the tariff costs and are passing on any remaining tariff costs to our customers. While there may be some short-term fluctuations as the supply chain adjusts, in the long term, anything that results in increased manufacturing in the United States will increase demand for our products. In summary, demand for our products remain strong. 2025 will be the best year in Air and Liquid's history, and we are well positioned in markets that are showing significant long-term growth potential. J. McBrayer: Thank you, Dave. At this time, Mike McAuley, our Chief Financial Officer, will now share more details regarding our financial performance for the quarter. Michael McAuley: Thank you, Brett. As indicated in both our Form 10-Q and in our press release 8-K filed yesterday. While we have recorded charges totaling $3.1 million in the quarter relating to reducing our operational footprint for significant future projected earnings improvements, the underlying business has improved with significantly higher consolidated adjusted EBITDA and adjusted EPS in Q3 2025 than in the prior year, which is true for the year-to-date period as well and all while we have navigated some short-term disruptions from tariff policy in our customer base. In October, we issued a press release and filed a Form 8-K, which detailed the accelerated exit from our U.K. cast roll facility through a structured insolvency process. This removes that subsidiary's operating results from our consolidated results immediately from that date forward. This represents a departure from our previous plan to unwind it more gradually into early 2026. And stopping those losses sooner. In conjunction with that action, we will deconsolidate the U.K. subsidiary in Q4. And when we and we reported that we expect a significant noncash write-down as itemized in the report and again, in Note 2 to our Q3 Form 10-Q. The major benefits of this approach beyond sooner operating loss reduction is avoidance of significant cash plant closure costs. and an expectation for a material revolving credit facility borrowing reduction as distributions from the administrators from liquidation proceeds are remitted to the secured creditor which is expected by around mid-2026. To reiterate, we expect adjusted EBITDA to improve by $7 million to $8 million per full year post the U.K. deconsolidation, and that begins in early Q4 2025. Now back to Q3 results. Ampco's net sales for the third quarter of 2025 were $108 million, an increase of 12% compared to net sales for the third quarter of 2024. The increase was primarily driven by higher sales in all 3 divisions of Air and Liquid Processing. Higher net roll pricing and higher shipments of forged engineered products in the Forged and Cast Engineered Products segment, which more than offset softer roll shipment volumes during the quarter. As I mentioned, we recorded $3.1 million in noncash accelerated depreciation and other expenses in Q3 related to the exit of our U.K. cast roll business and our small Alloys Unlimited steel distribution business. These expenses are spread by the pertinent income statement line item in the consolidated P&L, but are summarized for you in Note 2 to our Q3 Form 10-Q and in the non-GAAP reconciliation table attached to the Q3 earnings press release. Referring to that non-GAAP reconciliation schedule, please note that consolidated adjusted EBITDA of $9.2 million for the third quarter of 2025 improved by $2.4 million versus prior year. This was driven by a few primary reasons. Higher pricing and surcharges net of changes in manufacturing costs in the Forged and Cast Engineered Products segment, higher shipment volumes of forged engineered products, which helped to partially mitigate the impact of lower mill roll shipment volumes, unfavorable manufacturing overhead absorption compared to the prior year quarter related to temporary plant shutdowns typically taken in Q3 of each year in the Forged and Cast Engineered Products segment and the higher shipment volumes and improved product mix experienced in the Air and Liquid Processing segment. 2025 year-to-date adjusted EBITDA of $26 million remains up versus prior year. Total selling and administrative expenses declined $0.6 million or 4% for Q3 2025 versus prior year due to employee -- lower employee-related costs, offset in part by professional fees associated with our efforts to exit the U.K. operations and higher sales commissions in both segments. Depreciation and amortization expense for the quarter and for the year-to-date are higher than prior year periods due to the accelerated depreciation portion of those exit charges associated with the U.K. and always [indiscernible] unlimited steel distribution business. Severance charges and loss on disposal of assets stem from the exit as well. And again, are part of those exit charges itemized in Note 2 in Form 10-Q and in the non-GAAP reconciliation table. Interest expense for the third quarter is approximately flat with prior year. The change in other expense income net was driven primarily by lower foreign exchange transaction losses, but also by lower pension income. Given the lower expected long-term asset returns, given the asset allocation changes we've made to protect a much higher funded status of our U.S. defined benefit plan. The income tax provision for 2025 is benefiting from a lower statutory tax rate than one of our foreign tax paying jurisdictions. As a result, net loss attributable to Ampco-Pittsburgh for the 3 months ended September 30, 2025, was $2.2 million or $0.11 per share, which includes $3.1 million or $0.15 per share for the exit charges. Referring to the non-GAAP reconciliation schedule attached to the earnings release, please note that adjusted earnings per share of $0.04 for Q3 2025 was up $0.14 from prior year and for the year-to-date period ended September 30, 2025, adjusted EPS of $0.03 was up 16% -- $0.16 per share, excuse me. So significant underlying improvement there. At September 30, 2025, the corporation's liquidity position included cash on hand of $15 million and undrawn availability on our revolving credit facility of $28.2 million. Operator, at this time, we would now like to open the line for questions. Operator: [Operator Instructions] Our first question is from David Wright with Henry Investment Trust. David Anderson: I couldn't let you go without anyone asking you questions because that's about the best report you've had in a long time, so congratulations. Two for Mike. On the U.K. closure and the question on the difference between bankruptcy filing in the U.S. and this filing in the U.K. You addressed the operating results and being absolved of them. Is the subsidiary's debt is the parent also absorbed that as a result of the filing? Michael McAuley: Yes. Yes. In fact, there's -- going along with that process. First of all, the insolvency is exclusively related to the subsidiary has nothing to do, doesn't affect any other subsidiary segment or the entire or Ampco-Pittsburgh. But that process is something we have been thinking about, but as we got into more investigations on it, it became more evident that it was the best answer for Ampco. It did accelerate our exit. And there is no material local debt other than the -- like the pension obligations, which are now -- we're part of that business and its other liabilities. But we didn't have direct debt. It never issued direct debt itself. But we had significant closure costs, which were liabilities that we expected to incur which were no longer going to incur, David. You can see those -- if you look back at what we've recorded earlier in the year as charges, for example, severance charge, something in the range of $7 million, that's going to be reversed as part of the Q4 deconsolidation. David Wright: So the secured debt is just secured against the U.K. assets? Michael McAuley: Secured debt? Are you talking about the corporation's revolving credit facility? David Wright: No, no, no. The debt that has to be liquidated, the debt that has to be paid off as the assets of the U.K. operation are liquidated. Michael McAuley: Yes. Those will primarily be accounts payable incurred accounts payable that hadn't been paid yet, any other liabilities that are on the balance sheet of that subsidiary, any liabilities which materialize as the real estate eventually gets liquidated, and any cost for the administration, any commissions for the sale of the assets. All be handled out of the remaining assets of the subsidiary, yes. David Wright: Okay. The other question for you, Mike, is you alluded to the pension plan. Are you doing an evaluation again this year -- the pension plan excuse me, the asbestos liability. Michael McAuley: Yes, we will. David Wright: Okay. So is that going to be an annual thing now? Michael McAuley: It has been in the last couple of years. We've migrated to an annual of that, David, and we're going to do it again in Q4. David Wright: Okay. And then one for Dave. It looks like your run rate based off the last quarter sales were $140 million annualized. And I know you undertook a capacity expansion. You talked about the demand from pharmaceutical companies continuing how much more can you put through the system? David Anderson: We can put significantly more through the system, David. And we're addressing that in multiple ways. The equipment coming in through the Navy funding program is state-of-the-art. So we're getting significant improvements in manufacturing efficiencies. We're also looking at other projects at our facilities to improve our utilization, improve our efficiencies. We still have a long runway. David Wright: And remind me on the nuclear plants, like where are you in the food chain, if they want to restart a plan or they want to build a new one. Are you early or late? David Anderson: We're usually early. Often, we have supplied the heat exchangers well in advance before they're opening the facility. We've already been to some of the ones that are reopening, and that was a while ago, we were up in Michigan to the first one. So we're early in the process. David Wright: Okay. All right. Great. Well, like I said, best quarter, you've reported in a long time and hope lots of people see it. Thanks very much. Operator: Your next question is from John Bair with Ascend Wealth Advisors. John Bair: I'll echo the congrats on a good quarter here. My question kind of cycles back to the discontinued operations. Do you anticipate getting any kind of monetization, I guess, from the liquidation of properties and so forth in those operations? Or will it all go to the trustee that's the receivership, I guess, that's settling that out. Michael McAuley: Yes. That's a good question. And actually, part of the answer to that is disclosed in the 8-K that we issued, so you can read more about it there. But I'll give -- the overview really is as the assets get liquidated, there's a priority of payments that the administrator will follow according to U.K. solvency law. And the secured creditors are settled first and the secured claims are principally the bank debt, those are the claims. Those are the charge holders for the on that legal entity. And so that would be our bank group. And so the liquidation proceeds would first go and be remitted to the bank group who would then reduce our outstanding asset-based loan balance, which is our revolving credit facility. So yes, we do expect. We had some projections from the administrator, and we've analyzed those, and we've included those in our assessment of the net charge we will record in Q4, and we'll net that charge down by an estimated proceeds amount, which is $8 million to $9 million expected in net proceeds through that process. Samuel Lyon: Just one comment, part of that -- this is Sam. The administrator, they have continued to run the plant. So anything that was not -- that had already been through the melting process. They're finishing those rules, turning them into finished goods and shipping them and monetizing that which ends up being part of the funds that will end up funneling back through. So it's a double benefit, number one, that generates more value and number two, it actually helps with our customers in the transition of closing the plant. John Bair: Okay. So just high altitude, you're looking at possibly somewhere in the $8 million, $9 million that could flow back to you after this is all closed out, right? Michael McAuley: Yes, in the form of reduced bank debt, yes. John Bair: Okay. Okay. Okay. And then following up on that then, my understanding is that you'd be supplying or hoping to supply existing customers that have been served by that facility from your other European operations. Is that right? Samuel Lyon: A portion of it, John, this is Sam again. The work rules, we will maximize the Sweden plant. So the utilization there will definitely increase significantly. And then there was one type of roll that we made that cannot be made in Sweden, some of them will be converted to forged rolls. There's very limited supply in the marketplace. So we'll see some of that come to the U.S. But there'll be an overall slight reduction in revenue, but obviously a big gain in profitability. John Bair: Okay. So the Sweden plant will be more efficient and more higher utilization? Is that a fair way to look at it? Samuel Lyon: That is a fair way to look at it, yes. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Brett McBrayer for any closing remarks. J. McBrayer: In closing, I want to share an important corporate update and then leave you with a final thought on our path forward. We recently announced that David Anderson will become our new CFO on January 1, 2026, while also continuing his duties as President of Air and Liquid Processing. Dave's prior CFO experience in both of our segments positions him uniquely well for this expanded role. Dave has a deep and tenured team at Air and Liquid Processing, which gives us full confidence in his ability to manage both responsibilities and drive strong performance across the organization. I also want to acknowledge and thank Mike McAuley for his significant contributions. Mike will continue working for me as a strategic adviser for the first half of 2026 to ensure a seamless transition. Finally, I want to thank our employees who are making the positive improvements you heard about today. Our message this quarter is clear. Our core business is improving, and we have taken the difficult but necessary steps to address our underperforming assets. By exiting the U.K. in our small steel distribution business, AUP we are removing the most significant drags on our profitability. We entered 2026 stronger, more focused and a more profitable company. I want to thank the Board of Directors and our shareholders for your continued support. Thank you for joining our call this morning. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, good day, and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. [Operator Instructions] I would now like to hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma'am. Samita Shah: Good afternoon, everyone, joining us in India and from the Far East, and good morning to all of you who are joining us from the West. On behalf of Tata Steel, welcome to this call to discuss our results for the second quarter of FY '26. We published our results yesterday, and there is also a detailed presentation on our website, which you can refer to if you haven't done already. As always, we will be guided -- this entire call will be governed by the disclosure clause on Page 2 of the presentation. To help you understand the results better, we have with us Mr. T.V. Narendran, CEO and Managing Director, Tata Steel; and Mr. Koushik Chatterjee, Executive Director and CFO, Tata Steel. They will make a few opening comments, and we will then open the floor for questions. Thank you again, and I will request Naren to make comments, please. Thachat Narendran: Thanks, Samita and hello, everyone. As Samita mentioned, I'll make a few comments and then hand over to Koushik and then we'll do the Q&A. The global dynamics continues to be shaped by tariffs, geopolitical tensions and elevated steel exports. And Chinese steel exports are expected to cross 100 million tonnes again this year, and this obviously has an impact on pricing across the world. And amidst this Tata Steel has delivered strong improvement quarter-on-quarter and year-on-year basis. I would now like to make a few comments on the performance in each geography. In India, crude steel production was up 8% quarter-on-quarter and 7% year-on-year at 5.65 million tonnes, largely driven by the ongoing ramp-up in Kalinganagar and the completion of the relining of the G Blast Furnace, which is down for almost 6 months. We continue to stay focused on driving sales even in a challenging environment, and we were able to ramp up the sales in line with our production ramp up without having to build inventory. In fact, we increased our domestic deliveries by 20% quarter-on-quarter, a testimony to the strength of our customer relationships and the marketing and sales network. While average hot-rolled coil spot prices were down about INR 2,300 per tonne quarter-on-quarter, we were able to limit the drop in our net realizations to about INR 1,700 per tonne. We were also able to offset this impact to higher volumes and the ongoing cost transformation, which has resulted in an improvement in the EBITDA margin by about 80 basis points to 25%. And some segmental highlights. The seasonal rains in the second quarter impacted construction activity across India, but we successfully grew Tata Tiscon volumes by about 27% quarter-on-quarter as our expanding channel network and digital platforms enabled us to leverage insights into customer behavior and cater to the evolving needs. Industrial Products & Projects deliveries grew by about 22% quarter-on-quarter aided by value-accretive segments such as engineering and ready-to-use solutions. In the U.K., our delivery stood at 0.6 million tonnes, marginally lower on a quarter-on-quarter basis, and we continue to work on transforming the business and the 3 million tonne -- building the 3 million tonne electric arc furnace in Port Talbot. In Netherlands, the liquid steel production and deliveries were broadly stable quarter-on-quarter at 1.7 million tonnes and 1.5 million tonnes, respectively. And our performance was aided by the continued improvement in controllable costs. In September, we signed a nonbinding letter of intent -- Joint Letter of Intent with the Dutch government on an integrated health measures and decarbonization project, and we are committed to working with all the stakeholders on resolving the outstanding points before proceeding towards an investment decision. I will now hand over to Koushik for his comments. Over to you, Koushik. Koushik Chatterjee: Thank you, Naren. Good morning, good afternoon or good evening to all those who have joined in. Before I talk about the results of the company, I would like to stress on what Naren mentioned that we should consider the backdrop of continuing global macroeconomic uncertainty, especially in the context of the trade, tariff, currency and the heightened exports from China, which, as you mentioned, has crossed 100 and are likely to cross 100, more towards 120 in the context of the financial results that has been delivered by the company in the first half. Let me now begin with some headline financial performance data for the first half ended 30th September 2025 of the current financial year. Our consolidated revenues for the half year was INR 1,11,867 crores and EBITDA was INR 16,585 crores at a consolidated EBITDA of INR 11,037 per tonne reflecting an EBITDA margin of about 15%. The EBITDA margin expanded by 280 basis points in the first half of this financial year, reflecting our continued focus on the India growth volumes, cost competitiveness and our focus on cash flows. Our global cost transformation program continues to deliver tangible results with around INR 5,450 crores achieved in the first half, as highlighted on Slide 13 of the presentation. This translates to about 94% compliance to our own H1 plan, and I will explain a bit of this further. Turning to the second quarter performance provided on Slide 23 of the presentation. Our consolidated revenues stood at about INR 58,689 crore, up 10% quarter-on-quarter, primarily driven by strong volume growth in India and continued improvement in the cost transformation program to the tune of about INR 1,300 per tonne. As a result, the EBITDA improved by about INR 1,000 per tonne quarter-on-quarter, and this marks an improvement for the second quarter in a row in a very difficult market. Expanding on the cost transformation program. As a company, we have delivered an improvement in costs of more than INR 2,561 crores during the quarter and are on track as planned across geographies. More specifically on -- in India, the cost transformation program achieved full compliance to our second quarter plan with leaner coal mix, optimization on the stores, repairs and maintenance expenses and operating KPIs, which delivered the transformation of about INR 1,036 crores for the quarter. In U.K., too, the cost transformation program was focused on reducing fixed cost in higher-end leasing, lower fuel charges and operating charges. In Netherlands, the program delivered about INR 1,059 crores for the quarter. We are on plan in all the operating areas, like optimization of supply chain, procurement and product mix, along with the other controllable costs. However, we are delayed on the people restructuring time line and the consequential benefits of the same in this year as the discussions with the Central Works Councils are still ongoing. Across geographies, we remain focused on execution of the cost transformation targets for the full year. Let me now provide an understanding of the India, Netherlands and the U.K. quarterly performance individually. Tata Steel stand-alone revenues for the quarter stood at INR 34,680 crores, and the EBITDA was about INR 8,394 crores, reflecting a quarter-on-quarter improvement in EBITDA margin of about 80 basis points to 24%. As Naren mentioned, our volumes are significantly higher in quarter 2 and this, along with improvement in costs, led to an uplift in the EBITDA margin. Our wholly owned subsidiary in the Neelachal Ispat Nigam Limited, also recorded about INR 260 crores of EBITDA for the quarter, up 17% quarter-on-quarter and reflecting an EBITDA margin of 20%. Let me now turn to the U.K. market and our performance. Firstly, I must say that amidst the growing trade protection across the world, U.K. remains a very vulnerable market as the import quotas of steel across several product grades are higher than the total consumption of the country, making it very open to cheap imports. In addition, the market demand has shrunk due to the weak economy, resulting in decline in domestic prices by more than GBP 150 per tonne since January '24. The U.K. demand for flat products has declined by about 33% since 2018, but the quotas have increased by about 20%. In 2025, on a year-to-date basis, U.K. imports are up by about 7% year-on-year, and this has continued to impact prices as well as the spot spreads. As a result of severe market pressure and despite significant cost takeout program, the Tata Steel U.K. EBITDA losses widened from GBP 41 million in the first quarter to GBP 66 million in the second quarter. As an industry in the U.K., we have brought the current policy disparity to the attention of the U.K. government and are engaged on the subject. Given the current market conditions, we are focusing on optimizing the fixed cost. They are down by about GBP 90 million compared to the second quarter of last year. But sequentially, we are marginally higher by about GBP 7 million due to the annual maintenance activities during the quarter. Moving to Netherlands performance. Revenues for the quarter were about EUR 1.5 billion on improved volumes but were partly offset by lower realizations. On the cost side, material costs increased by about EUR 75 million on a quarter-on-quarter basis, largely due to inventory drawdown in contrast to the buildup in the first quarter. This was largely offset by about EUR 72 million reduction in conversion costs, aided by lower employee benefit expenses and emission-related costs. We are also watching the policy development in the EU, especially on the EU steel plant 2.0 announced by the European Commission as it will have long-term ramification on the domestic steel industry in the U.K. in the future. During the half year, we generated about INR 10,000 crores of operating cash flows after interest, tax and working capital. Of this, we spent about INR 7,000 crores on capital expenditure and paid dividend for the financial year FY '25, about INR 4,490 crores. As a result, the gross debt was almost flat with a marginal increase of INR 842 crores versus end March, while the net debt stands at about INR 87,040 crores. The net debt witnessed increased versus last quarter as it also included cash utilized for the dividend paid of INR 4,490 crores. Our net debt to EBITDA stands at about 3x on a consolidated basis. As part of our strategic realignment following the planned surrender of the Sukinda mining lease, we are optimizing our ferrochrome processing footprint. In line with this, we have announced the proposed divestment of our ferro alloys plant in Jajpur and Orissa. The transaction is signed and is expected to be completed within the next 3 months, subject to regulatory and stakeholder approvals. We have often stressed about our focus on value-added portfolio and hence, as part of the growing the portfolio in India, we also executed yesterday, the share purchase agreement with BlueScope Steel Australia to acquire the balance 50% in Tata BlueScope Private Limited. The sale is subject to regulatory approvals, and we believe it will be value accretive that leverages the synergies with Tata Steel in multiple areas. As Naren mentioned, we have recently signed the nonbinding Joint Letter of Intent with the government of Netherlands and the province of North Holland concerning Tata Steel Netherlands decarbonization journey. This Joint Letter of Intent is an expression of mutual intent to explore a framework of transitioning to low CO2 production. I want to emphasize that this project will be designed and phased in a manner that is financially prudent. Both the government and the Tata Steel has conditions to fulfill, and we are working on each of them. There is no material spend in the immediate period, and we will talk more in details on the project cost, the financing structure and the project phasing closer to the binding agreement next year. We are also looking at prioritization, optimization and sequencing of the -- on the CapEx, such that it is affordable for all stakeholders. The final investment decision on the project will be taken next year after engineering preparedness, completion of the conditions, assessment of the regulatory clearances and the negotiations with the new government in the Netherlands on the tailor-made binding agreement. With this, I end my presentation and open the floor to the questions. Thank you. Operator: Thank you, sir. We will now begin with the question-and-answer session. [Operator Instructions] Your first question for today comes from Vibhav Zutshi of JPMorgan. Vibhav Zutshi: Congratulations on the strong results. The first question is basically on the European steel industry in the context of the October 7 protectionist measures and CBAM implementation. So some of the European steel players have talked about higher inquiries from new customers and a bit of a destocking cycle happening next year. So just wanted to get your thoughts on how you see utilization prices moving into the next year? And also that U.K. is probably not to be directly benefited from the protectionist policy, right? Yes. So just some thoughts on that. Thachat Narendran: Sure. Thanks. Yes, the announcements in Europe has helped the sentiment as far as we are concerned in Europe because what Europe is doing is to make sure that the quotas for steel imports are brought down by 50% and have an import duty of 50% on any volumes exceeding the quotas. So this is a positive move for the European steel industry. And in a sense, Europe is actually working hard to have a stronger, resilient steel industry in Europe to take care of Europe's strategic needs, particularly defense and in other areas. So this is part of the plan. So it's good from a Tata Steel Netherlands point of view. We have already started seeing it having a positive impact on the price discussions with customers for the annual contracts for next year. And certainly, as you said, imports have stopped coming in, in anticipation of this. And the restocking, et cetera, will lead to some positive impact for us in Netherlands particularly from Q4. Maybe Q3 already a bit too late, and we are still dealing with the hangover of the last 2 quarters. But Q4 onwards, we certainly see an improvement in Netherlands. And this also has a long-term impact because these actions are also going to come with melt and pour conditions. So if you want to participate in the European market, you have to make in Europe rather than make somewhere else and ship slabs to Europe to participate in the potential CBAM protected market in Europe. So there are multiple reasons why this is a positive move for Tata Steel Netherlands. As far as U.K. is concerned, like you said, U.K. is left out of this. In fact, our discussions with the U.K. government is that the U.K. government also needs to take some actions. Otherwise, U.K. will bear the brunt of material, which can't find markets in the U.S. and Europe. We've not made headway yet. The government is saying they are looking at it. But that's one of the reasons, as Koushik said, we have struggled with our performance in U.K. I think all that we were supposed to do ourselves, we've done. And the cost takeout plan, the fixed cost takeout plan, everything is as per plan. But the market has not moved as per plan, and we would need some support from the government to make that happen. So U.K. is negatively impacted by these actions. But if the U.K. government takes some action to not only help Tata Steel, but the U.K. government has also invested in steel production in the U.K. just now. So they also have another reason to make sure that the U.K. steel industry is supported a bit. Vibhav Zutshi: And just on U.K. then, would you reiterate the 4Q FY '26 guidance of EBITDA breakeven? Thachat Narendran: Yes. If there are no actions from the government just by our own actions, it will be difficult to get EBITDA breakeven by Q4. But if there is some action similar to what has been done in Europe, then, of course, we can move closer to that. Like I said, all the actions that we had planned we've taken. The cost takeout is as per plan, but the market needs to improve a bit for us to come to EBITDA breakeven, yes. Koushik, you want to add to that? Koushik Chatterjee: No, that's perfectly the answer. I think the spreads at this point of time makes it very difficult for any amount of positive EBITDA given the fact that the prices at which steel is currently trading in U.K. with the imports are very, very unsustainable at this point of time. So we certainly need policy intervention from a protection point of view. Thachat Narendran: I think, just to supplement what both of us said, if you generally see the U.S. prices traditionally have been about $100 higher than Europe, and Europe has been about $100 higher than, let's say, India. So that's been the ladder. Over the last year or so, U.S. prices are almost $200 higher than -- prices in Europe because of the actions taken in Europe -- in U.S. We expect the European prices to start moving towards the U.S. prices, may not match the U.S. prices, but the gap could come down as it is today because of the actions being taken by EU. But in U.K., the prices are moving the other way. It's coming closer and closer to prices in India, which is not sustainable for the steel industry in U.K. So that's why our appeal to the government, and they are also evaluating it from that point of view. Vibhav Zutshi: And just a second question on India. So on the Neelachal capacity expansion, any time lines with respect to the Board approval? Because earlier we are planning to get it by October. So any reason for the delay and the updated time lines? Thachat Narendran: The reason is largely related to environment clearances and all the clearances that we need to have because as per our current -- the way we work is we go to the Board after we've got all the approvals in place. But behind the scenes, the work is going on, on all the engineering and the planning and the detailing, all that is going on. So that happens. But the FID will be taken once we have the environment approvals, which we expect in the next few months. There are some forest clearance issues, environment clearance issues which we are going through. Koushik, do you want to add to that? Koushik Chatterjee: Yes. No, I just want to mention that we are pretty advanced in the environment clearance process. And as Naren mentioned, that we are progressing on it, and we will take it to the Board once we are in a position. The engineering work is also pretty advanced in many areas. And therefore, we are getting the investment case ready for the Board's review sometime soon. Operator: Next question is from Sumangal Nevatia of Kotak Securities. Sumangal Nevatia: Sir, my first question is if you could share our guidance on the cost and the prices, both for India and then Netherlands, U.K. separately for the coming quarter. And then generally, I just want to understand what's happening with regards to the safeguard duty. The provisional duty has expired, and we're yet to see the government notification. So just want to understand what is the latest year and what is our expectation? Thachat Narendran: Yes. So I'll give you some guidance on the cost, as in coke costs. And if Koushik wants to add on conversion, et cetera, he can do that. So if you really look at -- from a realization point of view, our guidance is Q3 for India will be about INR 1,500 lower than Q2. Q2 was about INR 1,500 lower than Q1. So we had guided INR 2,000, but we ended up at around INR 1,500, INR 1,600, right? In terms of coking coal prices, we are saying India consumption cost will be about $6 higher in Q3 than it was in Q2 because it's starting to turn the other way because coking coal has firmed up a little bit in the last few weeks. As far as Europe is concerned, Q3 guidance just now is about EUR 30 lower in Q3 compared to Q2, but we expect Q4 to be much better because of what I said earlier. Coking coal consumption costs in Netherlands will be down about EUR 5 to EUR 10, largely because they have more stocks in the system, and so they will be consuming what they bought earlier. As far as U.K. is concerned, prices are generally seen as a bit flattish, no real drop, but our concerns are the levels that it surprise us today rather than the trend of the prices, and that's what we are working with the government on. In terms of -- yes, what you're saying is right, the notification, I think, has expired in November, and we are waiting for advice from the government on that, on safeguard. We are working with them, and let's see where it takes us because the larger point is the steel industry in India is impacted by steel prices internationally and some of the imports which is coming in. I think if the industry has to continue to invest the way it is planning to, obviously, we need to see what is the support we can get from the government in India as is being done by other governments elsewhere. Sumangal Nevatia: So given the spot spreads in U.K., we are expecting the losses to widen. Is that the right understanding? And also Netherlands, given the pressure on prices, at least for third quarter, we are looking at some softer margins? Thachat Narendran: In U.K., maybe things shouldn't get worse, let me put it that way. We're trying to see how to improve. Q2 was worse than Q1, but it's not necessarily Q3 should be worse than Q2. We are still working some of that, and we're looking to see what help we can get. Netherlands, yes, maybe some margin compression, but we are again looking to see what we can do there to manage that. Because like I said, the coking coal prices are lower, they are also getting some benefit on electricity and some of the other costs are lower in Q3 compared to Q2. So they will get some benefit there. In India, while there is some margin compression, but India will have 0.5 million tonnes more volume in Q3 than in Q2. So we will have a volume upside in Q3 because of the Kalinganagar ramp-up. Sumangal Nevatia: Got it. Got it. Sir, my next question is on expansion. Now at India , I mean is it safe to assume 3, 3.5 years once we take the Board approval, so that time line in terms of Neelachal? And what is the peak level of volumes we can achieve in the existing capacity? So our -- I mean, question is coming from the background that maybe from FY '27 onwards, I think we will lack further room in terms of growth. So if you can explain that. And also with Netherlands, you said next year is the time line where -- I mean, we are looking to freeze all the discussions with the government. So FY '28 is the year when CapEx actually starts? And any CapEx intensity you can share there? Thachat Narendran: Yes. So I'll start and then Koushik can kind of continue. As far as the volumes are concerned, yes, Kalinganagar is currently running -- I mean, if I look last month, it's running at 7 million rate, and it can go up to 8 million. So that's a Kalinganagar thing. Neelachal is pretty much -- you can get another 200,000, 300,000 tonnes more once we have all the environment clearances because the existing volumes can go up a bit more. Today, we are limited by the EC levels. We have the Ludhiana plant coming up next year. So that's another 0.8 million tonnes. We are looking at debottlenecking some volumes in the Gamharia plant, which is Usha Martin plant to support our combi mill. And we are also looking at some debottlenecking further in Meramandali. So we will get some additional volumes from all these places in addition to the 0.8 million, which we will get out of Ludhiana. The time line that you said, yes, post-order approval, 3 to 4 years, certainly, we want to complete the Neelachal project before that and try and see if we can do it faster. What also you should keep in mind is the product mix is also getting richer. The cold rolling mill has just started ramping up in Kalinganagar, the galvanizing line, 1 of the 2 lines are coming, the other one will come in by December. We have a combi mill, which is a state-of-the-art long products, plant, 0.5 million tonnes, which has just got commissioned last quarter. So you will see multiple initiatives and then, of course, this BlueScope acquisition that Koushik talked about. All this will lead to a much richer product mix. So there will be -- I would -- there's a volume growth opportunity. As I mentioned, there is also an upside potential on getting a better, richer mix and better realizations. In terms of Netherlands, even if we sign by next year, it's not as if immediately you'll have to spend CapEx because you will take a couple of years to get all the planning permissions that are required to start the project. So it's a slightly more long drawn out journey, but Koushik can add more color to that and the other comments I made. Koushik Chatterjee: Yes. Sumangal, I think the 2 points. One is that as far as Netherlands is concerned, we will finalize the tailor-made agreement sometime next year and the FID will be next year. Then there is a permitting process. And post the permitting process, the major spends will start on the site, et cetera. So I don't see major cash out goes on Netherlands in the next couple of years even after the FID. I think the focus is clearly on NINL expansion. And once we get through, we should be site-ready when we get into the FID or almost in that kind of a position. And therefore, from there about 3, 3.5 years to get it done. We're also looking at -- to your question on existing assets. We are also looking at Tata Steel Meramandali where we look -- want to look at when there is a relining of a blast furnace there to look at expanding the volume, which includes putting up a finishing facility that will take the Kalinganagar 1.5 million tonne slabs to build up a thin slab caster. So there are, at least, if I were to say, 7.5 million tonnes of growth in consideration or in planning at different stages. When it is ready, we should be taking the Board approval to spend. And then some of these brownfield sites, especially in Meramandali, should have a shorter execution time than a greenfield site. So this is currently in the pipeline other than the fact that the -- what Naren mentioned, the Ludhiana will get commissioned, and we will also look at another EAF, either in the West or in the South, which is also under consideration. Operator: Next question is from Satyadeep Jain of AMBIT Capital. Satyadeep Jain: So I just wanted to start with U.K. We can understand that the CBAM in U.K. actually kicks in '27, so 1 year after the EU CBAM. Then in the context of current imports, what options, what is the process? Because from my understanding with Europe is that EU Parliament has to approve the report and findings of EU Commission, EU Council and EU Parliament, and the current safeguards expire in June '26 or so. When you look at U.K., what exactly is the process time line? Do they have to take the entire study and then the decision will be taken by Parliament? So the entire process, are we looking at some kind of support in '26 or not? And the cost savings that were there in the Rishi Sunak government on network tariffs and/or power cost being declined, has it already kicked in? So just wanted to understand Europe -- U.K. in general first. Thachat Narendran: Koushik? Koushik Chatterjee: Yes. So Satyadeep, 2 things. One is when you talked about the European part, the European steel action plan proposition that Naren talked about in terms of reduction of quota, tariffs beyond quota, et cetera, and melt and pour is going to kick in from June '26 because they are currently in the consultation process. Once the consultation is done, various stakeholders give their point of view if they have to change or modify et cetera, and then it starts from June. So that will kick in from June. As far as U.K. is concerned, at this point of time, the consultation process on CBAM hasn't started. It is in formulated position, but it has not yet started. They are scheduled to go live 1 year after the EU CBAM, which is '27, as you mentioned, but we have not seen that happening. And that is one of the conversations that we are having with the U.K. government. We are having conversations with the TRA, the Trade Regulatory Authority on the quotas. So U.K. is behind the curve as far as EU is concerned or competitive to EU is concerned as far as these initiatives are taken. So if it is '27, our plant and when in '27 is not yet determined. So we are actually trying to get an understanding as to when the consultation process will start, how much time it takes. It normally takes 6, 8 months, maybe a year. So we want to kick that up faster and to ensure that it is in time when our EAF comes. So compared to the policy announcement that happened last year, they are behind is the short answer. We'll see as to where this will progress in terms of time line. But to us, the more important priority here and now is actually the quotas the -- and then the CBAM. The CBAM discussion can happen in parallel. Satyadeep Jain: The quota also, given it needs to go through a formal study and then final decision will be taken by the U.K. Parliament or is it executive decision? So is there a realistic chance of this quota reduction in U.K. if it goes through in '26, or are we looking at maybe quota reduction also whatever it is in '27, 28? Koushik Chatterjee: No, no. So '27, '28 is simply very late. By which time, the U.K. government would have also lost a significant amount of money because of what they are managing in the steel industry in Scunthorpe. I think it is -- they are working on it and the assurance that we have got. The TRA has got all the data, that validation process is done. They -- I think they will have to recommend it from the Parliament and get ratified in the -- ratified -- sorry, recommend from the cabinet and ratified in the Parliament. That process in the U.K. is pretty fast. But I think the more important point is to get to that process. And that's what we are talking to the U.K. government about. Satyadeep Jain: Okay. Secondly, on Netherlands, on the -- in the Joint Letter of Intent, it is mentioned, I'm just checking on the wording of the Joint Letter of Intent. It has mentioned that there will be support of up to EUR 2 billion for Phase 1. But explicitly, it is also mentioned that there will be no tailor-made support for Phase 2 as things stand. So does it mean that government is making it very clear they will not support any expansion beyond Phase 1? And also this import quota that we are looking at, needs to be ratified by the parliament, there's a lot of opposition from downstream users in Europe. Hypothetically, if we see this go through and European steel prices converge with Europe with U.S., do you see some challenges? I just want to understand because Europe historically has been a very different market versus U.S., but with the opposition -- so 2-part question. One on the Joint Letter of Intent. And overall, some of it potentially getting diluted? Or is that not a risk this current import quota reduction that you're looking at? Koushik Chatterjee: So I would first talk about the -- the part on the Netherlands bid that you mentioned. The answer is yes. The -- this tailor-made agreement is specifically towards Phase 1 and our commitment to do the Phase 1. The Phase 2 is left to the company to decide as to when as far as timing the technology to be used and the project cost to be done, et cetera, which is one reason why they also want Tata Steel Netherlands to be significantly profitable to ensure that they can afford to do the Phase 2 whenever it is due. So that is how the understanding is, there is no commitment on funding and neither a commitment on when we have to do the Phase 2. So this is all discussion is on Phase 1. The circumstances and the policies may change in Phase 2 also. As far as the EU consultation is concerned, it is ongoing from the sense that we get, there are people who have been quieter or neutral. There are people who are supportive, and there are people who obviously have some views. So that's for the EU to proceed and then get a sense. Maybe Naren, you can add some comments on that. Thachat Narendran: I think what you're saying is right. There is a disadvantage if you're making stuff using steel and exporting out of Europe, then if you have a higher cost of steel, then you may have a disadvantage. The auto industry is one such sector. But I think everyone is also looking at building strategic autonomy in Europe, and that's where there is a consensus that the steel industry is important for Europe. So even in Netherlands, we get a lot of support from that fact. They are not asking us, why do you need a steel plant in Netherlands. It's more about what is it that can be done to have a strong steel company or a steel business. So I think the conversation has changed in the last 2 years, thanks to the Russia-Ukraine issue, the U.S. trade issues, et cetera, right? So the second thing is, as the European governments are putting money in the industry, they also have, in some sense, a skin in the game. So there is an interest from that point of view to not put money in the industry and then end up destroying the industry for whatever reasons, right? So I think these are the things which we think are supportive for the steel industry. I also think the supply side in Europe will get restructured because as more and more blast furnaces come up for relining, unless you have tied up with the government for a transition, it will be very difficult to justify blast furnace relining from most of the steel companies in Europe. So there will be some supply chain side restructuring as well in the next 10 years. Operator: [Operator Instructions] Next question is from Vikash Singh of ICICI Securities. Vikash Singh: Sir, just wanted to understand, if you look at the Slide 10 of your presentation, though we have given a guidance to 40 million tonnes, we have not given the time lines for the same. And also the flat products are also increasing and long is coming after that. I believe that the long is Neelachal, so which is the large portion of that flat product, which expansion we are expecting? And if you could give us the time line for that? Thachat Narendran: Yes. So let me put it this way. The sequence is not to do with the time. So as Koushik said, what we are most ready for is a Neelachal expansion. And then Neelachal expansion is a long products expansion. So the opportunities beyond Neelachal -- so Neelachal also, this is from 1 million to it will go to about 6 million tonnes. And from 6 million, it can go to about 10 million tonnes. That's the second phase of Neelachal expansion. Kalinganagar, as we complete 8 million, we can go to 13 million. That's the next phase. And from 13 million, we can go to 16 million. In Meramandali, we are first looking at taking it from the current level of 5 million to about 6.5 million, and then after that, go to 10 million. So in all these areas work is going on. And Meramandali we need to acquire some land, in Neelachal, we are waiting for the EC, et cetera, and Kalinganagar also a lot of work is going on in the background. So all these are at different stages of readiness. And as we mentioned earlier, we will now go to the Board only after we've got all the requisite approvals, and that's why we've kept the time lines a bit open. The second thing I want to say is we are also pacing our growth depending on the demand growth in India, the profitability and how to pace it, et cetera. And we are also looking at adding more and more downstream businesses. And that's why the BlueScope expansion and the combi mill expansion in Jamshedpur, and there are a few other proposals that we're looking at. So it's not just the volume growth. We are also looking at the value growth through investing more and more in downstream. So it will be a mix of both. We will -- the advantage we have is we can pace ourselves depending on the situation in India because between these 3 sites alone, you can -- as I gave you the numbers, you can -- and Jamshedpur, you can go to 45 million tonnes, right? So it's more a question of the appetite, the balance sheet, the demand requirements, the profitability of the industry and the priorities that we want to give. Vikash Singh: My second question pertains to Netherlands. So we remember that we had this carbon-free carbon credit, which are gradually going down. So just wanted to understand, as we're starting the -- running green at a later part and that would obviously would take some time, how should we look at our cost structure there in terms of the carbon credit reducing? Thachat Narendran: Koushik? Koushik Chatterjee: So I think we -- so the free allowances will come down, it has started to come down slowly. And we have mitigants. For example, we are using more scrap charge. Currently, we are at about 18%, 19%. Our target is to max out on scrap to ensure that we get to it. I would also like to mention that in Netherlands, our CO2 emission as last quarter, which I just got the number a couple of days back, is at around 1.6. So that's my kind of -- one of the lowest we had gone down to 1.59. This quarter -- last quarter, we were 1.6. And we're taking a lot of effort in reducing the CO2 also including usage of scrap as a percentage. And last quarter, we were not able to max out more because of some volume issues. We will go beyond 20. And once we get to more and more scrap, we will be able to reduce CO2. So as the natural reduction happens on free allowances, we want to also undertake internal decarb efforts to be there because there is a clear cost advantage to this. So -- and along with our cost transformation program on other cost areas, I think we will continue to work towards reducing the conversion cost in Netherlands, including CO2 energy, natural gas and other costs. So that's the trend and that's the basis on which we think that the expansion on the margins will happen to be 1 of the top 3 in Europe. It's not based on how the prices will come. When the prices comes due to the steel plant or the CBAM, et cetera, that will be on top of it. Operator: The next question is from Ritesh Shah of Investec. Ritesh Shah: A couple of questions. First, on Tata Steel U.K. So what is the exposure from a revenue mix that we have from U.K. to Europe? And how are we looking to derisk it hypothetically if there are delays on the U.K. government taking a stance? Koushik Chatterjee: So that's about 25% volume on the current basis. And that's the -- I was waiting who will ask that question, but that's the third lever of the negotiations with the government because in 2021, the EU and the U.K. have signed an agreement of no quotas and no tariffs between most of the grades except for some galvanized grades where there are specific quotas. But this new regulation that comes in as a steel plant will require the U.K. government to revise that understanding with the EU. So that's the third leg of engagement that we have requested the government to do it quickly, which they are cognizant of because that's important. And as politically, U.K. talks about the coalition of the willing, I think this is also something that they will be looking to work towards. And that's what our request is. Ritesh Shah: That helps. Sir, my second question is on Tata Steel Netherlands. I think we have laid out certain details with respect to citing EAF, initially on natural gas, subsequently on CCS, finally biomethane and/or hydrogen. So there are multiple permutations over here. We also indicate support up to EUR 2 billion. Possible to give some high-level thoughts on what could be the CapEx number because we know it is up to EUR 2 billion, but we don't know what the CapEx number is. So how are you looking at the cash flow math? You did indicate no major cash flows next 2 years. But from an ROCE standpoint, from a cash flow standpoint and from a capacity standpoint, how should we look at TSL? And if not for, say, support in Phase 2, would we still continue with our stance that we will maintain our volumes for Tata Steel Europe. I think that's something what we had guided earlier. So would we stand to it? Koushik Chatterjee: So Ritesh, if I may, since you wanted high level, I'll keep it high level. But I think the point when you talked about the different feeds of natural gas, hydrogen and biomethane, it is the switchability which we'll be building from natural gas to hydrogen to biomethane depending on the economics and the availability at scale of each of this. Natural gas is not a problem because Netherlands is kind of the hub for natural gas. And that's why we're building on it. Earlier when the EC was looking at these decarbonization projects, they were very insistent on hydrogen. And if you see some of our peers had gone ahead of us and the agreement that -- or the conditions that EC had given was purely on hydrogen, which is the reason why many of them have gone slow. So we actually did not want to go that hydrogen route because it's very uncertain on the availability as well as on the economics. So we were more focused on natural gas, and we have an optionality to auction for biomethane because after hydrogen, that is the one which is being proposed as the next best fuel. So in biomethane, we have the optionality for auctioning off this or tendering. And if it comes in at the right economics and availability, then this switchability will be looked at. It could also be more like a fungible on paper to buy it on a fungible basis as a hedge rather than on physical -- if the physical don't flow. So we have those optionalities to be tested out, but that is to be tested much later. It's not immediately on commissioning. It will be post 2035, et cetera. So I think that is the construct that we have as far as our understanding on the JLoI with the Dutch government as well as blessed by the EC. So what we are currently doing is what will be the CapEx and the engineering process is currently on. We have allocated a little bit more money to complete that process. That engineering will be known on CapEx somewhere around, say, May, June. That's my best estimate at this point of time. Because it's a complex process, it has 3 elements. It is the element on the health issues, which is the coverages, then it has the EAF and then it has the DRP. So there are 3 subparts to that process, within the integrated process. So that, I think, will be more fairer to talk about somewhere around in 6 months' time. By which case, the investment case will also be very clear and our understanding on the policy changes that we have asked for as a condition to the tailor-made agreement will also be clear, which is our network cost, electricity, the coal ban or usage, et cetera. So those policies will also be -- once the new government comes in, we will be able to engage more deeply because those are conditions for final FID. And there are some ask from them towards us, which we'll also -- we are working on with the local environmental agencies. Operator: The next question is from Rajesh Majumdar of B&K Securities. Rajesh Majumdar: Thanks for the opportunity. So I had a question on the cost takeout. You have already talked about INR 54 crore, INR 50 crores in the first half. How much of that has come from the Kalinganagar plant efficiencies? And how much more can be expected as we ramp up gradually to the full capacities with the value-added segments? Koushik Chatterjee: So actually, this is unrelated to capacity utilization because this is on the baseline. There is some element of capacity utilization, but largely the -- it is run in an integrated manner. For example, we run it as one program on, say, stores, spares and maintenance. So it is not just one side, but it is across the combination. And this combination is actually the power of this program because when our colleagues run it on, say, stores management across 4 sites, it's much more efficient than managing it across 4 individual sites than a consolidated basis right from procurement to usage, to usage pattern, to storage and inventory, et cetera. So it's very difficult to give a site wise, but it is more specific by theme-wise. For example, stores using leaner coal mix across, using energy efficiently. So those are the kind of themes we've run across sites. And that's why we organizationally also, we are consolidated to do that. Rajesh Majumdar: More specifically, sir, you earlier guided about, I think, INR 2,000, INR 2,500 kind of lower costs in Kalinganagar. So how much of that is achieved? And how much of that is likely to be achieved over the next few quarters? Koushik Chatterjee: So I think we said INR 2,500 because at that -- I don't think we said site wise, but we said Kalinganagar... Thachat Narendran: Koushik, I think we said at one time, as we fully ramp up Kalinganagar, there will be a benefit because obviously, it's a much more productive site. Koushik Chatterjee: It's volume effect. Thachat Narendran: Correct. That's the volume effect. Koushik Chatterjee: Yes. So that's a per tonne volume effect, which is -- which will happen by the time we exit this year, we should be able to get there. And that's our target on the volumes anyways. We had some slowness in the first quarter. But second quarter onwards, we have been able to increase our capacity utilization, and we'll continue to do so in Q3 and Q4. Rajesh Majumdar: Right, sir. And my second question was actually on your ferrochrome unit selloff. I mean we bought this unit just 3 years ago, and we earlier proposed a 50% expansion along with CPP, and we also have the chrome ore mines. But suddenly, you decided to sell this business. So what is the problem here? I mean if it is a small thing, then it was a small thing even 3 years ago when you acquired it, so, yes. Koushik Chatterjee: So I think the -- it was linked to our Sukinda resources. And if you really look at it strategically, if you have to continue -- if we were to continue Sukinda, one was this whole confusion that happened on the MDPA, et cetera, because Sukinda needs to -- needed underground mining to sustain itself because the resources on the way we were doing it was coming to an end. So if you look at the investments required for underground mining, the ferrochrome market, in general, globally and the way in which the duty tariff structures, et cetera, works, our call was to exit the mining and Sukinda because of the high underground CapEx. And once we took that decision, it was necessary to rebalance the sources of mining. We have 2 other mines, more specifically one more mine which is more useful. And that required us that we do not want to be just a converter without a mine. And that is the basis on which we then took a decision to get out of it. And the buyer is consolidating in that space, so it helps him also. Thachat Narendran: Basically, we wanted to limit our production to what we largely need for in-house consumption rather than be in the market because we are surrendering the Sukinda mine and the changes in the MDPA, et cetera, was not making this business as attractive as it was before. So it was more a rethink on this portfolio given the current context. Operator: The next question is from Prateek Singh of DAM Capital. Prateek Singh: The first question is on U.K. So given all the uncertainty and volatility that we are seeing in U.K. and Europe as well, so how confident are we of the level of profitability once the EAF comes in? Or to put it differently, what kind of EBITDA do we see as doable given the current environment, current pricing and current raw mat costs? That's the first question. Thachat Narendran: So if I were to start and then maybe Koushik can add. When we did the EAF, the larger point was we said the cost position of U.K. will improve by about GBP 150 per tonne, okay? Because we were taking out a lot of fixed costs, we were using locally available scrap instead of imported iron ore coal, et cetera, right? So which meant that in the longer-term steel pricing that we've seen in the past, the U.K. business should be EBITDA positive and should be able to stand on its own because an EAF run operation has much less requirement of support on maintenance and many other things because you don't have the sinter plant, the coke ovens and blast furnace and many other such facilities, okay? So that hypothesis stands. What we are seeing now is a very abnormal situation, which is coming out of what's happened in the U.S., what's happened in Europe now, what's happening in China. So we don't expect these things to stay on forever. We are -- internal cost side, we are on track to what we said we would achieve. But the external aspects, we expect actions to be taken, like Europe has already taken to protect the European industry. And as Koushik mentioned, the U.K. government is also bleeding because of their investments in the other steel plants in U.K. So we are expecting some resolution to this in the next few months. So it's a hypothetical situation. If today's situation continues forever. Of course, there's a challenge, but we don't expect today's situation in the market to continue forever. Prateek Singh: Sure. So just as a follow-up to this, so what kind of capacity does U.K. in particular needs? I mean, was there ever a discussion that maybe not put as big a capacity as we are planning and may be scaled down a bit given we don't need that much given how the environment is right now? Or we are okay with the current capacity that we announced for U.K.? Thachat Narendran: Yes. We are comfortable with the current capacity level. I think the issue which has happened in U.K. is the quotas have not been changed, even though the demand has shrunk over the last few years, unlike EU where the quotas have been changed and have been tightened further. So our submission to the U.K. government is they need to keep realigning quota, import quotas to what is the domestic consumption. And I think that's what we expect them to be doing. But otherwise, 3 million tonnes with maybe 10%, 15% exports is fine. And optimally, also that was the right capacity for us given the balance of plant and everything else. Yes, Koushik? Koushik Chatterjee: Yes. No, that's the same point. I think the -- there's nothing wrong with the capacity in the context of the demand. It's the issue of the imports that has come in. Also, the U.K. government subsequently in the last year, the new government came in, they were all focusing on infrastructure. And that infrastructure when it actually starts rolling will require a lot of steel, but that has not also happened. So I think there is a policy issue that the government needs to address, which is what is being worked on in terms of growth for the economy itself. But as far as the steel capacity is concerned, I don't think we could have done anything lower because we have a very tied in downstream network of our own, which uses the base-grade HRC or the quality of HRC for further value addition. So there is nothing wrong there. As Naren mentioned, we have taken out significant costs, and we continue to do so. This year also, there is continuing momentum on cost. But there has to be an uplift in the metal of our margin, so to speak, which is the -- what is the price at which you're buying the metal and what is the price at which you are settling the metal. So that metal over margin is an important thing. That has shrunk significantly, and that's purely because of the fact that cheaper imports are flooding the market. Operator: The next question is from Pallav Agarwal of Antique. Pallav Agarwal: Sir, firstly, congratulations on the good set of numbers and also on the cost transformation initiatives, broadly on track. So on the Ludhiana EAF, so what kind of profitability can we look at you compared to the stand-alone Indian operations? Obviously, it should be lower, but to what extent it would be lower? Thachat Narendran: Yes. So there are a couple of things happening with Ludhiana. Of course, like you said, the profitability will be lower typically an EAF kind of operation in the Indian context. I would say it's more an INR 5,000 to INR 7,000 EBITDA per tonne kind of thing. But you should look at it in the context also of you're getting almost 1 million tonnes for INR 3,000 crores or less, right? So that's the -- when you look at it from a different angle, that's the equation that we look at. What we're doing in Ludhiana to supplement the margins that would normally be available is to see how can we reduce cost because of the fact that you're getting scrapped from 200, 300-kilometer radius and you're selling steel in a 200, 300-kilometer radius, right? So a lot of the logistics costs that we incur when we make steel in Eastern India and ship it to Ludhiana or elsewhere is what we're trying to save. So there are a number of initiatives on the route to market, the logistics cost, the supply chain costs, et cetera, so that we maximize the revenue potential in that geography. And of course, pretty much all that is produced there is going to the retail market where our realizations are higher than it is in the project market. So there are a number of initiatives, but what I've described is the starting point and let's see how we can bridge the gap between a project like this versus the back end, which is more iron ore and coal based. But from a speed of execution, capital intensity, et cetera, there are a lot of advantages in this model. And we do believe that while Tata Steel can continue to grow based on iron ore and coal in Eastern India, and like I described earlier between the 3 sites we can go to -- or 4 sites, including Neelachal go to 45 million tonnes, North, West and South, we have an opportunity to grow in a capital -- a bit more capital light. You need just 100 acres of land to build the steel plant. You don't need 3,000 acres, you can do it much faster. So we will refine this model, Ludhiana is a first step. And as Koushik mentioned earlier, we are looking at opportunities to set up similar facilities, maybe even for a richer mix. This is for retail, but tomorrow's plants could be for alloy steels for automotive, et cetera, long products basically in the West and South. Pallav Agarwal: Sure, sir. Secondly, we used to highlight that probably on the pipe expansion part, so probably I think you were looking to expand from 1 million tonnes to 4 million tonnes. So I've not come across that in the recent presentation. So where are we on that initiative? Thachat Narendran: Sure. So basically, most of that growth would have come through assets that we would lease, even today in -- whether it's in long products or in pipes, et cetera, a lot of our capacity goes through assets that we lease, which means 100% of that capacity is committed to us. So today, I think the pipes business is heading towards 1.5 million tonnes which includes the pipe business that we acquired through Bhushan and plus all the leased out capacities. I think I'm not remembering the exact numbers, but maybe 40% to 50% would be our own and the rest would be leased out. So most of the growth will come through that. We've recently invested in a precision tube mill, which has added 100,000 tonnes of high-quality pipes in Jamshedpur. So wherever it's high-quality, specialized, like we have the large diameter pipes, API pipes all available from the Khopoli plant. Wherever it's high end, we will make the investments, wherever it's regular stuff where the value is more in our branding and distribution, we will lease out capacity. So that work is going on. And we are -- as our hot rolled coil capacity grows, we will continue to expand the pipe capacity, and the ambition is to get to 4 million. Maybe you can share more details, Samita, in the next pack or something. Samita Shah: Sure. And I just wanted to also add that for the EAF blast furnace sort of comparison because there are a lot of questions on that. The other sort of cost differential benefit will obviously be there when there are carbon taxes because EAFs emit significantly lower than blast furnace. So when India introduces carbon pricing, and we have seen over a period of time that will come through, then you will also have that benefit on an EAF operation. Thachat Narendran: I think typically, the difference is $100 between an EAF route of production and a blast furnace route without factoring the capital cost, I'm just saying the OpEx kind of thing. And as Samita says, as and when -- I mean, already there's a carbon cost which is coming in. And as that increases, that's why in Europe, et cetera, once the carbon prices go up, the economic case for EAF becomes stronger. So yes. Operator: The next question is from Ashish Jain of Macquarie. Ashish, we are unable to hear you. We request you to please send in your questions via chat or rejoin the queue. We will now move to our next question. The next question is from Amit Murarka of Axis Capital. Amit Murarka: On iron ore, like I wanted to get some thoughts on how are you kind of thinking about securing iron ore for Indian assets. I think in the last call, you did speak about it a bit. But could you also like help us understand, are you looking to get into some tie-ups with OMCs as well? Or it will be broadly merchant purchases? How are you thinking about it? Thachat Narendran: Yes. I think we -- as we said last time, obviously, we already have some iron ore. We have maybe about 500 million, 600 million tonnes of iron ore with us today, which is available beyond 2030 based on our existing mines, which we got through our acquisitions or through auctions. Second point I want to make is when we bid for the mines, it needs to make sense. There is no point bidding a price at which the cost of iron ore is so high that you'd rather buy it from the market. Third is what you're saying is right. It can't be all spot purchases. So we are already engaging with OMC and MDC, et cetera, to look at what could be the arrangements that we could have. OMCs is of particular importance to us because a lot of our sites and production and growth is happening in Orissa. Fourthly, we are also looking at various other options. Depending on what is the cost of iron ore in India, we already have a mine in Canada, for instance, which is very high quality iron ore, very low alumina iron ore. It's 63-plus FE, alumina of less than 0.5. So today, we sell from there into Europe, et cetera. And there are some challenges which we've dealt with over the years. We are getting a shipment into India to test out that material. Traditionally, India is not an attractive market, but if iron ore cost and prices continue to stay high, then all options are available. Import is also an option that we look at. But it's not necessary that we need to have 100% captive. I think we will do that if it makes economic sense. Otherwise, we will look at buying in the market. Even coking coal, at one time, Tata Steel had 100% captive today, we have 20% captive. 80% is what we buy from the market. So we will exercise that option. The other part is our ambition and our actions on going more and more downstream is to also help push us on the revenue side. So the revenue per tonne keeps going up as we progress towards 2030 so that the cost per tonne is less impacted by any increase in iron ore price or rather the margin is less impacted. Let me not put it, less cost per tonne, yes. Amit Murarka: Also, like is there any ballpark cost number that we can think of for your current captive iron ore mining? Or if you have done any calculations around it, what will be your cost of captive iron ore mining? Thachat Narendran: I'm not sure we are sharing that. Are we doing that, Samita? No? Yes? Because we have a full range from expensive to cheap one. So we also decided on what to produce more where. So I think -- I don't think we are sharing that publicly, yes, Samita, yes? Samita Shah: Don't actually comment on any specifics or any product or raw material details, but obviously significantly lower than market price. Operator: The next question is from Ashish Kejriwal of Nuvama. Ashish Kejriwal: My question is on account of domestic demand environment because see, for -- after so many months or years, we are seeing that our prices are much cheaper than the landed cost of imports despite the fact that safeguard duty is implemented. So actually -- and when we see overall demand environment or demand, you can say, volumes from JPC, it seems to be on the higher side, but actually, price is not getting that reflection. So my question is, are we seeing excess supply scenario or lower demand which is affecting our prices? And in light of that, when we have guided INR 1,500 price decline in Q3, are we factoring in that in December also, there is no price increase? That's my first question. Thachat Narendran: Yes. So it's not that demand is not there, demand is quite strong. India is the only country which is showing double-digit growth -- major countries showing double-digit growth in steel consumption. And I think given the focus on infrastructure building in India, I do expect the demand growth to be more than the GDP growth rate, which is what happens in most developing countries, including in China, when they were growing. So if the economy is going to grow at 6.5%, 7%, steel consumption growing at 10% is to me par for the course, right? So demand is not an issue. Obviously, supply side, as you know, when we add capacity, we add in big chunks, right? So we've added 5 million tonnes, JSW has added something. JSPL has added something. So you will go through years when a lot of new capacity is coming on stream at the same time. But I do believe in the medium to long term, it is not going to be easy to build lots of capacity very quickly in India, given the regulatory environment, the approvals that we need to take, the time which takes in India to build a steel plant, et cetera. So I expect there to be a better balance going forward and which should get reflected in the prices. The more specific question you had, yes, this is factoring in November, December. We've not factored in major price increase in December. We are saying that we operate close to November levels. If there's an increase, there's a potential upside to what I just guided. So -- but just now, we've been a bit conservative on this. Ashish Kejriwal: Sure. So effectively, you are saying October, November also, we have not seen any price increase. And in our assumption, we are not taking any price increase in December also. Thachat Narendran: As a seller of steel, we will always try to increase prices, but it's the market which decides whether they're willing to accept those prices. So we will always try to push and let's see where we end up. Ashish Kejriwal: Okay, understood. Secondly, we have acquired 50% stake in BlueScope and at value of something like INR 22 billion for the company, which is having net profit of INR 62 crores, INR 30 crores in the last 2 years. So rational-wise, I understand that we are going in the downstream, but the amount which we are paying is -- seems to be much, much higher if I look at on the profitability basis. So how can we explain that? Thachat Narendran: Koushik, do you want to? Koushik Chatterjee: Yes. So first of all, I think this JV has been making about 19% ROE for the -- over the -- since inception. Second is it is a combination of 2 parts. So one part is that we have -- this JV company had its own color coating, metal coating facilities. And then post Bhushan, as per the JV agreement, we had to ensure that the same that was there in Bhushan, facilities in Khopoli, et cetera, was also used by the JV, the substrate of which was passed on by Tata Steel. And that is the arrangement that we had with the JV and the JV partners, which is ourselves as well as BlueScope. And in some ways, there is a split in the profitability because of the transfer pricing, et cetera. So the -- you do not see the system profitability of this business. You just see, for that part of the business, only the downstream profitability, excluding the transfer price and the markups on the transfer price and so on. So I think it is important that -- and that's why -- and we were hindered in this segment because we were the first to come in, in 2005 to grow this business significantly, which is, I think, in our domain and leveraging the synergies and network of Tata Steel and enriching the product mix, also fungibility of the product mix between market segments and so on. And that is the basis on which we actually wanted to consolidate and BlueScope also in the strategic understanding wanted to, therefore, exit the business, which is what we have agreed upon. So if you look at it from an underlying EBITDA perspective, it is 7x, which from a value-added downstream perspective is what the numbers will effectively look at excluding the Khopoli and the ones which are leased because that brings down the performance of the company. So that is the basis which when post the acquisition, you will see it more on a system basis, and we will certainly explain the same to you. And you can see the numbers at that point of time. Operator: I would now like to hand the conference over to Ms. Samita Shah for the chat questions. Over to you, ma'am. Samita Shah: Thank you, Kanshuk. So we've answered, I think, a lot of the chat questions in the discussion so far, but I think there are a few which maybe we can touch upon. So firstly, I think there is some question on Thailand. Thailand EAF profitability, despite being an EAF operation is highly profitable? And can we expect that kind of profitability either in India or U.K. So maybe just want to give people a sense of Thailand duty structure, et cetera. Thachat Narendran: Yes. So there are 2, 3 things when you look at EAF profitability, 70% of the cost is scrapped, right? So the price at which scrap is available, et cetera, is a big impact. And about 15% of the cost is energy. So these are the 2 factors which drive EAF profitability apart from operating performance, et cetera. Thailand, what you're seeing an upsurge is because, if you recall, there was an earthquake in Thailand, I think it was in April or something like that. And there was this viral video, which went around of a tall building, which was -- which collapsed. And the conclusion at that time was that a lot of this is happening because of the poor quality of steel, which is used and the quality standards need to be looked at once again. And because if you use poor quality construction steel, you run the risk of this kind of a thing happening, particularly if there's an earthquake. So as a consequence, a lot of local production, which seemingly, were not meeting quality standards had to be closed. And Tata Steel Thailand is seen as one of the best quality producers of steel in Thailand, has a good name, we have the Tata Tiscon brand operating in Thailand as well. And they got the benefit of that. That's why you see much better performance than we've seen in the last few years. But having said that, they are still settling. Traditionally, it's been a profitable business. It's never required any support from India. It's always been cash positive, EBITDA positive. So it continues to be that way. And as the quality considerations become more and more important, we think that, that's positive for Tata Steel Thailand. Now whether that kind of profitability -- again, like I said, we are in a much better place on the cost curve in Europe post EAF than we were in the past because of the fact that you're not using imported ore and coal, you reduce your fixed cost by about GBP 400 million, and you're using locally available scrap, right? So certainly, we'll be in a much better cost position than we were before in U.K. and similarly, Ludhiana, compared to the iron ore base production in Jamshedpur, you'll be at a higher cost position, but we look at how do we make this model work, taking out costs beyond the production costs, like logistics costs, route-to-market costs and so on and so forth. So as Samita said, as and when carbon prices come up because the CO2 footprint of the Ludhiana plant is going to be 0.2 or 0.3 tonnes, CO2 per tonne of steel compared to Jamshedpur, which is the best in India at 2.1 or 2.2, and Netherlands, which is one of the best in the world at 1.6, as Koushik said, 1.6. So Ludhiana is going to be at 0.2, right? So because it will use green energy. So when you start looking at paying a premium for low carbon, low CO2 steels, that's when some of these businesses will make even more sense than it does today. Samita Shah: The next question, I think we have a few questions on cost transformation. So I'll just combine them for you, Koushik. So one is, are we on track? And what is the kind of number we're expecting for 3Q? And then there's a question about -- because of the delay in employee-related discussions in Netherlands, are you reducing your target for the year? Koushik Chatterjee: So that looks like an exam question, but I think it is important to mention that we -- our target is the same, and I mentioned when we started off this that it is an 18-months program. So the -- and obviously, the work that can be done is being pursued by -- across the geographies, across teams, across functions. So I think we will continue to maintain the secular basis on which we are -- we've gone through the first 2 quarters. The compliance in Netherlands is lower, as you can -- as I mentioned, because of the employee restructuring going slower than what we had planned. But that is a timing effect, and I'm very hopeful, and all of us are working with the CWC to ensure that we get to it. But the point is less about quarter-on-quarter. It is more about getting structurally fit. It is about getting the competitiveness in place so that we become all weather. And I also want to say that the target will also keep changing as far as the -- once you achieve it, there will be more where we want to build a pipeline of it, and we continue this as a journey. And Tata Steel India has always done that for about 20, 25 years. But this time around, we have taken more structural view because we have become multisite and our capacity have increased significantly. And that's why this is an important journey in the competitiveness of Tata Steel, and we have expanded to all our global sites also, most critically U.K. and Netherlands. So we are going to continue this journey. And I think it is not to be just taken as a quarterly target. It is more about ensuring that structurally, we are in a better place. Samita Shah: Yes. There are a few questions on TSN decarbonization, which again, I'm just going to combine. So essentially, I think the question is that given the political changes in Netherlands, do we expect the government to go through this commitment, which they've done, given, is 2030 a sacrosanct deadline? So some questions, I think, around the timing and maybe the probability of the government actually going through their push for decarbonization. Koushik Chatterjee: So yes, I think the -- if I look at the way we have build up our conversation with the government and across the political spectrum, it has been largely bipartisan in terms of across parties because it was a Parliament-mandated process to get through to the JLoI. And subsequently, when we were signing the JLoI, it had to go back to the parliament for placement and noting. So I think with the political parties being the same, and it is certainly the assumption that we are working in that the government will continue to work on it because it's of national importance, and it is something of a commitment. We do have a journey in terms of final negotiations on the binding tailor-made agreement. But I don't think we -- any of us have a doubt that the government will not stand behind what they have signed, the new government. We have to give the time for the new government to form. The election is just over. Unlike in India, it takes a little bit of time. And we must give that, and then we could sit down with them on the tailor-made agreement. In the meanwhile, both sides are anyway working at the back end on the conditions that needs to be fulfilled in terms of preparing for the new government when it comes, that we will have a very clear understanding of what needs to be done before we sign the tailor-made agreement. That's where it is. And that is also where the timing of the project and the feasibility and practicality of doing it within certain years will also be considered and due action taken because we have to take the practicality of changes in policy, in the permitting process, in the construction, the site work required and so on and so forth. So we will have a conversation on that subject also. And the -- I think the political world in Netherlands is fully aware of that. Samita Shah: Thank you. I think there are multiple questions on capacities of each of our downstream products or capacities. But I would just like to remind people that we don't really give guidance on individual product capacities. I think Naren mentioned a broad guidance and our overall growth path. So we will not take that. And then there is, I think, one broad question, Koushik, which you might like to address on our sort of leverage targets and how we are sort of balancing that? Or what is our approach towards leverage? Koushik Chatterjee: I was having -- wondering when would that question also, again, come in. But I think we are managing our balance sheet pretty well under the circumstances in the context of our operating cash flows, all geographies being focused on working capital and profitability. And we have -- I think this quarter, we had a significant amount of cash outgo on our dividend, which is an obligation that we are clearly focused to fulfill as part of servicing our investors. And I think it is important to mention that our net debt to EBITDA is at about 3, and even with the kind of spend that we have. So we will be in that -- I've already said that in the past that between 2.75 and 3 is where we would like to maintain ourselves on a more sustained basis. At times when there are significant market challenges or volatility in prices, which impacts the working capital because steel, coal, iron ore prices do change significantly, especially on the seaborne market, that's the time when we do get beyond that metric. But largely, 2.75 to 3 is what we would like to maintain. And if they're in a mid-cycle period, like this are a low mid-cycle period like this, in an up cycle, we are on a different platform. So we would keep the metrics like that. Any opportunity to deleverage, we'll continue to deleverage. And -- but we also look at where best to apply that capital. Apart from leverage is in short payback period projects or acquisitions like the BlueScope that we've done because that actually effectively will help in consolidating the margin and the footprint and helping a product mix to grow. So those are decisions that we do take and then look at what the leverage allows us to do. When we look at the NINL, we will certainly look at the phasing spend and how quickly we can get the cash to cash cycle up. And that's why Naren mentioned, that we want to go at a time when we are ready, site ready to start work so that we can compress the period as much as we can. So leverage is an important part and the entire -- not only financial strategy, but also in the business strategy and how do we actually run the business. Thanks. Samita Shah: Thank you. With that, I think we've answered all the questions. So thank you to everyone who's dialed in and look forward to connect with you again next quarter. Koushik Chatterjee: Thank you. Thachat Narendran: Thanks, everyone. Thanks.
Christopher Laybutt: Okay. Good morning, everyone. It looks like we've got most people dialing in. So terrific. Thank you. Thank you very much, and good morning. Welcome to the United Utilities Fiscal '26 Interim Results Q&A session. My name is Chris Laybutt, as you all know, and I'm delighted to play the role of host for this session. Today, I'm joined by Louise Beardmore, CEO; Phil Aspin, CFO. We'll stick with the usual format. Christopher Laybutt: So if you'd like to ask a question, please raise your hand or shoot through an e-mail or a Bloomberg. And I think leading us off this morning is Julius. You were first off the rank. So please go ahead. Julius Nickelsen: I guess 2 for me. The first one is you mentioned in the presentation that like the emergence of new investment drivers that I think there's also PFAS mentioned on the slides. So just wondering, are you referring to this more like after AMP8, like into AMP9? Or is that something that we could already see now through the reopeners in AMP8? And if so, give you us any indication on how sizable that could be? And then secondly, I mean, given that I'm the first on the line, obviously, I have to ask on your expectations on Cunliffe and the white paper that comes out in December, just in terms of like which recommendation do you think we'll be taking? And what's the process? What's the time line? Any color would be appreciated. Louise Beardmore: Fantastic and nice to see you this morning, Julius. Thanks for the question. Let's take the reopeners and the growth first. I think as we went through AMP7, there were a number of opportunities for additional growth items. We saw that with green recovery. And we've been really clear both when we spoke to the capital markets and also in terms of interactions with regulators that we see lots of opportunities for growth drivers as we move forward, both in terms of additional housing, new legislation that's coming through, whether that be new drivers that we can see emerging data centers, additional areas of growth from the government. And we are engaging with regulators, as you'd expect us to in terms of those opportunities, and we expect them to play through just like they did in AMP7. You're absolutely right with AMP8, there were a series of reopeners that were actually stated in addition to those and they're particularly around asset health and the opportunities to drive asset health improvements. And so we are engaging with regulators with those conversations. In relation to Cunliffe and the white paper and the time line for the white paper, I think, look, in terms of when the recommendation of the report that came out in the summer, there were lots of recommendations, 88 in total, many of which very investor-friendly in terms of the things that Cunliffe was promoting and suggesting. And we're now obviously waiting for the government's response. We expect that to be in December. But what I think is probably useful is to just look at what am I seeing and feeling in relation to intent. And I think there's a couple of things I'd point to. The first is Emma Hardy, when she spoke at the Moody's conference, was very, very clear about her desire to drive those recommendations and also for the white paper to be out before Christmas. I met with Emma Reynolds last week as the new Secretary of State. And again, she is very, very clear. She's picking up the recommendations. She's driving those hard with the team in terms of coming out with both the white paper and the implementation plan. And also, you may not see, but she was also at the EFRA Committee this week. And again, on record was very clear about her intent in terms of driving those recommendations through. So I think what we can expect to see in December is that white paper and transition plan. And at the same time, I think what we're also expecting is that we will also see a strategic policy statement for both Ofwat and the EA. Christopher Laybutt: Okay. Thanks very much, Julius. Jenny, over to you. Jenny Ping: Two questions. One, just around politics. Obviously, we're getting more and more noise around the energy side in terms of government treasury want to do something deflationary on bills on the energy side. Are you thinking or hearing anything with regards to water, any noise there in terms of support on the affordability aspects? And then just coming back on the uncertainty mechanism, is there any firm time line in which you will be going to Ofwat to apply for the reopeners? And what should we be watching out for on sort of getting the clarity on the size of potential investments there? Louise Beardmore: So look, to pick those up in order. I think the first thing I'd say is from a bills perspective and a cash performance perspective, I've been really pleased actually with the way that cash performance is maintained with the increase that we've seen in bills. Team have worked exceptionally hard. We've doubled the number of customers who are on affordability schemes, et cetera. So we've not seen any degradation in cash performance. In fact, it's held extremely strong, and that's down to the way that, that's been managed. But one of -- Sir John's recommendations was very clearly the need for a national social tariff. And again, we expect that to come through as part of the white paper. You know that, that's something that United Utilities has long pushed for and is something that would be an extreme benefit, particularly in terms of here in the Northwest. So we continue to influence and discuss how that could look as we move forward. So I'd expect that we may well see some movement on that or clarity on implementation of that as the white paper comes out. In relation to the uncertainty mechanisms, the conversations are ongoing. You know as well as I do what our CapEx profile looks like. It goes up and then it comes down either side. It's in everybody's best interest to smooth that out. We've talked about AMP9 and AMP10 and what we can see coming with the Environment Act legislation, along with everything else that we can see. So it's in nobody's best interest to have a CapEx profile that looks like it does. And again, there were opportunities last time around, particularly in terms of things like transitional investment and the green recovery, and we expect those to play through. So conversations are ongoing. Christopher Laybutt: Okay. Thank you, Jenny. Sarah. Sarah Lester: Yes. Sorry, just to come back to the white paper. I think it's going to be a massive document, a lot of noise in there. So just to make it really simple for us, please. Three simple questions. What specifically should we be looking for? What will you be looking for? So if we can do a control find, is there something you can point to that if we see it, we can go, okay, this is good for you. Louise Beardmore: Sarah. I'm probably not expecting it to be hundreds and hundreds of pages long. So just to give you an indication, I think it will be thematic in terms of what comes forward and what they are proposing to set out. I think we're all clear that we want to understand what the regulatory regime looks like as we go forward, how that's going to be managed and how that's going to be coordinated, what supervisory regulation starts to look like and more importantly, essentially what the structures and the time lines look for as we move forward. So I think what we're all looking for is exactly the same thing, which is clarity around the time scales and what that transition plan looks like. So I think it is not going to be hundreds and hundreds and hundreds of pages long. I expect it to be thematic to set out the direction of travel, the things that they're taking forward and at pace. I also think it's important to point out, there's a number of things that can be done without legislation change. And again, I think I'd be looking to see how much of that, that they're making a commitment on and moving on ahead of any of those legislation windows as well. Christopher Laybutt: Terrific. Thank you very much, Sarah. Pavan. Pavan Mahbubani: I have 2, please. Firstly, I'd like to ask about the EPA and the 2-star rating from a few weeks ago. I can imagine you found that outcome, sorry, disappointing. And I wanted to just get a bit more color from your perspective on what drove that rating and whether you see there's anything in your underlying performance that you think you need to reprioritize? And on a related question, can you provide some color on the potential EPA reforms that we should be seeing in terms of those ratings in the coming years? That's my first question. And then secondly, I wanted to ask about funding and the balance sheet. Can you remind us if you see yourself as fully funded for AMP8? And does that change in a scenario where you have additional, whether it's reopeners or transition spend? And how should we think about your balance sheet and funding options, particularly as we look into AMP9 and beyond? Louise Beardmore: Thanks for those questions. I'll take EPA, and I'll hand over the balance sheet to Phil. So I think first things first in terms of EPA, yes, we're obviously disappointed. But we are the second highest company in terms of EPA performance. So 13 out of a possible 16 stars for this EPA period. The underlying performance remains on track. What we have seen is a change in methodology and particularly in relation to definitions on pollution. So things that were driven by both storms and power interruptions are now included in EPA. 1/3 of our pollutions are actually caused by issues with energy resilience that we're seeing up here in the Northwest. And there are 2 drivers to that. One is storms and the fact that we're on an overhead network, and that's particularly a challenge in some of our more rural areas of Cumbria and Cheshire. And secondly, the balance loading that we're seeing between renewables and the grid. So we've got some real specific challenges. And actually, Phil Duffy referenced that himself just recently at the EFRA committee, and it's something that we're focused -- very focused on both in terms of what could we do, but also working with the energy companies as well because I need to see better levels of resilience in terms of driving those improvements. We are extremely focused though on what it is we need to do. I'm really pleased to see the improvements that we're seeing in terms of combined overflow reductions, some of the areas of focus where what we're actually seeing is some of the early investment that's going in and more importantly, the improvements that we're seeing as a result. You're absolutely right. We now have a new methodology that is being consulted upon. That sees a series of changes again, most notably a change in categorization of pollutions. So currently, we have pollutions categorized 1 to 4. It's categories 1 to 3 that count for EPA. Going forward, there will be no category 4. That will all become category 3. So again, it's going to be another change. So I think we're going to continue to see the methodology change and evolve. That's out for consultation at the minute. And United Utilities, along with lots of others will be making obviously representation about its implementation. But I think what is -- there is some good stuff in the EPA too. It's going to, for example, include details about combined overflows. That's not included at this minute in time, and I think that's important. And I think what is important is anything that drives greater transparency is something that we all embrace, but we do need to understand when methodologies are changing because as a result of that, what's important is that we're tracking underlying performance, and we can see where that's improving and more importantly, if there's areas that we need to focus. So the results of the consultation are due to be published early next year, and then that will drive in terms of the implementation of the new methodology. I'll hand over to Phil in relation to balance sheet. Philip Aspin: Nice to see you. Yes, sort of as you know, we've got a very, very strong balance sheet. So today, we're reporting 60% for net debt to RCV gearing, benefiting slightly from a little bit of an inflationary tailwind at the moment. So that's sort of feeding into the numbers a little bit. And as you know, we're very comfortably within our 55% to 65% range as we look through this AMP in terms of the funding of the AMP8 program. And it's probably worth just reminding you that the headroom extends beyond that because the Moody's Baa1 threshold is 68%. So there's quite a lot of flexibility there. Clearly, in terms of any reopeners, there'll be a lot of discussion around the context, the scale, the size of that, how Ofwat may or may not fund that in period, in-period revenues. So there's quite a lot of moving parts to all of that. But I think we're approaching that from a really, really strong position. And then just longer term in terms of AMP9, clearly, we all expect a lot of funding, a lot of investment continuing into AMP9. But we also are very, very positive around the Cunliffe recommendations in the context of Cunliffe calling out the need for the sector risk profile to be looked at. And I think specifically, you cited the Moody's work that has been done where effectively, they progressively downgraded the quality of the regulatory framework over the last 2 price reviews. So if we have some reversal of that, that will extend that sort of capacity as well. So as a reminder, if we were to revert back to a Moody's position that was more in line with energy, then that 68% will become 75%. So that's worth bearing in mind. There's a lot of moving parts and understanding how that price review in the future lands is going to be a big part of that as well. Christopher Laybutt: Thank you, Pavan. Mr. Freshney. Mark Freshney: Myself, you hear me okay? Louise Beardmore: We can now. Mark Freshney: Can I ask on -- went to the hypothetical of the hypothetical when we're talking about the white paper next month. But I mean, it's clear that normally, I mean we're already starting to talk about AMP9 now. Normally, the next review should start next year, right? The regulator should -- once they're done, CMA should be moving across to the next review. Yes, the primary legislation is probably not going to be done next year for the Cunliffe implementations and then the regulator has to be set up. So it would seem that at some point, we may be looking at a rollover review or a 1- to 2-year, likely 2-year extension of this review. What are your thoughts on that? And the reason I would ask is because your returns have been fixed relative to what CMA and Ofgem are doing at fairly low levels. And this review doesn't appear -- we're yet to see outperformance. So I'm just wondering what you guys would like to see on any potential rollover review and what your thoughts are there? Louise Beardmore: Thanks, Mark. I think there's 2 things. I mean, obviously, we've guided to 100 basis points of outperformance. But just in terms of the 2 years versus 5 years in terms of the regulatory cycle, I mean, I think what matters for us is that any growth that we have to deliver is facilitated. So whether that be within a 2-year or a 5-year cycle. And we've got very strong relationships with our regulators. And I think what's important is that we get clarity over the funding mechanism. And I think it probably brings me back to one of the questions that Sarah asked me in terms of what am I most looking for in terms of the white paper is clarity around some of those time scales actually and how that evolves over time. And I think that's something that we're all looking for. CMA obviously, will publish its final outcomes in March. And I know there's already a lot of conversation going on with DEFRA, with the Cunliffe implementation team about both the regulatory cycle and some of the inputs in, particularly in terms of the long-term strategic plans for both water and wastewater. So I think we're all looking for that clarity on that time scale. But I think what's important, whether it's 2 years, 5 years, a rollover or whatever, is that the growth that is to be delivered is facilitated and recompensed accordingly. Christopher Laybutt: Terrific. Thank you, Mark. Mr. Nash. Unknown Analyst: A couple of questions from me, please. Firstly, can we go back to the CMA. They published in their initial findings what I thought was quite an interesting study on coming up with a new sort of frontier modeling sort of tool for your totex. And usually, at this point, I'm usually in front of you going, Louis, why did you not appeal the FD? And on returns, maybe clearly, you would have got higher, but the totex one was a bit of an eye opener for me because it looked to me that they seem to think that Ofwat had awarded you more totex than they would have given you if you had a CMA appeal. And so the question I've got for you on that one there is that how -- how much indication does that give to us or how much does it give to us potentially that you could be -- you should be coming in line more with the CMA number than the Ofwat number and that we could probably see a totex outperformance come through? Secondly, I like your term, I think, environmental super cycle that you have in your presentation. And you talk about PFAS. There's very little in PFAS in AMP as I understand it in spend. And I know we had a couple of questions earlier about your reopeners, but I'd be interested in what sort of scale -- what actually is the scale of the reopeners that we could potentially look and particularly with things that aren't in AMP at all like the PFAS one. I mean I've been reading some reports that the industry could be up to sort of GBP 10 billion a year of PFAS that's clearly across the whole country, but does have a reasonable PFAS exposure. So some color on that would be great. Louise Beardmore: Great. Thanks, Dom. So look, I think first things first in relation to CMA. The decision that we ultimately made was around the overall package rather than each individual item. And we've talked quite a bit about that. Obviously, it's remembering that going to the CMA opens up everything, not just the particular item that you may be appealing. And we felt that the FD for us was balanced. We saw significant movement between the interim and final position, particularly on totex allowances. And we were able to negotiate some company-specific targets on things that were important to us, both in terms of combined to overflow spills, internal flooding and also some changes to the economic models in relation to rainfall patterns. So those were things that were really important. You're absolutely right to say that when you look at some of the outcomes from the CMA, there is a number of companies where when you look at the models that they've run, they've suggested a different totex allowances. I think everybody always points to models and sort of says, well, they're very, very simplistic. And I'm sure that's what the economic regulation teams will be saying too, particularly in terms of some of those broader conditions that those models need to take into consideration. And I think what is important that is something that Cunliffe brought out in his review is that you need to understand the regionality in the context of which you're operating on. So I'm expecting there to be lots of representation on that, Dom, as part of the response that's gone back in from companies. In relation to your questions about low, should that give us some confidence about totex outperformance? I think there's 2 things. One is, look, we've got a number of transformation projects growing -- running where we are driving transformation in relation to totex delivery. And I talked at the Capital Markets Day, particularly around driving standard assets and standard deployment as a way of managing costs and managing costs within profile. I think long of the days have gone where you can deliver big totex outperformance and not continue to reinvest in your assets. There's always more that needs to be done. And so I think it's incumbent on us to continue to do the right thing. But rest assured, there is a huge focus on cost and cost delivery. In relation to the scale of the reopeners, look, PFAS is one that's talked about. And there's both obviously PFAS in water, and we've got 2 projects in there. You may have seen something on the BBC recently about well, what are these projects and one of these notices. That was the regulatory notice to enable us to access the funding to get those projects in and they're purely precautionary. But there's a couple of elements. One is PFAS in the actual water supply itself, but also in terms of biosolids. And that is an area that is continuing to emerge and evolve. We're also seeing quite significant increases in relation to housebuilding in terms of new housebuilding targets. My -- our previous Secretary State, who's now got the housing portfolio has just announced 10 cities, 2 of which in the Northwest region. So it's really an emerging and changing picture as we go through. In relation to scale, it's a bit hard to scale at this moment in time. And I think -- but rest assured, those conversations are ongoing with the regulator on those topics, driven by those areas that they're focusing on growth. We've had 35 applications, for example, for data centers. There is a huge volume of additional work that we're seeing in terms of demand, and we're now working through and prioritizing that. Christopher Laybutt: Thank you, Dom. And last but not least, James. Unknown Analyst: Very kind. A couple of questions. Firstly, on reopeners. There's been a couple of questions already on reopeners. But -- and I guess this has been touched upon a little bit. But I was wondering whether you had any visibility on how the split might look for reopeners between fast money and slow money. Obviously, the biggest theme in a way in Cunliffe was spending more on maintenance of assets. So maintenance CapEx is normally treated as OpEx. So maybe that points to a bit more kind of fast money bias, but maybe you could share some thoughts on that, if that's possible. And then the second question was just touched upon. I can't believe I'm at the end of the queue and has asked this already, but the topic of the moment data centers, which you just mentioned, you had a lot of applications. Obviously, data centers use a lot of water. Could you talk us through how we should be thinking about data centers in the context of United Utilities. Is this going to be a big driver of investment for you of demand? You mentioned the applications. Are they ones that are likely to be progressed in the near term? Or is this further out, that would be super useful. Louise Beardmore: Great. Thanks so much, James. Do you want to pick up the sort of fast and slow money and I'll pick up on data centers, Phil? Philip Aspin: Yes James. So I mean, as I alluded to with Pavan, the split of how Ofwat intend to fund any reopener is clearly one of the things that we'll have to consider in terms of how that impacts funding, et cetera. And clearly, a lot of the investment would go into CapEx and would typically be slow money. But clearly, we'll be pushing to make sure we've got the right balance between fast and slow in the context of what that means for financial ratios and the performance of the business. And as always, that Ofwat will be looking to balance that with the impact on customer bills in the near term as well. Louise Beardmore: And James, just in relation to your comments about data centers, look, they're all at various different stages of maturity. We've done 2 things. We've sort of identified areas in the region where we have spare water capacity. They're not necessarily always aligned with areas where people want data centers, but we've done a huge amount of work in that particular space. But in relation to the data centers that we're seeing, it also generates an opportunity for us as well. So how can we potentially use storm water in terms of those -- the cooling that is required. So if you think about combined sewer overflows and the challenge that I have and the fact that our sewers are never more than about 15% to 18% fall, the challenge we have is one of rainfall, and we have the highest combined rain network in the U.K., there's a significant opportunity here for how we potentially think about this slightly differently. So there's some really interesting engineering that's happening in this particular area as well. But they are all at different areas of maturity. There are certain areas where we're going to have to put in additional water resources to provide the capacity that is actually needed. But I also think it's a bit of an opportunity for the U.K. to think fundamentally differently. And we're working with a number of international organizations looking at how can we use -- there was an awful term in the sector called final affluent. But in other words, what's come out of your treatment works then gets returned into the environment, how could we use that? They don't necessarily need potable water. So just looking at this differently from an engineering perspective as well. So there's a huge opportunity in there for us to both innovate at the same time as growth infrastructure as well. Christopher Laybutt: Thank you, James. Back for another bite, Mr, Nash. Yes, we can't hear you, Dom. Unknown Analyst: I'm trying to make sure it overruns, Chris, as much as possible. Yes. One question from me, please. Supervisory regulation. Clearly, we are in some negotiations with the regulatory bodies and governments as to how that will work. What sort of options are you potentially looking at? And/or what would you like to see to come out of supervisory regulation? And do you see it as a potential sort of hindrance or a help in the way that you're actually going to perform your functions going forward? Louise Beardmore: Look, Dom, I see it very much as a help. There is a regionality about these businesses that we run, both in terms of the context of the infrastructure and even within region. You've heard me talk about the fact that we've restructured the business to be across 5 countries. Merseyside has got 84% of its wastewater system is a combined system. It's on the West Coast. Those storms hit it every single day. Even within region, it performs very, very differently. And I think regulation that understands the context of what's going on within a region, what those local priorities are, the ability to understand both the performance of the assets and the cost base is hugely important. Sir John talked a lot about moving away from notional models and the need to really understand those cost drivers, and we're hugely supportive of that. We saw the benefits some of that from the work that we did in AMP and particularly the allowances that we got in relation to some of the rainfall patterns we're seeing, CSO targets and things like that. But this moving away from this ability to just think of something being notional and really understand and both supervise and regulate accordingly, I think, is something that we would really, really encourage. Christopher Laybutt: Thank you very much. Next, Ajay. Ajay Patel: Look, I get the argument of like the scope and need for more CapEx and an improving return profile even for the sector. But the bit that always seems to be at [indiscernible] is the affordability and how this clashes with those aspirations in some respects. I'm trying to understand where -- what do you need to see happen in regulation to ensure that these are more aligned with each other? And not a series of a case of we move 5 years from now, we're asking for higher returns. We're asking for more investment, but there's a consequence of higher bills and the clash with that. And ultimately, it just adds to the risk to the sector. Louise Beardmore: Great question. And I think some of this comes back to what Jenny said a little bit at the beginning in terms of what needs to happen. We have seen a level of resilience as bills have increased, but bill increases are a challenge. And I think does a huge amount in relation to affordability support. We've doubled the number of customers that we're helping. But I think that is where a national social tariff can really play its part because I've been very, very clear that water is the only sector that doesn't have that level of universal support and that isn't right. From an energy perspective, we have warm homes discount. It isn't a postcode lottery according to where you live. And therefore, it won't surprise you that I continue to advocate for that because to some degree, that provides some additional capacity that's absolutely required. I think the other thing to remember is we all got really strong customer support in terms of the bill package that was put forward. So 3 and 4 customers supported the increase in bills and more importantly, the improvements that they would see as a result. And so I think it's also about making sure that you're spending customers' money wisely that we're driving efficiency, we're driving innovation. But at the same time, there is a cost and there is a cost for the infrastructure that's needed. And we are seeing the impact of climate change in a way that continues to evolve and to grow. And as water companies, it's essential that infrastructure is in place so we can enable a growth that we want to see, whether that be new housing targets or industrial growth targets. But at the same time, how do we make our assets more resilient. And just to give you an indication of some of the things that we're seeing, you may have heard on the news last week, there was a train that derailed up here in Cumbria, but I saw 8% of the annualized rainfall for the year fall in 1 day just in Cumbria. So the volume that is coming at us is very much changing. And the infrastructure is going to have to change and evolve to be able to cope with the climatic patterns. So I think that national social tariff is going to be key in terms of how do we maintain that balance. Christopher Laybutt: Terrific. Bartek. Bartlomiej Kubicki: I hope you can hear me well. Just to maybe talk a little bit about how you have started AMP8 in terms of the potential outperformance. Obviously, you have given a guidance on ODIs in year 1. But I just wonder, if we think about your latest debt issuance, where do you see the cost of debt versus the benchmark, meaning what kind of implied outperformance or underperformance we have here? And also similarly, if we think about your totex performance, are there any surprises to the upside or to the downside so far into AMP8 versus the allowances in terms of costs inflation or in terms of CapEx inflation? And maybe lastly, also on ODIs. Obviously, for FY '26, we know it will be negative. But shall we expect FY '27 to be already positive in ODIs? Or it's too early to say? Louise Beardmore: Bartek, do you want to pick up the first 2 and I can pick up on ODIs, Phil? Philip Aspin: Yes. So just picking up on the debt side. So your question was around how we're performing in terms of recent debt issues, Bartek. And I think probably the simplest thing is to refer you back to our Capital Markets Day slide that we sort of tabled where we showed how our performance was tracking against the Ofwat index. and that was a very, very positive position. And I'm pleased to say that existing debt issues that we've issued in this half have continued to perform in line with the expectations that we had at that time. So basically continuing to perform as we expect. On the totex side of things, I think Louis has already touched on this a little bit in the context of Dom's question around totex outperformance. And I think we are very focused on managing our cost position and living within the totex envelopes. We don't particularly see huge scope to outperform. So I think there, that's probably all I'll add to the totex position. Louise Beardmore: In relation to ODIs, Bartek, I mean, I think we've been really clear in terms of we put the 100 basis points on the table. We see that coming both from financing outperformance, ODIs and PCDs. There are some ODIs that are in penalty this year, some that are very much in reward. And we're very clear we're driving against very hard against targets. Obviously, as the infrastructure goes in the ground, you start to see the benefits of that and those ODIs continue to build. We've made a really great start. So for example, on leakage, we'll deliver a leakage benefit this year alone that was bigger than what we delivered last AMP. So there's some real great progress and work that is happening, but they continue to build as we go through the AMP period. Christopher Laybutt: Okay. Heading back to Julius with a... Julius Nickelsen: I'll try and go for a second. Maybe just on the last point on ODIs you've seen some improvement in the first half year, but could you maybe give us some indication how much of that is driven by weather? And then maybe also, I mean, the guidance hasn't changed overall on the net penalty. But has there been some change given that we had like some warmer weather this [ far ] that there will be maybe some improvements on the waste side? Just some color. Louise Beardmore: Yes. Thanks, Julius. I mean, look, we've been really clear that we expect that we will be in a penalty position for this year, but they build over the AMP, and we will be in a net reward position over the AMP period. The weather, although we have seen some dryness to the weather, we've seen some significant storms, too. So there are some areas we've made great progress and great delivery where we're seeing real improvements. We've made great strides in all of our customer service targets. We're in reward on all of those. We will deliver our targets this year in terms of CSOs, for example. And we've seen some other areas where we've got challenges driven by some of those storms. So it is a series of ups and downs. And as infrastructure goes in the ground, we continue to see that build and that delivery. But we are extremely focused on driving the benefits and that contribution to the overall 100 basis points. Christopher Laybutt: Okay. Thank you. Thank you very much, Louise, and thank you, everyone, for joining today. As always, if you have any follow-up questions, please feel free to reach out to the team and all of the materials that Phil mentioned are on the website in relation to the CMD. I'll hand back to Louise. Louise Beardmore: Brilliant. Thanks, Chris, and thanks very much to everybody for joining this morning. I suppose just to summarize really, we've made a really great start to the first year of the AMP, really strong operational and financial performance. The AMP program is going really well. I'm really pleased with the way that the organization and the supply chain have mobilized, our CapEx is all in line with expectations. And we feel that we're really well positioned to -- as we move forward in relation to the transformative period for the sector. So thank you so much for joining us this morning. No doubt, we will get the opportunity to speak in the coming days. But I know there's a lot going on and it's busy, but thank you so much, much appreciated. Philip Aspin: Thank you, everyone.
Operator: Good morning, ladies and gentlemen, and welcome to Hydro One Limited's Third Quarter 2025 Analyst Teleconference. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Wassem Khalil, Director, Investor Relations at Hydro One. Please go ahead. Wassem Khalil: Good morning, and thank you for joining us for our quarterly earnings call. Joining me on the call today are our President and CEO, David Lebeter; and our Chief Financial and Regulatory Officer, Harry Taylor. On the call today, we will provide an overview of our quarterly results, and then we'll answer as many questions as time permits. As a reminder, today's discussion will likely touch on estimates and other forward-looking information. Listeners should review the cautionary language in today's earnings release and our MD&A, which we filed this morning regarding the various factors, assumptions and risks that could cause our actual results to differ as they all apply to this call. With that, I'll turn the call over to our President and CEO, David Lebeter. David Lebeter: Thank you, Wassem. Good morning, and thank you for joining us for our third quarter 2025 earnings call. This morning, I'll provide an update on our recent activities and accomplishments during the quarter. Then Harry will take you through the financial results. Before we begin, as many of you know, I temporarily stepped away from my role as President and CEO on August 25, 2025, on a compassionate basis to care for a family member. During this time, I continue to support the company on an advisory basis. And as announced in our press release this morning, I reassumed my duties effective November 12, 2025. I would like to thank everyone for their understanding, messages, e-mails and words of support as my family and I navigate this difficult journey. We are very appreciative and grateful for the support that we received. I would also like to extend my thanks to Harry Taylor who in addition to his role as Chief Financial and Regulatory Officer, assumed the role of Interim President and CEO, during my absence. Under Harry's guidance, the company continued to execute on our stated objectives and deliver on our promise for all Ontarians. Thank you, Harry. On to the quarter. As always, safety comes first at Hydro One. Our focus on being an efficient and agile company is supported by our policies and systems that prioritize workplace safety as well as public safety, public health and safety. By empowering our employees to take actions for their health and safety ourselves, coworkers and our communities. Together, we can achieve a workplace free of life-altering injuries and fatalities. Ontario is facing historic growth in demand for electricity driven by continued economic growth, the electrification of the transportation and manufacturing sectors, population growth as well as industrial expansion and evolving technologies. Over the next 25 years, the Independent Electric System Operator or the IESO, anticipates electricity demand to increase 75% by 2050. Hydro One is proud to play a pivotal role in serving the new load. With our provincial, indigenous, municipal and industry partners, we are and will continue to build a reliable, resilient, sustainable and affordable energy system for generations to come. On September 9 of this year, alongside First Nations partners and provincial and municipal leaders, Hydro One celebrated the groundbreaking of the St. Clair transmission line project in Southwestern Ontario. The project involves constructing a double-circuit 230 kilovolt transmission line, expanding the existing Chatham Switching Station and Lambton Transformer Station and converting the existing Wallaceburg Transformer Station to 230 kV. The total investment nin the project is expected to be approximately $472 million with an in-service date in 2028. The transmission line will support improved grid resiliency and reliability as well as enhanced economic growth in the region. Along with powering homes, businesses and industry, it will support key industries including the agricultural sector and electric vehicle technology. Farming and food production are economic cornerstones in this region, and the line will help enable the expansion of farming operations to support a reliable and affordable local food supply chain in Ontario. The project will also support electric vehicle manufacturing, providing a reliable supply of clean electricity to develop a secure supply chain in Ontario. St. Clair transmission line as part of a network of projects in the region, including the Chatham to Lakeshore line that was energized in late 2024 and along with the Lakeshore transmission line being developed in collaboration with five First Nation partners. Through Hydro One's 50-50 First Nation equity partnership model, First Nation partners have been offered a 50% equity stake in the transmission line component of the project. Integrated energy plan released in June of this year highlighted the need for additional transmission capacity in the Red Lake area in Northwestern Ontario. This area is a key region for Ontario's critical minerals with several mining projects that will create large electricity demand. In August, the ISO released the Northwest Region Integrated Regional Resource Plan addendum, that recommend the urgent development of the Red Lake transmission line. This line will be a new double-circuit 230 kV transmission line that run from the Dryden transformer station up to the Red Lake switching station, along with associated station facilities to meet the growing demand capacity need after 2028. On October 29, 2025, the government announced the proposal to declare the Red Lake transmission line as a priority project and also proposed to designate hydros a transmitter for the project. The proposal is subject to required approvals and community consultation, including consultation with indigenous communities. In response to continued uncertainty surrounding tariffs and trade, Hydro One has been working to identify further actions to limit our exposure and the impact of tariffs. These actions have focused on the diversification of our supplier base beyond the United States, the prioritization of Canadian suppliers to reduce costs and encourage manufacturing within Canada to support a domestic supply chain. Now more than ever, we must focus on investing in homegrown businesses to build a strong, secure and self-reliant supply chain to further reduce risk. Recently, Hydro One was at a groundbreaking ceremony that will see Northern Transformer, a leading Canadian manufacturer of high-voltage power transformers expand its manufacturing facility in Ontario. This expansion will support the demand for high-quality, reliable and timely power transformers to support grid modernization and electrification initiatives across the province. Hydro One is proud to support the growth of the Canadian supply chain and is committed to spend approximately $165 million per year to secure energy infrastructure from Northern Transformer. Their high-voltage transformers will support a reliable supply of electricity across the province and like us, the roots are in Ontario. We congratulate Northern transformer on their expansion and look forward to our continued partnership to develop for the people of Ontario. The strength of our culture and the way we support each other and our communities shine throughout the year. This particularly on display during our signature Power to Give campaign that takes place every September. This year, Hydro One employees once again demonstrated their generosity and community spirit, raising more than $2.1 million. Employees also logged more than 5,200 volunteer hours in support of their communities. It is a remarkable achievement that will make a real difference in the lives of people and families across the communities where we live and work, and I'm incredibly proud of our employees only for their efforts in September for the way they gave back all year long. Their compassion and dedication to support and others embodies one of our key values and reflects the best of who we are at Hydro One. Our vision of building a better and brighter future for all is also reflected in the work that our teams do. We are pleased that our work and dedication continues to be recognized. For the second consecutive year, Hydro One has been named Company of the Year with the Ontario Energy Association. This award recognized both our technical contributions to strengthening Ontario's Energy Grid and the meaningful partnerships that are helping power a brighter future for the province. We are deeply honored by this recognition of our role in Ontario energy transition and proud of the dedication, skill and resilience of our people. Hydro One continues to grow, adapt and deliver for the people of Ontario at a time when the energy system is transforming faster than ever before. With that, I will turn the call over to Harry to discuss our financial results. Harry, over to you. Henry Taylor: Thank you, David. I am happy to say on behalf of everyone at Hydro One, welcome back. and good morning to everyone on the call, and thank you for joining us today. In the third quarter, we delivered basic earnings per share of $0.70 and compared to $0.62 in the third quarter of 2024. The key drivers behind the year-over-year change included higher revenues net of purchased power due to higher 2025 approved OEB rates and higher average monthly peak demand. These were partially offset by higher depreciation, amortization and asset removal costs due to the growth in our capital assets. And higher interest expense primarily due to an increase in long-term debt outstanding. And higher income tax expense, primarily due to higher pretax earnings. Our third quarter revenues net of purchase power increased year-over-year by 7%. In the Transmission segment, revenues increased by 9.4% year-over-year. primarily due to a higher average monthly peak demand. Higher revenues due to OEB-approved rates for 2025, coupled with revenue from our Chatham by Lakeshore transmission line following its in servicing in Q4 2024. And finally, equity income from Hydro One's investment in the East West Tie Limited partnership, which we closed in the first quarter of this year. Distribution revenues net of purchase power increased by 4.2% year-over-year, primarily due to the changes in OEB approved rates for 2025. We continue to see strong energy consumption within the Distribution segment, along with growth in the number of customers we support. On the cost front, operating, maintenance and administration expenses in the quarter were higher by 0.7% compared to the same period last year. In the transmission segment, costs were lower by 3.5%, mainly due to lower work program expenditures, including vegetation management expenditures partially offset by higher corporate support costs. In the Distribution segment, costs were higher by 5.8%, mainly due to higher corporate support costs resulting from lower capitalized overheads and higher bad debt expense. These were partially offset by lower work program expenditures, including vegetation management expenditures. Depreciation, amortization and asset removal expenses for the third quarter were higher by 3.4% year-over-year. This was due to the growth in capital assets as the company continues to place new assets in service, partially offset by lower asset removal costs. And with respect to our financing activities, we saw an 8.9% increase in interest expense year-over-year. This was mainly due to a higher amount of long-term debt and a slightly higher weighted average interest rate on our long-term debt. During the quarter, Hydro One issued $1.1 billion of medium-term notes. The issuance was comprised of $450 million of 3.94% notes due in 2032, and $300 million of 4.3% notes due in 2035, and $350 million of 4.95% notes due in 2055. The issuances were completed under our sustainable financing framework. We continue to be one of the largest issuers of corporate debt in Canada. And Canada continues to be our primary market for debt capital. However, as our funding needs continue to grow, we need to ensure that we have the financial flexibility to support our development and construction programs. To ensure we have this flexibility, we filed a U.S. debt shelf prospectus in the quarter that will provide us with the ability to issue debt in the U.S. capital markets. Being able to issue debt in the U.S. will provide us with an additional tool in our toolbox to help finance our capital expenditure programs. We will be responsive to market conditions as we broaden our funding alternatives and the aim to execute our inaugural issue in 2026. Our balance sheet continues to be in excellent shape, along with our creditworthiness. Our current annualized FFO to net debt metric of 3.6% remains well above the threshold limits the rating agencies use in determining our credit rating. Turning to taxes. Our income tax expense in the quarter was $60 million compared to $56 million in the same quarter last year. The increase was primarily due to a higher pretax earnings, which were partially offset by higher deductible timing differences compared to last year. The effective tax rate this quarter was 12.4% versus an effective tax rate last year of 13%. We continue to expect our effective tax rate to be between 13% and 16% for the remainder of this rate period. Moving on to capital expenditures. In the third quarter, we invested $779 million which was an increase of 0.8% over 2024. The increase occurred in the transmission segment as a result of investments in the Waasigan transmission line and the St. Clair transmission line. These were partially offset by the overlap of investments in the Orillia distribution warehouse last year. In the Distribution segment, we saw a decrease primarily due to a lower volume of wood pool replacements, lower spend on system capability reinforcement projects, lower investments in the Orillia operations center, the Orleans Operations Center and the Orillia distribution warehouse as well as a lower volume of work on customer connections compared to last year. These were partially offset by investments supporting Ontario's broadband initiative. Looking at our assets placed in service. In the third quarter, we placed $577 million in service for our customers, which was a decrease of 3.4% compared to the prior year. In the transmission segment, we saw a decrease of 21% year-over-year, primarily due to the timing of assets placed in service for station refurbishments and replacements. These were partially offset by investments placed in service in Sault Ste. Marie, upgrading an existing line. In the Distribution segment, in-service additions increased by 18% from the prior year due to assets placed in service for our second-generation advanced metering system and timing of investments placed in service for system capability reinforcement projects. These were partially offset by a lower volume of wood pole replacements, a lower volume of work on customer connections and timing of investments placed in service for information technology initiatives. Looking ahead, we continue to expect earnings per share to grow between 6% and 8% annually through 2027, using the normalized 2022 EPS of $1.61 as a base. Finally, I'm pleased to report that our Board of Directors declared a dividend of $0.3331 per share payable to common shareholders of record on December 10, 2025. With that, we'll open the phone lines and be pleased to take questions. Wassem Khalil: Thank you, David and Harry. We'll now open the call to take questions. The operator will explain the Q&A polling process. We ask that you limit your questions to one question and one follow-up. If you have additional questions, we request you rejoin the queue. In case we can't address your questions today, my team and I are always available to respond to follow-up questions. Please go ahead, Shannon. Operator: [Operator Instructions] Our first question comes from the line of John Mould with TD Cowen. John Mould: Good to have you back, David. I'd like to start with the government's Pulse Panel on the broader environment for LDCs. I guess that's a fair way to characterize that. Looking for an early read on that process for you, what does that say about where LDC financing is going in Ontario? And at a first blush, could this create more opportunities for your organization? Or -- so maybe an indication that the government is looking for alternatives to the gradual consolidation. I think it's fair to say has been pursued historically. David Lebeter: Nice to hear you on the line this morning. I expected a question on Pulse. I think you're right. It is very early to actually definitively say what is going to happen there. But ultimately, what the government wants to do is ensure that all the distribution companies in Ontario have a good plan. They understand the investments they need to make going forward. And they're adequately financed and understand where that financing will come from so they can make those investments to support the growth that I talked about by the ISO, the 75% increase in demand for energy in the province by 2050. So that is the ultimate goal. If it was to result in further consolidation, we would certainly be open to that. We're certainly going to be participating, but that we'll have to wait and see where it goes. I haven't actually had a chance to meet with the Minister of Energy on that topic yet, and I look forward to that meeting. So I can have a better understanding myself of where they're going. John Mould: Okay. And then maybe just one on the U.S. debt shelf. When you think about the next JRAP period, and I appreciate you don't want to get ahead of your filings, but just what range of debt financing do you think you might consider drawing from U.S. markets just considering the deeper liquidity that's letting you consider that in the first place? Henry Taylor: John, this is Harry answering the question. Our first issue needs to be large enough to be meaningful. We need to build both awareness and our brand for lack of a better term, with the U.S. fixed income investors. So A, it will not be small. And as I mentioned in the prepared remarks, Canada is always going to be our primary market. But as we look ahead and see the funding needs that we have to support not only our investments in the current period, but as we think the accelerating investments into the next period, we need to have a substantial U.S. program as well. We do need to make sure that we're being prudent. And so we're not just going to slavishly drive in and take 1/3 of our program and put it into the market. If on a swap-back basis, it's more expensive to do so. So the market conditions need to be right. It will be meaningful, but we don't have a specific target or allocation. And we'll see. Certainly, as we've studied other utilities as they've gone into other markets, you clearly see then doing two things: One, building an awareness being the new kid in town, in a new market, but ensuring that on a swap-back basis it is still attractive from a financial point of view and hopefully accretive ultimately versus what could otherwise be there in terms of interest expense. Operator: Our next question comes from the line of Maurice Choy with RBC Capital Markets. Maurice Choy: Thank you, and good morning, everyone. I just want to come back to a comment earlier about financial flexibility. Given the rising growth capital expenditures that your company is experiencing. Beyond the ability to issue USD dominated debt, what are the options are you exploring? And perhaps you were looking in the past? Unknown Executive: Maurice. Everything is on the table, if you will. There's nothing urgent. Through the next couple of years, we are comfortably able to fund our capital expenditure program through funds from operation and continued borrowing. As we look ahead, we're assembling our rate application and preparing the financial projections that support that. And we will need to supplement debt with equity investments and/or something like a hybrid or a convertible as well. So we're looking at the range of options could include bringing a financial partner in some specific projects, if that is ultimately the lowest cost of capital more attractive. So we are not constraining ourselves just one lane, but looking for the best alternative or alternatives available to us to keep our overall cost of capital as low as possible and support the investment profile. But I do want to reiterate, through the next couple of years, we have no need for anything beyond the funds that we generate from our operations and the debt financing. Dependent on where we -- what happen through the rate application, we'll have clarity around the capital spending program in the next rate period, and we'll be doing the work behind the scenes to get ready so that there's never an issue in terms of funding our CapEx program. Maurice Choy: Just a quick follow-up. Has there been any change in the timing of when you file the rate application, I think, fall of 2026... Unknown Executive: Still planning on fall of 2026. We want to make sure we've got sufficient time to work through the process and not run up against the end of 2027. Maurice Choy: Understood. And if I could just finish off with backing into the expert panel that was launched by the government, it feels like this review was something that was done in the past, I recall back in 2018 and 2022, I think, there was a similar review being done and it doesn't seem like we saw a lot of consolidation after even though it was recommended. Any thoughts about what may change this time around to either, A, come up with a different outcome of a report, or B, even a different outcome in terms of actions and behaviors from the 50 other LDCs? David Lebeter: Maurice, it's David speaking. As I said earlier, my to a previous question. I don't believe the panel is actually trying to drive consolidation. They want to make sure that the electricity sector in Ontario can support they have growth in demand that is going to be coming over the next 25 years. So from that perspective, it's a little bit different than those other reviews that were done in the past that we're strictly focused on consolidation. That is not the focus of this panel. Operator: [Operator Instructions] Our next question comes from the line of Benjamin Pham with BMO. Benjamin Pham: Just wanted to go back to your guidance of 6% to 8%. I want to maybe help to get your comments on your year-to-date earnings per share has been well above that. It looks like it's 14% or so year-to-date. And just curious really your thoughts on that outperformance? And how do you think about the outlook going forward? Is there some puts to think about as you think about that to guide through 2027. Henry Taylor: Ben, it's Harry. The -- we are definitely generating earnings growth above what our guidance over the entire rate period is. And this performance this year has been a very pleasant favorable variance driven a lot by load. And so we've seen in both transmission and distribution above what we had put in our own internal budget, what we used in our assumptions for the guidance that's given us this favorable variance. Now load comes, load giveth and load taketh away. We've also had years where it's been the other where weather hasn't been as volatile or is extreme, and we've seen the other trend as well. So we're sticking with the 6% to 8% over the period. So that we're not going to push expectations up and then have to come back and say, "Oh, load didn't materialize the way it had in 2025 and end up disappointing". So that's the cold hard fact why where we are. Benjamin Pham: So it sounds like if load doesn't at least decline through 2027, you're nicely tracking above that range? Or you will be nicely tracking above that range? Henry Taylor: It's yes, it's possible. I don't want to say anything more than that. Benjamin Pham: Okay. I know -- thanks -- I mean it's the second or second topic I wanted to ask is on the -- you think about the JRAP, the higher CapEx and even all the priority transmission projects you have, like there's a huge series of them coming ahead? Like how do you -- a big topic on the industry now is human capital and access to it and maybe just not enough of it. Is that something that is, I don't want to say concerning for you is how do you think about managing that in labor and parts and all that as you head into the next phase. David Lebeter: Ben, David Lebeter speaking. We obviously pay a lot of attention to the resource adequacy can we have access to our engineer, procure and construct contractors? Do we have access to the appropriate skills within the organization. It hasn't been a problem yet. And to be honest, I don't see a problem on the horizon, but it's something we always pay attention to. We want to make sure we have the right resources available the right time. North America is big. There's lots of talk about the growth that's going on. But we've been able to secure really quality individuals to build our transmission lines, and we don't see that changing going forward. Henry Taylor: And it, I'm going to add on from both a supply chain point of view and a partner point of view, it isn't all our resources who are building or constructing or even designing the transmission lines. We rely on internal but also heavily on external resources, EPC contractors in particular. With the visibility we have over the next 7 to 8 years, we are able to bring partners in early may make it competitive, but bring them in, they can plan do their human resource planning our supply chain team has good visibility. It's not like all of these are going to hit all at once. They're laddered out through the period, and we have enough visibility now that we can on the supply chain side aside, make commitments for the long lead time items with our vendors to ensure we've got production slots. We've got promise of supply. Pricing may still be negotiable depending on the time frame. Obviously, we'd like to lock them down as best we can. But if you're committing to something 3 and 4 years out, we may not be locking in the price, but we will lock in the supply. So we are -- with the visibility we have, we're able to manage some of that risk that others may not be able to manage the same way. David Lebeter: It sounds a little bit counterintuitive, but actually having a pipeline of projects makes you a more attractive client and actually makes it easier for us to secure the resources and materials we need. Operator: Our next question comes from the line of Robert Hope with Scotiabank. Robert Hope: So the provincial government, obviously, is very focused on increasing transmission in the north. The federal government is also equally focused on expanding transmission across the country. Is this an area that you have put any work in? Could we see some incremental growth, either connecting additional Northern communities or the provinces. And I guess as a final point, is this even needed? Or do you have enough transmission growth in hand right now? Unknown Executive: Well, the last part of your question is interesting, Rob, is it needed? I'm a bit greedy, so I always like to have lots of growth. But yes, we have had conversations with the federal government I know they've got an announcement coming out later on today and some more nation-building projects, so we'll see what they decide to do there. I think the overall, as a general comment, there is a focus on electrifying northern communities that for too long, have been reliant on diesel generation and that has actually hindered growth across the country, not just in Ontario. So I would say both levels of government and even municipalities that third level of government focused on, how do we connect all the communities in Canada to the grid with reliable, affordable and resilient energy. Robert Hope: Appreciate that. And then maybe just a smaller question. Broadband, there looks like there's been some puts and takes there. How are you thinking about the timing and overall size of the investment here? We still think it will be in the $300 million to $700 million addition of rate base for ourselves. I'm getting a little bit more cautiously optimistic. I think this last round of negotiation between the Ministry of Energy and Mines, which now has responsibility for the broadband portfolio and the largest of the Internet service providers has finally broken the log gem. We're going to see things start to move. And I know I've been optimistic before, but this is the most optimistic I've been as we've been on this journey. I think over the next 6 months, we're having this call we'll be able to give you a better range estimate and an idea of how well it is moving. But I feel like we finally broke the government and the ISPs have finally reached an agreement on how to move forward. And that's what's going to allow us to get out the work we need to do. Operator: Our last question comes from the line of Patrick Kenny with National Bank. Patrick Kenny: Yes, welcome back, David, and great job Harry over the last few months. Just wanted to touch base on -- I know your allowed ROE is still locked in for a couple of years, but just given the recent cost of capital update from the OEB it looks like 2026 has shaken out to be about 25 basis points below your current 9.36%. So just wondering if you've had any discussions or feedback for the OEB that might help to hold the ROE a little bit closer to where you are at today for the next JRAP period? Unknown Executive: Pat, thanks for those comments. You're right. I think for next year, 9.11% is the ROE for any rate applications that come through. using forecasts for the benchmarks that are used in the formula. When we're back at this point, it would be 9.33%. So 3 basis points below the current approved ROE. But as you know, we have earned above that. And so we don't have any real concerns as we go in I think our submission, which is a public document in the cost of capital hearing was for increased equity thickness and other adjustments. The ruling was a generic ruling that applies to all utilities regulated by the OEB, but they were at pains mentioning over and over. If a utility feels their situation is different. They are free to bring proposals in the next rate application. So that's a door that we plan on jumping through as part of the next rate application. So at this point, stay tuned. Patrick Kenny: Got it. Okay. And then maybe just back on the effective tax rate range as well. I think you mentioned, Harry, 13% to 16%. Can you just remind us what tools you might have at your disposal to achieve the lower end going forward and perhaps extend that lower end of the level into the next JRAP as well? Unknown Executive: We don't have a lot of tools ourselves. What primarily drives it is the accelerated CCA and the so-called super productivity deduction in the budget. That would certainly help keep us at the low end -- continue to keep us at the low end as we continue to invest, we take and we're entitled to use that, and that's what keeps us at the low end. And we're happy to see that proposal in the budget. It has to be turned into law so that it does continue well into the next -- our next rate period. Patrick Kenny: Okay. And last one, I guess for David, maybe on the supply chain front. So I appreciate the details on the domestic procurement. Can you just maybe update us on some of your commitments for transformers and other equipment and components over the next few years as you look to bring some of your transmission developments into the capital budget. David Lebeter: At this there. We're not -- at this point, we have no concerns. We've got locked up manufacturing capacity. We anticipate no problems at all getting the materials we need transformers, switchgear, whatever it is for any of the projects. And our supply chain pays attention to that night and day. That is one of the big risks we pay attention to. As we're developing new suppliers in Canada, we continue to work with our existing suppliers to make sure that we don't cut off an avenue. We would actually like to have more suppliers, not fewer. And that we believe will help us with pricing as well. But no concerns at this point in time. Operator: Thank you. And that does conclude our Q&A session for today. I'd like to turn the call back over to. Wassem Khalil for any further remarks. Wassem Khalil: Thanks, Shannon. The management team at Hydro One thanks everyone for their time with us this morning. We appreciate your interest and your continued support. If you have any questions that weren't addressed on the call, please feel free to reach out, and we'll get them answered for you. Thank you again, and enjoy the rest of your day. Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Have a great day.
Kaarlo Airaxin: [Foreign Language] Excellent. Well, Luis, please walk us through the Q3 and give us a glimpse on the future ahead. The floor is yours. Luis Gomes: Thank you very much. Just asking the slides. Thank you very much. If we go on to the next -- to the first slide. So we had a strong or reasonably strong third quarter for the year. Our net sales were slightly down on last year for the same quarter. But last year, we're coming back off a bad second quarter. So we had a bit of a spike in the third quarter. We usually expect this to be a quarter with slightly slower in relation to others because there are holidays, summer holidays, summer breaks for ourselves and for our suppliers and also for our customers. So we usually expect to be a slightly quieter quarter. But nevertheless, we maintained the positive EBITDA. And -- the thing that we were less happy about was the cash flow that was very negative, but we expected that to some extent because we had large prepayments on many projects that were now -- we were now paying suppliers, we were paying subcontractors. And that is part of the reality of our business that this goes up and down during this period. Our order backlog has also gone down mostly because we are now waiting for new orders that we have been working on for quite some time. So we have focused our sales force in addressing those big orders. We are waiting for them. They are later to be contracted than we wanted. They are still there. We are still working with them. We are still going through negotiations and discussions with the customers. Probably chief among those orders is Sterna that has been commented quite a lot. We are still waiting for that. And because of that, our order backlog is waiting for those large new orders to come on, but they are late. And of course, our sales force has been very focused on that. But overall, for the year, we are still ahead of last year. We are doing bigger net sales. We are still in positive EBITDA territory. So in general, things are going okay, good even. We have had to announce a reduction in our guidance. I'll get to that in a bit. But that reflects the later arrival of new orders. We can go on to the next slide, please. So as I said, for the year, we have a strong positive EBITDA ongoing. And a lot of this is coming from the -- on the back of our sales of data and services. Not only that is growing in terms of net sales, but we still maintain a very good profitability. And that is contributing very positively to the overall performance of the company and particularly for our positive EBITDA. And this is now the fifth quarter in a row that we have maintained positive EBITDA. And this is something that for us represents quite a positive outcome over the last few years after many years of very variable results. On to the next slide, please. So as I mentioned, we had to announce new guidance for the year, largely due to the fact that some one large new order Sterna is delayed, but also because we have an issue with one of our suppliers on the SKAO project. And those 2 things have reduced our guidance for net sales for the year because we have not been able to do as -- or to recognize as much revenue as we would expect. And we also do not believe that we can maintain a positive operational cash flow for the year, but we still maintain the guidance of a positive EBITDA. Now we have done several actions over the year to mitigate these. We have been waiting until -- the last quarter was the one -- the Q4 was the one where we expected this -- both Sterna to come on and also to have a big revenue recognition from this one project, SKAO project. So when we realized that, that was not happening that we could not meet that, that's when we provided the update. We have nevertheless taken some measures. So there are people that we have not increased our staff, for instance, in preparation for Sterna. We are delaying hiring people to meet the start of that project. We have also done -- we have trimmed our workforce across the Board throughout the different sites to become more efficient throughout the year. So we have taken a few measures to actually mitigate to some extent these delays that we are seeing. Going on to the next slide, please. So just to give an update on Sterna. This is a big European program. It's a big European project. It requires the agreement of different countries. It requires the agreement of different meteorological services around Europe. And what EUMETSAT, the organization that ultimately is the customer has told us is that in July, when they tried to actually secure the agreement of all these countries, 5 countries did not commit and one in particular, needs to commit because not only of budget, but also of their importance in the European meteorological sector that is France. So France, as many might know, has had some issues with the government, and there have been a [ refugee ] issues in the country. And this has all made it harder for the country to commit to the project. We believe still they are still interested. They have committed in the past, said that they would support it, but we have to wait. And what that has meant is that EUMETSAT could not actually give the go-ahead to the project. This doesn't mean that we are not working on it with a prime contractor with ISA, the European Space Agency that is responsible for the implementation of the Sterna project. So that is discussions, negotiations are ongoing. So there are many, many ongoing activities around Sterna, but the reality is that the project -- the award of contract is late. We expect it to have it in quarter 4 this year, and we are now expecting it in quarter 1 next year, subject, of course, to the EUMETSAT Council agreeing this that the project can go ahead. If we go on to the next slide, please. Other events. So the other big event that had an impact on our net sales for 2025 is the SKAO project. So this is a program that we are doing supplying equipment for telescopes, radio telescopes actually on the ground. And what happened there is that one supplier was selected by the customer. The customer said you have to work with this supplier. And there has been a technical disagreement between them in terms of performance about what they are delivering. So we are basically between these 2 parties. But we are -- we believe we are closing on the resolution. But what this has caused is that about SEK 30 million in revenue that we expected to recognize this year, we could not recognize. So that -- this has had a big impact on our net sales for the year. As I say, we are working with both parties to resolve the problem. So we are doing tests. We are doing simulations to show that things work. But this is an ongoing process that we are currently undertaking. So we expect to resolve it, but it's just taking longer than what was planned. And in view of all of these changes, we have actually -- and I know that I have mentioned that I will be presenting a long-term outlook for the company. But because of these changes and because of the changes like, for instance, Sterna has quite a big impact on our forward look. We have decided to delay that presentation that show of what -- where we are going just to let us to see how things happen, when they happen, what are the timings as they have quite a lot of impact on our workload. And so the way we go forward depends on that. At the same time, as I mentioned, we have been streamlining throughout this last year, our operations on missions and systems and products, sorry. As many of you will know, we have shown a reduced order intake, particularly on missions. So we have reduced the amount of staff that we have dedicated to that part of the business. But at the same time, we have had quite good news on our product side. So we had the first CubeCATs delivered earlier this year. So that's our laser communication system. So the first 2 have been delivered. And looking more towards our services side, things continue to grow, to expand and to be very successful. YMIR-1, our dedicated VDES test bed satellite has demonstrated link -- VDES link for the first time in orbit. We are now doing several tests and evaluations with potential customers. We are working with some coast guards. We are working with organizations that are trying to bring in VDES into their operational day-to-day setups. And so we are actually seeing quite a lot of demand for those services, and we see that as a very successful outcome for the last few months for the company. And in that vein, in our maritime intelligence side, we also announced recently that both Sedna-1 and Sedna-2 are now fully operational. So that's quite good for us for our -- particularly our ship tracking AIS business. That is something that having more data is an important part of our business and to grow that side of the business. So we are seeing quite a lot of success in our data and services business. And -- also product admissions, although we are in a right way right now in a bit of a waiting period, we still expect it to be very successful, and we have quite a very strong pipeline on that part of our business. We go to the next one, please. So looking ahead, what we expect to see in the next few months coming. We do expect our order backlog to recover in 2026. As I said, we have a strong pipeline, both on the data and services, but also on the products and missions that we are building. So we expect that recovery to happen. We have launched of VIREON-1 forecast for quarter 1, 2026. So that is something that our teams are focusing very much right now on, preparing the satellite for launch. And INFLECION Phase 2 is approaching. So we are now in contract discussions. We are now with proposals. So we are now just in that final point of securing that second phase with our customers. So that -- all these are quite a lot of -- this represents quite a lot of activity for our teams right now. And next one, please. I think -- the next one, please? Or is this the last -- so I believe this is -- it might be the last one. So this is where we are right now. And I'll open the floor for questions. Kaarlo Airaxin: Right. Thank you. Yes, exactly. I believe there was a last slide saying that this was the last slide. But we have received a lot of questions ahead of this broadcast, and I can see that people are using the live chat as well. But I'll just make a reflection here. And so this result was a bit of a mixed bag because the Q3 was down year-on-year, whereas the 9 month was up year-on-year. So what do you think that we in the market should be looking for? Shall we not focus so much on the quarterly and then see this as, let's say, a long-term business and perhaps look at the 6 months and 9 months? Luis Gomes: I usually say that my preference is to look at on a yearly basis. Of course, when we are just coming from restating our guidance or changing our guidance for the year, this might sound strange. But I still think that as a business, if you look at the types of projects we are working on, the types of deliveries we do for our customers, quarterly tends to be quite a narrow time frame. Things change quite dramatically in a quarter. So usually, I prefer to look at on a yearly basis. That's a more -- or a 12 months basis. That's a more accurate way of seeing how our business is doing. Of course, we are still -- if a quarter is the last quarter for some reason, some orders move to the next year, we have a big change. But yearly is a better time scale. Kaarlo Airaxin: Right. But then again, if you're listed on the market, the curse is the quarterly. So I will just throw in a couple of questions here. So margins in the segments, data and services fluctuated significantly between quarters. Why and how should we think about this as the constellation grows going forward? Luis Gomes: So data and services, there have been a few one-offs on our data and services that have improved dramatically our profitability. But it is still a strong profitable business. Our EBITDA there are still in the 36%, I believe. So there are events sometimes that increase that. On the other hand, we have also increased our sales force, for instance. We have grown our team that is actually on the ground, talking to customers, selling more services in preparation for the new satellites for the new constellations. So we expect to maintain a strong profitability and actually grow the profitability in the future. But it will vary, particularly now while we are building the business, that part of the business. Kaarlo Airaxin: And also, I'll just throw in another question that I just received here from the sideline, and that's a more general question. Would you be able to elaborate a little bit of orders from the defense side? Any comments, any updates? What can you tell us? Luis Gomes: We can't talk too much about what we are doing on defense right now. There are several conversations ongoing. It's an area of interest for us. We already do work, particularly on our ship tracking business. A lot of it already goes to the security, defense and security market. Many of our products end up in defense-related satellites, but we do have a few other conversations ongoing. We can't talk much about them right now, but I can assure you that there is quite a lot of interest from that side on our products and our missions and our technology. Kaarlo Airaxin: Okay. And I have a couple of questions here from EUMETSAT and Sterna. And just to recap here, if I understood you correctly here, it's the delay of the decision is very much out of your hand. So it's more of a European community problem where we have an internal problem in France. So it's not really connected to Sterna. That would be the right interpretation. Luis Gomes: Yes, it is. So these big programs usually require full agreement from all countries on EUMETSAT, unanimity. And sometimes that is not reach -- that cannot be reached. And that does create an issue. I believe this was the first time that in a program of this magnitude that was seen that happened. So it was a bit unexpected from everyone, but it's something that is outside our control. We can help by making sure that what we are offering is good and it is appealing, but we can't control politics at European level. Kaarlo Airaxin: No. Well, maybe they can't either. But -- and also, this is -- I'm just reading from one other question here. And I think that, that is also connected to Sterna and the contract. Despite the fact that there is no decision, can the contract still be negotiated ahead of any award? What is the process there? Luis Gomes: So the process is that we are discussing with the European Space Agency, they are with our prime. So our prime is OHB Sweden. So we are discussing with the prime, and they are discussing with the European Space Agency. So discussions -- the setup of the contract, the technical discussions are all ongoing. It's just that we don't have yet the go-ahead. But all the preparatory work is being done now. Kaarlo Airaxin: Okay. And I have some cash flow discussions here, but I'll just pop one up that I received ahead of this, and that's you've been given extended overdraft facility by the banks, I take it. What does that mean? What can we read into it? What would you like us to read into it? Luis Gomes: It means that the space business is very what we call lumpy. So you have large orders, you have -- sometimes you have to pay suppliers quite a lot of money in times when you need a certain amount of flexibility. At the same time, we are also investing in our own constellation during that period. So having that -- having those facilities gives us the flexibility to be able to manage our cash and not having to stop investing, for instance, because we have a big outflow to our subcontractors. So it allows us that flexibility. And that's what we have been trying to build is that flexibility into the business. That is naturally quite variable in terms of cash. Kaarlo Airaxin: So it gives you, let's say, a cushion to continue with operations and perhaps expand operations there. And maybe that, in a way, answered the next question, which is you're not able to have a positive cash flow from operations and the mechanics there. So basically, it's you -- would that be a quarterly situation that you would have a negative cash flow in one quarter and then you have a positive due to the lumpiness of the business? Luis Gomes: Yes, that's usually what happens. So quarters are very variable when it comes to cash. So we expect that our target for not this year probably, but for the years following is to continue to have annual positive operational cash flow. So that's something that we want. That's something that we have thought very hard for. But we are still very dependent on large programs coming in coming then payments to subcontractors. So it's very variable. And in that context, quarter-to-quarter, we'll still see some very big variations. Kaarlo Airaxin: And I would just read a couple of questions here from the chat as well. Although we have talked a little bit of data services net sales, can we expect the data services net sales to stabilize or grow quarter-to-quarter going forward? Or should we be more patient and perhaps look half year and 12 months? Luis Gomes: We expect -- in terms of sales, we expect it to start growing next year. I would expect with new satellites coming online, we have -- middle next year, I would expect it to start seeing an uptake of our data and services. But that's because new satellites are coming online, and that should also improve our profitability at the time. So I do expect it to grow probably on a quarter-to-quarter, but you'll see it more on an annual basis. Kaarlo Airaxin: And we have a technical question here. Well, more or less technical. So have you decided on the number of satellite in INFLECION yet? Luis Gomes: So the baseline continues to be 12, but we do have a few opportunities to grow that number. So we stick to 12 for the time being. That's our design target. There are options for more. Kaarlo Airaxin: Yes. So yes and no. 12, but it could be increased. Luis Gomes: Yes. It's something that we are still in Phase 2. We are entering Phase 2 of INFLECION. So this is when we will probably make the decision. Kaarlo Airaxin: Yes. Another way to -- well, or a segue to that question would be then, so you have decided on 12, but if there is an opportunity to increase that, you would be able to do that. Yes, all things considered. Luis Gomes: And also, even outside the INFLECION program, we have options to actually include. We could build more satellites, for instance. So we have been looking at that possibility. So there are opportunities even without INFLECION. But within INFLECION, yes, we could have more satellites if we decided that there was a market for them. Kaarlo Airaxin: Yes. And if we look at the order backlog, you have previously stated that you have a good visibility and this time, it has decreased and well, connecting that to the visibility, could you just walk us through why? And what can we expect in the future? Do you address that? Do you need to address that? Luis Gomes: So as I say, probably the big item has been Sterna on the order backlog. It is a huge thing. As I say, because we are in negotiations, we are in discussions, a lot of our sales force, a lot of our people that actually -- our sales and business development people have been involved in that. And we are focused on that work. It is the case that sometimes we have to focus on some of these bigger orders. And then if they don't come through, then we have a delay on our reduction on our order backlog. But nevertheless, the pipeline remains very strong. Kaarlo Airaxin: So more to come. And I'd just like to -- well, highlight because I observed that DNB Carnegie recently initiated the coverage of you with a fair value of 106, which is above today's print. And I don't really need you to comment on their target price. But if you don't mind, I would like you to comment on 1 or 2 of their assumptions, if that's okay with you. And in case of Sterna, they expect -- well, or mention initial order value of around EUR 5 million to EUR 6 million for the first 6 satellites while you as a company have previously communicated a total project value of around EUR 60 million. That doesn't necessarily mean a contradiction in terms because there's a difference between 5 and 6 satellites and you are mentioning 12. But could you elaborate a little bit on that? Luis Gomes: I would say that, that guidance is incorrect. So we stick by the total project is worth a lot more. It's worth more than EUR 60 million. So I think they underestimated quite badly the number. Kaarlo Airaxin: And in the report, they compare you to several international satellite operators. And when you look at the stock market, it's -- well, we're in the stock market, we like peer groups. Do you agree with their peer groups? And if anyone wants to know them, I refer them to the report because there's a number of peer groups. Are you comfortable with peering? Luis Gomes: In general, yes, I think they are representative of our sector, even if in some cases, they -- the mix of their business is a bit different from ours. But they represent different parts we operate in. And in that sense, yes, I'm satisfied with that. Kaarlo Airaxin: And they use key metrics would be EBITDA margins and sales. And yet again, not going into your internal key metrics, but for the market, that would be good metrics to look at, I take it. Luis Gomes: Yes. Kaarlo Airaxin: And in that case, would you expect -- would it be possible for you to reach some SEK 370 million, SEK 375 million in sales for the next years -- for the next year, I should say? Luis Gomes: Yes, I think so. I think that's a perfectly achievable number if we look at the kind of pipeline we've got right now. So yes, I'm fairly comfortable with that assumption. Kaarlo Airaxin: Yes. And then also, I received an interesting -- well, an interesting question for many companies listed in Sweden and reporting in Swedish krona. Do you expect the exchange rate difference to further impact Q4 and 2026? Luis Gomes: As always, you're asking me to guess the international markets that is something that is quite difficult. We try to hedge a lot of our debt on currency. We also operate a business that is very varied across different countries. So yes, we expect it to have an impact. But at the same time, we usually are fairly comfortable because as I say, we buy and sell in many different currencies, and we always -- we tend to hedge all of those. But when it comes to reporting, yes, we expect that to have an impact. Kaarlo Airaxin: And one of the key words there were many currencies. And forgive me my ignorance here, but would it be fair to say that particularly towards the Swedish krona, that would be more, let's say, a translation rather than a transaction, you buy and sell in euros or dollars, but you report in krona? Or should I look at it in another way? Luis Gomes: No, it's exactly that. So we tend to operate very much in euros, British pounds, in dollars. That is a lot of our operation maybe that's in those currencies. So it's more how we translate that into our reporting. Kaarlo Airaxin: All right. All right, Luis, thank you for that. Considering the time here, it was very educational. And there's a lot of questions out there. And any one of you who needs to have more information or granularity when it comes to the satellites and other programs, we would guide them towards yourself, and that will be your web page, I take it. Luis Gomes: Yes, that would be a great place to start. And if you want any more -- if you want to discuss anything, Håkan will be more than willing to actually direct you to the right people. Kaarlo Airaxin: Excellent. And Håkan, that would be the Head of IR. So with that, Luis, I thank you so much, and I wish you the best. Luis Gomes: Thank you very much.
Operator: Thank you for standing by, and welcome to the GrainCorp Limited FY '25 results. [Operator Instructions] I would now like to hand the conference over to Mr. Robert Spurway, Managing Director and CEO. Please go ahead. Robert Spurway: Good morning, everyone, and again, welcome to the GrainCorp Results Call. This morning, we're presenting from Sydney, and I start today by acknowledging the Gadigal people of the Eora Nation and paying our respects to elders past and present. If I refer you to Slide 4 of the pack for today's agenda, I'll provide some updates to start with, including our financial year '25 highlights, strategy and growth, financial performance will be covered by Ian Morrison. We'll update you on the balance sheet and capital management and provide some comments on the outlook ahead. For those following online, I will share with you the page numbers as we go through the presentation. So starting on Slide 5. Our financial year '25 underlying EBITDA of $308 million was a lift on the prior year. We saw total grain handled of 31.6 million tonnes and recorded a record, again, in oilseed crush volumes. We've seen improved contribution from our Animal Nutrition and bulk materials sectors. And it really demonstrates we are controlling what we can in the business. That's especially so given the financial year '25 operating context, which as we updated at the half year has shown strong global production from all supply regions around the globe, meaning that Australian grain has had to compete for its place in the world. What that means is customers have been subdued in their purchasing behavior and growers who are experiencing relatively weak grain prices haven't been that willing to sell. It demonstrates again that GrainCorp given the strength of our result is responding really well to that global environment. We're finding opportunities and delivering on them where they exist. What that's created for GrainCorp is a really strong balance sheet. We have $321 million in core cash and including the $0.24 interim dividend that brings total dividends fully franked for financial year '25 to $0.48 per share. We've also completed $38 million of the $75 million share buyback. Let me turn now to Page 6. This is the numbers slide, and you can all read it more quickly than I can share it with you. It does highlight though what I've covered in that introduction. Pretty much across the board and financial metrics, we've seen an uplift on the prior year with that underlying EBITDA up to $308 million, the underlying net profit up to $87 million, and the strong core cash position of $321 million. Ian will talk you through the drivers behind that and the segment performance shortly. But before doing so, I just want to touch on some other highlights across other areas of the business and provide you with an update on our strategic progress. Moving to Slide 7 on health and safety. We always strive for zero-harm at GrainCorp as a large and operational business that's at the center of our values and what we do internally. We've, over the last 12 months, strengthened our critical risk frameworks, which has seen reduced critical incidents in areas like confined spaces, mobile plant and bunker management. And I think that highlights the sort of operations that we have across the board. So while it's disappointing to see a slight increase in incidents recorded through the year, our overall trend is in the right direction, and we are focused on delivering that zero-harm goal in everything we do. On Page 8 of the presentation, I share with you both the challenges and the opportunity of the climate transition and sustainability. I'd describe it as a real opportunity for the agriculture sector and GrainCorp sits at the center of that opportunity, and we're leading in the sector, connecting growers and customers. Over the last 12 months, we've had our near-term targets approved and set through the Science-Based Targets Initiative. That results in a 42% reduction in absolute Scope 1 and 2 emissions by 2030 with a road map in place to deliver that. We've also had Scope 3 forest land and agriculture emissions approved out to 2034. So to some extent, that defines the challenge. We're demonstrating the opportunity through initiatives like GrainCorp Next. For those of you that follow us, I've spoken about that before, it really is an initiative that connects growers with customers around the world and demonstrates our ability to deliver on a low-carbon supply chain, principally in our canola end-to-end value chain. It's allowed us to measure on-farm emissions and support growers in that respect. We have demonstrated best technology and practice and operational emissions reduction across our processing assets and logistics and that's allowed us to engage with end global customers to deliver that opportunity, both for growers and GrainCorp into the future. At the same time, we're making progress in areas like improving our energy efficiency by over 2.5% over the last 12 months, reducing dust and damaged grain to landfill. We've reached a milestone of 1 million kilograms of tarps recycled, and we've got formalized commitments in the sustainable packaging area. All of those areas and many more are covered in our sustainability report for 2025, which has also been released today. And I do commend that report to you to cover, as I said, all of those areas and many more. Moving to Page 10. Our GrainCorp vision and strategy is about delivering sustainable growth through the cycle. We described that in 3 key areas around enhance, expand, and evolve in terms of the way we look at growing our business. Perhaps Page 11 is a really important way to start looking at that, where we talk about the macro trends that we're exposed to and the macro trends that, quite frankly, provide the opportunity and the positive outlook we have for GrainCorp into the future. We're continuing to see growing demand in population across our key markets across Asia and our export capability and infrastructure is set up to meet that demand. We're also seeing quite strongly increasing supply on the East Coast of Australia as farmers employ technology and innovation to improve their practices over time. The 10-year rolling average for East Coast production improvement is at least 2.8% on a compound annual basis. So that increased production also supports the utilization of our assets as we meet that growing demand. GrainCorp is also really well set up and well protected through the diversification of the markets that we operate in. And I think that's demonstrated really well in the top right-hand side of Page 11. And another trend we're seeing across Asia, in particular, in the emerging economies is that real growth and demand for nutrition and protein and our animal feed business is exposed and aligned to the benefits that, that trend is delivering. I'm going to cover Page 12 fairly quickly because over the next few slides, I'll go into some details and some examples on how we're delivering on enhance, expand and evolve. We have invested in our country network and our business more generally. We're seeing growth from the investment we've made in Animal Nutrition and across our Nutrition and Energy business more generally. And we continue to progress our business transformation and deliver benefits from that, and I look forward to sharing those with you shortly. Moving to Page 13 to look at that enhance area, and the investments and improvements we're making in our up-country network across our Agribusiness. At the half year, we spoke about the rail upgrades at Condobolin and the benefits that brings in terms of the efficiency of sites like that. It's one of several examples across the network. Over the second half and ahead of the harvest that's now underway, we've completed a $5 million upgrade at our Burren Junction site. I was in Northern New South Wales last week, and it was great to see those bunkers in operation and the opportunity that provides to receive more grain from growers in that region. It improves our segregation and storage capacity and improves the service and value that we can provide to growers and then pass through our network. We've also improved turnaround times and capabilities ahead of this harvest with $8 million invested in new grain stackers. Just for those that aren't familiar with the operation of our business, the grain stacker allows us to more efficiently unload growers trucks and put it on our bunker storages. The ones we've got improve efficiency, improve the truck turnaround time and provide greater mobility of assets across our East Coast network. As the harvest rolls South, we'll be moving that equipment around so that many growers across our network benefit from that investment and improvement. Again, when I was in Northern New South Wales last week, it was great to talk to growers and hear the positive feedback on their experience in response to those new investments. On Page 14, at the last year's annual results for the first time, we shared with you and disclosed the contribution margin from our bulk materials business, demonstrating the diversification and utilization of our extraordinarily valuable port assets. I'm delighted to share with you today that, that progress has continued with contribution margin increasing to $41 million through 2025. We shared with you that our focus in the future continues to be on disciplined investment in that infrastructure to further increase efficiencies and free up capacity to expand our customer relationships and pursue opportunities that improve the mix and margin of the non-grain products we handle through our ports. Throughout 2025, we've been undertaking a strategic review of our GrainsConnect joint venture in Canada. The update on that is shared on Page 15. And as a result of that ongoing review, we have taken an impairment of $26 million in the carrying value of that asset. We do expect to provide a further update in the first half of '26 on our strategic review, but we would comment that over the last several years, Canada as a market has experienced some difficult and challenging trading conditions. Domestic capacity and expansion alongside the global margin environment has impacted end-to-end margins in that market. And whilst we're pleased on an ongoing basis with the operational performance and quality of our assets, and the fact that the current season shows signs of improvement, we are keen to ensure that we operate that business and set it up for success in the best interest of GrainCorp shareholders into the future. As I said, we'll provide an update over the first half of '26. Moving across to Page 16. This really is about expand, and it highlights the investment and the growth in our Nutrition and Energy portfolio. Not only are we seeing the growth there at -- in the results already, we're setting ourselves up for future growth through investment in our integrated value chain. We're undertaking improvements in our oil -- edible oil refining capability, our West Footscray foods plant. That will lower operating costs and improve product quality for customers. It will also reduce greenhouse gas emissions and represents an investment of between $25 million and $30 million, phased over financial year '26 and '27. We've spoken several times over recent result periods about our focus on the Animal Nutrition area, and I'm pleased to report that sales have increased between '21 and financial year '25 by 83% from 390,000 tonnes up to 713,000 tonnes. So not only are we seeing the bottom line impact of that flow through earnings, but it is underpinned by really strong fundamentals and growth in volume, including our acquisition of the XFA business, which continues to outperform its business case. And the expansion of that and our existing liquid feed and dry-lick business provides opportunities for the future. In Agri-Energy, as you all know, we are in an MOU with Ampol and IFM, and we've been working closely with our partners on developing the end-to-end value chain for the development of feedstocks into biofuels in Australia. The recent federal government commitment of $1.1 billion for the Cleaner Fuels Program and $250 million to the Made in Australia Program demonstrates the improving environment and the confidence we have in our strategy in that area into the future. Moving to our business transformation program. Much of which is initially focused around our Nutrition and Energy business. I'm pleased to share with you today some further detail on the benefits that we see from that program but I just want to recap on the rationale for the program first. It is a business-wide transformation designed to unlock efficiencies and drive value across our integrated value chain. It includes an opportunity to address an end-of-life version of SAP and delivers a stronger business for the future. Where we're at in the program is about 90% of the build of the technical aspects are complete, which means we're moving into the testing and deployment phase. The progress has been slowed and had some challenges, but remains on track to complete now in the second half of '26 rather than the initial planned first half of '26. What that means is a slight increase over our previous estimate of $15 million and the cost for the program going forward. So although it's being derisked that slightly extra time is adding to the cost, but we're confident in our progress in the year ahead and the derisking we've been able to achieve. In parallel, we've been working on the benefits that the program will achieve. And I'm pleased to share with you today the targeted run rates for the end of financial year '26 and the benefits beyond that. The early-stage benefits we're seeing starting to flow are estimated to be $5 million to $10 million by the end of '26 and are focused on areas like labor productivity and procurement savings initially. What we're seeing is the benefit of the overall end-to-end program, identifying opportunities and those flowing through to that commitment of $20 million to $30 million in uplift as a program complete. At this point, I'm going to hand across to our CFO, Ian Morrison, who will talk you through the financial updates and performance. Thanks, Ian. Ian Morrison: Thanks, Robert, and good morning, everyone. I'll start on Slide 19 and summarize financial performance for FY '25. At a headline level, our Agribusiness segment, is up from $162 million last year to $218 million this year. And that's largely off the back of improvements in East Coast Australia crop production, which I'll touch on more shortly. . Nutrition and Energy segment, that's slightly down year-on-year, and that's mainly as a result of lower crush margins. Other headlines, as Robert noted before, and we have recorded a noncash impairment of $26 million relating to the investment in GrainsConnect Canada. And last item, I'll just touch on briefly on this slide is net interest costs. So they are up year-on-year, and that largely reflects higher commodity values on our -- and volumes off the back of our commodity inventory funding. Now I'll move on to Slide 20 to provide further detail on the Agribusiness segment and in particular, starting off with East Coast Australia business. So as I touched on, we did see total ECA crop production of 34.7 million tonnes in FY '25, increasing from the 26.1 million tonnes in the prior year. And a feature of that crop production was stronger production in the north in Queensland and Northern New South Wales, in particular, partly offset by lower production in Victoria. In terms of total grain handled that led to a result of 31.6 million, up from 28 million in the prior year. Carry-in into FY '25 of 2.5 million supported that, but that was lower than the carry-in coming into FY '24 of 3.9 million. A feature of the results that we talked to back at the half year was the opportunity the business took to really capitalize on better margins across commodities, including chickpeas and canola seed in particular. So that was really good opportunities captured by the business. A key element I just wanted to touch on in the results as well as the impact of the Crop Production Contract, so the total impact to the P&L is $41 million in the results, and that's including the $6 million annual and premium payment. And the overall cash impact was a payment of $58 million under that contract. But the key highlight to call out, though, is that, that payment in FY '25 means that we have reached the total half on the contract. And so that means for the remaining 4 years of the Crop Production Contract, there will be no net payments by GrainCorp. And we still of course, to retain the opportunity under the contract in the downside protection in the event of drought. And so from an overall perspective, that leaves us in a strong position with the protection of that contract. And lastly, as Robert touched on earlier, really pleasing performance in our bulk materials business with our continued trajectory of improving contribution margins. I'll now move on to Slide 21 and touch on our International business. So starting off with Western Australia, we did see a strong increase in crop production in WA this year with a 55% increase on the prior year and well above the 5-year average also but the global conditions we've seen did negatively impact margins out of that market. That's with the strong competition from many other regions. So we did see a decrease in earnings out of our international business and in particular, WA this year. And as Robert touched on earlier, we've continued to see those challenging conditions experienced out of Canada, partly off the back of those strong global production conditions, limiting opportunities but also some of the specific factors within Canada also. I'll now move over on to Slide 22 and our Nutrition and Energy segment. Our crush volumes reached another record in FY '25 with total volumes of 557,000 tonnes, up 3% on the prior year. And that reflects a good focus on operational efficiencies. And a key feature this year was really good restart time from the annual maintenance shutdown we have at Numurkah -- at our Numurkah plant. In terms of crush margins, as we touched on earlier in the year, they have been below what we've seen in recent years, and that's been impacted from a few factors, partly the smaller Victorian canola crop with the weaker crop conditions in Southern regions and but also strong global supply from a large soybean crop we've seen in a number of regions. And then the last item to touch on here is we did ceased processing of edible oils at East Tamaki plant this year following the strategic review in FY '24 and have consolidated manufacturing into our West Footscray plant in Melbourne. Over to page on 23, Animal Nutrition has been a real highlight in the results with strong growth in volumes, as you can see in the chart on the right. That, of course, is benefiting from a full 12-month run rate of the XFA acquisition we completed last year compared to 6 months in FY '24, but underlying sales volumes also grew across our preexisting business, which is pleasing to see. And then from an XFA business point of view that delivered a 12-month run rate EBITDA of $14 million, and that continues to outperform the business case and continues to support investment we continue to make in that segment overall. And then just touching on Agri-Energy. Volumes remain strong and similar to prior year with good volumes across both tallow and used cooking oil. But renewable fuel feedstock demand has continued to be impacted by some of the uncertainty around U.S. biofuel policy and that has had a modest impact on margins year-on-year. I'll now just move on to Slide 24 on corporate costs. Underlying corporate costs are in line with the prior year, and we continue to stay focused on disciplined cost management. And then in terms of spend on growth projects, that continues to mainly represent our ongoing work on the oilseed crush feasibility. And the business transformation costs noted on this slide are the OpEx costs of $30 million and that increase year-on-year is, of course, as we've moved from the design phase during the course of FY '24 into implementation this year. I'll now move to balance sheet and capital management and starting off with Slide 26. So we finished this year with a strong core cash position of $321 million. That's up from $296 million at the half year and slightly down from the $337 million at last year-end. Also just touching on the slide, we took the opportunity recently to extend the maturity of our term debt from March '27 out to November 2028. And that's on the principal of $150 million, which remains unchanged. Overall, our balance sheet is in a very strong position, which allows us to continue investing for growth while also providing strong returns to shareholders. Now moving on to CapEx on Slide 27. The total capital expenditure of $77 million in FY '25, includes sustaining CapEx of $59 million that sustaining CapEx is slightly above the target range of $40 million to $50 million, and that just reflects higher spending in an above-average crop year, partially on investments across our up-country assets that Robert touched on earlier, but also in areas like tarpaulins with those higher volumes we saw in FY '25. We are also anticipating to see CapEx higher in FY '26, and that's partially as a result of the upgrade we're undertaking at our West Footscray plant in relation to edible oil refining capability. On the right-hand side, D&A is broadly in line with FY '24 and continues to stay steady. Now moving on to shareholder returns on Slide 8 -- Slide 28. As Robert noted earlier, the Board has declared a final dividend of $0.24 per share, fully franked, made up of an ordinary dividend of $0.14 per share and a special dividend of $0.10 per share. This takes total dividends in FY '25 to $0.48 per share, and that's in line with the previous year. Also during the year, we completed a $38 million of the previously announced $75 million share buyback. And overall, this year continues our strong record of capital management and positive returns to shareholders. We'll continue to assess capital management against growth opportunities across the business in line with our capital management framework. On that note, I'll now hand back to Robert. Robert Spurway: Thanks, Ian. Towards the end of the presentation, now at Page 30, I'll provide some comments on the outlook. As many of you will be aware that ABARES in the September update forecast an East Coast crop for the harvest that's now underway of 30 million metric tonnes with conditions demonstrating to be more favorable in Queensland and Northern New South Wales. And we're certainly seeing that coming through in strong yields from that area in the early harvest performance, which I'll touch on in a moment. Given a dry finish in Victoria, the -- and changes in grower planting profiles, they were forecasting an 11% reduction in the East Coast canola crop. And I would add that ABARES will again update the current crop in early December. With harvest now well underway across the country, we've seen strong receivables to date of 4.2 million tonnes across our network. And pleasingly, exports are also underway with 0.5 million tonnes exported already in the financial year. We do see global grain and oilseed supply remaining relatively strong. And that means the outlook for margins is broadly similar to what we've seen through financial year '25. Like last year, that creates the opportunity for GrainCorp to continue to find and deliver on the opportunities that are there. And as we've done so in recent years, we'll be providing earnings guidance at our AGM in February. Just to recap and in conclusion on Page 31. We've delivered improved underlying EBITDA of $308 million in financial year 2025. We've completed and delivered several initiatives to increase volume and efficiency across our network, and we continue to invest and deliver on growth across our business more generally. We've got a very strong balance sheet with core cash of $321 million. And as Ian has just recently touched on full year dividend, fully franked, of $0.48 per share on top of the $38 million returned via share buyback. We are continuing to deliver on our promises of investing in the business, providing strong returns to shareholders managing what we can and setting the business up for future growth. Thank you for your support and interest. I'll now hand back to the moderator for any questions. Operator: [Operator Instructions] Your first question comes from Owen Birrell with RBC. Owen Birrell: Just in the interest of time, just my 1 question, really around that comment that you've stated that you see the outlook for margins to be broadly similar in '26 to '25. I just want to align that with the comment around the East Coast canola crop being 11% down into this current harvest. Just wanted to get a sense as to what you think the canola crush spreads are going to look like next year if the Victorian supply is 11% down on essentially where we were this time last year. Robert Spurway: Thanks, Owen and I'll hand to Ian, who will answer that question for you. Ian Morrison: Yes. Thanks, Owen, for the question. In terms of that 11% estimate from ABARES in terms of the canola crop, although it is a bit down year-on-year, that still generates an exportable surplus overall of canola seed. So at that level, it's a relatively modest impact overall on crush margins and the broader factors that have -- of course, it's one of the legs that has an impact, but meal demand and then vegetable oil values in general also have an impact. So it's a combination of those factors. And although it is early in the year, we would expect crush margins to stay at similar levels to FY '25 at this stage. Robert Spurway: The other important factor, Owen, that I touched on is the record crush volumes that we're doing. So we would expect that to continue as well. So although the margin environment over the last couple of years, has been down on what we saw in years prior to that. We are offsetting that to some extent through the improvement in volume through the plants. . Operator: Your next question comes from James Ferrier with Canaccord Genuity. James Ferrier: What's the setup in FY '26 in relation to export opportunities around chickpeas in particular and maybe also canola seed given they both were tailwinds to varying degrees to your earnings in FY '25. Robert Spurway: Thanks, James, there are still opportunities, and we are exporting both canola and chickpeas in the early part of the program this year. As we said at the half year, the opportunities on commodities vary from year to year. And I think we called out canola and chickpeas as 2 specific examples of where we've seen opportunities in the market, we've been able to capture those opportunities and execute on them at a time in the year that made most sense in terms of extracting the maximum margin. As we look at this year, as I said, there are still opportunities on those commodities. But I think the broader picture is important that we'll be looking at where opportunities may emerge on whether that's wheat, barley, feed wheat versus milling wheat, canola and chickpeas. So all the time, we're looking at where those opportunities are, which markets make more sense. And I think the quality and the scale of our infrastructure allows us to respond to those opportunities very quickly and deliver that margin. So that's the way I think we'd look at it broadly going forward, really not much more to add than that at this point in time, James. Operator: Your next question comes from Ben Wedd with Macquarie. Ben Wedd: Just turning to sort of that receivables comment there, where you've noted 4.2 million tonnes of receivables. I think sort of looking back to last year, we were sitting at about just over 5 million tonnes. So I'd just be interested in many comments around sort of the change in pace of those receivables and how you're sort of seeing that moving forward over the rest of harvest? Robert Spurway: Yes. Really, no 2 harvests are the same, Ben. So I'd strongly urge all of you not to consider that too much. If you look at the shape of the curve, it's very similar, give or take, what we've seen on average over the last number of years. And typically, the pace of early harvest depends on the prevailing weather conditions this year, to the extent there is anything normal, it's probably what we'd see as a more normal curve in terms of uplift versus last year. . If I recall, there was a very dry finish in the north and harvest started to come in earlier in Northern New South Wales and Queensland than it has this year. Where we're at right at the moment is we're fairly well advanced in Queensland and including Southern Queensland. I'd say we're well underway in Northern New South Wales, but really getting into Southern New South Wales and Victoria harvest is yet to commence across many of those regions. So long answer to a pretty simple question. There really is just no relevance in the comparison. The commentary I'd provide, though, is that there are no 2 years the same. The harvest is progressing almost exactly as we would have forecast it based on the conditions we've been seeing over the last number of months. . Operator: Our next question comes from Richard Barwick with CLSA. Richard Barwick: Can you just talk about GrainsConnect. So obviously, another disappointing results for earnings down or down by more in FY '24, obviously you've taken the impairment. So the -- I guess 2 questions part of the impairment. What does that actually deliver? What does the impairment mean? So for example, could we see a reduction in the D&A that got flowed through. So do we get an earnings benefit from this impairment? And is there a risk of further impairment given that the strategic review is yet to be completed? Robert Spurway: Ian, I'll get you to talk to that. Ian Morrison: Thanks, Richard. In terms of the D&A part, because it's equity accounted, we pick up results from that perspective. But with this impairment, that brings down to effectively a 0 cutting value. So we wouldn't be booking the -- any ongoing gains or losses effectively. While it's impaired to that amount, we'll still, of course, track that closely, but that's how it would affect the P&L initially at least. . And in terms of further risks, it will really depend on how conditions continue to perform in Canada and what we see as the outlook. And that is a level of better optimism for the season ahead just with a better crop. So that will hopefully see a bit of an uptick in performance. And then in terms of any further exposure, it will partly depend on the cash performance ultimately of the business. . Operator: Your next question comes from John Campbell with Jefferies. John Campbell: Just with your comments and excuse me if this question has been asked because I came in a little bit late. But just your confidence around the margin environment for FY '26, given global supply seems to be continuing to make records. Yes, I mean, how much sort of risk, I guess, around that part of your outlook commentary. Robert Spurway: Yes, we have made some comments on that already, John, but I'll expand on those a little. Broadly, what we're saying is we expect that the margin environment is going to be similar in the year ahead to the year previously. I think in terms of your question, therefore, by definition, there's not a whole lot of risk to that. Ultimately, the underlying demand is there. So the fundamentals for our business remain strong. We're seeing good demand, particularly across Asia, but across global markets correlated to population and the need for food, but also increasingly a correlation to a growing demand for fuel feedstocks, particularly in the oilseed space. So what we'll be looking to do is access those margin opportunities at the times of the year that make most sense on the commodities that we handle. I think that's where our assets come into their own in terms of the agility and responsiveness we're able to make to those margin opportunities. And if you listen to the global commentary, what we're saying is very consistent with what you're hearing coming out of global markets and other major grain operators. So summing up the question, not a lot of downside risk. We'll be continuing to look for opportunities. And we'll be watching as the year proceeds the development of the next Northern Hemisphere season crop. That's likely to be the next major catalyst for potential for disruption and a reset to the margin environment. Operator: Your next question comes from Jonathan Snape with Bell Potter. Jonathan Snape: Just 2 questions, if I can. One around all the moving parts because obviously, you've got the CPC not coming through next year. You've written down the Canadian business. So I'm assuming you are not going to take $15 million in losses, that's kind of a 0 number. So all things being equal, if it was an identical season, you should be, what, $50 million, $55 million better off, I assume you're not going to be paying the annual fee anymore? And then just secondly, following on from that, with the through the cycle number, the $320 million, if memory serves me, there was a contribution in there assumed from Canada somewhere around the kind of $10 million mark, if memory serves me correctly. With that now carrying at 0, is it the cost out is kind of mitigating that contribution? Or is that still in the TTC, i.e., you might write it back up again. Robert Spurway: Look, thanks for the questions. We'll count that as one question, Jonathan, so you're not accused of getting 2 answers by your peers across the industry. Jonathan Snape: 2 subsections. Robert Spurway: And also cognizant of the fact that we're not providing guidance at this point. So we can provide some directional comments around the way you should think of the business. Of course, although we're relying on the ABARES forecast, there is some time to go before our volumes are fully known for this year. I've touched on the fact that we're seeing fairly favorable conditions come through in Northern New South Wales and Queensland. We're less certain about what Victoria, looks like at this point because the harvest there is yet to start. But all things being equal, volumes down a little bit. Margins are similar. And as you indicated, there's a number of changes we've made in the business that will provide for some upside opportunity, including the benefit of the CPC. There's probably not a lot more we can say from a quantitative point of view. And I'm not going to comment on the math you were doing in your head there, other than to say, qualitatively, that's not a bad way to look at the business. But Ian, you might be at a bit of color, particularly around Canada and those sorts of more detailed aspects. Ian Morrison: Yes. Just 1 point to add, Jon, is the annual premium under the crop production contract will continue to be paid. So that's $6 million. So from a P&L impact this year of $41 million, is a $35 million excluding the premium and $6 million with the premium. So that was one item to call out. And as Robert touched on in terms of looking at it year-on-year and East Coast volumes based on ABARES would be a bit lower, obviously, still quite a strong crop but a bit lower than last year's overall crop. So those are kind of the moving parts relative to the CPC and GrainsConnect Canada. And probably the last item to touch on that is international was a bit of a drag on earnings this year more broadly, partly off the back of the margin environment, too early to predict exactly where that goes. But the overall conditions remain relatively similar. So that's one of the key factors we'll be watching closely as well in the overall mix. And then last item to touch on from your question around through the cycle. So our Canadian joint venture was included in our through the cycle at just under a bit under $10 million, not quite at $10 million, but not far off it. But in terms of overall through the cycle, what we have been seeing is outperformance in a few areas now that are likely mitigating that. So 2 items I've touched on particularly would be bulk materials and the continued improvement there. And then also Animal Nutrition, we did add $10 million to our through the cycle from the purchase of XFA. But as you'll have seen in today's update, it's delivered $14 million, and we do continue to invest in growth of capacity in our overall Animal Nutrition business. So we are seeing some positives as well, which we'd expect to largely offset some of those headwinds we touched on. Robert Spurway: In the appendices of our pack on Page 40, we spelled out the historical performance of the business and highlighted that without the impact of the crop insurance costs over the last few years. We restated the numbers to demonstrate that we're delivering well above through the cycle in each year and on average, significantly above that at $423 million. So we can certainly talk about that in meetings over the course of the next number of days. But Slide 40 in the appendix is perhaps a good one to look at through the cycle followed by Slide 41, where we've highlighted the breakdown and the way we look at through the cycle. . Operator: Your next question comes from Scott Ryall with Rimor Equity Research. Scott Ryall: Robert, just a quick question on Agri-Energy and looking forward. You talked about progressing your MOU targeting a FEED phase in 2026, which obviously is a more costly phase than pre FEED than what you're doing at the moment. Could you just comment -- you made a comment on the cleaner fuels program and the commitment of government. Is that enough -- in your mind, is that enough to actually activate the industry in Australia or what else needs to be done? And maybe you could just give some color around your view there? Robert Spurway: Yes. Sure, Scott. Really great question. We've been delighted to have a seat on the Jet Zero Council, which has kept us very close to the whole value chain in our work with government. So that's allowed us both to be involved in the formation of policy, but also to advocate for the policy positions that will be required. We're doing that in conjunction with our MOU partners because we recognize that for this value chain to work, all parts of the sector need to ultimately see a way towards a profitable and sustainable business cases for investment. I think in answer to your question, the financial commitments by the government go a long way towards confidence in the sector and the commitment the government has. Of course, it remains to be seen how that commitment will flow through to support for individual projects. What we [ say ] more broadly is I think everyone sees the benefit of this and the economics of it in the medium to long term, particularly as carbon pricing goes up and particular in sustainable aviation fuel where airlines have no other way to decarbonize. You might have seen news in the headlines this week around Singapore moving forward on its mandate for any aircraft flying out of Singapore to be using a portion of SAF. And the fact, that there'll be a very small our ticket price burden on passengers to fund that. We think those sorts of mandates may well make sense to help bridge the gap over the near term of where Australia is versus the long-term profitability and sustainability of the sort of investment that we're proposing to make to provide feedstock to the likes of Ampol and IFM who will service the end customers, especially in the sustainable aviation fuel sector. Operator: Your next question comes from Owen Birrell with RBC. Owen Birrell: Sorry, just a quick follow-up question. Just looking at the margin environment, again, you called out, I guess, in the Agri Business, lower end-to-end margin compression. Are you able to give us a sense as to where in the value chain you're seeing all of that margin compression. Are you seeing it in the, I guess, the purchasing side from your growers? Is it in the export margins? Is it in the storage margins? Or is it purely in the marketing international? Just wondering to get a sense of where is the highest competition that's creating that margin compression across the margin chain. Robert Spurway: Yes. So the endpoint in Global Markets, but I'll let Ian talk to that. Ian Morrison: Yes. Owen, it's largely export margins from the way we would think about it because what's driving that, though, is partly behavior on the selling side does have an impact, of course, because that's one aspect overall that impacts level of purchasing you can get. And then on the demand side, from our customers when you've got generally lower prices and plentiful supply. The demand is more hand to mouth. So it's almost at both ends of the value chain is what's having an impact if you're the owner of assets and the commodity owner of the grain in between, and that does result in that margin pressure compared to what we've seen in recent years. And one other factor that, that leads to is more of a caddy market where grain prices are worth more in the future than they are today. So that leads to some of those behaviors and ultimately, has that impact on constraining margins. So pretty typical of what you can see in this type of environment and somewhat related to the overall conditions of global supply really. . Owen Birrell: So can I ask just in terms of the competition for I guess those export volumes out of Australia, are you seeing more competition by traders here? Robert Spurway: Short answer is no. Owen, it's really is somewhat -- to some extent, constrained by the production of grain in Australia. The competition we talk about is from other global supply market. So the market is behaving, I guess, it's in a rational way, exactly the way you'd expect it to behave with plantable supply growers globally, being less than, super excited about the prevailing prices. So they're not inclined to engage, and that creates fairly benign conditions in the market. What I would say, and it's important to remember that the fundamentals are still there. Demand remains. In all likelihood, there will be a supply shock at some point because historically, we've seen that occur around the globe, particularly in a globe with more volatile weather. Stocks-to-use ratios globally remain at historically low levels. So the opportunity for margins to grow quite quickly exist in the event of a disruption to global supply. So that sort of volatility and the kind of things that we'll be looking for to access margins right throughout the year, just as we did last year on chickpeas and canola and other commodities as well. We'll be doing the same again this year. Operator: Your next question comes from Ben Wedd with Macquarie. Ben Wedd: Yes. Just one for you there, on the net working capital side on Slide 45. It looks like a fairly large dip into the full year there. So just wondering any comments you can sort of make around that and sort of what that sort of implies for the year ahead? Ian Morrison: Yes. No, happy to comment on that. Good question, Ben. So dip off is really normalizing of working capital. We did see -- and I touched on it at the half year, a bit of a higher peak and also last year in to be fair, it was slightly higher. And so with the slightly lower commodity values and typically, we do see that dip off at the balance date or closer to the balance date. But we'd expect where we finished this year to be a more typical level of working capital relative to what we've seen in recent years. Operator: Your next question comes from Richard Barwick with CLSA. Richard Barwick: Can I just clarify, I think just trying to get my head around the international piece. I think you said, Ian, that what's your wording, that was a drag on earnings this year. So we know it went backwards, obviously, but does that actually in terms of relative to year before, but does that mean it actually had a negative contribution so it was loss-making this year, you can just confirm that? Ian Morrison: Yes, very modestly. This is a quick answer, Richard. Operator: Your next question comes from John Campbell with Jefferies. John Campbell: My question has already been asked. Thanks very much. Operator: There are no further questions at this time. I'll now hand back to Mr. Spurway for closing remarks. Robert Spurway: Look, again, thank you, everyone, for your interest in the company. We look forward to meeting with many of you over the course of today and the next few days. To recap, GrainCorp's in an extraordinarily strong position with core cash balance of $321 million. We're continuing to deliver what we said we would in terms of growing the business, investing in the business and providing significant returns to shareholders through the dividend and the buyback. And year-on-year, we've increased our earnings at an underlying level to $308 million. Thanks again for your time. We look forward to catching up with you through the next few days. . Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, good day, and welcome to the Tata Steel Analyst Call. Please note that this meeting is being recorded. [Operator Instructions] I would now like to hand the conference over to Ms. Samita Shah. Thank you, and over to you, ma'am. Samita Shah: Good afternoon, everyone, joining us in India and from the Far East, and good morning to all of you who are joining us from the West. On behalf of Tata Steel, welcome to this call to discuss our results for the second quarter of FY '26. We published our results yesterday, and there is also a detailed presentation on our website, which you can refer to if you haven't done already. As always, we will be guided -- this entire call will be governed by the disclosure clause on Page 2 of the presentation. To help you understand the results better, we have with us Mr. T.V. Narendran, CEO and Managing Director, Tata Steel; and Mr. Koushik Chatterjee, Executive Director and CFO, Tata Steel. They will make a few opening comments, and we will then open the floor for questions. Thank you again, and I will request Naren to make comments, please. Thachat Narendran: Thanks, Samita and hello, everyone. As Samita mentioned, I'll make a few comments and then hand over to Koushik and then we'll do the Q&A. The global dynamics continues to be shaped by tariffs, geopolitical tensions and elevated steel exports. And Chinese steel exports are expected to cross 100 million tonnes again this year, and this obviously has an impact on pricing across the world. And amidst this Tata Steel has delivered strong improvement quarter-on-quarter and year-on-year basis. I would now like to make a few comments on the performance in each geography. In India, crude steel production was up 8% quarter-on-quarter and 7% year-on-year at 5.65 million tonnes, largely driven by the ongoing ramp-up in Kalinganagar and the completion of the relining of the G Blast Furnace, which is down for almost 6 months. We continue to stay focused on driving sales even in a challenging environment, and we were able to ramp up the sales in line with our production ramp up without having to build inventory. In fact, we increased our domestic deliveries by 20% quarter-on-quarter, a testimony to the strength of our customer relationships and the marketing and sales network. While average hot-rolled coil spot prices were down about INR 2,300 per tonne quarter-on-quarter, we were able to limit the drop in our net realizations to about INR 1,700 per tonne. We were also able to offset this impact to higher volumes and the ongoing cost transformation, which has resulted in an improvement in the EBITDA margin by about 80 basis points to 25%. And some segmental highlights. The seasonal rains in the second quarter impacted construction activity across India, but we successfully grew Tata Tiscon volumes by about 27% quarter-on-quarter as our expanding channel network and digital platforms enabled us to leverage insights into customer behavior and cater to the evolving needs. Industrial Products & Projects deliveries grew by about 22% quarter-on-quarter aided by value-accretive segments such as engineering and ready-to-use solutions. In the U.K., our delivery stood at 0.6 million tonnes, marginally lower on a quarter-on-quarter basis, and we continue to work on transforming the business and the 3 million tonne -- building the 3 million tonne electric arc furnace in Port Talbot. In Netherlands, the liquid steel production and deliveries were broadly stable quarter-on-quarter at 1.7 million tonnes and 1.5 million tonnes, respectively. And our performance was aided by the continued improvement in controllable costs. In September, we signed a nonbinding letter of intent -- Joint Letter of Intent with the Dutch government on an integrated health measures and decarbonization project, and we are committed to working with all the stakeholders on resolving the outstanding points before proceeding towards an investment decision. I will now hand over to Koushik for his comments. Over to you, Koushik. Koushik Chatterjee: Thank you, Naren. Good morning, good afternoon or good evening to all those who have joined in. Before I talk about the results of the company, I would like to stress on what Naren mentioned that we should consider the backdrop of continuing global macroeconomic uncertainty, especially in the context of the trade, tariff, currency and the heightened exports from China, which, as you mentioned, has crossed 100 and are likely to cross 100, more towards 120 in the context of the financial results that has been delivered by the company in the first half. Let me now begin with some headline financial performance data for the first half ended 30th September 2025 of the current financial year. Our consolidated revenues for the half year was INR 1,11,867 crores and EBITDA was INR 16,585 crores at a consolidated EBITDA of INR 11,037 per tonne reflecting an EBITDA margin of about 15%. The EBITDA margin expanded by 280 basis points in the first half of this financial year, reflecting our continued focus on the India growth volumes, cost competitiveness and our focus on cash flows. Our global cost transformation program continues to deliver tangible results with around INR 5,450 crores achieved in the first half, as highlighted on Slide 13 of the presentation. This translates to about 94% compliance to our own H1 plan, and I will explain a bit of this further. Turning to the second quarter performance provided on Slide 23 of the presentation. Our consolidated revenues stood at about INR 58,689 crore, up 10% quarter-on-quarter, primarily driven by strong volume growth in India and continued improvement in the cost transformation program to the tune of about INR 1,300 per tonne. As a result, the EBITDA improved by about INR 1,000 per tonne quarter-on-quarter, and this marks an improvement for the second quarter in a row in a very difficult market. Expanding on the cost transformation program. As a company, we have delivered an improvement in costs of more than INR 2,561 crores during the quarter and are on track as planned across geographies. More specifically on -- in India, the cost transformation program achieved full compliance to our second quarter plan with leaner coal mix, optimization on the stores, repairs and maintenance expenses and operating KPIs, which delivered the transformation of about INR 1,036 crores for the quarter. In U.K., too, the cost transformation program was focused on reducing fixed cost in higher-end leasing, lower fuel charges and operating charges. In Netherlands, the program delivered about INR 1,059 crores for the quarter. We are on plan in all the operating areas, like optimization of supply chain, procurement and product mix, along with the other controllable costs. However, we are delayed on the people restructuring time line and the consequential benefits of the same in this year as the discussions with the Central Works Councils are still ongoing. Across geographies, we remain focused on execution of the cost transformation targets for the full year. Let me now provide an understanding of the India, Netherlands and the U.K. quarterly performance individually. Tata Steel stand-alone revenues for the quarter stood at INR 34,680 crores, and the EBITDA was about INR 8,394 crores, reflecting a quarter-on-quarter improvement in EBITDA margin of about 80 basis points to 24%. As Naren mentioned, our volumes are significantly higher in quarter 2 and this, along with improvement in costs, led to an uplift in the EBITDA margin. Our wholly owned subsidiary in the Neelachal Ispat Nigam Limited, also recorded about INR 260 crores of EBITDA for the quarter, up 17% quarter-on-quarter and reflecting an EBITDA margin of 20%. Let me now turn to the U.K. market and our performance. Firstly, I must say that amidst the growing trade protection across the world, U.K. remains a very vulnerable market as the import quotas of steel across several product grades are higher than the total consumption of the country, making it very open to cheap imports. In addition, the market demand has shrunk due to the weak economy, resulting in decline in domestic prices by more than GBP 150 per tonne since January '24. The U.K. demand for flat products has declined by about 33% since 2018, but the quotas have increased by about 20%. In 2025, on a year-to-date basis, U.K. imports are up by about 7% year-on-year, and this has continued to impact prices as well as the spot spreads. As a result of severe market pressure and despite significant cost takeout program, the Tata Steel U.K. EBITDA losses widened from GBP 41 million in the first quarter to GBP 66 million in the second quarter. As an industry in the U.K., we have brought the current policy disparity to the attention of the U.K. government and are engaged on the subject. Given the current market conditions, we are focusing on optimizing the fixed cost. They are down by about GBP 90 million compared to the second quarter of last year. But sequentially, we are marginally higher by about GBP 7 million due to the annual maintenance activities during the quarter. Moving to Netherlands performance. Revenues for the quarter were about EUR 1.5 billion on improved volumes but were partly offset by lower realizations. On the cost side, material costs increased by about EUR 75 million on a quarter-on-quarter basis, largely due to inventory drawdown in contrast to the buildup in the first quarter. This was largely offset by about EUR 72 million reduction in conversion costs, aided by lower employee benefit expenses and emission-related costs. We are also watching the policy development in the EU, especially on the EU steel plant 2.0 announced by the European Commission as it will have long-term ramification on the domestic steel industry in the U.K. in the future. During the half year, we generated about INR 10,000 crores of operating cash flows after interest, tax and working capital. Of this, we spent about INR 7,000 crores on capital expenditure and paid dividend for the financial year FY '25, about INR 4,490 crores. As a result, the gross debt was almost flat with a marginal increase of INR 842 crores versus end March, while the net debt stands at about INR 87,040 crores. The net debt witnessed increased versus last quarter as it also included cash utilized for the dividend paid of INR 4,490 crores. Our net debt to EBITDA stands at about 3x on a consolidated basis. As part of our strategic realignment following the planned surrender of the Sukinda mining lease, we are optimizing our ferrochrome processing footprint. In line with this, we have announced the proposed divestment of our ferro alloys plant in Jajpur and Orissa. The transaction is signed and is expected to be completed within the next 3 months, subject to regulatory and stakeholder approvals. We have often stressed about our focus on value-added portfolio and hence, as part of the growing the portfolio in India, we also executed yesterday, the share purchase agreement with BlueScope Steel Australia to acquire the balance 50% in Tata BlueScope Private Limited. The sale is subject to regulatory approvals, and we believe it will be value accretive that leverages the synergies with Tata Steel in multiple areas. As Naren mentioned, we have recently signed the nonbinding Joint Letter of Intent with the government of Netherlands and the province of North Holland concerning Tata Steel Netherlands decarbonization journey. This Joint Letter of Intent is an expression of mutual intent to explore a framework of transitioning to low CO2 production. I want to emphasize that this project will be designed and phased in a manner that is financially prudent. Both the government and the Tata Steel has conditions to fulfill, and we are working on each of them. There is no material spend in the immediate period, and we will talk more in details on the project cost, the financing structure and the project phasing closer to the binding agreement next year. We are also looking at prioritization, optimization and sequencing of the -- on the CapEx, such that it is affordable for all stakeholders. The final investment decision on the project will be taken next year after engineering preparedness, completion of the conditions, assessment of the regulatory clearances and the negotiations with the new government in the Netherlands on the tailor-made binding agreement. With this, I end my presentation and open the floor to the questions. Thank you. Operator: Thank you, sir. We will now begin with the question-and-answer session. [Operator Instructions] Your first question for today comes from Vibhav Zutshi of JPMorgan. Vibhav Zutshi: Congratulations on the strong results. The first question is basically on the European steel industry in the context of the October 7 protectionist measures and CBAM implementation. So some of the European steel players have talked about higher inquiries from new customers and a bit of a destocking cycle happening next year. So just wanted to get your thoughts on how you see utilization prices moving into the next year? And also that U.K. is probably not to be directly benefited from the protectionist policy, right? Yes. So just some thoughts on that. Thachat Narendran: Sure. Thanks. Yes, the announcements in Europe has helped the sentiment as far as we are concerned in Europe because what Europe is doing is to make sure that the quotas for steel imports are brought down by 50% and have an import duty of 50% on any volumes exceeding the quotas. So this is a positive move for the European steel industry. And in a sense, Europe is actually working hard to have a stronger, resilient steel industry in Europe to take care of Europe's strategic needs, particularly defense and in other areas. So this is part of the plan. So it's good from a Tata Steel Netherlands point of view. We have already started seeing it having a positive impact on the price discussions with customers for the annual contracts for next year. And certainly, as you said, imports have stopped coming in, in anticipation of this. And the restocking, et cetera, will lead to some positive impact for us in Netherlands particularly from Q4. Maybe Q3 already a bit too late, and we are still dealing with the hangover of the last 2 quarters. But Q4 onwards, we certainly see an improvement in Netherlands. And this also has a long-term impact because these actions are also going to come with melt and pour conditions. So if you want to participate in the European market, you have to make in Europe rather than make somewhere else and ship slabs to Europe to participate in the potential CBAM protected market in Europe. So there are multiple reasons why this is a positive move for Tata Steel Netherlands. As far as U.K. is concerned, like you said, U.K. is left out of this. In fact, our discussions with the U.K. government is that the U.K. government also needs to take some actions. Otherwise, U.K. will bear the brunt of material, which can't find markets in the U.S. and Europe. We've not made headway yet. The government is saying they are looking at it. But that's one of the reasons, as Koushik said, we have struggled with our performance in U.K. I think all that we were supposed to do ourselves, we've done. And the cost takeout plan, the fixed cost takeout plan, everything is as per plan. But the market has not moved as per plan, and we would need some support from the government to make that happen. So U.K. is negatively impacted by these actions. But if the U.K. government takes some action to not only help Tata Steel, but the U.K. government has also invested in steel production in the U.K. just now. So they also have another reason to make sure that the U.K. steel industry is supported a bit. Vibhav Zutshi: And just on U.K. then, would you reiterate the 4Q FY '26 guidance of EBITDA breakeven? Thachat Narendran: Yes. If there are no actions from the government just by our own actions, it will be difficult to get EBITDA breakeven by Q4. But if there is some action similar to what has been done in Europe, then, of course, we can move closer to that. Like I said, all the actions that we had planned we've taken. The cost takeout is as per plan, but the market needs to improve a bit for us to come to EBITDA breakeven, yes. Koushik, you want to add to that? Koushik Chatterjee: No, that's perfectly the answer. I think the spreads at this point of time makes it very difficult for any amount of positive EBITDA given the fact that the prices at which steel is currently trading in U.K. with the imports are very, very unsustainable at this point of time. So we certainly need policy intervention from a protection point of view. Thachat Narendran: I think, just to supplement what both of us said, if you generally see the U.S. prices traditionally have been about $100 higher than Europe, and Europe has been about $100 higher than, let's say, India. So that's been the ladder. Over the last year or so, U.S. prices are almost $200 higher than -- prices in Europe because of the actions taken in Europe -- in U.S. We expect the European prices to start moving towards the U.S. prices, may not match the U.S. prices, but the gap could come down as it is today because of the actions being taken by EU. But in U.K., the prices are moving the other way. It's coming closer and closer to prices in India, which is not sustainable for the steel industry in U.K. So that's why our appeal to the government, and they are also evaluating it from that point of view. Vibhav Zutshi: And just a second question on India. So on the Neelachal capacity expansion, any time lines with respect to the Board approval? Because earlier we are planning to get it by October. So any reason for the delay and the updated time lines? Thachat Narendran: The reason is largely related to environment clearances and all the clearances that we need to have because as per our current -- the way we work is we go to the Board after we've got all the approvals in place. But behind the scenes, the work is going on, on all the engineering and the planning and the detailing, all that is going on. So that happens. But the FID will be taken once we have the environment approvals, which we expect in the next few months. There are some forest clearance issues, environment clearance issues which we are going through. Koushik, do you want to add to that? Koushik Chatterjee: Yes. No, I just want to mention that we are pretty advanced in the environment clearance process. And as Naren mentioned, that we are progressing on it, and we will take it to the Board once we are in a position. The engineering work is also pretty advanced in many areas. And therefore, we are getting the investment case ready for the Board's review sometime soon. Operator: Next question is from Sumangal Nevatia of Kotak Securities. Sumangal Nevatia: Sir, my first question is if you could share our guidance on the cost and the prices, both for India and then Netherlands, U.K. separately for the coming quarter. And then generally, I just want to understand what's happening with regards to the safeguard duty. The provisional duty has expired, and we're yet to see the government notification. So just want to understand what is the latest year and what is our expectation? Thachat Narendran: Yes. So I'll give you some guidance on the cost, as in coke costs. And if Koushik wants to add on conversion, et cetera, he can do that. So if you really look at -- from a realization point of view, our guidance is Q3 for India will be about INR 1,500 lower than Q2. Q2 was about INR 1,500 lower than Q1. So we had guided INR 2,000, but we ended up at around INR 1,500, INR 1,600, right? In terms of coking coal prices, we are saying India consumption cost will be about $6 higher in Q3 than it was in Q2 because it's starting to turn the other way because coking coal has firmed up a little bit in the last few weeks. As far as Europe is concerned, Q3 guidance just now is about EUR 30 lower in Q3 compared to Q2, but we expect Q4 to be much better because of what I said earlier. Coking coal consumption costs in Netherlands will be down about EUR 5 to EUR 10, largely because they have more stocks in the system, and so they will be consuming what they bought earlier. As far as U.K. is concerned, prices are generally seen as a bit flattish, no real drop, but our concerns are the levels that it surprise us today rather than the trend of the prices, and that's what we are working with the government on. In terms of -- yes, what you're saying is right, the notification, I think, has expired in November, and we are waiting for advice from the government on that, on safeguard. We are working with them, and let's see where it takes us because the larger point is the steel industry in India is impacted by steel prices internationally and some of the imports which is coming in. I think if the industry has to continue to invest the way it is planning to, obviously, we need to see what is the support we can get from the government in India as is being done by other governments elsewhere. Sumangal Nevatia: So given the spot spreads in U.K., we are expecting the losses to widen. Is that the right understanding? And also Netherlands, given the pressure on prices, at least for third quarter, we are looking at some softer margins? Thachat Narendran: In U.K., maybe things shouldn't get worse, let me put it that way. We're trying to see how to improve. Q2 was worse than Q1, but it's not necessarily Q3 should be worse than Q2. We are still working some of that, and we're looking to see what help we can get. Netherlands, yes, maybe some margin compression, but we are again looking to see what we can do there to manage that. Because like I said, the coking coal prices are lower, they are also getting some benefit on electricity and some of the other costs are lower in Q3 compared to Q2. So they will get some benefit there. In India, while there is some margin compression, but India will have 0.5 million tonnes more volume in Q3 than in Q2. So we will have a volume upside in Q3 because of the Kalinganagar ramp-up. Sumangal Nevatia: Got it. Got it. Sir, my next question is on expansion. Now at India , I mean is it safe to assume 3, 3.5 years once we take the Board approval, so that time line in terms of Neelachal? And what is the peak level of volumes we can achieve in the existing capacity? So our -- I mean, question is coming from the background that maybe from FY '27 onwards, I think we will lack further room in terms of growth. So if you can explain that. And also with Netherlands, you said next year is the time line where -- I mean, we are looking to freeze all the discussions with the government. So FY '28 is the year when CapEx actually starts? And any CapEx intensity you can share there? Thachat Narendran: Yes. So I'll start and then Koushik can kind of continue. As far as the volumes are concerned, yes, Kalinganagar is currently running -- I mean, if I look last month, it's running at 7 million rate, and it can go up to 8 million. So that's a Kalinganagar thing. Neelachal is pretty much -- you can get another 200,000, 300,000 tonnes more once we have all the environment clearances because the existing volumes can go up a bit more. Today, we are limited by the EC levels. We have the Ludhiana plant coming up next year. So that's another 0.8 million tonnes. We are looking at debottlenecking some volumes in the Gamharia plant, which is Usha Martin plant to support our combi mill. And we are also looking at some debottlenecking further in Meramandali. So we will get some additional volumes from all these places in addition to the 0.8 million, which we will get out of Ludhiana. The time line that you said, yes, post-order approval, 3 to 4 years, certainly, we want to complete the Neelachal project before that and try and see if we can do it faster. What also you should keep in mind is the product mix is also getting richer. The cold rolling mill has just started ramping up in Kalinganagar, the galvanizing line, 1 of the 2 lines are coming, the other one will come in by December. We have a combi mill, which is a state-of-the-art long products, plant, 0.5 million tonnes, which has just got commissioned last quarter. So you will see multiple initiatives and then, of course, this BlueScope acquisition that Koushik talked about. All this will lead to a much richer product mix. So there will be -- I would -- there's a volume growth opportunity. As I mentioned, there is also an upside potential on getting a better, richer mix and better realizations. In terms of Netherlands, even if we sign by next year, it's not as if immediately you'll have to spend CapEx because you will take a couple of years to get all the planning permissions that are required to start the project. So it's a slightly more long drawn out journey, but Koushik can add more color to that and the other comments I made. Koushik Chatterjee: Yes. Sumangal, I think the 2 points. One is that as far as Netherlands is concerned, we will finalize the tailor-made agreement sometime next year and the FID will be next year. Then there is a permitting process. And post the permitting process, the major spends will start on the site, et cetera. So I don't see major cash out goes on Netherlands in the next couple of years even after the FID. I think the focus is clearly on NINL expansion. And once we get through, we should be site-ready when we get into the FID or almost in that kind of a position. And therefore, from there about 3, 3.5 years to get it done. We're also looking at -- to your question on existing assets. We are also looking at Tata Steel Meramandali where we look -- want to look at when there is a relining of a blast furnace there to look at expanding the volume, which includes putting up a finishing facility that will take the Kalinganagar 1.5 million tonne slabs to build up a thin slab caster. So there are, at least, if I were to say, 7.5 million tonnes of growth in consideration or in planning at different stages. When it is ready, we should be taking the Board approval to spend. And then some of these brownfield sites, especially in Meramandali, should have a shorter execution time than a greenfield site. So this is currently in the pipeline other than the fact that the -- what Naren mentioned, the Ludhiana will get commissioned, and we will also look at another EAF, either in the West or in the South, which is also under consideration. Operator: Next question is from Satyadeep Jain of AMBIT Capital. Satyadeep Jain: So I just wanted to start with U.K. We can understand that the CBAM in U.K. actually kicks in '27, so 1 year after the EU CBAM. Then in the context of current imports, what options, what is the process? Because from my understanding with Europe is that EU Parliament has to approve the report and findings of EU Commission, EU Council and EU Parliament, and the current safeguards expire in June '26 or so. When you look at U.K., what exactly is the process time line? Do they have to take the entire study and then the decision will be taken by Parliament? So the entire process, are we looking at some kind of support in '26 or not? And the cost savings that were there in the Rishi Sunak government on network tariffs and/or power cost being declined, has it already kicked in? So just wanted to understand Europe -- U.K. in general first. Thachat Narendran: Koushik? Koushik Chatterjee: Yes. So Satyadeep, 2 things. One is when you talked about the European part, the European steel action plan proposition that Naren talked about in terms of reduction of quota, tariffs beyond quota, et cetera, and melt and pour is going to kick in from June '26 because they are currently in the consultation process. Once the consultation is done, various stakeholders give their point of view if they have to change or modify et cetera, and then it starts from June. So that will kick in from June. As far as U.K. is concerned, at this point of time, the consultation process on CBAM hasn't started. It is in formulated position, but it has not yet started. They are scheduled to go live 1 year after the EU CBAM, which is '27, as you mentioned, but we have not seen that happening. And that is one of the conversations that we are having with the U.K. government. We are having conversations with the TRA, the Trade Regulatory Authority on the quotas. So U.K. is behind the curve as far as EU is concerned or competitive to EU is concerned as far as these initiatives are taken. So if it is '27, our plant and when in '27 is not yet determined. So we are actually trying to get an understanding as to when the consultation process will start, how much time it takes. It normally takes 6, 8 months, maybe a year. So we want to kick that up faster and to ensure that it is in time when our EAF comes. So compared to the policy announcement that happened last year, they are behind is the short answer. We'll see as to where this will progress in terms of time line. But to us, the more important priority here and now is actually the quotas the -- and then the CBAM. The CBAM discussion can happen in parallel. Satyadeep Jain: The quota also, given it needs to go through a formal study and then final decision will be taken by the U.K. Parliament or is it executive decision? So is there a realistic chance of this quota reduction in U.K. if it goes through in '26, or are we looking at maybe quota reduction also whatever it is in '27, 28? Koushik Chatterjee: No, no. So '27, '28 is simply very late. By which time, the U.K. government would have also lost a significant amount of money because of what they are managing in the steel industry in Scunthorpe. I think it is -- they are working on it and the assurance that we have got. The TRA has got all the data, that validation process is done. They -- I think they will have to recommend it from the Parliament and get ratified in the -- ratified -- sorry, recommend from the cabinet and ratified in the Parliament. That process in the U.K. is pretty fast. But I think the more important point is to get to that process. And that's what we are talking to the U.K. government about. Satyadeep Jain: Okay. Secondly, on Netherlands, on the -- in the Joint Letter of Intent, it is mentioned, I'm just checking on the wording of the Joint Letter of Intent. It has mentioned that there will be support of up to EUR 2 billion for Phase 1. But explicitly, it is also mentioned that there will be no tailor-made support for Phase 2 as things stand. So does it mean that government is making it very clear they will not support any expansion beyond Phase 1? And also this import quota that we are looking at, needs to be ratified by the parliament, there's a lot of opposition from downstream users in Europe. Hypothetically, if we see this go through and European steel prices converge with Europe with U.S., do you see some challenges? I just want to understand because Europe historically has been a very different market versus U.S., but with the opposition -- so 2-part question. One on the Joint Letter of Intent. And overall, some of it potentially getting diluted? Or is that not a risk this current import quota reduction that you're looking at? Koushik Chatterjee: So I would first talk about the -- the part on the Netherlands bid that you mentioned. The answer is yes. The -- this tailor-made agreement is specifically towards Phase 1 and our commitment to do the Phase 1. The Phase 2 is left to the company to decide as to when as far as timing the technology to be used and the project cost to be done, et cetera, which is one reason why they also want Tata Steel Netherlands to be significantly profitable to ensure that they can afford to do the Phase 2 whenever it is due. So that is how the understanding is, there is no commitment on funding and neither a commitment on when we have to do the Phase 2. So this is all discussion is on Phase 1. The circumstances and the policies may change in Phase 2 also. As far as the EU consultation is concerned, it is ongoing from the sense that we get, there are people who have been quieter or neutral. There are people who are supportive, and there are people who obviously have some views. So that's for the EU to proceed and then get a sense. Maybe Naren, you can add some comments on that. Thachat Narendran: I think what you're saying is right. There is a disadvantage if you're making stuff using steel and exporting out of Europe, then if you have a higher cost of steel, then you may have a disadvantage. The auto industry is one such sector. But I think everyone is also looking at building strategic autonomy in Europe, and that's where there is a consensus that the steel industry is important for Europe. So even in Netherlands, we get a lot of support from that fact. They are not asking us, why do you need a steel plant in Netherlands. It's more about what is it that can be done to have a strong steel company or a steel business. So I think the conversation has changed in the last 2 years, thanks to the Russia-Ukraine issue, the U.S. trade issues, et cetera, right? So the second thing is, as the European governments are putting money in the industry, they also have, in some sense, a skin in the game. So there is an interest from that point of view to not put money in the industry and then end up destroying the industry for whatever reasons, right? So I think these are the things which we think are supportive for the steel industry. I also think the supply side in Europe will get restructured because as more and more blast furnaces come up for relining, unless you have tied up with the government for a transition, it will be very difficult to justify blast furnace relining from most of the steel companies in Europe. So there will be some supply chain side restructuring as well in the next 10 years. Operator: [Operator Instructions] Next question is from Vikash Singh of ICICI Securities. Vikash Singh: Sir, just wanted to understand, if you look at the Slide 10 of your presentation, though we have given a guidance to 40 million tonnes, we have not given the time lines for the same. And also the flat products are also increasing and long is coming after that. I believe that the long is Neelachal, so which is the large portion of that flat product, which expansion we are expecting? And if you could give us the time line for that? Thachat Narendran: Yes. So let me put it this way. The sequence is not to do with the time. So as Koushik said, what we are most ready for is a Neelachal expansion. And then Neelachal expansion is a long products expansion. So the opportunities beyond Neelachal -- so Neelachal also, this is from 1 million to it will go to about 6 million tonnes. And from 6 million, it can go to about 10 million tonnes. That's the second phase of Neelachal expansion. Kalinganagar, as we complete 8 million, we can go to 13 million. That's the next phase. And from 13 million, we can go to 16 million. In Meramandali, we are first looking at taking it from the current level of 5 million to about 6.5 million, and then after that, go to 10 million. So in all these areas work is going on. And Meramandali we need to acquire some land, in Neelachal, we are waiting for the EC, et cetera, and Kalinganagar also a lot of work is going on in the background. So all these are at different stages of readiness. And as we mentioned earlier, we will now go to the Board only after we've got all the requisite approvals, and that's why we've kept the time lines a bit open. The second thing I want to say is we are also pacing our growth depending on the demand growth in India, the profitability and how to pace it, et cetera. And we are also looking at adding more and more downstream businesses. And that's why the BlueScope expansion and the combi mill expansion in Jamshedpur, and there are a few other proposals that we're looking at. So it's not just the volume growth. We are also looking at the value growth through investing more and more in downstream. So it will be a mix of both. We will -- the advantage we have is we can pace ourselves depending on the situation in India because between these 3 sites alone, you can -- as I gave you the numbers, you can -- and Jamshedpur, you can go to 45 million tonnes, right? So it's more a question of the appetite, the balance sheet, the demand requirements, the profitability of the industry and the priorities that we want to give. Vikash Singh: My second question pertains to Netherlands. So we remember that we had this carbon-free carbon credit, which are gradually going down. So just wanted to understand, as we're starting the -- running green at a later part and that would obviously would take some time, how should we look at our cost structure there in terms of the carbon credit reducing? Thachat Narendran: Koushik? Koushik Chatterjee: So I think we -- so the free allowances will come down, it has started to come down slowly. And we have mitigants. For example, we are using more scrap charge. Currently, we are at about 18%, 19%. Our target is to max out on scrap to ensure that we get to it. I would also like to mention that in Netherlands, our CO2 emission as last quarter, which I just got the number a couple of days back, is at around 1.6. So that's my kind of -- one of the lowest we had gone down to 1.59. This quarter -- last quarter, we were 1.6. And we're taking a lot of effort in reducing the CO2 also including usage of scrap as a percentage. And last quarter, we were not able to max out more because of some volume issues. We will go beyond 20. And once we get to more and more scrap, we will be able to reduce CO2. So as the natural reduction happens on free allowances, we want to also undertake internal decarb efforts to be there because there is a clear cost advantage to this. So -- and along with our cost transformation program on other cost areas, I think we will continue to work towards reducing the conversion cost in Netherlands, including CO2 energy, natural gas and other costs. So that's the trend and that's the basis on which we think that the expansion on the margins will happen to be 1 of the top 3 in Europe. It's not based on how the prices will come. When the prices comes due to the steel plant or the CBAM, et cetera, that will be on top of it. Operator: The next question is from Ritesh Shah of Investec. Ritesh Shah: A couple of questions. First, on Tata Steel U.K. So what is the exposure from a revenue mix that we have from U.K. to Europe? And how are we looking to derisk it hypothetically if there are delays on the U.K. government taking a stance? Koushik Chatterjee: So that's about 25% volume on the current basis. And that's the -- I was waiting who will ask that question, but that's the third lever of the negotiations with the government because in 2021, the EU and the U.K. have signed an agreement of no quotas and no tariffs between most of the grades except for some galvanized grades where there are specific quotas. But this new regulation that comes in as a steel plant will require the U.K. government to revise that understanding with the EU. So that's the third leg of engagement that we have requested the government to do it quickly, which they are cognizant of because that's important. And as politically, U.K. talks about the coalition of the willing, I think this is also something that they will be looking to work towards. And that's what our request is. Ritesh Shah: That helps. Sir, my second question is on Tata Steel Netherlands. I think we have laid out certain details with respect to citing EAF, initially on natural gas, subsequently on CCS, finally biomethane and/or hydrogen. So there are multiple permutations over here. We also indicate support up to EUR 2 billion. Possible to give some high-level thoughts on what could be the CapEx number because we know it is up to EUR 2 billion, but we don't know what the CapEx number is. So how are you looking at the cash flow math? You did indicate no major cash flows next 2 years. But from an ROCE standpoint, from a cash flow standpoint and from a capacity standpoint, how should we look at TSL? And if not for, say, support in Phase 2, would we still continue with our stance that we will maintain our volumes for Tata Steel Europe. I think that's something what we had guided earlier. So would we stand to it? Koushik Chatterjee: So Ritesh, if I may, since you wanted high level, I'll keep it high level. But I think the point when you talked about the different feeds of natural gas, hydrogen and biomethane, it is the switchability which we'll be building from natural gas to hydrogen to biomethane depending on the economics and the availability at scale of each of this. Natural gas is not a problem because Netherlands is kind of the hub for natural gas. And that's why we're building on it. Earlier when the EC was looking at these decarbonization projects, they were very insistent on hydrogen. And if you see some of our peers had gone ahead of us and the agreement that -- or the conditions that EC had given was purely on hydrogen, which is the reason why many of them have gone slow. So we actually did not want to go that hydrogen route because it's very uncertain on the availability as well as on the economics. So we were more focused on natural gas, and we have an optionality to auction for biomethane because after hydrogen, that is the one which is being proposed as the next best fuel. So in biomethane, we have the optionality for auctioning off this or tendering. And if it comes in at the right economics and availability, then this switchability will be looked at. It could also be more like a fungible on paper to buy it on a fungible basis as a hedge rather than on physical -- if the physical don't flow. So we have those optionalities to be tested out, but that is to be tested much later. It's not immediately on commissioning. It will be post 2035, et cetera. So I think that is the construct that we have as far as our understanding on the JLoI with the Dutch government as well as blessed by the EC. So what we are currently doing is what will be the CapEx and the engineering process is currently on. We have allocated a little bit more money to complete that process. That engineering will be known on CapEx somewhere around, say, May, June. That's my best estimate at this point of time. Because it's a complex process, it has 3 elements. It is the element on the health issues, which is the coverages, then it has the EAF and then it has the DRP. So there are 3 subparts to that process, within the integrated process. So that, I think, will be more fairer to talk about somewhere around in 6 months' time. By which case, the investment case will also be very clear and our understanding on the policy changes that we have asked for as a condition to the tailor-made agreement will also be clear, which is our network cost, electricity, the coal ban or usage, et cetera. So those policies will also be -- once the new government comes in, we will be able to engage more deeply because those are conditions for final FID. And there are some ask from them towards us, which we'll also -- we are working on with the local environmental agencies. Operator: The next question is from Rajesh Majumdar of B&K Securities. Rajesh Majumdar: Thanks for the opportunity. So I had a question on the cost takeout. You have already talked about INR 54 crore, INR 50 crores in the first half. How much of that has come from the Kalinganagar plant efficiencies? And how much more can be expected as we ramp up gradually to the full capacities with the value-added segments? Koushik Chatterjee: So actually, this is unrelated to capacity utilization because this is on the baseline. There is some element of capacity utilization, but largely the -- it is run in an integrated manner. For example, we run it as one program on, say, stores, spares and maintenance. So it is not just one side, but it is across the combination. And this combination is actually the power of this program because when our colleagues run it on, say, stores management across 4 sites, it's much more efficient than managing it across 4 individual sites than a consolidated basis right from procurement to usage, to usage pattern, to storage and inventory, et cetera. So it's very difficult to give a site wise, but it is more specific by theme-wise. For example, stores using leaner coal mix across, using energy efficiently. So those are the kind of themes we've run across sites. And that's why we organizationally also, we are consolidated to do that. Rajesh Majumdar: More specifically, sir, you earlier guided about, I think, INR 2,000, INR 2,500 kind of lower costs in Kalinganagar. So how much of that is achieved? And how much of that is likely to be achieved over the next few quarters? Koushik Chatterjee: So I think we said INR 2,500 because at that -- I don't think we said site wise, but we said Kalinganagar... Thachat Narendran: Koushik, I think we said at one time, as we fully ramp up Kalinganagar, there will be a benefit because obviously, it's a much more productive site. Koushik Chatterjee: It's volume effect. Thachat Narendran: Correct. That's the volume effect. Koushik Chatterjee: Yes. So that's a per tonne volume effect, which is -- which will happen by the time we exit this year, we should be able to get there. And that's our target on the volumes anyways. We had some slowness in the first quarter. But second quarter onwards, we have been able to increase our capacity utilization, and we'll continue to do so in Q3 and Q4. Rajesh Majumdar: Right, sir. And my second question was actually on your ferrochrome unit selloff. I mean we bought this unit just 3 years ago, and we earlier proposed a 50% expansion along with CPP, and we also have the chrome ore mines. But suddenly, you decided to sell this business. So what is the problem here? I mean if it is a small thing, then it was a small thing even 3 years ago when you acquired it, so, yes. Koushik Chatterjee: So I think the -- it was linked to our Sukinda resources. And if you really look at it strategically, if you have to continue -- if we were to continue Sukinda, one was this whole confusion that happened on the MDPA, et cetera, because Sukinda needs to -- needed underground mining to sustain itself because the resources on the way we were doing it was coming to an end. So if you look at the investments required for underground mining, the ferrochrome market, in general, globally and the way in which the duty tariff structures, et cetera, works, our call was to exit the mining and Sukinda because of the high underground CapEx. And once we took that decision, it was necessary to rebalance the sources of mining. We have 2 other mines, more specifically one more mine which is more useful. And that required us that we do not want to be just a converter without a mine. And that is the basis on which we then took a decision to get out of it. And the buyer is consolidating in that space, so it helps him also. Thachat Narendran: Basically, we wanted to limit our production to what we largely need for in-house consumption rather than be in the market because we are surrendering the Sukinda mine and the changes in the MDPA, et cetera, was not making this business as attractive as it was before. So it was more a rethink on this portfolio given the current context. Operator: The next question is from Prateek Singh of DAM Capital. Prateek Singh: The first question is on U.K. So given all the uncertainty and volatility that we are seeing in U.K. and Europe as well, so how confident are we of the level of profitability once the EAF comes in? Or to put it differently, what kind of EBITDA do we see as doable given the current environment, current pricing and current raw mat costs? That's the first question. Thachat Narendran: So if I were to start and then maybe Koushik can add. When we did the EAF, the larger point was we said the cost position of U.K. will improve by about GBP 150 per tonne, okay? Because we were taking out a lot of fixed costs, we were using locally available scrap instead of imported iron ore coal, et cetera, right? So which meant that in the longer-term steel pricing that we've seen in the past, the U.K. business should be EBITDA positive and should be able to stand on its own because an EAF run operation has much less requirement of support on maintenance and many other things because you don't have the sinter plant, the coke ovens and blast furnace and many other such facilities, okay? So that hypothesis stands. What we are seeing now is a very abnormal situation, which is coming out of what's happened in the U.S., what's happened in Europe now, what's happening in China. So we don't expect these things to stay on forever. We are -- internal cost side, we are on track to what we said we would achieve. But the external aspects, we expect actions to be taken, like Europe has already taken to protect the European industry. And as Koushik mentioned, the U.K. government is also bleeding because of their investments in the other steel plants in U.K. So we are expecting some resolution to this in the next few months. So it's a hypothetical situation. If today's situation continues forever. Of course, there's a challenge, but we don't expect today's situation in the market to continue forever. Prateek Singh: Sure. So just as a follow-up to this, so what kind of capacity does U.K. in particular needs? I mean, was there ever a discussion that maybe not put as big a capacity as we are planning and may be scaled down a bit given we don't need that much given how the environment is right now? Or we are okay with the current capacity that we announced for U.K.? Thachat Narendran: Yes. We are comfortable with the current capacity level. I think the issue which has happened in U.K. is the quotas have not been changed, even though the demand has shrunk over the last few years, unlike EU where the quotas have been changed and have been tightened further. So our submission to the U.K. government is they need to keep realigning quota, import quotas to what is the domestic consumption. And I think that's what we expect them to be doing. But otherwise, 3 million tonnes with maybe 10%, 15% exports is fine. And optimally, also that was the right capacity for us given the balance of plant and everything else. Yes, Koushik? Koushik Chatterjee: Yes. No, that's the same point. I think the -- there's nothing wrong with the capacity in the context of the demand. It's the issue of the imports that has come in. Also, the U.K. government subsequently in the last year, the new government came in, they were all focusing on infrastructure. And that infrastructure when it actually starts rolling will require a lot of steel, but that has not also happened. So I think there is a policy issue that the government needs to address, which is what is being worked on in terms of growth for the economy itself. But as far as the steel capacity is concerned, I don't think we could have done anything lower because we have a very tied in downstream network of our own, which uses the base-grade HRC or the quality of HRC for further value addition. So there is nothing wrong there. As Naren mentioned, we have taken out significant costs, and we continue to do so. This year also, there is continuing momentum on cost. But there has to be an uplift in the metal of our margin, so to speak, which is the -- what is the price at which you're buying the metal and what is the price at which you are settling the metal. So that metal over margin is an important thing. That has shrunk significantly, and that's purely because of the fact that cheaper imports are flooding the market. Operator: The next question is from Pallav Agarwal of Antique. Pallav Agarwal: Sir, firstly, congratulations on the good set of numbers and also on the cost transformation initiatives, broadly on track. So on the Ludhiana EAF, so what kind of profitability can we look at you compared to the stand-alone Indian operations? Obviously, it should be lower, but to what extent it would be lower? Thachat Narendran: Yes. So there are a couple of things happening with Ludhiana. Of course, like you said, the profitability will be lower typically an EAF kind of operation in the Indian context. I would say it's more an INR 5,000 to INR 7,000 EBITDA per tonne kind of thing. But you should look at it in the context also of you're getting almost 1 million tonnes for INR 3,000 crores or less, right? So that's the -- when you look at it from a different angle, that's the equation that we look at. What we're doing in Ludhiana to supplement the margins that would normally be available is to see how can we reduce cost because of the fact that you're getting scrapped from 200, 300-kilometer radius and you're selling steel in a 200, 300-kilometer radius, right? So a lot of the logistics costs that we incur when we make steel in Eastern India and ship it to Ludhiana or elsewhere is what we're trying to save. So there are a number of initiatives on the route to market, the logistics cost, the supply chain costs, et cetera, so that we maximize the revenue potential in that geography. And of course, pretty much all that is produced there is going to the retail market where our realizations are higher than it is in the project market. So there are a number of initiatives, but what I've described is the starting point and let's see how we can bridge the gap between a project like this versus the back end, which is more iron ore and coal based. But from a speed of execution, capital intensity, et cetera, there are a lot of advantages in this model. And we do believe that while Tata Steel can continue to grow based on iron ore and coal in Eastern India, and like I described earlier between the 3 sites we can go to -- or 4 sites, including Neelachal go to 45 million tonnes, North, West and South, we have an opportunity to grow in a capital -- a bit more capital light. You need just 100 acres of land to build the steel plant. You don't need 3,000 acres, you can do it much faster. So we will refine this model, Ludhiana is a first step. And as Koushik mentioned earlier, we are looking at opportunities to set up similar facilities, maybe even for a richer mix. This is for retail, but tomorrow's plants could be for alloy steels for automotive, et cetera, long products basically in the West and South. Pallav Agarwal: Sure, sir. Secondly, we used to highlight that probably on the pipe expansion part, so probably I think you were looking to expand from 1 million tonnes to 4 million tonnes. So I've not come across that in the recent presentation. So where are we on that initiative? Thachat Narendran: Sure. So basically, most of that growth would have come through assets that we would lease, even today in -- whether it's in long products or in pipes, et cetera, a lot of our capacity goes through assets that we lease, which means 100% of that capacity is committed to us. So today, I think the pipes business is heading towards 1.5 million tonnes which includes the pipe business that we acquired through Bhushan and plus all the leased out capacities. I think I'm not remembering the exact numbers, but maybe 40% to 50% would be our own and the rest would be leased out. So most of the growth will come through that. We've recently invested in a precision tube mill, which has added 100,000 tonnes of high-quality pipes in Jamshedpur. So wherever it's high-quality, specialized, like we have the large diameter pipes, API pipes all available from the Khopoli plant. Wherever it's high end, we will make the investments, wherever it's regular stuff where the value is more in our branding and distribution, we will lease out capacity. So that work is going on. And we are -- as our hot rolled coil capacity grows, we will continue to expand the pipe capacity, and the ambition is to get to 4 million. Maybe you can share more details, Samita, in the next pack or something. Samita Shah: Sure. And I just wanted to also add that for the EAF blast furnace sort of comparison because there are a lot of questions on that. The other sort of cost differential benefit will obviously be there when there are carbon taxes because EAFs emit significantly lower than blast furnace. So when India introduces carbon pricing, and we have seen over a period of time that will come through, then you will also have that benefit on an EAF operation. Thachat Narendran: I think typically, the difference is $100 between an EAF route of production and a blast furnace route without factoring the capital cost, I'm just saying the OpEx kind of thing. And as Samita says, as and when -- I mean, already there's a carbon cost which is coming in. And as that increases, that's why in Europe, et cetera, once the carbon prices go up, the economic case for EAF becomes stronger. So yes. Operator: The next question is from Ashish Jain of Macquarie. Ashish, we are unable to hear you. We request you to please send in your questions via chat or rejoin the queue. We will now move to our next question. The next question is from Amit Murarka of Axis Capital. Amit Murarka: On iron ore, like I wanted to get some thoughts on how are you kind of thinking about securing iron ore for Indian assets. I think in the last call, you did speak about it a bit. But could you also like help us understand, are you looking to get into some tie-ups with OMCs as well? Or it will be broadly merchant purchases? How are you thinking about it? Thachat Narendran: Yes. I think we -- as we said last time, obviously, we already have some iron ore. We have maybe about 500 million, 600 million tonnes of iron ore with us today, which is available beyond 2030 based on our existing mines, which we got through our acquisitions or through auctions. Second point I want to make is when we bid for the mines, it needs to make sense. There is no point bidding a price at which the cost of iron ore is so high that you'd rather buy it from the market. Third is what you're saying is right. It can't be all spot purchases. So we are already engaging with OMC and MDC, et cetera, to look at what could be the arrangements that we could have. OMCs is of particular importance to us because a lot of our sites and production and growth is happening in Orissa. Fourthly, we are also looking at various other options. Depending on what is the cost of iron ore in India, we already have a mine in Canada, for instance, which is very high quality iron ore, very low alumina iron ore. It's 63-plus FE, alumina of less than 0.5. So today, we sell from there into Europe, et cetera. And there are some challenges which we've dealt with over the years. We are getting a shipment into India to test out that material. Traditionally, India is not an attractive market, but if iron ore cost and prices continue to stay high, then all options are available. Import is also an option that we look at. But it's not necessary that we need to have 100% captive. I think we will do that if it makes economic sense. Otherwise, we will look at buying in the market. Even coking coal, at one time, Tata Steel had 100% captive today, we have 20% captive. 80% is what we buy from the market. So we will exercise that option. The other part is our ambition and our actions on going more and more downstream is to also help push us on the revenue side. So the revenue per tonne keeps going up as we progress towards 2030 so that the cost per tonne is less impacted by any increase in iron ore price or rather the margin is less impacted. Let me not put it, less cost per tonne, yes. Amit Murarka: Also, like is there any ballpark cost number that we can think of for your current captive iron ore mining? Or if you have done any calculations around it, what will be your cost of captive iron ore mining? Thachat Narendran: I'm not sure we are sharing that. Are we doing that, Samita? No? Yes? Because we have a full range from expensive to cheap one. So we also decided on what to produce more where. So I think -- I don't think we are sharing that publicly, yes, Samita, yes? Samita Shah: Don't actually comment on any specifics or any product or raw material details, but obviously significantly lower than market price. Operator: The next question is from Ashish Kejriwal of Nuvama. Ashish Kejriwal: My question is on account of domestic demand environment because see, for -- after so many months or years, we are seeing that our prices are much cheaper than the landed cost of imports despite the fact that safeguard duty is implemented. So actually -- and when we see overall demand environment or demand, you can say, volumes from JPC, it seems to be on the higher side, but actually, price is not getting that reflection. So my question is, are we seeing excess supply scenario or lower demand which is affecting our prices? And in light of that, when we have guided INR 1,500 price decline in Q3, are we factoring in that in December also, there is no price increase? That's my first question. Thachat Narendran: Yes. So it's not that demand is not there, demand is quite strong. India is the only country which is showing double-digit growth -- major countries showing double-digit growth in steel consumption. And I think given the focus on infrastructure building in India, I do expect the demand growth to be more than the GDP growth rate, which is what happens in most developing countries, including in China, when they were growing. So if the economy is going to grow at 6.5%, 7%, steel consumption growing at 10% is to me par for the course, right? So demand is not an issue. Obviously, supply side, as you know, when we add capacity, we add in big chunks, right? So we've added 5 million tonnes, JSW has added something. JSPL has added something. So you will go through years when a lot of new capacity is coming on stream at the same time. But I do believe in the medium to long term, it is not going to be easy to build lots of capacity very quickly in India, given the regulatory environment, the approvals that we need to take, the time which takes in India to build a steel plant, et cetera. So I expect there to be a better balance going forward and which should get reflected in the prices. The more specific question you had, yes, this is factoring in November, December. We've not factored in major price increase in December. We are saying that we operate close to November levels. If there's an increase, there's a potential upside to what I just guided. So -- but just now, we've been a bit conservative on this. Ashish Kejriwal: Sure. So effectively, you are saying October, November also, we have not seen any price increase. And in our assumption, we are not taking any price increase in December also. Thachat Narendran: As a seller of steel, we will always try to increase prices, but it's the market which decides whether they're willing to accept those prices. So we will always try to push and let's see where we end up. Ashish Kejriwal: Okay, understood. Secondly, we have acquired 50% stake in BlueScope and at value of something like INR 22 billion for the company, which is having net profit of INR 62 crores, INR 30 crores in the last 2 years. So rational-wise, I understand that we are going in the downstream, but the amount which we are paying is -- seems to be much, much higher if I look at on the profitability basis. So how can we explain that? Thachat Narendran: Koushik, do you want to? Koushik Chatterjee: Yes. So first of all, I think this JV has been making about 19% ROE for the -- over the -- since inception. Second is it is a combination of 2 parts. So one part is that we have -- this JV company had its own color coating, metal coating facilities. And then post Bhushan, as per the JV agreement, we had to ensure that the same that was there in Bhushan, facilities in Khopoli, et cetera, was also used by the JV, the substrate of which was passed on by Tata Steel. And that is the arrangement that we had with the JV and the JV partners, which is ourselves as well as BlueScope. And in some ways, there is a split in the profitability because of the transfer pricing, et cetera. So the -- you do not see the system profitability of this business. You just see, for that part of the business, only the downstream profitability, excluding the transfer price and the markups on the transfer price and so on. So I think it is important that -- and that's why -- and we were hindered in this segment because we were the first to come in, in 2005 to grow this business significantly, which is, I think, in our domain and leveraging the synergies and network of Tata Steel and enriching the product mix, also fungibility of the product mix between market segments and so on. And that is the basis on which we actually wanted to consolidate and BlueScope also in the strategic understanding wanted to, therefore, exit the business, which is what we have agreed upon. So if you look at it from an underlying EBITDA perspective, it is 7x, which from a value-added downstream perspective is what the numbers will effectively look at excluding the Khopoli and the ones which are leased because that brings down the performance of the company. So that is the basis which when post the acquisition, you will see it more on a system basis, and we will certainly explain the same to you. And you can see the numbers at that point of time. Operator: I would now like to hand the conference over to Ms. Samita Shah for the chat questions. Over to you, ma'am. Samita Shah: Thank you, Kanshuk. So we've answered, I think, a lot of the chat questions in the discussion so far, but I think there are a few which maybe we can touch upon. So firstly, I think there is some question on Thailand. Thailand EAF profitability, despite being an EAF operation is highly profitable? And can we expect that kind of profitability either in India or U.K. So maybe just want to give people a sense of Thailand duty structure, et cetera. Thachat Narendran: Yes. So there are 2, 3 things when you look at EAF profitability, 70% of the cost is scrapped, right? So the price at which scrap is available, et cetera, is a big impact. And about 15% of the cost is energy. So these are the 2 factors which drive EAF profitability apart from operating performance, et cetera. Thailand, what you're seeing an upsurge is because, if you recall, there was an earthquake in Thailand, I think it was in April or something like that. And there was this viral video, which went around of a tall building, which was -- which collapsed. And the conclusion at that time was that a lot of this is happening because of the poor quality of steel, which is used and the quality standards need to be looked at once again. And because if you use poor quality construction steel, you run the risk of this kind of a thing happening, particularly if there's an earthquake. So as a consequence, a lot of local production, which seemingly, were not meeting quality standards had to be closed. And Tata Steel Thailand is seen as one of the best quality producers of steel in Thailand, has a good name, we have the Tata Tiscon brand operating in Thailand as well. And they got the benefit of that. That's why you see much better performance than we've seen in the last few years. But having said that, they are still settling. Traditionally, it's been a profitable business. It's never required any support from India. It's always been cash positive, EBITDA positive. So it continues to be that way. And as the quality considerations become more and more important, we think that, that's positive for Tata Steel Thailand. Now whether that kind of profitability -- again, like I said, we are in a much better place on the cost curve in Europe post EAF than we were in the past because of the fact that you're not using imported ore and coal, you reduce your fixed cost by about GBP 400 million, and you're using locally available scrap, right? So certainly, we'll be in a much better cost position than we were before in U.K. and similarly, Ludhiana, compared to the iron ore base production in Jamshedpur, you'll be at a higher cost position, but we look at how do we make this model work, taking out costs beyond the production costs, like logistics costs, route-to-market costs and so on and so forth. So as Samita said, as and when carbon prices come up because the CO2 footprint of the Ludhiana plant is going to be 0.2 or 0.3 tonnes, CO2 per tonne of steel compared to Jamshedpur, which is the best in India at 2.1 or 2.2, and Netherlands, which is one of the best in the world at 1.6, as Koushik said, 1.6. So Ludhiana is going to be at 0.2, right? So because it will use green energy. So when you start looking at paying a premium for low carbon, low CO2 steels, that's when some of these businesses will make even more sense than it does today. Samita Shah: The next question, I think we have a few questions on cost transformation. So I'll just combine them for you, Koushik. So one is, are we on track? And what is the kind of number we're expecting for 3Q? And then there's a question about -- because of the delay in employee-related discussions in Netherlands, are you reducing your target for the year? Koushik Chatterjee: So that looks like an exam question, but I think it is important to mention that we -- our target is the same, and I mentioned when we started off this that it is an 18-months program. So the -- and obviously, the work that can be done is being pursued by -- across the geographies, across teams, across functions. So I think we will continue to maintain the secular basis on which we are -- we've gone through the first 2 quarters. The compliance in Netherlands is lower, as you can -- as I mentioned, because of the employee restructuring going slower than what we had planned. But that is a timing effect, and I'm very hopeful, and all of us are working with the CWC to ensure that we get to it. But the point is less about quarter-on-quarter. It is more about getting structurally fit. It is about getting the competitiveness in place so that we become all weather. And I also want to say that the target will also keep changing as far as the -- once you achieve it, there will be more where we want to build a pipeline of it, and we continue this as a journey. And Tata Steel India has always done that for about 20, 25 years. But this time around, we have taken more structural view because we have become multisite and our capacity have increased significantly. And that's why this is an important journey in the competitiveness of Tata Steel, and we have expanded to all our global sites also, most critically U.K. and Netherlands. So we are going to continue this journey. And I think it is not to be just taken as a quarterly target. It is more about ensuring that structurally, we are in a better place. Samita Shah: Yes. There are a few questions on TSN decarbonization, which again, I'm just going to combine. So essentially, I think the question is that given the political changes in Netherlands, do we expect the government to go through this commitment, which they've done, given, is 2030 a sacrosanct deadline? So some questions, I think, around the timing and maybe the probability of the government actually going through their push for decarbonization. Koushik Chatterjee: So yes, I think the -- if I look at the way we have build up our conversation with the government and across the political spectrum, it has been largely bipartisan in terms of across parties because it was a Parliament-mandated process to get through to the JLoI. And subsequently, when we were signing the JLoI, it had to go back to the parliament for placement and noting. So I think with the political parties being the same, and it is certainly the assumption that we are working in that the government will continue to work on it because it's of national importance, and it is something of a commitment. We do have a journey in terms of final negotiations on the binding tailor-made agreement. But I don't think we -- any of us have a doubt that the government will not stand behind what they have signed, the new government. We have to give the time for the new government to form. The election is just over. Unlike in India, it takes a little bit of time. And we must give that, and then we could sit down with them on the tailor-made agreement. In the meanwhile, both sides are anyway working at the back end on the conditions that needs to be fulfilled in terms of preparing for the new government when it comes, that we will have a very clear understanding of what needs to be done before we sign the tailor-made agreement. That's where it is. And that is also where the timing of the project and the feasibility and practicality of doing it within certain years will also be considered and due action taken because we have to take the practicality of changes in policy, in the permitting process, in the construction, the site work required and so on and so forth. So we will have a conversation on that subject also. And the -- I think the political world in Netherlands is fully aware of that. Samita Shah: Thank you. I think there are multiple questions on capacities of each of our downstream products or capacities. But I would just like to remind people that we don't really give guidance on individual product capacities. I think Naren mentioned a broad guidance and our overall growth path. So we will not take that. And then there is, I think, one broad question, Koushik, which you might like to address on our sort of leverage targets and how we are sort of balancing that? Or what is our approach towards leverage? Koushik Chatterjee: I was having -- wondering when would that question also, again, come in. But I think we are managing our balance sheet pretty well under the circumstances in the context of our operating cash flows, all geographies being focused on working capital and profitability. And we have -- I think this quarter, we had a significant amount of cash outgo on our dividend, which is an obligation that we are clearly focused to fulfill as part of servicing our investors. And I think it is important to mention that our net debt to EBITDA is at about 3, and even with the kind of spend that we have. So we will be in that -- I've already said that in the past that between 2.75 and 3 is where we would like to maintain ourselves on a more sustained basis. At times when there are significant market challenges or volatility in prices, which impacts the working capital because steel, coal, iron ore prices do change significantly, especially on the seaborne market, that's the time when we do get beyond that metric. But largely, 2.75 to 3 is what we would like to maintain. And if they're in a mid-cycle period, like this are a low mid-cycle period like this, in an up cycle, we are on a different platform. So we would keep the metrics like that. Any opportunity to deleverage, we'll continue to deleverage. And -- but we also look at where best to apply that capital. Apart from leverage is in short payback period projects or acquisitions like the BlueScope that we've done because that actually effectively will help in consolidating the margin and the footprint and helping a product mix to grow. So those are decisions that we do take and then look at what the leverage allows us to do. When we look at the NINL, we will certainly look at the phasing spend and how quickly we can get the cash to cash cycle up. And that's why Naren mentioned, that we want to go at a time when we are ready, site ready to start work so that we can compress the period as much as we can. So leverage is an important part and the entire -- not only financial strategy, but also in the business strategy and how do we actually run the business. Thanks. Samita Shah: Thank you. With that, I think we've answered all the questions. So thank you to everyone who's dialed in and look forward to connect with you again next quarter. Koushik Chatterjee: Thank you. Thachat Narendran: Thanks, everyone. Thanks.
Operator: Good morning, everyone, and thank you for participating in today's conference call to discuss Synergy CHC Corporation's Financial Results for the Third Quarter ended September 30, 2025. Joining us today are Synergy's CEO, Jack Ross; CFO, Jamie Fickett; and Greg Robles with Investor Relations. Following their remarks, we'll open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Robles as he reads the company's safe harbor statement. Greg, please go ahead. Greg Robles: Thanks, Karmin. Good morning, and thanks for joining our conference call to discuss our third quarter 2025 financial results. I'd like to remind everyone that this call is available for replay and via a live webcast that will be posted on our Investor Relations website at investors.synergychc.com. The information on this call contains forward-looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will and other similar expressions. Forward-looking statements are not guarantees of future performance, and the actual results may be materially different from the results implied by forward-looking statements. Factors that could cause results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's SEC filings under the caption Risk Factors. The information on this call speaks only as of today's date, and the company disclaims any duty to update the information provided herein. Now I would like to turn the call over to the CEO of Synergy, Jack Ross. Jack? Jack Ross: Thank you, Greg. Good morning, everyone. Thank you for joining us today to discuss Synergy's performance for the third quarter of 2025. We are pleased to report our 11th consecutive quarter of profitability, reflecting our continued operational discipline and focused execution. Revenue, gross profit and income from operations increased year-over-year, underscoring the strength of our platform as we scale across new categories and geographies. Before we get into the financial results, let me touch on a few key developments across our business. During the third quarter, we made important leadership additions to support our expanding operations. First, we welcomed Teresa Thompson to our Board of Directors. Teresa spent nearly 4 decades at Costco Wholesale, including 29 years as a pharmacy OTC buyer, where she oversaw the vitamins and supplement categories across all U.S. warehouses. Her insights and category experience will be invaluable as we scale FOCUSfactor brand globally and strengthen our supplement strategy. We also added Bob Anderson as our new Director of Direct Store Distribution, otherwise known as DSD. Bob has over 20 years' experience in the beverage industry, and he will be responsible for building and optimizing our nationwide direct-to-store distribution for our beverage division. With his extensive experience, we expect to be signing new distribution partners continually and rapidly. Moving to our functional beverage momentum. This business continues to accelerate for us and is supported by a growing national and international retail footprint. During the third quarter, we secured several major distribution wins that significantly expands our retail availability to our functional beverages and shops. Looking at our domestic expansion, EG of America, the sixth largest convenience store chain in the U.S. will launch our focus and energy beverages to over 1,600 high-traffic locations nationwide in Q4 of this year. The rollout meaningfully increases our visibility in convenience channel and strengthens our position in the fast-growing functional beverage category. Additionally, Wakefern Food Group, the largest retailer owned cooperative in the U.S., will carry five focus and energy SKUs across 365 retail locations. On a regional front, we announced new partnerships with AlaBev, one of the premier beverage distributors in the Southeast U.S., who will distribute our beverages and brain health shops to over 5,000 grocery, convenience and specialty retailers across Alabama. We also signed an agreement with Atlantic Importing Company, a leading New England-based distributor to expand our beverage footprint across Massachusetts, Connecticut and Rhode Island. These partnerships reflect strong validation from top-tier retailers and distributors who see the opportunity for the FOCUSfactor beverage to lead the clean energy and brain health beverage segment. As we continue to expand our beverage business, our focus remains on disciplined execution, brand awareness and ensuring the availability of products in key markets that drive both volume and profitability. Turning to the supplement business. We continue to strengthen our momentum in this category as well. FOCUSfactor has recently been named the #1 pharmacist recommended OTC memory supplement for 2025, '26 by the Pharmacy Times. This underscores the confidence pharmacists place in our brand and our mission to deliver meaningful cognitive support to our consumers. In the U.S., our supplement business expands with Kroger, one of America's largest supermarkets operating in 35 states, which will launch 3 SKUs for the FOCUSfactor supplement across 1,600 of its 2,800 locations beginning in April of 2026. In Canada, Uniprix, one of Quebec's largest pharmacy networks will introduce the supplements across 300 stores beginning in February of 2026. Together, these launches expand our core brand presence across grocery and pharmacy channels, reinforcing our dual strategy of growing our supplements and beverages under the trusted FOCUSfactor banner. We also continue our international expansion. We have now received our first round of purchase orders from Costco, Mexico for the FOCUSfactor supplements, which will ship in December in the Q4. Also, our management team -- some of our management team is going to Dubai next week to meet with our licensing partner and attend the Middle East Organic Natural Products Expo, which will provide key contacts as we continue to develop our international footprint. Before passing the call over to Jamie to cover the financial results, I'd like to briefly touch on the public offering we closed in August. We raised $4.4 million of equity capital, which provides us with additional working capital to support our retail rollouts, inventory buildup and production and marketing initiatives. This capital enhances our flexibility to meet rising demand and invest in our continued growth. Overall, the results reflect another strong quarter of execution, meaningful progress across both the beverage and supplement business with new retail authorizations, expanded distribution partnerships, experienced leadership teams being added -- leadership people being added to our team, Synergy is well positioned to accelerate growth through the remainder of '25 and into '26. With that, I'll turn the call over to our Chief Financial Officer, Jamie Fickett. Jamie? Jaime Fickett: Thank you, Jack. I'll now review our financial results. For the third quarter of 2025, net revenue was $8 million compared to $7.1 million in the year ago quarter, reflecting an increase of 12.4%. Gross margin for the third quarter was 70.9% compared to 67.2% in the same quarter last year. The increase in gross margin was primarily driven by a favorable shift in product mix. Operating expenses for the third quarter were $4.4 million compared to $3.7 million in the year ago quarter. The increase in operating expenses was primarily due to incremental costs associated with being a public company and the added cost of launching our beverage division. Income from operations was $1.28 million, up 21.8% from $1.05 million compared to the third quarter of 2024. Net income for the third quarter was $125,300 compared to $783,600 in the year ago quarter. Earnings per share for the third quarter was $0.01 per diluted share compared to $0.11 per diluted share in the year ago quarter. Adjusted EBITDA per share for the third quarter was $0.15 per diluted share compared to $0.18 per diluted share in the year ago quarter. These decreases are due to other income in the same period last year and higher expenses this year to launch the Beverage division. EBITDA for the third quarter was $1.31 million, down 1.3% compared to $1.33 million in the third quarter of 2024. Adjusted EBITDA for the third quarter was $1.52 million, up 13.4% compared to $1.34 million in the third quarter of 2024. Moving to our balance sheet. As of September 30, 2025, we had cash and cash equivalents of $1 million compared to $687,900 as of December 31, 2024. Inventory was $2.1 million at the end of the third quarter compared to $1.7 million at December 31, 2024, and we also have an increase in our prepaid deposits of nearly $2 million, largely due to an increase in deposits on inventory for our growing beverage division. At September 30, 2025, we have a working capital surplus of $16.68 million compared to a working capital deficit of $1.12 million as of December 31, 2024. For the 9 months ended September 30, 2025, our cash used in operating activities was $3.21 million compared to cash used in operating activities of $1.38 million at September 30, 2024. The increase primarily reflects higher prepaid expenses for deposits on inventory and continued reductions in accounts payable and accrued liabilities. Now I will turn the call back to the operator. Operator: [Operator Instructions] Our first question will come from the line of Sean McGowan with ROTH Capital Partners. Sean McGowan: I have a couple of questions. Can you give us some sense of what contribution there was in the quarter from the beverages? Jack Ross: So in the current quarter -- the third quarter was $159,000 of beverage revenue. Sean McGowan: Okay. That's helpful. Now -- and that might explain or tie into the next question, which is, can you give me a little bit more color on the dynamics of the product mix? I mean, specifically, like what is the highest margin revenue source? And how high is that in order for the blended average to come out pretty high. I think it is the highest you've seen in a while, right? Jack Ross: Yes. So in our supplement business, we actually took a price increase to our Costco business of 11%, which I think our gross margin on our supplements on gross revenue is about 75% before. So it obviously increased that way. And our net -- our gross to net is about 11% of the difference. So we basically took about 11% increase in half of our business. Sean McGowan: Okay. When I said it was the highest you've seen in a while, I meant factoring in the RTD. Anyway, last question, is the G&A that you reported in the quarter indicative of what we should expect to see kind of an ongoing rate? Or given some of the executive additions that you've made that you highlighted at the top of the call as well as some others, will the kind of fourth quarter and ongoing rate be higher than what we see in the third quarter? Jack Ross: It's a good question, Sean. So we've sort of -- we'll call, added a secondary strategy to our beverage rollout. So with the sale of we'll call Poppi to Pepsi and the sale of Alani to Celsius, it really opened up, we'll call a lot of holes in the DSD networks, meaning Poppi and Alani are going back to Pepsi distribution. And we got very fortunate timings everything in life. And the DSD networks, the beer guys have opened up a lot of holes in their distribution network. So two things. Obviously, we expect to have an Allstate's strategy in our DSD network very quickly as we're signing these rapidly, and you'll read about some more next week and the week after and the week after. But more importantly, to support those guys on the DSD side, we will be also adding human capital, salespeople and service people to support those DSD distributors to bring on, we'll call regional retailers. So a little shift there where the opportunity presented itself with holes in the DSD distribution coming available, which should help us accelerate our RTD business a lot quicker than we thought in the convenience store side. So there will be some -- a long way to say, there will be some added human capital in the fourth quarter and first quarter and second quarter as we expand that Allstate DSD distribution. Operator: And at this time, this concludes our Q&A session. I would like to turn the call back over to Mr. Ross for closing remarks. Jack Ross: Thank you, Karmin. In closing, just a few final comments. We currently have over 3 million cans of drink inventory now in stock from our capital raise in August with more production being done as we speak. We are continuing to add key employees throughout our organization to build out our sales network. 2025 has been a foundational year for Synergy between refinancing our debt out to 2029, raising equity to support our balance sheet and growth and signing many key distribution partners and retailers we feel that the team has positioned the company well for an exciting 2026. We thank everyone for joining the call today, and we look forward to speaking with everyone again in March when we announce our year-end results. Thank you. Operator: And ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for standing by. I am Gellie, Chorus Call operator. Welcome, and thank you for joining the OTE conference call and live webcast to present and discuss the third quarter and 9 months 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Kostas Nebis, CEO of OTE Group; Mr. Babis Mazarakis, Chief Financial Officer; and Mr. Panayiotis Gabrielides, Chief Marketing Officer, Consumer segment, OTE Group. Mr. Nebis, you may proceed. Kostas Nebis: Thank you, and good morning or good afternoon, everyone, and thank you for joining us today to review our third quarter results. I would like to start with our recent exit from the Romanian market. We are very pleased to have successfully completed a key milestone that will lead to a substantial improvement in our annual cash flow and enhance shareholder value. In line with our commitment, we have adjusted our shareholder remuneration following the completion of this transaction by distributing an extraordinary dividend. Before reviewing the quarterly performance, I would also like to highlight a recent agreement to expand the ultrafast broadband coverage in the remaining lots of rural and semirural areas across Greece through a subsidized projects covering a further 480,000 homes and businesses. This will further solidify our leadership in the market by connecting even more people to fiber speed networks. This initiative underscores OTE's commitment to providing to as many households and businesses as possible, the fastest, broadest and most reliable gigabit connectivity services, driving Greece digitization and transformation going forward. Turning to our quarterly performance now. I would like to stress above all the acceleration of the recovery in our fixed retail service revenues that is supporting our overall growth in both revenues and profitability. The performance of our fixed retail services is accelerating, building on last quarter's momentum. This growth was driven by the increasing adoption of FTTH services, supported by the growing demand, voucher initiatives and our expanding network availability. We continue to lead with Greece's largest fiber network and further enhance our offerings to the customer premises. Our FTTH footprint is growing significantly, enabling more connections as we continue to record strong customer additions. The newly adopted regulatory framework for stop selling FTTC in FTTH already connected buildings will further boost the transition to fiber connection, further accelerating the monetization of our fiber network investments and offer improved services to the end users. At the same time, our fixed wireless access solution powered by 5G stand-alone technology is gaining significant traction, effectively bridging Gigabit connectivity gaps, contributing to positive broadband net adds in a traditionally weak performing quarter. In our TV segment, we are seeing the positive impact of strengthened antipiracy measures and anticipate additional support from the abolition of the special tax at the beginning of next year, making our Pay-TV propositions even more affordable to the end users. Our TV business continues its robust growth and strong customer acquisitions. Building on our leading FTTH network, rising fixed wireless access adoption and strong TV performance, we remain focused on enhancing customer value. In line with this, we have deepened our convergent services strategy by partnering up with one of the major energy providers to enhance further the value offered to our retail customers. In the Mobile segment, we continue our strong growth driven by our network leadership and attractive commercial offerings. The successful transition from prepaid to postpaid plans, the optimization of our prepaid portfolio and the increasing adoption of larger bundles and 5G devices penetration, altogether contribute to our solid performance. The recent CPI adjustments, which were mild after many years of experiencing much higher inflationary pressures on our cost drivers were combined with additional customer benefits and we contribute to some extent in our future growth. We remain at the forefront of the market as the operator of Greece's only commercially available 5G stand-alone network, and the reliability and resilience of our network continue to reinforce our long-term trajectory. We have also recently introduced the Magenta AI portfolio services, aiming to democratize AI access in the Greek market. By integrating the power of AI, we are delivering great value, further strengthening our commitment to innovation and customer satisfaction, partnering up with a number of global leaders in AI innovation, leveraging the partnerships of the Telekom Group. Our ICT business continued its strong momentum with another quarter of double-digit growth, highlighting our pivot at role in advancing the digitization of diverse sectors, supporting the digital transformation and businesses and the public sector organizations across Greece. To highlight, our recent contribution with advanced digital services and innovative educational tools in the educational sector, bringing all stakeholders closer to the gigabit society. In addition, our international ICT business is also growing, including projects for several European agencies. We remain focused on our operating and production model transformation, aiming to build a digital-first organization by actively deploying digital and AI tools. We have already enhanced areas like predictive network maintenance and customer care with AI role in customer interactions steadily growing, boosting efficiencies and delivering further value. Before finishing this review, I would also like to briefly mention that we have undertaken the initiative to provide free of charge high-speed connections to around 600 schools in remote areas of Greece, leveraging our FWA technology, opening up access to the digital world and offering equal opportunities to digitization for all students in Greece. Our strong performance relies on our strategic directions. The strength of our integrated services portfolio provides tangible benefits and helps us confidently navigate competitive challenges while driving our future growth ambitions. Looking ahead, we remain confident in our ability to lead the market, capitalize on new opportunities and consistently deliver on our commitments to our shareholders, customers and partners. Babis, on to you. Charalampos Mazarakis: Thank you, Kostas, and welcome to everyone on the call from me as well. As Kostas already pointed out, the completion of our exit from the Romanian market marks a significant milestone. From a financial perspective, this transaction strengthens our free cash flow on a sustainable base. We have adjusted our shareholder remuneration and will proceed with an extraordinary dividend distribution of around EUR 40 million or EUR 0.10 per share in the next month. Now turning to our quarterly figures. In Greece, we achieved a robust 5% increase in revenue, reflecting continued strength across our Mobile, TV, broadband and ICT segments, which more than offset the expected headwinds in areas such as national wholesale. EBITDA rose by 2%, keeping us firmly on track for our full year objectives. Retail fixed service revenues accelerated the growth this quarter to 1.3%. Our TV segment delivered another strong quarter with revenues increasing by nearly 17%, maintaining a solid double-digit growth trajectory. Our customer base expanded by 6.7%, almost matching the net additions reported in the same period last year despite this being the second year of our content sharing agreements. While we expect the anniversary effect from last year's Q4 price adjustments to impact year-on-year growth comparisons, our outlook for this segment remains positive. The adoption of antipiracy legislation this year, together with the removal of the 10% special tax on Pay-TV, which will be effective January 1, 2026 are paving the way to further encourage the take-up of legitimate platforms and reinforce our strong position in the market. Our broadband segment delivered a strong performance this quarter, achieving positive net customer additions despite the third quarter typically being seasonally the softer. We recorded [ 1,800 net profit additions ], driven primarily by the momentum in our fixed wireless access, FWA offering, which now serves 33,000 subscribers. Turning to our FTTH services. There, we delivered another strong quarter, recording 38,000 net additions and bringing our total FTTH customer to 509,000. Our retail FTTH customers now represent 22% of our total broadband base, up from 15% in the same period last year. This robust growth, coupled with sustained wholesale demand of our infrastructure is driving increased network utilization and monetization. Utilization level has risen to 33%, reflecting both the ongoing demand for our FTTH network and the strength of our wholesale partnerships. In addition, under the new regulation in place, we have now started to stop offering non-FTTH services in buildings already connected with FTTH. This change serves as a key driver for customer upgrades and accelerate the transition to fiber to the home products. Now turning to our mobile operations. Their service revenues increased by 2.7%, sustaining the solid momentum. Our postpaid maintains its strong growth trajectory with the customer base expanded by 6.4%, primarily driven by ongoing pre-to-post migrations. Starting from December this year, we will implement a CPI-linked increase in monthly fees for our mobile customers. The adjustment is modest, 2.6%, averaging less than EUR 0.5 and will apply to roughly 2 million postpaid customers and will support the continued growth of mobile service revenues in the coming quarters. Our network leadership continues to serve as a key competitive differentiation. 5G coverage now exceeds 99% of the population while 5G+ coverage has expanded to more than 75%. Data usage maintains its strong upward trajectory, with average monthly consumption per user reaching 20.5 gigabytes per month, representing a 29% year-over-year increase. In our wholesale segment, revenues increased by 4.2% in the quarter, but that was primarily driven by higher volumes in the low margin international traffic, which helped offset in revenue terms only the decline in national wholesale revenues. Here, I would like to say that the international wholesale contributed approximately EUR 81 million in the quarter. However, we expect this revenue stream, international wholesale revenues, of course, to decline in the coming quarters as certain activities will be phased out. Specifically, we anticipate that approximately EUR 150 million in revenues will be removed from our records in the fourth -- at the end of the fourth quarter of this year and the small amount impacting the first quarter of 2026. The termination of certain agreements where OTE acts as transit carrier will have minimal, if [indiscernible] impact on profitability. Our national wholesale agreements on the other hand, continued to deliver solid volumes with 31,000 lines added to our network in the third quarter and 93,000 net additions year-to-date. On the other revenue streams, our system solution businesses via core of our ICT segment continued its robust growth, delivering almost 38% increase in the quarter. This strong performance builds on the momentum established in previous periods, and we anticipate this positive trend will persist throughout the remaining of this year. The solid results in ICT helped to partially mitigate the decline in handset revenues, which decreased by 15%, primarily due to phase out of certain 0 margin activities there as well. Total operating expenses, excluding depreciation, amortization and one-off items increased by EUR 34.3 million in the quarter, broadly in line with our revenue growth. The increase was mainly primarily attributable to higher costs directly associated with top line expansion, particularly increased third-party fees within our operating expenses, which reflect the strong momentum in our ICT segment, as we discussed before. Additionally, we continue to incur certain operating expenses related to the growing adoption of fiber to the home, notably associated with the final phase of the connection of the customer. We remain, of course, firmly committed to cost discipline across all other several areas with continued savings most evident in personnel expenses, supported by the ongoing benefits from our [ X programs. ] As a result, adjusted EBITDA after leases increased by 2% in the quarter, maintaining the same positive trend as in the previous quarter. Our EBITDA margin reached 41%, representing a decrease of 120 basis points year-over-year, primarily reflecting a higher proportion of lower margin revenue streams. Overall, as we now approach the year-end, our performance reinforces our confidence in achieving our full year EBITDA target and guidance. Now let's take a look at the CapEx and cash flow. First of all, CapEx was up 8.2% in the first 9 months, reaching EUR 437 million, largely reflecting continued rollout of fiber to the home and the expansion of our fixed wireless access infrastructure. Our full year CapEx guidance now stands at approximately EUR 600 million after stripping off the Romanian business. I would like to clarify that the acquisition of the [ repeat ] concession will not alter our CapEx guidance. We now anticipate that we will be covering nearly 3.5 million homes by 2030 as we continue our fiber to home rollout for a couple of more years and therefore, maintain the current levels of approximately EUR 600 million CapEx per annum. Finally, free cash flow after leasing from continuing operations reached EUR 108 million in the quarter, up from EUR 100 million in the same period last year. The improvement was mainly driven by the higher EBITDA in the quarter. Income tax outflows and the working capital figures have been affected by different set limits amounts between these lines related to payments and receivables from the public sector. Today, we updated our guidance for free cash flow to EUR 530 million, up from EUR 460 million due to the disposal of the Romanian business. The revised guidance now reflects exclusively our Greek operations. At this point, we conclude the presentation. And operator, we're now available to provide any further clarification. Operator: [Operator Instructions] The first question is from the line of [indiscernible] Andreas with EuroBank Equities. Unknown Analyst: I have 3 questions from my side. The first question is regarding your updated guidance of free cash flow. You're currently guiding of free cash flow of EUR 530 million for 2025, which seems to be the new basis for your recurring Greek free cash flow generation. Could you tell us what is the read-through for the free cash flow from your recent agreement to acquire TERNA FIBER as you maybe have already mentioned that, that there will be no negative implications from this transaction. This is my first question. My second question, which is also related to the free cash flow is regarding your usage of EUR 120 million cash tax savings related to the Romanian disposal, particularly to the extent to which this will be used to enhance -- this will be used to enhance your cash return or as a firepower for spectrum in 2027? And my last 1 is on mobile. Lately, market participants have been rolling out inflation-linked adjustments to mobile contracts, which on our understanding, marks the first coordinating pricing move since 2022. Could you comment on that and then the magnitude of the pricing and whether this has been consistent across all the operators? Thank you very much. Charalampos Mazarakis: For the questions. And let's start with the updated guidance. As it was clear, and you pointed out, this EUR 530 million, reflecting the organic, let's say, delivery of the Greek operations for this year. So regarding your question about what is the recurring base, this is the starting of this year, of course. To the extent that we expand the business in next year, this organic is also expected to enhance in the coming years. Regarding the TERNA FIBER, there are 2 things there. The CapEx and the acquisition of this company. As we already guided, there is no impact in the cash flow from these acquisitions since it has been done in a symbolic amount. And regarding the CapEx, I have to say that the CapEx envelope, as we alluded to, is not going to increase versus what we have communicated also in the past that this will be the EUR 600 million we guided approximately is the flow -- is the ceiling actually for the coming years, including also the UFBB rollout, which will be rolled out for the next 3 years. And there is also an internal reshuffling of funds from other activities [ that one ] without, of course, impacting the strategic rollout to accommodate all of our infrastructure investment. On the free cash flow regarding the tax break, the tax benefit of selling the Romanian business will be positive the cash item for 2026. And as I think also you mentioned, part of it or all of it or to the extent that this is required, we found the upcoming spectrum auctions, for which the timing is not exactly clear yet and the process is not open yet. So the organic cash flow would continue to be part of our shareholder remuneration. And the cash item being one-off items, I think it's wise in order to maintain a smooth trajectory of our operational, let's say organic shareholder remuneration to match any other one-off hit that we may have, which in this case is the spectrum. Kostas Nebis: Yes. As far as your question around mobile, first of all, I'm not sure I understood what you mean by coordinated. But anyway, I would only comment on what we have actually done recently or announced to do recently. Just to give you a bit of historical information, we have started updating our contracts about 2 years ago, providing for this indexation clause. This is the practice that we see in quite a lot of European countries. So after having updated all our contracts and renewed our customers, we decided to apply the indexation clause, which is as per last year's inflation. This is the 2.6% that Babis also referred to. This is what we announced for our customers. We try to do it as fairly as possible by providing extra value to our customers. It is true that we have suffered out of inflationary cost pressure for a number of years, have adjusted nothing. And now we are doing that -- we are talking about less than EUR 1, which is going to be backed up with extra value to our customers, gigabytes in order to make it as smooth as possible. And this is it. Unknown Analyst: Okay. My question is regarding if this inflation-linked adjustments has been followed and also from other operators. And if there are changes to these adjustments between the operators, differences, I mean. Charalampos Mazarakis: I cannot -- I do not know whether [ we have had any recent changes, ] to be honest with you. [ This is not something that I have picked up ]. Operator: The next question is from the line of Kaparis Efstathios with Axia Ventures. Efstathios Kaparis: Congrats on a solid quarter. I've got 2 questions, if I may. So the higher amortization this quarter, what does it relate to? Is it a one-off? Or will it continue in the following quarters? And also on the FTTH rollout. Traditionally, Q4 is a stronger rollout quarter. Would we potentially exceed the 2.1 million target by the end of the year? Do you see an acceleration as you build up know-how on the rollout? Kostas Nebis: Let me start with the question about the FTTH rollout. The answer is no. We do not expect to close the 2.1 million household. That was target since the beginning of the year. So we are more or less running in line with the plan. What we see being accelerated is the customer take-up. And this was the result to a certain extent or to a great extent, I would say, of the new regulation that allows us to stop selling FTTC in FTTH connected buildings. We have seen, first of all, a very strong quarter, which normally the summer months are not performing extremely well as most of the people are taking their summer holidays. We saw a more or less similar quarter in terms of net ads during Q3. And on top of that, what we have seen is a record high net add in both October, but also the pace of November is following the same logic. So what we can confirm is an acceleration in the FTTH net ads. And yes, landing as far as the FTTH rollout is concerned, more or less spot on the 2.1 million households that we're aiming for. Charalampos Mazarakis: Also regarding the depreciation and amortization, this is seasonalization of Q3. As you may have seen, the D&A at the end of the 9 months year-to-date is flat versus a year ago. Operator: The next question is from the line of Rakicevic Sofija with Goldman Sachs. Sofija Rakicevic: So I would just follow up on a question on mobile. When it comes to CPI linkage, I'm just wondering if you have quantified the benefits from it on the top line growth over the next year or 2. And did you say earlier that this will also include some other services as well. I just wanted to check on that. And do you think that mobile could continue to grow in the range of like 2% to 2.5% into 2026? And my second question is on TERNA acquisition. So you have clarified the expected CapEx spend, but I was wondering if you can comment on the rationale of this acquisition. And also, what is the demand for fiber in those areas actually look like? And yes, the last question is how likely in your view is that the new entrants will manage to bundle telecom services with its energy offering. Kostas Nebis: Okay. Let me start with the first question on mobile. First of all, just to say the record straight, mobile has been growing by these levels of 2.5% to 3% for quite some quarters now. The delivery behind -- the levers behind the mobile growth are more than just the CPI. So we have been moving customers, prepaid customers to postpaid. We still have slightly less than 60% of our base on prepaid tariffs moving into higher value postpaid tariffs. This is the biggest driver of our portfolio growth. The second thing is we still have a lot of customers who are not in unlimited mobile data by shifting them to buy more for more initiatives. This is also fueling our growth. The CPI is just a small on top that will contribute to a certain extent, I would say, a small extent into our total growth trajectory going forward. So yes, we expect to see similar trends in the coming months and moving into 2026. But predominantly on the back of pre to post and more for more postpaid customer development. With regards to the effect of the CPI, I think that Babis has already indicated, we are talking about something less than EUR 0.5 -- slightly less than EUR 0.5 and we are talking about 2 million customers. I would like to repeat for 1 more time that this less than EUR 0.5 price adjustment comes with extra gigabytes in order to make it fair towards our customers. Now going to your question about UFBB. I think it is important to highlight the strategic rationale of this initiative. We are talking about roughly 0.5 million households in semi-rural and rural parts of the country in the networks where we have the lion's share of market share, I mean, this is standard for all incumbents. And we also have -- we are also serving 100% out of our copper -- our wholesale customers, meaning both Vodafone and Nova. So there is a lot of value generated out of these networks. We estimated at around EUR 100 million. So us being in a position to preserve this value, first of all. And second, I'll present also a big part of it as a margin as we will not be [ buying ] from someone else, makes this investment a very, very important one. On top of that, what we expect is that since we will be moving customers from copper to fiber space, we will be in a position to also generate some ARPU upside out of this customer migration. And at the end of the day, adding up this nearly 0.5 million to be already committed the FTTH plan, we will end up at 3.5 million households in total at the end of our FTTH rollout plan, which is slightly more than 70% of the country. Now, I mean, on your last question, I mean, I cannot comment about what our competitors intend to do. I mean, this is something that you should be asking them. Operator: The next question is from the line of [ Colas Vasilis ] with [ Padala ] Securities. Unknown Analyst: I have 1 question about group's growth. The growth in adjusted EBITDA after leases has ticked to 2% while EU peers are running with growth rates above 4%. When do you think the growth will be higher following the government initiatives for accelerated FTTH takeup and stronger contribution from TV and Mobile as well? Kostas Nebis: Thanks for the question. We are also anxious to see this 2% stepping higher. I mean, just to remind everybody that we have to reflect a bit on the history. So we started off in 2023, we started off 2023, we landed at 1.2%. EBITDA growth, which moved up to 1.6% in 2024. Now we are just about to close the 2%, and we have provided an outlook of 2%. I mean, to be honest with you, looking into the underlying trends across a number of different fronts, both fixed and mobile as well as ICT, including Pay-TV, for sure, this is making us more optimistic looking into the future and in particular, looking into 2026. Operator: The next question is from the line of Karidis John with Deutsche Bank. John Karidis: I have 2 questions, please. So first of all, the experience across Europe is that when a late entrant comes in with very aggressive prices, it's sort of the second and the third players that blink first. And because they blink, they sort of rope incumbent into a bad situation. So I'd be very grateful if you could explain or share with us how you see the level of competition, particularly from the likes of Nova and Vodafone and how they're reacting to PPC. I note what you said about us asking them, but I just sort of wonder from your perspective, do you feel that these guys are close to sort of blinking? And then secondly, I'm aware that of the 2 other operators that have been around for quite some time, one of them is not rolling out FTTH fast enough. Unfortunately, that's in areas -- sort of key areas where you have quite a lot of customers. And I just sort of wonder at what point do you sort of act in order to save these customers from going elsewhere given that you can't actually migrate them to FTTH as part of the collective wholesale agreement you have with Nova and Vodafone? Kostas Nebis: Thanks for the question, John. First of all, the fact that we have a couple of technologies available, both FTTH, including our infrastructure as well as our wholesale partner infrastructure, but also fixed wireless access is giving us optionality and what we are going to do is to make the most of both technologies in order to accommodate our customers' needs. This is on the second part of your question. So the first part of your question, I mean, I think that I have already presented our strategy. We are pursuing an FMC strategy. So we are trying to provide extra value to our customers by combining a number of different services as compared to just having 1 broadband-only product. This is what is holding us extremely strongly in the market, defending our base but also growing value. We are providing fixed voice, broadband, Pay-TV services on top of that mobile. We have also introduced an extra element through our partnership with [ Metlen ]. We are also providing extra value through a number of different verticals, be it on the delivery, be it on the insurance. So we feel that we have a very compelling proposition that is keeping our customers satisfied, providing a lot of value, hence, being in a position to defend our customer base, but also you can tell from our performance, our momentum going forward. This is what differentiates us in the market has been differentiating us for quite some time now, and we are trying to further strengthen that going forward. John Karidis: I don't know, if I may, sort of follow-ups, if you want to comment at all, but a bunch of clients are simply sort of taking the retail price of the latest entrant and adding it in the retail prices of our Mobile and Pay-TV and they're still coming out with some that's less than the bundle that COSMOTE offers, and that's sort of a cause of concern for them. And then the second thing is, I just sort of wonder, I think regarding my second question, do you feel that you can -- FWA is a good enough alternative in the middle of Athens, potentially sort of where the parliament is and the customers that you have around there. I mean, FWA is good enough for that, too, you think? Kostas Nebis: FWA for us, it's more of a bridge technology. So it is used in order for us to buy time until we manage to roll out FTTH or either us or a wholesale partners. This is how we have been using it. And based on what we have seen so far, I mean, we have more than 40,000 customers on fixed wireless access in less than a year's time, with very impressive NPS, these customers are very happy. So if it works well as a bridging technology, I'm not recommending a fixed wireless access to be used instead of FTTH. But it is helping us to bridge the timing gap until FTTH is available either in our networks or in other networks that our wholesale partners will be building. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you. Kostas Nebis: Thanks a lot for your attention, your questions and your interest in OTE, and we are looking forward to our next discussion, which is in February for our fourth quarter as well as the full year results. Until then, have a nice day. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good evening.
Rolly Bustos: All right. To respect everybody's time, I think we will get going right away. So again, greetings, and welcome to all the shareholders and stakeholders for joining us today for the Draganfly 2025 Q3 Earnings Call. My name is Rolly Bustos, and I am the Internal Investor Relations representative here at Draganfly. We appreciate you joining us. As always, we'll start with our CEO and President, Cameron Chell, recapping the third quarter earnings highlights. Next will be a more detailed financial review with our CFO, Paul Sun. We will conclude, as always, by addressing the pre-submitted questions we have received. You are welcome to reach out to me any time at investor.relations@Draganfly.com, if you have further questions. I remind everyone that this presentation may include forward-looking information and statements. These statements are not guarantees of future performance or financial results and undue reliance should not be placed on them. Any future events or financial results may differ from what might be discussed here. The company's results and statements are accurate as of today, November 12, 2025. We're under no obligation to update or renew these statements outside of material press release disclosure going forward. The full forward-looking disclaimer can be found on the screen right now. So Cam, if you're ready, please go ahead. Cameron Chell: Sounds great. Thanks, Rolly. Really appreciate that. And thank you, everybody, for taking the time to be with us today. We really deeply appreciate your time and consideration. So maybe just to hit the highlights out of the gate. So our revenue for Q3 2025 was $2.155 million, an increase of 14.4% year-over-year, that includes $1.6 million of product sales and about $530,000 of services. Our gross profit was $420,000, and our cash balance as of the September 30, 2025, was just underneath $70 million. So maybe just to run through a few of the highlights for the quarter. In particular, these are the ones that we felt were certainly material and meaningful to the shareholder and our future revenues. So first of all, we are unveiling the Outrider Southern Border drone, which is a Multi-Mission Drone in a Live Operation at Cochise County. So we -- basically, that whole operation is where we've got the Southern border sheriffs, basically commissioned by a heavy rider or what we call an Outrider drone, which is a drone that we designed with the Southern border sheriffs to be able to address the very specific mission sets that are required along the southern border. This very unique drone, which has a large addressable border opportunity globally, not just along the southern border, is actually a drone that really uniquely positions itself to be doing pretty much anything a fixed wing surveillance aircraft can do with the versatility of a Heavy Lift multi-rotor drone. And we'll talk a little bit more, and I know there's some Q&A that came in around that as well. So that was a very significant win for us. And in fact, on Monday of next week, we are actually doing the inaugural missions with that drone going live and operational, so we're really excited about the 100 or so different government and international representatives that will be there, witnessing and participating in those missions along the border in Arizona. So we also significantly bolstered our military and defense capabilities with the appointment of both Victor Meyers and Keith Kimmel, both are incredibly accomplished war fighters that bring very, very strong, both educational and operational backgrounds to the table. They are heading up our military Board of advisers. They're operational within the business and are supporting our sales teams as well as our operational teams. So we're super thrilled to have brought them on board, and they're very well-known certainly within the community. We were approached and very pleased to put a deal together with Paladin AI, and so we are actually collaborating on a specific opportunity that was brought to us from a military customer, but in addition to that, we are putting together and incorporating their AI into our drone fleet. We have several AIs that are being incorporated into our drone fleet. We treat our AI kind of similar to payloads. And what that means is that because our entire systems are modular, whether it's a particular type of camera, a particular type of payload, a particular type of sensor or even a particular type of AI, all of our system, right from hardware through the software, through design, is all managed in a way that can all be modular. So if we've got a customer that's coming to us that has a particular workflow requirement that requires a specific AI over another, we can incorporate that into it. Paladin has done some fantastic work in the industry, especially in forming. And so we're really, really excited about the opportunity that we've been able to put together, that they've been able to put together with us and vice versa. And so we expect big things out of this relationship, and it does start off with a specific customer that we are working with. We also announced that Drone Nerds, who is the largest reseller in the United States, has taken on the Draganfly line. In particular, for public safety, but also for military as well. So we spent probably a year working with them, really helping ensure that we are positioned well within the customer base that they're going to. They're a very discerning organization, and we really fit well within their NDAA-compliant strategy. And it should be noted, and I think I'm speaking with all accuracy here, is that in terms of a manufacturer, not just in North America, but a manufacturer anywhere in the world that has a comprehensive lineup of NDAA-compliant drones, I think we can point to Draganfly as the leader, if not really the only NDAA-compliant manufacturer out there that has 5-plus drone systems that are all NDAA compliant. And those range right from small FPV drones that we're selling into the military right through to the Outrider drone, which is a hybrid dual diesel engine, 7-hour, 100-pound capacity drone. So Drone Nerds has got this capability now to be able to offer that entire product line, in particular, down to their public safety. So we're really thrilled to be -- have been selected by them and get to work with them. We also had a fantastic show at AUSA. And this is really meaningful for us. So AUSA is the Army Association Show, basically the big military show in the United States. We were able to display there with our partner, which is the next highlight there, Global Ordinance. So Global Ordinance is one of the largest, what's known as DLA primes out there, one of the largest suppliers of munitions and equipment into Ukraine, as an example, amongst many other things, multibillion-dollar organization. And so they featured our drones along with them and have now brought us into multiple opportunities that we're working side-by-side on. So this show was really a coming out show for Draganfly in terms of our capabilities and capacities, and we had just an overwhelming response. Now this was also highlighted by the fact that we had a very significant announcement with the U.S. Army, which we'll talk about in just 1 second. We also announced that Autonomy Labs, which is a fantastic and strong U.K. company, basically decided to standardize on our platform being the Heavy Lift, which is not the hybrid version, but the actual electric version to be able to lay out their mine clearing, what they call, carpet. And so this is another great example, at least in my opinion, of payload companies who are looking to capitalize on the drone market, but are looking for the right manufacturer and the right solution provider to actually build their payloads around. So one of the key components of our modularity and our full product line is the fact that a payload is only going to be as successful as a drone platform as it can fly on. So our -- core strategy of ours is to be able to cater to those channel partners, those payload companies, again, whether they're things like LED signs that we've done before, or whether they're mine clearing carpets, or whether they're particular camera systems or AI systems, the more of those that we can integrate into our drones, the bigger channel that we have that those payload providers are actually selling into as well. And that is a -- it's a key component. So Draganfly having been in the business for 25-plus years now, we have that experience to be able to integrate all those other payloads into it. And it takes a long time to get enough integrations to build some critical mass around somebody -- an end user, a customer going, "Hey, wait a minute, I need to run this payload not just on a small ISR drone, but I also need to put it in conjunction with a medium lift logistics drone. And so for them to be able to make an investment once into a particular payload, but use it across multiple use cases because they've got different size of drones that those payloads can fit on to, we're finding that as a significant strategic differentiator or accommodator, if you will, for the customers that we're dealing with in the market and our payload providers. So again, thrilled to have done this project with Autonomy Labs. We displayed with them over at the DESI show in London, and they've really knocked it out of the park in terms of the amount of orders that they were lining up and the amount of testing that they've got going on with multiple militaries around the world. We also demonstrated both our Flex FPV and our Commander 3 XL platform at the invitation-only U.S. Army T-Rex experimental showcase. We were there actually, as I mentioned, by invite. We were demonstrating the 3XL and the FPV and how they can work in conjunction with each other. Again, if you think about that Commander 3 XL, which is above my left shoulder here, you really do notice that flat bottom on it because that gives a huge surface area for different payloads and multiple sensor capabilities. And so if you would also think about FPVs that are underneath that platform, and so you've got the 3XL, which can carry FPVs to a particular location, maybe a GPS denied location because the 3XL can handle the type of sophistication and radios required to be able to fly in those environments, and then be able to deploy FPVs from close range. The next notable one to bring up is that we have now -- we're well into working with standing up 7 new plants in the United States. through our contract manufacturing arrangement. We are in the midst of tooling those plants right now. That is going to more than quadruple our capacity. And for any of those that don't know that we currently in our own plants, we've got about $100 million of capacity that is now just kind of coming online. It took us until about Q3 to get that fully built out. We are now starting to produce on those particular lines, in particular, for the U.S. Army order that we announced about 4 weeks ago now. And so -- but these 7 new plants coming online, based on demand that we've got coming through, will give us somewhere in the range of about 4x that capacity by the end of next year. The company that we selected to go with, it was an arduous process, but the group that we selected to go with, their real speciality is -- I mean, they're great contract manufacturing. They were very accommodating about the tooling and the training that we need to provide, but they are very, very good on global logistics and supply chain management. And that's super key to us, in particular, because of the type of army orders that we're now entertaining. We're also, I believe, very uniquely positioned as an organization to support not just NATO, but in particular, the Canadian government. So Canada has now announced that 5% of their GDP is going to be moving towards defense spending. That's literally billions of dollars of new spending in this coming year. And there's upwards of $2 billion in the next couple of years spent just on drone technology. Now because of the unfortunate tariff war, which is working out fantastic for Draganfly between Canada and the United States, Canada has a very explicified Canadian policy right now. And given the fact that we have manufacturing plants and strong routes from Canada, we're very well positioned there, and have several initiatives ongoing in order to address that market and are likely -- there might be 2 companies in the whole country of Canada that can address that market for the Canadian D&D., and in fact, the other company right now only has one particular type of drone and it's more of a helicopter that would address that. So we think we're incredibly well positioned up there and thrilled to be able to be a service to that nation. Not only to the nation of Canada, but because of our Canadian manufacturing, our opportunities in the Arctic, both with U.S., NORAD, Canada and the Arctic states of Sweden, Denmark, et cetera, really seem to be also burgeoning quite well. So again, I would love to say that was part of our strategy. It wasn't. It's more luck than anything, but we're super proud to be in that position, and we look forward to servicing those organizations and customers over the coming years. And then we did have a Fortune 50 telecom company start to buy our Heavy Lift Drones. Now their Heavy Lift Drone in this particular case is being used for communication support on post-natural disaster. And we've been very, very hopeful with this particular Fortune 50 telecommunication company to actually expand the relationship. So this is part of 2 big initiatives that are happening. First of all, they're moving away from the Chinese manufacturing, and they were very explicit about needing a really solid long-term partner that had NDAA-compliant drones and had the capability to serve them at scale. So this was an initial order, but it was a really important order for us. And in the event that we see more orders from this particular company, we see it as a signal from them that they're standardizing on our fleet. And of course, those order sizes get well into the hundreds. And when I say hundreds, again, I'm not talking about a small ISR drone. I'm talking about a very sizable 9-foot drone that has incredible capabilities, is standing up cell towers, has tethered components to it and such. So -- and then, of course, a very notable subsequent event from Q3, which was incredible for us as a company and as shareholders was that we announced an order for our FPVs from the U.S. Army. Now this particular order, though we have to remain shy on some of the details of it, I can tell you that the reason that we won this order, I think, is -- I'd like to say it's because we have a terrific FPV platform that does have some incredibly unique features, designed from our experience being boots on the ground in the Ukraine since 2022, but I think the other reason that we frankly won this is that this particular order isn't just about providing drones, it's actually providing supply chain and logistical support. We're actually training this particular section of the Army to actually be assembling and manufacturing our drones so that they can do modifications on the fly. And then we're actually supporting that and providing the logistics for the resupply of all those drones into those locations. So it's actually Draganfly manufacturing on U.S. Army location and presumably, hopefully, locations. So really, really significant. It took about 1.5 years, maybe plus in order to actually put this order together. And it is one of the reasons that about 2 years ago, a little less than 2 years ago, I guess, about 18 months ago, excuse me, is why we still -- we started building out our capacity. So over the last 2 years, we basically had to cap our sales. We had to rebuild a bunch of our capacity in order to meet the demand of this and the other particular similar orders that we anticipate coming down from this. So just a quick review. This is our drone platform. This view here does not include the Outrider drone, which actually goes live next Monday on the Arizona border. And that drone itself would look very similar to the drone that's on the far right side, the Heavy Lift Drone, other than the fact that it has combustion engines on it as well. It can come with a variant of either 1 or 2 engines. It has the capability to fly up to 7 hours and carry 100 pounds of payload. That particular drone will be doing everything from communications, mesh networking, surveillance, reconnaissance, actual interdiction, logistical resupply, medical emergency support and many, many other things. I mean it is truly a drone that fits just an incredible array of use cases. So the event next Monday has over 100 people coming from multiple countries, all pretty border-focused. And the word that we're getting now is that we called this drone the outrider, but most people are calling it the border drone now because it's a purpose-built border drone. The TAM on border and border surveillance for drones is literally globally in the hundreds of millions of dollars per year for this particular product line. So we have some pretty high hopes and certainly, early indications are that this is going to be a leading driver of sales for us, even next year, even though we hadn't planned on it being a big driver of sales until 2027. You can see the other drone line up there, which I think I've explained pretty well in past calls. The key thing here is that they're all interoperable, all the payloads fit across it. If we've done an integration on one drone, whether it's with an AI and yes, our Flex, even the FPV drone there has AI incorporated into it, whether we do it with that drone or all the way up to the Heavy Lift Drone or the commander -- excuse me, the Outrider drone, you're working with the same common operating environment, the same connections, the same buttons in the same places, flight characteristics and so on and so forth. So it's also of note that the old DGI payloads that were supported by DGI, also fit into this modularity. So if somebody's got an investment into a payload, they got FLIR cameras, or they got whatever it is, and they're having to get rid of their DGI fleet, but they do not want to lose their investment into their FLIR cameras or their other payloads, those payloads actually integrate right into what we're doing as well. So again, it's just some experience there that's helped us think through how do we progress our customers into a new full product line. I won't spend much time here. But basically, the military impact for what's happening in the small UAV market is incredible. We recently saw in the last couple of weeks, the U.S. government talking about getting well over 1 million drones. And I know one of the questions that came in is, do we think we're going to get our piece of that. And certainly, that's what we've been planning on for years and working toward, and we are one of the few companies in North America that have that capability or capacity to be able to meet that demand. So we're pretty excited about what's happening there. We do have some validation around the Army orders that we previously sold in Special Forces and now into the Army as well as the many other initiatives that we've got going on across the whole Department of War. At this point, what I'd like to do is, I'd like to turn it over to Paul Sun, our CFO, to run through our financial highlights. Paul? Paul Sun: Yes. Thanks, Cam. Thanks, everyone, for joining. Appreciate it. Yes, just taking you through these tables here. Revenue for the third quarter was $2.16 million, up 14.4% from $1.89 million in the third quarter of 2024. Third quarter revenue did comprise of the $1.62 million from product sales with the balance coming from drone services that Cam mentioned at the outset. Gross profit, $421,000 this quarter compared to $441,000 in Q3 of last year. This quarter did have a onetime noncash write-down of inventory of $43,000. And otherwise, gross profit would have been $464,000 gross profit for Q3 of 2024 would have been $617,000 if we took away the onetime inventory write-down of $176,000 from the same period last year. So taking these noncash items into account, gross margin would have been 21.5% this quarter versus 32.7% year-over-year. Total comprehensive loss for the quarter was $5.4 million, compared to a loss of $364,000 in the same quarter last year. This quarter did include noncash changes comprised of a fair value of derivative liability loss of $1.8 million, that $43,000 inventory write-down that I mentioned and a gain on a notes receivable of $35,000. So otherwise, it would have been a comprehensive loss of $3.6 million. The same period last time had a onetime noncash change in derivative liability of $3.6 million. The $176,000 inventory write-down that I mentioned, and then a gain on an impairment note of $8,000. So the comprehensive loss from last year would have been $3.8 million. So the decrease in loss is due to primarily foreign exchange gain and lower professional fees, offset by higher office and miscellaneous costs, wage costs and share-based payments. If we move to the next slide, please. Yes, we just went through the year-over-year changes. So here, I'll do a quarter-over-quarter between Q3 of this year and Q2 of this year. Revenue for Q3 '25 increased $41,000 to $2.16 million, up from the $2.12 million in Q2 of '25, an increase of 2% due to higher product sales. The gross margin for Q3 '25, again, was 19.5% compared to 23.9% for Q2 '25. Again, if we back out that onetime inventory write-down mentioned before for Q3, and the $10,000 write-down from Q2 '25, gross margin, again, would have been 21.5% for Q3 and 24.3% for Q2, with the difference being product mix during the quarters. Total comprehensive loss for Q3, again, was $5.4 million compared to $4.7 million for Q2 of '25. And again, please recall, we had that loss in fair value of derivative liability of the $1.8 million, the write-down of inventory of $43,000, and the gain on the note of $35,000, so the comprehensive loss would have been $3.6 million. If we adjust for the noncash items in Q2, which included a noncash gain of a derivative liability of $180,000, a write-down of $10,000 of inventory, and a gain on a note of $8,000 that loss would have been $4.6 million. So the quarter-over-quarter decrease in loss is primarily due to the foreign exchange gain and lower professional fees, offset by wage costs and share-based payments. Going to the next slide, please. Yes, so just kind of looking at some high-level balance sheet items here. You can see total assets increased from the $10.2 million at the end of '24 to $77 million, which is largely due to the increase in cash over the year. Working capital as at the end of September was $69 million versus $3.8 million at the end of December. However, if we ex out the fair value of derivative liability of $3 million, working capital would have been a surplus of $73 million this quarter and $6 million at the end of December last year. Doing the same analysis for the shareholders' equity at this quarter end would be $73 million versus the $70 million shown and $6.8 million at the end of December versus the $4.6 million shown here. And as you can see, we continue to have minimal debt. And our company's cash balance, as Cam mentioned at the outset, was $69.9 million at the end of September, compared to $6.3 million at the end of December. And with that, I'll pass it back to you, Cam. Cameron Chell: Great. Thanks, Paul. So what I'll do now, if it's all right with everybody, is I'll jump into some of the questions. There's 9 questions that came in. I'll certainly do my best to be timely and answer them as thoroughly as is reasonably and regulatorily possible. So the first one that we've got here is it says you seem to have more cash on hand now than ever, what are the scenarios or use cases for any potential future raise? So we'll be opportunistic about potential future raises. We -- I think, we've raised less cash certainly than our comparables out there, and we're cognizant of cash being a strategic advantage. That said, we're highly, highly sensitive to dilution and shareholder value. So basically, we've got $70 million cash on hand. We're burning about $1.5 million a month. Things are scaling in a great way. Pipelines are -- literally, I can't even say the numbers because they're really truly unbelievable. So there's not an acute need to raise cash. And we certainly, as a company that's been around for 27 years, we're able to -- we think we have very good visibility to EBITDA positive and cash flow positive over some time here. That said, there are some key acquisitions that we're interested in. They are, to be clear, not necessarily acquisitions around technology or a particular product. Our acquisitions, which I think is a bit different than our comps out there are very focused on the people. So -- we have the -- we're in a fortunate position to be able to build what we sell and integrate what we sell. We're highly engineering-focused and customer integration organization. So what's most important to us is having the right team and people to be able to do that. So there are some pretty cool acquisitions out there that do have some great products and tech that fit with what we're doing, but they're probably not at the size or scale that maybe we see some of the comps out there doing because really what we're interested in is culture and how those people fit in, how we better serve our customers, how that can scale, how that can add to the scalability of what our customers are asking for us right now because the scalability that's being asked of us is truly astronomical. So us is not about layering in more acquisitions, which can sometimes be more problems. We're really about layering in the right personalities, people and leadership and technical capability in order to meet the demand that's at hand right now. And of course, those customers who are making those demands and they -- and that's kind of really where the market is at right now, we want them to be incredibly confident with the people that we're bringing on. So that tends to be a bit of our acquisition focus, which I think is probably another one of the questions in here. So in terms of raises, if we needed to do a raise for an acquisition, we would consider that. If it was opportunistic in the market, everybody says when the cash is there and you're in growth phase, you kind of really want to make sure that you do not take it. But we're going to be -- we're definitely going to be prudent about that to the best of our ability. So the second question that came in is, can you expand on the press release about manufacturing and overseas military facilities? How large is the potential here in terms of revenue? Are the financial metrics of this much different than manufacturing is done in North America, and then shipped as a final product? So I'll speak to the extent that I can about this. So the manufacturing in overseas facilities is very specifically in military facilities where they're manufacturing a Draganfly product. And it's a little bit more of assembly than manufacturing. The prime driver here is that those facilities need to be able to modify and have capabilities that they don't need to go back through a procurement cycle in order to order some new capability on a drone. They need to be able to do those modifications and such themselves. So they need to be trained in how to manufacture, how to modify, how to repair, how to change the product within the concept of operations that might be changing in their tactical situation at that time. And so that's really the driving premise. And then the other part of that is, is an Army base ever going to be able to do that on scale? If you think about what's happening in places like the Ukraine right now, you have individual brigades that are using hundreds of thousands of drones per month. And so you're not going to get that kind of scale on an army base. So you need a partner that can actually still provide that scale into your theater of operations while you still have the capability to actually make the modifications or drive your technology or tactics forward. And so that's more of the type of relationship that's here, which is why it is so strategic and such a big deal. In terms of scale, all I can say is that there's a lot of brigades in the U.S. Department of War and in all the NATO and the 5 I countries. And when I was at AUSA, one of the big announcements from the Army was that every soldier is going to be trained on a drone, every single soldier. And the reason is that if you think about those FPVs right now, which are not -- they're just the tip of the iceberg of what's coming, and they tend to be the focus right now. But basically, every soldier has a grenade that can go 10 kilometers. Now that's -- I mean that's what they choose to use it for. So the scale is absolutely enormous. But then when you also look at what's happening on the logistics side, on the resupply side and all the rest of it, and they need that embedded manufacturing capability, which is what we're calling it a hybrid embedded manufacturing, I really am not at liberty to say what the sizes are, but you can figure out pretty quick that it's numbers that are just completely astronomical. So the U.S. has stated that they intend to order millions of drones. Do you think we'll be able to get a meaningful piece of that? I do. And it doesn't have to be a big percentage of it for it to be meaningful. And the ethos that Draganfly is, we want to make sure that every one of our customers, whether they're military, industrial, commercial, whatever the case is, our job is to help ensure that our customer is unbeatable, absolutely uncompetable. And so again, whether that's a military or an industrial customer, what we like to do is add value. So will we eventually be the biggest drone manufacturer in the world or something? I don't know, and that's actually not our goal. We want to be the best partner to our customers that make them uncompetable. So we really want to continue to be that high-value, highly sought-after organization that brings a lot of experience and a lot of consciousness to the table in terms of the products and the services that we're able to enable our customers with. So the short answer is, yes, I think we can get a piece of it, and we'll just keep working to do so. Canada has said that they want to purchase Canadian-made drones. Can we expect meaningful orders from Canada and the Department of Defense at some point? I believe so. I can't give you predictability or any deeper insight, but I think we are as well positioned by far as anybody in the world to be able to provide that very big budget. We don't often think of Canada as a military force. That said, it's about the seventh-largest economy in the world, and now you get 5% of that economy going into rearming and reimagining what they're doing. And a very meaningful part of that is going into drone technologies as is all military budgets now because we've moved from into an entire new phase, where everything is actually becoming about -- not just about automation, but about autonomy. And the leading edge of autonomy is, quite frankly, drones, whether it's controlling autonomy, being autonomous, being in airspace, managing aerospace, all of it, drones are the leading edge of that. And so even small military budgets now are meaningful because so much of that budget is being focused into this particular area. So is border security still the main focus for the company? Yes. I mean, if Cochise County and the Southern Sheriffs is any indication of where we've been fortunate enough, very blessed to be able to be positioning ourselves as a border management specialist, not just with our drones, but with our tactical solutions team to be able to understand the ConOps and integrate the understanding of the ConOps into functional equipment, yes, border management, border security is a huge, huge piece of what we're doing. And I do find that we're pretty uniquely positioned there because it is a particular specialty that isn't just about ISR. When you've got folks coming over that border, you've got search and rescue situations, you've got human trafficking, you've got weapons, you've got armed militias, you've got drugs coming in. So the variance of what's happening is so incredible that you need to have a specialized team that really understands how to work with our -- with the law enforcement professionals and the super great people along the border that are holding our economy and our people safe in order to be able to provide that service. So again, those tactical solutions that we provide, the integrated services that we have at a tactical level are really our strategic differentiator for building great product. Do we see consolidation with the drone industry? For sure. Yes, there's -- I think we're going to continue to see a great expansion. A lot of small companies, they're talking about 1 million drones. They're talking about easing procurement. They're talking, what's going to -- like -- this is not an easy business. You're talking about putting aircraft in the air. And so any way you slice it, a lot of people can order parts off Amazon and think they can build a drone. But when you're talking about building drones at these levels, with these mission-critical requirements and/or flying them over people or vehicles or that type of stuff, I mean, you're just dealing in an environment that most people do not understand. Then on top of that, trying to scale production, that's a whole other set of problems out there. So we think there's going to be a big rush of folks. There is a big rush of folks into the industry. We've seen it 7 or 8 times before over the last 25-plus years. There's going to be fallout from it, and there's going to be great talent available out there, and we're hopeful to pick up some of that talent because there are super talented people in lots of organizations that are working on these problems, including our comps out there. I think our comps are probably obvious names, they're going to do great. There's kind of like the 4 or 5 companies out there that have kind of made it through some very lean times, have some capacity capability now, have some experience. And they've got enough scars like we all have enough scars where we're going to muddle our way through and be able to solve these solutions or solve these problems at scale. And so I think the industry in general is starting to shape up quite nicely. There's also a couple of privates that will do well. But yes, there's going to be consolidation for sure as there always is. So can you give us an update on what your production capacity is and if you had planned to increase in 2026? Yes. So our #1 focus is our organic capacity, which is -- can do up to about $100 million. And that's what we really want to make sure that we're streaming that in '26. And then -- but we are bringing on more capacity in '26, and so it will expand far beyond that, but our focus is on our organic capability. We -- part of the reason that we've got outsourcing capability that we're bringing on stream is for some of our supply chain management and being able to provide from different parts of the countries and different parts of the borders to ensure that we've got efficiency around tariffs, efficiency around manufacturing, delivery, supply chain, et cetera. So again, pretty unique positioning in terms of North American manufacturing and being able to suffice all parts of North American and European, in particular, manufacturing. So again, it wasn't part of the master plan, but it sure worked out well for us. And it was maybe a little part of the master plan, but not all that much. So can you tell us what percentage of revenues would be military versus commercial? Do you expect military to be a major part of your revenue going forward? Yes. Right now, it's -- I'm going to say we've had our revenue capped here for the last couple of years, and that's certainly now about to change very quickly or is changing very quickly. And I would say that military is, let's call it, 30-ish percent of that. But that will be -- next year, it will be 90% just one single order dwarfs the numbers that we've done for the last 3 years. And there's multiple types of those orders that are falling into place. So it could be 99%. We could see our commercial or our public safety market go up 200% this year. And military sales will still be 90% just because the individual order sizes, and then the resupply and everything else is just so absolutely mind-boggling. So what do you feel differentiates Draganfly? Our integrated practices, our integrated tactical services. That is a big differentiator for us. So when we worked on the Cochise product, we spent months on the border on horseback, on ATV. We understand the communication points where the holes were. We got to learn where the cartels were, how they think, what they operate, what are their techniques, like all of that stuff. And then we sat with the sheriffs of the southern border, and we spent the time designing what is the capabilities that they need to meet. So whether that was that instance, whether it's some of our industrial clients, whether it was the opportunity that we created over the last -- was provided to us, excuse me, over the last 2 years with this latest Army contract, it was that same process. It didn't start with the product. It started with understanding the concept of operations, the use cases, and then -- and really kind of figuring out, okay, what can make your situation such that we can help make you uncompetable. And I think that's our differentiator. Now further to that, we've got 25 years of experience that allows us to have a full product line. So we can actually leverage that and be able to provide those types of products out there and services. So at the end of the day, it's our people. And I hate saying that because it sounds like such a typical answer, but that is how we utilize the incredible talent that we've got in the company in order for us to be differentiated. I do think the fact that we've got manufacturing not just like on 2 -- across 2 borders is a big differentiator as well because that Canadian market has turned into a monster opportunity. And so that's pretty unique as well. So -- and I think ultimately, what will carve out a durable market share for us over the next 3 years, from a strategic standpoint, we're all about creating blue ocean opportunities. So there are a number of companies, and there's a whole bunch more coming that are going after that kind of Mavic 3 replacement, small ISR drone, which is a lucrative market right now. But ultimately, that market, in our opinion, what we've seen over the years is that's a market that's going to continue to get chipped away at. There's multiple players going after it. Right now, they're $30,000. A year from now, there'll be $20,000. 18 months from now, they're going to be $4,000 drones again. And maybe the comps out there aren't going to agree with me on that. And then the risk is actually -- there are -- everybody thinks that DGI came in and dominated the market. Well, we have to remember that the North American market was being dominated by multiple foreign manufacturers, primarily out of Asia. And if it wasn't DGI, it was going to be one of them that basically took the rest of us out in North America. It's just that DGI was so good. They were able to dominate those players as well. Well, a lot of those players were from countries that can produce NDAA-compliant products. So if I were to make a prediction, in a number of years from now, we're going to see the Eastern Europeans, we're going to see the Southeast Asians, we're going to see them in that kind of small competitive ISR prosumer space, again, with NDAA product. Now we got kind of like a 3- to 5-year kind of window here where that isn't going to be the case, but it's also not been a reason where we've really kind of focused on that particular product line. If you look at the rest of the other 5 products that we've got, they kind of skip over that piece. Now we've got some strategic alliances and such in that area so that we can address it with our customers, but that's just not a piece of the market that we've seen North American manufacturers be overly successful with. Now the market is very different, and I could be completely wrong on it. But notwithstanding, when we take on a market like the border, we're building a border solution, and we think that we've created a very unique scenario where we've got an addressable TAM where it's going to be very tough for other folks to compete in there because of the job that we do, making our customers so uncompetable. And so whether it's that particular product or the embedded hybrid manufacturing product or any number of the others that we either have and/or will be announcing, we like to create blue ocean opportunities. So we've got these pockets or hides of burgeoning high-margin business that are very attuned and custom and ideal for the products that we make. And that's a multibillion-dollar sales funnel, certainly over the coming years. And so we don't necessarily have to be, hey, let's go build a typical drone and have to be the #1 or the #2 player. We're -- even though we're a small company right now, we are the #1 or #2 player in the markets that we are addressing, and they are large total addressable markets. So on that note, I am going to wrap up the call. Rolly, thank you so much for all the work that you do. I know that I get so much feedback from shareholders about how candid you are, how hard you work, you're 24/7. And I encourage anybody that if you've got questions or anything that you need help with to reach out to Rolly. He also has the rest of the organization standing behind him in order to be of greatest service that we can be to our shareholders, all of which none of this would be possible. And then finally, just to our team members and to our employees, you're the most important thing that we have going out there. And that ethos of helping make our customers completely uncompetable is the ethos that keeps -- certainly keeps my passion going, and I see you guys executing that every single day with customers in ways just going deeper for them than I've seen across many, many organizations I've been lucky enough to be a part of over the last 35, 40 years of entrepreneurship. So I couldn't be more proud. Thank you so much, everybody, for being here and reach out if you have any questions. Paul Sun: Thanks, everybody.
Operator: Good day, and a warm welcome to today's earnings call of the Aumann AG following the publication of the Q3 figures of 2025. I am delighted to welcome the CEO, Sebastian Roll; and the CFO, Jan-Henrik Pollitt, who will speak in a moment and guide us through the presentation and the results. After the presentation, we will move over to our Q&A session in which you have the possibility to place your questions directly to the management. And having said this, we're looking forward to your presentation. Mr. Roll, the stage is yours. Sebastian Roll: Yes. Thank you. Good afternoon, everyone, and thank you for the kind introduction, and a warm welcome from both of us. For those I haven't met yet, my name is Sebastian Roll, and I'm the CEO of Aumann. And joining me today is Jan-Henrik Pollitt, our CFO. So I really appreciate your interest in Aumann and this earnings call. Over the next few minutes, we will walk you through a brief snapshot of Aumann, the latest developments shaping our E-mobility and Next Automation segments and of course, our financial performance in the first 9 months of 2025. So let's start with a quick look at our business model. We design, as you know, and build high-end fully automated production lines tailored precisely to the needs of our international customers. With decades of experience in automation, industry leaders around the world trust Aumann to deliver innovative solutions. One of our competitive advantages is staying ahead, especially in fast-growing markets, enabling us to quickly provide customized solutions. This is why the automotive market, especially the E-mobility sector remains so attractive forum. In addition, the robotics and automation market is growing rapidly, driven by demographic change, labor shortages and cost pressure. These trends also drive our Next Automation segment, allowing us to use our automation expertise in many industries beyond automotive. Let's take a quick look at Aumann's solutions. Our portfolio range from modular solution and complex process solutions to large-scale production solutions. In modular solutions, Aumann offers standardized cell systems. They enable our customers to react fully flexible and cost optimized on market demands. In addition, Aumann develops production lines for complex processes such as winding, coating and testing. The aim is to implement special process steps in the most efficient way. Moreover, Aumann offers customized large-scale production solutions built for maximum output while ensuring high quality. Thanks to Aumann's wide range of solutions, we can fully support different production goals of our customers. This slide shows how Aumann became a technology leader in E-mobility. Starting from the traditional automotive market, E-mobility was identified as a target market. Through strategic M&A, Aumann took the first step into the e-motor. Building on our know-how, we developed different solutions for the rotor, quickly followed by solutions for the stator and finally, the full e-motor assembly. After the e-motor, we continued our journey using our skills to sell large-scale production solutions for battery modules and packs. In addition, we introduced our own modular systems, for example, for inverter assembly, but also very useful right now in the field of Next Automation. Furthermore, we entered into converting technology. This enabled us to provide production solutions for electrode manufacturing. Aumann is the leading provider of turnkey E-mobility solutions. This illustration shows the drivetrain of a fully electric car and nearly all components can be produced on Aumann production lines. From the very beginning, Aumann has placed a strong focus on the e-Drive unit. Even today, our customers follow very different approaches in developing stators and rotors. As a turnkey provider, we provide the latest production solutions for both, and we go further. With our modular production systems, we have expanded our portfolio to include production solutions for electronic components such as sensors and inverters. This allows us to offer flexible and scalable solutions perfectly tailored to each customer's needs. Now let's shift our focus to our battery portfolio. Here, Aumann benefits from its strong position in the field of energy storage. We cover the full range from battery modules and packs to cell-to-X solutions. This expertise allows us to meet customer needs and develop new solutions for future battery technologies. Let's take a look at the E-mobility market today and in the future. BEV, so battery electric vehicles sales continues to gain traction. In the first 9 months of 2025, more than 9.5 million were sold worldwide. This means a plus of 36% in comparison to the same period last year. China stays in the lead with over 6.1 million units, but Europe follows with strong growth, reaching more than 1.8 million units with 25% increase compared to last year, including Germany with an impressive 38% growth. The U.S. market, which currently shows the lowest volume in comparison, is at least growing by 12%. So this means by 2030, BEVs are expected to make up 40% of sales by 2035, even 2/3. So despite this positive growth perspective, the industry has been slowing down since 2024. The main reasons are the challenging geopolitical conditions. Nevertheless, rising BEV sales and a more stable geopolitical situation are expected to drive new investments in the near future. Let us return to the beginning of the presentation. As mentioned besides the automotive industry, we are shifting our focus on other industries that need more efficient operations, higher productivity and fewer manual steps and errors. At the same time, rising labor costs and the lack of skilled workers are driving companies to automate. In this context, we have moved our Next Automation segment from an opportunistic to a strategic approach. This segment focuses on growth industries beyond automotive, such as defense, aerospace and life science. Let's take a closer look. In our segment, Next Automation, we have defined 3 strategic growth areas. Aerospace is really picking up speed. Demand is growing in civil aviation. Boeing and Airbus expect over 40,000 new aircraft over the next 20 years. In addition, defense budget are boosting. Drones are our focus. The German Armed Force recently decided to procure systems for about EUR 1 billion. Drones combines exactly what we do best. Electric motors, battery pack, full system integration and end-of-line testing, just like in E-mobility, same technology, new applications. Besides aerospace, cleantech is booming. German government are putting EUR 500 billion into infrastructure and climate. This is driving more investment into renewables, hydrogen and energy grids. Our third pillar is life science. An aging population, strong investment and healthy margins make it a very promising industry. Now I would like to hand over to Jan. Jan-Henrik Pollitt: Yes. Thank you, Sebastian, and also a warm welcome from my side. I would now like to share with you the financial figures of the first 9 months of 2025. Let me start with a quick overview. For 2025, it was clear that we will face a decline in revenue, particularly due to the already weaker order intake in 2024. At the same time, we were committed to leveraging every possible measure to keep our margins at a high level. It is also important to note that especially with regard to the automotive industry, that investment behavior continues to be very cautious. This trend is evident across the entire spectrum of automotive OEMs and suppliers. And unfortunately, we cannot escape its impact. The market environment is still challenging. Under these circumstances in the first 9 months of 2025, we reached a revenue of EUR 158 million, which is 32% below the previous year and in line with our full year guidance. Our profitability remains strong with a double-digit EBITDA margin of 11.6%. Order intake after 9 months amounts to EUR 112 million, which is 29% lower compared to last year. Order backlog reduces from the year-end level of EUR 184 million to now EUR 136 million. Furthermore, our balance sheet remains strong with EUR 160 million net cash. Let us now jump into a few details. Across segments, we achieved a revenue of EUR 157.7 million, which means a decrease of 32% year-over-year. The revenue of the E-Mobility segment decreased by 32% to EUR 129 million. And the Next Automation segment decreases from EUR 42 million to EUR 28.7 million as the previous year contains a larger revenue from a big order in the photovoltaics area. On the earnings side, we only see the volume effect and fortunately, no quality effect. Our profitability shows a stable result despite decreased revenue. EBITDA declines in roughly the same proportion as revenue, minus 28% to EUR 18.3 million, and the EBITDA margin of 11.6% is even stronger than the previous year's level. The solid profitability in the first 9 months is based on a good quality of the order backlog, the strict cost discipline in order execution and the adjustment of capacities to the subdued market situation. The EBITDA margin stands at 11.6%, above our guidance for the full year 2025. So we are currently monitoring the performance of the final quarter and navigating cautiously due to the weak investment climate. Bottom line, 11.6% EBITDA margin mean an EBT margin of 9.5%, which underlines the company's operational performance and volume flexibility. Let us turn to order intake and order backlog. I've already mentioned the weak investment climate. We are operating in CapEx-driven business. And for CapEx, especially large-scale projects, stable conditions and strong, sometimes even bold forward-looking and long-term decisions are required. Currently, many industries and especially the automotive sector are lacking in many of these aspects. But we are far away from desperate. Internally, we are continuously working on optimizing our cost structure and capacities. Externally, we are building new sales and M&A leads. We see significant opportunities and potential for the company, and we are confident that many of these initiatives will resonate well with you. Across segments, we see a decline in order intake of 29% year-over-year to EUR 112.4 million. But on the other hand, the efforts in the Next Automation segment are gradually translated into order intake. Next Automation order intake is increased by 35% year-over-year to EUR 29.4 million, and the sales pipeline is rising. This results in a decreased total order backlog of EUR 135.8 million, which means a total reduction of 39% year-over-year. However, the current backlog is still solid in terms of profitability. Let's take a look at our segments. In the E-mobility segment, order intake of EUR 82.9 million is 39% under the previous year due to the mentioned market conditions. As a result, order backlog decreased by 44% to EUR 105.6 million. At the same time, revenue decreased by 32% to EUR 129 million in the first 9 months of '25. And EBITDA roughly develops in line with the volume effect by minus 27% to EUR 17.1 million, which means a margin of 13.3%. In the Next Automation segment, order intake increased year-over-year to EUR 29.4 million as the new positioning is opening new markets. At end of September '25, order backlog amounted EUR 30.2 million. Revenue decreased due to the large-scale order in revenue last year by 32% year-over-year to EUR 28.7 million. And the EBITDA margin increased by 1 percentage point to 12.3%, which leads to a total EBITDA of EUR 3.5 million. By the end of September 2025, our balance sheet continues to be in a good shape with an equity ratio of 63.5% and [ EUR 120 million ] cash, of which EUR 160 million are net cash. Against the backdrop of the company's solid earnings and net cash position, we have decided today to cancel the acquired shares under the 2025 share buyback program. Around 6,000 shares were transferred in October 2025 to the participants under the 2020 stock option program and the remaining approximately 1.4 million shares were canceled today as a part of capital reduction. Our solid financial foundation will continue to allow us to respond both organically and through increased M&A activities and to ensure further shareholder participation through share buybacks and dividends. To conclude, we confirm our guidance for 2025. In the last years, we increased our revenue by almost 50% and EBITDA by more than 300%. Unfortunately, this year, we cannot continue this trend. The market environment and the noticeable reluctance to invest will lead to a decline in revenue to between EUR 210 million and EUR 230 million. However, on the profitability side, we can benefit from our order backlog and the flexible structure of our company. As said, our current profitability is above our guidance, but we are navigating cautiously and are monitoring the last quarter of 2025. Therefore, we confirm our guidance of an EBITDA margin of 8% to 10%. Let me hand over to Sebastian again. Sebastian Roll: Yes. Thanks, Jan. So to sum up our presentation, unfortunately, our business in 2025 is also again strongly affected by market uncertainties and low investment activities in the automotive sector. As a result, our order intake declined to EUR 112 million with E-mobility down by around 40%. We are not the only ones. Our automotive customers are facing a year that is at least as challenging as ours. So despite these headwinds, we delivered a strong operating performance in the first 9 months 2025. We achieved a double-digit EBITDA margin because we did our homework. We reduced capacities, made our cost structure even more flexible, and we ensured cost savings in project execution. We also focus on maintaining a profitable order intake, ensuring that our order backlog remains profitable. In addition, our financial position is strong with high liquidity and a solid equity ratio. That clearly set us apart from most of our competitors and give us the freedom to shape 2026. In addition, we are pushing ahead Next Automation, unlocking growth beyond the automotive industry. Due to our strategic shift, Next Automation order pipeline is growing and order intake currently up by around 35%. Our clear goal is to accelerate this growth both organically and through M&A. Thank you very much for your attention, and we are happy to take your questions. Operator: [Operator Instructions] And I will read the question in our chat box first before I go over to our hand-up. Congratulations on the strong results in a challenging environment, especially regarding the EBITDA margin. Given Aumann's very favorable valuation, a further share buyback would generate a very good return on invested capital in the medium term. What are your thoughts on this? Aumann AG's 2026 estimates of EUR 255 million in revenue and EUR 26 million in EBITDA realistic? And where do you see these figures in the medium term? Sebastian Roll: Yes. So maybe starting with the question of the share buyback. So our solid financial foundation allows us to respond, let's say, flexible on market opportunities. So for example, this means, for sure, growth in Next Automation, as I said, organically or through M&A and for sure, also to ensure further shareholder participations through, for example, buybacks and dividends. That's why we decided today to retire shares under the 2025 share buyback program to stay ready for sure also for these kind of opportunities. The other question, I think, was concerning 2026. And sure, looking on the current figures, revenue might be weaker again next year. That's something we have to see. But Q4 is not completed yet. So that means relevant customer decisions being made till the end of the year. And then we will put all these information together and to give a picture of 2026. Fortunately, our order backlog is profitable and all the other things we have for sure to calculate and yes, to make our mind after the fourth quarter. Operator: And I will go over to our hand up from Charlie Michaels. You should be able to speak now. Your microphone is unmuted, but we cannot hear you, Mr. Michaels. I will give you a moment to find the words and go back to the questions in our chat box. Can you reveal more details regarding M&A processes? Are you involved in some? If yes, how many? What about geography in terms of M&A targets? Sebastian Roll: Yes. I mean we are involved in a handful of these M&A activities. And I think one is the geographical target to have a bigger footprint in North America, as you know. So this might be very important for us also having in mind tariffs. And the other topics for sure is within Next Automation. So we really try to push Next Automation also through M&A. And therefore, we see also some really nice targets right now with a little bit different technology and with an entry, especially in the growth areas we are right now trying to enter. Operator: And we have the same question in the chat box. I hope all questions are answered by that. Charlie Michaels, would you like to try it again? I can see that you are unmute now, Mr. Michaels, but we still cannot hear you. So sorry. I will go over in the meantime. Charles Michaels: So Charlie Michaels from Sierra, like the prior speakers and questioners, I congratulate your margins, tremendous work there, not easy in this difficult market environment. And I'm also thinking along the lines of the prior questioners on M&A. So that was an area. I think you've done some share buybacks, which we appreciated so far, too. But at this stage, I'd say it hasn't really changed things too much for the company as we've seen with the share price being relatively flattish. So the idea that you mentioned about acquisitions yourself, right, potentially in the U.S. where you're looking, I would just say that on the acquisition front, I would work hard to accelerate it. And it's not easy, but it seems to be vital for the Next Automation group. And a question -- an angle on that acquisition question is, would it make sense maybe even to consider a merger of equals, looking around for a company that's not too highly valued because that would basically, given your valuation, be difficult. But you're bringing a lot of German technical engineering expertise and a lot of cash -- and because one other issue besides making some bolt-on acquisitions to your company is just the scale of your company. So it seems to me that you can think bigger and even merge with someone in order to create scale. As you know from the past, we've been following you for a decade or so, invested for quite a long time. And I think that it's just hard to change the thing when you're small, right? That's just my thinking. Sebastian Roll: Yes. Okay, Charlie, I think, as you know, merge is not our first priority. But for sure, given our liquidity, it is possible even to acquire some bigger targets. And we also had to look on some bigger targets as well. I think it's a little bit depending. I mean if it is technical driven and we see some nice technology, some nice processes where we might to find that it is possible to get in a new market or to add something value-wise, then this would make sense. I mean it's not so easy right now because you're right. I mean, most of our competitors, as I said, are not very strong in the position right now. Some of them has an order backlog, which is not really favorable. So -- but for sure, we are looking around. I mean, merge, as I said, is not our first priority. But if there might be a bigger target, for sure, we also would have a look on it. Operator: And I will move on to Michail [indiscernible] Unknown Analyst: Yes, I have a question regarding your wording in your report. I assume it changed a little bit from the Q2 wording to the Q3. It turned, in my opinion, a little bit more positive on future orders you can get because yes, you're writing from a really a very bigger sales pipeline and significant investment impulses instead of positive investment impulses a right indication or I'm on the wrong track? Sebastian Roll: No, honestly speaking, we really hope that you are on the right track, yes. So I mean, maybe because you said having a look on the half year figures. So within the half year, we were roughly 20% above in Next Automation comparison to last year. So we accelerate this a little bit. So right now, we are 35% above previous year, unfortunately, on a low volume, but we are increasing, as you know. And in addition to this, we submitted more Next Automation quotations to customers than ever before, including large projects. So we really hope that in the upcoming quarters, we will see a really positive impact, maybe 1 or 2 large scale orders. So yes, we -- I mean, it's not so easy. I mean, Next Automation means to have new customers to see some other products and to confirm the new -- or to convince -- sorry, to convince these new customers, but it's developing step by step. And yes, it's starting to get fun. So we are really excited. Unknown Analyst: And then maybe one question on your guidance. I think -- yes, you mentioned yourself that the EBITDA is really -- was really good in the last 9 months or even also in the Q3 stand-alone. So was there any exceptional items we have to think about if you look for Q4 that maybe... Jan-Henrik Pollitt: So until now, there has not been any exceptional items in the first 9 months. We stay a little bit cautious on the last quarter because we saw a lot of volatility this year. So yes, as you said, the current profitability is higher than guided. And the last quarter is a bit of a mixed pocket when we see also a larger order intake, which is being discussed and where we need to see where the margin is in these projects. And of course, on the volume, which is to come in Q4, it is relevant for us how we behave on the capacity adjustments in the company. And therefore, we are driving a little bit cautious on Q4 right now unless we have a good profitability in the first 9 months. Operator: In the meantime, we have received no further questions or one more in the chat box. Going back to M&A, could you shed some light on time line? When can we expect information about acquisition? Is it Q1 2026 or later? Sebastian Roll: I mean we are really working hard on this, but it's a digital process. So I mean, yes, let's see. We hope to be as soon as possible on this. And I think all other things I cannot really confirm right now. Operator: And with this, we will end the earnings call for today. Thank you very much for joining, listening and all your questions. A big thank you also to you, Mr. Roll and Mr. Pollitt for your presentation and the time you took to answer the questions should further questions arise in the time between now and the Aumann Capital Forum in Frankfurt end of November. Please feel free to reach out to Investor Relations. And with this, I wish you all a healthy autumn week, greetings around the world. And with this, I hand back over to Mr. Roll for some final remarks. Sebastian Roll: Yes. Thank you. I hope we have shown that Aumann will stay strong in 2025 in another challenging year for our industries. We are focusing on what we can control. Internally, we are optimizing our cost structure and capacity. Externally, as you have seen, we are building new sales opportunities and M&A leads. So we see significant potential in our company, and we are confident that the results will follow, and we look forward to seeing you at the next conferences, and thank you very much for your interest.
Operator: Good morning, and welcome to Q3 2025 Financial Results Conference Call for HLS Therapeutics. At this point, I would like to turn the call over to David Mason, Investor Relations, for the introductory remarks. Please go ahead. Dave Mason: Thank you. Good morning, everyone, and thank you for joining us today. With me on the call is Craig Millian, Chief Executive Officer; John Hanna, Chief Financial Officer; and Brian Walsh, Chief Commercial Officer. Earlier this morning, we issued a news release announcing our financial results for the 3 and 9 months ended September 30, 2025. This news release, along with our MD&A and financial statements, is available on HLS' website and on SEDAR+. Please note that slides accompanying today's call can be viewed via the webcast, a link to which is available in our earnings press release and at our website on the Events and Presentations page. Certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's annual information form, which has been filed on SEDAR+. During the call, we will refer to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS. Adjusted EBITDA is defined in our press release and annual filings that are available on SEDAR+ and on our website. Please note that all financial information provided is in U.S. dollars, unless otherwise specified. I would now like to turn the meeting over to Mr. Millian. Please go ahead. Craig Millian: Thanks, Dave. Good morning, everyone, and thank you for joining us. On our call today, I'll review quarterly and year-to-date highlights, along with progress against corporate priorities. Brian will go into further detail on product performance, along with an update on launch preparations. And then John will follow with a detailed look at the numbers. Following John, we'll hold a Q&A session. I want to start by highlighting the progress we've made over the past 2 years, improving profitability and cash flow and strengthening our financial position. We believe these improvements were essential to set the stage for future growth. I'll start with adjusted EBITDA, which was $4.9 million in the third quarter, up 19% year-over-year and $13.9 million year-to-date, up 25% over the same 2024 period. With the progress we've made year-to-date, we are on track to reach our target adjusted EBITDA range for the full year. Following an inflection point 2 years ago in the third quarter of 2023, we've demonstrated steady quarterly improvement in adjusted EBITDA, excluding royalties. And in the third quarter, we continued that positive trend. In that 2-year window, adjusted EBITDA, excluding royalties, has increased by more than 85%. This performance is a result of the operational improvements we've made over the past couple of years, focusing on the key performance drivers for our promoted products, while significantly reducing operating expenses and delevering our balance sheet. Financial discipline we've instilled across the organization is generating results with strong operating cash flow and continued debt reduction. John will provide more details on our financial position in his section. On the revenue side, while Canadian product sales have grown 2% year-to-date in local currency, we have faced several headwinds throughout 2025. And in the third quarter, revenues were down 4%. Let's start with Vascepa. With an eye towards strengthening commercial capabilities for both Vascepa and ahead of the bempedoic acid launch, we made substantial and purposeful changes to the sales force this year. In 2025, more than half of our territories turned over as we proactively recruited, upgraded and onboarded new talent. Those geographies are now filled with highly experienced and motivated sales representatives who are building momentum in their territories. With a fully deployed customer-facing organization, this completes the transition that began late last year with our exit from the Pfizer promotional services agreement. Even with the scope of these changes, Vascepa has managed to grow prescriptions at a substantial rate of 24% year-to-date, and the third quarter was its most profitable quarter since launch. That said, Vascepa prescription growth is below the ambition we set for the year. Based on year-to-date results, we now expect Vascepa revenue growth on a percentage basis in the mid-teens for the full year on a local currency basis compared to our prior range of 18% to 26% growth. We are optimistic that with a fully trained and deployed sales team, we will continue to grow Vascepa in 2026 and beyond. Turning to Clozaril. We had an ambitious plan to grow our patient numbers this year across Canada. And while we still see many targeted growth opportunities ahead, they are taking longer to realize than anticipated. We have adjusted our guidance and now project a decline of 4% to 5% for the Canadian Clozaril business in local currency for the full year. We estimate that about 1/3 of the projected revenue decline is due to fluctuations in inventory at some hospital-based accounts, which had the effect of shifting revenue into 2024. We expect these inventory effects to impact 2025 comparisons to 2024, but not beyond. Clozaril also recently faced increased competitive pressure in Ontario, where we maintain a very high market share. Earlier this year, a number of hospital accounts in Ontario were in play due to a large buying group contract that was up for a multiyear renewal. We successfully defended the vast majority of Clozaril business in Ontario, where a satisfied patient base, differentiated CSAN services and innovative Pronto offering helped support the Clozaril value proposition. Despite the increased competitive activity in Ontario, overall Clozaril numbers in Canada are down less than 1% versus prior year, and this is due to sizable gains we have achieved in other parts of the country, particularly the Western provinces. Taking a slightly longer view, Clozaril patient numbers in Canada are actually up about 1% since the end of 2023. In addition, our U.S. Clozaril business has shown resilience and is currently outperforming expectations for the year. This stable U.S. performance represents a meaningful improvement over the historical trend. So to summarize our outlook for the rest of the year, profitability remains strong, and we expect to grow adjusted EBITDA to meet our guidance range of 17% to 23% growth, which translates to $19.5 million to $20.5 million. Based on our updated product sales guidance, we are now providing a consolidated revenue estimate for the year of $55 million to $56 million. Looking toward 2026, we expect to grow both top line and adjusted EBITDA next year. Although we saw some recent increased competitive activity against Clozaril in Ontario, we have successfully grown our existing patient base over the past 2 years and expect business to stabilize in Canada. For Vascepa, now that our sales force is fully staffed, we're starting to see the positive impact, including recent increases in new-to-brand patients. This makes us optimistic for growth prospects. And of course, we're preparing to expand our cardiovascular portfolio with a second quarter launch of bempedoic acid, which will contribute to revenue in 2026. We'll provide a more detailed financial outlook for 2026 when we issue our year-end results in March. While we manage the near-term objective of profitably growing our existing product portfolio, I want to emphasize how excited we are about the growth opportunity ahead of us as we build HLS into a leading cardiovascular company in Canada. The introduction of bempedoic acid will help address a large and growing patient population of more than 0.5 million Canadians who could benefit from additional LDL-cholesterol lowering. This novel medicine will represent an important addition to the clinical armamentarium as there is a need for treatments beyond statins and ahead of the expensive injectables currently available. And we are excited to leverage powerful operational and platform synergies with Vascepa to position HLS as the leader in delivering novel cardiovascular risk-reducing oral therapies to the Canadian market. Brian will provide more details on our launch preparations and the commercial opportunity. But I want to underscore that this launch represents a pivotal moment for HLS and will drive growth for years to come. Even as we set the stage for future growth, we plan to largely hold the line on operating expenses in 2026. As said previously, we've built a cost structure that can support both our existing portfolio and the new product launches without significant incremental investment. The financial foundation for HLS is solid with improved profitability and cash flow. Our new credit agreement announced in the third quarter with favorable terms, further strengthens our financial position. The agreement has a new syndicate of lenders and provide stability, lower interest expense and greater flexibility to pursue strategic growth opportunities to expand our portfolio. With that, I'll turn it over to Brian to discuss our commercial performance and launch preparations. Brian? Brian Walsh: Thanks, Craig, and good morning, everyone. I'll walk through our Q3 and year-to-date product performance and provide an update on our bempedoic acid launch preparations. Starting with Clozaril. Our U.S. Clozaril business has performed well, and year-to-date sales were up 1%. This is a meaningful improvement over the historical trend and as a result of a durable established patient base coupled with targeted new patient growth through our specialty pharmacy partnership. For Clozaril in Canada, as Craig noted, we continue to drive strong growth in the West, including 11% patient number growth in British Columbia that was offset by expected patient attrition in Quebec and some competitive pressures at select accounts in Ontario. And while we have experienced some unit impact from the pressures in Ontario, we have successfully defended our value proposition in the vast majority of accounts while maintaining our net pricing integrity, which preserves the foundation for a healthy, sustainable business moving forward. Despite these pressures, our patient numbers are down less than 1% at the end of Q3 versus the same time last year and up 1% versus the end of 2023, demonstrating the solid fundamentals underpinning our Clozaril franchise in Canada. Importantly, clozapine is significantly underutilized across Canada as the only approved treatment -- as the only approved product for treatment-resistant schizophrenia. This context creates multiple pathways for our team to bring the life-saving Clozaril brand and our differentiated CSAN services to more patients across Canada. Looking at Vascepa, Q3 unit volume grew 22% and compared to Q3 last year and year-to-date unit growth was 24%. The key story with Vascepa this year has been our sales force rebuild, following the Pfizer transition and the ahead of our bempedoic acid launch. As Craig shared, we made many of these changes with the aim of strengthening our commercial capabilities for both Vascepa, but also before we launched bempedoic acid. But as a result, throughout 2025, more than half of our territories were opened for some period of time as we recruited and onboarded new representatives. At the end of Q3, we had reached full deployment across all territories and we are very excited about the talent that we have attracted to join HLS. And while everyone we hired as an experienced specialty sales representative, it still takes several months for a new representative to get fully trained and establish with their new customers. But we're seeing very good early signs that our new team members are becoming increasingly productive, which is evident by overall growth in new patient starts. For the first time this year, we grew new patient starts each month in the quarter versus the prior year. We are also seeing improved depth of prescribing by growing consistent prescribers, 5% versus Q2 of this year and 29% versus Q3 of last year. We expect this growth to accelerate in the coming quarters as our transformed sales team gains further traction, driving more meaningful impact on our full year 2026. The fundamental supporting Vascepa remains strong. The product remains prominent in the CCS treatment guidelines, and Vascepa maintains excellent formulary access across both public and private payers. And we continue to take proactive steps to streamline the reimbursement process and improving retention rates for patients that are covered by private plans. Now let me turn to the exciting upcoming launch of bempedoic acid. As mentioned previously, NEXLETOL and NEXLIZET are the commercial product names used in the U.S., but we expect a variation in the brand name for the monotherapy once Health Canada approval is finalized. The monotherapy is a daily oral nonstatin treatment containing the novel compound bempedoic acid. Its brand name in Canada will be Nilemdo, which is aligned to the brand name in Europe. The second product is the fixed-dose combination of bempedoic acid with ezetimibe in a single daily pill. And in Canada, it will be marketed as NEXLIZET, the same name as in the U.S. What makes these products differentiated is they add a second completely independent pathway to cardiovascular risk reduction alongside Vascepa's unique mechanism. These new products adjust a very large addressable market focused on LDL cholesterol reduction. LDL is the ultimate biomarker for cardiovascular risk. It's integrated into every clinical guideline and physician practice pattern. 40% of at-risk patients and half of high-risk atherosclerotic cardiovascular disease patients in Canada do not achieve their CCS guideline recommended LDL target. These elevated LDL levels put patients at significant risk to future catastrophic vascular events like myocardial infarction, stroke and cardiovascular death. The unmet need -- unmet medical need is significant, and we estimate more than 0.5 million Canadians could potentially benefit from these medicines. This gives us a clear, well-established entry point for these products into the Canadian cardiovascular [Technical Difficulty]. The clinical profile of these products is very compelling for physicians, patients and payers. We will launch Nilemdo with the results from the CLEAR-outcomes trial, a nearly 14,000 patient randomized double-blind cardiovascular outcome study that demonstrated a meaningful reduction in major cardiovascular events -- major adverse cardiovascular events, or MACE, in patients unable to take recommended statin therapy. Nilemdo and NEXLIZET provided novel oral pathway for LDL lowering while being less likely to cause muscle-related side effects that limit statin adherence and can be used alone or in combination with other LDL-lowering therapies. In terms of clinical practice, physicians typically start patients with a statin, then ezetimibe if additional LDL lowering is needed. If patients still aren't at goal, the current standard of care moves to PCSK9 inhibitors, which are injectable, expensive and general reserved for only the high-risk patients. Nilemdo and NEXLIZET slot in ahead of PCSK9s in this treatment algorithm, providing a simpler, lower-cost oral option for patients who need additional LDL lowering, but aren't appropriate candidates for injectable therapy. Our prelaunch preparations have accelerated since last quarter. We're finalizing our dossiers for pricing and reimbursement discussions. Our medical teams, who have been established for several years with our KOLs on Vascepa have started engaging with their customers on bempedoic acid on the bempedoic acid story this summer, and they have been met with a high level of enthusiasm regarding the significant unmet need that the product addresses. On timing, we expect to hear from Health Canada in Q4, which would put us on track for our Q2 2026 commercial launch. By that time, we expect to have product available and to have achieved meaningful coverage with private insurers. Our engagement on the public reimbursement will continue throughout 2026 with the goal of achieving favorable provincial listing agreements beginning in 2027. The strategic synergies with Vascepa are significant. The Canadian Cardiovascular Society Guidelines recommend both further LDL lowering for patients not at goal, and consideration of Vascepa treatment for patients with elevated triglycerides as a marker of increased cardiovascular event risk. With our expanded portfolio, we'll be well positioned as the Canadian leader in oral cardiovascular risk reduction, able to partner with physicians to address a much broader set of patients working to reduce their remaining risk. And our customer-facing teams are energized and ready to launch these new products. With that, I'll turn it over to John for the financial results. John? John Hanna: Thank you, Brian, and good morning, everyone. I'll focus my remarks on our Q3 and year-to-date financial performance, the continued strengthening of our balance sheet and our capital allocation approach. Starting with revenue. Total revenue for Q3 was $13.5 million compared to $14.1 million in Q3 last year. Year-to-date revenue was $40.3 million compared to $41.1 million in the same period last year. Craig and Brian have already covered off the key factors impacting revenue for the quarter and the year. Excluding royalties, revenue from Canadian product sales in local currency and revenue from U.S. Clozaril sales were both up on a year-to-date basis by 2.3% and 1%, respectively. The timing of orders can impact quarterly results. And for this reason, we view year-to-date revenue as a more relevant measure of the comparison of year-over-year revenue performance. Royalty revenue was $180,000 in Q3 compared to $195,000 in Q3 last year. Royalty revenue comparisons have normalized here in Q3 2025, following the sale of the Xenpozyme royalty in Q2 2024. HLS has one remaining royalty interest. Foreign exchange continues to be a headwind when translating Canadian dollar sales to U.S. dollars for reporting purposes. Year-to-date, foreign exchange has negatively impacted consolidated revenue by approximately $0.8 million. On the expense side, we continue to demonstrate strong operational discipline helping to drive increases in adjusted EBITDA and cash flow. Q3 operating expenses comprising sales and marketing, medical regulatory and patient support and G&A were down 22% compared to Q3 last year. Year-to-date, these expenses were down 20%. This performance reflects our focus over the past 12 to 18 months on operational efficiency and driving product profitability. Cost of sales have increased in the quarter and year-to-date periods, largely due to growth in unit volumes and net sales for Vascepa. As Craig mentioned earlier, adjusted EBITDA growth in Q3 and the year-to-date period was strong, increasing 19% and 25%, respectively. Similar to the discussion on OpEx, this is due to our efforts to optimize operations and drive product profitability. I want to highlight the consistent improvement we've made in our probability trajectory. As shown in the slide in our presentation, on a trailing 12-month basis, adjusted EBITDA excluding royalties, has shown consistent quarterly improvement since bottoming out in late 2023. Q3 continues this positive trend. As Craig mentioned, since Q3 2023, adjusted EBITDA ex royalties has grown by 87%. For the third quarter, the direct brand contribution from Clozaril to adjusted EBITDA was $6.3 million, while the direct brand contribution from Vascepa was $0.6 million. Year-to-date, contributions were $19.2 million for Clozaril and $0.7 million for Vascepa. Cash from operations in Q3 was $2.5 million, up 67% compared to Q3 last year. Year-to-date, cash from operations was $10.6 million, up 121% versus the same period last year. This strong operating cash flow performance reflects our improved profitability. Another driver of our cash flow improvement has been the reduction in interest expense. Year-to-date, we've reduced interest expense by 38%, saving $2.6 million. This reflects the significant progress we've made in paying down debt and lowering our effective interest rate. Turning to the balance sheet. At quarter end, the carrying amount of our term loan stood at $53.1 million, down $12.9 million or 19% from $67.4 million at December 31, 2024, and down $33.6 million or almost 40% since the end of 2023. As a result of our continued debt reduction, net debt stood at $43.5 million at quarter end compared to $50 million at December 31, 2024. Our deleveraging, combined with our improved operational performance has fundamentally strengthened our financial position and created greater flexibility for capital allocation. Further strengthening our financial position, in August, we successfully refinanced our debt facility, entering into a new Canadian denominated credit agreement with total borrowing capacity of $170 million. National Bank of Canada is the lead and syndicate includes TD Bank, RBC and Federal Credit Union. This replaces our previous U.S. dollar facility and extends our maturity to August 2029. The Canadian-denominated structure provides a natural hedge against our predominantly Canadian operations, while reducing foreign exchange exposure. We've achieved meaningful interest rate savings of 25 to 50 basis points on the spreads, plus over 100 basis points from favorable Canadian base rates. This should net us annual savings of approximately $1.5 million in interest expense. This enhanced financial flexibility supports our capital allocation priorities. Our outlook for capital allocation remains balanced and is focused on 3 areas: one, continued debt reduction; returning capital to shareholders through share buybacks; and three, strategic portfolio expansion. Importantly, we funded all 3 priorities, debt reduction, share buybacks and portfolio expansion through operating cash flow without requiring additional financing. In summary, we're delivering our profitability commitments, generating strong cash flow and continuing to strengthen our balance sheet. We've built a solid financial foundation that provides flexibility to invest in our portfolio while also returning capital to shareholders. With that, I'll turn it back to Craig for closing remarks. Craig? Craig Millian: Thank you, John. In closing, our consistently improving profitability demonstrates that the operational transformation we've executed is working. We're generating improved cash flow, significantly reducing our debt burden and building a more sustainable cost structure that can also support growth. The pending approval of bempedoic acid will transform our cardiovascular franchise in Canada and further establish HLS as a leader in delivering novel oral therapies to reduce cardiovascular risk. We remain focused on execution and are confident that our strategy, our team and our growing portfolio of important medicines will continue to deliver results and create value. That concludes our prepared remarks. At this point, I'll ask the operator to please provide instructions for asking questions. Operator? Operator: [Operator Instructions] With that, our first question comes from the line of Michael Freeman with Raymond James. Michael Freeman: Congratulations on all this progress. I think as a quick first one, I wonder if you could describe any interactions you've had with Health Canada on bempedoic acid. Craig Millian: Thanks, Michael, for the question. I'll turn it on over to Brian. Brian Walsh: Michael, we're progressing with the regulatory review. We've had very good engagement on bempedoic acid, and you were expecting to hear from them this quarter. So we're on track for a product launch in Q2 of next year. Michael Freeman: Okay. Okay. Now with the -- on the Clozaril business, you described as well some of these Canadian headwinds. I wonder what your overall plans for maintaining or growing this business, I guess, broadly, but specifically in Canada, you have very strong market share in Ontario that maybe competitors are nibbling away at. And then -- but there does seem to be quite a lot of headroom in other provinces in Canada. I wonder what your game plan is. Brian Walsh: Yes. Yes, it's a great question, Michael. And that's where for this brand, given the significant underutilization of Clozaril, we see a lot of pathways to growth. Over the last couple of years that we've reported on significant growth, double-digit growth in the Western provinces. We still have less than 1/3 of that those markets. So we still see significant headroom, good profitability opportunities in those markets. And we are -- we have been making subtle changes to shift resources to accelerate that growth. And even within Ontario, where there's some modest pressure, there's still significant population growth and growth throughout -- opportunities throughout the province. Craig Millian: And just to add, even in Quebec, where you may recall a year or so ago, a little over a year, we actually changed our model there to really focus on patient retention due to some of the challenges in terms of acquisition of patients in Quebec. And that's been a resounding success. We've been able to limit any sort of attrition in Quebec to low single-digit percentages and really patient-by-patient work to retain every one of our patients and the stickiness of that patient population in Quebec is quite remarkable. Often when there is attrition, it's due to reasons such as a patient passing away, for example, not necessarily due to a switch. So the strategy has worked in terms of maximizing our retention of patients in Quebec, defending our really dominant share in Ontario, and we have fantastic relationships at the major accounts there, the major mental health institutions and we think there are still opportunities to grow. But admittedly, it's certainly a competitive space. And then as Brian said, really a lot of headroom for growth out in the Western provinces. Michael Freeman: And I wonder if you could provide similar color on the -- on Clozaril in the U.S. Brian Walsh: Yes. So very different dynamic. It's more a very stable patient population, but a different share -- lower share, higher value per patient. Our regular -- the core business has been very stable. As accounts there, we tend to have more private pay patients. But we've been able to offset some natural patient attrition through targeted growth through a specialty pharmacy where we're able to offer financial assistance and educational support programs. So we continue to see that. We've achieved, I think, a level of stability with that business and we can see that continuing in the coming years. Michael Freeman: Excellent. And last one for me. On the -- there was some mention of pursuing business development as a result of you guys strengthening your balance sheet. Should we -- what should we expect in terms of sort of structure of in-licensing, perhaps the size of deal? Would we expect something similar to what we saw with bempedoic acid? Or are you scaling up your ambition? Craig Millian: It's a good question. What I would say is -- so we love the bempedoic acid deal. And obviously, there's other deals of that magnitude. We think it was -- this is going to create significant shareholder value. We think these are products that will generate tens of millions of dollars in revenue. And again, fits so beautifully with the infrastructure we already have in place and really building our positioning as a premier cardiovascular company in Canada. So obviously, the opportunity to continue to do deals like that are very attractive, albeit not necessarily an infinite number of those opportunities. So I do think with the strengthening balance sheet and the new debt facility that does, I'd say, widen the aperture in terms of the type of deals we can do. I think right now, our focus is on continuing to bring in assets that are materially significant that will add significantly material revenues to our top line. We think that's very important. We're not interested in things that are... [Technical Difficulty] Operator: And ladies and gentlemen, thank you for standing by. The presenter is now reconnected. Please go ahead. Craig Millian: So apologies. We're in a meeting room at a hotel and the Wi-Fi dropped here. So I'm not sure when the call dropped. I know we had a question from Michael. Dave Mason: Meeting the criteria. Craig Millian: Yes, yes. So I mean I'll just be brief. The answer is yes. We're looking at the deals, I think, similar in scope to what we've done, but I would say again, with the strength in the balance sheet and with the kind of the increased flexibility with the lending agreement, we're in a position, I think, to broaden the aperture. But looking for things that obviously fit with our model in Canada and that can easily be broadening, but that have significant sales potential. And obviously, we'll be opportunistic as well. I think we're looking at opportunities to expand our business as well in the U.S., recognizing that those will be maybe challenging to identify, but we're confident we can continue to build out our business there as well. So stay tuned. We're very active, and we're very committed to continuing to grow top line now that we've really put our financial house in order and have a cost structure that we think can support a lot more growth. Operator: [Operator Instructions] Your next question comes from David Martin with Bloom Burton. David Martin: First question, Vascepa scripts were up 22% in third quarter year-over-year, but the net sales were up only 2.1% in local currency. You mentioned inventory fluctuations. I'm wondering, are you seeing inventories more stable or even some restocking post Q3? And are you also seeing pressure on your net pricing? Did that feed into it as well? Craig Millian: Yes. I don't know, John, if you want to comment on this. I would say that -- and this is historically has been the case of -- obviously, the growth in demand outpacing growth in net sales. And this is really an artifact of having launched first into the private markets and then subsequently, launching into the public markets with the different economics of that. And so over time, we went from 100% of our business being private to now a blend. The good news is now we're starting to see stabilization as we've expected. But as we continue to grow in both segments, both channels, we continue to see more significant growth, I would say, on the public side. And so that drives -- that does drive an increase in rebates. And that certainly has some impact on gross to net. So the goal has been to stabilize that payer mix. And when that occurs, we believe we'll see a narrowing of that difference between demand growth and net sales growth, but we're not quite there yet. So I think probably the largest explanation for that, David, is payer mix. I don't know, John, if there's any other elements that you would... John Hanna: No, I wouldn't, Craig. I think you covered well. We did comment a little bit on inventory for Clozaril or Vascepa. It's really sort of the routine wholesaler orders that our biggest wholesalers have placed big orders and depending on where they drop, but there was nothing significant to comment on there for the quarter. Craig Millian: Yes. There is lumpiness for certain in terms of order patterns, which is why we -- especially with a limited number of products, any large order that takes place in one quarter versus another can influence year-over-year comparisons, which is why we tend to focus more on year-to-date versus a quarter because there is that variability. David Martin: Okay. Was there a large order that got pushed from Q3 into Q4? John Hanna: No. As I say, nothing specific to this quarter. David Martin: Okay. And then for Clozaril, the growth out West, is that mainly coming from taking share from competitors? Or are you seeing increasing overall usage of clozapine? Brian Walsh: It's both. We're -- the population growth and utilization of clozapine, but our share has been increasing steadily as well. And it's a population there like other places in Canada where there's this large installed population, and we're competing for the new starts, and I think we're competing even ahead of our market share in that dynamic portion of the market, so it's both. We're winning more in the new start population, but we're seeing the overall -- we're seeing an increase. David Martin: Okay. Great. And last question. You've obviously got good infrastructure to take on additional cardiovascular drugs. If you took on another psychiatry drug, would you need to build out your sales force? Or could that be layered onto the group you've got now? Brian Walsh: It would depend on the indication specifically. So -- but I think most of the opportunities would require on the neuroscience side requires some incremental build. We believe we still have capacity to bring in additional cardiovascular products within our existing footprint, just given the coverage and like even life cycle of the different -- of Vascepa. Craig Millian: Yes. We definitely have capacity, we believe, on the cardiovascular side. So that will certainly continue to be a focus. And we think we've got a really -- now with the upgrade in the sales force and bringing on some super talented folks, a really strong customer-facing organization in addition to our medical team. Similarly, on the Clozaril side, we have a very, very strong multidisciplinary team. As Brian said, there's some really strong foundational elements to that team and then -- which gives us the versatility to bring in a range of products that we could give them adapt accordingly. But that would require most likely some additional salespeople. We have a fairly light footprint. Operator: And we have no further questions at this time. I would like to turn it back to Craig Millian for closing remarks. Craig Millian: Well, thank you, operator. Thank you all for participating on today's call. We look forward to reporting you on progress in the coming quarters and speaking with you again soon. Thanks. Have a great morning. Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Alvotech Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Benedikt Stefansson, Vice President of Investor Relations and Global Communications. Please go ahead. Benedikt Stefansson: Thank you, and welcome to our listeners. Yesterday evening, the company issued a press release announcing our financial results for the first 9 months and third quarter of 2025. A presentation accompanying today's earnings call was also published under our investor portal, investors.alvotech.com, under News & Events. Our press release, presentation and statements that we make on the call today may include forward-looking statements. Please see our disclaimers on Slide #2 of the presentation. These statements do not ensure future performance and are subject to risks and uncertainties that are outlined in company filings with the Securities and Exchange Commission. Any risks and uncertainties could cause actual results to differ materially from forward-looking statements that are made. Presenting on today's call are Robert Wessman, Chairman and Chief Executive Officer of Alvotech; Joseph McClellan, Chief Operating Officer; and Linda Jonsdottir, Chief Financial Officer. Also with us on the call is Balaji Prasad, Chief Strategy Officer. Robert will begin today's presentation with a discussion of the status of our pending biologics license application with the FDA and facility inspection and present some business highlights. Joseph will discuss the status of our development pipeline. Linda will conclude with a discussion of our financial statement and full year guidance. Following the introductions, our team will be happy to take your questions. And with that, I would like to turn the call over to Robert Wessman. Robert Wessman: Thank you, Benedikt, and thanks to everyone for joining us here today. Please turn to the Slide #4 in your deck. We are now approaching the end of very eventful year, marked by increased pipeline development, successful product approvals across multiple markets and growing licensing and products revenues. Alvotech has come a long way in its 12-year history. We have invested approximately $2 billion to build a global pure-play biosimilar company with integrated R&D and manufacturing under one roof. We commercialize globally through a network of nearly 20 partners, reaching over 90 countries worldwide. After launching our first biosimilar in 2022 and second biosimilar in 2024, we entered the U.S. market last year. The 2024 global launches drove a 420% revenue growth in that year, and we are guiding approximately 20% growth for 2025. With exclusivity expiring on dozens of originator biologics each year and the regulators waiving costly efficacy trials, the biosimilar market is set for explosive growth. With resources and strong focus on developing and manufacturing biosimilars, Alvotech is well positioned to lead the charge. In fact, we proactively responded to anticipated changes in regulatory guidelines by expanding our research and development initiatives approximately 2 years ago. More recently, we have further enhanced our R&D capabilities with the establishment of an operational base in Sweden. The result is already evident in our growing pipeline: 5 approved biosimilars, 12 other disclosed development programs and already developed cell lines for additional 15 valuable targets, in total, targeting greater than $185 billion of originator markets. Now let me touch upon a few key points that I will discuss today and described on the following slide. This includes an update on the FDA process, our pipeline, a comment on the revised outlook for the year and update on our marketed products. So let's turn to the next slide. As announced last week, we received a complete response letter, or CRL, from the FDA for our BLA for the proposed biosimilar to Simponi. The sole reason noted in the CRL concerns unresolved issues identified by FDA during the inspection of our Reykjavik facility, which concluded in July of this year. Let me make it clear. This CRL did not change the status of Reykjavik manufacturing facility, which continues to be an FDA-approved site that produce and will continue to produce our current marketed products in U.S. Also, the site is approved to manufacture for global markets and continues to get approvals for our new product launches. The facilities referenced in our regulatory application, including our Reykjavik site, are of course regularly inspected by several global regulatory agencies as a routine part of the review process. For example, both the European Medicines Agency and Japan's PMPA inspected our Reykjavik site earlier this year in support of our new product approvals in these markets that will occur in third and fourth quarter. Leveraging several successful inspection by many regulatory authorities, including recent inspection by FDA in the third quarter of 2024 which yielded only 2 minor Form 483 observations, we remain committed to continuous improvement of our manufacturing operations. To support consistent and effective leadership at the site, we have expanded the responsibility of Joseph McClellan, current Chief Scientific Officer, by appointing him as Chief Operating Officer. In his role, Joseph will be responsible for technical operations as well as research and development, supply chain and project management. Before joining Alvotech in 2019, Joseph held positions of increased responsibility at Wyeth and Pfizer in the United States over a span of 17 years. During his tenure at Alvotech, he has played a key role in advancing and strengthening our high-performing research and development organization and its pipeline. His commitment to uphold best-in-class quality standards and operational excellence will position Alvotech to address any concerns raised by FDA at our facility. Although we are disappointed by the approval delay resulting from the CRL, we remain committed to promptly resolve any outstanding matter relating to the facility. Once FDA provides clarity later this month on the specific issue identified during the inspection, we will address those in a timely manner. Once we respond to the CRL, we anticipate the approval of our BLA may be granted as early as the first half of 2026 in accordance with 6 months statutory review periods. With this review timing, we still anticipate being one of the first, if not the only approved biosimilar to Simponi in U.S. and other global markets. Of note, we have already received approval in Japan and U.K. with the EMA approval expected shortly for our biosimilar to Simponi. So please turn to the next slide addressing our revenue growth. Later in the call, Linda will discuss our third quarter financial results and full year guidance in detail. When we reported our full year guidance in March, we signaled that the first half and second half of the year would be relatively balanced, while the fourth quarter would be the strongest of the year due to anticipated product approvals and launches which were occurring later in the year. Following the receipt of CRL from FDA, we revised our outlook for full year to $570 million to $600 million top line revenues and adjusted EBITDA of $130 million to $150 million. We believe the costs incurred on temporary loss in product revenue a necessary investment in our future growth and will make the company stronger as we continue to expand our portfolio of products and launch into additional global markets. As you can see on this slide, Alvotech's revenue growth has been extraordinary or 127% on average per year from 2021 to year-end 2024. With the latest guidance we have given, we are projecting a compounded average growth rate of 94% from 2021 until end of this year. As we are launching 3 more biosimilars this year, this contributes to both licensing and product revenues, and our strong pipeline and increased R&D will allow license revenues to continue to be a significant revenue contributor. We are very pleased to say that we are seeing very strong global interest in our enhanced product portfolio. We continue to sign numerous contracts with our partners globally, which will continue to deliver strong milestone revenues and secure strong market share globally going forward. So please turn to the next slide. Now I will turn to how the markets for the existing products have evolved. In the U.S., we continue to hold the second largest market share in the Humira biosimilar segment and our products remain the fastest-growing Humira biosimilar. The originator share is eroding and expected to fall below 50% of its original volume by year-end, with most volume continuing to shift to biosimilars and much smaller portion transitioning to novel therapies. In Europe, our partner, STADA, continues to grow volumes for Hukyndra. We have seen average quarter-on-quarter growth of 12% the last 4 quarters. Hukyndra now holds the top position in several of the 10 largest EU markets, including Austria and Sweden, and has reached 10% share in France, competing against 9 other biosimilars. In Canada, SIMLANDI, marketed with JAMP Pharma, remains the fastest-growing Humira biosimilar. With respect to our biosimilar to Stelara in U.S., our partner, Teva, continues to secure formulary coverage, and we are among the top 3 biosimilars on the market for this reference product. In Europe, we were first to launch Stelara biosimilar. And while the competition has increased, we are still holding a leading position in the European markets, where we have launched our product with about 10% share of the total Stelara market and 25% share of the biosimilar segment. We expect 50% of Stelara's European market to transition to biosimilars by year-end. With that, I will hand the call over to Joseph McClellan, who will discuss our portfolio, including the near-term launches. So over to you, Joseph. Joseph McClellan: Thank you, Robert. As described on the next slide, our products, AVT06, a biosimilar to Eylea; AVT05, a biosimilar to Simponi; and AVT03, a biosimilar to the dual products of Prolia and Xgeva, are scheduled for launch in Europe this quarter. AVT06 has received approval in Japan, the U.K. and the European Economic Area. Last week, the U.K. High Court rejected Regeneron's and Bayer's requests to stop Alvotech's manufacturing of its Eylea biosimilar in the U.K. This ruling enables us to manufacture in anticipation of commercial launches after the Eylea supplementary protection certificates expire on November 23 of this year. We are prepared to launch AVT06 prefilled syringes and vials across Europe post expiry of exclusivity and look forward to entering the market with strong partners. AVT05 has already received approval in Japan and the U.K. and we are expecting a favorable decision from the European Commission for the EEA in the later part of November, following the EMA's CHMP recommendation early this summer. We intend to proceed with the launch properly after approval, anticipate being the sole biosimilar to Simponi available on the European market for several months. In Japan, we have secured the necessary rights and plan to initiate launch activities during the first half of 2026. For AVT03, which has been approved in Japan, European Commission approval for the EEA is anticipated in the second half of November, following EMA's CHMP recommendation this summer. The intention is to ship launch supplies to our commercial partners in Europe during this quarter. It is expected that AVT03 will be among the first products available with established partners supporting its market introduction. Turning to our development pipeline on the next slide. We are pleased to report ongoing growth and advancement across our programs. In collaboration with partners, Kashiv and Advanz, we have submitted a biosimilar candidate to Xolair in the EEA and previously filed for approval in the U.K., where the review process is ongoing. The development of AVT29, a biosimilar candidate to high-dose Eylea; as well as AVT16/80, a biosimilar to Entyvio for both intravenous and subcutaneous administration, is proceeding towards regulatory submissions targeted for 2026. Progress continues on our candidate to Keytruda in partnership with Dr. Reddy's, including completion of manufacturing for clinical supplies. Additionally, we have initiated clinical manufacturing for our candidate to Cimzia with positive developments underway. Our investment in the early-stage pipeline remains strong. Today, we are announcing 2 new molecules, biosimilar candidates to Hemlibra and Imfinzi, which are currently in process development. Further, we have over 15 cell lines completed for future development within our expanding portfolio. At this point, I invite Linda to deliver the financial overview. Linda Jonsdottir: Thank you, Joe, and good day to everyone who has joined us on the call today. Today, I will take you through the financials for Q3 and the first 9 months of 2025. The earnings deck is more detailed than usual, and we hope you appreciate the additional insights into the quarterly results provided in the next few slides. As Robert mentioned, Alvotech has delivered strong CAGR growth in the past 4 years since launching our first biosimilar, and there is continued momentum and demand appetite for our on-market products of biosimilars to Humira and Stelara. Turning to the next slide, which highlights our Q3 financial performance. As we communicated, as part of our Q2 results, we were expecting Q3 to be a soft quarter followed by a strong Q4. This was primarily driven by lower product revenues and product margins, which were impacted by the timing of orders, portfolio mix and temporary loss in product revenues related to facility improvements, as Robert noted earlier. In Q3, licensing revenues were at the high level of $81 million, supporting a strong gross margin of 69%. We also finalized the integration of Ivers-Lee into our financials that were acquired in July. Ivers-Lee is a Swiss-based assembly and packaging service provider and will increase our capacity for finished product assembly and packaging. Adjusted EBITDA was $14 million or 13% of revenues and was impacted during the quarter by costs associated with improvements in operations to support new launches. Operating cash flow is then a function of our revenue collections in the quarter, down from a very strong quarter in the second quarter of '25, and outflow driven by inventory build in support for upcoming launches. And looking at the year-to-date on the next slide. Alvotech delivered total revenues of $420 million for the first 9 months, which represents strong 24% growth year-on-year. This shows our strong commercial momentum following the launch of our biosimilar to Humira in the U.S. and the early traction for our biosimilar to Stelara in both Europe and the U.S. Gross margin was at 59% and underscores the strength of our licensing model while product margin of 27% reflects quarter 3 softness. Adjusted EBITDA in the first 9 months was $68 million or 16% margin. When compared to prior year, it is important to note that 2024 included very high licensing revenues tied to 3 biosimilar submissions and the U.S. launch of our biosimilar to Humira, along with the launch of our biosimilar to Stelara in Europe. Cash balance at the end of September was $43 million and reflects outflows connected to inventory buildup ahead of product launches, CapEx investments and M&A activity. If we then double-click on the revenue and EBITDA trends on the next slide. Our revenue model as a B2B company naturally leads to quarterly fluctuations related to timing of orders from our partners. However, despite these fluctuations, we delivered strong double-digit growth in revenues both in the quarter and in the first 9 months, up 11% and 24%, respectively, with a trailing 12-month run rate of $571 million in revenues. Adjusted EBITDA margin for the first 9 months 2025, however, was at 16% compared to 26% last year. This was driven by higher R&D investments to accelerate pipeline expansion as well as higher D&A costs to scale operations and infrastructure to be able to drive operational efficiency across the organization. Finally, I would like to highlight that we continue to diversify geographically with growing contributions from Europe as market share in Europe and other markets outside of the U.S. continues to grow. Moving to cash flow on the next slide. As I touched on earlier, cash flow in the quarter was a function of lower revenue collection due to timing and planned inventory buildup in support of upcoming launches. We also continued strategic investments in CapEx and intangibles to expand capacity to support new launches and our growth plans. New working capital option of $100 million will be used to capture swings in working capital. Cash is impacted by the costs associated with acquisition of Ivers-Lee and interest payments since from June '25, we are paying cash interest on our loans. Next, I would like to quickly touch on the balance sheet on the next two slides. Our asset base remains strong, supported by recent bolt-on acquisitions and continued investment in R&D to drive future growth. Current assets are stable overall with expected shifts in inventory and trade receivables during the period. Looking into the equity and liability side, a couple of things to mention here. Our equity position strengthened by $236 million driven by profit for the period and the inflow of capital contributions from our most recent Swedish listing. Derivative financial liabilities decreased by $167 million, mainly due to fair value change on earn-out shares. And lastly, the overall contract liabilities decreased due to recognition of licensing revenues. If we then turn to the next slide featuring our revised full year outlook. On November 4, we revised our outlook following the CRL from the FDA. We updated our outlook for the full year to a range of $570 million to $600 million in revenues and adjusted EBITDA range of $130 million to $150 million. This revision reflects actions taken to respond to any issues identified by the FDA inspection, impacting production efficiency in 2025. Some of the licensing agreements for pipeline assets that were expected at the end of Q4 are now shifting to 2026. Despite these short-term headwinds, we expect a strong finish to the year, especially with licensing revenues that translate directly to EBITDA. At the midpoint of the guidance, we are targeting to deliver 19% year-on-year revenue growth and 30% EBITDA growth. Fundamentals remain strong. We expect margin recovery and accelerated revenue contribution will follow new launches and continued geographical diversification. More importantly, we continue to see growth in markets outside the U.S. which helps balance our revenue profile. Based on the committed orders we have for our new launches in markets outside the U.S., combined with the growth momentum we are seeing with our currently marketed products, we are well positioned to deliver top line and EBITDA growth in 2026. Management will provide new future guidance no later than with the Q4 '25 results. Our strategic focus for the next 18 months is on focused execution to unlock long-term growth, advancing the pipeline, realizing multiple global launches to deliver solid sales growth and diversification of revenues across geographies and products. At the same time, we will drive cost optimization and operational efficiencies to support margin expansion. Working capital management will also be our key focus to achieve positive free cash flow and support our growth trajectory. This brings me to my final slide. I think it's always good to look a bit backwards and see where we're coming from, where we are today and where are we heading. Alvotech's journey from its 2013 foundation to today reflects the transformation into a leading biotech company with one of the industry's most valuable biosimilar pipelines. From 2013 to 2023, the focus was on building a vertically integrated platform, investing in R&D and talent and establishing global partnerships to enable successful launches of Humira and Stelara biosimilars. And 2024 to 2025 period marks a major inflection point, multiple global approvals, including those referencing Humira and Stelara in the U.S., accelerated pipeline development and fivefold revenue growth from '23 to '24. We achieved positive EBITDA in '24 and are targeting around 30% growth in 2025 on EBITDA level. Looking ahead to 2026, our priorities are diversification and scale, advancing our pipeline, executing multiple global launches and critically adhering to regulatory standards and ensuring FDA compliance as a cornerstone of success. With a $20 billion addressable market for upcoming biosimilars, we are positioned to deliver sustainable growth and long-term shareholder value. I'll now turn the call back over to the operator for Q&A. Operator: [Operator Instructions] We will now take the first question from the line of Ash Verma from UBS. Ashwani Verma: So yes, I wanted to just get back to the focus on the CRL. So can you kind of explain this, what are the observations this time that are different from the last time? And I think you mentioned that you've effectively taken actions to resolve them. Just give us a status of where we are on that. Joseph McClellan: This is Joe McClellan, Chief Operating Officer for Alvotech. We have been in a situation where we have done a significant number of improvements since the inspection has concluded. The observations were not repeat observations. Let me say it clearly. There were no repeat observations in the deficiencies identified in the Form 483 from the FDA at the conclusion of the inspection. And so it's a number of things that we have to improve about the facility associated with some of our aspects associated with manufacturing, control of our facility, documentation, investigations. We have committed to the FDA to complete more than 180 different changes to address all of their observations plus more so that we will not be in the situation again. In doing this, we have now completed 93% of these commitments and we have communicated them to the FDA. We're in the process of completing additional actions that we will continue to keep the FDA updated on. Ashwani Verma: Got it. And just as a follow-up. So I know this Form 483, you have 10 observations. And even for Humira back a while ago, I think you ultimately climbed up to 18. Just taking a step back on the manufacturing facility, if this has been a little bit of a challenge, has that made you think about the strategic value of keeping the manufacturing in Iceland? I'm just trying to understand, is there something that is driven by less of an availability of pharma talent or anything of that regard, and whether if you would not have it at that location or at some other place, then it might ultimately solve the problem in the long run. Robert Wessman: Yes. Thank you for the question. Robert Wessman here, CEO. Overall, I mean, the concept and the vision and the strategy around the business is to keep everything in-house, both R&D and manufacturing. We think creating a platform like we have is extremely important. We can say that in U.S., we are around 18 months into being a commercial company, if you will. We have gone through 3 FDA inspections over the 18 months. And the first two, which was early '24, was only one 483. And then late last year, we had a general GMP inspection, which we only got 2 minor 483s. So overall, I would say it was very disappointing to get this CRL and unexpected. But the company has continued to grow and strengthen further the quality systems, and we have full intention to absolutely stay and be best-in-class when it comes to GMP and quality. And I mean, that's reflected. We have gone through successfully 5 EMA inspections. We have gone through at least 4 inspections from different global health authorities and now 2 successful FDA inspections. So as Joe explained in detail, we took this very seriously. And I think overall, we have done a substantial improvement. And Joseph himself has shown amazing success in R&D and brought all of our 5 currently approved or marketed products to a success and the 12 products which are in late stage in R&D. And he has extensive experience, as I mentioned in my part, from Pfizer. And he lives in Iceland. And that is a big factor, to have the core team living in Iceland to take charge. And I have great expectations with those changes that all future deficiencies hopefully will be behind us. But saying that, of course, we are in pharmaceuticals. We are seeing that companies, whether it is big pharma or biotech or biosimilars or small molecules, there are unfortunately FDA's 483s or even CRLs coming up on a very regular basis. So it's a kind of moving target and we will continue to move with it, if you will. Ashwani Verma: Got it. Okay. I have just one more question. So I guess just for the 3 products that you've tried to pursue now with the FDA approval, you've gotten 2 CRLs. I mean, I'm trying to understand what type of impact does that create when you're having the conversations with your customers effectively. Is that something that you faced like when you were launching Humira, and now that you have seen this at the time of Stelara, then how do you think that might impact the conversation when you're trying to contract it out? Robert Wessman: Yes. I think it's a very appreciated question, if you will. I mean, we continue to see a very strong interest in our products. I mean, we definitely have the broadest portfolio of all biosimilar companies in the industry, and that is our strength. What is of interest, of course, leave aside 11, 12 successful inspection from EMA to U.S. FDA to other health authorities in the world, our clients are doing also inspections or audits on ourselves. So our customers are very much aware of the status of the facility. And overall, we have not seen any reduction of interest in our products. And we keep our key clients up to date, what we are doing to continue to evolve the quality system, if you will. And we highly appreciate that for all of our portfolio of products, there are usually more than one or more than 2 which are showing strong interest in those products at any given time. Operator: We will now take the next question from the line of Thibault Boutherin from Morgan Stanley. Thibault Boutherin: Just a couple of questions on the revenue impact of the CRL in Q4. Our understanding is that the lower revenue is related to fixing the manufacturing process, so basically revenue loss. Should we think about this as a phasing of shipment into next year after the issues are resolved? So is it just a sort of phasing? Or should we understand this as lost revenues? And does that mean that your commercial partner may face supply interruption impacting the revenues? So I'll start there, and I have another one after. Linda Jonsdottir: Okay. It's Linda Jonsdottir here, CFO. If I understood your question correctly, it's about the change in guidance that we announced on November 4. I would say it's twofold. The revision is about like actions taken to respond to any issue. So that is slowing us down on the production side and impacting our revenues in 2025. But we are also seeing some of the licensing agreements for pipeline assets that were expected at the end of Q4 are now shifting to 2026. That's just like a timing impact but has sizable EBITDA impact in Q4 since it's like licensing revenues that flows directly into EBITDA. However, like if I also comment a bit on 2026 and our comfort levels there, if I look into the committed orders we have for new launches in markets outside of U.S. and in combination with growth momentum noted in currently marketed products, we are in a very good position to deliver top line and EBITDA growth in 2026. Thibault Boutherin: And can you just confirm that you are confident on how long the operations are going to be impacted in terms of having visibility on how long it's going to take to fix it regardless of the answer you're expecting from the FDA? Or could this change depending on what you get from the FDA? Robert Wessman: No. Robert here again. I think we have a pretty clear visibility on that. And the drug product part of the facility is undergoing some minor adjustments as we speak. And we will then close the drug substance for a particular period in December for both general maintenance and adjustments. So I think as Linda said, we have most of the orders which are in the order book to be delivered end of this year produced. They still need to be -- some of them are sample to pack, but mostly they have been produced. And we have a pretty good visibility how the year-end, we believe, and comfort level, how that will end. And as you can imagine, based on the guidance we gave and based on year-to-date EBITDA, it's fairly easy to see how strong the fourth quarter will be. And it's a good, as Linda said, good momentum with order book. So based on what we are seeing, we are fairly confident on growth, both top line and EBITDA for '26, no matter what. Operator: [Operator Instructions] Our next question comes from the line of Arvid Necander from DNB Carnegie. Arvid Necander: So going back briefly to the CRL and the slowdown in production you anticipated after it came. Could you be as concrete as possible? What amendments did you do to the ongoing production lines? And you touched on this a little bit, but is it fair to say that you're more or less back to operating at full capacity for the approved products? And secondly, on the R&D spend. At the beginning of the year, I think you were expecting R&D spend of roughly $160 million to $165 million for the full year. It seems to be trending higher than this. Do you anticipate a meaningful step down for Q4? I'll start there. [Technical Difficulty] Operator: One moment, please. Your conference will resume shortly. Joseph McClellan: Okay. If I continue. So as I was saying, observations around putting in manufacturing controls, improving the way we do investigations, laboratory controls, documentation practices, those kinds of aspects. So we committed to doing over 180 different actions to the FDA, things such as ensuring that we have the microbial controls by putting measures in to prevent actions that could be considered. Because it's clear that the FDA made observations, for example, around our manufacturing controls that may lead to lack of sterility, but not that actually it was observed, right? So we did things to then strengthen that, putting practices in terms of how we do, say, for example, visual inspection, how we make sure that our air flow is correct to make sure that our procedures associated with changing and gowning are all improved, right? So we did all of those improvements over the last few months since the 4th of July. Since then, we have begun manufacturing. The product that we are delivering in the fourth quarter is product that has been manufactured in both the third and the fourth quarter. So there are actions progressing. We are manufacturing. As Robert said, there's always going to be the need for minor actions for maintenance. Those things are taken into account, and we make sure that we improve those. But in general, we are manufacturing and delivering product that for this quarter that we have recently manufactured since the slowdown we referenced in the press release. Linda? Linda Jonsdottir: Yes. And to touch on your cost question, like on the R&D side, we had elevated levels on R&D both in Q2 and in Q3. That's also related to timing of clinical and manufacturing activities as well as launch preparation for our upcoming launches. In Q3, we also had impact in R&D related to the improvement Joe was covering. And we are expecting that also to touch our R&D numbers in Q4. But I can confirm that like we're still expecting lower R&D in Q4 than both in Q2 and Q3. Operator: We will now take the next question from the line of Thibault Boutherin from Morgan Stanley. Thibault Boutherin: Just a question on the impact of the change in regulation you mentioned with the lower requirement for Phase III trial. Can you talk a little bit about how that impacts your plan for your earlier stage biosimilars, in particular, thinking about Keytruda and Cimzia where the timelines could move based on your decision to run an efficacy study or not? Robert Wessman: Yes. Robert Wessman here again. I will hand this over to Joseph, but I just want to underline. So we anticipated this change over 2 years ago. And based on that, we changed our approach to R&D, if you will. And as we have already stated on this call and the previous calls, we have all in all, between marketed products, approved products, late-stage development, early-stage development, over 30 products in the pipeline. So we think we have used the time very well and taking advantage of the changes which are coming now by kind of assuming and expecting this to come. So we are already bearing the fruits of that vision we had back in time. But for the detailed answers maybe, Joe, if you take that. Joseph McClellan: Yes, absolutely. So this is Joseph. For sure, right, we are doubling down on our strategy. We have a proven development engine. We are leveraging that. As Robert said, we forecasted and anticipated that the need to do patient efficacy studies was going to go away from a regulatory perspective. It has. And because we made the bets over 2 years ago, we are now in a good position to take advantage of that. And we are doing that for products as we're developing them, right? So you can imagine that, yes, Cimzia would be one of those as well. Operator: Thank you. There are no further questions at this time. I would like to hand back over to Benedikt Stefansson for closing remarks. Benedikt Stefansson: Yes. Thank you. So on behalf of the Alvotech team, I would like to thank everyone who called in and listened to our call today. And we look forward to speaking with you again, and wish you a good rest of the day. Robert Wessman: Thank you. Linda Jonsdottir: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Great Elm Group Fiscal 2026 First Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adam Yates, Managing Director. Thank you. You may begin. Adam Yates: Good morning, everyone. Thank you for joining us for Great Elm Group's Fiscal 2026 First Quarter Earnings Conference Call. As a reminder, this conference call is being recorded on Thursday, November 13, 2025. If you would like to be added to our distribution list, you can e-mail geginvestorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmgroup.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations. A link to the webcast is also available on our website as well as in the press release that was disseminated to announce the quarterly results. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Group's filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Group does not undertake to update its forward-looking statements unless required by law. In addition, during today's call, management will refer to certain non-GAAP financial measures. Reconciliations to the most comparable financial measures are included in our earnings release. To obtain copies of our SEC filings, please visit Great Elm Group's website under Financial Information and select SEC filings. Today's comments do not constitute an offer to sell or a solicitation of an offer to buy interest in any investment vehicle managed by Great Elm or its affiliates. Any such offer, solicitation will only be made pursuant to the applicable offering documents for such investment vehicle. On the call today, we have Jason Reese, CEO; Adam Kleinman, President and General Counsel; Nicole Milz, COO; and Keri Davis, CFO. I will now turn the call over to Jason Reese, CEO. Jason Reese: Good morning, and thank you for joining us today. Great Elm made significant progress across our strategic initiatives in the fiscal first quarter, building on the momentum from our record year in fiscal '25. During the quarter, we advanced our goals to expand our platform, grow assets under management and enhance our profitability. Notably, we raised nearly $250 million of debt and equity capital across our credit and real estate platforms through both private investments from strategic partners and public raises through GECC's at-the-market equity program and a new baby bond. Fee-paying assets under management grew 9% year-over-year to approximately $594 million or 10% on a pro forma basis to approximately $601 million. As I have reviewed on prior calls, in July, we established a transformative partnership with Kennedy Lewis Investment Management, which invested in both GEG and Monomoy REIT, committing up to $150 million in leverageable capital to Monomoy REIT to accelerate our real estate platform expansion and purchasing 1.3 million shares of GEG common stock. This partnership is a true catalyst for growth, bringing not only capital but also deep institutional expertise in scaling real estate platforms. As part of this partnership, Lloyd Nathan joined the Board of GEG and Ludwig Schrittenloher joined the Board of Monomoy REIT. In August, Woodstead Value Fund purchased 4 million newly issued shares of GEG common stock at $2.25 per share, raising approximately $9 million in equity capital. Alongside the investment, Booker Smith joined our Board to help advance and expand our key verticals. Great Elm also issued 10-year warrants to Woodstead for an additional 2 million shares of GEG common stock, 1 million struck at $3.50 and 1 million at $5, further aligning their interest with those of all shareholders. Great Elm Real Estate Ventures continued to ramp during the quarter. Monomoy BTS sold its second build-to-suit development property in Canton, Mississippi for over $7 million, generating a gain of over $0.5 million. Construction on the third BTS property is nearing completion with a robust pipeline of development opportunities behind it. Monomoy Construction Services completed its second full quarter since inception, contributing approximately $700,000 in revenue. With construction capabilities fully integrated in-house, we can offer tenants comprehensive turnkey solutions, capture more value through the property life cycle and execute on our growing project pipeline. At Monomoy CRE, investment management and property management fees increased 12% over the prior year period, driven by the growth in fee-paying AUM and growing rental income. The REIT deployed over $13 million to acquire 7 new properties at attractive cap rates and acquired a land parcel adjacent to an existing asset to accommodate a tenant expansion under a new 10-year lease. This transaction demonstrates our ability to meet tenants' needs while enhancing portfolio value. In our alternative credit business, GECC delivered a strong quarter in terms of capital formation and balance sheet optimization. GECC raised approximately $28 million in equity proceeds, including a $15 million private placement and a $13 million through its at-the-market equity program. In August, GECC doubled the borrowing capacity under its revolver to $50 million from $25 million, reducing the revolver interest rate by 50 basis points and has the ability to further expand the facility to $90 million under certain circumstances. In September, GECC refinanced its highest cost debt, the $40 million of 8.75% notes due in September '28 with a $57.5 million of 7.75% notes due in December '30, reducing annual cash interest expense by 100 basis points and extending its debt maturity profile. GECC's operating results for the quarter were impacted by First Brands, which traded down sharply in late September before filing for bankruptcy at the end of the quarter. GECC held exposure to First Brands through syndicated loans. Consequently, NAV was negatively affected and GECC placed its First Brands investments on nonaccrual at the end of September. Despite this operating setback, the capital initiatives executed in the quarter leave GECC in a position of strength with a strong balance sheet, ample deployable cash and capacity to invest in income-generating opportunities in the coming quarters. Meanwhile, our Great Elm private credit strategy continued with strong performance, returning 15.2% net calendar year-to-date through September 30. Since inception, we have made income distributions exceeding 15% of original invested capital to investors in the strategy, highlighting disciplined deployment and a focus on value preservation. Outside of our core business, our CoreWeave-related investment remains a significant success story. We have already received over 100% of our initial $5 million investment in distributions to date, and we continue to see meaningful upside potential despite recent volatility in CoreWeave stock price that contributed to unrealized losses in this investment and GEG's net loss for the quarter. Shifting back to Great Elm. Our balance sheet also remains solid, ending the quarter with approximately $53.5 million in cash, providing us with ample flexibility to support our growth initiatives and take advantage of attractive opportunities as they arise. In July, our Board expanded our stock repurchase program by $5 million to $25 million in total. Through November 11, we have repurchased 5.6 million shares for $10.9 million at an average price of $1.93 per share, leaving $14.1 million in remaining program capacity. These repurchases reflect our continued confidence in the company's long-term value and are a highly accretive use of capital. As we move through fiscal '26, we remain focused on growing fee-paying AUM, scaling our credit and real estate platforms and translating our strategic progress into sustained financial performance as we seek to create enduring value for our shareholders. With that, I'll hand it over to Keri. Keri Davis: Thank you, Jason. I will provide a brief overview of the quarter and of course, welcome all of you to review our filings in greater detail or reach out to our team with any questions. Fiscal first quarter revenue was $10.8 million compared to $4 million for the prior year period. The increase was primarily driven by $7.4 million in revenue recognized from the sale of our second Monomoy BTS build-to-suit property. AUM and fee paying AUM totaled approximately $785 million and $594 million, respectively, with fee paying AUM up 9% from the prior year quarter end. On a pro forma basis, AUM and fee-paying AUM totaled approximately $792 million and $601 million, up 7% and 10% from the prior year period, respectively. These figures incorporate the pro forma impact of GECC financing activities. We reported a net loss of $7.9 million for the quarter versus net income of $3 million a year ago, primarily due to unrealized losses on GEG's investments in GECC common stock and our CoreWeave-related related investment. Adjusted EBITDA for the quarter was a loss of $0.5 million compared to a gain of $1.3 million in the prior year period. As of September 30, 2025, we held approximately $53.5 million of cash on our balance sheet to deploy across our growing alternative asset management platform. Please refer to Slide 6 for a summary of our financial position and book value per share of approximately $2.30. This concludes my financial review of the quarter. With that, we will turn the call over to the operator to open for questions. Operator: [Operator Instructions] We have a question from Nat Stewart of N.A.S. Capital. Unknown Analyst: I've been following Great Elm Group for quite a while, and I'm pretty interested in the evolution the business has had lately. I was just trying to figure out kind of where you are in the growth picture. And obviously, with the asset management businesses, if you manage to keep the fixed costs at least relatively flat and grow AUM and revenue, it's going to create a lot of earnings growth. So I was just curious what you guys think about your current overhead and expense structure and kind of like just as a -- from a financial point of view, like where are you on this growth trajectory in terms of growing the REIT, growing the BDC, other opportunities? Kind of what clues can you give us about where you see this going and when we're going to really see some operating leverage kick in? Jason Reese: Thanks, Nat. It's Jason Reese. I think best to say, we have spent a lot of time and effort building all the back office infrastructure. As you know, as you stated, this business is a high fixed cost and then low marginal cost going forward. I think we have the bulk of our fixed costs in place, and now the strategy is all about growing. As I think you've seen this past quarter, we made a major growth move on the real estate side. We're now putting that capital to work as we look to raise additional capital for the REIT. And on the BDC, kind of the same thing. We've done quite a bit of capital raising over the last 15 months. We hope to accelerate that. We do not think we need to come anywhere near growing the costs that we have in the past. So we think we're in a great spot going forward to leverage. Unknown Analyst: Okay. Just like a little follow-up question. Obviously, there's a lot of public information on the BDC. The strategy there looks very good with that setback you had this quarter. I know I listened to that call, they talked about they need to diversify and maybe reduce some of the position sizes, which makes a lot of sense. On the Monomoy REIT side, I could be wrong, perhaps I just am not seeing it, but I'd be interested in just learning more about that business. Like it doesn't seem to have a lot of a public-facing information about it. Am I just missing it or not seeing it? Or is that kind of -- how do we learn more about that and what's going on there? Just a little more in-depth understanding of that. Jason Reese: Well, let me give you a minute or 2, but I'd be happy to get on a call separately with you and get Chris [ Massey ], who is the head of that business on the call. But it is a private REIT. So there's not a lot of public information about it. But it focuses on the industrial outside storage space. The REIT has been operating for approximately 11 years. We have over 150 million -- 150 buildings that are -- we own in that REIT and growing. A lot of our focus is on the equipment rental space. Our largest tenant in this space is United Rentals, which the second largest tenant is Sunbelt Rentals in that space. And we've taken the time to build. We're not just an asset manager there. We have built our BTS business or build-to-suit where we're building our own properties for -- that will then go in the REIT or get sold to third parties, but for servicing the tenants. And we've also -- if you remember, in January, we purchased a construction business that we were using from the outside, so that we brought all of that in-house to have the capabilities to do everything from kind of cradle to grave with properties. We think it's a great business. We think it could be a public vehicle at some point in time. We're probably not quite at the scale I would want it to be before we took it public. But that is a possibility in the future. At that point, there would be the ultimate disclosure about it, obviously. But I'd be happy, Nat, if you want to e-mail me after the call, to set up a separate call and go in depth with you on Monomoy, if you'd like to know more. Unknown Analyst: Okay. Yes. Is that -- what -- if I just e-mail the IR, will that -- IR e-mail, will that get through? Jason Reese: It will get through... Operator: At this time, there are no further questions. And I would like to turn the floor back over to Jason Reese for closing remarks. Jason Reese: Thank you again for joining us today. We remain confident in the strategic direction of our business. We continue to raise significant capital, advance our credit and real estate platforms and strengthen our balance sheet. We are committed to executing on our growth strategy, scaling fee-paying assets under management and delivering sustained value for our shareholders over time. We look forward to keeping you updated on our progress. Thank you for your time and continued support. Operator: That concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Giuseppe Esposito: Good morning, everyone, and welcome to Poste Italiane Third Quarter and 9 Months 2025 Results Conference Call. Shortly, our CEO, Matteo Del Fante, will take you through some opening remarks, and then the CFO, Camillo Greco, will cover the financials. As usual, the presentation will be followed by a Q&A session where you can ask questions either via phone or through our webcast platform. And for any topics we won't be able to cover today, please do contact the Investor Relations team. We will provide any clarifications you might require. With that, over to you, Matteo. Matteo del Fante: Thank you, Giuseppe. Good morning, and thank you for joining us today for our Q3 and 9 months 2025 results call. As we celebrate 10 years since going public, we're proud to report another record-breaking quarter, reflecting sustained growth as we approach the end of 2025. The positive momentum established in the first half of the year has continued in the third quarter. We remain focused on executing our strategic plan, and we're fully on track to achieve our updated '25 guidance. In the first 9 months, we delivered record results across group revenues, adjusted EBIT and net income. Each business unit contributed to a robust 4% year-on-year increase in top line, reaching EUR 9.6 billion in total revenues. Adjusted EBIT grew by 10% to just over EUR 2.5 billion for the period and net profit reached EUR 1.8 billion, representing an impressive 11% compared to the previous year. Since the start of the year, we have seen solid net inflows in investment products, confirming strong commercial performance in insurance product and improved net inflows in postal savings. I'm pleased to report that the migration of our clients to the Super App has been successfully completed. To date, the app is used by 15 million clients with 4.1 million daily active users in November '25, which is more than our previous apps combined and the highest level among Italian apps. Our balance sheet remains extremely solid with our insurance Solvency II ratio at 312%, well above our stated ambition of 200%, providing us with significant financial flexibility. On November 26, we'll pay a record interim dividend of EUR 0.40 per share, totaling EUR 518 million, up a remarkable 21% from last year. I'm pleased to share that our initiative to unlock synergies with TIM are currently underway. At the end of September, we launched TIM Energia powered by Poste Italiane in more than 750 TIM retail outlets. This marks a significant step in combining the strength of both organizations, expanding our retail customer reach through TIM's network and Poste Italiane trusted energy offering. In the coming months, we will continue the strengthening of the strategic partnership and roll out additional joint initiatives to deliver synergies and value creation for all stakeholders. While our investment in TIM remains strategic, we are also pleased to note that the value of our stake has nearly doubled, now at EUR 1.1 billion. These results underscore the strength of our business model, flawless execution and our ability to adapt and grow in a dynamic environment, all while maintaining strict cost discipline. Let's move to group financial results on Slide 4. Poste delivered a very strong performance in the third quarter and first 9 months of the year. These were the best Q3 and 9-month results ever reported by the group in terms of revenues, EBIT and net profit. Focusing on the 9 months, revenues at EUR 9.6 billion, up 4% year-on-year, adjusted EBIT at EUR 2.5 billion and net profit at EUR 1.8 billion, up a remarkable 10% and 11%, respectively. In the quarter, we achieved record group revenues at EUR 3.2 billion, up 4% year-on-year. Adjusted EBIT reached EUR 856 million and net profit is at EUR 603 million, up 8% and 6%, respectively. On Slide 5, the strong revenue momentum across all our business segments continues into the year. In Mail, Parcel & Distribution, revenue growth was driven by higher parcel volume and supported by increasing client diversification. The anticipated decline in mail volume is effectively mitigated through ongoing repricing actions. In Financial Services, revenue increased by 5% year-on-year to EUR 4.2 billion, supported by NII and solid commercial performance. Insurance Services delivered strong profitability in both Life and Protection segments. Revenues rose 10% in the 9 months, reflecting stable CSM and higher release. Postepay Services' unique and integrated ecosystem of everyday services delivered sustainable revenue and profitability growth. The telco customer base remained solid and stable, while the number of energy clients has grown to approximately 950,000 on track to reach the target of 1 million clients by year-end. TIM Energia powered by Poste Italiane launched on September 29 will provide an additional boost to this business. Let's go to Slide 6 and EBIT evolution by segment. Mail, Parcel & Distribution reported an adjusted EBIT of EUR 137 million for the 9 months, in line with our full year guidance. Financial Services operating profitability is up a sound 23% in the 9 months to EUR 790 million, driven by NII and overall strong revenue trends. In the 9 months, Insurance Services adjusted EBIT is up 9% to EUR 1.2 billion, supported by both Life Investment and Protection. Finally, Postepay Services EBIT growth of 9% to EUR 416 million is driven by resilient top line performance, significantly outperforming the market. On Slide 7, let's take a closer look at what we're building through our strategic partnership with TIM. Several work streams are underway to maximize synergies between the 2 groups. We have signed a contract that will allow the migration of Poste Mobile MVNO operation to the TIM mobile infrastructure starting in Q1 2026. On the commercial front, we have reached the first significant milestones with the launch of TIM Energia powered by Poste Italiane now available through more than 750 TIM retail offices with very encouraging early results. Looking ahead, we're actively working on additional cross-selling opportunities on both retail and SME customers, including in the areas of insurance and payments. At the same time, we're exploring cost efficiency initiatives through joint procurement. We will communicate these developments to the market in a phased manner as relevant agreements are finalized. Poste Italiane is taking a decisive step forward in digital innovation through a new joint venture with TIM Enterprise dedicated to cloud-related IT services. This partnership will drive Italy's cloud transformation, harnessing the potential of generative AI and open source technologies. Our mission is to accelerate the nation's digital evolution, empowering public administration and private enterprises with secure and advanced solutions. The joint venture will deliver services across both leading public cloud platforms and sovereign national infrastructures. With that, let's look at the detail of the financials. Over to you, Camillo, please. Camillo Greco: Thank you, Matteo, and good morning, everyone. Let's move to Slide 9 on Mail, Parcel & Distribution. Revenues amount to EUR 934 million in Q3 and EUR 2.8 billion in the 9 months, up 3% and 2%, respectively. Mail revenues for EUR 180 million in Q3 and at EUR 1.5 billion year-to-date are in line with our fiscal year '25 guidance presented in February. Parcel revenues were up 10% to EUR 420 million in Q3 and up 8% to EUR 1.2 billion in the 9 months, supported by all customer segments, which continue to improve our revenue diversification. Distribution revenues from other business units are up 3% in the 9 months, reflecting positive commercial trends. Adjusted EBIT at EUR 137 million year-to-date is in line with the guidance provided for the full year. Let's look at volumes and tariff on Slide 10. Parcel volumes are up a solid 14% in Q3 and 12% in the 9 months to 245 million items. In Q3, we also increased the portion of items delivered via the wholesale network to 45%, up 5 points versus last year, leading to a positive contribution to the overall profitability. Looking at pricing, the average tariff was impacted by higher volumes with lower pricing and unit costs as we continued to have high volumes in secondhand items and boxless returns. On Mail, the volume trend is in line with expectations, showing a slower volume decline in Q3 compared to the first half of the year. The bulk of the volume decline remains concentrated on lower value items such as direct marketing and registered mail. We continue to compensate anticipated volume decline with ongoing repricing actions across both regulated and market products. Moving to Financial Services on Slide 11. Gross revenue for Q3 landed at EUR 1.6 billion and just shy of EUR 5 billion for the 9 months, up 3% and 6%, respectively. Net interest income came at EUR 669 million in Q3, up 3% and at EUR 2 billion year-to-date, up 6%, benefiting from higher average deposits and lower cost of funding. Postal saving distribution fees amounted to EUR 443 million in Q3, up 3% and EUR 1.3 billion, up 5% year-to-date, supported by improved gross inflows driven by commercial initiatives as well as longer maturity of products sold. Consumer loans distribution fees reached EUR 63 million in the quarter and EUR 203 million in the 9 months, both up 15%, driven by higher margins, confirming the strength of our multi-partnership model. Asset management fees came in at EUR 47 million in Q3 and EUR 136 million in the first 9 months, impacted by a different product mix with lower upfront fees, while AUM continued to grow, thanks to positive net flows. Finally, adjusted EBIT came in at EUR 262 million in Q3, up 16% and EUR 790 million in the 9 months, up 23% compared to 2024 on the back of strong revenue performance. Moving to Slide 12. TFAs continued to grow, reaching EUR 601 billion, up EUR 10 billion from the start of the year. Let's look at each component. We reported strong EUR 2.3 billion net inflows in investment products, confirming the positive momentum in life insurance where net inflows totaled EUR 1.2 billion. Postal savings net outflows improved in Q3, supported by strong performance of 100-year anniversary postal bond. Deposits were up, benefiting from stable retail balances at EUR 58 billion and higher, though more volatile balances from TA clients. Moving to Slide 12 -- moving to Slide 13, sorry. Insurance Services revenues amounted to EUR 446 million in Q3, up a strong 12% year-on-year and EUR 1.4 billion in the 9 months, up 10%, supported by both Life and Protection. In Q3, we continue to report positive Life net flows driven by strong GWP, up 7% year-on-year with an increased share of multi-class products now with over 70% of Life investment and pension GWP. Our advisory offering built in the context of the new commercial service model is leading to proactive rebalancing of our clients' portfolios, resulting in a lapse rate of 8.3% in the quarter, more than 50% of which have been reinvested into new Life Investment & Pension products. Life Investment & Pension revenues are up 11% to EUR 393 million in Q3 and up 10% to EUR 1.2 billion year-to-date on the back of stable CSM stock and higher CSM release. Protection revenues were up a solid 11% in the 9 months to EUR 147 million, supported by higher gross written premium and up 14% in the quarter. Combined ratio stood at 83%, while we confirm our fiscal year '24 guidance of about 85%. Adjusted EBIT of EUR 1.2 billion in 9 months, up 9% compared to 2024 and up 11% in Q3, reflecting top line trends. Our stock of CSM is stable at EUR 13.7 billion, driven by strong new business and positive financial variances. This provides us with strong visibility on the future profitability of the business. Normalized CSM growth stood at 3.5% on an annualized basis, up from 2% in 2024, with strong increase in new business value and expected return more than compensating the release. Let's look at the solvency ratio evolution on Slide 15. PosteVita Group Solvency II was 312% at the end of September and well above the managerial ambition of circa 200% of the cycle. This ratio already includes the impact of foreseeable dividend based on 100% net profit remittance. The marginal reduction in the ratio was mainly related to economic variances such as higher risk-free rates. Our Solvency II ratio currently stands between 305% and 320%. Moving to Postepay Services on Slide 16. The Postepay ecosystem continues to represent a sustainable engine of growth, innovation and customer engagement for the group. Revenues rose to EUR 409 million in Q3 and EUR 1.2 billion in the 9 months, up 3% and 5%, respectively. Payments are up 1% to EUR 298 million in Q3 and are up 2% to EUR 878 million in the first 9 months, supported by transaction value growth of 10% in the quarter and 9% year-to-date, offsetting shortfall due to EU law change. We are significantly outperforming the market and growing our market share in a competitive environment. Net of instant payment shortfall, payment revenue growth is at around 5% in both the quarter and the 9 months. Telco revenues are stable in the quarter and are up 1% in the 9 months to EUR 247 million, supported by our resilient client base and the fiber offer. Finally, energy net revenues totaled EUR 86 million in the 9 months, reflecting an increased customer base that now stands at around 950,000 clients and comfortably heading towards our 1 million client base target by the end of the year. Adjusted EBIT grew a robust 6% to EUR 140 million in Q3 and 9% to EUR 416 million in 9 months, underpinned by solid top line performance and in line with guidance. Since the start of the year, our average workforce has remained just under 120,000, consistent with the level of full year 2024, with hirings broadly offsetting exit of circa 6,000 FTEs. Our workforce productivity improved year-on-year as the growth in value-added per FTE exceeded the increase in HR cost per FTE. Moving to group HR costs on Slide 18. At the end of September, ordinary HR costs increased by 2% to just under EUR 4.2 billion due to higher FTEs. The new salary increase effective September 1 as part of the latest collective agreement and variable compensation. In the 9 months, ordinary HR costs on revenues are down to 39% with improving operating leverage. Moving to Slide 19. Non-HR costs increased by EUR 168 million year-on-year, mainly driven by EUR 112 million additional variable COGS, reflecting higher business volumes. Fixed COGS are basically flat, while D&A are up by EUR 54 million, in line with increased investments driving our transformation. In general, our focus on cost and CapEx discipline across all divisions remains sharp and protecting the bottom line profitability as well as cash flow remains our top priority. Thank you for your time. Let me hand over to Matteo for a wrap-up. Matteo del Fante: Thank you, Camillo. Following 5 straight quarters of record performance, we have once again achieved outstanding results with 9 months revenues of EUR 9.6 billion, up 4% year-on-year and adjusted EBIT rising 10% to EUR 2.5 billion. On the strength of these results, we can confirm that we are absolutely confident of hitting our EUR 3.2 billion adjusted EBIT and EUR 2.2 billion net profit for 2025 guidance. We continue to build on solid momentum with a clear commitment to creating long-term value for our stakeholders. Our focus remains on driving revenues growth and diversification, further improving our cost and capital efficiency and maximizing the potential of people, technology and data. We continue to maintain a robust balance sheet with low leverage and a Solvency II ratio at 312%, well above our managerial target. This strong financial position provides us with ample flexibility and underpins our confidence in a competitive dividend policy. As a result, we're distributing an interim dividend of EUR 0.40 per share, up 21% year-on-year, totaling nearly EUR 520 million to be paid to shareholders on November 26. I'm pleased with the progress of our collaboration with TIM, which will generate meaningful synergies for both groups. The first of several projects, TIM Energia Powered by Poste Italiane was launched in September is now available through more than 750 TIM outlets. This partnership will deliver significant value for all stakeholders in the future. Once again, these excellent results are a testament to the dedication and professionalism of our people whose daily commitment remain at the heart of our success. With that, thank you for listening, and Giuseppe, over to you for the Q&A. Giuseppe Esposito: [Operator Instructions] The first question is from Tommaso Nieddu at Kepler. Tommaso Nieddu: The first one is on the Super App. So the migration of the Super App has now been completed with 15 million users and over 4 million daily active users, which is kind of impressive. So could you elaborate on the next phase of that in terms of cross-selling across all your main verticals, I don't know, like payments, insurance, energy. And any more color would be highly appreciated. Then on the SPID, you currently manage almost 30 million digital identities and it's still growing. So if you can give us any update on a potential introduction of a fee-based model similar to other providers. So basically, if you could update us on your latest thinking around SPID monetization. And just a third one, very, very quick on insurance. If you can give us more color on the negative operating variances that impacted the CSM evolution this quarter. So was it mainly different lapses assumptions? Matteo del Fante: Thank you, Tommaso. I will take the first 2 and leave Camillo for the third one. Yes, so we're very proud that moving clients and users from one app that you close into a new app is a risky exercise because there is an attrition percentage of clients that don't get used to the new app. So doing this migration process in a smart and organized way is crucial in terms of not losing business. And 4.1 million daily active users, which is almost the double of the second Italian player in our -- on our data is a level of daily active users that we never reached in the past, not even adding the daily active user or a single app we had in the past. So that's good. In terms of the revenue and the business impact of the new app, we have basically an increase of the diversification and cross-selling that is coming with the use of the app. And that cross-selling is increasing in a very meaningful way our revenue and margin figures. So we don't disclose our cross-selling indices, but I can tell you that one additional product, so moving by one, our cross-selling index creates a multiple of revenues additional to the firm. So this is really the way forward. I'm very happy with that. Second question on SPID, yes, since several months, several key identity provider under SPID have started asking a limited amount of money to users on an annual basis, something in the range of EUR 6 to EUR 7 per year per user. And that's something that we are observing in the market and we'll make our consideration before we announce the plan in 2026. But we're a strong believer of SPID. We believe that SPID not only is serving over 1 billion cases of utilization per year in public administration service providers. So that has become the standard and very effective standard with very good use cases for public service provider. But as you know, there is also the use of SPID by private service provider. That is increasing. It is also creating meaningful and increasing revenues to post, but we believe that there is a huge potential in the system to double up from public to private service providers. Camillo Greco: With respect to the last question on operating variances, they were driven -- the amount was driven by 3 different factors. The first was a higher degree of lapses, where, however, I want to remind the audience that half of that amount is of self-help as we moved customers to more sort of market-oriented products, i.e., multi-class. So there is half of that lapse rate that is associated to that around 4.3%. The second point that impacted operating variances is an update of the mortality tables. And the third point was a time value of money related to the upfront payment for the insurance provider of stamp duty tax. Giuseppe Esposito: Next question is from Alberto Villa at Intermonte. Alberto Villa: A couple of questions from my side. One is regarding the trend in card stocks. We have seen some decline there, especially for Postepay cards in total number, but then transactions and all the other metrics are positive. I was wondering if that's related to Reddito di Cittadinanza or other events that impacted the number of cards issued. And the second one is if you can help us modeling for the financial income 2026. So in terms of -- we have seen some different indications from banks regarding the evolution of NII. Obviously, you have different levers. But in order to understand what we can expect in terms of evolution of financial income next year, what to bear in mind? Matteo del Fante: I -- on the first question, you have half of the answer related to the Reddito di Cittadinanza. But don't forget that we have started already 5 years ago a trip to replace our prepaid card, the yellow card without IBAN migrating into our Evolution. So you have and you have -- in the past 5 years, you had a very meaningful increase of the Postepay Evolution that actually increased in the quarter by 3%. We're now EUR 10.7 million Evolution. And Evolution is clearly for us, producing EUR 18 per year of revenues and giving to our clients the best proxy to a current account because with the IBAN, you can have your salary credited and you can do basically everything you do with a current account. On the second topic of NII. Obviously, we will disclose our targets in 2026, but we see clearly a slightly lower interest rate environment, especially on the short term of the curve. And that means for our floating rate portfolio, lower net interest income. As we said since ever, basically since March '18, we will always compensate lower NII with higher capital gains. And this, I can make the statement today, will remain our objective also for 2026 and onwards. And to that respect, I'm pleased to report, and this is really the market coming this way that for the first time, we have our investment portfolio that has a positive mark-to-market. It's around EUR 700 million as of yesterday. And on a gross basis, we have over EUR 2 billion of positive capital gains that we can use next year and onwards to sustain our investment returns with a slightly lower NII scenario. Giuseppe Esposito: Our next question is from Gian Luca Ferrari, Mediobanca. Gian Ferrari: Two for me. The first one is on the EUR 1.8 billion revenue guidance on Parcels. Even if I take a low end of this number, so EUR 1.75 billion, it would imply kind of 15% increase in Parcel revenues in Q4, which seems to be implying a strong acceleration versus Q3. So I was wondering if the EUR 1.8 billion is confirmed or not? The second is on the role of net insurance in the mandatory cat coverage for SMEs. I think net insurance will be your company dedicated to explore this opportunity. And can you confirm that you will not retain any cat risk and net insurance and Poste Group will outsource to reinsurers all the cat risk? And sorry, the final one, if you can give us the impact on the revision of the standard formula in 2027. Matteo del Fante: Okay. I will start with the first 2 and let Camillo go on the last one on the standard formula. Revenues. I mean part of revenues grew 7%, 9% and 10% in Q1, Q2 and Q3. Q4 is the peak year -- the peak quarter, sorry, Gian Luca. And that's where we usually more than outperform the market. So it's clearly ambitious. But if I look at the volumes, we have 12% growth in 9 months and 14% growth in Q3. So certainly, Q3 has shown an acceleration. And if I combine the acceleration of Q3 to the positive commercial momentum we have to the peak, hopefully, we will get broadly in line with our EUR 1.8 billion. We might be short a little bit if things don't go well, but we're broadly in line. The second question was net insurance. Yes, it's correct. One, net insurance is the company in the group that will take care of the new cat insurance product. Two, it's correct the fact that it will be fully reassure. Three, I can tell you that it's not a big budget product at the moment, but there is a strong focus and all I can say at this point is that I'm relatively optimistic that this will give us some additional growth in protection from '26 onwards. On the third question on solvency regulatory changes and the standard formula, please. Camillo Greco: Okay. So we do expect from 2027 a marginal improvement, think about mid- to high single-digit impact on our Solvency II ratio. That is driven mainly by 2 factors. The first one is the reduction of cost of capital for the calculation of the risk margin and the second is the changes to the volatility adjustment. Mid- to high single digit can mean up to 10 points. Giuseppe Esposito: Next question is from Giovanni Razzoli, Deutsche Bank. Giovanni Razzoli: Two questions. The first one is on the parcels. There is a lot of narrative on Italian press about the possible taxation -- fixed taxation on small inbound parcels. I don't know whether it is included in the budget law or is something that is rumored by the press as an idea. Do you think this is a challenge vis-a-vis your volumes of parcels inbound, especially from China? And can you share with us what is the perimeter of these activities, which could be potentially impacted? And in general, what -- how do you see the potential negative initiative going forward on the parcel volumes? And the second question is on the postal savings. I think that the performance of the third quarter was very, very good, very strong inflow. You mentioned that there has been an ad hoc marketing campaign for the 150th anniversary of this product. Shall we take this as a reversal of the trend? For instance, you had lower redemptions in the Q3? Or shall we assume that this is a reversal -- structural reversal of the negative trend that we have seen in the recent past because of the redemptions? Matteo del Fante: Okay. Thank you, Giovanni. Very good question on taxation. I mean this is not, from what we understand, the national initiative, but it comes at European level. And it would be an additional duty today, the FTE was referring to EUR 1. I heard from other postal operator that it can be as much as EUR 2 per item import from countries outside the EU. The first order impact is clearly for those players that are more involved with delivering those items. And we have a meaningful distribution role of parcel coming specifically from Chinese platforms. So if this tax lowers the amount of items shipped from China, the first order could be a marginal impact. Usually, what we have seen in the past, it's not the first time there was already something on customs 18 months ago that the market readjusts and EUR 1 or EUR 2 will not really change the attractiveness of those platform. There is also a second level of impact, which I think is positive or we should try to consider it and to play it on the positive side, which is this is making for the Chinese platforms less interesting to infrastructure theirselves in Italy. So you know that today, the largest platform in Italy is Amazon, and they have their own network. And looking forward and looking at what's happening around the globe, the Chinese platform are also getting organized with their own logistics. This kind of barriers probably put their investment appetite in any specific region a bit more distant. On postal savings, there is no reversal on the net, Giovanni -- on the net funding because the amount of redemption that we face every year is extremely significant. It's only showing that the CDP that is issuing the product has done a very good job in providing products that are in line with the market that are attractive and that help us -- and it's no coincidence the fact that given the number of Italian, we counted them a couple of weeks ago when we celebrated 150 years of postal savings. There are 27 million Italians that own postal savings. So our daily activities in the consultancy firms, in other teller on postal savings is very intense. And when we have a product, we have our salespeople being able to engage clients, not only on postal savings, but generally speaking, on all our products of savings and loan. So for us, the quality of the offer of CDP is extremely important to keep a positive dialogue with our clients. And I think, Giovanni, this is the most important news that we can take out of this positive trend. Operator: The next question is from Andrea Lisi, Equita. Andrea Lisi: From my side. The first one, I was really interested on having more detail for what you can share about the joint venture with TIM for the cloud-based services. What should we expect here? Obviously, also the timing for the setup of this joint venture, the kind of services you expect to provide? And also, obviously, I know that it is really preliminary, but the kind of penetration and growth you expect to achieve here? And the second is on dividend. You have indicated that you want to keep the dividend policy really appealing for shareholders. So also considering the interim dividend of EUR 0.40, what should we expect in terms of evolution of the dividend policy and the dividend payout? Matteo del Fante: Thank you, Andrea. The JV would require a bit more time, and I'm sure TIM will -- and Pietro will do his own care and [indiscernible] care and duty to explain it to investors along the road. What I can tell you at this point in time is that there is a clear process of migration to cloud, which is not only moving data from on-prem data warehouses to cloud. The beauty of moving to cloud is changing your operation and using that data in a more flexible way. So it's adding services to clients that are moving to cloud. So when you offer -- when TIM offers and the commercial responsibility of the work of the JV remains with the TIM that obviously has a commercial sales force dedicated to this offer to migrate into cloud. Increasingly, they will add products, services and value for clients. When it comes to public sector clients, there is a couple of additional consideration that needs to be made. The first one is related to the PSN, the next-generation EU big effort, which has achieved a very meaningful result in terms of moving the majority of the public administration into cloud. And now is the second wave of increasing the services and the value of using that cloud for the public administration. And the JV will allow TIM to internalize some of the work and value-added integration of system that was previously mainly outsourced. And the second consideration is the preliminary indication we received from core public sector clients, public administration clients that this initiative and the role of TIM in this space is very welcome because with our acquisition, we finally have in the country a national cloud provider. Think about the sovereign cloud topic, for example, with -- in the current geopolitical situation is clearly a very hot topic in the hands of the public administration. So finally, there is an Italian player that gives total confidence to the public administration to move and use data in a smarter way in the future. And this is the role that the JV will have to perform in supporting the commercial activities of TIM. And I think you will see more on this from TIM side, especially and also from our side with the announcement of the 2026 guidance in Q1 of 2026. Dividend, you said it all. We always stated that we want our dividend policy to be competitive, which basically means we look at our peer group that is clearly in the insurance space, is clearly in the banking sector. We look at the banking sector, including the buyback programs that we don't do. So when the share performs, we have left some room in terms of dividend payout to follow and make the dividend in terms of dividend yield appealing and competitive to our investor base. This is the work that we will perform over the next 2 to 3 months and second half of February when we will announce the 2 preliminary results, 5 results, 6 guidance, we will also have our position on 2026 dividend. Giuseppe Esposito: The next question is from Daniel Wilson at Morgan Stanley. Daniel Wilson-Omordia: Just 2, one on CDP and one on the Solvency II review again. On CDP, can you walk us through the kind of process of the renewal of the agreement with them whether there's any potential upside to the floor and the ceiling of the fees you can generate on postal savings? And secondly, on the Solvency II review, I know you spoke about it just now. I thought the mid- to high single-digits benefit seemed a little bit lower than I was expecting, especially given that you guys have quite a high risk margin versus your solvency capital requirement. And I would have thought that the kind of risk margin changes would have been a pretty big benefit to you guys. So I'm wondering what are the offsetting factors from the benefits you're getting to bring you to that mid- to high single-digit benefit? Matteo del Fante: I will let Camillo answer both questions. Thank you, Daniel. Camillo Greco: So the first question carries through until CDP agreement carries through until the end of 2026 with respect to how the agreement is performing. I would say that it is performing well. We guided for the year at a number of around EUR 1.7 billion in terms of revenues. We are going to be at least towards the high end of that, and we still have an additional year to perform. This was done in order not to have the agreement overlapping with the CEO change in potential change at the end of the summer. So that is the first point. With respect to the second question, I confirm that at this point, the estimate is around 10 basis points from 2027. We have both positive and negative factors. But at this point, you should stick to what we advise, which is around 10 basis points incremental benefit, percentage points, obviously. Giuseppe Esposito: And finally, we have a last question from Michael Huttner at Berenberg. Michael Huttner: Two. One is the EUR 1.1 billion TIM valuation. Where is that or the benefit of that, if you like? Where can I see it? And the second is on your lovely Slides 36 and 37, where you talk about Life net inflows and the mix between multi and segregated and all that. The feeling I have, but I'm more interested in what you're saying is you're not particularly interested at the moment in the big numbers, the volumes. So Generali this morning announced that their volumes went from EUR 3.3 billion in Q2 to EUR 4 billion in Q3. So quite an amazing number. Your numbers are lagging a lot, but it's not a criticism, just an observation. And the feeling I have is you're much more interested in transforming your portfolio, so moving your policyholders from the old segregated accounts into the multi-class. I wonder if you can explain how is that working? And what the benefit is, obviously, both for your policyholders, but also for investors? Matteo del Fante: Okay. Thank you, Michael. I will let... Giuseppe Esposito: Michael. Yes. Sorry, Michael, on TIM, to be clear, the current market value of the stake is EUR 1.9 billion, not EUR 1.1 billion. EUR 1.1 billion is roughly speaking, the amount invested. Michael Huttner: And where is the benefit of that? Where -- does it boost your solvency or your capital or anything? Giuseppe Esposito: No, no, no. The stake is equity accounted, so we don't do any mark-to-market. So basically, the changes in the accounting value will follow the pro rata net profit and dividends of TIM going forward. So there's no mark-to-market. But obviously, the mark-to-market is important from a balance sheet valuation perspective. Matteo del Fante: Yes. Basically, if you want to be precise, if we have put EUR 1.1 billion, which we could have invested at, let's say, 3.5% in government securities, we have basically giving up around EUR 40 million of NII. The strategy there is to extract 2 things. The first one is synergies. And we already signed the MVNO contract, which is making us saving versus the previous contract, EUR 20 million per year from next year. So that's already in the bin. I mentioned several times in my presentation, the Poste Energia contracts sold, that's additional value that is created by this partnership and this stake basically in our accounts. I spent a few words on the JV, and there is certainly more to come in terms of synergies. So that's the first block that will more than compensate the capital return that we would have had investing the EUR 1.1 billion in government securities, which is, as you know, the only thing we can do by law. The second benefit for investor, Michael, will be once the company and is already in the strategic plan announced by TIM, we start paying dividends. So there will be a return on capital as an investor and that return on capital now has also the benefit of being on EUR 1.9 billion when we invested only EUR 1.1 billion. So it would be clearly more than compensating it would be with the leverage component. The second question, I leave it to... Camillo Greco: Yes. So the second question was what are the trends towards shifting customer policies from capital guaranteed to partly noncapital guaranteed. And the answer is that in provided that the customers we do interact have the right financial profile, moving from capital guaranteed to noncapital guaranteed in an environment where rates are expected to go down, the expected return of a noncapital guaranteed product is superior. So the expected return for the customer should be to have a better return on the policy. And as far as we are concerned, we have different pricing between capital guaranteed and noncapital guaranteed with a different mix are sort of similar, but in the interest of customers, it's a more performing instrument in this rate environment. Michael Huttner: And so is there a capital benefit to you guys from doing this in terms of less required capital? Camillo Greco: There is a marginal benefit in terms of less capital for us, yes. Matteo del Fante: Yes. Sorry, just the last word, Michael. The capital benefit is marginal because the equity exposure embedded in our multi-class is residual. So our products always have -- even if it is a multi-class contract, there is always a minimum of 60% of Class I and the 40% has again a fixed income component. So at the end, we have less release than doing purely equity-linked unit products. Giuseppe Esposito: So that was the last question. So thank you very much for joining us today. Matteo del Fante: Thank you, everybody.