加载中...
共找到 17,180 条相关资讯
The U.S. will lower import duties on South Korean autos to 15% effective retroactively to November 1 and match the reciprocal tariffs imposed on Japan and the EU, Commerce Secretary Howard Lutnick said on Tuesday.
Stock and stock fund allocations increased 0.7 percentage points to 71.2%. Bond and bond fund allocations decreased 0.8 percentage points to 14.0%.
Unknown Executive: Ladies and gentlemen, [Foreign Language] National Energy Centre. Welcome to University Tenaga Nasional. You are now in Dawan Silara, National Energy Centre, NEC, UNITEN. Please follow these instructions in the event of emergency. Please remain calm and stand by for further instructions to evacuate. In the event of an emergency, the alarm will be activated and ring continuously. Please make sure you make your way calmly to the closest emergency exits. Please exit the building immediately and in an orderly manner. Please proceed to the designated assembly area. Please remain at the assembly area until you receive further instructions. Please seek assistance from personnel on duty in cases of other emergencies. Your cooperation is highly appreciated. May this ceremony run smoothly and successfully. Thank you. Good morning, everyone. Thank you for joining our third quarter FY 2025 Analyst Briefing. A very warm welcome to Yang Berbahagia Datuk Ir. Megat Jalaluddin Bin Megat Hassan, President and Chief Executive Officer of Tenaga Nasional Berhad; and Chief Financial Officer, Mr. Badrulhisyam bin Fauzi. I also extend a very warm welcome to each and every one of you joining us today in this hub. We also have 70 attendees joining virtually via Webex. Today's session will be covered in 2 parts. Our President and CEO, Datuk Megat, will first provide an overview of the TNB's group strategy and outlook, followed by our Chief Financial Officer, Mr. Badrul, who will share the TNB's third quarter FY 2025 performance. We will then open for Q&A before we end the session at 11 a.m. With that, I am pleased to invite Datuk Ir. Megat Jalaluddin Bin Megat Hassan to kick off our session. Thank you. Megat Bin Megat Hassan: [Foreign Language] A very good morning, [Foreign Language] First and foremost, thank you very much for being here to be in the session so where we share our third quarter performance. And I would like to welcome everyone to this new, I would say, development by Tenaga Nasional, which is the National Energy Centre, which is part of our unit purpose in which we would like to support the government agenda with respect to the energy transition. So this is where we hope that we can position Tenaga further with respect to the energy transition for the country as well as for the region. So I'm pleased to share some of our performance highlights for the first 9 months of financial year 2025. The group delivered a strong financial performance, underpinned by the continued stability of our regulated business. We recorded a core profit adjusted for ForEx transaction and MFRS 16 of MYR 3.26 billion compared to MYR 2.87 billion in the corresponding 9 months last year. So this is a reflection of our underlying strength of our core business. So what we have seen to date is stronger performance across all the 4 business pillars that we have. It's driven by all the improvements across those 4 business pillars. The first, under the Deliver Clean Generation, Genco overall performance improved with higher core PAT of MYR 238.9 million compared to MYR 175.8 million in the previous year. This is supported by a strong operational efficiencies as reflected by an improved equivalent capability factor or known as EAF of 86.9%. And as everybody could remember, Manjung 4 is fully operational since the beginning of the year. Second, under the developing energy transition network plan, we deployed MYR 38.3 billion of regulated CapEx, comprises of MYR 7.6 billion in base CapEx and additional MYR 0.7 billion in contingent CapEx. This intensified investment demonstrates steady progress in delivering our RP4 commitment, especially in grid investment to ensure reliability of the supply and to deliver those projects that related to the demand growth for the country. So under dynamic energy solution, happy to share that we are making good progress with respect to the electrification of transport in the EV space, where we see, to date, we have 5,000 -- more than 5,000 EV touch point in the ecosystem, contributing to about MYR 5 million in revenue. Within this ecosystem, Tenaga Nasional, through our Electron brands, installed new 94 TNB charge point during the quarter, bringing the total to 160 TNB charge point in our EV network. This is to reinforcing our commitment to support the country growing EV infrastructure. So this is where we see a good momentum and progress with respect to the electrification of transport, especially to the master transport. In this case, the cars instead of the heavy vehicle. And lastly, under our driving regulatory version, the transition from the ICPT to AFA mechanism effective 1st July 2025, amongst significant structural improvement, the AFA mechanism enabled immediate cost recovery compared to the previous [ segment legs ] in the previous [ SCPT ] regime. This helps improve TNB cash flow at least by 2% and definitely enhanced our planning with respect to the working capital. So overall, these results reflect our resilience, operationalized discipline and continued progress in advancing the energy transition while delivering sustainable value to all the stakeholders. Moving on to our generation growth outlook. Momentum remains strong, supported by government national capacity plan. Recently, we received a letter of notification for technical and commercial term covering a total capacity expansion of 1,262 megawatts across 3 power stations that are owned by Tenaga Nasional, namely Gelugor, Putrajaya and Tuanku Ja'afar. This -- if [indiscernible] is part of the so-called RFP that's being put forward by the government under Category 1, where the government request for proposal with respect to the extension of the power plant. So we are glad that we have gotten the results, and this extension strengthen system liability and ensure that we remain well positioned to support the Malaysian growing demand as well as to ensure that the capacity and the revenue that is coming from this concession will continue -- will continue to be part of TNB revenue in the future. On the second category, the new generation capacity request for proposal, we are awaiting the regulatory decision, which focus on the new gen set capacity, and TNB, of course, participate in the RFP. And we hope that we can get the outcome results before the end of the year. So in short, this national capacity plans, both extension as well as the new generation capacity, provide a strong visibility and reinforce favorable outlook for TNB generation growth in the pipeline for the future. At the same time, let me update some of the progress that we are making with respect to the project that we are undertaking at the moment. On the domestic front, the project execution across our clean generation portfolio continues to progress well and firmly on track. The first one is the Nenggiri hydro project. We have now reached 53% completion, and we remain on track to meet the COD target by the mid-second quarter of 2027. Happy to share that major civil works, including roller competitor concrete, RCC for the saddle dam already underway. The second project that we are currently undertaking is the Sungai Perak Hydro Life Extension Programme has achieved 23% overall progress. Data collection for all the units has been completed, and this is a rehab project. And the project is on track to deliver the first unit at Chenderoh position by the first quarter 2026. At Kenyir, the plan for the hybrid hydro floating solar project has reached 70% predevelopment progress, and the commercial evolution is currently in the final stage. So this is another opportunity for Tenaga to provide the clean generation to the customers directly through the CRESS program. On the land solar projects that we are undertaking under the Corporate Green Power Programme, or known as CGPP, all 3 sites continue to progress well with more than 85% completion and remain on track to achieve COD. The second project, the -- for the land solar is the awarded large-scale solar 5 tender is progressing towards achieving financial close by early 2026. At the same time, we're also taking a project into Sabah together with SESB, which is our majority owned subsidiary. And it's also to expect -- we also expect to have the project closed by the end of this year 2025. And lastly, the Battery Energy Storage System at Laha Datu Sabah, in which our subsidiary, RE, are taking together with SESB, has successfully achieved COD in August 2025, and it is in full operation test now. And it is -- it did have the so-called -- provide the energy to the eastern part of Sabah. Overall, we have 1.2 gig currently under construction, reinforcing our clean generation growth platform that we currently have. On the international front, the third quarter update progress in the United Kingdom. We have achieved our international RE portfolio recorded important milestones this quarter. In the United Kingdom, our greenfield solar project, both Eastfield at 35-megawatt peak and Bunkers Hill, about 67-megawatt peak, have achieved COD in July 2025, contributing a combined of 102-megawatt peak of new solar capacity to our portfolio and has started generating revenue for us. Over in Australia, momentum is actually encouraging. As part of the 1 gigawatt Dinawan Energy Hub, the 357-megawatt Dinawan wind farm Stage 1 has successfully secured support under the capacity investment scheme in Australia. This provides a long-term revenue assurance for the project and enhance overall cash stability for the future. The second project that we are undertaking in solar, it is named Wattle Creek solar project, totaling 265 megawatts of solar capacity and 300 megawatt of battery storage. We have executed the connection process agreement with the Transgrid, which is the transmission operator in Australia. This allows us to move forward with detailed grid impact studies of the connection and the best possible discussion with respect to COD. In parallel, procurement for the stand-alone BESS is also ongoing. Meanwhile, for the Mallee wind farm project, 400-megawatt Mallee wind farm, we are progressing connection planning outside that is netted RE zone and have secured the required land easement for the transmission connection, a key enabler for the next development phase. As you can see that the Australian project with respect to the regulatory requirement, one of the key element is actually to get access to the connectivity to the grid. So many of our projects are now at that so-called predevelopment stage securing the grid assets. And we believe that we are making good progress with respect to those in conjunction with cooperation with the local transmission operator. So with this addition, our group secured RE energy capacity now stands at 13.4 gigawatt, of which 4.6 gigawatt is already in operation, while 1.2 gigawatt is under construction, as I summarize the above, and 3.6 gigawatt in the pipeline stage. This continued growth reinforce the position as a meaningful regional RE player while providing diversified income stream over the long term. Next, we move to investment into the grid. And our second strategic pillar, develop energy transition network. We are on track to deliver our regulatory targets, having successfully utilize MYR 8.3 billion of regulated transmission and distribution CapEx. So we invest MYR 3.8 billion to maintain security supply, MYR 3.8 billion to support demand growth, and MYR 0.7 billion CapEx for energy transition projects, enhancing the grid readiness for higher RE penetration and greater [indiscernible] generation embedded to make it a smart grid. Progress of key project. Firstly, the water demand growth, especially data center connection. We have invested around MYR 1 billion while we are also developing the 400 kV overhead land between [indiscernible] and [ Lunga ] project at approximately MYR 0.3 billion to strengthen the backbone of the national grid. Our 100-megawatt -- 400-megawatt hour Battery Energy Storage System pilot project at Santong continues to progress, reaching 56% of overall completion. So we remain on track to achieve the targeted completion by December 2026. Meanwhile, at the distribution space for smart meter, we have over delivered our -- for the year 2025 full year 360,000 unit target with around more than 500,000 units installed at the end of the third quarter 2025, bringing the total 5.1 million units into the system, which is about 45% of our customers. This is also reflecting our strong momentum in empowering the customer energy management, including the new tariff offering of ToU. So this is one of the, I would say, the intended outcome of the smart meter, providing the customer with the energy management system and supported by the tariff structure of ToU. For distribution of the material, which is important for our supply reliability, we have installed the system in 2,490 substation at the end of third quarter 2025. And as of October 2025, we have achieved 75% of our 2025 target of 4,026 substations. So the projects under the CapEx, both for transmission and distribution are well on track. While our domestic investments ensure the grid is ready for rising demand as well as RE penetration, the net emission of our strategy is regional integration. Under the ASEAN Power Grid, we are actively developing interconnections that will position measure as a key hub for clean electricity exchange across the region. Currently, we have about 1.4 gigawatt of existing interconnection capacity with Singapore and Thailand. Looking ahead, we have 5 potential pipelines, interconnection projects, enabling the transmission of our 6 gigawatt of combined RE energy, including hydro, solar as well as wind with Vietnam, Singapore, Thailand, Sabah and Indonesia. This project will serve as enablers for the original energy transition and position Malaysia a central hub for cleaner energy flows. On the business plan, we believe this is the foray of Tenaga to have part of the so-called regional market in our revenue. And hopefully, we can expand the third pillar in combination of the domestic and international business. Now we have the opportunity to include the regional business as part of the mainstream of Tenaga revenue. Moving to our third strategic pillar, Dynamic Energy Solution. We see that electricity demand has continued to grow. For the third quarter 2025, the total units sold reached more than 99,000 gigawatt hour, reflecting sustained demand momentum. This growth was largely underpinned by the commercial sector, which account 70% of the total units sold. For the commercial demand, we see that the growth year-on-year is about 7.7%, led by 3 subsectors: Data centers, of course, contributing 5.2%; followed by the malls business and accommodation services at 2.2%; and the rest of the commercial sector adding another 0.3%. So we see a strong growth with respect to the commercial sector as well as our domestic sector. In terms of the sale contributions, mall business and accommodation services made up 80%, other subsectors contribute 60% while data centers account for 30% of the total units sold in 2025. So what does it mean is that, yes, we can see that data center is growing. But in the overall scheme of the subset so-called unit, now it contribute about 3%. We still have the majority of the commercial from the mall and business and accommodation services, adding up by the education and also the communication sector. So we are happy that, overall, we have a good subsectors growth, not only in data centers, but the other remaining business in the commercial sector. For data center itself, we continue to anchor the structural demand growth. As for the end of the third quarter, we have 29 projects in the system with a total maximum demand of 3.8 megawatts. Looking ahead, our secure pipeline now stands at 49 projects, representing 7.1 gigawatt total maximum demand in the system, underscoring the share role as the digital investment hub. Alongside this robust demand growth, we're also seeing positive momentum across our customer-focused energy transition initiative. Under the EV ecosystem, we continue to advance our EV charging rollout with 160 cumulative charge point installed, including 94 in the third quarter 2025. So we remain on track to exit our TNB own targets of 250 charge point installed by the year-end of 2025, supporting the government EV road map and of course, expanding the charging facilities nationwide. Year-to-date, our EV charging ecosystem has generated about MYR 5 million in revenue, of which MYR 1.7 million has come from our own TNB charge point. This reflects steady adoption of our charging solutions and validates the growing demand for EV infrastructure. For the EV charging development, we have introduced the Green Lane supply initiative. And for this initiative, we have completed around 7 megawatt of connections with a target to achieve around 8 megawatt connection within this year. Interest continued to grow strongly. We currently have 448 applications in pre-consultation, representing 130 megawatt of potential new connection as we move forward. Moving on to the solar rooftop through the Spark. Uptake remains steady since [ inception ] in [ 2029 ]. We have secured more than 3,000 projects representing 538 megawatt peak of secure capacity. As of September 2025, we have installed a total of almost 200-megawatt peak, generating approximately MYR 80 million in revenue for the first 9 months of this year. We are seeing a strong participation from key segments -- key customer segments such as manufacturing, government as well as from the construction center. On energy efficiency, myTNB app currently adopted by 8 million of our customer base, which represents 80% of the current 10 million customers that we're having. Over 2.5 million users have now subscribed to myTNB Energy Budget feature, helping save 100-gigawatt hour of energy. And at the same time, if we calculate in terms of the carbon emission, we perhaps avoid more than 75,000 tonnes of carbon emission as of September 2025. Additionally, as I mentioned, the update for the time of the scheme has been very encouraging with about 52,000 customers now optimizing their consumption pattern to better manage the electricity costs. This initiative reflects our progress in driving customer participation in the energy transition and unlocking growth from the consumer segment of our customers. So that is the overall 4 pillars performance as of the third quarter. Now I will pass to our CFO, Encik Badrul, to provide a little update on the third quarter financial performance, please. Badrulhisyam bin Fauzi: Thank you, Datuk, and good morning, everyone. Good to see all of you here in Unit 1 today. And since the results last Friday, seems like you guys have been doing a lot of work over the weekend. So good to see you here. So I'm pleased to report that for our 9 months performance, you've seen that we have a stronger financial performance, which mainly still driven by regulatory business. And obviously, you will see as well a result of more effective capital management. So for the first 9 months of 2025, our revenue, EBITDA, PAT across the board have showed positive year-on-year growth. So as of 9 months 2025, our revenue actually increased by 18.3% compared to previous year. And you'll notice that this is mainly driven by higher electricity sales. It's important to note that implementation of cost reflective of before-approved tariffs continue to support revenue as well as affirming that we will continue to support the stability of our regulated business. On the EBITDA side, you see improvement as well, supported by higher revenue, recording an increase of 4.8% year-on-year, increasing to MYR 15,088.2 million. EBITDA margin, as well, you'll notice that strengthened to 31.2%, showing improved efficiency across the group. So I think this is important to note that as we monitor the EBITDA margin, this shows continued progress of the company, where a lot of cost management has been put in place to ensure our stable operation, continue to deliver the regulated profit. So at PAT level, you will notice that our profit grew mainly because of the improvement in the operational performance of the company. So you'll notice that we are now focusing on core profit after adjusting for ForEx translation MFRS 16, which is a much better reflection of the performance of the company. So that figures now is at MYR 3.259 billion, which is an increase of 13.7% year-on-year compared to the same period last year of MYR 2,867.4 million. So I think based on that number, we would like to conclude that as far as the overall performance is concerned, lower net finance costs as well as ForEx movement actually provided an additional uplift to the performance of the company. But most importantly, cooperations remain the main driver of the performance of the company. So for FY 2025, we believe that the group remains on track, supported by resilient operations as well as prudent financial management. This is -- we'll make sure that we continue a sustainable performance for the full year this year. You will notice as well that as far as the group earnings are concerned, we have actually supported by 2 important pillars that continue to support our operation, importantly, improved generation performance as well as sustained world-class network performance. So this is important. As you noticed that the network reliability across transmission and distribution continue to deliver our earnings. So as far as generation is concerned, the higher equivalent availability factor of 86.9% in 9 months this year is much higher compared to 80% that we achieved same period last year. So the improvement actually reflects stronger overall plant performance and the fact that our maintenance and repair all are delivering the expected performance from the plan. So this is something that a lot of focus is being put across, and we continue to maintain this high availability as well as operational excellence across our plan for this year and many more years to come. For system minutes for transmission, 9 months is actually -- 9 months this year is actually at 0.0695 minutes, which is as reported quarter in and out every quarter, well below our internal threshold of 1.5 minutes. This is important because as you noticed, a core part of our revenue and profit come from this. And this continues to underscore our commitment to make sure that our regulated business continued to perform and deliver the baseline revenue and profit. This will only make sure that we have a highly reliable and stable earnings as a result of stable transmission network. So for SAIDI distribution minutes, you notice that the numbers for this year improved to 34.99 minutes compared to 35.72 minutes in 9 months 2024. So I think this is, again, every quarter, we would like to emphasize this because this is an assurance to all of you that stability of our regulated business ensures that we've got better services to our consumers and continue to deliver the earnings of the group. So if we move to a bit more financial metrics that we are collecting, you will notice that we have a stable collection trend, and regulatory certainty continue to underpin our very resilient cash flow. So if you look at our trade receivables and collection, trade receivables remained stable. It has been around MYR 4.4 billion to MYR 4.7 billion year-to-date and continue to be stable. This actually also a reflection of stable collection trend with average collection period, which continue to be below 70 days. So this has been at around 27, 28 days. So very healthy numbers despite the jump on the revenue, which has grown significantly by 18%. So you will notice as well as far as the AFA mechanism, which has gone into effect as of 1st July 2025, this actually enabled us to recover immediately all our generation cost because it is based on forward-looking forecast every month. So this has also helped us in the sense that coal price has now stabilized at around USD 90 per tonne this year compared to much higher USD 121 per tonne as of September last year. So we believe that the fact that fuel prices are stabilizing, we have a strong collection trend, and it is being helped further by the newly implemented AFA mechanism, which will only continue to strengthen our working capital as well as provide us a much healthier cash flow position. So in short, I think this is what you're going to see. We have put a lot more focus in our capital management, which is actually giving us the right result on the pretax of stabilizing fuel prices strong collection. And this will continue to make sure that we have the liquidity and the strength to make sure that we have the financial resilience for us to continue investing. So this trend that you're seeing today actually will show that we have a strong foundation, enabling us to weather the market condition and most importantly, enable us to continue our long-term investment plan to make sure that we deliver the energy transition agenda. So if we go into more detail as far as the outcome during the quarter, you will have heard that we've got 2 reports came out from both S&P and Moody's. So both international rating agencies actually have reaffirmed their ratings of the company with stable outlook. This is something that is very important, like I said, because you have noticed that we have been investing a lot this year, and we will continue to invest in '26 and '27 as well. So S&P Global Rating maintained the rating of A-, and Moody's continue the rating of A3. But I think most importantly, probably this one, some of us, since most of you are equity analysts, you probably don't dive into the detail as far as the credit rating is concerned, but I think we would like to highlight that for S&P Global Ratings, as a matter of fact, yes, we continue to be rated A-, but they have a component where they have a stand-alone credit rating profile of Tenaga as well. So that rating before this was BBB. So now that has been upgraded to BBB+. So before this is standalone BBB, but we've got 2 notch rating upgrade to A- to reflect the sovereign rating. But now, on our own, we have already been upgraded to BBB+. So we are only upgraded 1 notch, reflecting the sovereign nature of the country. So this is affirmation that as far as S&P Global Ratings is concerned, we believe that our cash flow is going to be a lot more resilient going forward, supported by 2 things. The first one is the AFA mechanism because this will actually stabilize our cash flow and receivable with immediate recovery of generation costs, and they have been tracking our performance in terms of the lease liability, especially the PPAs, and now they are comforted that the overall regulation formulation for PPA enabled us to recover all the costs under the power purchase agreement with the IPPs. So with those 2 adjustments to the cash flow forecast of the company, they believe that the cash flow strength of the company will be only be better going forward. Moody's rating, they continue to reaffirm the A3 rating. Obviously, the normal assessment covers the fact that we have a very supportive regulatory regime and tariff reform that has been implemented by government that enhances the revenue visibility and cash flow efficiency. So obviously, when we talk about the credit rating, usually, we'll take it as a blended more indicative ratio of gearing ratios. But I think it's important to note that as far as both Moody's and S&P are concerned, they are actually monitoring a different cash flow profile. So just to give you some perspective, S&P, in particular, they monitor funds from operation as a level of debt. And Moody's, they monitor retained cash flow as a percentage of debt. So yes, I know a lot of you guys are monitoring our overall gearing ratio in particular. But for credit rating purposes, they actually dive into more detail to make sure that the cash flows are supported by operational cash flow coming forward, especially in an environment where you continue to invest. So I think what we are putting across today is the fact that we believe that, in summary, this recent upgrade reaffirmation continue to underscore the strength of our credit profile as well as our long-term financial outlook. So we always would like to point that as far as S&P, in particular, this reflects increasing confidence in the robustness of our fundamentals as well as the fact that we have a stronger cash flow stability and visibility with minimal risk. Altogether, this development reinforces our financial resilience and validate our disciplined approach to financial planning in managing our balance sheet so that we continue to enable our long-term business plan. So I think we are very clear, as far as we are concerned, yes, we are pushing for growth, and we will continue to support Tenaga's energy transition and creating continuous value for our stakeholders. With that, I'll pass back to Datuk Megat to cover the outlook for the year. Megat Bin Megat Hassan: Thank you very much, CFO, on the financial performance update. So looking forward, the forward guidance, especially for the next quarter. We anticipate the electricity growth to grow in line with the IBR projection of 2.8% for the year. This reflects the overall growing economy, particularly from the commercial sector. In terms of our group CapEx, which we probably have more say in it compared to the so-called demand, we plan to invest a total of around MYR 15 billion this year with the estimated or projected MYR 12 billion allocated to the regulated business and another MYR 3 billion on the nonregulated business. So our investment remain aligned with the national priorities, centering the grid, supporting demand growth, [indiscernible] Malaysia energy transition as well as to ensure that the capacity of generation is good for the country. By year end, we expect to strengthen our RE portfolio with an additional of 212-megawatt peak of capacity, taking into account the commissioning of our 102-megawatt peak U.K. solar assets. And they are coming COD of our CGPP projects of 110-megawatt peak. On the capital management, as mentioned, we remained fully committed to executing our CapEx efficiently while maintaining a healthy cash position supported by a prudent working capital management. To our shareholders, we reaffirm our commitment to honor our dividend policy and strive to provide sustainable dividend in the future. Ultimately, our focus is on ensuring long-term sustainable growth, advance Malaysia energy transition agenda under NETR, and this is reflecting -- reflected through our future investment that we are committed to deliver. So we will continue to position TNB as a leading provider of sustainable and reliable energy solution, creating value for our customers, commodities, shareholders as well as the nation. So with that, thank you very much for the listening. Unknown Executive: Thank you, Datuk Megat and Mr. Badrul, for your presentations. I would like to inform that we have 90 people joining us on Webex. And let us now transition to the Q&A session. We will begin by taking questions from the attendees here in the room, followed by those joining us on Webex. With that, I open the floor for questions. Please feel free to raise your hand, and our staff will pass the microphone to you, and you may proceed to ask your questions. Kindly introduce yourself and share your questions. Thank you. Dharmini Thuraisingam: I have 3 questions. My first -- this is Dharmini from CGS. My first question is clearly on the taxes. There was the announcement in the Bursa saying that you have been allowed investment allowances. Can we get a bit more clarity as to how much of the MYR 10.5 billion can be clawed back over how many years? And how does that impact your effective tax rate moving forward? The second question is, can we get an update on contingent CapEx? We are now 1 year into RP4. What's visibility like? Are we still looking at 70% utilization for RP4? And has there been any resolution on the remuneration mechanism for contingent CapEx? And just a final question on data centers. I think the Deputy Minister highlighted there are some concerns on take-up. How should we as analysts as well as investors be reading this? Should we be concerned firstly from a Tenaga's perspective? And secondly, generally in terms of data center demand in Malaysia? Megat Bin Megat Hassan: Okay. Thank you very much for the 3 loaded questions to begin with. So on the tax allowance, everyone understand, this is a tax matter that has been in the system for many years. That is a question of the reinvestment allowance. So for Tenaga perspective, we are glad that the Federal Court has made a decision with respect to the clarity on the investment allowance bucket. And as guided by the Federal Court decision, we have submitted the so-called reinvestment allowance claims under 7B. So recently, we have received the so-called decision on the reinvestment allowance. So at this very moment, we are still looking at the so-called calculations of the so-called reinvestment allowable allowance. And definitely, we'll provide the feedback as soon as we get better clarity in terms of the details of the allowable reinvestment allowance. So on one aspect, we are happy that the company can move forward with respect to our performance. And as reflected today, the third quarter performance or the current performance of Tenaga basically not affected by distribution that we have on the reinvestment allowance. Anything you want to add? Badrulhisyam bin Fauzi: I think that you covered everything already. That should be okay. It's a delicate subject. Megat Bin Megat Hassan: The contingent CapEx, 70% utilization is still on track. So if you look at the 3-year period, definitely, we are looking at a high percent of the so-called contingent CapEx. If you look at the scheme of things with respect to the base and contingent CapEx, it is only expected that Tenaga will use the so-called the base CapEx, first, comparatively to the contingent CapEx. Even notwithstanding that, we are going to -- we already utilized the contingent capacity in the first months of this year because in -- against the way the contingent CapEx such as it's based on the triggering of CapEx required for a certain category of demand. So if you ask me today, yes, I think we are very much confident that we can't utilize the CapEx. And one of the CapEx that has been being tasked for us to utilize is actually the contingent CapEx with respect to the smart meters installations. That's why you can see from the report just now, we have achieved more than we are targeted. But then again, that is probably for the year. But then again, that is not the actual target because the actual target now has moved from 360,000 to complete the whole smart meter installation by this period. So looking at that, definitely, the smart meter triggering has happened, and we have start utilized it even though in the first year of the utilization. And if you look from the history of Tenaga, we have always, in the last RP able to complete and deliver those CapEx. And we intend to do the same for this CapEx allocation that we have for this year as well as the next last 2 years. On the third question, data center underutilized demand should be a concern. I think from Tenaga Nasional perspective, we are actually aware from day 1 that data center demand is going to be a step demand, meaning that every month, there would be a demand increase. So it is not linear or something that you can expect from the form other of demand growth. So from Tenaga, we feel that looking at the demand growth, it is very much a step push on a monthly basis, and our retail team is monitoring that. And that's why in terms of the generation capacity, I think there are a lot of questions in the past, but can the generation capacity cater for it? I think that question arise because when you look at the demand projected being asked by the center, they always put the end demand in mind so that we can prepare in terms of the planning. For example, they will ask in the supply applications and that we won a 100-megawatt data center. But within those so-called projection, we actually discussed and have a good, I will say, a view with respect to the demand growth within that 100 megawatt, which is a step demand. So that's why we are -- in terms of the generation capacity, yes, we mentioned now the 7.1 gigawatt of capacity request. So if you add mathematically our generation and the demand that we have, it may be a concern to many, many people. But if you look at the growth, the 7.1 gigawatt is required by a certain year. It is not today. So that's why Tenaga is confident that we can meet the demand. That's why we actually process it, the demand, and that is our advice to the government as well. So looking at that growth, I think we are seeing a steady growth of data center, which is part of their planning because the way data center operate as well that they actually operate in a modular basis, meaning that they can install the so-called CPU or GPU in a modular form based on the so-called client requirement. So we -- if you ask me, we are positive on this, looking at the phase monthly demand growth, it is there. And it also provide us Tenaga Nasional as an infrastructure company. The time to build this so-called generation as well our transmission and distribution asset. So we cannot ask for more from the perspective of utility. A good demand with respect to the so-called scheme. And the scale is not too demanding on our infrastructure because we are given the time to actually plan and deliver it. So I think that is my summary with respect to data centers. And in the past, I think we have so-called invite the analysts to visit some of data centers. And we are also willing to do that if you feel that is necessary to get the assurance from the data center's players themselves because we are having a good communication with them and we know what they are up to in that sense. And they're also always giving us the so-called heads-up respect what they require in the coming months. Thank you. Unknown Executive: Thank you, Datuk. So I open the floor for the next question. Unknown Analyst: A couple of questions from me. Firstly, congrats on the extension of 3 power plants under the -- this RFP. Can you help us understand in terms of the implications for Genco's earnings, right, from this extension, would it help Genco's earnings to grow? Or would it only just help Genco's earnings to sustain at current levels? That's the question on the extension. And also with regards to the new generation capacity, can you help us understand whether there is a limit on the number of new plants that a bidder can win in this RFP? So that's question number one. Second question is with regards to your bad debt provision. So I think in this quarter, there was a receivable that was reclassified into a bad debt, around MYR 260 million. Can you give us a bit more color as to whether this is truly a bad debt? Or is it just a case of the receivable having aged and you having to provide for it and collections are still underway? And is there more potential to come from this debt or this receivable? Yes, those are my 2 questions. Sorry, I'm [ Fong ] from CIMB. Megat Bin Megat Hassan: Okay. Thank you very much for the questions -- 3 questions. I take the good one. The bad one, I will leave to the -- because of the bad debt. So I'll leave it -- anything bad debt, I will give to the CFO. So the first one is actually implication for Genco with respect to the extension. As you can see, the PPAs of the power plants, normally, there is a 2-tier pricing mechanism. There is a period where we earn based on the first tier tariff. And then the second tier, normally there is a second tariff. So with the extension, basically, that will have a reset meaning that we will move to the -- we will move back to the so-called first tier. So it provides us both the sustainability as well as the potential upside with respect to the revenue for Genco. So that's why we are quite excited. Of course, it is dependent on our performance, but there's a potential for us to go for the upside because it becomes a reset with respect to the recession. I think the second question, new generation capacity, is there any limit for the bidder can win? I think in the RFP document, I think it is a public document. That is a megawatt -- a range of megawatts specified for the new generation capacity. If I remember correctly, it is about 5,400 to 5,000 megawatts. So that is the capacity the country is looking at. So that's where the bids come about. So I don't think there is any limit for the bid, but the limit is more -- if we can say there's a limit, I don't think is a limit, it is what the industry requires, it's about 5,000 megawatt. So for Tenaga Nasional, we -- as an incumbent, we feel that we have a good chance. Thank you. Badrulhisyam bin Fauzi: On the second question, it's not bad, actually. Actually, this is -- I think it's really our more proactive approach to make sure that we comply with the provision in terms of what has to be impacted and all. But in this particular one, you are right, actually, it's more of accounting treatment, and this is actually an effort in the way that reflect it true nature. And no, we're not giving up. The collection is actually being underway. So is this just trying to make sure that we follow the accounting standard. But obviously, we are working with specific debtors to make sure that we continue to recover what is due to us. That's where you can see that to us, yes, this is specific instances. But more importantly, that's why you look at the collections receivable as well as the SEP that continue to be in there. So that's why the collections continue to be strong for us. Megat Bin Megat Hassan: Just to add, I think that is the prudent practice that TNB has been doing in the past as well. While we continue to collect and there are various means, including the last resort is, of course, collection through legal. But before that, there are 2 other steps that we are taking to ensure that we get the so-called collection that is due to us. So anything that we collect has now become an upside. That's how I see it. So it is probably a good debt provision rather than a bad debt provision. I'm not in [ content ], so I can't change anything. Unknown Executive: Thank you, Mr. Badrul and Datuk. Maybe we can have another question from the floor? Chee Chow: This is Isaac for Affin Hwang. This is a follow-up question actually on the former question. I mean it comes to the RFP category one, can we just have some more clarity on when having started and how long is the extension, whether it's optional plus 1, plus 1 or how does it work? And number two is that when it comes to the category 2 is your Paka Repowering project and maybe the Kapar power that and have you secured all the gas turbine and whatnot? Megat Bin Megat Hassan: Yes. So on the so-called RFP category 1, there are -- the extension for the 3 power plants, there are various date with respect to the start of the extension. What is important is that the extensions will come with the work that for us to ensure the continuity and reliability of the system, we will have to do the so-called rehab on the plant, meaning that we will do a good check with respect to the performance -- the current performance because it is already basically ending of the PPA. So we are going to start doing those planning to do those -- what are the required with respect to ensure that the power plant will continue for the next 5 years of the extension. But the COD will start around 2028 to 2029, and it is different from each power plant. And in the meantime, the power plant will operate based on the current PPAs. On the second repowering and Kapar secured gas turbine current status. For Paka one, yes, we have had a conversation with the manufacturers and in particular, 1 manufacturer. We believe we have secured the gas turbine for the project. Unknown Executive: Thank you, Datuk. Maybe we can have another question from the floor before we move to the Webex. Is there any question from the floor? All right. So now we will now proceed to take questions from the analysts who are joining us virtually. [Operator Instructions] So we have first question from Iwani Farzana from PNB. We have unmuted you. Kindly proceed your questions. I think we will proceed first to Rachael Tan from UBS. [Operator Instructions] Rachael Tan: Can you hear me? Unknown Executive: Yes, we can hear you. Rachael Tan: Okay. So I have 2 questions. So the first is on the news flow that you've lost in excess of MYR 5 billion from electricity debt. How does this impact earnings? And is this accounted for in the regulatory -- under the regulated business model? Second question is that your gearing ratio looks a bit low for a regulated business. Since RP4 documents are not out yet, could I check what the target gearing ratio is for the regulated business? And does this affect your returns? Or would you just get 2.7%, 2.8% regardless of the gearing level? Megat Bin Megat Hassan: Okay. Thank you very much, Rachael. On the first question, with respect to the so-called loss on the electricity debt. I think we have the figures being quoted for a number of years. So with respect to the so-called TNB perspective, of course, we have formed a task force with respect to theft of electricity, especially handling the Bitcoins segment that has caused the losses to be much bigger than comparatively. So the task force is working together with the regulator, Energy Commission and also the Ministry, how best we combat this so-called theft of electricity that is happening currently. And those figures that you have seen is actually part and parcel on the task force work that the figures that we have identified and some of those figures, we actually have recovered the losses. So there are 2 perspective, yes, figures identified. And the other one is actually that is part of the task force work that we have recovered some of those theft of electricity. So with respect to the whole industry perspective, the -- as far as the regulatory business, this is actually an industry loss because at the end of the day, the losses is calculated as part of the tariff calculation. So it is actually, if I may use the word, essentially being socialized to the whole industry. This is where we want to also to encourage the customers, the one that is not basically involved in this is actually affected because it is, from the industry point of view, it is being socialized. So in that sense, TNB will continue to be aggressive with respect to theft of electricity. But at the same time, we want also the public to help us actually report all these cases because the industry is actually at a loss rather than the TNB from the perspective for the company itself. So that is a theft of electricity. The second question, I leave it to our CFO. Badrulhisyam bin Fauzi: Thanks, Rachael. I am pleased when people say they think our gearing is relatively low because that's the way we should think about it because today, as for our gearing level, that's around 52.4%. And you will make references to the regulated industries guideline. So under the rate for our regulated business, the overall framework actually allows for 55% gearing ratio. So we believe that this is -- there is still some room for us to actually push the gearing ratio to make optimum use of our capital allocations. And like I said, yes, for a regulated business that's important. But of course, we are very aware that we've got to safeguard our credit rating profiles as well, which, as mentioned earlier, does not tie to specific gearing ratio, but rather the cash flow position of the company as a percentage of debt numbers. So we are focusing on this, and you will see, hopefully, we'll be able to optimize our capital allocation as well as gearing level for both regulated and unregulated so that we can optimize the return to the shareholders. Thank you. Unknown Executive: Thank you, Datuk and Mr. Badrul. So we have another question from Eliza Tay from Fidelity. So we have 3 questions here. The first question for new gas generation capacity to be announced in 2025, when will potential plan start up? And the second question is what was the power demand in megawatt from data center in 3Q 2025? And the third question will be what was the power demand in megawatt from data center in 3Q '25? Megat Bin Megat Hassan: Thank you, Eliza Tay, on the questions. The first one, for the new gas generation capacity to be announced end of 2025, when will potential plan a set up? So based on the request for proposal, there is time line given or date given for the COD. So it is going to be end by 2028. So as far as the industry and the regulator is concerned, this is where the expectation of the new generation capacity to be taken place, so which is about 4 years from now. So this is also in line with the so-called required construction time of a new power plant between 36 to 42 months. So that is the date as far as the new generation capacity is concerned. With respect to the power demand of data centers, yes, for -- we gave some numbers with respect to the demand to show that there is a growth. So in June '25, it was 603 megawatts. In September, end of the quarter, 701 megawatt. And I believe in October, it's already 850 megawatt. So that is the growth that we are seeing. So it is on a monthly basis. I think we approach the industry think in this is a small number. This is not an -- 100 megawatt is a big number. Our generation capacity, for example, one of the hydro generation capacity, Chenderoh, for example, is 50 megawatts. So it's a big number. It is not kilowatt. It is megawatt. It's big in numbers. And probably, if you ask me, I've been in the industry for many, many years. And we always see this kind of growth go in early '90s, where we do the so-called FDI that is coming in with respect to the manufacturing industry from the overseas market, making the Malaysia as the best investment hub. And this is actually big. It is not a kilowatt. We are seeing a growth of 100 megawatts a month. So I think probably that is where electrical engineers like me appreciate it, but I think it is a big number with respect to the infrastructure that is required. And of course, it is a big number with respect to the sales that we are projecting. Thank you. Unknown Executive: Thank you, Datuk. So we have another question from Sumedh Samant from JPMorgan. Can you hear us? Sumedh Samant: 3 questions. So firstly, just a housekeeping. I saw in the earnings, there was a gain on financial instruments, some MYR 233 million or something. Could you please explain to us what that was? And is that a recurring feature or nonrecurring? My second question is actually, on the financial notes, there was a mention that Tenaga received a letter on 26th November about approval of investment allowances. Can I check if it's for the future or if it's for the past? And perhaps the third question, again, going back to the whole provision, MYR 10.6 billion. Can we check what will be the steps that Tenaga will be taking going forward to potentially reverse this? Or do we think that this is all that we have to pay to the IRB anyway and there won't be any recoupment? Badrulhisyam bin Fauzi: Maybe I'll take the question on the provision. Yes. So I think, I mean, you all are aware that previously, obviously, we clipped the reinvestment allowance under 7A. And after the Federal Court decision, we reviewed our position, and we submitted a claim under 7B investment allowance. So we disclosed in our announcement that we received a letter from MOF on 26 November. That was for investment allowance. So it is for Schedule 7B and, of course, it's for future income. But the investment allowance for is actually from the perspective of the CapEx previously spent originally claimed. So that's on the approval. But I think most importantly as well, as far as the amount of MYR 10.6 billion previously disclosed in our quarterly results as far as the litigations are concerned, you would notice that in the recent announcement, we have also made a statement that we have withdrawn and concluded all the legal arrangement with the tax authorities for that matter. So all cases has been closed. So for accounting purposes, we actually disclosed as well in our [ PYA ] in Note 29 that as far as the position of the company is concerned, we have actually taken a [ PYA ] adjustment to the balance sheet to retrospectively to actually reflect the actual situation. So the tax cases was actually for prior years leading up to 2024. So it has been reflected as such in the prior year's adjustment to reflect the actual situation. As far as the approval letter, obviously, I think it's still fresh off the oven, and we are actually still assessing the actual impact of the approval together with our auditors. We should be able to hopefully share with you direct implication to our effective tax rate going forward, hopefully, but obviously, we are already in quarter 3 in December already for 2025. So I think as far as the guidance is concerned, for 2025, we probably continue to guide it at the current level. You will see that 9 months, we are at around 29%. Hopefully, however, obviously, going forward, we should be able to have more -- a better lower effective tax rate. So bear with us, it's coming through, but we have to take this properly step by step to make sure that we get the correct treatment. Unknown Executive: Thank you, Mr. Badrul. So we will be moving on to the Iwani Farzana from PNB. So the first question will be, can we check for Cat 2 project award? The announcement by year-end, will it be only for partial award to certain players or lump sum? And for the second question will be under tax. For ITA, how much actually was approved? Total amount of 50% as guided to foreign investors? And does this approval also guarantee future ITA claim under 7A will be approved? If yes, will be -- will the guidance of approximately 30% tax be revised downwards? Additionally, for the approved ITA 2003 until 2024, since it can be deducted from future taxable income, what will the strategy allow? Lump sum -- or if gradually, can you share over the span of how many quarters or years allow? And the last question will be any update if the contingent CapEx earnings can be recognized in RP4? Or will it be the same case as to what happened in RP3, which means it can only be recognized on P&L in RP5? Megat Bin Megat Hassan: Thank you very much, Iwani. I think the question on #1, whether the project what will be to certain players or lump sum. I think that is definitely beyond Tenaga Nasional. It is the decision by the Energy Commission. So I would not want to comment or speculate on those. Thank you. And for the second question, maybe for CFO, Badrul. Badrulhisyam bin Fauzi: Thank you, Iwani. I think just further on to deliberate from what I've mentioned just now. I think we can inform you that it's not the full amount, but it's a fair amount. And I wanted to be clear that I think, Iwani, have in her question that 50% guided to foreign investors that did not come from us. We did not guide anything -- any amount of that approval to anyone. You will understand that all we can say is it's a fair amount, and that's all we can disclose at the moment. And I think what's important is, like I said, we are still assessing the impact. So I will not be able to tell you how long and all. So please bear with us just this time. And I mean to put this into perspective, like the Datuk Magat said, this has been there for the last 20 years. We are finally resolving it. So just give us a bit more time to actually do it properly this time around. So I think that's really all that we can actually inform you at this point of time. Yes. And as mentioned earlier, this is already December. Tax rate for this year will be -- hopefully, we'll be able to manage it a little bit. But in the long term, yes, we do expect the tax rate to go down progressively. But as all of you also would understand that there are -- for big corporates like Tenaga, obviously, there are also nondeductible expenses on our balance sheet, including interest restrictions as well as changes in fair value and accretion of interest under MFRS 139. So to get to 24% simply like that will take a bit more work for us to get to that. But I think we can get that, yes, it will improve over time as we finalize the impact of the approval by MOF. And last question on RP4 contingent CapEx, Datuk? Megat Bin Megat Hassan: Yes. On the last question on the RP4 CapEx. Definitely, we want the contingent CapEx to be recognized on RP4 because it is a clear definition that there is a contingent CapEx. Base and contingent CapEx is clearly defined in the RP4. And I think, Iwani, I made reference to RP3. I think during RP3 period, I would like to say that the contingent CapEx come after, meaning that in the beginning of RP3, there is no definition of contingent CapEx. So that's why the CapEx after discussion with [indiscernible] comes about in the next RP. And I think that is the reason why when we negotiated RP4, we make sure that there is a structured way with respect to addressing the contingent CapEx. And I think we have gotten that structured way by defining both the base CapEx and the contingent CapEx with the so-called projects on both as well as the amount on both base and contingent CapEx. So in that sense, we want to basically make a better definition on the recovery of the CapEx, and we hope to do so in RP4. Thank you. Unknown Executive: Thank you, Datuk and Mr. Badrul. So we have another question coming from Daniel from Hong Leong. Daniel, can you hear us? Daniel, I think I have unmuted. Daniel Wong: Okay. I think my question has been already been answered. Just want to check if Tenaga already adjusted all the accounts prior years for these tax issues. Does that mean that Tenaga has to pay in advance the MYR 10.5 billion first to be able to claim the tax -- I mean, the ITA in the bridge for offset the future income? That's the first question. Second question. For capacity of Tenaga's generation about 13-gigawatt size generation capacity. So based on the reported earnings of Genco, about MYR 260 million, is it considered a normalized earnings? That means that full year could be roughly just a normalized MYR 400 million for this 13-gigawatt-sized capacity? Third question is, I noticed that you guided on the RE for Tenaga, you have another [ 70 gigawatt ] and how -- is -- can I get a breakdown of this [ 70 gigawatt ] of RE? That's all for me. Megat Bin Megat Hassan: The CFO will take the number one. Badrulhisyam bin Fauzi: Yes. Daniel, I think as mentioned earlier, I think let's be clear that for the last 20 years, we have claimed under 7A for reinvestment allowance for CapEx previously spent. So when the Federal Court rule for us to claim under 7B, we make the application under 7B for the same CapEx that was spent for the last 20 years. So we talk about the approval just now, yes. So that's why as far as actually the actual tax liabilities are concerned, we can confirm that as far as payment is concerned, yes. As part of the overall application for 7B application, we actually paid all the tax amount that has been assessed to us. So that's why now we've got the approval for investment approval for future income. Obviously, if you're talking about the cash flow, yes, we have paid. And that's why we have actually closed all the legal proceeding with the tax authority. So then, obviously, naturally, again, what is the impact going forward? That one, we are still assessing like I said. But I think it's important to recognize that the overhang in terms of what can happen to us in terms of exposures, in terms of whether it has been settled, that is, finally, we put a closure to it. So meaning there is no more exposure in terms of provision or hit to our P&L as far as the exposure is concerned. So exposure are close, and it reflects the retrospective adjustments to our balance sheet to reflect actually the fact that our retained earning was built up much higher than it was supposed to for the last 20 years. So that's why retrospectively, we adjusted to retain earnings to reflect actually over the last 20 years that would have been the actual earning during the years. That is also in line with the fact that we made the payment for all the tax exposures. So that was the closure to it. Megat Bin Megat Hassan: Thank you, CFO. So for the tax item, I think what Tenaga has done is actually to comply with the regulation with respect to the payment. I think everybody is aware how the regulation with respect to tax and the payment of tax for the country. And we are actually in compliance with that. On the second question, the Genco earnings projection. I think the figure that we have shown is at the end of third quarter figure of MYR 260 million. We hope that -- of course, the figure can change towards the end of the year. We hope it's going to be a better figure. And the third quarter -- sorry, the third question, RE capacity breakdown of 7.6 gigawatt hour in the pipeline. So we have a number of pipeline gigawatt in our stable. First, in the domestic front. As mentioned, part of the pipeline is the hydro floating solar. We have yet to start construction, but it is in our pipeline. So we are talking about 2,000 to 2,500 megawatts. We have also a pipeline with respect to our investment in the U.K. There are a number of potential bid or even securing the land and also the capacity in the U.K. And we have also the pipeline capacity in Australia. As everyone remember, we -- our investment in Australia, we buy a company that has a right to build RE generation over there. So a combination of Malaysia, Australia as well as U.K. provide those so-called RE pipeline for 7.5, , 7.6 gigawatts for Tenaga Nasional. So meaning that our business part and the foundation for us, taking into account the objective of Tenaga in terms of meeting the ESG commitment that we have for the company as well as for the country. Unknown Executive: Thank you, Datuk and Mr. Badrul. And we have a question from [ Xi Han ] from FX. Can you hear us? Unknown Analyst: From APAC Securities. Yes. So actually only 2 questions from me. So I'm going to bore you again with a tax question. So regarding the IA claims right, since we don't know how much is the amount now, but let's say, if -- I mean the amount not approved, right, by Ministry of Finance, will it be straightaway booked as a tax expense in fourth quarter? Or how does it work? So that's the first question. And second question is regarding the operating expense, right? So I just want to know if for the fourth quarter, whether the operating expense will be more or less stable from third quarter because I think there was precedents where the fourth quarter expense went up a lot, could be -- I think it was due to the insurance costs and maybe a bit of repair and maintenance costs. Yes, that's all for me. Badrulhisyam bin Fauzi: I guess I'll take this one, Datuk. I think, yes, that's why I think it's important to understand that as far as the tax are concerned now, the 7A, 7B, we actually took the position, and this is agreed with our auditor that we have to treat the 2 things separately. So it's important to note that as far as the previous exposures are concerned, irrespective of whether the approval comes or not, those are already put to closure in terms of the right accounting treatment for it. In which case, was that we have incorrectly filed our tax return for the last 20 years. So we have corrected that one through prior year adjustment of MYR 10.6 billion to our retained earnings. So that is to making sure that as far as exposures and liabilities arising from the previous treatment is already put to close. And this is consistent with the fact that we have already paid the tax assessment as well. So meaning it's settled in terms of that. There is no more future exposures or anything. So it's done for that part. So the approval letter that we got from MOF is actually, yes, in respect of the CapEx that we have spent in the past, but it's being approved for us to utilize it as investment allowance. So going forward, when we have our income, we would be able to utilize this allowance to actually improve our effective tax rate going forward. So there is no question about the amount is not approved or anything like this because it is already approved for previous CapEx that we have spent under the form of investment allowance. So now going forward, it will be -- this is what we are assessing in terms of how do we treat the recognition of the investment allowance that was approved by MOF against our future income. So basically, to put it simply, downside has all been settled. Now it's only upside that we are still assessing the impact for Tenaga. So for the second question on OpEx. Most of you have covered Tenaga very long time. So you would know that usually, yes, there is a slight uptick in our quarter 4 OpEx. Lee Lai is already nodding her head, so because she has seen that so many times over the many years. So -- but of course, I think we want to make sure that seasonality is adjusted over time, but at the same time, we wanted to reflect the actual operation as well as nature of the expenditure on the ground. But by nature, however, the fact that all of us human operate on yearly cycles, obviously, quarter 4, we want to make sure that everything is the Is are dotted and the Ts are crossed all our expenditure. Naturally, you should expect slightly higher but nothing unusual. It's just the normal cycle of the reporting of the company. Megat Bin Megat Hassan: Yes. On question #2, sometimes we also probably have to look from the other lens and that normally in the quarter 4, many things get done because this is where the so-called the KPIs for the company, yes. So you're actually going to see both. The delivery becomes heightened in Q4. And of course, we may require OpEx to be part of the delivery. And it should be also work in tandem. I think that's what we are trying to do. Yes, there could be an increase in the so-called operating expenses, but we have to make sure that it is also coupled with the better delivery in quarter 4. And normally, that's what happens because the cycle of -- yearly cycle of KPIs take effect towards the end of the year. Unknown Executive: Thank you, Datuk and Mr. Badrul. Due to the time constraints, I think we can have one last question from the floor. Since there is no question from the floor, ladies and gentlemen, at the moment, I believe we have addressed all the questions from the analysts. That is all the time that we have for the Q&A. I would like to thank you for your questions. Now I will pass to Datuk Ir. Megat Jalaluddin Bin Megat Hassan, President and CEO of TNB for his closing remarks. Megat Bin Megat Hassan: Thank you very much, Azim, ladies and gentlemen, in this room as well as in -- over the online. Thank you very much for the questions. As always, please reach out to our Investor Relations team for any further questions. We hope that we have provided a good answer moving forward for the company. To summarize today's session, the group third quarter performance continue to reflect the stability of our regulated business and the steady momentum from the commercial sector demand, particularly data centers, business services as well as our retail customers. We are also seeing a strong progress across our strategic initiative right to the ASEAN Power Grid Corporation. I think all of you will hear more, especially on the APG next year as we move into the execution mode to strengthen national position as the regional clean energy hub. As we charge forward under the national energy transition road map, we see significant opportunities in RE energy generation, grid modernization and customer-driven energy solution. We remain focused on capturing these opportunities responsibly while supporting national pathway towards net zero 2050. So in conclusion, we reaffirm our commitment to driving sustainable growth and are seeing great readiness and shaping long-term energy transition. With your continued trust and support, we remain confident in our ability to build a stronger, greener and resilient energy future for the nation. Rewarding our shareholders remain a top priority, and we truly value your continued confidence in us. Once again, thank you very much and have a pleasant day ahead. [Foreign Language] Unknown Executive: Thank you, Datuk Magat. Ladies and gentlemen, we have come to the end of our session. On behalf of Tenaga Nasional Berhad, we thank you for your participation in today's briefing. For any questions that remain unanswered, rest assured that we will promptly address them following this event. If you require further clarification or inquiries, feel free to contact our Investor Relations officers or e-mail us at tenaga_ird@tnb.com.my. To all our attendees whether your present physically or virtually, we appreciate your time and engagement. As you leave the hall, we warmly invite all analysts to help themselves to a light refreshment available at the back. Thank you once again, and we look forward to seeing you in future sessions. Take care and have a wonderful day.
Unknown Executive: Ladies and gentlemen, [Foreign Language] National Energy Centre. Welcome to University Tenaga Nasional. You are now in Dawan Silara, National Energy Centre, NEC, UNITEN. Please follow these instructions in the event of emergency. Please remain calm and stand by for further instructions to evacuate. In the event of an emergency, the alarm will be activated and ring continuously. Please make sure you make your way calmly to the closest emergency exits. Please exit the building immediately and in an orderly manner. Please proceed to the designated assembly area. Please remain at the assembly area until you receive further instructions. Please seek assistance from personnel on duty in cases of other emergencies. Your cooperation is highly appreciated. May this ceremony run smoothly and successfully. Thank you. Good morning, everyone. Thank you for joining our third quarter FY 2025 Analyst Briefing. A very warm welcome to Yang Berbahagia Datuk Ir. Megat Jalaluddin Bin Megat Hassan, President and Chief Executive Officer of Tenaga Nasional Berhad; and Chief Financial Officer, Mr. Badrulhisyam bin Fauzi. I also extend a very warm welcome to each and every one of you joining us today in this hub. We also have 70 attendees joining virtually via Webex. Today's session will be covered in 2 parts. Our President and CEO, Datuk Megat, will first provide an overview of the TNB's group strategy and outlook, followed by our Chief Financial Officer, Mr. Badrul, who will share the TNB's third quarter FY 2025 performance. We will then open for Q&A before we end the session at 11 a.m. With that, I am pleased to invite Datuk Ir. Megat Jalaluddin Bin Megat Hassan to kick off our session. Thank you. Megat Bin Megat Hassan: [Foreign Language] A very good morning, [Foreign Language] First and foremost, thank you very much for being here to be in the session so where we share our third quarter performance. And I would like to welcome everyone to this new, I would say, development by Tenaga Nasional, which is the National Energy Centre, which is part of our unit purpose in which we would like to support the government agenda with respect to the energy transition. So this is where we hope that we can position Tenaga further with respect to the energy transition for the country as well as for the region. So I'm pleased to share some of our performance highlights for the first 9 months of financial year 2025. The group delivered a strong financial performance, underpinned by the continued stability of our regulated business. We recorded a core profit adjusted for ForEx transaction and MFRS 16 of MYR 3.26 billion compared to MYR 2.87 billion in the corresponding 9 months last year. So this is a reflection of our underlying strength of our core business. So what we have seen to date is stronger performance across all the 4 business pillars that we have. It's driven by all the improvements across those 4 business pillars. The first, under the Deliver Clean Generation, Genco overall performance improved with higher core PAT of MYR 238.9 million compared to MYR 175.8 million in the previous year. This is supported by a strong operational efficiencies as reflected by an improved equivalent capability factor or known as EAF of 86.9%. And as everybody could remember, Manjung 4 is fully operational since the beginning of the year. Second, under the developing energy transition network plan, we deployed MYR 38.3 billion of regulated CapEx, comprises of MYR 7.6 billion in base CapEx and additional MYR 0.7 billion in contingent CapEx. This intensified investment demonstrates steady progress in delivering our RP4 commitment, especially in grid investment to ensure reliability of the supply and to deliver those projects that related to the demand growth for the country. So under dynamic energy solution, happy to share that we are making good progress with respect to the electrification of transport in the EV space, where we see, to date, we have 5,000 -- more than 5,000 EV touch point in the ecosystem, contributing to about MYR 5 million in revenue. Within this ecosystem, Tenaga Nasional, through our Electron brands, installed new 94 TNB charge point during the quarter, bringing the total to 160 TNB charge point in our EV network. This is to reinforcing our commitment to support the country growing EV infrastructure. So this is where we see a good momentum and progress with respect to the electrification of transport, especially to the master transport. In this case, the cars instead of the heavy vehicle. And lastly, under our driving regulatory version, the transition from the ICPT to AFA mechanism effective 1st July 2025, amongst significant structural improvement, the AFA mechanism enabled immediate cost recovery compared to the previous [ segment legs ] in the previous [ SCPT ] regime. This helps improve TNB cash flow at least by 2% and definitely enhanced our planning with respect to the working capital. So overall, these results reflect our resilience, operationalized discipline and continued progress in advancing the energy transition while delivering sustainable value to all the stakeholders. Moving on to our generation growth outlook. Momentum remains strong, supported by government national capacity plan. Recently, we received a letter of notification for technical and commercial term covering a total capacity expansion of 1,262 megawatts across 3 power stations that are owned by Tenaga Nasional, namely Gelugor, Putrajaya and Tuanku Ja'afar. This -- if [indiscernible] is part of the so-called RFP that's being put forward by the government under Category 1, where the government request for proposal with respect to the extension of the power plant. So we are glad that we have gotten the results, and this extension strengthen system liability and ensure that we remain well positioned to support the Malaysian growing demand as well as to ensure that the capacity and the revenue that is coming from this concession will continue -- will continue to be part of TNB revenue in the future. On the second category, the new generation capacity request for proposal, we are awaiting the regulatory decision, which focus on the new gen set capacity, and TNB, of course, participate in the RFP. And we hope that we can get the outcome results before the end of the year. So in short, this national capacity plans, both extension as well as the new generation capacity, provide a strong visibility and reinforce favorable outlook for TNB generation growth in the pipeline for the future. At the same time, let me update some of the progress that we are making with respect to the project that we are undertaking at the moment. On the domestic front, the project execution across our clean generation portfolio continues to progress well and firmly on track. The first one is the Nenggiri hydro project. We have now reached 53% completion, and we remain on track to meet the COD target by the mid-second quarter of 2027. Happy to share that major civil works, including roller competitor concrete, RCC for the saddle dam already underway. The second project that we are currently undertaking is the Sungai Perak Hydro Life Extension Programme has achieved 23% overall progress. Data collection for all the units has been completed, and this is a rehab project. And the project is on track to deliver the first unit at Chenderoh position by the first quarter 2026. At Kenyir, the plan for the hybrid hydro floating solar project has reached 70% predevelopment progress, and the commercial evolution is currently in the final stage. So this is another opportunity for Tenaga to provide the clean generation to the customers directly through the CRESS program. On the land solar projects that we are undertaking under the Corporate Green Power Programme, or known as CGPP, all 3 sites continue to progress well with more than 85% completion and remain on track to achieve COD. The second project, the -- for the land solar is the awarded large-scale solar 5 tender is progressing towards achieving financial close by early 2026. At the same time, we're also taking a project into Sabah together with SESB, which is our majority owned subsidiary. And it's also to expect -- we also expect to have the project closed by the end of this year 2025. And lastly, the Battery Energy Storage System at Laha Datu Sabah, in which our subsidiary, RE, are taking together with SESB, has successfully achieved COD in August 2025, and it is in full operation test now. And it is -- it did have the so-called -- provide the energy to the eastern part of Sabah. Overall, we have 1.2 gig currently under construction, reinforcing our clean generation growth platform that we currently have. On the international front, the third quarter update progress in the United Kingdom. We have achieved our international RE portfolio recorded important milestones this quarter. In the United Kingdom, our greenfield solar project, both Eastfield at 35-megawatt peak and Bunkers Hill, about 67-megawatt peak, have achieved COD in July 2025, contributing a combined of 102-megawatt peak of new solar capacity to our portfolio and has started generating revenue for us. Over in Australia, momentum is actually encouraging. As part of the 1 gigawatt Dinawan Energy Hub, the 357-megawatt Dinawan wind farm Stage 1 has successfully secured support under the capacity investment scheme in Australia. This provides a long-term revenue assurance for the project and enhance overall cash stability for the future. The second project that we are undertaking in solar, it is named Wattle Creek solar project, totaling 265 megawatts of solar capacity and 300 megawatt of battery storage. We have executed the connection process agreement with the Transgrid, which is the transmission operator in Australia. This allows us to move forward with detailed grid impact studies of the connection and the best possible discussion with respect to COD. In parallel, procurement for the stand-alone BESS is also ongoing. Meanwhile, for the Mallee wind farm project, 400-megawatt Mallee wind farm, we are progressing connection planning outside that is netted RE zone and have secured the required land easement for the transmission connection, a key enabler for the next development phase. As you can see that the Australian project with respect to the regulatory requirement, one of the key element is actually to get access to the connectivity to the grid. So many of our projects are now at that so-called predevelopment stage securing the grid assets. And we believe that we are making good progress with respect to those in conjunction with cooperation with the local transmission operator. So with this addition, our group secured RE energy capacity now stands at 13.4 gigawatt, of which 4.6 gigawatt is already in operation, while 1.2 gigawatt is under construction, as I summarize the above, and 3.6 gigawatt in the pipeline stage. This continued growth reinforce the position as a meaningful regional RE player while providing diversified income stream over the long term. Next, we move to investment into the grid. And our second strategic pillar, develop energy transition network. We are on track to deliver our regulatory targets, having successfully utilize MYR 8.3 billion of regulated transmission and distribution CapEx. So we invest MYR 3.8 billion to maintain security supply, MYR 3.8 billion to support demand growth, and MYR 0.7 billion CapEx for energy transition projects, enhancing the grid readiness for higher RE penetration and greater [indiscernible] generation embedded to make it a smart grid. Progress of key project. Firstly, the water demand growth, especially data center connection. We have invested around MYR 1 billion while we are also developing the 400 kV overhead land between [indiscernible] and [ Lunga ] project at approximately MYR 0.3 billion to strengthen the backbone of the national grid. Our 100-megawatt -- 400-megawatt hour Battery Energy Storage System pilot project at Santong continues to progress, reaching 56% of overall completion. So we remain on track to achieve the targeted completion by December 2026. Meanwhile, at the distribution space for smart meter, we have over delivered our -- for the year 2025 full year 360,000 unit target with around more than 500,000 units installed at the end of the third quarter 2025, bringing the total 5.1 million units into the system, which is about 45% of our customers. This is also reflecting our strong momentum in empowering the customer energy management, including the new tariff offering of ToU. So this is one of the, I would say, the intended outcome of the smart meter, providing the customer with the energy management system and supported by the tariff structure of ToU. For distribution of the material, which is important for our supply reliability, we have installed the system in 2,490 substation at the end of third quarter 2025. And as of October 2025, we have achieved 75% of our 2025 target of 4,026 substations. So the projects under the CapEx, both for transmission and distribution are well on track. While our domestic investments ensure the grid is ready for rising demand as well as RE penetration, the net emission of our strategy is regional integration. Under the ASEAN Power Grid, we are actively developing interconnections that will position measure as a key hub for clean electricity exchange across the region. Currently, we have about 1.4 gigawatt of existing interconnection capacity with Singapore and Thailand. Looking ahead, we have 5 potential pipelines, interconnection projects, enabling the transmission of our 6 gigawatt of combined RE energy, including hydro, solar as well as wind with Vietnam, Singapore, Thailand, Sabah and Indonesia. This project will serve as enablers for the original energy transition and position Malaysia a central hub for cleaner energy flows. On the business plan, we believe this is the foray of Tenaga to have part of the so-called regional market in our revenue. And hopefully, we can expand the third pillar in combination of the domestic and international business. Now we have the opportunity to include the regional business as part of the mainstream of Tenaga revenue. Moving to our third strategic pillar, Dynamic Energy Solution. We see that electricity demand has continued to grow. For the third quarter 2025, the total units sold reached more than 99,000 gigawatt hour, reflecting sustained demand momentum. This growth was largely underpinned by the commercial sector, which account 70% of the total units sold. For the commercial demand, we see that the growth year-on-year is about 7.7%, led by 3 subsectors: Data centers, of course, contributing 5.2%; followed by the malls business and accommodation services at 2.2%; and the rest of the commercial sector adding another 0.3%. So we see a strong growth with respect to the commercial sector as well as our domestic sector. In terms of the sale contributions, mall business and accommodation services made up 80%, other subsectors contribute 60% while data centers account for 30% of the total units sold in 2025. So what does it mean is that, yes, we can see that data center is growing. But in the overall scheme of the subset so-called unit, now it contribute about 3%. We still have the majority of the commercial from the mall and business and accommodation services, adding up by the education and also the communication sector. So we are happy that, overall, we have a good subsectors growth, not only in data centers, but the other remaining business in the commercial sector. For data center itself, we continue to anchor the structural demand growth. As for the end of the third quarter, we have 29 projects in the system with a total maximum demand of 3.8 megawatts. Looking ahead, our secure pipeline now stands at 49 projects, representing 7.1 gigawatt total maximum demand in the system, underscoring the share role as the digital investment hub. Alongside this robust demand growth, we're also seeing positive momentum across our customer-focused energy transition initiative. Under the EV ecosystem, we continue to advance our EV charging rollout with 160 cumulative charge point installed, including 94 in the third quarter 2025. So we remain on track to exit our TNB own targets of 250 charge point installed by the year-end of 2025, supporting the government EV road map and of course, expanding the charging facilities nationwide. Year-to-date, our EV charging ecosystem has generated about MYR 5 million in revenue, of which MYR 1.7 million has come from our own TNB charge point. This reflects steady adoption of our charging solutions and validates the growing demand for EV infrastructure. For the EV charging development, we have introduced the Green Lane supply initiative. And for this initiative, we have completed around 7 megawatt of connections with a target to achieve around 8 megawatt connection within this year. Interest continued to grow strongly. We currently have 448 applications in pre-consultation, representing 130 megawatt of potential new connection as we move forward. Moving on to the solar rooftop through the Spark. Uptake remains steady since [ inception ] in [ 2029 ]. We have secured more than 3,000 projects representing 538 megawatt peak of secure capacity. As of September 2025, we have installed a total of almost 200-megawatt peak, generating approximately MYR 80 million in revenue for the first 9 months of this year. We are seeing a strong participation from key segments -- key customer segments such as manufacturing, government as well as from the construction center. On energy efficiency, myTNB app currently adopted by 8 million of our customer base, which represents 80% of the current 10 million customers that we're having. Over 2.5 million users have now subscribed to myTNB Energy Budget feature, helping save 100-gigawatt hour of energy. And at the same time, if we calculate in terms of the carbon emission, we perhaps avoid more than 75,000 tonnes of carbon emission as of September 2025. Additionally, as I mentioned, the update for the time of the scheme has been very encouraging with about 52,000 customers now optimizing their consumption pattern to better manage the electricity costs. This initiative reflects our progress in driving customer participation in the energy transition and unlocking growth from the consumer segment of our customers. So that is the overall 4 pillars performance as of the third quarter. Now I will pass to our CFO, Encik Badrul, to provide a little update on the third quarter financial performance, please. Badrulhisyam bin Fauzi: Thank you, Datuk, and good morning, everyone. Good to see all of you here in Unit 1 today. And since the results last Friday, seems like you guys have been doing a lot of work over the weekend. So good to see you here. So I'm pleased to report that for our 9 months performance, you've seen that we have a stronger financial performance, which mainly still driven by regulatory business. And obviously, you will see as well a result of more effective capital management. So for the first 9 months of 2025, our revenue, EBITDA, PAT across the board have showed positive year-on-year growth. So as of 9 months 2025, our revenue actually increased by 18.3% compared to previous year. And you'll notice that this is mainly driven by higher electricity sales. It's important to note that implementation of cost reflective of before-approved tariffs continue to support revenue as well as affirming that we will continue to support the stability of our regulated business. On the EBITDA side, you see improvement as well, supported by higher revenue, recording an increase of 4.8% year-on-year, increasing to MYR 15,088.2 million. EBITDA margin, as well, you'll notice that strengthened to 31.2%, showing improved efficiency across the group. So I think this is important to note that as we monitor the EBITDA margin, this shows continued progress of the company, where a lot of cost management has been put in place to ensure our stable operation, continue to deliver the regulated profit. So at PAT level, you will notice that our profit grew mainly because of the improvement in the operational performance of the company. So you'll notice that we are now focusing on core profit after adjusting for ForEx translation MFRS 16, which is a much better reflection of the performance of the company. So that figures now is at MYR 3.259 billion, which is an increase of 13.7% year-on-year compared to the same period last year of MYR 2,867.4 million. So I think based on that number, we would like to conclude that as far as the overall performance is concerned, lower net finance costs as well as ForEx movement actually provided an additional uplift to the performance of the company. But most importantly, cooperations remain the main driver of the performance of the company. So for FY 2025, we believe that the group remains on track, supported by resilient operations as well as prudent financial management. This is -- we'll make sure that we continue a sustainable performance for the full year this year. You will notice as well that as far as the group earnings are concerned, we have actually supported by 2 important pillars that continue to support our operation, importantly, improved generation performance as well as sustained world-class network performance. So this is important. As you noticed that the network reliability across transmission and distribution continue to deliver our earnings. So as far as generation is concerned, the higher equivalent availability factor of 86.9% in 9 months this year is much higher compared to 80% that we achieved same period last year. So the improvement actually reflects stronger overall plant performance and the fact that our maintenance and repair all are delivering the expected performance from the plan. So this is something that a lot of focus is being put across, and we continue to maintain this high availability as well as operational excellence across our plan for this year and many more years to come. For system minutes for transmission, 9 months is actually -- 9 months this year is actually at 0.0695 minutes, which is as reported quarter in and out every quarter, well below our internal threshold of 1.5 minutes. This is important because as you noticed, a core part of our revenue and profit come from this. And this continues to underscore our commitment to make sure that our regulated business continued to perform and deliver the baseline revenue and profit. This will only make sure that we have a highly reliable and stable earnings as a result of stable transmission network. So for SAIDI distribution minutes, you notice that the numbers for this year improved to 34.99 minutes compared to 35.72 minutes in 9 months 2024. So I think this is, again, every quarter, we would like to emphasize this because this is an assurance to all of you that stability of our regulated business ensures that we've got better services to our consumers and continue to deliver the earnings of the group. So if we move to a bit more financial metrics that we are collecting, you will notice that we have a stable collection trend, and regulatory certainty continue to underpin our very resilient cash flow. So if you look at our trade receivables and collection, trade receivables remained stable. It has been around MYR 4.4 billion to MYR 4.7 billion year-to-date and continue to be stable. This actually also a reflection of stable collection trend with average collection period, which continue to be below 70 days. So this has been at around 27, 28 days. So very healthy numbers despite the jump on the revenue, which has grown significantly by 18%. So you will notice as well as far as the AFA mechanism, which has gone into effect as of 1st July 2025, this actually enabled us to recover immediately all our generation cost because it is based on forward-looking forecast every month. So this has also helped us in the sense that coal price has now stabilized at around USD 90 per tonne this year compared to much higher USD 121 per tonne as of September last year. So we believe that the fact that fuel prices are stabilizing, we have a strong collection trend, and it is being helped further by the newly implemented AFA mechanism, which will only continue to strengthen our working capital as well as provide us a much healthier cash flow position. So in short, I think this is what you're going to see. We have put a lot more focus in our capital management, which is actually giving us the right result on the pretax of stabilizing fuel prices strong collection. And this will continue to make sure that we have the liquidity and the strength to make sure that we have the financial resilience for us to continue investing. So this trend that you're seeing today actually will show that we have a strong foundation, enabling us to weather the market condition and most importantly, enable us to continue our long-term investment plan to make sure that we deliver the energy transition agenda. So if we go into more detail as far as the outcome during the quarter, you will have heard that we've got 2 reports came out from both S&P and Moody's. So both international rating agencies actually have reaffirmed their ratings of the company with stable outlook. This is something that is very important, like I said, because you have noticed that we have been investing a lot this year, and we will continue to invest in '26 and '27 as well. So S&P Global Rating maintained the rating of A-, and Moody's continue the rating of A3. But I think most importantly, probably this one, some of us, since most of you are equity analysts, you probably don't dive into the detail as far as the credit rating is concerned, but I think we would like to highlight that for S&P Global Ratings, as a matter of fact, yes, we continue to be rated A-, but they have a component where they have a stand-alone credit rating profile of Tenaga as well. So that rating before this was BBB. So now that has been upgraded to BBB+. So before this is standalone BBB, but we've got 2 notch rating upgrade to A- to reflect the sovereign rating. But now, on our own, we have already been upgraded to BBB+. So we are only upgraded 1 notch, reflecting the sovereign nature of the country. So this is affirmation that as far as S&P Global Ratings is concerned, we believe that our cash flow is going to be a lot more resilient going forward, supported by 2 things. The first one is the AFA mechanism because this will actually stabilize our cash flow and receivable with immediate recovery of generation costs, and they have been tracking our performance in terms of the lease liability, especially the PPAs, and now they are comforted that the overall regulation formulation for PPA enabled us to recover all the costs under the power purchase agreement with the IPPs. So with those 2 adjustments to the cash flow forecast of the company, they believe that the cash flow strength of the company will be only be better going forward. Moody's rating, they continue to reaffirm the A3 rating. Obviously, the normal assessment covers the fact that we have a very supportive regulatory regime and tariff reform that has been implemented by government that enhances the revenue visibility and cash flow efficiency. So obviously, when we talk about the credit rating, usually, we'll take it as a blended more indicative ratio of gearing ratios. But I think it's important to note that as far as both Moody's and S&P are concerned, they are actually monitoring a different cash flow profile. So just to give you some perspective, S&P, in particular, they monitor funds from operation as a level of debt. And Moody's, they monitor retained cash flow as a percentage of debt. So yes, I know a lot of you guys are monitoring our overall gearing ratio in particular. But for credit rating purposes, they actually dive into more detail to make sure that the cash flows are supported by operational cash flow coming forward, especially in an environment where you continue to invest. So I think what we are putting across today is the fact that we believe that, in summary, this recent upgrade reaffirmation continue to underscore the strength of our credit profile as well as our long-term financial outlook. So we always would like to point that as far as S&P, in particular, this reflects increasing confidence in the robustness of our fundamentals as well as the fact that we have a stronger cash flow stability and visibility with minimal risk. Altogether, this development reinforces our financial resilience and validate our disciplined approach to financial planning in managing our balance sheet so that we continue to enable our long-term business plan. So I think we are very clear, as far as we are concerned, yes, we are pushing for growth, and we will continue to support Tenaga's energy transition and creating continuous value for our stakeholders. With that, I'll pass back to Datuk Megat to cover the outlook for the year. Megat Bin Megat Hassan: Thank you very much, CFO, on the financial performance update. So looking forward, the forward guidance, especially for the next quarter. We anticipate the electricity growth to grow in line with the IBR projection of 2.8% for the year. This reflects the overall growing economy, particularly from the commercial sector. In terms of our group CapEx, which we probably have more say in it compared to the so-called demand, we plan to invest a total of around MYR 15 billion this year with the estimated or projected MYR 12 billion allocated to the regulated business and another MYR 3 billion on the nonregulated business. So our investment remain aligned with the national priorities, centering the grid, supporting demand growth, [indiscernible] Malaysia energy transition as well as to ensure that the capacity of generation is good for the country. By year end, we expect to strengthen our RE portfolio with an additional of 212-megawatt peak of capacity, taking into account the commissioning of our 102-megawatt peak U.K. solar assets. And they are coming COD of our CGPP projects of 110-megawatt peak. On the capital management, as mentioned, we remained fully committed to executing our CapEx efficiently while maintaining a healthy cash position supported by a prudent working capital management. To our shareholders, we reaffirm our commitment to honor our dividend policy and strive to provide sustainable dividend in the future. Ultimately, our focus is on ensuring long-term sustainable growth, advance Malaysia energy transition agenda under NETR, and this is reflecting -- reflected through our future investment that we are committed to deliver. So we will continue to position TNB as a leading provider of sustainable and reliable energy solution, creating value for our customers, commodities, shareholders as well as the nation. So with that, thank you very much for the listening. Unknown Executive: Thank you, Datuk Megat and Mr. Badrul, for your presentations. I would like to inform that we have 90 people joining us on Webex. And let us now transition to the Q&A session. We will begin by taking questions from the attendees here in the room, followed by those joining us on Webex. With that, I open the floor for questions. Please feel free to raise your hand, and our staff will pass the microphone to you, and you may proceed to ask your questions. Kindly introduce yourself and share your questions. Thank you. Dharmini Thuraisingam: I have 3 questions. My first -- this is Dharmini from CGS. My first question is clearly on the taxes. There was the announcement in the Bursa saying that you have been allowed investment allowances. Can we get a bit more clarity as to how much of the MYR 10.5 billion can be clawed back over how many years? And how does that impact your effective tax rate moving forward? The second question is, can we get an update on contingent CapEx? We are now 1 year into RP4. What's visibility like? Are we still looking at 70% utilization for RP4? And has there been any resolution on the remuneration mechanism for contingent CapEx? And just a final question on data centers. I think the Deputy Minister highlighted there are some concerns on take-up. How should we as analysts as well as investors be reading this? Should we be concerned firstly from a Tenaga's perspective? And secondly, generally in terms of data center demand in Malaysia? Megat Bin Megat Hassan: Okay. Thank you very much for the 3 loaded questions to begin with. So on the tax allowance, everyone understand, this is a tax matter that has been in the system for many years. That is a question of the reinvestment allowance. So for Tenaga perspective, we are glad that the Federal Court has made a decision with respect to the clarity on the investment allowance bucket. And as guided by the Federal Court decision, we have submitted the so-called reinvestment allowance claims under 7B. So recently, we have received the so-called decision on the reinvestment allowance. So at this very moment, we are still looking at the so-called calculations of the so-called reinvestment allowable allowance. And definitely, we'll provide the feedback as soon as we get better clarity in terms of the details of the allowable reinvestment allowance. So on one aspect, we are happy that the company can move forward with respect to our performance. And as reflected today, the third quarter performance or the current performance of Tenaga basically not affected by distribution that we have on the reinvestment allowance. Anything you want to add? Badrulhisyam bin Fauzi: I think that you covered everything already. That should be okay. It's a delicate subject. Megat Bin Megat Hassan: The contingent CapEx, 70% utilization is still on track. So if you look at the 3-year period, definitely, we are looking at a high percent of the so-called contingent CapEx. If you look at the scheme of things with respect to the base and contingent CapEx, it is only expected that Tenaga will use the so-called the base CapEx, first, comparatively to the contingent CapEx. Even notwithstanding that, we are going to -- we already utilized the contingent capacity in the first months of this year because in -- against the way the contingent CapEx such as it's based on the triggering of CapEx required for a certain category of demand. So if you ask me today, yes, I think we are very much confident that we can't utilize the CapEx. And one of the CapEx that has been being tasked for us to utilize is actually the contingent CapEx with respect to the smart meters installations. That's why you can see from the report just now, we have achieved more than we are targeted. But then again, that is probably for the year. But then again, that is not the actual target because the actual target now has moved from 360,000 to complete the whole smart meter installation by this period. So looking at that, definitely, the smart meter triggering has happened, and we have start utilized it even though in the first year of the utilization. And if you look from the history of Tenaga, we have always, in the last RP able to complete and deliver those CapEx. And we intend to do the same for this CapEx allocation that we have for this year as well as the next last 2 years. On the third question, data center underutilized demand should be a concern. I think from Tenaga Nasional perspective, we are actually aware from day 1 that data center demand is going to be a step demand, meaning that every month, there would be a demand increase. So it is not linear or something that you can expect from the form other of demand growth. So from Tenaga, we feel that looking at the demand growth, it is very much a step push on a monthly basis, and our retail team is monitoring that. And that's why in terms of the generation capacity, I think there are a lot of questions in the past, but can the generation capacity cater for it? I think that question arise because when you look at the demand projected being asked by the center, they always put the end demand in mind so that we can prepare in terms of the planning. For example, they will ask in the supply applications and that we won a 100-megawatt data center. But within those so-called projection, we actually discussed and have a good, I will say, a view with respect to the demand growth within that 100 megawatt, which is a step demand. So that's why we are -- in terms of the generation capacity, yes, we mentioned now the 7.1 gigawatt of capacity request. So if you add mathematically our generation and the demand that we have, it may be a concern to many, many people. But if you look at the growth, the 7.1 gigawatt is required by a certain year. It is not today. So that's why Tenaga is confident that we can meet the demand. That's why we actually process it, the demand, and that is our advice to the government as well. So looking at that growth, I think we are seeing a steady growth of data center, which is part of their planning because the way data center operate as well that they actually operate in a modular basis, meaning that they can install the so-called CPU or GPU in a modular form based on the so-called client requirement. So we -- if you ask me, we are positive on this, looking at the phase monthly demand growth, it is there. And it also provide us Tenaga Nasional as an infrastructure company. The time to build this so-called generation as well our transmission and distribution asset. So we cannot ask for more from the perspective of utility. A good demand with respect to the so-called scheme. And the scale is not too demanding on our infrastructure because we are given the time to actually plan and deliver it. So I think that is my summary with respect to data centers. And in the past, I think we have so-called invite the analysts to visit some of data centers. And we are also willing to do that if you feel that is necessary to get the assurance from the data center's players themselves because we are having a good communication with them and we know what they are up to in that sense. And they're also always giving us the so-called heads-up respect what they require in the coming months. Thank you. Unknown Executive: Thank you, Datuk. So I open the floor for the next question. Unknown Analyst: A couple of questions from me. Firstly, congrats on the extension of 3 power plants under the -- this RFP. Can you help us understand in terms of the implications for Genco's earnings, right, from this extension, would it help Genco's earnings to grow? Or would it only just help Genco's earnings to sustain at current levels? That's the question on the extension. And also with regards to the new generation capacity, can you help us understand whether there is a limit on the number of new plants that a bidder can win in this RFP? So that's question number one. Second question is with regards to your bad debt provision. So I think in this quarter, there was a receivable that was reclassified into a bad debt, around MYR 260 million. Can you give us a bit more color as to whether this is truly a bad debt? Or is it just a case of the receivable having aged and you having to provide for it and collections are still underway? And is there more potential to come from this debt or this receivable? Yes, those are my 2 questions. Sorry, I'm [ Fong ] from CIMB. Megat Bin Megat Hassan: Okay. Thank you very much for the questions -- 3 questions. I take the good one. The bad one, I will leave to the -- because of the bad debt. So I'll leave it -- anything bad debt, I will give to the CFO. So the first one is actually implication for Genco with respect to the extension. As you can see, the PPAs of the power plants, normally, there is a 2-tier pricing mechanism. There is a period where we earn based on the first tier tariff. And then the second tier, normally there is a second tariff. So with the extension, basically, that will have a reset meaning that we will move to the -- we will move back to the so-called first tier. So it provides us both the sustainability as well as the potential upside with respect to the revenue for Genco. So that's why we are quite excited. Of course, it is dependent on our performance, but there's a potential for us to go for the upside because it becomes a reset with respect to the recession. I think the second question, new generation capacity, is there any limit for the bidder can win? I think in the RFP document, I think it is a public document. That is a megawatt -- a range of megawatts specified for the new generation capacity. If I remember correctly, it is about 5,400 to 5,000 megawatts. So that is the capacity the country is looking at. So that's where the bids come about. So I don't think there is any limit for the bid, but the limit is more -- if we can say there's a limit, I don't think is a limit, it is what the industry requires, it's about 5,000 megawatt. So for Tenaga Nasional, we -- as an incumbent, we feel that we have a good chance. Thank you. Badrulhisyam bin Fauzi: On the second question, it's not bad, actually. Actually, this is -- I think it's really our more proactive approach to make sure that we comply with the provision in terms of what has to be impacted and all. But in this particular one, you are right, actually, it's more of accounting treatment, and this is actually an effort in the way that reflect it true nature. And no, we're not giving up. The collection is actually being underway. So is this just trying to make sure that we follow the accounting standard. But obviously, we are working with specific debtors to make sure that we continue to recover what is due to us. That's where you can see that to us, yes, this is specific instances. But more importantly, that's why you look at the collections receivable as well as the SEP that continue to be in there. So that's why the collections continue to be strong for us. Megat Bin Megat Hassan: Just to add, I think that is the prudent practice that TNB has been doing in the past as well. While we continue to collect and there are various means, including the last resort is, of course, collection through legal. But before that, there are 2 other steps that we are taking to ensure that we get the so-called collection that is due to us. So anything that we collect has now become an upside. That's how I see it. So it is probably a good debt provision rather than a bad debt provision. I'm not in [ content ], so I can't change anything. Unknown Executive: Thank you, Mr. Badrul and Datuk. Maybe we can have another question from the floor? Chee Chow: This is Isaac for Affin Hwang. This is a follow-up question actually on the former question. I mean it comes to the RFP category one, can we just have some more clarity on when having started and how long is the extension, whether it's optional plus 1, plus 1 or how does it work? And number two is that when it comes to the category 2 is your Paka Repowering project and maybe the Kapar power that and have you secured all the gas turbine and whatnot? Megat Bin Megat Hassan: Yes. So on the so-called RFP category 1, there are -- the extension for the 3 power plants, there are various date with respect to the start of the extension. What is important is that the extensions will come with the work that for us to ensure the continuity and reliability of the system, we will have to do the so-called rehab on the plant, meaning that we will do a good check with respect to the performance -- the current performance because it is already basically ending of the PPA. So we are going to start doing those planning to do those -- what are the required with respect to ensure that the power plant will continue for the next 5 years of the extension. But the COD will start around 2028 to 2029, and it is different from each power plant. And in the meantime, the power plant will operate based on the current PPAs. On the second repowering and Kapar secured gas turbine current status. For Paka one, yes, we have had a conversation with the manufacturers and in particular, 1 manufacturer. We believe we have secured the gas turbine for the project. Unknown Executive: Thank you, Datuk. Maybe we can have another question from the floor before we move to the Webex. Is there any question from the floor? All right. So now we will now proceed to take questions from the analysts who are joining us virtually. [Operator Instructions] So we have first question from Iwani Farzana from PNB. We have unmuted you. Kindly proceed your questions. I think we will proceed first to Rachael Tan from UBS. [Operator Instructions] Rachael Tan: Can you hear me? Unknown Executive: Yes, we can hear you. Rachael Tan: Okay. So I have 2 questions. So the first is on the news flow that you've lost in excess of MYR 5 billion from electricity debt. How does this impact earnings? And is this accounted for in the regulatory -- under the regulated business model? Second question is that your gearing ratio looks a bit low for a regulated business. Since RP4 documents are not out yet, could I check what the target gearing ratio is for the regulated business? And does this affect your returns? Or would you just get 2.7%, 2.8% regardless of the gearing level? Megat Bin Megat Hassan: Okay. Thank you very much, Rachael. On the first question, with respect to the so-called loss on the electricity debt. I think we have the figures being quoted for a number of years. So with respect to the so-called TNB perspective, of course, we have formed a task force with respect to theft of electricity, especially handling the Bitcoins segment that has caused the losses to be much bigger than comparatively. So the task force is working together with the regulator, Energy Commission and also the Ministry, how best we combat this so-called theft of electricity that is happening currently. And those figures that you have seen is actually part and parcel on the task force work that the figures that we have identified and some of those figures, we actually have recovered the losses. So there are 2 perspective, yes, figures identified. And the other one is actually that is part of the task force work that we have recovered some of those theft of electricity. So with respect to the whole industry perspective, the -- as far as the regulatory business, this is actually an industry loss because at the end of the day, the losses is calculated as part of the tariff calculation. So it is actually, if I may use the word, essentially being socialized to the whole industry. This is where we want to also to encourage the customers, the one that is not basically involved in this is actually affected because it is, from the industry point of view, it is being socialized. So in that sense, TNB will continue to be aggressive with respect to theft of electricity. But at the same time, we want also the public to help us actually report all these cases because the industry is actually at a loss rather than the TNB from the perspective for the company itself. So that is a theft of electricity. The second question, I leave it to our CFO. Badrulhisyam bin Fauzi: Thanks, Rachael. I am pleased when people say they think our gearing is relatively low because that's the way we should think about it because today, as for our gearing level, that's around 52.4%. And you will make references to the regulated industries guideline. So under the rate for our regulated business, the overall framework actually allows for 55% gearing ratio. So we believe that this is -- there is still some room for us to actually push the gearing ratio to make optimum use of our capital allocations. And like I said, yes, for a regulated business that's important. But of course, we are very aware that we've got to safeguard our credit rating profiles as well, which, as mentioned earlier, does not tie to specific gearing ratio, but rather the cash flow position of the company as a percentage of debt numbers. So we are focusing on this, and you will see, hopefully, we'll be able to optimize our capital allocation as well as gearing level for both regulated and unregulated so that we can optimize the return to the shareholders. Thank you. Unknown Executive: Thank you, Datuk and Mr. Badrul. So we have another question from Eliza Tay from Fidelity. So we have 3 questions here. The first question for new gas generation capacity to be announced in 2025, when will potential plan start up? And the second question is what was the power demand in megawatt from data center in 3Q 2025? And the third question will be what was the power demand in megawatt from data center in 3Q '25? Megat Bin Megat Hassan: Thank you, Eliza Tay, on the questions. The first one, for the new gas generation capacity to be announced end of 2025, when will potential plan a set up? So based on the request for proposal, there is time line given or date given for the COD. So it is going to be end by 2028. So as far as the industry and the regulator is concerned, this is where the expectation of the new generation capacity to be taken place, so which is about 4 years from now. So this is also in line with the so-called required construction time of a new power plant between 36 to 42 months. So that is the date as far as the new generation capacity is concerned. With respect to the power demand of data centers, yes, for -- we gave some numbers with respect to the demand to show that there is a growth. So in June '25, it was 603 megawatts. In September, end of the quarter, 701 megawatt. And I believe in October, it's already 850 megawatt. So that is the growth that we are seeing. So it is on a monthly basis. I think we approach the industry think in this is a small number. This is not an -- 100 megawatt is a big number. Our generation capacity, for example, one of the hydro generation capacity, Chenderoh, for example, is 50 megawatts. So it's a big number. It is not kilowatt. It is megawatt. It's big in numbers. And probably, if you ask me, I've been in the industry for many, many years. And we always see this kind of growth go in early '90s, where we do the so-called FDI that is coming in with respect to the manufacturing industry from the overseas market, making the Malaysia as the best investment hub. And this is actually big. It is not a kilowatt. We are seeing a growth of 100 megawatts a month. So I think probably that is where electrical engineers like me appreciate it, but I think it is a big number with respect to the infrastructure that is required. And of course, it is a big number with respect to the sales that we are projecting. Thank you. Unknown Executive: Thank you, Datuk. So we have another question from Sumedh Samant from JPMorgan. Can you hear us? Sumedh Samant: 3 questions. So firstly, just a housekeeping. I saw in the earnings, there was a gain on financial instruments, some MYR 233 million or something. Could you please explain to us what that was? And is that a recurring feature or nonrecurring? My second question is actually, on the financial notes, there was a mention that Tenaga received a letter on 26th November about approval of investment allowances. Can I check if it's for the future or if it's for the past? And perhaps the third question, again, going back to the whole provision, MYR 10.6 billion. Can we check what will be the steps that Tenaga will be taking going forward to potentially reverse this? Or do we think that this is all that we have to pay to the IRB anyway and there won't be any recoupment? Badrulhisyam bin Fauzi: Maybe I'll take the question on the provision. Yes. So I think, I mean, you all are aware that previously, obviously, we clipped the reinvestment allowance under 7A. And after the Federal Court decision, we reviewed our position, and we submitted a claim under 7B investment allowance. So we disclosed in our announcement that we received a letter from MOF on 26 November. That was for investment allowance. So it is for Schedule 7B and, of course, it's for future income. But the investment allowance for is actually from the perspective of the CapEx previously spent originally claimed. So that's on the approval. But I think most importantly as well, as far as the amount of MYR 10.6 billion previously disclosed in our quarterly results as far as the litigations are concerned, you would notice that in the recent announcement, we have also made a statement that we have withdrawn and concluded all the legal arrangement with the tax authorities for that matter. So all cases has been closed. So for accounting purposes, we actually disclosed as well in our [ PYA ] in Note 29 that as far as the position of the company is concerned, we have actually taken a [ PYA ] adjustment to the balance sheet to retrospectively to actually reflect the actual situation. So the tax cases was actually for prior years leading up to 2024. So it has been reflected as such in the prior year's adjustment to reflect the actual situation. As far as the approval letter, obviously, I think it's still fresh off the oven, and we are actually still assessing the actual impact of the approval together with our auditors. We should be able to hopefully share with you direct implication to our effective tax rate going forward, hopefully, but obviously, we are already in quarter 3 in December already for 2025. So I think as far as the guidance is concerned, for 2025, we probably continue to guide it at the current level. You will see that 9 months, we are at around 29%. Hopefully, however, obviously, going forward, we should be able to have more -- a better lower effective tax rate. So bear with us, it's coming through, but we have to take this properly step by step to make sure that we get the correct treatment. Unknown Executive: Thank you, Mr. Badrul. So we will be moving on to the Iwani Farzana from PNB. So the first question will be, can we check for Cat 2 project award? The announcement by year-end, will it be only for partial award to certain players or lump sum? And for the second question will be under tax. For ITA, how much actually was approved? Total amount of 50% as guided to foreign investors? And does this approval also guarantee future ITA claim under 7A will be approved? If yes, will be -- will the guidance of approximately 30% tax be revised downwards? Additionally, for the approved ITA 2003 until 2024, since it can be deducted from future taxable income, what will the strategy allow? Lump sum -- or if gradually, can you share over the span of how many quarters or years allow? And the last question will be any update if the contingent CapEx earnings can be recognized in RP4? Or will it be the same case as to what happened in RP3, which means it can only be recognized on P&L in RP5? Megat Bin Megat Hassan: Thank you very much, Iwani. I think the question on #1, whether the project what will be to certain players or lump sum. I think that is definitely beyond Tenaga Nasional. It is the decision by the Energy Commission. So I would not want to comment or speculate on those. Thank you. And for the second question, maybe for CFO, Badrul. Badrulhisyam bin Fauzi: Thank you, Iwani. I think just further on to deliberate from what I've mentioned just now. I think we can inform you that it's not the full amount, but it's a fair amount. And I wanted to be clear that I think, Iwani, have in her question that 50% guided to foreign investors that did not come from us. We did not guide anything -- any amount of that approval to anyone. You will understand that all we can say is it's a fair amount, and that's all we can disclose at the moment. And I think what's important is, like I said, we are still assessing the impact. So I will not be able to tell you how long and all. So please bear with us just this time. And I mean to put this into perspective, like the Datuk Magat said, this has been there for the last 20 years. We are finally resolving it. So just give us a bit more time to actually do it properly this time around. So I think that's really all that we can actually inform you at this point of time. Yes. And as mentioned earlier, this is already December. Tax rate for this year will be -- hopefully, we'll be able to manage it a little bit. But in the long term, yes, we do expect the tax rate to go down progressively. But as all of you also would understand that there are -- for big corporates like Tenaga, obviously, there are also nondeductible expenses on our balance sheet, including interest restrictions as well as changes in fair value and accretion of interest under MFRS 139. So to get to 24% simply like that will take a bit more work for us to get to that. But I think we can get that, yes, it will improve over time as we finalize the impact of the approval by MOF. And last question on RP4 contingent CapEx, Datuk? Megat Bin Megat Hassan: Yes. On the last question on the RP4 CapEx. Definitely, we want the contingent CapEx to be recognized on RP4 because it is a clear definition that there is a contingent CapEx. Base and contingent CapEx is clearly defined in the RP4. And I think, Iwani, I made reference to RP3. I think during RP3 period, I would like to say that the contingent CapEx come after, meaning that in the beginning of RP3, there is no definition of contingent CapEx. So that's why the CapEx after discussion with [indiscernible] comes about in the next RP. And I think that is the reason why when we negotiated RP4, we make sure that there is a structured way with respect to addressing the contingent CapEx. And I think we have gotten that structured way by defining both the base CapEx and the contingent CapEx with the so-called projects on both as well as the amount on both base and contingent CapEx. So in that sense, we want to basically make a better definition on the recovery of the CapEx, and we hope to do so in RP4. Thank you. Unknown Executive: Thank you, Datuk and Mr. Badrul. So we have another question coming from Daniel from Hong Leong. Daniel, can you hear us? Daniel, I think I have unmuted. Daniel Wong: Okay. I think my question has been already been answered. Just want to check if Tenaga already adjusted all the accounts prior years for these tax issues. Does that mean that Tenaga has to pay in advance the MYR 10.5 billion first to be able to claim the tax -- I mean, the ITA in the bridge for offset the future income? That's the first question. Second question. For capacity of Tenaga's generation about 13-gigawatt size generation capacity. So based on the reported earnings of Genco, about MYR 260 million, is it considered a normalized earnings? That means that full year could be roughly just a normalized MYR 400 million for this 13-gigawatt-sized capacity? Third question is, I noticed that you guided on the RE for Tenaga, you have another [ 70 gigawatt ] and how -- is -- can I get a breakdown of this [ 70 gigawatt ] of RE? That's all for me. Megat Bin Megat Hassan: The CFO will take the number one. Badrulhisyam bin Fauzi: Yes. Daniel, I think as mentioned earlier, I think let's be clear that for the last 20 years, we have claimed under 7A for reinvestment allowance for CapEx previously spent. So when the Federal Court rule for us to claim under 7B, we make the application under 7B for the same CapEx that was spent for the last 20 years. So we talk about the approval just now, yes. So that's why as far as actually the actual tax liabilities are concerned, we can confirm that as far as payment is concerned, yes. As part of the overall application for 7B application, we actually paid all the tax amount that has been assessed to us. So that's why now we've got the approval for investment approval for future income. Obviously, if you're talking about the cash flow, yes, we have paid. And that's why we have actually closed all the legal proceeding with the tax authority. So then, obviously, naturally, again, what is the impact going forward? That one, we are still assessing like I said. But I think it's important to recognize that the overhang in terms of what can happen to us in terms of exposures, in terms of whether it has been settled, that is, finally, we put a closure to it. So meaning there is no more exposure in terms of provision or hit to our P&L as far as the exposure is concerned. So exposure are close, and it reflects the retrospective adjustments to our balance sheet to reflect actually the fact that our retained earning was built up much higher than it was supposed to for the last 20 years. So that's why retrospectively, we adjusted to retain earnings to reflect actually over the last 20 years that would have been the actual earning during the years. That is also in line with the fact that we made the payment for all the tax exposures. So that was the closure to it. Megat Bin Megat Hassan: Thank you, CFO. So for the tax item, I think what Tenaga has done is actually to comply with the regulation with respect to the payment. I think everybody is aware how the regulation with respect to tax and the payment of tax for the country. And we are actually in compliance with that. On the second question, the Genco earnings projection. I think the figure that we have shown is at the end of third quarter figure of MYR 260 million. We hope that -- of course, the figure can change towards the end of the year. We hope it's going to be a better figure. And the third quarter -- sorry, the third question, RE capacity breakdown of 7.6 gigawatt hour in the pipeline. So we have a number of pipeline gigawatt in our stable. First, in the domestic front. As mentioned, part of the pipeline is the hydro floating solar. We have yet to start construction, but it is in our pipeline. So we are talking about 2,000 to 2,500 megawatts. We have also a pipeline with respect to our investment in the U.K. There are a number of potential bid or even securing the land and also the capacity in the U.K. And we have also the pipeline capacity in Australia. As everyone remember, we -- our investment in Australia, we buy a company that has a right to build RE generation over there. So a combination of Malaysia, Australia as well as U.K. provide those so-called RE pipeline for 7.5, , 7.6 gigawatts for Tenaga Nasional. So meaning that our business part and the foundation for us, taking into account the objective of Tenaga in terms of meeting the ESG commitment that we have for the company as well as for the country. Unknown Executive: Thank you, Datuk and Mr. Badrul. And we have a question from [ Xi Han ] from FX. Can you hear us? Unknown Analyst: From APAC Securities. Yes. So actually only 2 questions from me. So I'm going to bore you again with a tax question. So regarding the IA claims right, since we don't know how much is the amount now, but let's say, if -- I mean the amount not approved, right, by Ministry of Finance, will it be straightaway booked as a tax expense in fourth quarter? Or how does it work? So that's the first question. And second question is regarding the operating expense, right? So I just want to know if for the fourth quarter, whether the operating expense will be more or less stable from third quarter because I think there was precedents where the fourth quarter expense went up a lot, could be -- I think it was due to the insurance costs and maybe a bit of repair and maintenance costs. Yes, that's all for me. Badrulhisyam bin Fauzi: I guess I'll take this one, Datuk. I think, yes, that's why I think it's important to understand that as far as the tax are concerned now, the 7A, 7B, we actually took the position, and this is agreed with our auditor that we have to treat the 2 things separately. So it's important to note that as far as the previous exposures are concerned, irrespective of whether the approval comes or not, those are already put to closure in terms of the right accounting treatment for it. In which case, was that we have incorrectly filed our tax return for the last 20 years. So we have corrected that one through prior year adjustment of MYR 10.6 billion to our retained earnings. So that is to making sure that as far as exposures and liabilities arising from the previous treatment is already put to close. And this is consistent with the fact that we have already paid the tax assessment as well. So meaning it's settled in terms of that. There is no more future exposures or anything. So it's done for that part. So the approval letter that we got from MOF is actually, yes, in respect of the CapEx that we have spent in the past, but it's being approved for us to utilize it as investment allowance. So going forward, when we have our income, we would be able to utilize this allowance to actually improve our effective tax rate going forward. So there is no question about the amount is not approved or anything like this because it is already approved for previous CapEx that we have spent under the form of investment allowance. So now going forward, it will be -- this is what we are assessing in terms of how do we treat the recognition of the investment allowance that was approved by MOF against our future income. So basically, to put it simply, downside has all been settled. Now it's only upside that we are still assessing the impact for Tenaga. So for the second question on OpEx. Most of you have covered Tenaga very long time. So you would know that usually, yes, there is a slight uptick in our quarter 4 OpEx. Lee Lai is already nodding her head, so because she has seen that so many times over the many years. So -- but of course, I think we want to make sure that seasonality is adjusted over time, but at the same time, we wanted to reflect the actual operation as well as nature of the expenditure on the ground. But by nature, however, the fact that all of us human operate on yearly cycles, obviously, quarter 4, we want to make sure that everything is the Is are dotted and the Ts are crossed all our expenditure. Naturally, you should expect slightly higher but nothing unusual. It's just the normal cycle of the reporting of the company. Megat Bin Megat Hassan: Yes. On question #2, sometimes we also probably have to look from the other lens and that normally in the quarter 4, many things get done because this is where the so-called the KPIs for the company, yes. So you're actually going to see both. The delivery becomes heightened in Q4. And of course, we may require OpEx to be part of the delivery. And it should be also work in tandem. I think that's what we are trying to do. Yes, there could be an increase in the so-called operating expenses, but we have to make sure that it is also coupled with the better delivery in quarter 4. And normally, that's what happens because the cycle of -- yearly cycle of KPIs take effect towards the end of the year. Unknown Executive: Thank you, Datuk and Mr. Badrul. Due to the time constraints, I think we can have one last question from the floor. Since there is no question from the floor, ladies and gentlemen, at the moment, I believe we have addressed all the questions from the analysts. That is all the time that we have for the Q&A. I would like to thank you for your questions. Now I will pass to Datuk Ir. Megat Jalaluddin Bin Megat Hassan, President and CEO of TNB for his closing remarks. Megat Bin Megat Hassan: Thank you very much, Azim, ladies and gentlemen, in this room as well as in -- over the online. Thank you very much for the questions. As always, please reach out to our Investor Relations team for any further questions. We hope that we have provided a good answer moving forward for the company. To summarize today's session, the group third quarter performance continue to reflect the stability of our regulated business and the steady momentum from the commercial sector demand, particularly data centers, business services as well as our retail customers. We are also seeing a strong progress across our strategic initiative right to the ASEAN Power Grid Corporation. I think all of you will hear more, especially on the APG next year as we move into the execution mode to strengthen national position as the regional clean energy hub. As we charge forward under the national energy transition road map, we see significant opportunities in RE energy generation, grid modernization and customer-driven energy solution. We remain focused on capturing these opportunities responsibly while supporting national pathway towards net zero 2050. So in conclusion, we reaffirm our commitment to driving sustainable growth and are seeing great readiness and shaping long-term energy transition. With your continued trust and support, we remain confident in our ability to build a stronger, greener and resilient energy future for the nation. Rewarding our shareholders remain a top priority, and we truly value your continued confidence in us. Once again, thank you very much and have a pleasant day ahead. [Foreign Language] Unknown Executive: Thank you, Datuk Magat. Ladies and gentlemen, we have come to the end of our session. On behalf of Tenaga Nasional Berhad, we thank you for your participation in today's briefing. For any questions that remain unanswered, rest assured that we will promptly address them following this event. If you require further clarification or inquiries, feel free to contact our Investor Relations officers or e-mail us at tenaga_ird@tnb.com.my. To all our attendees whether your present physically or virtually, we appreciate your time and engagement. As you leave the hall, we warmly invite all analysts to help themselves to a light refreshment available at the back. Thank you once again, and we look forward to seeing you in future sessions. Take care and have a wonderful day.
Operator: Greetings and welcome to the Simulations Plus Fourth Quarter and Full Fiscal 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce Lisa Fortuna from Financial Profiles. Ms. Fortuna, please go ahead. Lisa Fortuna: Good afternoon, everyone. Welcome to the Simulations Plus Fourth Quarter Fiscal Year 2025 Financial Results Conference Call. With me today are Shawn O'Connor, Chief Executive Officer; and Will Frederick, Chief Financial Officer of Simulations Plus. Please note that we updated our quarterly earnings presentation, which will serve as a supplement to today's prepared remarks. You can access the presentation on our Investor Relations website at simulations-plus.com. After management's commentary, we will open the call for questions. As a reminder, the information discussed today may include forward-looking statements that involve risks and uncertainties. Words like believe, expect and anticipate refer to our best estimates as of this call, and actual future results could differ significantly from these statements. Further information on the company's risk factors is contained in the company's quarterly and annual reports and filed with the Securities and Exchange Commission. In the remarks or responses to questions, management may mention some non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to those most directly comparable GAAP measures are available in the most recent earnings release available on the company's website. Please refer to the reconciliation tables and the accompanying materials for additional information. With that, I'll turn the call over to Shawn O'Connor. Please go ahead. Shawn O'Connor: Thank you, Lisa, and welcome, everyone. We closed fiscal 2025 with strong execution across the business, delivering on the full-year guidance we set in June. Revenue grew 13%, adjusted EBITDA grew 8% and adjusted EPS grew 8%, demonstrating resilience and operational discipline in a year marked by significant market volatility. Importantly, 2025 was also a strategic reset for Simulations Plus. We completed our transition to a unified operating model, aligning product and technology, scientific R&D, strategic consulting services and business development into a single client focused, functionally-oriented organization structure. This shift is already improving how we prioritize, build and deliver for our customers and positions us to move faster for the opportunities ahead. The external environment remained challenging throughout the year. Client budgets were pressured by broader pharmaceutical headwinds, including the threat of tariffs and most favored nation pricing implementation, which created real disruption starting midyear. As we move toward calendar 2026, we're seeing early signs of stabilization. Large pharma has clearly -- adds clear visibility into pricing frameworks, biotech funding has improved modestly, and our clients have entered their budgeting cycles with more confidence. Proposal activity and conference engagement have both strengthened. That said, we believe uncertainty will persist in the overall environment in the near term. Despite these challenges, the momentum behind biosimulation continues to accelerate. Our biopharma and regulatory partners are scaling their internal model and form development capabilities investing in data curation and digital infrastructure and increasingly incorporating AI into modeling workflows. The convergence of cloud computing, AI and model-informed direct development is reshaping how the R&D teams within our biopharma clients operate, and our validated science puts us at the center of that shift. We started laying the groundwork for this future with the release of GastroPlus 10.2 earlier this year, and we'll continue with portfolio-wide updates in fiscal 2026. As our customers expand their internal biosimulation capabilities, they are turning to partners who can deliver scientific rigor, integrated workflows and AI-assisted efficiency, all grounded in regulatory grade and scientifically-validated models. Our product vision directly aligns with these needs, connecting advanced science, cloud-scale computation and AI-driven services into a unified ecosystem that supports teams through discovery, through clinical development and commercialization. Taken together, these trends reinforce the long-term demand for our solutions and our leadership in the field. What we are hearing consistently from clients is that biosimulation is no longer a set of point solution tools. It's becoming the backbone of how R&D organizations operate. Teams want faster cycle times, stronger interoperability and AI-assisted workflows that reduce manual effort, while preserving scientific rigor. They want systems that help them organize their data, standardize their modeling approaches and deliver reproducible results for regulatory submission. This is exactly where our strategy is headed. Over the past year, we have been building toward an integrated product ecosystem that combines 3 strengths Simulations Plus can offer: validated science; cloud-scale performance; and AI that is grounded in regulatory-grade modeling. In fiscal 2026, that strategy comes into focus. Across GastroPlus, MonolixSuite, ADMET Predictor, our QSP platforms and Pro-ficiency we are enabling advanced science continuous investment in the scientific engines trusted by global regulators and leading R&D teams, a connected ecosystem, interoperability across products, powered by the Simulations Plus cloud to support end-to-end modeling workflows from discovery through clinical development. AI-driven services, tools that enhance data curation, accelerate simulation, interpretation and streamlined regulatory compliant reporting, AI and human collaboration copilots and reusable modules that improve efficiency, consistency and delivery times for scientists and consultants alike. These enhancements are not abstract concepts. They are tied directly to customer pain points and to the direction the industry is moving. And importantly, they position us to bring new capabilities to market with greater speed and cohesion than at any point in our history. We look forward to sharing much more detail about this integrated product strategy at our virtual Investor Day in January, including the road map that unifies our scientific engines cloud infrastructure and AI capabilities into a modern, interoperable biosimulation ecosystem. With that, I'll turn the call over to Will. William Frederick: Thank you, Shawn. To recap our fourth quarter performance, total revenue decreased 6% to $17.5 million. Software revenue decreased 9%, representing 52% of total revenue and services revenue decreased 3%, representing 48% of total revenue. Fiscal year total revenue increased 13% to $79.2 million. Software revenue increased 12%, representing 58% of total revenue and services revenue increased 15%, representing 42% of total revenue. Turning to the software revenue contribution from our products for the quarter Discovery products, primarily ADMET Predictor, were 18%. Development products, primarily GastroPlus and MonolixSuite were 77%, and clinical ops products, primarily Pro-ficiency were 5%. For the fiscal year, Discovery products were 17%, Development products were 75% and Clinical Ops products were 8%. We ended the quarter and fiscal year with 311 commercial clients, achieving an average revenue per client of $94,000 and an 83% renewal rate for the quarter. For the fiscal year, we achieved average revenue per client of $143,000 and our renewal rate was 88%. During the quarter, software revenue and renewal rates continue to be impacted by market conditions and client consolidations. Specifically, ADMET Predictor declined 10% for the quarter compared to the prior year and grew 5% for the fiscal year. GastroPlus declined 3% for the quarter compared to the prior year and grew 1% for the fiscal year. MonolixSuite grew 3% for the quarter compared to the prior year and grew 14% for the fiscal year. Our QSP/QST solutions grew 22% for the quarter compared to the prior year and grew 26% for the fiscal year. Pro-ficiency declined 63% for the quarter and grew 206% for the fiscal year with the prior year reflecting on fourth quarter revenue following the June 2024 acquisition. Shifting to our services revenue contribution by solution for the quarter, development, which includes our biosimulations solutions, represented 77% of services revenue and commercialization, which includes our Med Comm services, represented 23%. The revenue contributions for the fiscal year were 76% and 24%, respectively. Total services projects worked on during the quarter were 191 and ending backlog increased 28% to $18 million from $14.1 million last year. Overall, we have a healthy pipeline of services projects and we continue to expect at least 90% of the backlog to convert to revenue within the next 12 months. Services revenue for the quarter declined compared to the prior year is expected and grew 15% for the full year, primarily due to the addition of the Med Comm business. Specifically, PBPK services declined 10% for the quarter compared to the prior year and 14% for the fiscal year. QSP services declined 50% for the quarter compared to the prior year and 26% for the fiscal year. PK/PD services grew 18% for the quarter compared to the prior year and 5% for the fiscal year. Med Comm services grew 70% for the quarter and 622% for the fiscal year with the prior year reflecting only fourth quarter revenue following the June 2024 acquisition. Total gross margin for the fiscal year was 58% with software gross margin of 79% and services gross margin of 30%. On a comparative basis, total gross margin for the prior year was 62%, with software gross margin of 84% and services gross margin of 30%. The decrease in software gross margin was primarily due to an increase in the amortization of developed technology with the acquisition of Pro-ficiency and higher amortization expense for capitalized software development costs related to the release of GastroPlus in May 2024. Turning to our consolidated income statement for the fiscal year. R&D expense was 9% of revenue compared to 8% last year, reflecting our continued investment in product innovation. Sales and marketing expense was 15% of revenue compared to 13% last year, deliberately supporting initiatives to drive growth across our expanded portfolio and increased market awareness. G&A expense, excluding nonrecurring items, was 25% of revenue, down from 28% last year. Total operating expenses, including a noncash impairment charge of $77.2 million were 148% of revenue compared to 53% last year. Other income was $1.4 million for the fiscal year compared to $6.3 million last year. Primarily due to a decrease in interest income and a decrease in the fair value of the Immunetrics earnout liability. Income tax benefit for the fiscal year was $4.7 million compared to income tax expense of $2.5 million last year, and our effective tax rate was 7% compared to 20% last year. We expect our effective tax rate for fiscal 2026 to be in the range of 12% to 14%. Net loss and diluted loss per share for the fiscal year, including the $77.2 million noncash impairment charge were $64.7 million and $3.22 compared to net income of $10 million and diluted EPS of $0.49 last year. Adjusted diluted EPS was $1.03 this fiscal year compared to $0.95 last year. Fiscal year adjusted EBITDA was $22 million compared to $20.3 million last year at 28% and 29% of revenue, respectively. Moving to our balance sheet. We ended the year with $32.4 million in cash and short-term investments. We remain well capitalized with no debt and strong free cash flow to continue to execute our growth and innovation strategy. Our guidance for fiscal year 2026 remains the same as we provided in October. Total revenue between $79 million to $82 million, year-over-year revenue growth between 0% to 4%, software mix between 57% to 62%, adjusted EBITDA margin between 26% to 30% and adjusted diluted earnings per share between $1.03 to $1.10. We also anticipate first quarter revenue to be approximately 3% to 5% lower than the same period last year. Our fiscal year and first quarter guidance assumes a stable operating environment with market conditions in FY '26 expected to resemble those at the close of FY '25. Should market conditions improve and our clients' increase spending in FY '26, we will be poised to respond. I'll now turn the call back to Shawn. Shawn O'Connor: Thank you, Will. As we look ahead to fiscal 2026, our 30th year as a company, we're energized by the opportunity in front of us. Simulations Plus is evolving from a set of pioneering modeling tools into a unified ecosystem supporting discovery, development, clinical operations and commercialization. Our acquisitions, our investment in science and our integrated operating model have expanded both our reach and our impact. What remains unchanged is our core purpose. Helping our partners bring safer, more effective therapies to patients through science-driven innovation. What is changing and accelerating is how we deliver on that mission? With validated scientific engines, expanding cloud capabilities, AI-assisted workflows and a coordinated road map, we're positioned to support our clients with more speed, consistency and interoperability than ever before. We look forward to sharing more about this strategy, our product road map and the next phase of our evolution at our virtual Investor Day on January 21. We're excited to give you a deeper look at how our ecosystem comes together and how it will create value for clients, investors and patients worldwide. Thank you for joining us today. And with that, we'll open the call for questions. Operator: [Operator Instructions] Our first question comes from Jeff Garro with Stephens Inc. You may proceed with your question. Jeffrey Garro: Maybe start by asking about the demand environment. I was hoping you could give us an update on recent trends and some of the underlying factors that can translate to bookings and revenue, like RFP volumes pipeline development and SLPs win rate? Shawn O'Connor: Yes, Jeff, thanks for the question. I can give global metrics that have been cited often, certainly an uptick in biotech funding is a positive. So another funding announced today, up modestly from where it's been over the last 6 to 12 months, continued funding in that sector would support that element of our business, which is about 25% of our client base or revenue drivers is out of the biotech sector. On the large pharma side, mixed bag, mostly positive, but sporadic challenges from some of the large pharma and their encountering of program success or failure, but certainly, an uptick there. We come out of our heavy conference window of time with our clients and budgeting activity for next year seems to have some momentum. I'm cautious about that. There was momentum there last year and new surprises came after the first of the year. So I feel very positive in terms of the discussions we're having with customers, setting up proposals. And budgeting activity for next year, it looks pretty good. And so we enter our fiscal year '26 here on good footing, being cautious, watching for an evolving marketplace where certainly, announcements often cause pause in the activity of our clients, but mostly great lines. Jeffrey Garro: Great. I appreciate all those comments. And then to follow up, I don't want to get too far ahead of ourselves in front of the Investor Day, but I am curious on the feedback for the GastroPlus release that's been infused with some AI capabilities. And what that might mean for that key product as well as demand for AI infusions and other products. You hit the kind of macro details, I would love to hear about how the innovation plan is starting to impact your client discussions even at an early stage. Shawn O'Connor: Yes, it is early stage. The announcement of GastroPlus was followed with webinars and some training and visibility provided to clients, much visibility prior to its delivery as many of our clients participate in the development programs and provide input during the course of its activity. And the response has been positive. They're digesting it. We're seeing a lot of evolution in terms of clients and their internal IT infrastructure and many of the cloud and AI capabilities that are being released now will fit into those new ecosystems that they're building internally. And so initial response is good as with most releases in our space, their adoption and installation in our clients fit into their timetables and process. But I think everyone is looking for ways to leverage AI capabilities. Our clients are very focused in terms of their data management internal to their organization that feeds the analytical tools that we provide them. And so great excitement in terms of they're saying that our platforms are staying ahead of the curve in terms of functionality that they're looking to deploy in the coming months and years. Operator: Our next question comes from Matt Hewitt with Craig-Hallum. Matthew Hewitt: Maybe first up, and you've touched on this a little bit, but you had most favored nation pricing, you've had tariffs, you've had a soft funding environment. And it seems like we're getting either clarity or improvement in all three of those. Is there anything else that would result in large pharma being cautious? Or is it just more confirmation on those three buckets and that's when you'll start to see kind of the increase in spend. Shawn O'Connor: Yes. I mean there's a number of factors there, and it's anecdotal with each client in their own specific factset in terms of their drug programs and top line patent expirations, each entity has their own guidepost that they've got to manage and strategize around and we'll respond. I mean generally, it's an industry that responds to its budgeting cycle. So budgeting for the calendar year '25 is in place, not changing, and now they're looking at '26 and putting budgets in place there. So there's sort of a more positive there doesn't necessarily translate to this quarter, but they're budgeting into next year. I think we all check our -- hone periodically to see if there's been a tweet today or not. So there's still that cautiousness and foreboding of what may happen tomorrow. But yes, generally, I think outlook is positive, momentum into the budget preparation for '26 is positive. And I think if we get some quarters in a row without any surprises, they tend to put the shock wave into the system. We see a few quarters without that, then I think that confidence grows and spending gets more firmly committed. Matthew Hewitt: Got it. And then maybe the follow-up to that is if we do see the improvement and you see a ramp in bookings and backlog, do you feel like you've got the right headcount now to support a higher revenue base, at least over the near term? Or do you feel like depending upon how things shake out, you might be in a situation where you're having to backfill some roles that given the kind of the reductions over the past 2 years. Shawn O'Connor: Yes. The software side of the business is leverageable in terms of immediate needs to -- that are created to help business uptake. If it uptakes, there's not an immediate need in terms of people side. It's certainly a fair question on the service side of our business, and we feel very comfortable with the capacity we have now. It's utilization, supporting the guidance we've given into '26. If that side of the business accelerates more quickly than we're planning for our ability to grow that capacity is much better today than it was in the past when the resources were a little bit scarcer in terms of the scientific profile that does this type of work. We made our reduction in force last year with a little bit more confidence that, hey, if we need to step up in terms of our team there that we can do so relatively timely in support of business volumes increasing. So I think we're well positioned today for our business in '26 as anticipated. If it accelerates our ability to meet that demand is what we should be capable of doing so. Operator: Our next question comes from Scott Schoenhaus with KeyBanc Capital Markets. Scott Schoenhaus: Shawn, I wanted to ask about the guidance, which you reiterate it, obviously. Maybe parse through, if anything has changed underneath that guidance. I believe there was some caution around the services side. Software was sort of -- there was headwinds in the first half. Mostly related -- or I think partly related to proficiency growth, comps, but that eases in the second half. Maybe just walk us through if anything has changed on the background of the guidance and maybe parse through the first quarter guidance that you just spoke about on the prepared remarks. Shawn O'Connor: Sure. No, I mean, in a short interval, since we delivered the guidance in October, nothing significant has changed underlying. The assumptions underlying that -- we entered fiscal year '26, having post our adjustment back in June, July time frame, bringing down our guidance for the back half of the 2025 time frame. We achieved that back end fiscal year '25 guidance, which reflected a little bit of a stability in terms of the flow of revenues, both on the software and service side is albeit at a reduced level. We see some progress on an absolute dollar basis moving into the first part of the year. Normal seasonality patterns exist. First quarter is not our most robust quarter for renewals. Most of those are timed in the second and third quarter or at least peaks in those 2 quarters. And in the first part of the year, we've got reduced levels of Pro-ficiency revenue contribution, both in software with the Pro-ficiency platform as well as Med Communication service revenues that their comparable timeframe in '25. Those were their most highest revenue contribution, post-acquisition. And so some challenging comps there. So as we indicated, 3% to 5% first quarter revenue below the comparable year in the first quarter. that fits into our 0% to 4% growth for the year. And so no change in expectations or assumptions underlying the guidance we provided. Scott Schoenhaus: And then does your guidance assume any biotech end market recovery? And then also, I know that there were some degree of cancellations baked into the guidance has -- it sounds like that the biotech environment is still cautiously optimistic. What would it take you to view the cancellation projection or caution for the full year, what would it have to take for you to sort of moderate your expectations there? Shawn O'Connor: Yes. I mean two components to your question there in terms of biotech funding. If it continues, it certainly will prove a positive in terms of contributing both on the software and consulting side. There's not an immediate translation in terms of funding today and purchase order issued tomorrow there -- it depends on the circumstance of the stage of that particular funded biotechs programs where they are in the development time line to driving what type of services that can support them. Obviously, if it continues in a positive way here that will bring back that segment that contributed certainly, a greater percentage of revenue and revenue growth back a year or 2, 3 years ago when it was a relatively robust funding environment by tech contribution to our revenue flow was growing at a much steeper rate than it has of late during the funding trough, if you will. And as we've projected into '26, we've not projected a significant uptick in the biotech funding leading to uptick in biotech revenue contribution in '26. So that would be potential upside. Second part of the question in terms of cancellations certainly in the -- cancellations can be two different things. I'm not sure what you were pointing to. But we've had some consolidation in terms of our software renewals acquisitions that had led to one and one not equaling two in terms of two clients that have consolidated in terms of their renewal. That is an ongoing thing that we've always experienced, encountered from quarter-to-quarter. It was a little bit higher in the back half of fiscal year '25, certainly keeping an eye on our client base in that regard. We've got no known cancellations of any magnitude that are on the horizon in '26 acquisitions that have been announced with the effective date down the road. Nothing out there visible at this point in time. But we have, in the past, always had those and no doubt there will be some of that into the future. Cancellations will also occur on the service side in terms of programs that are sometimes just delayed, but sometimes canceled if that REIT outcomes and the program is curtailed, we had significant one in the back half of '25 that impacted us relatively unusual circumstance, both in terms of its -- well, in terms of its magnitude size of contract there. No standout risk of that nature in our backlog right now. But no doubt, there will be programs that have bad readouts and delays that will occur out of the contracts that sit in backlog. Our forecasting process of metering out when that backlog revenue will be taken to revenue, certainly includes a discount factor, a risk factor that those delays will occur. And believe we've been cautious in terms of an estimate of that impact in our assumptions underlying our guidance going forward. And again, that will always be there. We're in the business of helping our clients curtail programs quicker if the predicted outcome is not high. So that's something that will always occur in our business, and we just need to be adept at managing around them, which in fact, we did very well in the fourth quarter that large cancellation, we had put a very large gap in our fourth quarter service schedule there. And the team did a very good job of replacing, reallocating resources to other projects that were current and able to be worked on. Our sales team did a good job of closing business in the quarter that could be started in the quarter and silver lining there that was also all done with a pretty good flow of bookings during the quarter. So our backlog was not depleted in fact we've seen an increase in back year-over-year. And so on the cancellation side, yes, it will continue to occur into '26. That's a normal part of our business. We've implemented discount factors in our forecasting at the sort of levels coming out of the back half of the year, maybe potential upside if there's slowdown with that. Operator: Our next question comes from Max Smock with William Blair. Christine Rains: It's Christine Rains on for Max Smock. First one, I imagine it touches on the answer for the previous question a little bit just in terms of large pharma consolidation. But we noticed that the renewal rate in software remains below previous years and last quarter on a fee basis. So hoping you can provide some context on what it was on an account basis in the fourth quarter? And what factors are weighing on renewals and just kind of if and when we can expect renewals to return to the 90% ballpark? Shawn O'Connor: Yes. Good question. We encountered renewal on fee, step down into the high 80s, mid-80s really driven by couple 3, maybe 4 impactful consolidations that hit us in the back half of the year, the third and fourth quarter, driving that down. The other element in there is that while our clients are generally not reducing their staffing and modeling its simulation and that, if you will, ties to the amount of software, the number of seats, if you will, that they're licensing from us. They -- in this constrained budget environment, they do take a very close look at configurations. And while not reducing the number of platforms that they're licensing from us or generally the seats for them. They do look at the modules that are associated with each seat and platform. And can they save some money there. And so we saw a lot more scrutiny of that nature in the back half of '25 that also contributes to that renewal on fees number coming down a little bit. It will drive back towards 90 as we see the absence of as many consolidations, I think having gone through their scrutiny on a module-by-module basis last year, the potential for that impacting the renewal rate this year is less. They've done that once, and we'll have done that review and filtered out things that maybe they don't need as many of these modules or those modules. So I think that will help improvement going forward as well. And the other factor will be price increase, all things being equal, that renewal on fees percentage is also impacted by the uptake of our annual price increase, which has been a bit more aggressive this year than it was last year. And so that should have a positive effect on renewal on fee rates as well. Christine Rains: Got it. That makes a lot of sense. Then just one on margins for us, given the number of moving pieces on the cost side, hoping you can walk through what is baked into your EBIT margin guide for gross margin overall and in software versus services? And then just broadly, any color you can give us on your EBITDA margin cadence over the course of fiscal 2026 maybe similar to the revenue guide you gave in terms of down or up in Q1, I imagine down, but anything you give would be helpful. Shawn O'Connor: Yes, from a kind of overall perspective, we come in and as we're looking at quarter-to-quarter on the expense side comparisons are reduction in course contributes -- we announced the $4 million impact from the reduction in course, $1 million quarter starting in the fourth quarter. So the first 3 quarters of our fiscal year '26 guidance anticipates that benefit when you're looking year-over-year there. Secondly, in a world in which your top line growth is 0% to 4% where we're out -- where we're at, that does not give a lot of leverage in terms of EBITDA in an environment where you've got other expenses that inevitably are going to rise in terms of the compensation increases for your staff on board and medical benefits and things like that. So our guidance in terms of adjusted EBITDA, 26% to 30% adjusted EBITDA shows a little bit of improvement to see some greater improvement than that. I think we need to see some -- get back to where we were in terms of top line growth at 10% or above. Our expectation is still targeted at 35% EBITDA. And I think our ability to get there does exist. It will need some time or some upside to the top line guidance that we have provided this next year. Operator: Our next question comes from David Larsen with BTIG. David Larsen: Can you talk a little bit about the Pro-ficiency asset? I think you said in the fourth quarter, revenue was down fairly substantially I guess, can you maybe just talk about why that is? Is it the software business or the service business? And what's driving that? I think it was down, was it 63% year-over-year in the quarter. Is that right? Shawn O'Connor: I would say 63% in terms of the Pro-ficiency platform on the software side. Services were -- commercial Med Comm services from the Pro-ficiency acquisition were up 70% for the quarter. So the 2 contributions of revenue from the acquisition on the software side, as we've indicated, in the back half of fiscal year '25, clinical trial starts and other factors have shown a slowdown in that side of the business. Medical Communications has been impacted somewhat, but still growing quite nicely and their year-over-year was much higher in terms of fourth quarter, their first quarter contribution last year versus this year. David Larsen: Okay. And can you just remind me what percentage of Pro-ficiency revenue is software? Shawn O'Connor: It's -- I don't have the exact percentage. I don't know well if you've got it, but generally, it's about 40% software, 60% service or something of that nature. William Frederick: Yes we've definitely included in the investor deck, kind of the percentage of total software revenue and percentage of services revenue that the Pro-ficiency software contributes towards the Med Comm business, really integrating it as we sell the solution across the entire ecosystem. David Larsen: Okay. And then for the 1Q revenue guide, I think that's through November. So you probably have very good visibility into that. Still a year-over-year decline. I mean, in order to meet your full year guide for fiscal '26, I would -- I mean, you're going to have to see some ramp-up in bookings. I mean do you have -- how much visibility do you have into that? Is it -- are those deals booked? Any sense for what percentage of the software or service revenue is under contract? Shawn O'Connor: Yes, like any period, obviously, our earnings release here on December 1 is later given the change in reporting status and whatnot, gives us an ability to reaffirm our guidance for the year with good visibility, obviously, into the first quarter here. And so that is all tracking to those numbers. Yes, I think the dynamics of the quarter-by-quarter contribution for fiscal year '26 here shows better year-over-year growth percentages. But the absolute dollar revenue uptick, if you will, on a quarter-to-quarter basis is pretty consistent. Given our seasonality, first and fourth quarter, well, we're on software and whatnot. And the percentage growth has really impacted significantly by the strong first and second quarters we had in '25 and the weak third and fourth quarters that we had in '25 presents a percentage growth dynamic that will show a big step up in the back half of the year. It isn't quite as big a step-up when you look at it on an absolute dollar basis from our starting point coming out of the back half of '25. Operator: Our next question comes from Constantine Davides with Citizens. Constantine Davides: I just want to clear something up. Am I right to infer that your 2026 guidance contemplates an extension of recent renewal trends kind of in the low to mid-80s. I just want to be sure I heard that right. Shawn O'Connor: It does. I would say it does in the sense of the consolidations, that sort of activity. As I mentioned earlier, we have implemented a more higher price increase this year. And so that on a year-to-year consistency basis, that contribution to the renewal rates and our revenue guidance is baked in there. Constantine Davides: Got it. And then, Shawn, you guys talked about the strength of the balance sheet as well as cash flow? And I guess two questions on that. One is, what's a good way to think about cash flow in fiscal '26? And then I know you kind of always talked about being on the hunt for interesting assets. And just wondering if you can talk about your level of interest in terms of assets in your core markets, a newer market like clinical ops and even the potential for a transaction outside of those markets? Shawn O'Connor: Yes. Cash flow runs the seasonality pattern of our revenue. driven by that seasonality of when our clients renew and that drives the revenue into quarter buckets. Our outlook there is robust as it has been even in our challenging times, so cash flow is very positive. Turning to acquisition side of your question. Yes, our scoping of opportunities out there no change in expectation that we will, as we have in the past, continue to grow through both organic contribution as well as acquisitions into our future opportunities exist and the two landscapes that we operate in, primarily biosimulation as well as clinical ops and lots of opportunity there as we move forward into '26. '25, I'd say it was -- would be characterized as a year of integration of our large proficiency acquisition, '26 should give us an opportunity to take a look at how we can get to the next acquisition, if you will, in our history. Operator: Our next question comes from Brendan Smith with TD Cowen. Brendan Smith: Maybe just quickly expanding on some of the earlier questions here. But can you speak to -- really how we should be thinking about pricing flexibility that you all have? And I guess, maybe any plans at this point to lean into some of that next year, especially as some of the AI capabilities roll out across the platform. Really just trying to understand a little bit to what extent the '26 guide includes any of those pricing assumptions kind of versus new customer add expansions of existing customer licenses? I mean just really what kind of levers we should think about that could kind of drive rev versus 4% or even more within that framework next year? Shawn O'Connor: Yes, Brendan. Good question. Yes, our pricing is a little bit more aggressive and it is part and parcel with the upgrades and new platform, AI and cloud capabilities that are planned to be delivered during the course of the year. The monetization of that functionality comes through a combination of separately priced modules and some of that technology integrated into the base platforms, which supports a more aggressive price increase this year. The stickiness of the product has been such that we have and do raise prices on an annual basis and when we've delivered significant improvements to the platform, we've thought to share the benefits of that with our clients, if you will, in terms of more aggressive pricing. Much of the AI, certainly, the automation components of it will provide them greater efficiency and make their organizations that much more productive in modeling and simulation. And therefore, a price increase is justified. So in terms of sharing the wealth there a bit with them. How much of that is baked into our guidance going forward. It's -- keep in mind that it's -- the answer is it's baked in, but discounted at a couple of different steps of the way. There's always a yield to a price increase. You don't get the full price increase from every single one of your customers out there, and as well, it still through the course of the year when licenses are renewed. And so it's paced and discounted, I guess, I think it's that phraseology. Price increase on the service side is it in an environment like this where there are fewer shots on goal, meaning there are fewer projects that are offered up in the marketplace makes for a little bit more price competition in that space. So while there inevitably is some price increase in terms of the standard, hourly rates of our staff and whatnot. We've anticipated a very competitive still market to remain in fiscal year '26. So I wouldn't say that any of what we normally do on a pricing basis on the service side, there's no step-up baked into the guidance on the service side. Operator: This now concludes our question-and-answer session. I would like to turn the call back to Shawn O'Connor for closing comments. Shawn O'Connor: Well, thank you again for joining our call and your interest in Simulations Plus. On December 11, we'll be attending the TD Cowen Third Annual Diagnosing Tomorrow Tools and Technologies For The Next Decade in New York. During the week of January 12, we'll be attending the JPMorgan conference in San Francisco. I hope to see many of you at either of these on the calendar coming up in the near term here. Other than that, I appreciate your interest and take care. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's conference. Please disconnect your lines, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the MongoDB's Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Jess Lubert, VP of Investor Relations. Please go ahead. Jess Lubert: Thank you, operator. Good afternoon, and thank you for joining us today to review MongoDB's third quarter fiscal 2026 Financial Results, which we announced in our press release issued after the close of market today. Joining me on the call today are CJ Desai, President and CEO of MongoDB; and Mike Berry, CFO of MongoDB. Following our prepared remarks, Dev Ittycheria, MongoDB's former President and CEO and current member of the Board will join us for Q&A. During this call, we will make forward-looking statements, including statements related to our market and future growth opportunities. Our opportunity to win new business, our expectations regarding Atlas consumption growth, the impact of non-Atlas business and multiyear license revenue, the long-term opportunity of AI, our financial guidance, and underlying assumptions and our investments and growth opportunities in AI. These statements are subject to a variety of risks and uncertainties, including the results of operations and financial conditions that could cause actual results to differ materially from our expectations. For a discussion of material risks and uncertainties that could affect our actual results, please refer to the risks described in our quarterly report on Form 10-Q for the quarter ended July 31, 2025, filed with the SEC on August 27, 2025. Any forward-looking statements made on this call reflect our views only as of today, and we undertake no obligation to update them except as required by law. Additionally, we will discuss non-GAAP financial measures on this conference call. Please refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures to the most directly comparable GAAP financial measures. With that, I'd like to turn the call over to CJ. Chirantan Desai: Thank you, Jess, and thank you to everyone for joining. I'm honored and genuinely excited to speak with you as the CEO of MongoDB. This is an incredible company and stepping into this role is a privilege. I want to start by thanking our customers, partners and employees for everything you have done to build MongoDB into what it is today. I especially want to acknowledge Dev whose leadership and vision created a phenomenal company, which has strong momentum and a tremendous market opportunity ahead. Many have asked why I chose MongoDB, I had multiple opportunities to lead other technology companies but MongoDB stood apart. We are at a true inflection point driven by major shifts across cloud, data and AI. MongoDB has the potential to become the generational modern data platform of this evolving era, an opportunity that comes once in a lifetime. I am a truly customer-obsessed leader. So during my diligence, I spoke with multiple customers. Across these conversations, the message was clear. MongoDB already powers core, mission-critical workloads were enterprises that are modernizing their technology stack. At the same time, MongoDB is uniquely positioned at the center of the AI platform shift. Few technology companies have that combination of durable core strength and emerging platform relevance. Throughout my career, I have driven product to platform transformation at some of the most respected technology companies. Looking at MongoDB today, I see all the ingredients needed to build an iconic modern data platform company. World-class technology, a strong innovation engine, deep developer and customer pool and exceptional talent. We have everything required to become the generational data platform of choice in the AI era. Now onto this quarter's results. Atlas performance was strong, accelerating to 30% year-over-year growth, up from 29% in Q2 and 26% in Q1. We generated total revenue of $628 million (sic) [ $628.3 million ] , up 19% year-over-year and above the high end of our guidance, driven by strength in Atlas. We delivered non-GAAP operating income of $123 million (sic) [ $123.1 million ] or a 20% non-GAAP operating margin. We ended the quarter with over 62,500 customers adding 2,600 in the quarter and 8,000 year-to-date, reflecting 65% growth in customer additions on a year-to-date basis driven by the strong performance of our self-serve motion. Q3 was an exceptional quarter that was driven by our continued go-to-market execution and the broad-based demand we are seeing across business. At the same time, we significantly outperformed on operating margin, demonstrating that we can drive durable revenue growth while simultaneously expanding profitability. Now let me explain why I see such a large opportunity ahead for both core operational data and emerging AI workloads. Our core business is strong across self-served and enterprise customers even before any AI tailwinds. In my first 3 weeks, I've met with over 30-plus customers from AI-native companies to C-suite technology leaders at Fortune 500 companies. Those conversations have only strengthened my conviction in MongoDB's opportunity. Customers already depend on us for mission-critical workloads today, and they are leaning in even further, betting on MongoDB to power the AI applications that will shape their future. The expansion opportunity in front of us is immense. We already serve more than 70% of the Fortune 100 and many of the world's largest banks, health care organizations and manufacturers run their mission-critical workloads on MongoDB. Even with this foundation, there is still significant room to broaden our footprint within the enterprise. A strong example of this expansion opportunity is a major global insurance provider that has adopted MongoDB broadly across its enterprise. The company selected MongoDB Atlas to modernize several mission-critical systems, including its next-generation policy administration platform, analytics rating engine, unstructured data repositories and hundreds of supporting services. Since moving its policy platform to Atlas, the insurer has expanded from just a small set of regions to nationwide and significantly accelerated the rollout of new products and distribution channels. Standardizing on Atlas has given the organization the scalability and reliability to improve customer experience, support more advanced data and AI capabilities and increased development velocity, all central to its transformation and growth ambitions. All of this momentum in the core business is happening before the AI wave has meaningfully impacted our results. We are still early, but the signs are encouraging from AI-native start-ups building intelligent applications on MongoDB to large enterprises developing AI agents that will reshape how they operate. AI applications must connect what LLMs know with what companies know, which is their proprietary data, systems and real-time context. This is fundamentally an information retrieval problem, and it requires a very different architecture than the last generation of software. Rapidly evolving AI models uncover new complex properties about entities and rigid tabular stores cannot deliver the real-time high accuracy performance that AI systems require. At the same time, AI is dramatically increasing the speed at which applications are built and iterated and fixed database schemas simply cannot keep pace. This is where MongoDB has a structural advantage. Our document model, natively, JSON is built for diverse class changing and interdependent data. Our integrated search, vector search and Voyage embeddings removed the need for brittle bolt-ons, and we are seeing industry-leading results. Number one, on the Hugging Face retrieval embedding benchmark with Voyage MongoDB models and the #1 vector database on DB engines. Advances in our embedding and reranking models drive meaningful accuracy gains. Enabling AI applications to deliver more grounded responses with fewer LLM hallucinations, while lowering storage cost and query cost through smaller, more efficient embeddings. Because all of this is delivered in a unified platform that runs anywhere, customers can keep operational and AI workloads together, simplify their architecture and innovate faster. As AI adoption accelerates, MongoDB's positioned not just to participate in the wave, but to help define it. we are already beginning to see this play out with AI-native customers like Mercor, which is redefining hiring with its fully automated platform that uses AI to assess and match talent with the opportunities they are best suited for. Mercor uses MongoDB Atlas to store the AI data behind its platform that directly connects professionals to AI model training and evaluation roles. Originally, a self-serve customer, the company is also utilizing Voyage embeddings and Atlas Vector Search. Atlas has scale to support Mercor's 50% month-over-month growth, allowing the company to keep its software engineering team lean and agile as it expands to over $10 billion in value. This is just one example of how customers are building AI-native applications and companies on MongoDB. We are also seeing meaningful traction among large enterprises that are starting to build AI applications that have a material impact on their business. For example, a highly influential global media company aim to increase engagement via enhanced content recommendation for its vast repository of multimodal assets across its 70-plus websites. That existing stack powered by Elasticsearch hit a performance wall struggling with the complexity of new embedding models. Recognizing that [ rigid ] systems stifle innovation, the engineering team re-architected on MongoDB Atlas and MongoDB Atlas Vector search. Working with MongoDB experts to deliver a proof of concept in just weeks, they integrated Voyage AI models directly alongside their data. The solution scale effortlessly, cutting latency by 90% and reducing operational spend by 65% and driving a 35% increase in click-through rates, ultimately providing millions of global readers with a seamless, deeply personalized discovery journey. The bottom line is that the business is performing exceptionally well. Existing customers are expanding with us and net new customer additions continue to show strength. Companies in nearly every industry and across every geography are choosing MongoDB because we deliver the features, performance, cost effectiveness, and AI readiness they need in single data platform. Given the continued robust performance of Atlas, along with the healthy underlying fundamentals we are seeing in the business, we are raising our financial guidance for the fourth quarter and the full fiscal year 2026 and reiterating our commitment to the long-term financial model outlined at our recent Investor Day. Over the next few months, my focus is straightforward. Deepening customer relationships, advancing our innovation agenda as we build the generational modern data platform for the multi-cloud and AI era, scaling our go-to-market efforts and supporting our people so they can do their best work. I believe MongoDB is a company that has only begun to realize its vast potential and I look forward to unlocking this potential in the years to come. With that, I'll now hand the call over to Mike to discuss the financial results and outlook in greater detail. Mike? Michael Berry: Thank you, CJ. I want to extend a big welcome to you from all of the employees at MongoDB. We are excited to have you join the team. I look forward to working with you to continue to execute on our business plans and drive meaningful shareholder value. I also want to thank Dev for the partnership and our time working together. I believe we accomplished a lot in a short period of time and appreciate all of your guidance and leadership. Best of luck in the next stage of your life journey. Okay. Now let's move on to the financial results. I will begin with a detailed review of our third quarter results and then finish with our outlook for the fourth quarter and fiscal '26. I will be discussing our results on a non-GAAP basis unless otherwise noted. As CJ mentioned, we had another strong quarter as we exceeded all of our guidance ranges and are increasing our full year outlook across the board. In the third quarter, total revenue was $628.3 million, up 19% year-over-year and above the high end of our guidance. Shifting to our product mix. Atlas revenue outperformed our expectations as year-over-year growth accelerated to 30% in the third quarter and now represents 75% of total revenue. This compares to 68% of total revenue in the third quarter of fiscal '25 and 74% last quarter. In the third quarter, Atlas consumption growth was relatively consistent with last year's growth rates which drove the acceleration in revenue as well as growth in absolute revenue dollars for the third straight quarter. Atlas growth was driven by continued strength with our largest customers in the U.S. and broad-based strength in EMEA. This strength is being driven both by new workloads and growth of existing workloads. We believe these dynamics reflect our growing strategic importance to many customers and our ability to win more critical workloads due to the strength of Atlas. You can see that progress in our total company net ARR expansion rate, which increased to 120% in the third quarter, up from 119% last quarter. Turning to non-Atlas. Revenue came in ahead of our expectations in the quarter as we continue to have success expanding within our existing non-Atlas customer base. Non-Atlas ARR, which reflects the underlying revenue growth of this product without the impact of changes in duration grew 8% year-over-year. We continue to see consistent trends in non-Atlas in the third quarter, which reflects the desire of some of our largest customers to build with MongoDB long term for their most mission-critical applications. We also benefited from higher-than-expected multiyear revenue in the third quarter as approximately 2/3 of the non-Atlas revenue outperformance versus the high end of guidance was attributable to multiyear outperformance. We had another strong quarter for customer adds as we grew our customer base by approximately 2,600 sequentially, bringing the total customer count to over 62,500, which is up from over 52,600 in the year ago period. The growth in our total customer count is being driven primarily by Atlas which had over 60,800 customers at the end of the third quarter compared to over 51,100 in the year ago period. We ended the quarter with 2,694 customers with at least $100,000 in ARR, representing 16% growth versus the year ago period. Moving down the income statement. Gross profit for the third quarter was $466 million, representing a gross margin of 74%, which is down from 77% in the year ago period. Our year-over-year gross margin decline is primarily driven by Atlas growing as a percent of the overall business. Although Atlas gross margins are slightly below the total company gross margins they continue to improve year-over-year. Our income from operations was $123 million for a 20% operating margin compared to 19% in the year-ago period. We are very pleased with our stronger-than-expected operating margin results, which benefited from both our revenue outperformance and lower-than-expected operating expenses. Net income in the third quarter was $115 million or $1.32 per share based on 86.9 million diluted shares outstanding. This compares to net income of $98 million or $1.16 per share on 84.2 million diluted shares outstanding in the year ago period. Turning to the balance sheet and cash flow. We ended the third quarter with $2.3 billion in cash, cash equivalents, short-term investments and restricted cash. During the quarter, we spent $145 million to repurchase approximately 514,000 shares which was executed under our previously announced $1 billion total share repurchase authorization. Operating cash flow was well above our expectations at $144 million, and free cash flow was $140 million, which compares to $37 million and $35 million, respectively, in the year ago period. Our cash flow results were driven primarily by strong operating profit and improving working capital dynamics, particularly related to higher cash collections. We remain confident in our ability to drive higher and more consistent free cash flow going forward. Before we go into our guidance for the rest of fiscal '26, let me recap some of the enhancements we have made to our approach to guidance since I joined MongoDB. Importantly, we are providing more visibility into our expectations for Atlas growth as well as non-Atlas ARR growth each quarter. That being said, we will continue to be prudent in our forecasting of multiyear deals and only include those deals where we have very clear visibility. Our goal is to give you a more transparent view into our expectations for the business and our approach to guiding the non-Atlas business. Now let me share some of the assumptions driving our outlook for the rest of fiscal '26. Number one, we are continuing to see strong momentum in Atlas, which has experienced relatively consistent consumption growth through the first 3 quarters of the year. And comparable seasonal patterns as compared to fiscal '25. We are seeing strength with existing customers, along with momentum in new accounts as customers large and small increasingly recognize the strategic value of Atlas. As a result, we now expect Atlas to see approximately 27% revenue growth in the fourth quarter of fiscal '26, which is higher than our previous expectations of growth in the mid-20% range. This outlook reflects our continued confidence in Atlas while taking into account the historical seasonal variability and consumption patterns during the holiday period. Number two, we continue to experience steady ARR growth in our non-Atlas business and have good line of sight to several large multiyear deals we either already have or expect to close in the fourth quarter of the year. Based on these dynamics, we now expect our non-Atlas business to grow in the upper single-digit percent range year-over-year in the fourth quarter. Number three, we continue to make strategic investments in engineering, marketing and direct sales capacity to drive continued growth. Some of these planned investments have taken longer to implement than expected and have shifted into the fourth quarter of fiscal '26 and fiscal '27, which has benefited our operating margin during fiscal '26. Fourth, we continue to make progress on free cash flow conversion, which is now expected to exceed 100% for fiscal '26. Finally, we will continue to execute our share buyback program to help offset dilution from employee equity awards. In addition to our buyback, this past quarter, we began settling the taxes due on the vesting of employee RSUs with cash instead of issuing new shares. We also expect to receive over 1 million shares of stock for the cap calls associated with our 2026 notes that mature in January 2026. All of these actions will help us manage share count for the long term and illustrates our commitment to being good stewards of your capital. Now let's shift to guidance in the fourth quarter and fiscal '26. For the fourth quarter, we now expect revenue of $665 million to $670 million, which equates to 21% to 22% year-over-year growth. We expect non-GAAP income from operations to be in the range of $139 million to $143 million for an operating margin of approximately 21%. We expect non-GAAP net income per share to be in the range of $1.44 to $1.48 based on 86.5 million diluted shares outstanding. For fiscal '26, we now expect revenue to be in the range of $2.434 billion to $2.439 billion, an increase of $79 million from the high end of our prior guide and representing full year revenue growth of 21% to 22%. We are raising our non-GAAP income from operation expectations by $109 million at the high end and are now targeting a range of $436.4 million to $440.4 million for an operating margin of approximately 18%. We expect non-GAAP net income per share to be in the range of $4.76 and to $4.80 based on 86.7 million diluted shares outstanding. Note that the non-GAAP net income per share guidance for the fourth quarter and fiscal '26 assumes a non-GAAP tax provision of 20%. While we will provide detailed guidance for fiscal '27 on our fourth quarter call, I would like to comment on how we are thinking about a few metrics as we sit here today. First, we remain committed to the long-term model presented at our Investor Day in September and continue to make great progress against all of the objectives highlighted at the event. We have seen strong margin expansion and free cash flow performance in fiscal '26. And both of these metrics are tracking well above the long-term targets we discussed in September. As we look ahead to fiscal '27, we will continue to make strategic investments to focus on driving growth going forward. With these planned investments and the timing of head count adds, we continue to target 100 to 200 basis points of margin expansion on average and 80% to 100% for free cash flow conversion outlined in our long-term model. Second, our non-Atlas business is on track to exceed our prior expectations for fiscal '26 due to the stronger performance, including greater-than-expected large multiyear deals. Given this outperformance and our current bottoms-up forecast for fiscal '27, we currently do not expect non-Atlas multiyear transactions to provide either a meaningful headwind or tailwind to revenue in fiscal '27. To summarize, we had another very strong quarter. We are pleased with our ability to drive both revenue growth across the business while increasing our operating profit expectations and driving meaningful free cash flow. We remain incredibly excited about the opportunity ahead, and we will continue to invest responsibly to drive long-term shareholder value. With that, Lisa, we would now like to open the call up for questions. Operator: Good day, and thank you for standing by. Welcome to the MongoDB's Third Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Jess Lubert, VP of Investor Relations. Please go ahead. Jess Lubert: Thank you, operator. Good afternoon, and thank you for joining us today to review MongoDB's third quarter fiscal 2026 Financial Results, which we announced in our press release issued after the close of market today. Joining me on the call today are CJ Desai, President and CEO of MongoDB; and Mike Berry, CFO of MongoDB. Following our prepared remarks, Dev Ittycheria, MongoDB's former President and CEO and current member of the Board will join us for Q&A. During this call, we will make forward-looking statements, including statements related to our market and future growth opportunities. Our opportunity to win new business, our expectations regarding Atlas consumption growth, the impact of non-Atlas business and multiyear license revenue, the long-term opportunity of AI, our financial guidance, and underlying assumptions and our investments and growth opportunities in AI. These statements are subject to a variety of risks and uncertainties, including the results of operations and financial conditions that could cause actual results to differ materially from our expectations. For a discussion of material risks and uncertainties that could affect our actual results, please refer to the risks described in our quarterly report on Form 10-Q for the quarter ended July 31, 2025, filed with the SEC on August 27, 2025. Any forward-looking statements made on this call reflect our views only as of today, and we undertake no obligation to update them except as required by law. Additionally, we will discuss non-GAAP financial measures on this conference call. Please refer to the tables in our earnings release on the Investor Relations portion of our website for a reconciliation of these measures to the most directly comparable GAAP financial measures. With that, I'd like to turn the call over to CJ. Chirantan Desai: Thank you, Jess, and thank you to everyone for joining. I'm honored and genuinely excited to speak with you as the CEO of MongoDB. This is an incredible company and stepping into this role is a privilege. I want to start by thanking our customers, partners and employees for everything you have done to build MongoDB into what it is today. I especially want to acknowledge Dev whose leadership and vision created a phenomenal company, which has strong momentum and a tremendous market opportunity ahead. Many have asked why I chose MongoDB, I had multiple opportunities to lead other technology companies but MongoDB stood apart. We are at a true inflection point driven by major shifts across cloud, data and AI. MongoDB has the potential to become the generational modern data platform of this evolving era, an opportunity that comes once in a lifetime. I am a truly customer-obsessed leader. So during my diligence, I spoke with multiple customers. Across these conversations, the message was clear. MongoDB already powers core, mission-critical workloads were enterprises that are modernizing their technology stack. At the same time, MongoDB is uniquely positioned at the center of the AI platform shift. Few technology companies have that combination of durable core strength and emerging platform relevance. Throughout my career, I have driven product to platform transformation at some of the most respected technology companies. Looking at MongoDB today, I see all the ingredients needed to build an iconic modern data platform company. World-class technology, a strong innovation engine, deep developer and customer pool and exceptional talent. We have everything required to become the generational data platform of choice in the AI era. Now onto this quarter's results. Atlas performance was strong, accelerating to 30% year-over-year growth, up from 29% in Q2 and 26% in Q1. We generated total revenue of $628 million (sic) [ $628.3 million ] , up 19% year-over-year and above the high end of our guidance, driven by strength in Atlas. We delivered non-GAAP operating income of $123 million (sic) [ $123.1 million ] or a 20% non-GAAP operating margin. We ended the quarter with over 62,500 customers adding 2,600 in the quarter and 8,000 year-to-date, reflecting 65% growth in customer additions on a year-to-date basis driven by the strong performance of our self-serve motion. Q3 was an exceptional quarter that was driven by our continued go-to-market execution and the broad-based demand we are seeing across business. At the same time, we significantly outperformed on operating margin, demonstrating that we can drive durable revenue growth while simultaneously expanding profitability. Now let me explain why I see such a large opportunity ahead for both core operational data and emerging AI workloads. Our core business is strong across self-served and enterprise customers even before any AI tailwinds. In my first 3 weeks, I've met with over 30-plus customers from AI-native companies to C-suite technology leaders at Fortune 500 companies. Those conversations have only strengthened my conviction in MongoDB's opportunity. Customers already depend on us for mission-critical workloads today, and they are leaning in even further, betting on MongoDB to power the AI applications that will shape their future. The expansion opportunity in front of us is immense. We already serve more than 70% of the Fortune 100 and many of the world's largest banks, health care organizations and manufacturers run their mission-critical workloads on MongoDB. Even with this foundation, there is still significant room to broaden our footprint within the enterprise. A strong example of this expansion opportunity is a major global insurance provider that has adopted MongoDB broadly across its enterprise. The company selected MongoDB Atlas to modernize several mission-critical systems, including its next-generation policy administration platform, analytics rating engine, unstructured data repositories and hundreds of supporting services. Since moving its policy platform to Atlas, the insurer has expanded from just a small set of regions to nationwide and significantly accelerated the rollout of new products and distribution channels. Standardizing on Atlas has given the organization the scalability and reliability to improve customer experience, support more advanced data and AI capabilities and increased development velocity, all central to its transformation and growth ambitions. All of this momentum in the core business is happening before the AI wave has meaningfully impacted our results. We are still early, but the signs are encouraging from AI-native start-ups building intelligent applications on MongoDB to large enterprises developing AI agents that will reshape how they operate. AI applications must connect what LLMs know with what companies know, which is their proprietary data, systems and real-time context. This is fundamentally an information retrieval problem, and it requires a very different architecture than the last generation of software. Rapidly evolving AI models uncover new complex properties about entities and rigid tabular stores cannot deliver the real-time high accuracy performance that AI systems require. At the same time, AI is dramatically increasing the speed at which applications are built and iterated and fixed database schemas simply cannot keep pace. This is where MongoDB has a structural advantage. Our document model, natively, JSON is built for diverse class changing and interdependent data. Our integrated search, vector search and Voyage embeddings removed the need for brittle bolt-ons, and we are seeing industry-leading results. Number one, on the Hugging Face retrieval embedding benchmark with Voyage MongoDB models and the #1 vector database on DB engines. Advances in our embedding and reranking models drive meaningful accuracy gains. Enabling AI applications to deliver more grounded responses with fewer LLM hallucinations, while lowering storage cost and query cost through smaller, more efficient embeddings. Because all of this is delivered in a unified platform that runs anywhere, customers can keep operational and AI workloads together, simplify their architecture and innovate faster. As AI adoption accelerates, MongoDB's positioned not just to participate in the wave, but to help define it. we are already beginning to see this play out with AI-native customers like Mercor, which is redefining hiring with its fully automated platform that uses AI to assess and match talent with the opportunities they are best suited for. Mercor uses MongoDB Atlas to store the AI data behind its platform that directly connects professionals to AI model training and evaluation roles. Originally, a self-serve customer, the company is also utilizing Voyage embeddings and Atlas Vector Search. Atlas has scale to support Mercor's 50% month-over-month growth, allowing the company to keep its software engineering team lean and agile as it expands to over $10 billion in value. This is just one example of how customers are building AI-native applications and companies on MongoDB. We are also seeing meaningful traction among large enterprises that are starting to build AI applications that have a material impact on their business. For example, a highly influential global media company aim to increase engagement via enhanced content recommendation for its vast repository of multimodal assets across its 70-plus websites. That existing stack powered by Elasticsearch hit a performance wall struggling with the complexity of new embedding models. Recognizing that [ rigid ] systems stifle innovation, the engineering team re-architected on MongoDB Atlas and MongoDB Atlas Vector search. Working with MongoDB experts to deliver a proof of concept in just weeks, they integrated Voyage AI models directly alongside their data. The solution scale effortlessly, cutting latency by 90% and reducing operational spend by 65% and driving a 35% increase in click-through rates, ultimately providing millions of global readers with a seamless, deeply personalized discovery journey. The bottom line is that the business is performing exceptionally well. Existing customers are expanding with us and net new customer additions continue to show strength. Companies in nearly every industry and across every geography are choosing MongoDB because we deliver the features, performance, cost effectiveness, and AI readiness they need in single data platform. Given the continued robust performance of Atlas, along with the healthy underlying fundamentals we are seeing in the business, we are raising our financial guidance for the fourth quarter and the full fiscal year 2026 and reiterating our commitment to the long-term financial model outlined at our recent Investor Day. Over the next few months, my focus is straightforward. Deepening customer relationships, advancing our innovation agenda as we build the generational modern data platform for the multi-cloud and AI era, scaling our go-to-market efforts and supporting our people so they can do their best work. I believe MongoDB is a company that has only begun to realize its vast potential and I look forward to unlocking this potential in the years to come. With that, I'll now hand the call over to Mike to discuss the financial results and outlook in greater detail. Mike? Michael Berry: Thank you, CJ. I want to extend a big welcome to you from all of the employees at MongoDB. We are excited to have you join the team. I look forward to working with you to continue to execute on our business plans and drive meaningful shareholder value. I also want to thank Dev for the partnership and our time working together. I believe we accomplished a lot in a short period of time and appreciate all of your guidance and leadership. Best of luck in the next stage of your life journey. Okay. Now let's move on to the financial results. I will begin with a detailed review of our third quarter results and then finish with our outlook for the fourth quarter and fiscal '26. I will be discussing our results on a non-GAAP basis unless otherwise noted. As CJ mentioned, we had another strong quarter as we exceeded all of our guidance ranges and are increasing our full year outlook across the board. In the third quarter, total revenue was $628.3 million, up 19% year-over-year and above the high end of our guidance. Shifting to our product mix. Atlas revenue outperformed our expectations as year-over-year growth accelerated to 30% in the third quarter and now represents 75% of total revenue. This compares to 68% of total revenue in the third quarter of fiscal '25 and 74% last quarter. In the third quarter, Atlas consumption growth was relatively consistent with last year's growth rates which drove the acceleration in revenue as well as growth in absolute revenue dollars for the third straight quarter. Atlas growth was driven by continued strength with our largest customers in the U.S. and broad-based strength in EMEA. This strength is being driven both by new workloads and growth of existing workloads. We believe these dynamics reflect our growing strategic importance to many customers and our ability to win more critical workloads due to the strength of Atlas. You can see that progress in our total company net ARR expansion rate, which increased to 120% in the third quarter, up from 119% last quarter. Turning to non-Atlas. Revenue came in ahead of our expectations in the quarter as we continue to have success expanding within our existing non-Atlas customer base. Non-Atlas ARR, which reflects the underlying revenue growth of this product without the impact of changes in duration grew 8% year-over-year. We continue to see consistent trends in non-Atlas in the third quarter, which reflects the desire of some of our largest customers to build with MongoDB long term for their most mission-critical applications. We also benefited from higher-than-expected multiyear revenue in the third quarter as approximately 2/3 of the non-Atlas revenue outperformance versus the high end of guidance was attributable to multiyear outperformance. We had another strong quarter for customer adds as we grew our customer base by approximately 2,600 sequentially, bringing the total customer count to over 62,500, which is up from over 52,600 in the year ago period. The growth in our total customer count is being driven primarily by Atlas which had over 60,800 customers at the end of the third quarter compared to over 51,100 in the year ago period. We ended the quarter with 2,694 customers with at least $100,000 in ARR, representing 16% growth versus the year ago period. Moving down the income statement. Gross profit for the third quarter was $466 million, representing a gross margin of 74%, which is down from 77% in the year ago period. Our year-over-year gross margin decline is primarily driven by Atlas growing as a percent of the overall business. Although Atlas gross margins are slightly below the total company gross margins they continue to improve year-over-year. Our income from operations was $123 million for a 20% operating margin compared to 19% in the year-ago period. We are very pleased with our stronger-than-expected operating margin results, which benefited from both our revenue outperformance and lower-than-expected operating expenses. Net income in the third quarter was $115 million or $1.32 per share based on 86.9 million diluted shares outstanding. This compares to net income of $98 million or $1.16 per share on 84.2 million diluted shares outstanding in the year ago period. Turning to the balance sheet and cash flow. We ended the third quarter with $2.3 billion in cash, cash equivalents, short-term investments and restricted cash. During the quarter, we spent $145 million to repurchase approximately 514,000 shares which was executed under our previously announced $1 billion total share repurchase authorization. Operating cash flow was well above our expectations at $144 million, and free cash flow was $140 million, which compares to $37 million and $35 million, respectively, in the year ago period. Our cash flow results were driven primarily by strong operating profit and improving working capital dynamics, particularly related to higher cash collections. We remain confident in our ability to drive higher and more consistent free cash flow going forward. Before we go into our guidance for the rest of fiscal '26, let me recap some of the enhancements we have made to our approach to guidance since I joined MongoDB. Importantly, we are providing more visibility into our expectations for Atlas growth as well as non-Atlas ARR growth each quarter. That being said, we will continue to be prudent in our forecasting of multiyear deals and only include those deals where we have very clear visibility. Our goal is to give you a more transparent view into our expectations for the business and our approach to guiding the non-Atlas business. Now let me share some of the assumptions driving our outlook for the rest of fiscal '26. Number one, we are continuing to see strong momentum in Atlas, which has experienced relatively consistent consumption growth through the first 3 quarters of the year. And comparable seasonal patterns as compared to fiscal '25. We are seeing strength with existing customers, along with momentum in new accounts as customers large and small increasingly recognize the strategic value of Atlas. As a result, we now expect Atlas to see approximately 27% revenue growth in the fourth quarter of fiscal '26, which is higher than our previous expectations of growth in the mid-20% range. This outlook reflects our continued confidence in Atlas while taking into account the historical seasonal variability and consumption patterns during the holiday period. Number two, we continue to experience steady ARR growth in our non-Atlas business and have good line of sight to several large multiyear deals we either already have or expect to close in the fourth quarter of the year. Based on these dynamics, we now expect our non-Atlas business to grow in the upper single-digit percent range year-over-year in the fourth quarter. Number three, we continue to make strategic investments in engineering, marketing and direct sales capacity to drive continued growth. Some of these planned investments have taken longer to implement than expected and have shifted into the fourth quarter of fiscal '26 and fiscal '27, which has benefited our operating margin during fiscal '26. Fourth, we continue to make progress on free cash flow conversion, which is now expected to exceed 100% for fiscal '26. Finally, we will continue to execute our share buyback program to help offset dilution from employee equity awards. In addition to our buyback, this past quarter, we began settling the taxes due on the vesting of employee RSUs with cash instead of issuing new shares. We also expect to receive over 1 million shares of stock for the cap calls associated with our 2026 notes that mature in January 2026. All of these actions will help us manage share count for the long term and illustrates our commitment to being good stewards of your capital. Now let's shift to guidance in the fourth quarter and fiscal '26. For the fourth quarter, we now expect revenue of $665 million to $670 million, which equates to 21% to 22% year-over-year growth. We expect non-GAAP income from operations to be in the range of $139 million to $143 million for an operating margin of approximately 21%. We expect non-GAAP net income per share to be in the range of $1.44 to $1.48 based on 86.5 million diluted shares outstanding. For fiscal '26, we now expect revenue to be in the range of $2.434 billion to $2.439 billion, an increase of $79 million from the high end of our prior guide and representing full year revenue growth of 21% to 22%. We are raising our non-GAAP income from operation expectations by $109 million at the high end and are now targeting a range of $436.4 million to $440.4 million for an operating margin of approximately 18%. We expect non-GAAP net income per share to be in the range of $4.76 and to $4.80 based on 86.7 million diluted shares outstanding. Note that the non-GAAP net income per share guidance for the fourth quarter and fiscal '26 assumes a non-GAAP tax provision of 20%. While we will provide detailed guidance for fiscal '27 on our fourth quarter call, I would like to comment on how we are thinking about a few metrics as we sit here today. First, we remain committed to the long-term model presented at our Investor Day in September and continue to make great progress against all of the objectives highlighted at the event. We have seen strong margin expansion and free cash flow performance in fiscal '26. And both of these metrics are tracking well above the long-term targets we discussed in September. As we look ahead to fiscal '27, we will continue to make strategic investments to focus on driving growth going forward. With these planned investments and the timing of head count adds, we continue to target 100 to 200 basis points of margin expansion on average and 80% to 100% for free cash flow conversion outlined in our long-term model. Second, our non-Atlas business is on track to exceed our prior expectations for fiscal '26 due to the stronger performance, including greater-than-expected large multiyear deals. Given this outperformance and our current bottoms-up forecast for fiscal '27, we currently do not expect non-Atlas multiyear transactions to provide either a meaningful headwind or tailwind to revenue in fiscal '27. To summarize, we had another very strong quarter. We are pleased with our ability to drive both revenue growth across the business while increasing our operating profit expectations and driving meaningful free cash flow. We remain incredibly excited about the opportunity ahead, and we will continue to invest responsibly to drive long-term shareholder value. With that, Lisa, we would now like to open the call up for questions. Operator: [Operator Instructions] And our first question of the day will be coming from the line of Sanjit Singh of Morgan Stanley. Sanjit Singh: Fiscal year '26 has turned out to be quite the year for MongoDB, so congrats to the team all around. CJ, I wanted to start with you since this is your first earnings call, heard you loud and clear in terms of what the goal is here to make MongoDB a foundational data platform for the AI era. In terms of making that happen in your kind of first 45 days on the job, maybe even less than that. Are there some initial things that you're looking at some kind of things that might fit in the sort of quicker win bucket? And then longer term, what is -- what are some of the changes you think that the company can make or evolve to get to that -- to [ see or place ] in that sort of AI era? Chirantan Desai: Thank you, Sanjit. Here is -- this is my day 28 on the job, and I have been speaking to customers as well as our innovation team, including our Voyage AI team as well as our core database teams. The first thing I would say is the opportunity for MongoDB to be that data platform for AI workloads is very real because you need real-time operational data, you need the right context, you need to make sure that you are keeping up to date between the proprietary data of the company as in the enterprise as well as the LLM learnings that the LLM model brings to the table. And most importantly, when I think about all of that combined together, MongoDB has all the elements needed to be the right foundational platform for AI workloads. In speaking to customers, it is still early. There are various co-pilots when it comes to productivity types of applications that are happening inside of an organization, whether it's a bank or a health care organization or a manufacturing organization. But what I have not seen is truly AI agents running in production that fundamentally transform the business or serve customers better. There are many, many pilots still going on. When I contrast that with the AI native companies, and there is a really good fast growth at scale, AI native company that currently switched from Postgres to MongoDB because Postgres could not just scale. There is another AI company that highlighted that is using our embeddings as well as our vector database besides our operational platform. So when I combine all this together, Sanjit, what I see is, as truly scaled agentic platforms where you can have enterprises creating agents that transform their business, MongoDB has a very important role to play. And from a low-hanging fruit standpoint, I would argue that our embedding model and reranking model is something that customers can start with today, then they can move on to our vector database and use us for also real-time operational store. So that's how I'm thinking and some of my initial customer conversations have validated that theory. Sanjit Singh: Understood. I know it's early, so great to get that perspective. And then one follow-up for me, sort of a mark-to-market question. The calendar year '24, fiscal year '25 workload sort of improved in quality versus the prior year. I just want to get a sense of your sort of view on how the calendar year '25 workloads are shaping up as they will unlikely be a factor in terms of thinking about growth next year? And just so in terms of the quality of the workloads this year, can you give us a sense of the quality of those workloads? Michael Berry: Sanjit, it's Mike. So what we'll say there is, as we said during the prepared remarks, and we saw this in Q2 as well, what we're really seeing is strength in the larger customers. It's not only from new workloads, but it's from the existing workloads. We don't want to bifurcate between which calendar year those were added. What we'd say is that we continue to see growth in the larger customers. They are growing longer and they're getting bigger and growing for longer, which is great. And we're seeing that across both the United States and then broad-based in EMEA as well. And as Atlas gets bigger and bigger, all of those kind of munch together because they're expanding, they're adding. So what we'll do is we'll focus on the growth in our larger customers, especially in the U.S. and EMEA without going into each year. I hope that helped. Operator: And our next question will be coming from the line of Matt Martino of Goldman Sachs. Matthew Martino: Nice to see another quarter of acceleration. CJ, I appreciate you're only a few weeks in, but I'd be curious to hear what customers are telling you is top of mind for MongoDB. What are the repeated themes in customer conversations as you take a fresh lens to the business? Chirantan Desai: Absolutely, Matt. First thing I would say is that the modernization effort, whether it's a workload that may be just running on-prem, in a large enterprise or a workload that is moving to cloud or sometimes to multiple clouds for resiliency that transformation in speaking to a large telecommunications company, a large health care company, a large tech company, and I can cite you many other examples. I was pretty overwhelmed to understand that those transformations are still going on. There is just a recent conversation I had with CTO of a large telecommunications company who said that they are moving 1,300-plus applications to another hyperscaler and trying to determine which workloads are best suited for MongoDB. So the whole multi-cloud or a public cloud transformation is still going on. And just my intuitive sense in speaking to these customers will be going on for at least next 5 to 7 years. So that specific TAM still very much exists for MongoDB. Now these are the same set of customers, while they are trying to modernize their application stack, they are also experimenting, I would say, because I've not seen agents at scale that are customer facing or sometimes even employee-facing, they may have 10, 15, 20, but not that many compared to thousands of applications they run. In those AI applications area, they are experimenting sometimes with our embedding models or with our vector database or using MongoDB for real-time operational database. So that second aspect, which is still fairly early, but we are very well positioned as you think about AI workloads in enterprises and large enterprises. And last but not the least, spending time, as you know or you may know that I spent half of my time in New York City and half of my time in Silicon Valley and speaking to my network in Silicon Valley with AI-native companies or digital-native companies, what I hear from them is that certain alternatives on relational database just do not scale because AI workloads are fundamentally around unstructured and semi-structured data. And then they decide sometimes explicitly to use MongoDB. So I put this in 3 buckets. One bucket is our core and still the cloud transformation, digital transformation, modernization, whichever term you want to use, our core will still continue to grow. As people create AI agents at scale, MongoDB has a role to play and for AI-native companies and some at scale are already using MongoDB because the alternatives in relational world just do not scale. So those are my like 3 buckets and initial mental model on how these conversations are proceeding and what we can do for them. Matthew Martino: Really clear. And then, Mike, just a quick follow-up for you. It was good to see the outperformance on both Atlas and non-Atlas, but with op margins now about 200 basis points shy of your midterm framework, how should we think about the philosophy around reinvestment? And any considerations around non-Atlas and the ability to expand margins as we look out into fiscal '27? Michael Berry: Yes. Thanks for the question, Matt. So I'm sure everyone's focused on '27. So what we'd say is we will guide '27 on the next call. What we would say is, and it's built into the guidance that you have in Q4, and I also talked about it on the prepared remarks, we are continuing to invest, and we will continue to invest. Some of the investments that we wanted to make, especially around engineering, marketing, less so, but certainly around sales capacity has been pushed into Q4. So you should expect to see OpEx continue to grow in fiscal '27. But we also want to make sure, and that's why Matt, we took the time to say, "Hey, we want to reorient you to what we talked to you about in September -- we still expect to see margin expansion. But you really see it in the fiscal '26 numbers is that is coming mostly from revenue growth. That is the expectation next year. We'll continue to grow revenue. We're going to continue to invest in the business, but the business model will continue to drive that expansion. So you should expect to see us continue to invest, especially across those 3 areas. Operator: And our next question will be coming from the line of Karl Keirstead of UBS. Karl Keirstead: Okay. Great. Thank you. First of all, CJ, welcome aboard. I'm excited to work with you over the coming years. I had a question for you. So it seems as if you're describing these good set of numbers as strength in the core, essentially even before that AI tailwind kicks in. I'd love if you could define what you think is fundamentally driving that core strength? And do you feel like it's possible that actually Mongo is already getting an AI tailwind in the sense that there's a heightened focus on modernizing your data in advance of AI, such that this core strength is actually AI-related? Chirantan Desai: Karl, great to hear from you and looking forward to seeing you on Wednesday. I would say the core strength from my perspective is workloads that are -- need modernization has a lot of unstructured or semi-structured data and ideally suited for MongoDB. Now when it comes to AI, could AI potentially drive more modernization efforts? That is possible but not deterministic. As in we see -- as we shared in the remarks, that in the high end of the enterprise, the consumption of the workloads we acquired maybe a year ago, 1.5 years ago, that continues to move up in the right direction as our go-to-market teams are focused on the high end of the enterprise. We also saw broad-based strength in Europe. And that is pretty much to the core business like the large insurance company on the claims engine and other things that I spoke about related to policies. So I particularly see that as, okay, is that -- does that mean that if core is modern, it helps with AI workloads, absolutely, that is true because they are not mutually exclusive. And Karl, one thing I would say, this is my personal experience in building AI technologies in the past. That the AI team is typically a separate team from the core data team. And AI team relies on the core data team. And if the core data team moves slow, then AI teams get really frustrated because innovation velocity is how they measure themselves on. So my personal experience was, hey, when the core team is not agile there schemas are not flexible, it actually slows AI down. So that is definitely some facts behind your theory that it is potentially the AI revolution, which we are still in the early stages, is driving modernization in the other part of the enterprise. Karl Keirstead: Okay. And then, Mike, for you, I think everybody on the line appreciates the more definitive guidance on Atlas for the following quarter. So thank you. I wanted to ask what's driving that? Is it simply a function of you and just in your new -- relatively new seats, wanting to be more transparent in the guidance? Or Mike, is there something actually changing in Atlas such that now that it's at scale, it's becoming predictable enough that it now makes more sense to give precise guidance? Michael Berry: So thanks, Karl, thank you for the question. I would say it's probably a little bit of both. One is, hey, we want to give you folks a little bit more visibility to what's behind the guidance that we provide. That was number one. Also, as Atlas gets to be, gosh, now almost a $2 billion business, we feel better about the forecasting. The team has done a wonderful job forecasting that part as well. So when we gave the number for Q4, we want to make sure and give you the visibility. But we also have a pretty good view of what we hope it would be, understanding that, keep in mind, Q4, we want to be prudent because there are some seasonal holiday patterns that can be somewhat unpredictable, and we've seen that play out in the past Q4s. So I just want to note that for the guidance that we just gave. Operator: And the next question will be coming from the line of Raimo Lenschow of Barclays. Raimo Lenschow: CJ, all the best from me as well. I had 2 questions, one for CJ, one for Mike. CJ, on the -- one of the core things in terms of adoption of Mongo will be on the developer side because they're -- at the end of the day, developers are like a big driver of like what's getting used, et cetera. At the moment, a lot of AI is on the West Coast. What's your thinking around like getting AI -- getting developer engagement up with Mongo to kind of go against that Postgres kind of narrative that happens a lot in the valley. And then, Mike, for you, like since next year EA is not seeing benefits from all the year. Should we anchor our numbers on the ARR performance? And is that the right way to think about it? Chirantan Desai: Thank you, Raimo. Great to hear from you. I'm going to first ask -- there is a little bit of historical context in terms of your point on the West Coast. I'm going to ask, our previous CEO, Dev Ittycheria to talk about reclaim the Bay, the initiative that him and the team started, and then I'm going to specifically talk about how I think about it on the West Coast. Dev Ittycheria: Raimo, it's Dev here. As CJ mentioned, we've talked about this in previous calls, but we made a concerted effort to reinvest in the Bay Area because during COVID and post-COVID, we felt that we had neglected that region. And obviously, there was a whole new corpus of AI-native companies that were getting launched. So there's been a real concerted effort both in terms of putting more feet on the street, putting more marketing efforts in terms of supporting that part of the world. Investing more in the start-up community and also in the venture community to get people to understand the true value proposition of MongoDB. We've done things like hackathons and other events in that area as well. And so the team's really focused, dedicated to really supporting and servicing these early AI native companies, and that is starting to yield some results. And we feel really good about the progress there, but I'll let CJ talk about what happens going forward. Chirantan Desai: Thank you, Dev. And this is the reclaim the Bay in San Francisco on the West Coast. It is 100% true Raimo, that there is a lot of investment with AI-native companies, and we could benefit from increased mind share and being in front of them as in the developer community that you talked about, which is a super important community to us on the West Coast. So me spending personally time on the West Coast house. I do also have deep network in the West Coast community, both venture community as well as tech companies at scale. And I've already started leveraging that network to get their feedback. We are really excited in this quarter, as in the 4Q, we are relaunching our .local after a few years in San Francisco on January 15, where we are going to invite companies that have built on MongoDB, some great speakers on why they should build on MongoDB and show hands-on experience to the developer community in that conference on January 15. And what I see is just speaking to many CEO founders as well as developers of smaller companies or midsized companies, all these efforts of the marketing investment that Mike and Dev originally approved is going to start yielding results as we move into the next fiscal year. Michael Berry: And Raimo, thanks for the question. It's Mike. On non-Atlas next year, we wanted to make sure we've had a lot of questions about the multiyear headwind. So thank you for the question there. We are not guiding for fiscal '27. However, sitting here today, I would steer you more towards -- if you look at the full year revenue growth of non-Atlas it's about 4%, somewhere in that mid kind of low single digits is probably a good range to think about for next year as we sit here today. Operator: And our next question will be coming from the line of Brad Reback of Stifel. Brad Reback: Great. I'm not sure who this is for, but on the commentary around new customer strength within Atlas, are you seeing new customers ramp faster for net new workloads than they have been historically? And if so, why? Chirantan Desai: Brad, my initial observation is that the team -- engineering team has done a fantastic job when they launch 8.0 and all the subsequent point releases that allows Atlas to be adopted faster and remove the friction, whether you are coming via our self-serve channel or whether you are a large enterprise moving onto Atlas. So that's one thing I would say. And I'm going to ask Dev to provide commentary as well from a context perspective. Dev Ittycheria: Yes. I think what I'd also say is that, Brad, is that I think we've -- the self-serve team has really removed the friction to enable customers to onboard more quickly and more easily. And given the performance -- price performance gains that we've seen in 8 and now even better in 8.2, I think that's really driving a lot of the traction we're seeing in our new customers they quickly see the performance benefits and they're scaling nicely. And so that's allowing us to continue to acquire customers efficiently. Michael Berry: And one last thing on that, Brad. If you look at the revenue from that, it hasn't changed materially. It's still, keep in mind, a pretty small number when they first onboard, so it's not going to move the needle much. We haven't seen much change in that cohort over the last couple of years. Brad Reback: Great. And then, CJ, a quick follow-up for you. Philosophically, how do you think about M&A as it relates to Mongo? What types of things, if anything, you think you need to acquire? Chirantan Desai: Brad, you know me well, and I'm a big believer in organic growth. The team, Dev and the team have laid a very strong foundation on our technology platform. I think Voyage AI in February was a brilliant acquisition, where we got unbelievable team in Palo Alto. And my goal on behalf of MongoDB is to always believe in our own teams and our technology. We participate in a large market and where it makes sense, where we can get a particular adjacent technology or a great team that can help us accelerate the road map, we would always consider that type of M&A. Operator: And our next question will be coming from the line of Alex Zukin of Wolfe Research. Aleksandr Zukin: CJ, maybe for you. I mean, you shared, I think, a lot of thoughts about your initial vision. You shared the 3 pillars of the core, the enterprise AI opportunity and the AI natives. I just want to maybe lean in, where do you see your particular skill set of network offering kind of not the lowest hanging fruit, but your ability to make kind of the biggest impact in, call it, the next 12 to 24 months? Like where do you really see that incremental opportunity for growth inflection? Chirantan Desai: I would say, Alex, and -- you are aware of the enterprises and the customer obsession I have and the relationships that I have formed over many, many years with technology leaders at large companies. So, from my perspective, there are 2 areas where I can benefit our go-to-market teams immensely. Number one is Fortune 500, where MongoDB can still penetrate even at a higher rate than it is penetrating today, both within the existing accounts as well as the new accounts we get. So that's Fortune 500. And then I was with our sales teams in Europe, and there are many customers that they are targeting, including existing customers, large banks, manufacturing companies and so on, where they're trying to expand where my personal relationships with those technology buyers can help. So that's bucket number one is make no mistake, high end of the enterprise as in Fortune 500 and Global 2000. Number two, on the other extreme would be AI-native companies, lived in Silicon Valley for a very long time. I understand where venture community is investing, folks who are creating, whether it's domain-specific AI companies or foundational companies have relationships there as well across [ 101, 280 and 237 ], and that's where I also plan to -- I would say, plant the seeds in a correct fashion so that over time, that becomes a meaningful business for MongoDB if we are the underlying infrastructure for those companies. So those are the 2 extremes that I'm going to spend personally a lot of time on. Aleksandr Zukin: Excellent. And you mentioned Voyage AI the acquisition this year being kind of a crown jewel in the portfolio. Maybe just help us understand with the AI native, specifically the opportunities there, are those starting -- are you guys landing with Voyage? Are you landing with Atlas? Are you landing with both now at a more kind of constant pace? Help us understand kind of that incremental differentiator. Chirantan Desai: Yes. I would say one example, and this in my remarks, I shared that there is a super high growth AI company that is doing very, very well and will become a very large company. I have absolutely no doubts about that. They were not able to scale with Postgres and few other technologies, Redis and so on that they were using, and they moved completely to MongoDB and seeing that week-over-week and month-over-month growth is super inspiring. And I spoke to the hyperscaler where this workload is running and they are seeing the same that, wow, this company is doing really well. So that's built on MongoDB because Postgres had scaling issue. The other extreme, I spoke to a fairly successful AI native company that is doing decent ARR, growing very fast. And when I said, hey, have you considered MongoDB to the founder, CEO, who is very technical. And he said, CJ, we didn't, we built our own vector database and so on. And while I was speaking to him Alex, about 10 days ago, he basically said, once he looked at the portfolio, he said, let me start with embeddings first. So we are going to try. Of course, we have to prove it to him why our embeddings improves his accuracy on search and so on and improve the performance. So he said, let's start with embedding models first from Voyage AI once that works CJ, I'm willing to replace my vector DB that we have homegrown created it with MongoDB and oh, by the way, if that works well, eventually, I'm willing to swap out my operational database as well and use MongoDB. So in those kind of scenarios where they are already on a certain track we can land with Voyage AI embeddings. And I'm also seeing in a very large customer of MongoDB, I spoke to somebody who is running the AI initiatives, and they love the Voyage AI embeddings and reranking model, and they've already approved it for 2 big workloads. So we can absolutely land with that is the short answer. Aleksandr Zukin: Sounds like a beautiful synergy. Operator: And the last question for the day will be coming from the line of Ryan MacWilliams of Wells Fargo. Ryan MacWilliams: The consumer app development environment is getting stronger as new iOS app development has surged multiyear highs. We think it's due to agentic coding, And I know it's early but on the enterprise side, are you seeing stronger product velocity from your customers in building their enterprise applications? Chirantan Desai: I'm going to ask Dev to provide his opinion, and then I'll provide mine. Dev Ittycheria: Yes, I think what we're seeing is we're clearly seeing a lot of, I would say, prototyping and iteration. I would say the enterprise requirements still have a pretty strong and stringent requirements around security and durability and performance. So while there's a big difference between coming out with the prototype and having a production-grade system that an enterprise can truly rely on trust. And so there is still a lot of work required to make those applications enterprise class. But clearly, with the advent of [ cogen ] tools, the rate and pace of software development is only going to increase. And as I think we said in the past, that's one of the big reasons why we think AI is a tailwind. It's just that the ability to produce more software, [indiscernible] more database and more and more strategies has been encapsulated in software. So from that point of view, we think that's all good news for us. Chirantan Desai: Yes. And the only thing I'll add on is, when I speak to customers who I've been speaking for a long time, in regulated industries, which is financial services, which is health care, which is public sector, the requirement for an AI agent to be in production versus prototype are vastly different, and they are looking for governance, auditability, this and that, while the innovation and the need for the speed is very high. So I have not seen -- like customers will tell me, CJ I have 10 agents in production, 15 agents in production. And when I really asked them, I say, are they really customer-facing? Can they be audited on the probabilistic outcome they derive? The answer is, oh, we are still working through that. That doesn't mean that it will not happen soon, but it will never happen. But I still feel we are fairly early. And even the environment on which they are building agents, they are telling me they try one, it doesn't work, they move on to the next one. So the churn for some of these AI companies that deliver these tools is also very real. And that's why I'm very encouraged by the MongoDB opportunity. We have the platform for operational data. We have the best vector database and we have the embedding models where they can comfortably at enterprise scale, build a real AI agent using MongoDB platform. Ryan MacWilliams: Excellent. Really appreciate that detail. And then for Mike, on the Atlas 4Q growth guidance. I appreciate the color there. Just a quick clarification, on this 4Q Atlas guidance, should we expect results closer to the pin or a guidance philosophy consistent with your historical precedent? Michael Berry: Yes. So thanks. I don't want to go into the golf analogy. And besides Ryan, you know I like hockey analogies better. What I would say is that, hey, we are -- we feel really good about Atlas. It's had a great year so far. We feel good about it going into Q4, we remain excited about the growth. That being said, we are being prudent for Q4 as a holiday -- as the seasonal holiday patterns, hey, they can be somewhat unpredictable and we've seen that play out in the past Q4s. So what I would say is, hey, we just need to be prudent as we enter the holiday season. Operator: Thank you. That does conclude today's Q&A session. I would like to go ahead and turn the call back over to MongoDB's President and CEO, CJ Desai, please go ahead. Chirantan Desai: Thank you, Lisa. In summary, we delivered an exceptional third quarter, highlighted by accelerating Atlas growth, robust customer additions and significant operating margin outperformance. We are raising our revenue and operating income guidance for the fourth quarter and full fiscal year 2026 and reiterating our commitment to the long-term financial model we outlined at Investor Day. Our results underscore that MongoDB's core business is firing on all cylinders even before any meaningful AI tailwinds. At the same time, we are uniquely positioned to become the generational modern data platform for the AI era, all while driving durable, efficient growth. Thank you, everyone, for joining, and thank you for listening. Operator: This does conclude today's conference call. You may all disconnect. Operator: [Operator Instructions] And our first question of the day will be coming from the line of Sanjit Singh of Morgan Stanley. Sanjit Singh: Fiscal year '26 has turned out to be quite the year for MongoDB, so congrats to the team all around. CJ, I wanted to start with you since this is your first earnings call, heard you loud and clear in terms of what the goal is here to make MongoDB a foundational data platform for the AI era. In terms of making that happen in your kind of first 45 days on the job, maybe even less than that. Are there some initial things that you're looking at some kind of things that might fit in the sort of quicker win bucket? And then longer term, what is -- what are some of the changes you think that the company can make or evolve to get to that -- to [ see or place ] in that sort of AI era? Chirantan Desai: Thank you, Sanjit. Here is -- this is my day 28 on the job, and I have been speaking to customers as well as our innovation team, including our Voyage AI team as well as our core database teams. The first thing I would say is the opportunity for MongoDB to be that data platform for AI workloads is very real because you need real-time operational data, you need the right context, you need to make sure that you are keeping up to date between the proprietary data of the company as in the enterprise as well as the LLM learnings that the LLM model brings to the table. And most importantly, when I think about all of that combined together, MongoDB has all the elements needed to be the right foundational platform for AI workloads. In speaking to customers, it is still early. There are various co-pilots when it comes to productivity types of applications that are happening inside of an organization, whether it's a bank or a health care organization or a manufacturing organization. But what I have not seen is truly AI agents running in production that fundamentally transform the business or serve customers better. There are many, many pilots still going on. When I contrast that with the AI native companies, and there is a really good fast growth at scale, AI native company that currently switched from Postgres to MongoDB because Postgres could not just scale. There is another AI company that highlighted that is using our embeddings as well as our vector database besides our operational platform. So when I combine all this together, Sanjit, what I see is, as truly scaled agentic platforms where you can have enterprises creating agents that transform their business, MongoDB has a very important role to play. And from a low-hanging fruit standpoint, I would argue that our embedding model and reranking model is something that customers can start with today, then they can move on to our vector database and use us for also real-time operational store. So that's how I'm thinking and some of my initial customer conversations have validated that theory. Sanjit Singh: Understood. I know it's early, so great to get that perspective. And then one follow-up for me, sort of a mark-to-market question. The calendar year '24, fiscal year '25 workload sort of improved in quality versus the prior year. I just want to get a sense of your sort of view on how the calendar year '25 workloads are shaping up as they will unlikely be a factor in terms of thinking about growth next year? And just so in terms of the quality of the workloads this year, can you give us a sense of the quality of those workloads? Michael Berry: Sanjit, it's Mike. So what we'll say there is, as we said during the prepared remarks, and we saw this in Q2 as well, what we're really seeing is strength in the larger customers. It's not only from new workloads, but it's from the existing workloads. We don't want to bifurcate between which calendar year those were added. What we'd say is that we continue to see growth in the larger customers. They are growing longer and they're getting bigger and growing for longer, which is great. And we're seeing that across both the United States and then broad-based in EMEA as well. And as Atlas gets bigger and bigger, all of those kind of munch together because they're expanding, they're adding. So what we'll do is we'll focus on the growth in our larger customers, especially in the U.S. and EMEA without going into each year. I hope that helped. Operator: And our next question will be coming from the line of Matt Martino of Goldman Sachs. Matthew Martino: Nice to see another quarter of acceleration. CJ, I appreciate you're only a few weeks in, but I'd be curious to hear what customers are telling you is top of mind for MongoDB. What are the repeated themes in customer conversations as you take a fresh lens to the business? Chirantan Desai: Absolutely, Matt. First thing I would say is that the modernization effort, whether it's a workload that may be just running on-prem, in a large enterprise or a workload that is moving to cloud or sometimes to multiple clouds for resiliency that transformation in speaking to a large telecommunications company, a large health care company, a large tech company, and I can cite you many other examples. I was pretty overwhelmed to understand that those transformations are still going on. There is just a recent conversation I had with CTO of a large telecommunications company who said that they are moving 1,300-plus applications to another hyperscaler and trying to determine which workloads are best suited for MongoDB. So the whole multi-cloud or a public cloud transformation is still going on. And just my intuitive sense in speaking to these customers will be going on for at least next 5 to 7 years. So that specific TAM still very much exists for MongoDB. Now these are the same set of customers, while they are trying to modernize their application stack, they are also experimenting, I would say, because I've not seen agents at scale that are customer facing or sometimes even employee-facing, they may have 10, 15, 20, but not that many compared to thousands of applications they run. In those AI applications area, they are experimenting sometimes with our embedding models or with our vector database or using MongoDB for real-time operational database. So that second aspect, which is still fairly early, but we are very well positioned as you think about AI workloads in enterprises and large enterprises. And last but not the least, spending time, as you know or you may know that I spent half of my time in New York City and half of my time in Silicon Valley and speaking to my network in Silicon Valley with AI-native companies or digital-native companies, what I hear from them is that certain alternatives on relational database just do not scale because AI workloads are fundamentally around unstructured and semi-structured data. And then they decide sometimes explicitly to use MongoDB. So I put this in 3 buckets. One bucket is our core and still the cloud transformation, digital transformation, modernization, whichever term you want to use, our core will still continue to grow. As people create AI agents at scale, MongoDB has a role to play and for AI-native companies and some at scale are already using MongoDB because the alternatives in relational world just do not scale. So those are my like 3 buckets and initial mental model on how these conversations are proceeding and what we can do for them. Matthew Martino: Really clear. And then, Mike, just a quick follow-up for you. It was good to see the outperformance on both Atlas and non-Atlas, but with op margins now about 200 basis points shy of your midterm framework, how should we think about the philosophy around reinvestment? And any considerations around non-Atlas and the ability to expand margins as we look out into fiscal '27? Michael Berry: Yes. Thanks for the question, Matt. So I'm sure everyone's focused on '27. So what we'd say is we will guide '27 on the next call. What we would say is, and it's built into the guidance that you have in Q4, and I also talked about it on the prepared remarks, we are continuing to invest, and we will continue to invest. Some of the investments that we wanted to make, especially around engineering, marketing, less so, but certainly around sales capacity has been pushed into Q4. So you should expect to see OpEx continue to grow in fiscal '27. But we also want to make sure, and that's why Matt, we took the time to say, "Hey, we want to reorient you to what we talked to you about in September -- we still expect to see margin expansion. But you really see it in the fiscal '26 numbers is that is coming mostly from revenue growth. That is the expectation next year. We'll continue to grow revenue. We're going to continue to invest in the business, but the business model will continue to drive that expansion. So you should expect to see us continue to invest, especially across those 3 areas. Operator: And our next question will be coming from the line of Karl Keirstead of UBS. Karl Keirstead: Okay. Great. Thank you. First of all, CJ, welcome aboard. I'm excited to work with you over the coming years. I had a question for you. So it seems as if you're describing these good set of numbers as strength in the core, essentially even before that AI tailwind kicks in. I'd love if you could define what you think is fundamentally driving that core strength? And do you feel like it's possible that actually Mongo is already getting an AI tailwind in the sense that there's a heightened focus on modernizing your data in advance of AI, such that this core strength is actually AI-related? Chirantan Desai: Karl, great to hear from you and looking forward to seeing you on Wednesday. I would say the core strength from my perspective is workloads that are -- need modernization has a lot of unstructured or semi-structured data and ideally suited for MongoDB. Now when it comes to AI, could AI potentially drive more modernization efforts? That is possible but not deterministic. As in we see -- as we shared in the remarks, that in the high end of the enterprise, the consumption of the workloads we acquired maybe a year ago, 1.5 years ago, that continues to move up in the right direction as our go-to-market teams are focused on the high end of the enterprise. We also saw broad-based strength in Europe. And that is pretty much to the core business like the large insurance company on the claims engine and other things that I spoke about related to policies. So I particularly see that as, okay, is that -- does that mean that if core is modern, it helps with AI workloads, absolutely, that is true because they are not mutually exclusive. And Karl, one thing I would say, this is my personal experience in building AI technologies in the past. That the AI team is typically a separate team from the core data team. And AI team relies on the core data team. And if the core data team moves slow, then AI teams get really frustrated because innovation velocity is how they measure themselves on. So my personal experience was, hey, when the core team is not agile there schemas are not flexible, it actually slows AI down. So that is definitely some facts behind your theory that it is potentially the AI revolution, which we are still in the early stages, is driving modernization in the other part of the enterprise. Karl Keirstead: Okay. And then, Mike, for you, I think everybody on the line appreciates the more definitive guidance on Atlas for the following quarter. So thank you. I wanted to ask what's driving that? Is it simply a function of you and just in your new -- relatively new seats, wanting to be more transparent in the guidance? Or Mike, is there something actually changing in Atlas such that now that it's at scale, it's becoming predictable enough that it now makes more sense to give precise guidance? Michael Berry: So thanks, Karl, thank you for the question. I would say it's probably a little bit of both. One is, hey, we want to give you folks a little bit more visibility to what's behind the guidance that we provide. That was number one. Also, as Atlas gets to be, gosh, now almost a $2 billion business, we feel better about the forecasting. The team has done a wonderful job forecasting that part as well. So when we gave the number for Q4, we want to make sure and give you the visibility. But we also have a pretty good view of what we hope it would be, understanding that, keep in mind, Q4, we want to be prudent because there are some seasonal holiday patterns that can be somewhat unpredictable, and we've seen that play out in the past Q4s. So I just want to note that for the guidance that we just gave. Operator: And the next question will be coming from the line of Raimo Lenschow of Barclays. Raimo Lenschow: CJ, all the best from me as well. I had 2 questions, one for CJ, one for Mike. CJ, on the -- one of the core things in terms of adoption of Mongo will be on the developer side because they're -- at the end of the day, developers are like a big driver of like what's getting used, et cetera. At the moment, a lot of AI is on the West Coast. What's your thinking around like getting AI -- getting developer engagement up with Mongo to kind of go against that Postgres kind of narrative that happens a lot in the valley. And then, Mike, for you, like since next year EA is not seeing benefits from all the year. Should we anchor our numbers on the ARR performance? And is that the right way to think about it? Chirantan Desai: Thank you, Raimo. Great to hear from you. I'm going to first ask -- there is a little bit of historical context in terms of your point on the West Coast. I'm going to ask, our previous CEO, Dev Ittycheria to talk about reclaim the Bay, the initiative that him and the team started, and then I'm going to specifically talk about how I think about it on the West Coast. Dev Ittycheria: Raimo, it's Dev here. As CJ mentioned, we've talked about this in previous calls, but we made a concerted effort to reinvest in the Bay Area because during COVID and post-COVID, we felt that we had neglected that region. And obviously, there was a whole new corpus of AI-native companies that were getting launched. So there's been a real concerted effort both in terms of putting more feet on the street, putting more marketing efforts in terms of supporting that part of the world. Investing more in the start-up community and also in the venture community to get people to understand the true value proposition of MongoDB. We've done things like hackathons and other events in that area as well. And so the team's really focused, dedicated to really supporting and servicing these early AI native companies, and that is starting to yield some results. And we feel really good about the progress there, but I'll let CJ talk about what happens going forward. Chirantan Desai: Thank you, Dev. And this is the reclaim the Bay in San Francisco on the West Coast. It is 100% true Raimo, that there is a lot of investment with AI-native companies, and we could benefit from increased mind share and being in front of them as in the developer community that you talked about, which is a super important community to us on the West Coast. So me spending personally time on the West Coast house. I do also have deep network in the West Coast community, both venture community as well as tech companies at scale. And I've already started leveraging that network to get their feedback. We are really excited in this quarter, as in the 4Q, we are relaunching our .local after a few years in San Francisco on January 15, where we are going to invite companies that have built on MongoDB, some great speakers on why they should build on MongoDB and show hands-on experience to the developer community in that conference on January 15. And what I see is just speaking to many CEO founders as well as developers of smaller companies or midsized companies, all these efforts of the marketing investment that Mike and Dev originally approved is going to start yielding results as we move into the next fiscal year. Michael Berry: And Raimo, thanks for the question. It's Mike. On non-Atlas next year, we wanted to make sure we've had a lot of questions about the multiyear headwind. So thank you for the question there. We are not guiding for fiscal '27. However, sitting here today, I would steer you more towards -- if you look at the full year revenue growth of non-Atlas it's about 4%, somewhere in that mid kind of low single digits is probably a good range to think about for next year as we sit here today. Operator: And our next question will be coming from the line of Brad Reback of Stifel. Brad Reback: Great. I'm not sure who this is for, but on the commentary around new customer strength within Atlas, are you seeing new customers ramp faster for net new workloads than they have been historically? And if so, why? Chirantan Desai: Brad, my initial observation is that the team -- engineering team has done a fantastic job when they launch 8.0 and all the subsequent point releases that allows Atlas to be adopted faster and remove the friction, whether you are coming via our self-serve channel or whether you are a large enterprise moving onto Atlas. So that's one thing I would say. And I'm going to ask Dev to provide commentary as well from a context perspective. Dev Ittycheria: Yes. I think what I'd also say is that, Brad, is that I think we've -- the self-serve team has really removed the friction to enable customers to onboard more quickly and more easily. And given the performance -- price performance gains that we've seen in 8 and now even better in 8.2, I think that's really driving a lot of the traction we're seeing in our new customers they quickly see the performance benefits and they're scaling nicely. And so that's allowing us to continue to acquire customers efficiently. Michael Berry: And one last thing on that, Brad. If you look at the revenue from that, it hasn't changed materially. It's still, keep in mind, a pretty small number when they first onboard, so it's not going to move the needle much. We haven't seen much change in that cohort over the last couple of years. Brad Reback: Great. And then, CJ, a quick follow-up for you. Philosophically, how do you think about M&A as it relates to Mongo? What types of things, if anything, you think you need to acquire? Chirantan Desai: Brad, you know me well, and I'm a big believer in organic growth. The team, Dev and the team have laid a very strong foundation on our technology platform. I think Voyage AI in February was a brilliant acquisition, where we got unbelievable team in Palo Alto. And my goal on behalf of MongoDB is to always believe in our own teams and our technology. We participate in a large market and where it makes sense, where we can get a particular adjacent technology or a great team that can help us accelerate the road map, we would always consider that type of M&A. Operator: And our next question will be coming from the line of Alex Zukin of Wolfe Research. Aleksandr Zukin: CJ, maybe for you. I mean, you shared, I think, a lot of thoughts about your initial vision. You shared the 3 pillars of the core, the enterprise AI opportunity and the AI natives. I just want to maybe lean in, where do you see your particular skill set of network offering kind of not the lowest hanging fruit, but your ability to make kind of the biggest impact in, call it, the next 12 to 24 months? Like where do you really see that incremental opportunity for growth inflection? Chirantan Desai: I would say, Alex, and -- you are aware of the enterprises and the customer obsession I have and the relationships that I have formed over many, many years with technology leaders at large companies. So, from my perspective, there are 2 areas where I can benefit our go-to-market teams immensely. Number one is Fortune 500, where MongoDB can still penetrate even at a higher rate than it is penetrating today, both within the existing accounts as well as the new accounts we get. So that's Fortune 500. And then I was with our sales teams in Europe, and there are many customers that they are targeting, including existing customers, large banks, manufacturing companies and so on, where they're trying to expand where my personal relationships with those technology buyers can help. So that's bucket number one is make no mistake, high end of the enterprise as in Fortune 500 and Global 2000. Number two, on the other extreme would be AI-native companies, lived in Silicon Valley for a very long time. I understand where venture community is investing, folks who are creating, whether it's domain-specific AI companies or foundational companies have relationships there as well across [ 101, 280 and 237 ], and that's where I also plan to -- I would say, plant the seeds in a correct fashion so that over time, that becomes a meaningful business for MongoDB if we are the underlying infrastructure for those companies. So those are the 2 extremes that I'm going to spend personally a lot of time on. Aleksandr Zukin: Excellent. And you mentioned Voyage AI the acquisition this year being kind of a crown jewel in the portfolio. Maybe just help us understand with the AI native, specifically the opportunities there, are those starting -- are you guys landing with Voyage? Are you landing with Atlas? Are you landing with both now at a more kind of constant pace? Help us understand kind of that incremental differentiator. Chirantan Desai: Yes. I would say one example, and this in my remarks, I shared that there is a super high growth AI company that is doing very, very well and will become a very large company. I have absolutely no doubts about that. They were not able to scale with Postgres and few other technologies, Redis and so on that they were using, and they moved completely to MongoDB and seeing that week-over-week and month-over-month growth is super inspiring. And I spoke to the hyperscaler where this workload is running and they are seeing the same that, wow, this company is doing really well. So that's built on MongoDB because Postgres had scaling issue. The other extreme, I spoke to a fairly successful AI native company that is doing decent ARR, growing very fast. And when I said, hey, have you considered MongoDB to the founder, CEO, who is very technical. And he said, CJ, we didn't, we built our own vector database and so on. And while I was speaking to him Alex, about 10 days ago, he basically said, once he looked at the portfolio, he said, let me start with embeddings first. So we are going to try. Of course, we have to prove it to him why our embeddings improves his accuracy on search and so on and improve the performance. So he said, let's start with embedding models first from Voyage AI once that works CJ, I'm willing to replace my vector DB that we have homegrown created it with MongoDB and oh, by the way, if that works well, eventually, I'm willing to swap out my operational database as well and use MongoDB. So in those kind of scenarios where they are already on a certain track we can land with Voyage AI embeddings. And I'm also seeing in a very large customer of MongoDB, I spoke to somebody who is running the AI initiatives, and they love the Voyage AI embeddings and reranking model, and they've already approved it for 2 big workloads. So we can absolutely land with that is the short answer. Aleksandr Zukin: Sounds like a beautiful synergy. Operator: And the last question for the day will be coming from the line of Ryan MacWilliams of Wells Fargo. Ryan MacWilliams: The consumer app development environment is getting stronger as new iOS app development has surged multiyear highs. We think it's due to agentic coding, And I know it's early but on the enterprise side, are you seeing stronger product velocity from your customers in building their enterprise applications? Chirantan Desai: I'm going to ask Dev to provide his opinion, and then I'll provide mine. Dev Ittycheria: Yes, I think what we're seeing is we're clearly seeing a lot of, I would say, prototyping and iteration. I would say the enterprise requirements still have a pretty strong and stringent requirements around security and durability and performance. So while there's a big difference between coming out with the prototype and having a production-grade system that an enterprise can truly rely on trust. And so there is still a lot of work required to make those applications enterprise class. But clearly, with the advent of [ cogen ] tools, the rate and pace of software development is only going to increase. And as I think we said in the past, that's one of the big reasons why we think AI is a tailwind. It's just that the ability to produce more software, [indiscernible] more database and more and more strategies has been encapsulated in software. So from that point of view, we think that's all good news for us. Chirantan Desai: Yes. And the only thing I'll add on is, when I speak to customers who I've been speaking for a long time, in regulated industries, which is financial services, which is health care, which is public sector, the requirement for an AI agent to be in production versus prototype are vastly different, and they are looking for governance, auditability, this and that, while the innovation and the need for the speed is very high. So I have not seen -- like customers will tell me, CJ I have 10 agents in production, 15 agents in production. And when I really asked them, I say, are they really customer-facing? Can they be audited on the probabilistic outcome they derive? The answer is, oh, we are still working through that. That doesn't mean that it will not happen soon, but it will never happen. But I still feel we are fairly early. And even the environment on which they are building agents, they are telling me they try one, it doesn't work, they move on to the next one. So the churn for some of these AI companies that deliver these tools is also very real. And that's why I'm very encouraged by the MongoDB opportunity. We have the platform for operational data. We have the best vector database and we have the embedding models where they can comfortably at enterprise scale, build a real AI agent using MongoDB platform. Ryan MacWilliams: Excellent. Really appreciate that detail. And then for Mike, on the Atlas 4Q growth guidance. I appreciate the color there. Just a quick clarification, on this 4Q Atlas guidance, should we expect results closer to the pin or a guidance philosophy consistent with your historical precedent? Michael Berry: Yes. So thanks. I don't want to go into the golf analogy. And besides Ryan, you know I like hockey analogies better. What I would say is that, hey, we are -- we feel really good about Atlas. It's had a great year so far. We feel good about it going into Q4, we remain excited about the growth. That being said, we are being prudent for Q4 as a holiday -- as the seasonal holiday patterns, hey, they can be somewhat unpredictable and we've seen that play out in the past Q4s. So what I would say is, hey, we just need to be prudent as we enter the holiday season. Operator: Thank you. That does conclude today's Q&A session. I would like to go ahead and turn the call back over to MongoDB's President and CEO, CJ Desai, please go ahead. Chirantan Desai: Thank you, Lisa. In summary, we delivered an exceptional third quarter, highlighted by accelerating Atlas growth, robust customer additions and significant operating margin outperformance. We are raising our revenue and operating income guidance for the fourth quarter and full fiscal year 2026 and reiterating our commitment to the long-term financial model we outlined at Investor Day. Our results underscore that MongoDB's core business is firing on all cylinders even before any meaningful AI tailwinds. At the same time, we are uniquely positioned to become the generational modern data platform for the AI era, all while driving durable, efficient growth. Thank you, everyone, for joining, and thank you for listening. Operator: This does conclude today's conference call. You may all disconnect.
Operator: Ladies and gentlemen, thank you for standing by. [Operator Instructions] I'd now like to turn the conference over to Dan O'Neil. Please go ahead, sir. Daniel O'Neil: Good afternoon. Thank you for joining our earnings call for the second quarter of fiscal 2026. Today, I'm joined by Bill Brennan, Credo's Chief Executive Officer; and Dan Fleming, Credo's Chief Financial Officer. During this call, we will make certain forward-looking statements. The forward-looking statements are subject to risks and uncertainties discussed in detail in our documents filed with the SEC, which can be found in the Investor Relations section of the company's website. It's not possible for the company's management to predict all risks nor can the company assess the impact of all factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. Given these risks, uncertainties and assumptions, the forward-looking events discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated or implied. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call to conform these statements to actual results or to changes in the company's expectations, except as required by law. Also, during this call, we will refer to certain non-GAAP financial measures, which we consider to be important measures of the company's performance. These non-GAAP financial measures are provided in addition to and not as a substitute for or superior to financial performance prepared in accordance with U.S. GAAP. A discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed using the Investor Relations portion of our website. I will now turn the call over to our CEO. Bill? William Brennan: Thanks, Dan, and thank you, everyone, for joining our fiscal '26 second quarter earnings call. I'll walk through our Q2 results, highlight the transformative developments we've announced since our last call and then share our forward outlook. After my remarks, our Chief Financial Officer, Dan Fleming, will provide a detailed financial review and our guidance for the third quarter. In the second quarter, we delivered record revenue of $268 million, representing 20% sequential growth from Q1 and an extraordinary 272% increase year-over-year. Non-GAAP gross margin came in at a robust 67.7%, and we generated approximately $128 million of non-GAAP net income. These are the strongest quarterly results in Credo's history, and they reflect the continued build-out of the world's largest AI training and inference clusters. AI clusters are no longer measured in tens of thousands of GPUs. They're now measured in hundreds of thousands and soon millions. The scale, density and complexity of these systems are pushing every aspect of interconnect. Reliability, power efficiency, signal integrity, latency, reach and total cost of ownership have all become mission-critical. This is the challenge our customers face, and it's where Credo is uniquely positioned to deliver the solutions they need to succeed. Our 3-tiered innovation framework, purpose-built SerDes technology, world-class IC design and a true system-level development approach, all wrapped with our industry-leading pilot debug and telemetry platform has allowed us to forge deep strategic partnerships. Let me now walk through our business in detail. Starting with our active electrical cables. The AEC product line remains the fastest-growing segment in the company. AEC revenue again grew strongly, driven by rapidly increasing customer diversity. In Q2, 4 hyperscalers each contributed more than 10% of total revenue. The fourth hyperscaler is now in full volume ramp and a fifth started contributing initial revenue. Customer forecasts have strengthened across the board in the past months. AECs have become the de facto standard for inter-rack connectivity and are now displacing optical rack-to-rack connections up to 7 meters. At 100 gig per lane today and 200 gig per lane tomorrow, zero-flap AECs deliver up to 1,000x better reliability than traditional laser-based optical modules while consuming roughly half the power. When you're installing a 100,000 GPU cluster, Link Flaps can delay time to stability and time to revenue. And when you're training a model costing tens of millions of dollars, Link flaps can have a significant impact on overall uptime and productivity. It is this step function improvement in reliability and power efficiency that's driving the expansion of the AEC TAM in 100 gig and now 200 gig per lane generations. And we expect that trend to continue as customers densify racks and push cluster scale to new levels. Next, our IC business, which includes retimers and optical DSPs, also continued the strong performance. We expect significant optical DSP growth in fiscal '26, driven by 50-gig and 100-gig per lane deployments with longer-term growth driven by our 200-gig per lane solutions. Live demonstrations last quarter of our 200-gig per lane Bluebird optical DSP drew significant interest and extremely positive feedback. Ethernet retimers remain important in both traditional switching fabrics and the fast-growing AI server segment, where features like MACsec encryption, gearbox functionality and rich software programmability are highly valued. Our PCIe retimer and AEC families are also progressing on plan. Customer silicon evaluations have consistently highlighted our best-in-class combination of reach, latency and power efficiency, a rare trifecta enabled by our unique purpose-built SerDes architecture. We remain on track for PCIe design wins in fiscal '26, followed by meaningful production revenue in fiscal '27. Our existing AEC and IC businesses both address multibillion-dollar market opportunities with excellent visibility for continued growth. But the truly exciting part of this quarter is that we've added 3 entirely new growth pillars, each representing distinct multibillion-dollar market opportunities that significantly expand our total addressable market and extend the reach and depth of our connectivity leadership. The first new growth pillar is Zero Flap optics, the first laser-based optical connectivity family that delivers AEC class network reliability, enabled by a customized optical DSP that is tightly coupled with our pilot software and integrated with a switch level SDK, our Zero Flap optics integrate with our customers' network software. Link Health telemetry data on each optical link enables autonomous detection and mitigation of conditions that cause link flaps before they bring down the cluster. This enables a step function improvement in network reliability. We're currently in live data center trials with our lead partner, and we expect to begin sampling a second U.S. hyperscaler later this fiscal year. Our ZF optics solutions expand our addressable market to any length of connection within the data center. We anticipate initial revenue in fiscal '27 and long term, a market that will be a multibillion-dollar opportunity. The second new pillar of growth was announced in September. Credo has combined forces with Ottawa-based Hyperlume, a team of experts specializing in high-performance microLED technology. Credo has been investing in micro LED innovation over the past 18 months with the intent of developing a new class of connectivity solutions. Uniting with the Hyperlume team will accelerate our time to market. As a first product, we'll develop and bring to market a pluggable optical solution that utilizes micro LEDs as the light source. Our same 3-tiered innovation playbook will be the catalyst to pioneering this entirely new connectivity category we call active LED cables or ALCs. ALCs will deliver the same reliability and power profile as an AEC, but in a thin gauge cable that can reach up to 30 meters and is ideal for row scale scale-up networks. Customer reaction has been very positive. We plan to sample the first ALC products to lead customers during our fiscal '27 with initial revenue ramping in fiscal '28. We believe the ALC TAM will ultimately be more than double the size of the AEC TAM. Finally, we announced the third new pillar of long-term revenue growth, OmniConnect gearboxes, a family of products that will enable a disaggregated and optimized approach to XDU connectivity. In November, together with our lead customer, we unveiled the first gearbox that will address that memory wall by redefining memory to compute connectivity, a solution we call Weaver. Today's on-package high-bandwidth memory is capacity and throughput limited as well as expensive and supply chain constrained. Weaver allows designers to move to commodity DDR memory and achieve up to 30x more memory capacity and 8x the bandwidth. The key enabler for the OmniConnect family is Credo's purpose-built 112-gig VSR SerDes that enables a 10x improvement in beachfront I/O density and has a reach of up to 10 inches. The Weaver gearbox from 112-gig BSR to DDR effectively overcomes the physical and logical limitation of current memory to compute connectivity solutions. Our first customer for Weaver announced their plan to deliver an XPU targeted for inference with 2 terabytes of memory capacity, a complete game changer for workloads such as real-time AI video generation and full self-driving, where memory capacity and bandwidth are the primary gating factors. Industry forecasters project the memory to compute connectivity market to be a multibillion-dollar market by the end of the decade. We anticipate initial revenue in our fiscal '28 with significant scaling thereafter. The next OmniConnect gearboxes to be introduced will provide a future-enabled path to scale out, scale up and near package optics connectivity with XPUs. In summary, we now have 5 distinct high-growth connectivity pillars: AECs, IC solutions, including retimers and optical DSPs, zero-flap optics, ALCs and OmniConnect Gearbox solutions. Together, they'll give Credo a combined total market opportunity that we believe will exceed $10 billion in the coming years, more than triple where we stood just 18 months ago. Looking forward, we couldn't be more excited about the combination of continued growth in our core AEC and IC businesses, plus the upcoming ramps of ZeroFlap optics, ALCs and OmniConnect gearboxes. We believe this combination gives us a strong outlook into continued revenue growth through fiscal '26 and well beyond. Team Credo continues to execute at an elite level, delivering record results quarter after quarter while simultaneously pioneering and launching new multibillion-dollar product categories. I'm proud of our world-class operational excellence and innovation. With that, I'll turn the call over to Dan Fleming for a detailed financial review and our Q3 guidance. Daniel Fleming: Thank you, Bill, and good afternoon. I will first review our Q2 results and then discuss our outlook for Q3 of fiscal year '26. In Q2, we reported revenue of $268 million, up 20% sequentially and up 272% year-over-year and well above the high end of our guidance range. Our product business generated $261.3 million of revenue in Q2, up 20% sequentially and up 278% year-over-year. Notably, our AEC product line again grew healthy double digits sequentially to achieve new record revenue levels once again based on substantial year-over-year growth across 4 domestic hyperscale customers. Our top 4 end customers were each greater than 10% of revenue in Q2. As a reminder, customer mix will vary from quarter-to-quarter, and we continue to make progress in diversifying our customer base. We continue to expect that 3 to 4 customers will be greater than 10% of revenue in the coming quarters and fiscal year as hyperscale customers continue to ramp to more significant volumes and as we expect to begin to ramp an additional hyperscale customer in the coming quarters. Our team delivered Q2 non-GAAP gross margin of 67.7%, above the high end of our guidance range and up 11 basis points sequentially. Our product non-GAAP gross margin was 66.8% in the quarter, up 18 basis points sequentially and up 469 basis points year-over-year. Total non-GAAP operating expenses in the second quarter were $57.3 million, slightly above the midpoint of our guidance range and up 5% sequentially. Our non-GAAP operating income was $124.1 million in Q2 compared to non-GAAP operating income of $96.2 million in Q1, up demonstrably due to the leverage attained by achieving more than 20% sequential top line growth, while OpEx growth was in the mid-single digits. Our non-GAAP operating margin was 46.3% in the quarter compared to a non-GAAP operating margin of 43.1% in the prior quarter, a sequential increase of 319 basis points. Our bottom line once again demonstrated the substantial leverage we are delivering in the business. Our non-GAAP net income was $127.8 million in the quarter, a record high and a 30% sequential increase compared to non-GAAP net income of $98.3 million in Q1. And our non-GAAP net margin was 47.7% in the quarter as we drove significant leverage in the business. Cash flow from operations in the second quarter was $61.7 million, up $7.5 million sequentially. CapEx was $23.2 million in the quarter, driven largely by purchases of production MACsec. And free cash flow was $38.5 million, down from $51.3 million from the first quarter due to higher CapEx investments. We ended the quarter with cash and equivalents of $813.6 million, an increase of $333.9 million from the first quarter, up largely from the proceeds of our ATM offering, which began in October. We remain well capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer. Our Q2 ending inventory was $150.2 million, up $33.5 million sequentially. Now turning to our guidance. We currently expect revenue in Q3 of fiscal '26 to be between $335 million and $345 million, up 27% sequentially at the midpoint. We expect Q3 non-GAAP gross margin to be within a range of 64% to 66%. We expect Q3 non-GAAP operating expenses to be between $68 million and $72 million. We expect Q3 diluted weighted average share count to be approximately 194 million shares. These expectations are based on the current tariff regime, which remains fluid. As we look toward the end of fiscal year '26 and into fiscal '27, we expect sequential revenue growth in the mid-single digits, leading to more than 170% year-over-year growth in the current fiscal year. We expect each of our top 4 customers from Q2 to grow significantly year-over-year in fiscal year '26. We also expect revenue diversification to strengthen further with our fourth customer surpassing the 10% revenue threshold for this fiscal year. We expect non-GAAP operating expenses to increase year-over-year by approximately 50% in fiscal year '26. As a result, we expect our non-GAAP net margin to be approximately 45% for fiscal year '26. This should translate to net income more than quadrupling year-over-year. And with that, I will open it up for questions. Operator: [Operator Instructions] And your first question comes from the line of Tom O'Malley with Barclays. Thomas O'Malley: So you're seeing an expansion of the AEC market pretty rapidly here with the fourth and then now soon to be the fifth 10% customer kind of rolling on. I found it interesting amidst but it was clearly like a really strong ramp in the AEC market, you're able to say that when you look at the ALC market, you could see that being double the AEC TAM. So talking big numbers, maybe you could spend a little time talking about whether that's unit-driven, whether that's ASP-driven, just surprised given the size -- given how well AECs have done. William Brennan: So I think it's a combination of both the quantity as well as ASPs. Now when we think about ALCs, it's really an ideal product from the standpoint of delivering the same reliability as AECs, which is really the most critical factor right now with host to [indiscernible] or GPU to switch connections. Also, from a power efficiency standpoint, it's in the same class as AECs. I would say from a system cost perspective, again, in that same class. What it delivers is a thinner wire gauge and longer length. And as we see the scale-up networks really going from intra-rack to row scale, we're talking about a tremendous increase in the number of connections. We estimate that it could be up to 10x that of the number of scale-out connections. And so yes, we are really, really bullish and we're strong believers in microLED as a technology that's really going to be a game changer for us as well as our customers. Thomas O'Malley: And then just on the timing and the scale of the other customers ramping on, maybe you could give us what the percentages of the top 4 were this quarter? And then any commentary on how large those other customers rolling on will be just to give us a feel for how one is kind of handing off the next over the next couple of quarters would be super helpful. Daniel Fleming: Sure, Tom. So for Q2, as we mentioned in my prepared remarks, we had 4 10% customers. The largest was 42% of revenue, and that was the customer that we've, in the past, said we expect to be the largest customer this fiscal year. The second largest was 24%, which have to be our first hyperscaler to ramp a few years back. Third largest was 16%, which was our largest customer in Q1. And the fourth was 11%, which is our newest hyperscaler that we've discussed in the past. So when you kind of plot that all out, what you see and what we've been fairly consistent in saying is that the ramp at any given single hyperscaler is never really linear. So we're seeing that with our largest customer from last quarter, taking a bit of a pause this quarter. But our largest customer for this fiscal year, which had been down for the last few quarters is back up again. So there is definitely a give and take that we are managing through. And again, we have 12-month visibility, in some cases, even greater visibility with our customers in order to be able to manage that through the course of time. Hard to predict exactly how things are going to fall quarter-to-quarter longer term. But hopefully, that gives you kind of a flavor as to what we're seeing kind of on the ground right now today. Operator: And your next question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Yes. Congratulations on the solid results. Bill, I had a question on your sort of 3 new product lines here, obviously, all in the optical domain. First of all, could you maybe elaborate a little bit on how much you're focusing on the system-level products because obviously, in copper, yes, you have system-level products, but the 3 areas in optical, how much of those should we assume or systems? And then I have a follow-up. William Brennan: Yes. So we've been very consistent in talking about our intent to continue to expand our portfolio at the system level. And I would say that, yes, ALCs as well as ZF optics, those are both optical solutions. But the OmniConnect family will be initially copper-based and then longer term, we'll offer near package optics options with that. And so I think that from the standpoint of delivering value to our customers, we are very much focused on delivering non-commodity [ non-IEEE ] standard well beyond what that standard calls for. And I think ZF optics is a great example of that in a sense that going back 18 to 20 months ago, we really heard strong feedback from multiple customers that reliability was the top priority as people became more familiar with the issues that they were seeing with building out AI clusters. And so with one of the customers that we were on stage at OCP, we've got to work thinking about how do we integrate higher level within the stock, how do we integrate within the network software for that customer within their AI cluster. And so the concept is how do we how do we provide more visibility, more telemetry, how do we make that information available and actionable at a network level. When we think about the opportunity that we're creating for our customer here is it's really creating almost like a check engine light being able to set a threshold on links, all of the links within a cluster enable it to sense real time when those -- any of those links are degrading, being able to set a threshold and once that signal integrity drops below that threshold, being able to action it by in an orderly fashion, taking that GPU out of the cluster before you see a link flap that could potentially take down -- take that cluster entirely. And so that type of value add is completely innovative, and it's defining a new class of optical connectivity. And it's very, very targeted for reliability. And that reliability is really with traditional laser-based optical transceivers. So that's been a big investment. It had -- we delivered a custom optical DSP. We have -- the whole pilot telemetry platform is something that we've been working on for many years, and there's a lot of special development work that was done to tightly couple that optical DSP. And then integrating within a switch level SDK, this is -- these are all things at a system level that needed to be done to be able to bring this product to market. When we think about ALCs, I've talked about that. That's a game changer. It's basically changing the light source to at a ground level, deliver better reliability. And when we think about our first gearbox in the Omnionnect family, it is a copper solution, but it's redefining how memory to compute or memory to XPU connectivity is done. And when we think about the alternative being HBM, all in package, all driving extremely challenging heat dissipation environments, that translates directly to reliability as well. So being able to move the memory up to 10 inches away, not only does it lift the logical and physical limitation that you've got by being in a package with a beachfront I/O density that's not as dense. It really eliminates the reliability issue that you've got with the heat that's generated by putting so much memory in a single package with the XPU. So it's really a combination of both optical and copper. But again, we're agnostic to the medium. We're agnostic to exactly how these solutions are put together, whether they're copper or fiber. It's ultimately delivering a solution to the customers that is just much better than it's in the market today. Tore Svanberg: That's very helpful. And as my follow-up, and I'm very interested in the 112 gig VSR SerDes technology. I think you mentioned initially, it's going to be copper, but eventually, you're going to have an optical solution as well. I'm just curious, would you have to develop some silicon photonics technology there? Or would that still sort of be a solution in the pure silicon domain? William Brennan: Yes. So regarding the SerDes that was developed specifically for this application. I love the arguments in the market about who's got the best SerDes and a lot of times in the market, people like to think the longest REIT SerDes is obviously the best. We look at it differently. We really look at it from an application-specific perspective. And so when we think about the idea of giving an XPU customer a piece of IP to integrate. We think about how do we achieve the smallest footprint, the lowest power. And ultimately, with this VSR SerDes that we developed on a max reticle die, we can fit 1,200 of these SerDes, creating 120 terabits per second of potential bandwidth. That's unprecedented. That has yet to be achieved, especially when you think about the reach being 10 inches. Other competitive solutions, the reach would be an inch or less. And so basically, forcing there to be a die-to-die connectivity versus moving a chip outside the package. And so it's a real breakthrough. I would argue that this SerDes is best-in-class, and it's enabling an entire family of solutions that range from I/O solution for memory, but also from a scale-out or scale-up perspective and long term with near package optics. And the near package optics will leverage the work that we're doing in microLED. So first step will be ALCs and then we'll roll that right into some additional game-changing applications like near package optics. Operator: Your next question comes from the line of Vivek Arya with Bank of America. Vivek Arya: Bill, which applications are your 4 customers using AECs for today? And which applications are they not yet using AECs for? And as they look into next year, there's a lot of talk of co-packaged optics coming into the mix. And I was hoping you could give us a sense for what impact that might have on the current or future AEC usage by your customers? William Brennan: So the different applications that we've talked about in the past have been, number one, front-end network connections, which, of course, that was the first application to ramp with our first customer years ago. We've also talked about the scale-out opportunity as part of the back-end network of AI clusters. The third application we've talked about is switch racks. And that would be as opposed to buying a chassis filled with switches, you would stack those vertically in a rack. And that backplane connection within a chassis would become a short cable connection within the rack. Those are the first 3 applications we've talked about, and we are in production with all 3 of those with different customers. We're definitely not fully penetrated with all of our customers, but we are in production with all 3 of those applications. I would say the one remaining application that will be high volume is with the scale-up network as that network goes rack scale and then ultimately goes row scale, depending on the density and the number of racks that are being deployed. Now as it relates to co-packaged optics, this is a -- and this has been a long conversation really for the 12 years I've been involved in this industry, there's been a conversation about moving to a co-package. It's changed names or changed acronyms over time. But I think that before it takes off in a really big way, there's got to be answers to the pitfalls that are very, very well known, number one, related to reliability, serviceability, maintenance, cost, of course. And we think that there are solutions that are going to be more optimized from a power standpoint, more optimized from a reliability standpoint. And we're focused on bringing those solutions to market really maybe even within the same time frame as people talk about co-packaged optics. So there's been lots of demonstrations, but we don't see a lot of customers moving forward in a big way that would have an impact on us. I think it's safe to say that from that [indiscernible] connection perspective, reliability is top, absolutely top of the list on priorities. So I think we're -- that's obviously the high-volume part of the market, and we don't see that moving to CPO anytime soon. Vivek Arya: And for my follow-up, I'm curious, how does your ASP lift from the 100 to 200 gig per lane compared to the lift that you have seen and are still seeing in the 50 to 100 gig transition? And does the competitive landscape change as you start moving to 200 gig, does that new application create a bigger opportunity for some of your competitors? William Brennan: I think the question is a bit more complex than just thinking about moving from one lane speed to a faster lane speed. Our ASPs are highly dependent on the number of connectors in the SKU, the devices that we're using within those connectors and the length of the connections. And so it is safe to say that we have had some uplift going from 50 to 100 gig. And I believe there's going to be an uplift going from 100 to 200, but I can't kind of categorize it simply. But I do think that naturally, there will be an advantage as we move to faster lane speeds. Operator: Your next question comes from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Congratulations on the nice results and outlook. I guess, Bill, I had a question just on the supply side of things. I think looking at the 10-K you guys put out, you list Bizlink as sort of your sole provider of AEC cable manufacturing. And obviously, the forecast here is getting pretty big pretty quickly. How are you feeling about AEC supply? Are there any constraints you're working through? Anything to call out on the supply front? William Brennan: I think we're entering a period of time where we will be talking about supply constraints more frequently. Now as it relates to our AEC volumes, I don't see a concern related to the quantity that we can produce with our partners. I think we've proven that over the last year that we can ramp significantly in a very short period of time. So this is a completely different equation than thinking about a wafer foundry. And so I do -- over the last 2 to 3 months, we've really seen an increase in the conversations around what is the total potential wafer demand in the market for next year and the year beyond and the year beyond that. And I do think that if we look at it from a demand standpoint, the market in general is going to kind of quickly get to the point where we're kind of almost self-regulated by foundry capacity. And so I don't want to be too controversial talking about it. But I think from an advanced node perspective, I think it's going to be a more frequent conversation about capacity constraints at a wafer level. Now as it relates to Credo, I think that a couple of things give us an advantage. We've talked about -- if you remember, the [NYS-1] process strategy, which is we've always had a strategy to be in older geometry processes than our competition if we can deliver best-in-class power, best-in-class die sizes and best-in-class performance. And so we've done that successfully over time. So right now, 12-nanometer is our workhorse. And that's not as tight as, say, 3-nanometer or 5-nanometer. And so we feel pretty good about where we are just related to a situation where there's an increasing demand across the board for wafer volume. But I also will say that our foundry partners are very, very well in tune that the connectivity solutions, the relatively small die size connectivity solutions are critical for shipping GPUs. You can't really ship GPUs without connectivity solutions. And so I think for a couple of reasons, I think we're going to be able to manage our way through that. Now as far as our partners within the AEC product, yes, I mean, this is why being vertically integrated like we are gives us an advantage because I've got a system-level supply chain team that is making sure that all of the partners that supply components that go into the AECs that they've got as much visibility and much commitment as they need to go build out what we see needed in the future. And so I think -- yes, great question. I think it's going to be really topical as we go through calendar '26. Quinn Bolton: And for my follow-up, Phil, just looking at your top 2 customers, I believe they are still at either 50 gig or 25 gig per lane. But just wondering if you could confirm that at least -- it still feels like the vast majority of your AEC business is at 50 gig per lane, and it sounds like there's an opportunity that as those customers ultimately transition to 100 gig per lane, there's probably some ASP lift you would see with that transition. I won't ask you to comment on specifically when they may transition. But just I don't think it's happened yet. I was hoping you could confirm that the top 2 guys are still either 25 or 50 gig per lane. William Brennan: I'll confirm that we're in production with 25 gig per lane, 50 gig per lane as well as 100 gig per lane. And probably one of the fastest-growing parts of our business has been the shipments of 100-gig per lane solutions. And so the -- yes, you're right that it's not so simple for me to categorize it. I do think that over time, you'll see the entire customer base moving to 100 gig per lane and then making a move towards 200 gig per lane over the next 2 to 3 years. So I think generally, the trend that you're referring to, I think that we can say generally that it's accurate that we'll see uplift as the market migrates towards faster speeds. Operator: Your next question comes from the line of Suji Desilva with ROTH Capital Partners. Sujeeva De Silva: Congrats on the progress here. Maybe you could talk about your customers now when your first IPO, you had a handful of customers, now you're gaining with 5 customers here potentially. So the hyperscales that don't kind of use you at a scaled level 10%-plus type levels. I know you're in all of some level. What is the difference between the customers you haven't penetrated yet and the ones you're getting to 10-plus percent in various quarters. William Brennan: We look at every one of the hyperscalers as almost a different market. They're all trying to maybe solve the same problem generally, but there's so many different ways to solve those problems. And so network architecture is very much specific to each one of our customers. And I can tell you that the first program that we engage with, typically, that's led to many other programs within the same customer. And I think that as we think about the customer base right now, we think of 6 hyperscalers in the U.S., and we think of a handful in Asia. But I think we're going to be talking more and more about that next tier of customer because I think it's going to be possible to drive pretty big numbers with that next tier of data centers. So generally, I think that as I think about our business, this has been a very significant quarter for us in a sense that we're showing a path to a much more diversified business, not just from a customer base, but from a protocol perspective with PCIe as well as from a just the overall TAM expanding by addressing a much broader market with our system-level solutions. And so if you think about it, you -- we talked about OmniConnect first, and we're really addressing die-to-die or chip-to-chip connections at a system level. And when you think about retimers, those connections can probably be up to 0.5 to 1 meter and typically on an appliance card or a switch card. Then we think about AECs up to 7 meters. We think about ALCs up to 30 meters, and we think about ZF optics up to a kilometer or beyond, whatever the maximum length is within the data center. And so I think in the past 90 days, this has been probably the most transformative from a news standpoint. We've been working on these things for 18 months or so. But now being able to talk about it, I think it shows a clear path to a much more diversified company long term as we think about moving the company from that $1 billion threshold in revenue annually to $5 billion and beyond over the next several years. Sujeeva De Silva: Okay. Appreciate how you classify the products there for us. And then my other question is on manufacturing. I know with AECs, you're doing the cable manufacturing in-house selling the entire cable solution. Is it the same strategy for ALC? Will it be modules versus cables, outsourcing? Any color there would be helpful. William Brennan: The strategy for ALCs will be very similar to the strategy for AECs. We intend to own the entire stack, take accountability for the entire system solution. And so we'll see as that develops that will be a very similar model to what we've got today with AECs. Operator: Your next question comes from the line of Vijay Rakesh with Mizuho. Vijay Rakesh: Bill and Dan, congratulations here. Just a quick question on the scale up. Do you see those revenues start to ramp in second half calendar '26? And I think you mentioned active AD cables ALC in calendar '27. Is that the way to look at it? William Brennan: For scale-up specifically, we're going to enter that market with PCIe Gen 6 solutions. Now of course, we'll entertain Gen 5 in the interim, but really, the product is targeted for Gen 6. We'll bring both retimers and AECs to market simultaneously, and we see a big opportunity for both. If I think long term, that will migrate to faster lane speeds. And PCIe Gen 7 is absolutely a conversation. We'll deliver products to the market to meet that protocol, that Gen 7, 128 gigabits per second per lane protocol. But also, there's a huge conversation about 200 gig per lane. And over time, that -- the protocol war will settle down and ultimately 1 or 2 or even 3 will be in production. We feel good about that because all of the things being discussed right now at 200 gig per lane use the same IEEE SerDes. And so we've talked about being protocol agnostic for the 200 gig per lane generation. And I'll say that all of the products that we've talked about, we're going to be delivering solutions for scale-up with all of those products, including AECs and ALCs. And if the market moves towards longer connections, we will surely move to ZF optics as well, but that's yet to be determined. Vijay Rakesh: Got it. And then longer term, as you -- you're obviously seeing a pretty strong AC ramp. How should we look at the gross margin profile as optical DSPs are starting to ramp as well? Just longer term, how to look at gross margins? Daniel Fleming: Yes. We've been very consistent in saying our long-term expectation for gross margins is in the 63% to 65% range. So we are clearly at a point in time right now where we're a bit above that, but we don't expect that to be the case longer term. If you look at the more medium term, probably we guided to 65% at the midpoint. So we'll be kind of near that high end of that long-term expectation. But just longer term, I expect that to settle down into an area that historically, companies like us have been in. Operator: Your next question comes from the line of Sean O'Loughlin with TD Cowen. Sean O'Loughlin: And obviously, congrats on the great results. I had a question about the ALC technology and your relationship with Hyperlume, specifically, I think, Bill, you just alluded to having been working on this for the last 18 months or so. And I would assume that, that's kind of how the acquisition came together. And then, so maybe just talk about that. And then if you could address if we're sitting here in 2027, 2028 and ALCs haven't ramped, has it been -- is this because of a technology problem that you guys still need to figure out? Or is it because of a business problem that maybe the market didn't go the direction that you thought it would? William Brennan: I think it goes back a couple of years ago that we first became very interested in microLED technology as an option to bring really differentiating products to market first with ALCs and then the second step is to answer some of the pitfalls of near package optics. The first couple of companies that we engaged with were independent companies. And ultimately, we made the decision earlier this year to basically bring the technology in-house, bring the team in-house so that we could have a very predicted outcome on time to market. And so at this point, what we've learned over the last 18 months to 2 years is significant. The team that we've combined forces with Hyperlume, we feel like right at this point, it's more of an execution play. It's not really a -- so the technology, I think, is well on the path to being developed. Now it's just an execution play, bringing it to market. And so I feel confident about bringing a product to market in our fiscal '27 and ramping -- first initial ramps in fiscal '28. From the standpoint of our confidence on this as far as this being a product that's going to resonate with our customers, I think that we've got several years under our belts bringing new products and categories of products to market. The initial conversations with customers, I don't see any major barriers to overcome from the standpoint of customers accepting the product. These are going to be bookended solutions. So they're going to be delivered in the form of a cable. And the bottom line is when we deliver on the promise of reliability, power efficiency and system cost that's equal to AECs, but you get a thinner wire and you get longer length. I mean it's really the perfect type of product. And so I really, again, view this as more of an execution challenge. And I feel very good about the team we've got in place, the additions that we've got planned over the next 12 months to make sure we get this right. Sean O'Loughlin: Yes. And then a quick follow-up on ZF Optics. Understanding that they're a system-level solution, is there a -- is there a line rate or a lane rate that the ZF optics platform is targeting to intersect with? Or is it relatively agnostic, can be leveraged at 50 gig, 100 gig, 200 gig per lane type of applications? William Brennan: It can be leveraged across the board. The first product that we'll go to production with is 100 gig per lane. It will be 800 gig ports that we're addressing. But there's definitely a path to 1.6T. But if we had a customer that wants to bring a product to market that was 50 gig per lane, there's no issue with that. Operator: Your next question comes from the line of Christopher Rolland with Susquehanna. Christopher Rolland: Congrats on the pretty amazing results here. And yes, these are probably going to be for Dan. So you guys, in a very good way, kind of blew up my old model. So I think we've talked -- you guys talked about more than 170% year-over-year growth. Perhaps we can put some brackets or talk about next year obviously, we'll have a deceleration. But do you think that we could grow at a rate similar to the Street where it was? Or do you think that needs to come down a little bit just given the better results for this fiscal year? Just any sort of commentary as to the growth rate for next year would be phenomenal. Daniel Fleming: Yes. We -- so in my prepared remarks, I specifically said mid-single digits revenue growth sequentially through fiscal '27. So that's the expectation that we've set. We set that expectation probably 3 or 4 quarters ago as well if you go back and look at things, and we've outperformed that. So sure, things could change, but we're not setting any expectation that's different from... Christopher Rolland: Okay. Okay. I guess I don't know, does that -- were we at the higher end of mid-single digits? And do we move lower just given the better results? And then my second question, Dan, is around OpEx. So a pretty big guided bump for next quarter. Maybe talk about that. Is that just a bunch of engineers coming on? Is that more onetime? And then do we take that bump and then just forecast it across every quarter moving forward? How should we think about that? And/or like just what do you think OpEx might grow at a percentage of revenue, if that's easier to discuss, however you would frame it? Daniel Fleming: Yes. So -- so let me just first state that we're continuing to manage our operating expenses in order to support the revenue growth that we foresee. And as you know, all of these projects, all of these pillars of growth that Bill has talked about, there's a long gestation period for all of them, and you need engineers, engineering talent to be able to execute on that. So we feel like we're in a great position to do so. Our Q3 OpEx guide was up more than it has been in the last few quarters, up 22% at the midpoint. But as you dig into our Q, you'll see our R&D spend was sequentially down in Q2. So in one way, we're kind of making up for that small decline. So long story short, guiding to $70 million at the midpoint, that does set a new base. There's additional project-related spend within that plus additional hiring. We've brought the Hyperlume team on board. There's a lot of different factors that go into that number. But if you plug that number into your model and have a small sequential increase in Q4, you'll kind of end up at a 50% year-over-year OpEx growth from fiscal '25 to fiscal '26, which is -- was also in my prepared remarks. So hopefully, that's helpful. Operator: Your next question comes from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: I have 2 questions, if I may. First, could you speak to why you are now licensing your active electrical cable IP to third parties and how this agreement reflects your perceived competitive moat in go-to-market for AECs? William Brennan: To give background on the case that we filed with the [ITC] this is a market, the AEC market that Credo pioneered over the last 7 or 8 years. We spent tens of millions of dollars establishing the innovations required to build these products. And it's great to see that the product category is -- has realized what we felt would be a multibillion-dollar market potential. And so along the way, we've been pretty communicative with others that are in the market or showing intent to enter the market that we've got IP, and we're intending to make sure that there's respect for that IP. And so we got to the point where we felt it necessary to file with the ITC because we weren't getting great respect or great acknowledgment of the fact that the path was pretty well defined by Credo and our engineering team. And so I think we feel really good with where we are. We never thought about this market as being a market that would take off if there was a single supplier. And so our customers all want multiple suppliers. Ultimately, we've landed in a good spot with 3 of the conversations that we've had thus far. We've got a couple more in flight or maybe even more than a couple more in flight. This doesn't change anything competitively for us. We've always thought about competition as a challenge of moving more quickly and in a way that delivers what our customers want. And so it's a function of delivering what they want first having it be qualified first, ramping first, delivering flawlessly as they ramp and as they are in high-volume production. That's really our focus as a team, both at an engineering level as well as an operations level. And so I would say that we're satisfied with where we are competitively, and we're satisfied with where we are with the results thus far that we've seen as we've protected our IP. Karl Ackerman: Got it. That's helpful, Bill. Maybe a question for Dan. You know that you've got 12 months of visibility with several hyperscale customers. I guess it begs the question, what was the largest delta in your upwardly revised outlook versus your prior outlook of 960 and change. I guess how much of it was simply the ramp of your -- the fifth hyperscale customer versus just higher order rates of existing programs or even new AEC applications cross scale out and disaggregated chassis at some of these other customers? Daniel Fleming: What I'd say this is more of a general comment, and this is true of the last 3 to 4 quarters. We've seen continuing strengthening of our forecast throughout the quarters as they proceeded, which is how we've gotten into this particular rhythm that we're in right now. So it's not specific to a customer. It's perhaps more of an industry trend, and we've benefited from that. So that's what we've seen. Operator: And your next question comes from the line of Joseph Cardoso with JPMorgan. Joseph Cardoso: Maybe for my first one, I just wanted to touch again on the entry into the optical transceiver market beyond just DSPs. This is obviously a very large and expanding TAM, but perhaps one where current industry margins are somewhat below your long-term targets. So maybe can you just take a second and just talk about how you're thinking about the margin opportunity here? And also curious whether you're focused on just selling the full modules or if there's an opportunity to drive attach of the DSPs, pilot software, et cetera, and sell those building blocks of the zero flap solution to potential customers? And then I have a follow-up. William Brennan: Yes. We're absolutely thinking about this product in a similar way that we think about the other system-level products. We're going to take full ownership and accountability for the entire system-level solution. So we're not necessarily competing in the current commodity market. If a customer is looking for that step function in reliability that you can get by going up the stack with the solution we're bringing to market. I mean, absolutely. But it's not a conversation about what is the price of a transceiver in the market. This is really a system-level solution. And so it's a combination of all things, DSP, it's a combination of the software that we're bringing. And it's really most importantly is the tight interaction that we've got with our customers. And so I think we've been really clear, and I think Dan specifically has been clear in stating that we don't see any change to our long-term gross margin model. Joseph Cardoso: No. Got it. Very clear, Bill. And then maybe just a quick clarification on the fifth customer in the quarter. And maybe this is anecdotal, but it sounds at least like they're tracking ahead of expectations relative to last quarter with some initial revenue this quarter, but just wanted to clarify if that was the case, and as we think about that customer tracking into the back half of this year, is there any opportunity for this customer to be 10% at least on a quarterly basis now in the back half? Or have the denominator just kind of outpaced that opportunity there? William Brennan: Things take time. And I think if you look at the base that we're talking about, that 10% number has changed pretty drastically from a couple of years ago to today. Things take time to ramp. And so when we think about customer # 5, we think about initial revenue this year. There's not a chance that, that will be a 10% customer this fiscal year. And I do think that the customer has the potential of being a 10% customer in -- especially if we think about it at a quarterly level first and then an annual level secondarily. No question that they've got the type of size to be able to drive that type of number, but it's going to take time. Operator: And your last question comes from Sebastien Naji with William Blair. Sebastien Cyrus Naji: Congrats on a nice set of results. I'll ask both my questions together in the interest of time. The first one is Credo has an advantage in that it's agnostic to the underlying compute, could be merchant GPU racks, ASIC racks, even CPU servers. So could you maybe talk a little bit about how much of your business is tied to ASIC versus merchant silicon deployments today and where that share might go over the next year? And then my second question, I just wanted to ask about the timing of purchases from your customers. How aligned are AEC purchases with the GPU or ASIC purchases? And do customers typically purchase ahead or one after the other? And is there any risk of inventory build if they're purchasing ahead of GPU orders? William Brennan: We're not really able to break out the percentage of GPUs that are, say, internally developed or commercially available in the market. We don't actually track it that way. I can say we're -- the first comment that you made is absolutely accurate that we're agnostic to the type of GPU that's being deployed. I will say that from a deployment standpoint, the second question you asked, the -- my belief is that everything is ordered in a way that would have all of the necessary components being delivered at the same time. It's a very, very complex supply chain that our customers are dealing with. But I think they're ordering the connectivity solutions right along with the GPUs. So we have pretty good visibility within the supply chain from delivering our products all the way to having those products deployed. And so we get a good sense of the type of inventory that exists within the partners that each one of our customers use to stage inventory. And we feel pretty good about -- we feel pretty good that there's not really a whole lot of product that's sitting in inventory right now. Operator: And with no further questions, Mr. Brennan, I turn the call back over to you for closing remarks. William Brennan: Yes. Thank you. I really appreciate the strong interest in Credo. We'll talk to you all soon. We're a little bit off schedule, so the call might be a bit rush and a bit delayed. But again, really appreciate it. Thank you very much. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning, and welcome to the Tharisa plc results investor presentation. [Operator Instructions] I'd now like to hand you over to CEO, Phoevos Pouroulis. Good morning, sir. Phoevos Pouroulis: Good morning, and welcome, everyone, to this -- our year-end results for the financial year ending 2025 September. I'd like to start off with our mission statement or benevolent intent, which is clearly articulated on the slide, which states that we look to redefine resources, we innovate with purpose and we look to empower futures. And really, this is the theme that I'd like to carry through while we run through this results presentation. This is the agenda for this morning, running through primarily the financial highlights, but also looking at our business as a whole and the strategic imperatives in the Vision 2030. So if we look at our business, we believe that we are resilient today. We are future-ready. We have a strong balance sheet that supports our Vision 2030. And what is our Vision 2030? It's to deliver on our expansion and growth plans and opportunities and to commercialize the technologies and solutions that we've been working on through our novel processes, which we'll unpack later on in this presentation. So when we talk about empowering futures responsibly, it really is core to our values. And underpinning this is safety. We're an integrated resources group that covers the full value chain of exploration, mining, processing, beneficiation, marketing, sales and logistics for both platinum group metals and chrome concentrates. Our commitment to sustainable growth and impactful investment not only returns value to shareholders, but lifts performance, strengthens community relationships and builds long-term sustaining partnerships. And with this comes our disciplined growth strategy, which ultimately leads to disciplined returns. ensuring that we have sustainable multigenerational value. So we just touch on our key highlights for the financial year 2025. Safety is our core value, really excelled. We had a lost time injury frequency rate at the Tharisa mine of 0.03 incidents per 200,000 man hours worked and 0 incidents at the Karo Platinum mine site, which is a hive of activity, which we'll share with you later in the presentation. We were also acknowledged at 2 events, the MineSAFE awards here in South Africa for the best improved safety performance for open cast mining over the past 3 years and a double silver award at the 2025 NSSA Safety and Health Workers Award in Zimbabwe Harare. Also very pleasing to note is that the Tharisa mine is the first Level 9 compliant mine in South Africa and in fact, is a test site and a role model for other open cast miners to come and see technology and the advantages that it does provide in terms of safety and well-being and general efficiency improvements. Later on, we'll unpack in a lot more detail the developments that we've undertaken during this financial year. But just to highlight them, we've commenced and begun our transition to underground at the Tharisa mine. We've committed a massive $547 million worth of investment over the next decade. This is underpinned by a new facility of the $130 million that was signed with Standard Bank and Absa Bank. And our Karo Platinum mine site is developing in line with the capital that we've allocated, and we continue to derisk that project. So when we talk about redefining resources, it really talks to our co-production model, which is unique in its inception and in its origination, and that is the co-production of platinum group metals and chrome concentrates from the middle group reef horizons. But to set the context for the year, we averaged a PGM basket price of some $1,615 per ounce for the year, which was up 18.6% from the prior year. Contrary to that, our metallurgical chrome grade price was down some 11% to $266 per tonne. So this set the scene then for our revenue, which came in at $602.9 million, EBITDA at $187.3 million, with a net profit after tax of $80.8 million for the year. Pleasing to note is net cash from operating activities at some $94 million with a vast and extensive capital expenditure for the year of some $118.5 million, which includes $33.5 million invested into Karo Platinum. We ended the financial year with cash and cash equivalents of $175.1 million. All of this resulting in headline earnings per share of some USD 0.275. And we're pleased to note that the Board have approved and recommend to the shareholders an additional USD 0.015 final year-end dividend, coupled with a half year USD 0.015 already paid out to a total of USD 0.03 for the year. And this, including the share buyback is a return of 17.2% of net profit after tax to shareholders. I think Michael will unpack in some detail the favorable mining royalty credit that we achieved in a landmark victory in terms of the reversal of our mining royalty at some $67.3 million. When we look at the impact we have and the jobs that we create through our investments, which have a major impact, our group employees and contractors amounted to some 4,483 people for the financial year, of which 27% of those were female employees. We provided 35 adult learnership, bursaries and internships for the year. And this is something very close to our heart where we look to share, educate and allow upliftment in terms of adult education for those that are interested from our communities and our employees. In terms of our impact to the fiscus, currency inflows of some $430.5 million, that's direct and indirect inflows with global direct, indirect taxes and royalties of some $31.7 million. I think an astounding number and something we're very proud of is the amount of money we spend on BEE, historically disadvantaged individuals, women and BBBEE compliant procurement of some $331.1 million, a significant contribution to these up-and-coming growing enterprises. We spent on local and host community suppliers, some $2.6 million. And also, we attract most of our employment from the host communities, in excess of 40% of our employees come from the host communities. Included in that is our commitment to our SLP programs and CSI initiatives where we spent some $1.1 million during the financial year. So moving on to our commodities and really what underpins our investment case. And we look at the spot prices today of the Tharisa PGM basket, which sits at $2,215 compared to a price for the financial year of just over $1,600, a pleasing improvement in terms of that PGM basket price as well as the Karo PGM basket price at some $2,024. And we'll unpack the prill splits and the differences between the Bushveld Complex, particularly on the MG reefs and the main sulfide zone of the Great Dyke in Zimbabwe. But ultimately, you can see here the fundamental nature of PGMs and the role they have played and they will play in decarbonizing the planet. And if we look at the catalytic properties and applications, they are vast and varied, but what's really supported platinum and palladium demand is really the rollback of battery electric vehicle penetration, the tightening of global emission standards and the pivot to hybrid vehicle production and demand. And this has really supported the baseloads demand of those very key and fundamental platinum group metals, including rhodium. But also, we've seen resilient industrial demand from the chemical and petrochemical, electronic sectors, fiberglass and glass sectors, supporting rhodium amongst platinum and palladium as well. We're very heartened by future technologies, particularly hydrogen, electrolyzers, fuel cells, which have a strong outlook for demand for platinum and iridium. Ruthenium is an interesting test case because it has always been used in hard disk storage. And with the advent of data centers proliferating and the investment that we see going into artificial intelligence has been a big demand driver for data storage and rhodium has a massive role to play. And we've seen that with the price appreciation over the last 12 months, and we believe there's a lot more upside potential for that. I think what really shocked the market and really supported platinum was the investment demand and jewelry demand primarily coming out of China. And we continue to see continuous supply deficits and what this means that above-ground inventories are being destocked and we're starting to see tightness in the market, supporting the higher PGM basket prices that we're seeing. So if we come closer to home now and we look at the favorable Tharisa Minerals prill split on a 6E basis, you'll see that platinum constitutes almost 53%, palladium at just under 16%, but quite remarkably, rhodium at 10.5%. And Michael will talk about the impact of that 10.5% in terms of our revenue. Very little gold, very nice ruthenium at 16%, iridium at 4.5%. Moving to the Great Dyke, you'll see that there's quite a different makeup with platinum at 43.5%, palladium at 38.3%, rhodium at 3.8%, gold significantly more at 8.6%, ruthenium at 3.8% and iridium at 1.9%. So a very nice blend and basket across both jurisdictions. Moving on to our other key commodity, which is chrome, which is really pivotal to decarbonizing the planet. Again, if we look at the applications in terms of construction steels, white good manufacturing and infrastructure, special alloys, special steels application, heat and corrosion resistant applications, we see a continued growth in terms of stainless steel, which is surprised always to the upside in terms of manufacturing as well as demand. And this is not just an Asia-centric story, it is a global growth phenomenon. And we start seeing applications in renewable energies as well in the desalination plants, solar, wind, hydro, Redox Flow, which we'll unpack later, one of our key investments and huge upside potentials, electrolysis storage of energy as well as pollution control. And what makes stainless steel and chrome hugely environmentally friendly is that it's 100% recyclable. So South Africa plays a vital role, as we know, the Bushveld Complex contains more than 72% of the world's resources. And what's really been interesting to note is that we've had a fantastic growth story in terms of our South African chrome manufacturing of concentrates and chrome ores at some 9.6% compounded annual growth rate over the last decade. And this is in the context of a struggling ferrochrome industry. And there's been a lot of talk and noise around intervention from government in the form of either a quota or a tax. And ultimately, we, along with our peer group, believe that any intervention is most probably misguided and really doesn't talk to the root cause of the challenge, which is the cost of electricity. We know that electricity prices over the last decade have gone up some 900%. And really, the answer to enable the sustainability of the existing ferrochrome producers whom we support and really look to find a solution for their current challenges is really the cost of electricity. And that not only will enable and support existing capacity, but will also stimulate beneficiation. And as you'll see later on, we have a very clear beneficiation strategy, which looks at some unique and novel approaches to beneficiation of both PGMs and chrome concentrates in South Africa and the region. I'd like to hand over now to Michael, who will run through the financial highlights of the year. Michael, over to you. Michael Jones: Thank you, Phoevos, and good morning, and welcome to all those who have joined for our financial results presentation for this financial year ended 30 September 2025. When I reflect back on this year, I think one of the key themes to me was our continued investment, not only sustainability of operations, but also in the growth of our projects and for multi generations to come. And that includes underground transition at the Tharisa Minerals mine, the Karo Platinum project and the commercialization of the R&D at Arxo Metals. Again, our co-product business model has reinforced our resilience effectively with the PGM basket price, as Phoevos mentioned, strengthening by some 18.4% year-on-year and the chrome price while staying basically range bound, reducing by some 11%. We have continued to be net cash flow generative with cash flow from operations of $94 million. And our cash and cash equivalents standing at $175.1 million as at 30 September. We have continued to maintain our capital discipline, and we've invested, as mentioned, beyond 2030 with multigenerational sustainability. And to support this, and we'll touch it in more detail later, we have secured an additional $130 million of term loan and revolving credit facilities, principally to fund the underground transition and the mining fleet. Final proposed dividend for the year, $0.015, which matches interim dividend and aligns with our dividend policy. And we're in the process of successfully concluding our second $5 million share repurchase program, which as of 30 September was 87% complete. Looking at revenue for the year, the revenue for the year at $602.9 million, again, key contributor being the chrome at 57.2%. And this is on an FCA basis. In other words, we strip out the costs of inland logistics and freight, which is the prime destination for that chrome is the Chinese market. Just touching on the graph on the bottom right, you'll see the major production output is on the metallurgical grade, just under 87% and the balance of specialty grade at 11.3%, which is a higher value item. Just in terms of the actual numbers themselves, the sales just under 1.4 million tonnes at an average price of $266 per tonne, and that's on a CIF main ports China basis. The PGMs contributed just under 40% to our overall revenue. And if you look at the graph on the bottom left, you'll see that platinum remained a major contributor at 38%. And while rhodium comprised less than 10% of our prill split, the very strong price performance has resulted in it contributing in excess of 36% to our overall revenue from PGMs. Numbers again, 137,500 ounces sold at an average PGM basket price of $1,615 per ounce. If we look at the spot price today, this morning was trading at $2,215. So it has continued its upward trend. This is quite a busy slide. I'm just going to touch on some of the numbers on it. I think very pleasing, the reef tonnes mined, up 15.3% at 5.3 million tonnes. And if you look at the graph along side, you'll start seeing the benefit of that from the cost side or purchases were only less than 4% of our on-mine cash cost, and that's a direct consequence of the improvements in our reef tonnes mined. Cost per reef tonne mined, very well maintained from a cost perspective, up 3.5% at $41.7 per tonne. Tonnes milled relatively flat at 5.5 million tonnes. And then the on-mine cash cost per tonne milled increasing 12.9% to $59.7 per tonne. Our logistics team has done a remarkable job over the year and well managed on our inland logistics and freight costs with a slight reduction year-on-year at $83.2 per tonne. We do operate in a rand environment for Tharisa Minerals and normally benefit from a weakening of the exchange rate. We had no such benefit over this past year with, in fact, a marginal strengthening in the average exchange rate to ZAR 18.1 to the dollar, an effect of some 2.4%. We are a coproducer of both platinum group metals and chrome concentrates. If we just say what is the all-in cost per platinum ounce sold. So in others, we take the credits from chrome and all the other platinum group elements, including the palladium and rhodium and such like, you get a negative $445 per platinum ounce. When we calculate that sustaining cost, we do take out the cost of the transition to underground mining as well as the Karo Platinum project. If we then turn around and say, let's look on an all-in cost per PGM ounce sold, that's on a 6E basis. We apply the same metrics and calculations, you get a cost of $571 per ounce. I really like this graph because I do believe that it reflects very nicely the history of the company over the past year. We started with EBITDA of 2024, and that was $177.6 million. You'll see the favorable impact of the PGM prices, offset by reduction in chrome volumes and then the impact of the chrome price, fairly significant, but take into account the overall volumes sold, and that is a reduction in price of 11%. Increase in absolute mining costs, and you would have seen on the previous slide, the increase in the reef tonnes mined. And that really offsets a lot of the mining commodities, which is purchased run-of-mine ore. So there's almost an offset on that basis. And then savings on the processing costs and selling expenses, and we'll touch shortly on the mining royalties, resulting overall increase in our EBITDA by 5.5% to $187.3 million. Our gross profit for the year amounted to $191.3 million and a gross profit margin of 31.7%. If, however, we do offset the mining royalty credit, it does impact on the gross profit percent, reducing it to 20.6% year-on-year, but still a very healthy gross profit percentage in those circumstances. I'm going to touch briefly on the mining royalty credit. But I think before we start really just to touch on the accounting side of it. The mining royalty itself is not a tax. It is a lease charge paid for the consumption of the resource to the government. And therefore, it is a charge to the cost of sales on the income statement and not on the tax charge. The matter at hand relates to a 2015 and 2017 dispute with the South African Revenue Services on the interpretation application of the Mining Royalty Act. This eventually ended up in a tax court. We're very pleased to get a favorable ruling from the tax authorities and also engaged with the South African Revenue Services there afterwards, and we have agreed the basis of implementing the court judgment. And this is resulting in a reversal of a previous provision that we had of some $67.3 million, which is a credit to cost of sales. As a consequence, you have a royalty receivable of some $13.6 million and of course the increased income tax and income tax impact of some $18.2 million. But a very favorable outcome and one that is going to stand us in good stead in the years to come. In effect, what it did is it reduced the mining royalty payable to the minimum percentage over this period to 0.5%. Over this past year, we spent $118.5 million in our capital expenditure, and that is both in sustaining operations as well as growth projects. I'm just touching some of the key numbers there, $33.5 million invested in Karo Platinum, $12.6 million, which is a fairly nominal amount to date on the underground development as we commence that transition and then $9.8 million on the deferred stripping. The prior year was some $65 million on deferred stripping. Group capital commitments as of 30 September, $79.6 million, of which Karo Platinum comprised $25 million. Just look at the year ahead, capital budget of $165.9 million. This excludes Karo Platinum. We'll touch on Karo Platinum in more detail in the presentation. But effectively, once the funding is closed, there will be a strong acceleration in the spend on Karo Platinum. And we also excluded the deferred stripping to really focus on the actual capital items that we're investing in. You'll notice there on the chart on the right that the largest expenditure at the moment is underground development at $76.7 million as we accelerate that capital spend. There's also an increase in assets and infrastructure and importantly, the R&D and innovation as we start commercializing some of the downstream research results from the Arxo Metals. Our balance sheet has remained strong through this period with cash and cash equivalents of $175.1 million. generation of cash from operations, $94 million and net cash of $69.8 million. The table on the right, I think, really reflects it quite nicely if you have a look at the depiction there. So net cash from operations, $94 million, sustaining capital of $77 million. So free cash flow after investing in sustaining operations of $17 million. The $44-odd million on the growth projects and a marginal negative free cash flow for the year of $27 million. Total debt is $105.3 million, of which short term is $74 million. You'll note on the pie charts on the bottom right, that's the bond of 26.2% is a large portion of that. Subsequent to the financial reporting period, we have negotiated and agreed with the bondholders to extend that bond by a further 3 years with redemption 1 December 2028. So that will be transferred back into a long-term debt facility. Our commodity prices are dollar-based. That's both platinum group metals and chrome concentrates. So we have a tendency to have a bias towards dollar-based debt. 67.4% is U.S. dollar-denominated. It does have a natural hedge element. As mentioned, our balance sheet remains healthy, current ratio of 2x and a net debt to equity of a favorable 8.2%. We do have undrawn facilities as at 30 September of $76.6 million, and that excludes the trade finance facilities. We pride ourselves on our commitment to capital discipline, in particular, the return of funds to shareholders. We have proposed interim dividend of $0.015 per share aligns with the -- sorry, a final dividend of $0.015 per share. It aligns with interim dividend and after due consideration for the mining royalty credit, which is, to a large extent, a noncash flow item. If we include the share repurchase program, it is a payment of 17.2% of our consolidated net profit after tax. Over the past 10 years, we have distributed $119.8 million as distributions to shareholders. This excludes the 2 share repurchase programs. The one completed, I think it was last year at $5 million, and we're 87% complete as at the end of the financial year on the second one, which is again has been a very successful outcome overall. I'd like to now hand over back to Phoevos. Thank you. Phoevos Pouroulis: Thank you, Michael. So we move on now to our expansion projects and really taking a snapshot view of our facilities across the globe. So Redox One, which is our long-duration energy storage business is situated in Dortmund in Germany. Moving south to Harare, where we have our Karo Platinum project situated on the Great Dyke. And then into Tharisa Minerals in the Southwestern limb of the Bushveld Complex. Adjacent to the mine is the Arxo Metals Renewable Energy Center, where we do renewable energy projects as well as the manufacturing of the e-Lite for the Redox One batteries. And then in Brits, not too far from the mine, we have our Arxo Metals beneficiation site. And then we utilize 3 ports for the export of our commodities, Maputo in Mozambique, Richards Bay and Durban from South Africa. So as mentioned, we look to unlock multigenerational value. And the transition to underground was always envisaged when we embarked on the Tharisa Minerals mine. We will start in a phased approach on the West mine, which is illustrated in the photograph there, and we are currently busy with the portal makesafe, and we envisage that our first ore from the Apollo complex portal will be delivered in Q2 of this financial year, financial year 2026, achieving steady state 3 years thereafter in Q3 of FY 2029. The Apollo Portal complex, just to remind everybody, is a dual reef complex on the MG2 and MG4 seams with a 3-meter cut, respectively, in each of those portal developments. The average monthly run-of-mine or reef production will be 255,000 tonnes per month at that steady-state level. As we transition and start depleting the open pit, we will commence with the Orion portal development in the East Mine, and that will deliver our first ore in the fourth quarter of financial year 2031, thereafter, reaching steady state in Q3 of financial year 2033. At that point in time, the Tharisa complex and mine will be fully underground and will be sustainable for at least 50 to 60 years in terms of the current mine plans on that trajectory. You'll see that the Orion portal complex is limited to 210,000 tonnes per month, and that's purely a function of our nameplate processing capacity, which is 5.6 million tonnes. However, it is designed to match the Apollo at 255,000 tonnes, and there is potential for us to increase our throughput to over 6 million tonnes per annum of processing capacity. So just to look at the numbers and the strategic capital investment over the next decade. The capital allocated to Apollo is some $363 million, followed thereafter in the time line I just outlined by the Orion complex at $184 million. Due to the fact that we're doing on reef development and we'll be generating income, we have a peak funding number that is considerably lower at some $173 million over the period of the underground development. Our DFS has given us an all-in sustaining cost of mining, including capital development of $40.8 per tonne. Michael has mentioned the cash on hand at $175 million and the ring-fenced funding of $130 million for the underground, coupled with asset-backed finance of some $45 million. Even though we are going with the contractor mining model, we will be acquiring and purchasing the mining fleet for the underground. So that will remain our assets. I think what's pleasing to note is that the DFS kicked out an IRR of 25%, assuming a PGM basket price of $1,633 per ounce. You can imagine that today's $2,200 per ounce, the IRR is significantly improved. So when we look at the Tharisa Minerals and the Tharisa mine annual output, you can see us incrementally growing as we transition to less diluted, more consistent fresh ore from the underground, achieving our 2 million tonnes of chrome concentrate and 200,000 ounce per year of PGMs on a sustainable basis from 2033 onwards. And we believe we can maintain that run rate for the duration of the underground operations, some 50 years, as mentioned. So moving to the Great Dyke of Zimbabwe. We really have been blessed and endowed with a Tier 1 resource. It is only 1 of 2 major PGM projects under construction worldwide in a sector that we well know is facing growing deficit. What is our vision here is to become a globally significant low-cost producer of these very key and precious metals, including some significant base metal credits of copper, nickel and cobalt. When we talk about responsible growth, we talk about balancing profitability with environmental care and importantly, the community benefit and upliftment that a project and an ecosystem of this magnitude can provide. The long-term impact here is that we'll be positioned very much like the Tharisa mine to provide multigenerational output and value creation. So we're situated in the middle chamber of the Great Dyke complex in Zimbabwe, some 100 kilometers southwest of Harare. The Phase 1 operation is planned to produce 2.64 million tonnes of run-of-mine per annum, generating some 220,000 PGM ounces on an annualized basis. Our resources and reserves in the open pit, which is a 10-year life, which is our Phase 1, 12 million ounces of resource, 2.3 million ounces of reserve with a total resource that includes underground of 96 million ounces with a potential again of some 50 years. In terms of infrastructure, we've secured the water, electricity supply agreement is secured. We have a renewable energy program of 40 MVA solar to be installed post commissioning, and we have very easy access from -- with tie roads from Harare. What is really pleasing to note is that this project has substantially been derisked. We've drilled some 60 kilometers of diamond core geological exploration drilling with a high confidence. We have already defined a 10-year open pit mine, and that plan is complete with an underground drilling infill program to confirm the 50-year potential as well as the feasibility study, which will follow the infill drilling campaign, which is well underway. All metallurgical test work has been concluded, and we have a great degree of confidence in our recoveries of both PGMs and base metals from the lock cycle test work that has been completed. In terms of infrastructure and mining, you'll see an aerial photo there. Substantial work has been done to date. Design and engineering is complete. Earthworks are complete. Civil works are some 68% complete. 90% of all long lead equipment items have been procured and in storage and some have been delivered to site like the mills, which have been installed as well as bulk water and power being secured. We did complete a pilot open pit mining with equipment being tested and selected for the type of open pit mining that we'll be doing. So we've invested to date some $193 million, substantially derisking this project. And the capital and operating costs that we have are confirmed well beyond a definitive feasibility study level. When we look at the concentrator area and the infrastructure, we have a vast program to increase the Chirundazi Dam. We commenced that earlier in this year. We're at 27% completion, and that is forecast to be completed in June of next year. The Mill building, the steel work is some 78% complete, forecast to be complete in January. The overhead line, the 132 kV line, 25% of the base stations are complete, 28 of the 130 poles have been installed in terms of the bottom sections, and we forecast this very key and important power supply from the Salu Substation to be complete in February next year. The MV building is 37% complete, complete -- forecast completion in June next year and the LV building on the wet end is 100% complete. Just some photographs just to illustrate some of the work that I outlined on the previous presentation. And you'll see the substations, the MV building and the complete LV substation building on the bottom left-hand side. The aerial view shows the vast footprint that this processing plant and adjacent facilities occupies. You'll see that the primary and secondary mills have been installed on their plants with the steel work and support structures being installed as we speak. You'll see on the top right-hand and bottom right-hand images, the Chirundazi dam, which is an existing dam, and we're expanding that dam, which has a real material positive impact for farmers, rural farmers in the area, providing them with security of water supply as well as securing our water requirements for the Karo project for decades to come. We're very pleased to announce that we've awarded the mining contract to EPSA, who are a Tier 1 global mining company that have been in existence since 1962. They're a global enterprise. They do operate in Africa, but this will be their first contract in Zimbabwe. Mobilization has commenced and as well as site establishment, and they've commenced with the onboarding of all the regulatory approvals as well as employees in country. Equipment assembly and delivery will commence early in the new year. And the first phase is really early waste stripping, which will commence towards the end of Q1 2026. And this was a major milestone achievement for us attracting a mining contractor of this caliber that has a growing track record from South America to Australia and Africa and Europe. I'd like to hand back to Michael now just to touch on the funding update and to provide a context of the current PGM market for you. Thank you. Michael Jones: Good. Thank you, Phoevos. If we have a look at the Karo Platinum Project and the funding, Tharisa plc itself has committed equity of $178 million. We have secured funding through the bond that's listed on the Victoria Falls Stock Exchange. As mentioned earlier, that has been extended by a 3-year term. That's $37 million. Very pleasing, our senior debt is well advanced. We recently received the -- I suppose, the final outstanding work, which was the technical advisers report on the project received by the lenders and ourselves. That's busy being worked through. So the next step is effectively taking it through to credit. The disappointing thing is credit committees closed in about 9 days' time, so it will probably roll over into the new year. In conjunction with that senior debt, one of the parties providing mezzanine debt of $25 million, so that will run in parallel. And then also to ensure that we have a fully funded project, we are in discussions with both a strategic investment as well as a gold stream as an alternative to secure some $125 million to ensure that the project is fully funded. I think we look at the bar charts, the little charts on the bottom below the graph, you'll see that the spot price at the moment, $2,008 per ounce. That's for the Karo Platinum Prill split. The financial model with an all-in sustaining cost of $850 per ounce and therefore, very healthy margin at some 45% going forward. I think we also look at the graph above. You'll also notice that a number of the analysts, analysts 1 and analyst 2 in particular, are really forecasting further strong recoveries in the PGM basket price, and I think that will all go well for the project going forward. That is a very brief overview of that financing. I'll hand back to Phoevos. Thank you. Phoevos Pouroulis: Thanks, Michael. So the third -- or the second pillar of our benevolent intent is innovating with purpose. And this is something we're very passionate about, and we capture this in our wholly owned subsidiary, Arxo Metals, where we've challenged convention over the past decade, and we are busy commercializing 5 novel mine-to-metal beneficiation processes. I think for a business our size, the commitment and the capital that we've deployed responsibly and in a measured fashion will really bear fruit in the future. These processes have been developed in-house from ideation to laboratory scale test work and to commercial scale operations, including pyromet as well as hydromet operations that exist across multiple sites that we occupy or we share with the institutions. So we are constantly looking and evaluating the potential of additional metals and the full value chain contained within our basket of commodities, the polymetallic nature of the ore bodies that we mine. The Vulcan complex, I think, is most probably the first full-scale commercialization of an in-house grown technology where we've successfully commercialized the ultrafine chrome recovery at the Tharisa mine and are looking at further opportunities of deployment of these technologies. When we look at the 3 routes here of beneficiation, we have the PGM beneficiation route, which looks at us taking our concentrate that historically we've sold, putting it through a pyromet process and then processing it and refining it through a novel patented process called the Chloroplat process, and we're busy installing our first commercial reactor to pilot and demonstrate the end-to-end production of 495 purity PGM metals. In terms of the novel chrome alloy route, we have 2 routes there. One is a stainless steel route and the other is a grinding media route, and we've produced both products and in fact, sold some of the grinding media alloy to producers of that media. In terms of the energy applications, we have our wholly owned subsidiary, Redox One, which I will unpack on this slide here. And we really see a lot of excitement and interest in battery energy storage. And one of the key challenges the world is facing is how do you store all this additional energy that is being generated from renewable energy, be it solar, wind and even hydro to a lesser degree to provide baseload power. And this is where long-duration energy storage systems come in. And Redox Flow in particular. So we've been working on this technology since 2018. And one of the key developments and IPs that we have is the ability for us to produce electrolyte from the chrome concentrate that we produce. That electrolyte is a chrome chemical and an iron chemical. And we're taking the cheapest form of the metals, and we're converting them into highly cost competitive electrolyte. Key to these system is that they are inert, there are no environmental challenges, and they're 100% recyclable. They have a long duration life of some 20 years at minimum, and we believe that the electrolyte will continue to perform beyond that. But in the event that they are decommissioned, they can be recycled and utilized in multiple industries. We have undergone rigorous component and electrolyte system testing. And in 2026, we're very excited to deploy the first megawatt scale battery at the Tharisa Mine, at Tharisa Minerals and with a further 5 demonstration units to be deployed globally. As I say, there's huge interest from multiple jurisdictions and regions around the globe for cost-effective, sustainable long energy duration. When we look at the third pillar, empowering futures, this is something very close to our heart, and we can see the impact that we have not only in the form of employment and sustainable employment at that, but the impact that the supply chain has as well as the multiplier effect and the micro ecosystem that is created around these mining communities. And we're in a very privileged position where we have these long-life resources that allow us to invest in people, in the environment and into sustainable security of supply. And as we've seen from the geopolitics and the scramble for these critical minerals, we, as Tharisa are strategically positioned to provide a secure supply line of these key strategic materials for generations to come. And not only being a secure supplier, but also to be a continuous impact and force for change and positivity in terms of sustainable jobs, sustainable impact and value creation for all stakeholders. So if we look at our core investment thesis, why invest in Tharisa. We have an entrenched footprint in strategic commodities that have long-life asset bases, and we have exposure to these very unique and special polymetallics of platinum group metals as well as chrome. We have a clear visibility growth to Vision 2030 and beyond to deliver and commercialize on our downstream initiatives. We have a resilient balance sheet that is geared for growth, and we're positioned to leverage this efficiently and effectively. Our capital discipline has been enforced for over a decade where we've returned significant value to shareholders, and we've been able to fund our pipeline growth. And importantly, where we are positioned today, we see fundamental deep value, and this is consistent with delivery and profitability. If you look at our multiples on a price-to-earnings basis at spot, we're trading at a 4.4x multiple, price to NAV at 0.4x NAV, a significant discount to our peers who are trading at least 3x higher on those multiples. So when we look at where we'll be in 2030, unlocking multigenerational value, will be a smarter operation with lower emissions reduced by 30%. The Apollo mine will be fully operational and at steady state. Orion will be under development. Karo Platinum producing 220,000 ounces per annum and with some base metal co-extraction commencing at Karo Platinum. Arxo Metals will have commercialized and produced final PGMs from the Tharisa mine as well as chrome alloy and electrolyte production. Redox One, we would look to deploy 1 gigawatts of energy storage and be deployed globally. With that, I'd like to recap on our next 5 years' worth of journey, which is to deliver on expansion in terms of our growth opportunities at the Tharisa mine and Karo as well as commercialize our technological solutions, redefining resources, innovating with purpose and empowering futures. I'd like to thank you for your time and hand over to Ilja for the Q&A. Thank you. Ilja Graulich: Thank you, Phoevos. Let me start straight with you. We've had a question here on the operations. What drove the strong increase in the reef mined and obviously, following through on to the EBITDA and how will you build on this momentum? Phoevos Pouroulis: Yes. Thanks for that question. So if you recall that we were mining a backlog of waste stripping in the financial year 2024. We introduced the contracted Trollope mining on site to help us with that backlog. And part of that was opening up more strike length in the East pit, which then materialized and allowed us to access a broader reef horizon and have more flexibility in the open pit, which then enabled that increase of some 15.3% in our reef mining to 5.3 million tonnes. Ilja Graulich: Thank you. Staying with you, Phoevos, I know we discussed what the all-in sustaining cost at Karo is on the one slide, but what we didn't maybe highlight in detail is how long should it take to get Karo to first production. Phoevos Pouroulis: So on the current time line, and as Michael mentioned, assuming the funding comes in, in Q1 of the next calendar year, we anticipate putting first ore in mill in Q1 2027. So some 15 months or so from now. Ilja Graulich: Okay. Just a high-level question for you, Phoevos staying with you, the existing share buyback. I know we mentioned that we had roughly 87% complete. Is there an update on whether this will be extended? Phoevos Pouroulis: So at this stage, when considering the capital for the next year with the underground development as well as the Karo commitments, we elected at the Board to continue with the dividend and pause until this buyback is complete. We'll reconsider at the half year again, dependent on performance, production and commodity prices. Ilja Graulich: Okay. Switching over to you, Michael, in the interim to give Phoevos a break. Can you talk about the dividend policy? Is there still a policy of paying out a minimum 15% of net profit after tax? I think this relates to what you explained earlier with regards to the write-up of the $67 million versus where we should be standing. And I guess it also applies to previous years where we could have potentially paid a little bit more of normal tax had the royalty been applied the way it should have been. Michael Jones: Sure. The Board at the moment hasn't changed its dividend policy. So the dividend policy stands at 15% of consolidated net profit after tax. I mean it's reviewed at both the half year and the year-end period. It really depends on where you are, as Phoevos mentioned earlier, on commodity prices, your results and where the capital expenditure program is going. But we have consistently committed ourselves to capital discipline. That capital discipline includes returning funds to shareholders as we proceed. So there's been no change at this point in time. Ilja Graulich: Thank you. Michael, I have a question here with regards to the bond that has been extended. The question relates to why was there an increase in the interest rate payable on this bond? Michael Jones: That was painful. It went from 9.5% to 11%. There's a lot of negotiation around it. And what it really boils down to is the shortage of dollar liquidity in Zimbabwe itself. So while the external funders were still happy at the 9.5% and thereabouts, within Zimbabwe itself, we had significant investors from them. And I think that's strategic going forward. We have to build relationships with them and the confidence with them. There was really -- as we looked their cost of funding, the best we would be able to negotiate was at that 11% that we got away with. So in summary, shortage of dollars in Zimbabwe and also from a Zimbabwe perspective, a 3-year investment is a relatively long-term investment from a banking perspective. So very appreciative of the continued commitment, and this was unfortunately one of the giveaways that we had to do to ensure we got it across the line. Ilja Graulich: Fantastic. Phoevos, a question for you. One is more direct. We obviously saw the announcement last week by the Zimbabwean government of potentially changing the royalty rate with regards to gold from 5% to 10%. So how do we see that impacting on Karo? But that ties in with a sort of high-level question with regards to how you're finding working in Zimbabwe? Are you confident in the sustainability and reliability of the jurisdiction to maybe highlight the fiscal work we've done in Zim. Phoevos Pouroulis: Yes. Thank you. And I think it's a very important question to answer. So as you may know the government of Zimbabwe are shareholders in the Karo Platinum project at some 15% and they're fully aligned with the strategic imperative and the investment of this project. To that end, we've had a number of agreements over the years with the government and investment framework agreement thereafter special economic zone status, which was later revoked for mining companies. And the process that we followed was to enshrine those provisions in a special mining lease. And we're pleased to report that we've made great progress in terms of agreement on that special mining lease. Part of the agreement there is fiscal stability. And it's key in terms of securing our debt funding as well as strategic investment and gold streaming. And so part of what we, with the government are trying to ensure is enshrined in that document is fiscal stability and provisions that allow the bankability of this project over a period of time. We do know that the current economic environment in Zimbabwe is challenging, as Michael mentioned, with a lack of foreign currency or U.S. dollars in this case and the Zig conversion being one of the major challenges for operators in country. So I think from a fiscal stability provision, we are trying to protect our investment as well as future stability through the provisions we're negotiating, and we believe we'll be finalizing in short order. In terms of operating in country, it's a very pleasing experience. We have a highly skilled labor force, very effective, very efficient, diligent environment. And you can see by the quality of the site and the cleanliness as well as the safety record that it really is a highly productive environment. So we look forward to moving beyond these short-term challenges and getting into steady-state production and ensuring that sustainability that I think all stakeholders are aligned on. Ilja Graulich: Thank you. Michael, a quick one for you. Can you please elaborate on the Bank of China ForEx trade facility? If applicable, what is the maturity and coupon for this loan? Michael Jones: I will just quickly skim through, so I can refresh myself with the interest rate. It is a 2-year facility. It has a bullet payment. And I'll just pop back to you afterwards on the interest rate to give you the exact answer on that. Ilja Graulich: Thank you. Michael, maybe sticking with you, there was a question here. Could you reiterate Karo financing time lines and milestones? It was mentioned senior debt will likely roll over into the new year. I'm assuming that simply relates to the Christmas period coming up when we need to finalize documents and credit committees. Michael Jones: Correct. I think where we are at the moment is we've got the last requirement from the lenders, which was the technical report that has been circulated. They now need to finalize their packages for credit committee. I mean it has gone through a process that haven't gone blind up to this stage, getting necessary approvals. So I expect in new year we'll get to credit and then start the drafting of those particular documents as we go forward. If everything is aligned, I'd look at towards the end of the first quarter of the next calendar year. What we do, however, have to remember is that we do need to have a fully funded package for the lenders to draw down the senior debt facilities. And there's 2 work streams we're working on there, one a strategic investor and that is progressing well. But in parallel, we're doing a gold stream. Gold streams are notoriously expensive as far as I'm concerned, but it's also not a bad time with the commodity pricing to properly entertain a gold stream that would fund that shortfall. In the interim, we at Tharisa plc are still committed to providing ongoing funding to the project in this intervening period. Ilja Graulich: I'll give you a breather. Let me ask this question to Phoevos before I get back to you. How is your cost structure exposed to PGM and chrome metal prices? And do you have part of costs directly tied in with the metal prices, I think it's just a high level question on our costs. Phoevos Pouroulis: Yes. So I think we pride ourselves in being in the lowest cost quartile, and you can see that clearly illustrated when you look at the all-in sustaining costs that Michael ran through in terms of PGMs. So our co-product business model has proved resilient through the cyclicality of both chrome and PGM markets and prices. So we do focus on our costs, and it's down to the unit costs and the more productive we are, the lower the unit -- the cost per unit. And we strive continuously to manage those costs and reduce them through efficiencies, and that's where our innovative approach and optimization kicks in where we look at recovering more of the metal that we mine. I always say that we spend a huge amount of cost effort, time and energy to extract one cube of rock from our open pit finite resource. So we might as well maximize the amount of opportunity and metal we can get out of that cube, hence us reprocessing continuously through the various stages, be it Voyager, Challenger, Genesis and Vulcan, Vulcan X to extract that maximum value. So it's one area where I think we are very focused on and manage. We are obviously subject to the macroeconomics of commodity prices, and we can't control those, but we certainly can control our cost structure and efficiencies. Michael Jones: For the previous answer, I can give the answer on the cost of debt funding. So for the senior debt and the term loan, I just want to make sure it's correct that they both are the same interest rate. It is the South African JIBAR plus 220 basis points. And of course, that will change as our own year end in the new year once that's implemented. And it's a rand-based facility, it's not a dollar facility. Ilja Graulich: I'm going to split the one question here into 2 because it relates to sort of the CapEx that we're going to be spending over the next decade and how much we still need to spend at Karo and what the timing of it is. So there's a question here relating to the $547 million where that is being spent. And I guess how much do we need to spend at Karo to get to full production? So I'll let you answer that one. Phoevos Pouroulis: Yes. So I think if you look at the numbers holistically, they look daunting. But over a continuous period, if we look at the $547 million over a 10-year period, it's not too dissimilar to what we're spending in terms of replacement cost of our yellow mining fleet over the previous decade and you look at the deferred stripping capitalized asset. So as we transition, yes, there will be a double up of both stay in business in the open pit as well as the development cost, but it generates a peak funding of $173 million. And I think that's the key number to take away over the decade for us to transition to underground. Now when we move to Karo, the balance is just over $300 million that needs to be invested to complete the full project there. And one has to remember that we're putting in infrastructure, water, power, camp sites, reticulation around the mine that survives well beyond the 10-year life of the first phase of the open pit. So it is capital-intensive upfront, but you're really enabling the ability to continue mining and processing for 60 years. And that's really where the conviction comes in into the underlying fundamentals around platinum group metals, their unique nature, the constraints around new supply, dwindling capacity as well as what we believe is a very positive outlook for new demand drivers for platinum group metals. So we've got to look at it strategically and understand that these are not short-term quarter-to-quarter investments, and they are measured in decades. And so when you look at it on that basis, the numbers look large, but stretched out over a period of time, they are appropriate for the scale of the resources that we have under our control. Ilja Graulich: Thank you. Michael, a quick question for you here on the capital expenditure at Tharisa mine actual versus planned. And I guess if you have a sort of holistic number of what we still need to spend at Karo in terms of dollar terms. I know we showed on the financing slide, but maybe sort of delve into that. Michael Jones: Sure. I think I saw one of the questions come up here about the large-scale projects and the CapEx that we have going forward. I think previously touched on the key point is that on the transition to underground, while the CapEx is $547 million, that is over a 10-year period. And also that the peak funding requirement is about $173 million because of the quick access to the reef itself. And the plant has already been built, the infrastructure is in place and so forth for that. So the question is, are we comfortable with the large-scale projects, the capital size required based on the market capitalization? I think we have proved ourselves over the years to be -- or to manage our capital and our capital spend. If you look at the strength of our balance sheet, yes, we're leveraging it for growth now, but it will not be over leveraged as we go forward in terms of, I suppose, comparable metrics. And yes, I'm comfortable with where it goes. You always have to bear in mind that commodity prices move up and down, and we, of course, take advantage of those cycles as well. In terms of capital spend for the '25 year, substantially in line, except the deferred stripping, which was probably behind where I expected it to be. We had a higher number budgeted for that work, but we're already accessing those deep horizons. So going forward this next year, I would expect that capital expenditure on deferred stripping to be significantly higher than the $9.8 million, but also not as high as the prior period at $65 million as we continue with that stripping and access those deep horizons. I think that may have answered that question. Ilja Graulich: Yes, absolutely. Staying with you, Michael, last question before you can hand back to Phoevos to close off. And with regards, I guess, the question in the mining industry generally is sort of cost inflationary pressures. What guidance have we got for cash cost per tonne milled given we were roughly at $60. I think it's more about what the increases could be than the actual number and what pressures we are seeing or not seeing. Michael Jones: Sure. I think if we look at the cost pressures coming through, I mean, diesel is very well -- It's a big expenditure of ours from a power generation point of view. I think we all see that in the market. It's really stabilized. I don't see much cost pressure increases coming from there. Eskom needed for the mills. Unfortunately, they seem to continue to require above inflation increases. On the labor front, we have a wage agreement with our unions, which is largely inflation linked. So I do not see much cost pressure increases coming through from there. So overall, except for probably the electricity side, I'd probably be looking at inflation type increases just north of the 3% is what I would expect in dollar terms. Ilja Graulich: Phoevos? Phoevos Pouroulis: Yes. Great. So thank you all for your time this morning. We really are proud of what we've achieved at Tharisa, and we are excited about the next 5 years and 10 years beyond that, where we'll be able to deliver on these very exciting projects, the Tharisa underground, the Karo Platinum mine hitting steady-state production as well as commercializing our Redox Flow battery, our PGM beneficiation strategy as well as our chrome alloy downstream endeavors and initiatives. So with that, I'd like to thank you for your time and wish you all a wonderful day further. Operator: That's great. Well, thank you for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. On behalf the management team of Tharisa plc, we'd like to thank you for attending today's presentation.
Operator: Good day, and welcome to the Cango Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Paul Yu, CEO. Please go ahead. Peng Yu: Hello, everyone, and welcome to Cango's third quarter 2025 Earnings Call. This quarter marks the 1-year anniversary of our strategic transformation into a Bitcoin miner, an important milestone for the company. Today, I will reveal our third quarter results and share how Cango continues to create long-term value in a rapidly changing market environment. During third quarter, we remain focused on our core mining operations further strengthening Cango's position with the skilled and operationally disciplined Bitcoin manner. This is clearly reflected in our financial performance. In the third quarter total revenue reached USD 225 million, up 60.6% sequentially. Operating income was USD 43.5 million and net income was USD 37.3 million. Today, Cango operates a deployed hashrate of 50 exahash globally, positioning us among the leading miners worldwide. In the third quarter, we produced 1,930.8 Bitcoins, averaging 21 Bitcoins per day, up 37.5% and in total output and 36% in daily production compared with the second quarter 2025. Leveraging our asset-light model we've built a competitive global footprint across the Americas, the Middle East and Africa in just 1 year. In our mining operations, we continue to execute our strategy to reprioritize hashrate optimization over expansion by refreshing older, less energy-efficient models to the T21 and S21 series and disciplined operations with significantly improved average operating hashrate, from 40.91 exahash in July to 44.85 exahash in September and further to 46.09 exahash in October, with efficiency surpassing 90%. In August, we also acquired a 50-megawatt mining facility in the state of Georgia, lowering per unit operating costs and building dedicated energy infrastructure to support our long-term strategy. The current market environment remains volatile with significant fluctuations in Bitcoin prices. Cango is closely monitoring these dynamics, and we'll continue to manage our deployed output and explore partnership models to mitigate market risks and enhance operating stability. While consolidating our core business, we also clarified our long-term strategy, building a global distributed AI compute network powered by green energy, with Bitcoin combining as a practical on ramp towards our energy and compute ambitions, following the sequence from Bitcoin mining to energy exercise and from operational depth to AI compute deployments. In the third quarter were executed our phased road map with strict financial discipline, looking small-scale pilots with clear technical and IRR thresholds across both energy and AI compute. Our clean energy projects in Oman and in Indonesia are now underway and are expected to be commissioned within the next 1 or 2 years, providing strategic support for subsequent AI infrastructure development. The AI compute. In AI compute, Cango is taking a differentiated approach. Instead of building large centralized data centers, we focus on flexible distributed compute units in practical, this will integrate dispersed GPU resources into standardized compute pools and break them into smaller units tailored to the needs of small and midsized enterprises. This approach is enabled by 2 core advantages our distributed operational expertise and our global energy footprint, allowing us to execute a unique asset-light first strategy. In terms of governance, we have assembled a new leadership team with deep experience in digital infrastructure and finance and completed the transmission from an APR listing to a direct listing on the NYSE to enhance transparency and reduce shareholder transaction costs. These initiatives provide strong support for our next phase of development. Lastly, let me briefly update you on our legacy business. Our used car export platform, AutoCango, delivered strong performance this quarter with revenue of USD 3.3 million, 90% sequentially. The platform remains asset-light and continues to scale, connecting buyers from Africa, the Middle East and Eastern Europe with quality vehicle inventory from China. With that, I will now turn the call over to Michael Zhang, our Chief Financial Officer, to take you through the financials in more detail. Yongyi Zhang: Thanks, Paul. Hello, everyone, and welcome to our third quarter 2025 earnings call. Before I begin the review of our financials, please note that starting this quarter, we will begin reporting U.S. dollars, which better reflects the profile of our revenue and profit following the divestiture of our charter asset in May 2025. Unless otherwise specified, all amounts discussed are in U.S. dollars. Total revenue in the third quarter of 2025 were $224.6 million, up 60.6% sequentially. Revenue from the Bitcoin mining business in the third quarter of 2025 was $220.9 million with a total of 1,930.8 Bitcoins mined during the period, up 50.9% and 37.5%, respectively, on a sequential basis. The average cost of mining Bitcoin, excluding depreciation of mining machines, was $81,072 per coin with all-in costs at $99,383 per coin. Revenue from our automotive training business was $3.3 million in the third quarter of 2025. Now let's move on to our cost and expenses during the quarter. Cost of revenues exclusive for depreciation in the third quarter 2025 was $162.6 million. Depreciation in the third quarter 2025 was $35.4 million. General and administrative expenses in the third quarter was $6 million. We recorded operating income of $43.5 million and net income of $37.3 million in the third quarter of 2025 compared with an operating loss of $1.2 million and a net loss of $9.5 million in the same period last year. On a non-GAAP basis, adjusted EBITDA for the third quarter of 2025 was $80.1 million compared with $1.2 million in the same period last year. Moving on to our balance sheet. As of September 30, 2025, we had cash and cash equivalents of $44.9 million. Our balance sheet also reflects a $660 million receivables for Bitcoin collateral. In terms of operational assets, we carry our mining machine at a net value of $365.7 million of depreciation. On the liability side, we had $405.1 million in long-term debt owed to related parties. Together, these figures represent the core components of our financial structure as we closed the third quarter of 2025. This concludes our prepared remarks. Operator, we are now ready to take questions. Operator: [Operator Instructions] And today's first question comes from Emerson Zao with Goldman Sachs. Emerson Zhao: I have 2 questions. Number one, given the current Bitcoin prices, will the company consider selling Bitcoin holdings to fund new business expansion or manage market risk or support operation needs? And the second question is, you mentioned that equipment operates improved energy efficiency. But we see October operational hashrate, which was 46.6 exahash, which is still below the deployed hashrate of 50 exahash. So what are the main factors behind this gap? And when do you expect full utilization? Yongyi Zhang: Thank you for your question. I think I would take the first one. This quarter, we continue to follow our mine and hold strategy, retaining all mined Bitcoin as part of our strategic reserve. We've seen a heightened volatility recently, driven by tight market liquidity and increased uncertainty around the U.S. rate cut parts. However, we believe the fundamental thesis for Bitcoin as core reserve assets remain intact under broader macro spectrum. We will take a flexible approach across that equity and other financing channels to support our development of our new initiatives. Our Bitcoin reserves also provide a meaningful liquidity buffer and optionality for structured financing if needed. Peng Yu: Thank you for your question. I'm going to answer the question regarding the operation efficiency. After completing the acquisition of 18 exahash in late June, we reached full scale operations at safe for the first time in July during the initial integration phase we experienced temporary downtime due to cross state machine relocations and ongoing power system commissioning at the newly acquired sites. This factor created a short-term pressure on our time. Our operations team responded quickly and throw system-level optimization uptime has now stabilized about 90%, which is considered industry-leading and demonstrating the strength of our operational capabilities. It is important to note that external factors such as experience weather and great curtailment periodically affect minor availability. This is an industry-wide reality and achieving 100% uptime is not visible. Among comparable industry peers uptime about 90% is regarded as a strong performance benchmark. Going forward, we will continue enhancing efficiency through upgrade to our intelligent operations and maternal system while replacing low efficiency, however, will improve plant. Operator: Our next question comes from Pingyue Wu with Citic Securities. Pingyue Wu: This is Pingyue from Citic Securities. And I have 2 questions. The first question is related to the debt structure. And the company mentioned converting short-term debt into long-term debt. Can you elaborate on the financial benefit of this shift? And what is your current cost of debt? And secondly, my question is related to CapEx. Some capital-intensive data center operators have undergone significant value reset. Some people are questioning whether AI CapEx is entering bubble in territory. Given that you are now entering into the AI infrastructure space, how do you view this risk? Yongyi Zhang: Thank you for your questions. And I will take the first one. Through this optimization of our debt maturity profile, our liability now primarily composed of long-term borrowings. This better aligns our capital structure with our strategic strategy of building big oil reserves through self-mining, enhancing balance sheet stability and reducing financial risk. At present, we plan borrowing costs remain in the 7% to 8% annualized range at this level is expected to remain stable following the maturity structure adjustment. Peng Yu: Regarding the second question, I think it's true that the market is reassessing returns on AI investments, particularly for hyperscale data centers with high leverage heavy CapEx and long contract cycles, but the demand level, AI influence and industry-specific applications are still expanding rapidly the demand mix may evolve, but long-term compute demand is not appearing. In turning later, gives us the benefit of observing market shifts and avoiding high leverage expansion at the end of the previous cycle, our advantage slicing a lighter asset and leverage structure and a more distributed edge-oriented operating footprint. We evaluate and monitor AI project investments, potential returns and cash flow profiles at every stage. This allows us to dynamically adjust course, optimize capital efficiency and preserve strategic feasibility at all times. Operator: Our next question comes from [ Joey Chai ] with [ Wujen ] Securities. Unknown Analyst: I have 2 questions as well. The first one, Bitcoin has pulled back sharply from its all-time high in October. How does this affect your operating pace for Q4 in 2026. With your current cash position in BTC Holdings, how long can you operate under extreme market conditions? And do you have a worst case plan? And the second one, the Georgia site is self-owned and this contradicts the asset-light model. Will future expansion favor on the sites or leased sites? Yongyi Zhang: Well, thank you for your questions. Yes, we conduct frequent internal stress tests. And thanks to our asset-light models and operational flexibility we can dynamically adjust and even shut down high-cost sites on the extreme scenario to reallocate harsh power and control operating expenses. And we have the flexibility to adjust our BTC Holdings strategy as needed. We focus on long-term return per unit of harsh power as a long-term economics of Bitcoin rather than short-term market noise. Peng Yu: Regarding the Georgia side, it's important to clarify that. Today, acquisition is not a strategic bet, but rather an upgrade of our SLI model, we choose to acquire the site because it aligns with our long-term needs around securing low-cost power, gaining great stability and deepening our infrastructure operations capabilities. Looking ahead, we will continue to follow a balanced model of lease first with selected selective strategic acquisitions. These things will remain our primary path for rapid expansion and geographic diversification we evaluate potential acquisitions against strict criteria, power cost, stability for AI grade data center upgrades and regulatory stability We believe only a portion of 3 sites is essential to maintaining long-term cost advantages and supporting our strategic transition. On capital allocation, we prioritized efficiency over share scale. All cash flows will be direct to first to initiatives that strengthen our structure cost advantages such as acquiring sites to lower power costs or upgrading underperforming compute equipment. At the same time, we remain disciplined in managing our asset structure, evaluating and monitoring leverage and financial discipline through ranges, financial and operational metrics. Operator: And our next question comes from Kevin Dede at H.C. Wainwright. Unknown Analyst: This is [ Daniel Malin ] on for Kevin Dede. We're curious how Cango feels it's best to address the HPC market, whether that be through cloud compute or a power shell model. And if the recent pullback in Bitcoin could it all accelerate this? And how are you guys thinking about time lines with those 2 ventures? Peng Yu: Thank you for your question. In AI compute, Cango is taking a differentiated approach instead of building large centralized data center. We focus our black for distributed compute units in practice, this will integrate dispersed GPU resources into standardized compute pools and break them into smaller units tailored to the needs of small and midsized enterprises. This approach is enabled by 2 core advantages; our distributed operational expertise and our global energy footprint, allowing us to execute a unique SLI first strategy. Operator: Thank you. That's all the questions we have time for today. And this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's Third Quarter 2025 Earnings Conference Call. We would like to inform you that the third Q '25 press release is available to download at the Investor Relations website of Banco Macro, www.macro.com.ar/relaciones-inversores. [Operator Instructions] It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Scarinci, Chief Financial Officer; and Mr. Nicolas Torres, IR. Now I will turn the conference over to Mr. Nicolas Torres. You may begin your conference, sir. Nicolas Torres: Thank you. Good morning, and welcome to Banco Macro's Third Quarter 2025 Conference Call. Any comments we may make today may include forward-looking statements, which are subject to various conditions, and these are outlined in our 20-F, which was filed to the SEC, and it's available at our website. Third quarter 2025 press release was distributed last Wednesday, and it's available at our website. All figures are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period. As of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank. For ease of comparison, figures of previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through September 30, 2025. I will now briefly comment on the bank's third quarter 2025 financial results. In the third quarter of 2025, Banco Macro's net income totaled ARS 33.1 billion loss, which was ARS 191.5 billion lower than the previous quarter. This result was mainly due to higher loan loss provisions, higher administrative expenses, lower income from government and private securities and lower net fee income that were partially offset by higher other operating income and a lower loss related to the net monetary position. Total comprehensive income for the quarter totaled ARS 28.4 billion loss. And in the first 9 months of 2025 Banco Macro's net income totaled ARS 176.7 billion, 35% below than the same period of last year. When total comprehension income totaled ARS 186.9 billion in the same period. As of the third quarter of 2025, the accumulated annualized ROE and ROA were 4.5% and 1.5%, respectively. Net operating income before general and administrative and personnel expenses was ARS 779.6 billion in the third quarter of 2025, 23% of ARS 233.7 billion lower compared to the second quarter of 2025 due to lower income from government securities. On a yearly basis, net operating income before general and administrative and personnel expenses decreased 29% or ARS 312.9 billion. Provision for loan losses totaled ARS 156.8 billion, 45% or ARS 49.4 billion higher than the second quarter of 2025. On a yearly basis, provision for loan losses increased 424% or ARS 128.4 billion. In the quarter, net interest income totaled ARS 686.2 billion, 7% or ARS 52.2 billion lower than in the second quarter of 2025 and 8% or ARS 63.6 billion lower year-on-year. This result was due to a ARS 113.9 billion increase in interest expense, while interest income increased ARS 61.6 billion. In the third quarter of 2025, interest income totaled ARS 1.32 trillion, 5% or ARS 61.6 billion higher in the second quarter of 2025 and 7% or ARS 84.7 billion higher than in the third quarter of 2024. Income from interest on loans and other financing totaled ARS 930.3 billion, 18% or ARS 139.7 billion higher compared with the previous quarter, mainly due to an 11% increase in the average volume of private sector loans and by a 111 basis point increase in the average lending rate. On a yearly basis, income from interest on loans increased 74% or ARS 396.2 billion. In the third quarter of 2025, interest on loans represented 77% of total interest income. In the third quarter of 2025, income from government and private securities decreased 24% or ARS 85.4 billion quarter-on-quarter mainly due to inflation adjusted bonds and decreased 52% or ARS 292.8 billion compared with the same period last year. This result is explained 97% by income from government and private securities at amortized cost, and the remaining 3% is explained by income from government securities valued at fair value through other comprehensI've income. In the third quarter of 2025, income from repos totaled ARS 6.3 billion, 493% or ARS 5.3 billion higher than the previous quarter and 74% or ARS 18.1 billion lower than a year ago. It is worth noting that as July 22, 2024, the Central Bank decided to terminate repos and replace them with LEFI's, which were issued by the treasury, which then were eventually terminated on July 10, 2025. In the third quarter of 2025, FX income was ARS 13.8 billion loss, ARS 37.5 billion lower than the second quarter of 2025, mainly due to the loss from foreign currency exchange, given the bank's short dollar position. It should be noted that the bank posted a ARS 23.2 billion gain related to investment in derivative financing instruments, which is basically the long futures position that the bank has. Therefore, when considering income from foreign currency exchange plus income from investment in derivative financing instruments, the bank posted a ARS 9.4 billion gain. On a yearly basis, FX income decreased 164% of ARS 35.2 billion. And in the quarter, the Argentine peso depreciated 14.4% against the U.S. dollar after the Central Bank of Argentina replaced the 1% crawling peg, allowing the Argentine peso to float [indiscernible]. In the third quarter of 2025, interest expense totaled ARS 528.4 billion, increasing 27% or ARS 113.9 billion compared to the previous quarter and increased 39% or ARS 148.4 billion compared to the third quarter of 2024. Within interest expenses, interest on deposits represented 94% of the bank's total interest expense, increasing 24% or ARS 96.6 billion quarter-on-quarter due to a 248 basis points increase in the average rate paid on deposits, while the average volume of private sector deposits increased 10%. On a yearly basis, interest on deposits increased 36% or ARS 131.3 billion. In the third quarter of 2025, the bank's net interest margin, including FX, was 18.7%, lower than the 23.5% posted in the second quarter of 2025 and the 31.5% posted in the third quarter of 2024. In the third quarter of 2025, Banco Macro's net fee income totaled ARS 177.3 billion, 7% or ARS 13.9 billion lower than the second quarter of 2025. In the quarter, credit card fees stand out with a 22% or ARS 14.2 billion decrease, followed by credit-related fees, which decreased 27% of ARS 3.1 billion, and were partially offset by a 7% or ARS 1.8 billion increase in corporate services fees. On a yearly basis, net fee income increased 14% or ARS 22.1 billion. In the third quarter of 2025, net income from financial assets and liabilities fair value to profit or loss totaled ARS 19.5 billion gain, decreasing 84% or ARS 101 billion compared to the second quarter of 2025. This result is mainly due to lower income from government securities. On a yearly basis, net income from financial assets and liabilities at fair value to profit or loss decreased 86% or ARS 117 billion. In the quarter, other operating income totaled ARS 69 billion, 42% or ARS 20.5 billion higher than the second quarter of 2025 due to higher credit and debit card income, ARS 14.7 billion. And on a yearly basis, other operating income increased 16% or ARS 9.7 billion. In the third quarter of 2025, Banco Macro's administrative expenses plus employee benefits totaled ARS 331.5 billion, 12% or ARS 35.1 billion higher than the previous quarter due to a 20% increase in employee benefits, while administrative expenses decreased 3%. On a yearly basis, administrative expenses plus employee benefits decreased ARS 431 million. In the third quarter of 2025, employee benefits increased 20% or ARS 38.7 billion, mainly due to a 139% or ARS 23.6 billion increase in compensation and bonuses as the bank builds up provisions for early retirement plans and severance payments. On a yearly basis, employee benefits increased 8% or ARS 16.9 billion. In the third quarter of 2025, the accumulated efficiency ratio reached 39.1%, deteriorating from the 35.9% posted in the second quarter of 2025 and from the 25.5% posted a year ago. In the third quarter of 2025, expenses, which includes employee benefits, general and administrative expenses, depreciation and impairment assets increased 10%, while income, basically net interest income, net fee income, differences in quoted prices of gold and foreign currency plus other operating income, plus net income from financial assets at fair value through profit or loss decreased 19% compared to the second quarter of 2025. In the third quarter of 2025, the result from the net monetary position totaled at ARS 203.1 billion loss, 6% or ARS 13 billion lower than the loss posted in the second quarter of 2025 and 46% or ARS 171 billion lower than the loss posted 1 year ago. Lower inflation was observed during the quarter, basically 4 basis points below the second quarter '25. Inflation reached 5.97% in the third quarter of 2025 versus 6.01% in the second quarter of 2025. In the third quarter of 2025, given Macro's net income, no income tax charge was recorded. Further information is provided in Note 21 of our financial statements. In terms of loan growth, the bank's total financial reached ARS 10.1 trillion, increasing 3% or ARS 332.4 billion quarter-on-quarter and increasing 69% of ARS 4.1 trillion year-on-year. In the third quarter of 2025, private sector loans increased 3% or ARS 278.2 billion, and on a yearly basis, private sector loans increased 67% of ARS 3.94 trillion. Within commercial loans, documents and others stand out with a 4% or ARS 60.4 billion and a 27% or ARS 453.9 billion, respectively. Meanwhile, overdrafts decreased 21% or ARS 364.9 billion. Within consumer lending, almost all product lines increased during the third quarter of 2025, except for credit card loans, which decreased 1% or ARS 21.3 billion. Personal loans, mortgage loans and pledged loans stand out with an 8% or ARS 156.8 billion, 12% or ARS 92.8 billion, 6% or ARS 13.1 billion increase, respectively. In the third quarter of 2025, peso financing decreased 2% or ARS 192.1 billion, while U.S. dollar financing increased 10% or $170 million. It is important to mention that Banco Macro's market share over private sector loans as of September 2025 reached 9%. On the funding side, total deposits increased 5% or ARS 556.4 billion quarter-on-quarter, totaling ARS 11.8 trillion and increase 11% of ARS 1.2 trillion year-on-year. Private sector deposits increased 6% or ARS 604.9 billion quarter-on-quarter, while public sector deposits decreased 5% or ARS 49.6 billion quarter-on-quarter. The increase in private sector deposits was led by demand deposits, which increased 10% or ARS 475.2 billion, while time deposits increased 4% or ARS 202.2 billion quarter-on-quarter. Peso deposits decreased 1% or ARS 48 billion, while U.S. dollar deposits increased 3% or $95 million. As of September 2025, Banco Macro's transactional accounts represented approximately 49% of total deposits. Banco Macro's market share over private deposits as of September 2025 totaled 7.4%. In terms of asset quality, Banco Macro's nonperforming total finance ratio reached 30.2%. The coverage ratio, measured as total allowances under expected credit losses over nonperforming loans under Central Bank rules reached 120.87%. Consumer portfolio nonperforming loans deteriorated 149 basis points, up to 4.3% from 2.81% in the previous quarter while commercial portfolio nonperforming loans deteriorated 33 basis points in the third quarter of 2025, up to 0.85% from 0.52% in the previous quarter. In terms of capitalization, Banco Macro accounted an excess capital of ARS 3.3 trillion, which represented a capital adequacy ratio of 29.9% and a Tier 1 ratio of 29.2%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets to total deposit ratio reached 67%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. We keep a well-optimized deposit base. Asset quality remain under control and closely monitor, and we keep on working to improve more our efficiency standards. At this time, we would like to take the questions you may have. Operator: [Operator Instructions] Our first question comes from Carlos Gomez-Lopez with HSBC. Carlos Gomez-Lopez: I guess 2 questions. The first one is one has a sense that your result is worse than you had anticipated. You did not, I think, expect to have a loss. Was there anything special that we could point to? Or let's say, did you take the opportunity to take any charges to expenses that we haven't discussed? Could you identify anything which was special that perhaps was not forecast a little bit before? And second, what do you expect for next year in terms of loan growth and achievable returns, understanding that there's a lot of uncertainty? Jorge Francisco Scarinci: Thanks for your questions. In relation to your first question well, I think that is quite clear on the press release that there was a combination of different factors, and some of them were a bit more or deeper than what we expected at the beginning. First, in terms of the delinquency rate, we were expecting not such that amount of provisions that finally we have to post. That's a consequence, as you also saw in the other banks that also released results on the past week, that was a kind of an increase or almost peak in terms of NPLs. That is one of the reasons for that. Second reason, there were some additional expenses that we also accounted in the quarter that were not expected before. So -- and also the compression on the margins due to the big increase of roller coaster interest rate behavior during the third quarter. And also, I would say that last but not least, is the performance on the bond prices and the impact on the bond portfolio performance. So that is in relation to your first question. According to your second question in terms of forecast for next year, we are forecasting loans to grow 35% in real terms. Deposits to grow in the area of 25% in real terms, and we continue to expect ROE for 2026 to be in the low tens. Carlos Gomez-Lopez: And could you give some more detail about your extra expenses? Is that related to adjustment to the footprint or any consultant or any system that you have purchased? Anything we could know more about expenses and whether they're recurring or nonrecurring? Jorge Francisco Scarinci: No. Basically, Carlos, those that we posted there that are related to the early retirement plans that were not expected to happen and they finally happened. So that we're described on the press release, basically. Operator: Next question from Ernesto Gabilondo with Bank of America. Ernesto María Gabilondo Márquez: My first question will be on asset quality. So I just want to double check when do you expect the peak on NPLs? And if you can provide us a potential range? And where do you see the peak in cost of risk? And how should we think it for next year? My second question is a follow-up on your ROE. As you said, you're expecting low teens in 2026. But how should we think about the ROE for 2025? And then my last question is on your capital ratio and potential M&A opportunities. You continue to have an important excess in capital. You already have passed the midterm election. So when do you expect to start to have M&A activity? Do you think is something that could come next year? Any color on that will be very helpful. Jorge Francisco Scarinci: On your first question in terms of asset quality, we believe that the peak on NPLs should happen or should happen between October and November. And that is what we are seeing in terms of the delinquency ratio, also in terms of cost of risk. We posted at 6.5% in the third quarter. We expect this number to be maintained approx in the fourth quarter, and we are forecasting to be more close to 5% in 2026. So again, the peak should be between the third and the fourth quarter in terms of delinquency. In terms of ROE for 2025, we continue to maintain the 8% area for 2025 in terms of ROE. On your question about capital ratio, I mean, it is true that we continue to have this high level of capitalization of excess capital. Of course, we are honored and trying to find out if there is an opportunity to make the use of this excess capital in terms of M&A. Of course, you know that any player trying to leave the game is pretty sure that it's going to knock our door. And of course, we are going to analyze the target of the assets. And if it is good, we are going to go for it. If not, we are going to wait for another one. So that's the idea going forward. So we expect to have some news about that in the next maybe 12 to 18 months, basically, but it's not only depending on us. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: I have a question on growth, right, because probably this is the first option in terms of capital allocation, given the wide base of capital. Could you elaborate a bit on where will you focus this growth if you're going to give priority to corporates? Or do you think maybe it is time to gain share, be more aggressive on the consumer side? Just if you could maybe expand this guidance that you provided for 2026 by segment. I think that would be great. And then, Jorge, I think we spoke very recently, we had an event where we participated. I think we discussed sustainable ROE. Just wanted to check if maybe 2026 is part of this transition for, let's say, 15% to 20% of levels of sustainable ROE. Jorge Francisco Scarinci: In terms of the first question about loan growth going forward, I mean, we expect to grow across the board, both commercial and consumer. And the consequence of this is because there is a very low penetration in the Argentine banking sector. It is below 10% of loan to GDP. We're expecting, according to the consensus of the economies, a real GDP growth of around 3% in 2026 with inflation also estimated by the consensus of economies in the area of 20%. So we expect demand to come from both companies and also consumers. So the idea is to grow. If you want to put in that kind of percentages of our loan book, as of today, we are approx 65% consumer, 35% commercial. That could be at the end of 2026, maybe 60-40, but there's not going to be a big change in our loan book composition because we're expecting loan demand to come from every sector in Argentina. In terms of ROE going forward, second question, yes, 2026 is going to continue to be another transition year towards the area of 20% ROE that we are supposed to be delivering 2027 onwards. Brian Flores: No. Super clear. Jorge, maybe just if I can, a quick follow-up on these questions on capital allocation. Would you consider the current stock levels as attractive in terms to continue the buyback activity you showed during the third quarter? Jorge Francisco Scarinci: Well, Brian, that is something that the Board might consider. For the moment, the program that was said it is not more going on basically because of the price that's skyrocketed since then. And as a consequence of the election in the -- of the midterm election that happened here in Argentina, and of course, the mood that turned into positive for Argentina. So for another buyback program, we have to -- I mean the Board has to consider many issues going forward. For the moment, it's not going to be in place anymore. Operator: Our next question comes from Pedro Leduc with Itaú BBA. Pedro Leduc: Two, please. First, on NIMs. Now of course, this quarter, we had this very adverse environment for funding costs and liquidity reserves, et cetera. But we also saw a lot of repricing in local portfolios. So now that funding is normalized, can we expect, for example, 4Q NIMs to be back to, let's say, at least 2Q levels? And if we look at on an aggregate basis, 2026, there's a lot of moving pieces for NIMs in 2025 as well, so this is harder. But on an aggregate basis, should we see NII grow above this 35% real loan book growth in your view and if you can go over the driving forces there. And then last, that's just a follow-up on NPLs. Of course, it's been a trend there. Yours took a little bit longer, and it seems like you're more comfortable in seeing the peak already in 4Q. Some players might be seeing slipping over to 1Q, 2Q. So if you can share with us what you have done there to control this and maybe be out of the peak also already in the fourth quarter in terms of NPLs. Jorge Francisco Scarinci: In relation to the question about NIMs, yes. Basically, what happened with the cost of funding and also other interest rates that were ups and downs in the third quarter. We saw similar to other banks in this third quarter, our NIMs being affected. We posted at 18.7% NIM compared to the 23.5% that we posted in the second quarter. So yes, we hope and we believe that the NIM for the fourth quarter is going to be more similar than the one that we posted in the second quarter. Going forward, we expect in 2026 NIMs to be in the area of 20%, so should be slightly below the average that we are having up to now, that is 21.6% for the first 9 months of 2025. And we believe that the net interest income should be growing slightly above the 35% that we are going to grow in terms of real loan growth that I commented before. In terms of the NPLs, as I mentioned, yes, we could see some of more peak on the fourth Q, and that is going to bring additional provisioning for the moment. We expect these levels to be similar than the one that we posted in the third quarter. Going forward, as I mentioned, the cost of risk should be more in the area of 5% in 2026. And basically, we should be -- or sorry, we have been taking measures since the last part of the first quarter, beginning of the second quarter of 2025, where we became more restrictive in terms of the credit lines on -- basically on consumers. But basically, as we saw, the main consequence of the deterioration of the delinquency rate across the board in the Argentine banking sector was basically the increase in the real interest rates that we saw in the second and third quarter. So now that we are seeing real interest rate more slightly positive. And going forward, we believe that this trend will be maintained. We think that the behavior of the portfolio is going to become a bit more normal. But of course, you have to take into consideration that we grew our loan book 69% in real terms. As of the third quarter of '25, we expect to grow another 35% in real terms in 2026. So we maybe we should accustom to see the past due loans ratio in other levels, I would say, between 2%, 2.5% or maybe more than that compared to the ratio that we were accustomed to see in the Argentine banks when banks didn't grow their loan book as happened in the last maybe 3, 4 years. So now we have to move and to have to see these ratios more in the area of mid-2s with the level of real growth in loans that we are forecasting going forward. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Daer Labarta: I guess a couple of follow-ups. Jorge, are you able to quantify how much additional expenses were related to those early retirement plans you mentioned, just to think about how much of that should go away in 4Q? And then second question, I guess, on the market-related income, which you mentioned was negatively impacted by the bonds and the government losses on the government bond. Do you expect that to sort of reverse in 4Q as things kind of normalize just to get a sense of the magnitude that can maybe improve in 4Q as well? Jorge Francisco Scarinci: In terms of the expenses that we commented there are the ARS 23.5 million that we posted in the expenses line that we explained in the press release, approximately 18.5% were maybe nonrecurrent in the third quarter. Honestly, it's a bit early to say what we are going to do in the fourth quarter but might happen that some of these could appear here. But again, it's a bit early to comment on that on the fourth quarter. In terms of second question, yes, the bond portfolio taking into consideration that approximately, we have 23% to 25% of our bond portfolio tied to market prices or market-related. So going forward, we expect this to reverse in at least for the moment, in the fourth quarter, we are going to have much better performance in the bond portfolio compared to the one that we had in the third quarter where we saw prices going down a lot. Daer Labarta: Okay. No, that's very clear, Jorge. Just could there be additional expenses related to the early retirement plans? Or is that it from last quarter? Jorge Francisco Scarinci: Could be. But again, honestly, it's a bit early to comment on that, but could be. Operator: Next question from Pedro Offenhenden with Latin Securities. Pedro Offenhenden: I wanted to ask what factors could catalyst for the deposit growth on 2026? And how are you seeing liquidity conditions after the elections? Jorge Francisco Scarinci: We're expecting real interest rates to be positive in 2026, similar levels as the one that we are seeing right now. That's why we are forecasting our deposit growth to be in the area of 25% in real terms. This is in relative terms, lower than the rate that we're expecting for loans. But in the case of we did additional funding here, of course, we have a bond portfolio where we can take liquidity. We can issue domestic corporate bonds or bonds on the foreign market. So this is not going to be a problem for the liquidity for Banco Macro. In addition to that, when you look at the liquidity ratios as of today, we have an extremely good liquidity ratios in both dollars and pesos. So going forward, we expect to maintain this performance. Operator: Next question from Alonso Aramburú with BTG. Alonso Aramburú: Just wanted to follow up a little bit on asset quality. You mentioned that NPLs should peak October, November. Maybe you can comment on what you're seeing in new vintages. You saw some deterioration in commercial, some a little bit more in consumer. So what are you seeing lately that gives you this confidence that the peak is now? And when you talk about margins, maybe a little bit longer term, you mentioned 20% ROE 2027 onwards, what sort of margins, what sort of NIMs do you see then, right? You mentioned 20% next year? Is that in the mid-teens? I mean, where do you see them? Jorge Francisco Scarinci: Yes, in terms of NPLs, what we are seeing in our vintages is that there is a stop in the deterioration trend, and we're seeing some stability, and we expect this to become better or improve in the next month or so. So that's why we are expecting to see this kind of a peak maybe early in the fourth quarter. Honestly, at the end of the fourth quarter, we really, for the moment, don't know which is the level of provision that we are going to post. That's why we are supposing that should be in the area of the one that we posted in the third quarter. But we are positive on the trend on the vintages in the next couple of months, and this is going to help, and that's why we commented that the peak should be between October, November. In terms of NIMs going forward, for sure, little by little, we are going to see a decline in the NIMs. Honestly, for 2027 should be in the area of mid-teens. And of course, 2028 onwards, we should be approaching to the low 10s. That is maybe the movie that we are seeing going forward for the Argentine banking sector, and we expect the volume growth to outpace the decline in margins. Operator: Next question from Nicolas Riva with Bank of America. Nicolas Riva: Jorge, I have a question regarding next year, the maturity of your 2026 bond, the $400 million. I understand it counts very little for capital treatment, I think, only 20% maybe. But I wanted to ask if the plan -- given that it's a large size in dollars, $400 million, if the plan would be to replace those dollars and probably do like a senior bond issuance of a similar size? Or what would be the plan regarding those $400 million? Jorge Francisco Scarinci: Yes, this bond is maturing at the end of November 2026. So we still have almost 12 months to figure out what to do. Honestly, we have many options on the table. We understand that markets are pretty positive on Argentina. We have to figure out our plan for future growth in U.S. dollar loans. And depending on all those -- on these assumptions and what happened in by mid-2026, we are going to make a decision whether to cancel it, to roll it to maybe issue another senior bond instead of subordinated. So again, many options on the table. Still, we do not have decided what to do. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: Thank you very much for the opportunity to make a quick follow-up. Jorge, was just running here some back of the envelope math on your comments on ROE. I just wanted to check if what I am seeing here makes sense. You mentioned the 8% level of ROE -- real ROE for 2025 is achievable, right? You're not changing the guidance. But just looking at the run rate, it seems like the fourth quarter would need to be higher than the complete run rate of the first 9 months of the year. So I just wanted to check if, I don't know, there is something one-off that could really help results or if just it's a big spike in volume. Just wanted to understand if this is making sense or I'm missing something here in terms of what could really help the fourth quarter results to achieve the mentioned guidance? Jorge Francisco Scarinci: Well, first of all, the forecast is area 8%. Second, if you assume that we are going to post in the fourth quarter results similar than the one that we posted in the second quarter, we are going to be very close to the 8%. So for the moment, we are maintaining that. We expect, again, recovery in the bond portfolio, increasing in loan volumes and improvement on the NIMs. So these are the main reasons why we're expecting a much better fourth quarter. So we should be very close to the 8%. So that's the idea why we are maintaining the forecast for 2025 ROE. Operator: Our next question comes from [ George Birch Renardson with Oda ]. What is the average age of your workforce? Jorge Francisco Scarinci: Honestly, I have to check that. It's not an easy question. I have to check the data from Human Resources, the first time I received this question. But let me check it. And if you don't mind, I can get back to George later, please. Operator: Great. Next question from Marcos Serú with Allaria. What caused the ARS 28 billion loss on foreign exchange? Jorge Francisco Scarinci: I mean the ARS 28 billion loss in the -- when you look at the complete income on FX, it is -- we got a positive result of almost ARS 9.5 billion. This is a result on a combination of that we -- of the bank was sold in spot FX and the increase in the FX impacted on a loss in that position. However, also the bank was long in futures, and that resulted in a positive result because also futures increased in the third quarter. So the net-net was a positive income of ARS 9.5 billion in the quarter. Operator: There are no more further questions at this time. This concludes the question-and-answer session. I will now turn over to Mr. Nicolas Torres for final considerations. Nicolas Torres: Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Have a good day. Operator: This concludes today's presentation. You may disconnect, and have a nice day.
Henry Birch: Good morning, everyone, and welcome to our strategy update for the Halfords Group. You'll be aware that today, we have also announced a strong set of interim results for the 26 weeks to the 26th of September. And these, together with the webcast are available on our corporate website. I'm very pleased to be setting out my vision for Halfords over the next 5 years and believe that we are at an exciting and compelling moment in time from an investor point of view. I joined Halfords because I believed in its potential. 7 months on, I'm even more convinced in its potential and believe we have a pathway to growing our business and creating value and benefit for all our shareholders, our customers, colleagues and most relevant to this forum, our shareholders. At the heart of my conviction is the unique set of assets and capabilities that Halfords possesses and the dynamics of the markets in which we operate. We have leading positions in fragmented and evolving markets. We have an unmatched and scaled combination of stores, garages, mobile vans and digital capability across Motoring products and services and Cycling. We have a trusted, universally recognized brand and over 12,000 expert trained colleagues. We have structural resilience with a focus on needs-based products and services, and 1/3 of our revenue comes from B2B. We have a debt-free balance sheet together with strong cash flow generation. And in combining assets and capabilities under one roof, the Halfords Group as a whole is much more valuable and has more potential than the sum of its parts. Today, I want to drill down into some of those capabilities and assets. I want to deliver some home truths about our past and where we are today. And most importantly, I want to elaborate on why I am so confident in our future and detail our plans to deliver for all our stakeholders. Jo will talk to how we're going to measure progress and ensure financial discipline, and I will introduce our team and wrap up proceedings. I mentioned scale and breadth of our assets. As a retailer, we have 370 stores across the United Kingdom and the Republic of Ireland, combined with a strong digital platform together generating about GBP 1 billion in annual Retail sales. We have 500 consumer garages delivering service, maintenance and repair together with tires. We have our Halfords Mobile Expert service with 250 vans, and we have our Commercial Fleet Services business with 550 vans serving business customers up and down the country. And we have Avayler, our Software-as-a-Service business, providing garage management software to third parties. Our more than 12,000 colleagues are solutions experts, trained and knowledgeable, and we continue to invest in young people, bringing 150 new apprentices through our doors last year. Amongst many other impressive statistics, that scale means that we serve over 20 million customers a year. It means we sell over half of all bikes in the U.K. and handle a significant share of the U.K.'s car keys. Scale in our business drives competitive advantage and is extremely difficult to replicate. But the power of Halfords is in its combination of assets and capabilities and the additional value that it drives. At the most obvious level, we have a single Halfords brand across all our businesses and services. That drives brand authority, relevance and resonance across all things, Motoring and Cycling, and gives us the potential for service and product extensions. The Halfords brand is served by a single consumer website where customers can buy products or book garage services. We have a combined loyalty program, allowing customers to move seamlessly between our different services, driving higher engagement and subscription revenue. We deploy central specialist functions across our businesses, driving cost and capability advantages. We have buying power, with many of the same suppliers across our divisions. And our B2B efforts, a key and growing part of our business, deliver benefits for corporate clients across the group, whether that is Commercial Fleet Services, Trade Card or Cycle2Work. The power in Halfords is the power of the group and the assets we bring together under one roof. From a customer point of view, we aim to deliver 3 guiding benefits: convenience, value and expertise. The convenience of digital and nationwide coverage with 85% of the population not further than 15 minutes from Halfords. Value, enabled through our scale, supplier relationships and our own brand products and expertise through our dedicated 12,000 colleagues. Our customers are diverse in their makeup, but broadly fall into 2 categories: those we classify as do-it-for-mes and those we classify as do-it-yourselves. Do-it-for-mes are much greater in number and, as their name suggests, are looking for advice or a service. And candidly, Halfords is often the only place they can get that advice or service, whether it's having a wiper blade or roof box fitted or getting advice on which oil to buy. The do-it-for-me population is large, and we have a significant opportunity in greater penetration of this market. DIY customers are typically high-value, high-frequency customers who recognize the depth and breadth of our range and our product and service expertise. Our B2B customers share many of the same priorities: convenience, value and expertise, but place an even greater emphasis on reliability and turnaround speed. Through our national footprint and fleet service capability, we offer a comprehensive single provider solution that keeps businesses moving throughout our nation. Over the last 5 years, we have built a much bigger B2B business across different sectors. This includes our Commercial Fleet Services business, combining what were Lodge, McConechy's and Universal, where we are typically serving HGVs and light commercial vehicles. B2B is also an important demand driver for our consumer garages where we serve fleet cars and light commercial vehicles with a growing proportion of them being electric vehicles. And on the Retail side, our Cycle2Work scheme helps drive bicycle sales with Trade Card also contributing B2B revenue. B2B gives us a reliable source of demand, can drive a higher utilization of our asset base and is more insulated from the volatility of consumer confidence and spending. If we look at the markets in which we operate, Halfords is in a strong position. Our largest market is Garages or Motoring Services, a market which is around GBP 17 billion in size. In this space, small local independents still represent the biggest share, leaving room for Halfords as a scaled professional operator, with the capability and credibility to meet the growing complexity of modern Motoring. Many of these independent garages are owner-operated and may face issues not just with generational succession, but with the scale of investment in equipment and skills needed to meet the changing dynamics of Motoring. So whilst it is early days, we expect competitor garage supply to diminish over time. We've spoken previously about a weak tire market that has struggled for the past 2 years. But the important thing here is that irrespective of growth or decline in the market, with the brand and scale that we have, we should be able to grow and take share in tires. The Motoring products market is worth around GBP 4 billion. We see significant potential in developing our digital offer, but believe our unique strength is in the combination of digital and physical stores. This is illustrated by the fact that 80% of our digital orders are click and collect. Our combination of products with an attached service is not something that Amazon or any other online retailer can easily provide. The Cycling market remains a core part of our proposition and strategically important, both as a significant business in its own right, but also as a gateway to Halfords, from the first bikes that introduce families to our brand to the enthusiasts who invest in the latest innovations through our specialist brand Tredz. This year, we have seen good growth in Cycling, and the market overall seems to be in improving health. Across the group, we represent more than half of the Cycling market in volume terms, including all parts and accessories as well as bikes themselves. Taken all together, the markets we operate in are large, robust and dynamic, providing a strong foundation for Halfords' long-term growth and future strategy. I mentioned that our markets are dynamic, and there are some clear trends that Halfords must navigate. Firstly, and most obviously, is the move to electric, and that's both cars and bikes. Electric vehicles currently constitute about 5% of the U.K. car parc of 35 million cars. Despite successive government inconsistency, we know 2 things with absolute certainty. First, that, that EV number will grow. And second, internal combustion engine cars will be on our roads for many, many years to come. Whatever the growth or scenario, we are well prepared. We have almost 700 EV trained technicians, and the majority of our garages work on EV cars. We're ahead of the curve, investing early and building capability to serve EV customers at scale as the demand arrives. And although there are differences between EVs and internal combustion engine cars, they all need tires, and they all need to be serviced, maintained and repaired. It's worth saying that the same goes for any other car powered by a different technology or fuel. At the end of the day, we are fuel and technology agnostic and are confident that we can navigate any shifts or trends. At the other end of the spectrum, another structural trend to touch on is the aging car parc in the U.K. Despite the rise of EVs and new technology, the average vehicle in the U.K. is now close to 10 years old, shifting demand away from dealer-based early life servicing towards independent aftermarket providers, a space where Halfords is exceptionally strong. Over the last decade, the U.K. has seen the rise of the convenience economy, and this has been reflected in the Motoring products and services market. More than ever, consumers want convenience. They want someone to do it for them, removing hassle and fitting around their busy lives. Today's customers are also more demanding and digitally engaged. With our nationwide reach, integrated service model and advanced digital capability, Halfords is uniquely placed to deliver on this shift towards convenience and service, both in our garages and our stores. Halfords has a long and illustrious history. But similar to most consumer businesses, it has had a fairly volatile decade post Brexit and lastly COVID. In that time, it has had to navigate some choppy waters, but it has made 3 important strategic shifts, which I've mentioned but want to reiterate. First is a shift to a greater proportion of services, with service-related revenue now representing over half the total. Service revenue is typically higher margin and more resilient being more needs based. Secondly, we've grown our B2B business with around 1/3 of revenue now generated by B2B sources. B2B revenue is generally less impacted by economic swings and consumer confidence and is therefore, more consistent and reliable. And thirdly, we executed a material cost reduction program to mitigate the inflationary pressures over the last 3 years. These shifts are the right ones to have made and set us up well for future success. Halfords is a fantastic company, brimming with potential, but arguably over -- our performance over the last 3 years has not matched that potential. And I think an element of candor and self-reflection is needed to ensure that as we map out the years ahead, we take the necessary learnings forward with us. First, as I have said, we have rightly evolved into a services-led business. But with that change, we have failed to deliver the uplift in margin we should expect from services being a higher proportion of revenue. That must and will change. And in particular, we will be targeting margin expansion in our Garages business. Over the last few years, we have made a number of acquisitions. These acquisitions have given us additional scale and capability, but our integration has not been good enough, and we have not driven expected returns. There is more to do here, but I am clear that in the immediate term, any further acquisitions would be a distraction from the task in hand. Halfords is a diversified business with breadth and inherent complexity, but we've often found ourselves spread too thinly chasing too many priorities. That will change, with a simplification of action and a focus on the things that matter and the things that will drive value in our business. Halfords has an enviably rich and powerful data set, which we use effectively for CRM and segmentation, but we are yet to use this data for real-time decisioning, personalization or predictive analytics, and we need to develop our data platform further. Doing so effectively will increase customer lifetime value and drive profit growth. And I talked about the power of the Halfords Group, how the combination of our assets yields considerable benefit, but we have not sufficiently joined these assets from a customer point of view. The customer journey between our group assets is not smooth enough, and it is not evident enough to customers what exactly we offer. We need to better join our assets together and better promote what we offer. If we do this well, there is much to gain. And overall, I believe we need to drive better and more visible returns on the capital we deploy. This is very much front of mind and something we will ensure we get the required focus. So there are both lessons to be learned and challenges to meet, but fundamentally, we have a unique and fantastic business. And while I've been candid about where we need to improve, it's equally important to recognize the many strengths already in place. So hopefully, I've given a clear articulation of where I see our strengths and also some of the home truths that we need to face into. I've also covered some of the dynamics and trends of the markets we play in, but I now want to talk about where we believe we can take our business and the future ahead. When I decided to join Halfords, it was because I could see a business with deep foundations, a strong sense of purpose and a differentiated platform most companies would envy. Now having spent time across the organization, I'm even more convinced. The fundamentals are intact, the potential is significant and the challenges we face are executional, not structural. And it's not just me who believes this. Let's hear from 2 of our newest team members of our executive team. Jess Frame: I joined Halfords because I believe it has the potential to redefine the specialty Retail business model for the future. I've had the privilege of advising many retailers in the U.K. and Europe and all of them were navigating the shift online, fiercely competitive marketplaces, how to create value-add experiences in stores, how to make cross-channel convenience come to life and also how to personalize their proposition for customers. I fundamentally believe that the retailers who thrive over the next decade will be those who successfully fuse products and services to create solutions for customers. And what excites me about Halfords is that we have the required assets and capabilities to drive that new model now. We have the asset to create an ecosystem around customers for all of their car and bike needs. We have the skills and operating model to deliver services in retail and our mobile vans and garages network for more complex jobs. We've got the colleague expertise and culture to offer trusted, helpful in-person advice. We've got the supply chain that can support click and collect within an hour on many of our lines, and the relevance of our store estate is underpinned by the fact that over 80% of our online sales are picked up in store. And finally, our data gives us deep understanding of our customers, their vehicles and bikes, their service history and a predictive view on where they'll need us next. There is still so much more we can do with our data to unlock value for customers and realize that potential. So I'm energized by the significant opportunity I see in Halfords, and I'm looking forward to realizing many of those over the coming few years. Adam Pay: I joined Halfords because I believe in the power of its brand and its unrivaled scale and coverage in the U.K. Halfords really is unique. In fact, there's no one else in the U.K. that can offer customers the same level of convenience and expertise at such scale, all wrapped up in such a trusted brand across stores, garages and mobile. It's a fabulous combination. And what I'm doing now at Halfords feels really familiar. I've done this before, transforming the mycar offer in Australia, and I see so much of the same potential in Halfords, and I can really see where the opportunities lie. Fusion is really exciting. I'm keen to unlock its full potential by creating an exceptional customer experience and driving profitability. I also see huge opportunity by simplifying operations and creating a culture of operational excellence, which will, in turn, drive profit from improved utilization across the existing garage estate. And I'm absolutely clear that our colleagues are indeed our greatest asset. And with focus on developing their skills and expertise and retaining that talent, we can create fantastic career opportunities and really deliver exceptional customer service. I'm incredibly proud to be part of the Halfords team and excited for the future. Henry Birch: Brilliant. So that's Jess, our Retail Managing Director; and Adam, our Garages Managing Director. What I've seen since joining confirms that we don't need to reinvent Halfords though. We need to execute with focus. The opportunity isn't in radical change. It's in doing the important things consistently well and sequencing them properly. Our strategy ahead is simple, disciplined and built around 3 clear phases: optimize, evolve and scale. I'll go into the detail of these phases shortly, but at a summary level, optimize means maximizing what we already have and what we already do. It's about getting more value faster and more consistently from the assets already in place. This is the near-term value creation phase, and the work is already underway. The evolve phase means having a business that is future-proof, lean, effective and efficient. It means strengthening our foundations to deliver sustainable growth and continuing to invest in key areas such as technology, data and our physical estate. And then as our core strengthens and our foundations evolve, we can have the confidence to grow in scale, taking advantage of our operating leverage. And the nature of how we scale will vary across our business divisions, as I will discuss. These 3 phases are time bound with some overlap between them, as you can see on this slide. But the important thing to note is that our optimization is already underway and realizing short-term benefits, contributing to the strong H1 results we announced earlier this morning. And likewise, we see an opportunity for scaling and building real value within a relatively short time frame. So let's have a look at these phases in a bit more detail. The optimize phase is a crucial first step in our strategy designed to establish early momentum and unlock the latent value within our core business. We have 3 focus areas to optimize our Retail business, better category management, services expansion and e-commerce. Firstly, category management. We believe that improved category management has the potential to significantly drive our sales and margin. Candidly, it's not something we currently do well at Halfords. In summary terms, it means taking each major product category and applying a forensic lens to optimize our product assortment, our pricing and promotions to drive relevance for customers and unlock growth. It requires a very keen eye on customer and competitor dynamics and for us, building on our strong own-brand products to create even more differentiation that is unique to Halfords. It's worth mentioning here that we have an amazing track record in own-brand products that is sometimes overlooked or forgotten. In Cycling, we have developed Carrera, the leading mainstream Cycling brand in the U.K. by value and Apollo, the largest brand by volume. Improving our category management will take a little time as we cycle through our categories, but we have started over the last month with Cycling parts and accessories and a few selected areas of Motoring. We expect to start to see results from this initiative as soon as early FY '27, but we have confidence in the scale of impact we can create when we focus on the right need states for customers. Through work in our impulse category, we've already driven over 70% year-on-year growth through much stronger impulse and gifting lines. Our second opportunity is to improve and better promote our services proposition, which sits at the heart of what makes Halfords unique. For millions of customers, we are not just a retailer. We are a trusted expert that solves their problems in one visit. We're therefore, really focusing on optimizing our service offering across both Motoring and Cycling, ensuring we have the right offer, pricing and operating model in place. And we're driving awareness of the full breadth of our services to attract more customers, which you'll start to see in our marketing and media in the coming months. The opportunity is clear. Services are one of our most defensible advantages. They also offer higher-margin revenue and are less price sensitive. They cannot be replicated credibly by online pure players or mass or discount retailers, and they deepen our relationships with customers who increasingly value the convenience and reassurance we bring them. Thirdly, as I mentioned, digital already represents around 25% of our total Retail sales, and around 80% of those orders are collected in store. That shows the strength of our integrated model and the importance of our digital channel in generating customer footfall. But it also highlights a simple truth: with the scale of our online reach and the breadth of our retail and services proposition, we should be capturing more of that demand more consistently. In short, we have an opportunity to grow our online share. Having come from a pure-play online retailer, I know that applying the right focus and resources will yield results. And moving forward, I expect our digital sales growth to outstrip our core physical Retail sales growth. Progress here is about improving core website functionality and performance, and it's also about improving customer journeys and processes. Alongside this, we're sharpening our offer, expanding our online ranges, improving availability, tightening product descriptions and applying a more scientific approach to pricing and presentation. These are the basics of good digital retailing and with our scale, they will have a meaningful impact. If we turn now to our Garages division, there is much we can do to optimize our business over the short term. As I've already explained, Motoring Services is a large fragmented market and our biggest opportunity over the next few years. I'll start with the program you'll know most about, our Fusion rollout. By the end of this financial year, we will have more than 100 Fusion garages in operation, with up to another 50 or so to roll out in FY '27. We have a tried and tested formula that customers love and typically drives a doubling of profitability within 2 years. Over the last 5 years, we have materially changed the shape of our Garages business. Today, we have scale and effective national coverage, but we now need to drive operating standards and improve garage utilization rates to drive margin accretion and profitability. The same principles apply in our mobile van business and our Commercial Fleet Services. Fundamentally, this is about operational excellence and a ruthless focus on efficiency and process improvement. We have a range of activities underpinning this that are all in flight. We're implementing a zonal operating model, which allows us to redeploy labor to high-demand garages rather than recruit new technicians, effectively balancing supply and demand. As well as improving total utilization, we're now focused on ensuring we have the right skills mix in each site, with our master technicians focusing on the complex work, and service and diagnostic technicians picking up the rest. By getting the right people on the right job, we will deliver a better service and reduce the cost per job. We're also bringing in new equipment to reduce job times. For example, we're rolling out new equipment for wheel alignment, which halves the time taken to complete the work. These are just a few examples of the work already in train in our garage business that I'm confident will create a more profitable garage and mobile business and deliver an even better customer experience. I mentioned that the power in Halfords is the power of the group and the fact that our assets are stronger together than alone, and there is much we can do to optimize that group dynamic. Uniting the Group is the Halfords brand, trusted and well recognized. But for understandable reasons over the last few years, we have not sufficiently invested in our brand. That has meant that we've lost ground in terms of consideration and some of our performance marketing channels such as Google and PPC have lacked cut through. We've been running localized trials in certain geographic areas, and we have a high degree of confidence that an investment in advertising will strengthen the foundations of the Halfords brand and yield a rapid payback. This is not about a big bet marketing campaign. This is iterative, spending little, proving return and driving overall business performance. We'll measure our success and returns here in customer numbers and in our brand health metrics and transaction volumes. Halfords Motoring Club has been a standout achievement over the last few years. From a standing start, we've built a loyalty base of 6 million customers, with over 400,000 of those taking up a paid subscription in premium membership. They generate about GBP 20 million of annual recurring revenue for an MOT subscription, which also offers a host of other benefits while providing us with valuable vehicle data. Over the medium term, we have plans to transform club and make it the central destination for our customers to manage all their motoring and cycling needs. But in the short term, we'll continue to prioritize premium and ensure that our promotional mechanics are driving incremental margin through our standard membership. We'll measure success here in the numbers and contribution of premium membership. So there is a lot to get our teeth into in optimizing our business. What I've mentioned today are some of the key parts of our optimize phase, but it is not exhaustive, and there are other aspects of what we need to tackle. None of this, though, is revolutionary or rocket science, and that is good news. It's all clearly within our grasp, and we are on with it with clear plans and associated resources. But we also need to think about how we drive value over the medium and longer term, how we strengthen and evolve our business. Some of this will require investment, but we are very clear on 2 things. First, we need to earn the right to invest further. That means that we need to show progress in optimizing the business, and we need to show improved financial performance. And second, if we do invest, we have to show a very clear line between investment and returns. So there is a phasing here, optimize first and earn the right to invest and evolve. The evolve phase, though, is not just about investment. It's about self-help and business improvement. There are 2 clear areas or pillars that will help drive value. First is having a lean and effective business being fit for the future. Second is evolving our tech and data capability, and I'll take each of these in turn. As a business, we've managed our costs over the last few years, but there is an element of painting the Forth Road Bridge here. As soon as you finish running a cost program, you need to go again. And frankly, that should be part of any well-run business. But I believe there are bigger opportunities to structurally reduce our costs and realize ongoing annual savings as well as having a more effective business. Having driven a GBP 20 million annualized supply chain benefit in my previous business, I believe we have a compelling opportunity to improve our supply chain logistics, take out cost and improve productivity. We will need to work through cost and benefit details, but we believe there will be a clear business case and compelling returns here. And likewise, we see an opportunity to reengineer our back office, build better business intelligence and reduce costs by upgrading our enterprise resource planning, or ERP system. These programs of work once ground businesses to a halt in their scope and enormity, but this will likely be an upgrade, not a replacement, and we will take a phased and iterative approach rather than in one big bang. This will also be an important enabler of our future scale phase, which I'll come on and talk about in a minute. Finally, we believe that there is an opportunity to improve effectiveness and reduce cost by looking at our organizational structure and how we work with outsourcers. It's worth saying that in all of these areas, we are highly functional today, so there are choices that we can make. But to be crystal clear, we will only proceed with a clear and quantified line between spend and return. However, with a debt-free balance sheet, we should have the confidence to pursue projects with clear returns that give us an uplift in our long-term profitability. Technology and data have the potential to fuel significant growth in our business. In the medium term, there are tech projects that we have already clearly identified that will drive value. Amongst these, we plan to fully roll out Avayler, our proprietary garages management software, to all parts of our Garages business. This will further drive utilization, improve margins and provide a better customer experience. And in time, in Retail, we want to upgrade our current point-of-sale system, iServe, improving speed to serve and freeing up colleagues to spend more time helping and advising customers. I mentioned earlier as part of our home truth that we had not yet made full use of our data potential and that we had work to do. Today, we use data effectively to reward loyalty and drive CRM. And this activity drives both spend and customer engagement, but we have the potential to do much more with significant benefit by further developing our data platform. Through our evolve stage, we'll build the capability for real-time decisioning and much greater personalization. We see an opportunity for predictive analytics for customers and their cars, allowing us to anticipate issues before they arise, provide proactive maintenance and deliver a rapid, seamless service. This will differentiate our customer experience, drive sales and reduce our cost to serve. We will also improve how we use data to inform business reporting and decision-making, enabling faster evidence-based decisions across the business. In particular, we see the potential to improve marketing effectiveness, pricing and use of promo. We have a lot of data. 20 million customers engage with us every year. We have 12 million vehicle registration numbers with owner data. And in Halfords Motoring Club, we're building an even richer data set with marketing permissions. Utilizing that data for our own purposes and in partnership with others, such as through a retail media network or through introducing other services will be a key area of focus for us. The next 5 years will likely see the widespread adoption of AI in businesses, and those who have workable data are likely to be the ones who benefit the most. Whilst we don't have a crystal ball, we see AI as being much more of an opportunity than a threat. We see significant opportunity in automating processes, improving back-office efficiency and in improving insight, and we're on with it. We started at a small scale to experiment and change things using both internal and external resource. But this is test and learn rather than anything transformational at this point, but we are enthused and excited about the potential, and we'll continue to look at ways in which we can harness AI. But at the other end of the spectrum, we do not believe our business or the services we provide risk being made redundant or being disintermediated. Much of the physical work in a garage is difficult to automate and likewise, AI or automation would struggle with many of the services we perform in our retail stores. Indeed, it's not just our opinion, in October of this year, Microsoft published a list of the top 40 jobs likely to be replaced by AI and the top 40 with most resilience. These included tire and garage technicians. Our services and products are unlikely to be made redundant, but AI should help us be much more efficient and free up our colleagues to spend more time supporting customers and so generating revenue. The third and final phase of our strategy is about the scaling of the business. Clearly, we're trying to scale our business organically every day of the week. But our strong belief is that as we optimize and evolve and invest in our business, we'll be in a position to scale at much greater pace. From a Garages' perspective, this will mean opening more garages, but only once our estate is at optimum utilization. More garages can be achieved through organic openings, but more likely, we will scale through acquisition. The dynamics here play in our favor, and we expect there to continue to be a number of opportunities on the market that will allow us to scale rapidly. For Retail, scaling is likely to come via our digital channel, where we see significant opportunity to grow our existing business, but also expand our markets and range in a low-risk CapEx-light fashion. We also believe we can ultimately broaden our offer in partnership to become the digital go-to destination for all things, Motoring and Cycling, a digital one-stop shop, a single point where you can access products and services for all things, Motoring and Cycling, under one brand, one account with a singular website or access. Today, we offer products, and we offer servicing, maintenance, repair and MOTs. In partnership, we see the potential to offer breakdown, insurance, financing, parking and many other benefits. From a customer point of view, the hassle of car ownership is removed. You have one entity to deal with and one monthly or annual fee that covers all your motoring needs. This is not an unachievable pipe dream. We've built the core component parts and have a working model in our Halfords Motoring Club Premium tier. But there is much more we can do and need to do before we really push and scale this. But ultimately, we believe we are by far and away the best positioned company to achieve this, and we see real value and potential here. So I've outlined the 3 phases of execution that we will implement and what those will mean in practice, but I now wanted to hand over to Jo to talk about how we will measure success and the financial performance and returns we can expect and the disciplines we will look to adhere to. Jo Hartley: Thank you, Henry, and good morning, everyone. Last time we talked about strategy was at our CMD in April 2023. We shared in detail our future targets and the building blocks that would get us there. The reality since then is that while we've worked hard to deliver the cost savings and market share growth we targeted, we struggled to meaningfully grow profits against the challenging consumer and inflationary backdrop. Our markets have been slower to recover to pre-COVID levels than anticipated, and the GBP 90 million of cost savings delivered in the last 3 years to March '25 have not quite mitigated over GBP 98 million of cost inflation during the same period. We have, however, manage cash and working capital well and strengthened our balance sheet throughout this period. Notwithstanding the challenges of the last few years, I'm pleased to say I'm more optimistic about our future. While I'm not going to share a detailed forecast today, I will lay out how we will measure success, the trajectory we anticipate and how we will allocate capital and manage our balance sheet going forward. As we move through the next few years, we will consistently come back to the same measures to indicate progress. Financially, we expect to deliver like-for-like sales growth, with faster growth through our digital channels, operating margin expansion, underlying PBT progression and a return on capital that grows to exceed the cost of capital. Clearly, as we look forward, we cannot predict the external forces that may impact us, specifically, how consumer spending patterns may change, what successive governments and budgets may bring, or how geopolitics will evolve, and the impact this may have on our cost base. But we do know our business, the strength of our brand, the attractive markets we operate in and the unmatched scale we have through our unique combination of digital and physical assets. We have a hugely differentiated service-led customer proposition, delivered through 12,000 skilled colleagues and led by a new and experienced management team. We also know we're starting from a relatively low profit base and the opportunity from data and technology is significant. And importantly, we have a strong balance sheet and a cash-generative business which gives us not only resilience, but the ability to invest in projects that will drive growth in underlying profit and returns for shareholders. As such, we do believe that with discipline we can deliver against these measures sustainably and over time. That said, each phase of the plan will have slightly different dynamics. Throughout the plan, we anticipate CapEx to maintain and drive optimization improvements within our existing business, continuing at broadly similar levels to those seen historically, with investment between GBP 55 million and GBP 65 million per annum. In the evolve phase, we see opportunity to deliver returns from additional investments to drive efficiency and cost savings in our supply chain and in our central overhead, including through upgrading our ERP. In this phase, we will make incremental investment where we see attractive and incremental returns. And we won't move beyond the previously mentioned GBP 55 million to GBP 65 million per annum investment range until we earn the right to do so by showing good momentum in our underlying business. We'll come back to you with more detail on these programs and their costs and benefits once we're confident in the business case returns and ready to get started. Finally, and to be clear, only once our model is optimized and our investments are paying off, will we enter the scale phase, using our balance sheet to enable investment in acquisitions, expansion and further growth. We will operate with discipline throughout all phases of the plan, delivering progress on the KPIs I've described and always operating within our previously guided net debt-to-EBITDA range of 0 to 0.8x, excluding leases. One of our strengths today is undoubtedly our strong balance sheet. We have GBP 180 million debt facility committed to April '29, our balance sheet is currently in a net cash position of GBP 18.6 million as reported this morning. And our lease lengths and therefore, liabilities are low. Leverage, including lease debt is 1.3x. We, therefore, have resilience in uncertain times and the financial firepower to invest where there's opportunity to deliver compelling returns. As we have updated the strategy, we've revisited our capital allocation priorities, and there is very little change. Maintaining a strong balance sheet remains our core guardrail and #1 priority as we look forward. We will continue to operate such that leverage, excluding lease, that does not exceed 0.8x underlying EBITDA at any stage through the plan. Secondly, we continue to see opportunity to invest to maintain and grow our business, as Henry has described. The dividend becomes our third priority, now ahead of M&A. This switch reflects our focus on growing the core business and returning to shareholders through an intention that the dividend progresses as underlying profit progresses. As such, our dividend policy remains unchanged in that we will pay a dividend that's covered 1.5x to 2.5x by underlying profit after tax. M&A, therefore, becomes our fourth priority, most likely once we get to the scale phase of our plan. And thereafter, we would return surplus cash to shareholders. To conclude, the plan Henry has described is clear and compelling. There's a refreshed leadership team in place with clear priorities and a focus on execution and as a team, we're all excited about this next chapter. I believe the potential in this business is enormous, and there are clear opportunities to drive shareholder value in the years to come. We will report consistently on the measures I've laid out today in future announcements, and we'll lay out our quantified investment plans and anticipated returns when we've earned the right to move into the next phase. The results going forward should speak for themselves. I'll hand you back now to Henry. Henry Birch: Fantastic. Thank you, Jo. So what I hope I have shown is that we have a clear, achievable and compelling plan for Halfords over the next 5 years. It may not be as shiny or gimmicky as the Tesla Cybertruck or Robotaxi launch, but we're okay with that. We're not pulling rabbits out of hats here, and we do not need to. Success and growth will be achieved by a clear focus and execution of a plan. But it does ask the question, "Who is executing that plan, and why will things be different moving forward?" Well, I'm very excited to be working alongside a very talented team of people, some of whom are new to Halfords, and all of them bring relevant experience and a track record of success as well as genuine leadership and drive. Earlier this year, we hired Adam Pay as the Managing Director of our Garages business. Adam spent 10 years of his career at Kwik Fit and most recently was the Managing Director of mycar, Australia's largest garages business. Over the course of 10 years there, he transformed the business from loss-making to market leader. Adam brings energy, leadership and hands-on experience, and he's the only person I know who can change a fan belt and read a balance sheet and at the same time. Jess Frame joined us 4 months ago as Managing Director of our Retail business. Jess was previously the Managing Partner of BCG's London office, advising many of the U.K.'s largest retailers. And she's done stints at Tesco and as Chief Executive of a PE-backed veterinary business. Jess has landed with pace and drive and has high ambitions for our Retail business. And most recently, Sarah Haywood joined us as our Chief Information Officer. Sarah had previously been the global CIO for the Carlsberg Group and brings a wealth of experience. Sarah's leadership will be key in navigating a changing tech world and guiding us through change. Our 3 newest executives join an existing team with huge experience and capability alongside Jo, our CFO; Paul O'Hara, our Chief People Officer; Karen Bellairs, our Chief Customer Officer; and Chris McShane, our B2B and Avayler MD, all of whom make up our team. And with the exception of Karen, all are here today, and Jess and Adam will join our Q&A in a minute. And culturally and stylistically, we intend for things to be different. In addition to driving more of a performance culture, we're pushing a simplification of activity, focusing on the core levers that matter, that create customer benefit or drive performance. Halfords is a broad and complex business. But over the years, I think we've made it unnecessarily complicated and have added too many new initiatives and projects. These have stretched us, spread us too thinly and distracted us from the basics of the business. We're looking to bring simplicity, focus and clear prioritization to what we do. Part of that is governance and cadence. Part of it is having the right people and leadership, and it's about creating the right culture. The good news here is that we are pushing against an open door when it comes to our people and the change, agenda we want to implement. As Jo outlined, we also want to make sure that we are disciplined and rigorous in spending capital and driving returns, and if we're not getting the returns, to be transparent and explain why. I also want to shift our narrative from sharing plans that then struggle to materialize to reporting on what we have actually done and achieved and the associated financial outcome. So I wanted to draw matters to a conclusion and summarize some of the key points that you've heard today. I believe we have a unique and valuable business, capable of sustained top and bottom line growth. No one else has our asset base, and we are operating in markets that play to our strengths. Although there are explainable reasons, I recognize our more recent financial performance has been underwhelming compared to our potential. I also recognize that the Halfords machine is not yet humming. We have a fantastic group of assets, but both in isolation and as a combination, they are some way away from their potential. But we do not need a strategic pivot. We need delivery of the basics. There is nothing broken, but we need to apply focus, simplicity and disciplined operational execution. In the short term, this focus will deliver progression in our profit performance across all our divisions. As we drive improved performance, we earn the right to further invest and evolve our business, building additional foundations for growth. We see a significant opportunity to better utilize the data at our disposal and harness technology. And as we optimize and evolve, we will significantly increase our ability to scale. It is a phased approach, but one that delivers returns along the way and will drive value. We're purposely not giving detailed forecast today, but we will consistently track and report on key performance indicators that will measure our progress. But we are clear. Our first job is to build confidence in our investor base that we can consistently deliver results and drive required returns on capital. We have clear plans to do this. We have a great senior team, and we have over 12,000 colleagues who are committed and passionate about the business. I'm excited for what together we can achieve. So that concludes today's presentation. And I'd like to invite Jo, Adam and Jess to join us for Q&A. And I think in terms of asking questions, if you can identify who you are and what organization you're from. Henry Birch: Kate? Kate Calvert: I'm Kate Calvert from Investec. Three questions from me. On the fiscal estate, does Halfords have too many retail stores? And what is the ideal sort of number of Autocentres over the longer term? In terms of my second question, I know you're not giving your forecast, but could you talk a little bit about the margin recovery opportunity? You did talk about expansion of margins within Autocentres, but you didn't mention Retail. So is the sort of 7% historic Autocentres profit margin that's being talked about, is that still valid? And what are your thoughts on Retail? And I think my third question is, when I go into a retail store in 3 to 5 years' time, how different is it going to look versus today? What sort of new product categories might there be or service proposition? Henry Birch: Okay. Brilliant. So just the one question, Kate. Kate Calvert: Yes. Henry Birch: Brilliant. Okay. So we -- if I tackle the first bit around size of estate and then maybe get some commentary from Adam and Jess on that, too. Jo, you talked to the margin point on -- I can't read that. The margin point... Jo Hartley: Margin recovery. Henry Birch: Margin recovery. And then what was the last bit? Jo Hartley: Retail store, how will they look. Henry Birch: What they will look? I'll let Jess take that. So I think, look, in terms of the Retail estate, important thing to note today is that they are all profitable and they're all on short leases. And broadly, we're comfortable with that. I think moving forward, there may be some change to that, but nothing radical. And I think on the Garages estate, post-acquisition, we've done a little bit of trimming in terms of ensuring that we've got the right garages in the right local markets. But again, we don't see significant change there. In any given year, there may be a few closures and a few openings. Indeed, we opened a new store this year in Reading. But fundamentally, those won't change significantly. I think over the longer term, and I think we've made kind of mention of like 800 garages. My view actually is that there shouldn't necessarily be an upper limit because actually, the Garages market is typically very local. So actually, one of the attractive things about Garages is that, frankly, we can continue to scale up and up and up, but it does require opening more units, whereas clearly, with digital retail, you don't need to do that. But yes, broadly speaking, I don't think there'll be a significant change. Jo, do you want to do the margin point and then maybe Adam and Jess can talk about... Jo Hartley: Yes, absolutely. So in terms of the margin opportunity in Autocentres, I think the numbers we previously had out there were 5% to 6%, Kate. And I think we do continue to believe that's an achievable target for our Autocentre business. The opportunity lies in driving utilization and reducing effectively the cost to serve as well as adding more high-margin add-on services, particularly within our tire business. And we've had a very successful first half of the year in terms of increasing income per tire and growing our wheel balance and alignment services using some of the equipment that Henry described earlier. So I do believe we can get to those targets in time. Adam, I don't know if you've got anything to add on that. Adam Pay: No. Spot on, Jo. I think they're realistic numbers. I think the work that we're doing to simplify processes, improve equipment, speed things up in Garages will help us get there in the short to medium term. Jo Hartley: Do you want to take Retail? Henry Birch: Jess, do you want to tackle the Retail bit? Jess Frame: I think your question on have we got too many shops is sort of the same in terms of what you're going to see. So just sort of reinforce Henry's point. So Halfords has had real discipline over the size of its estate over the last few years. So we've actually exited 100 shops since 2018. So what you see today is a tight footprint, which, as Henry said, positively contributes across the estate. And as Henry mentioned in his presentation, our network, our footprint is what gives us this convenience offer and the route of the omnichannel proposition. We must remember that Halfords, as we move more and more into services, our stores don't play a traditional role as they do for many retailers. This is where our service events are taking place in the car parc essentially. So it's a really important role. It's a huge part of the omnichannel proposition. And at the same time, there are clearly opportunities to drive sales densities out of our stores. So it's not necessarily about fewer, but it's certainly about making that space work much harder. In terms of how different we look today, I don't want to presuppose the answer of sort of 4 months in. I can say that my current point of view is that format innovation is not going to be where we see a lot of value in the short to medium term. There's a huge amount we can do. You alluded to it, Kate, with our categories driving more sales densities, really focusing our core range to create space for newness and innovation and frankly more reasons for customers to come and shop with us. I won't predict ahead what those categ going to look like. We will absolutely stay core to the motoring and cycling needs that we surround our customer with, but there is plenty of opportunity that we see to do that. Jonathan Pritchard: Jonathan Pritchard at Peel Hunt. You said the brand is extremely well known, recognition of the brand is high. What are the bits that people don't get? What don't they associate Halfords with that they should? And how are you going to change that? And then, just as it's a one rule, but I'll add another one, just a one word answer. A cycle membership club, feasible in the short term or more medium or long term? Henry Birch: Yes. So I think -- on the brand and what people don't necessarily get, I think there are 2 things. One, I think, our Garages offering, I'm not sure everyone fully understands that. And then I think the other piece is the services element, the convenience of actually going to a retail store and being able to have a wiper blade fitted or get advice or do more of this kind of do-it-for-me. So we talked about broadly our kind of DIY customers who I think are fully knowledgeable about what Halfords offers, but I think they can also go to a Halfords and kind of serve themselves. The do-it-for-me customers, I think, just don't understand the full range of our proposition, either in terms of into Garages or the fact that actually they can bring any motoring or cycling problem to us, and we will fix it. So I think it's those kind of core things. Cycling Club, I would say, is not a priority for us right now. And I think kind of going back to -- it would be very easy for me to say, yes, a great idea. We're trying to drive this prioritization and simplification of focus. So it is not a high priority right now. Ben, sorry, did you... Benedict Anthony John Hunt: Just a couple of questions. Firstly, just on the emphasis on online seems to be coming more through Retail. How does that sort of square with the whole sort of cross-selling more into the Garages? And are there any margin implications? And I guess you've answered Kate's question on the size of the Retail, but any sort of thoughts how you're going to sort of square that? Secondly, just on Motoring Club, it seems to have accelerated really strongly. What's been necessarily driving that? Has that actually been incremental customers who are new to Halfords who are coming in or -- anything really you can add to that? And I guess the third question is on the evolve side. It looks like there's sort of quite a lot of work to be done in the supply chain and how you are going to maintain your CapEx and the guide rails. It feels like there's quite a lot to spend there. But really, any thoughts there would be great. Jo Hartley: So would you mind repeating the first question? Henry Birch: Sorry, Ben. Benedict Anthony John Hunt: First question is just on, there seems to be an emphasis on online within the Retail and how that squares with the need to cross-sell services into Garages? Henry Birch: Yes. So look, I think overall, we have a -- we've got one website, which our customers go to, whether they want to buy a roof box or screen wash or put their car in for an MOT. So there is a big focus for us in terms of making sure that those kind of digital customer journeys are improved. So when we talk about digital, it's both the kind of experience, which hits all part of our business. For Retail, we then have kind of e-commerce where we're selling those products. For Garages, people will find and pay for services, but they will also then book to have that service in a garage. So for Garages, it tends to be more about the journey to the physical unit, whereas in e-commerce, people can buy from us without actually setting foot in one of our physical outlets. But absolutely, digital is important for Garages as well, but there is that distinction in terms of products and services. The Halfords Motoring Club, we haven't done anything particularly to drive that. It is something that we do push in our stores and in our garages. So I think it's just a reflection of successful execution of that. But yes, it is growing. And yes, it is important for us. And the... Jo Hartley: The third question was on the CapEx, to evolve the supply chain. The CapEx guidance that I gave of GBP 55 million to GBP 65 million is really the CapEx that we need to maintain and optimize our core business. What we said was we would only move beyond that GBP 55 million to GBP 65 million investment envelope once we've earned the right to do so by showing momentum in our underlying business. And then we would come back with the investment opportunities and clear line of sight to the returns that they would generate. So I think we would expect to invest beyond that to optimize the supply chain, but only when there's clear line of sight to returns, and whether that's a CapEx or OpEx investment, remains to be seen. Henry Birch: Manjari. Manjari Dhar: It's Manjari Dhar, RBC. I just had 2 sort of broader ones and maybe one quick one. Just on the sort of garage optimization work, I was just wondering how much of that is -- needs to be done on sort of the existing Halfords garages, and how much is it needs to be done on the garages you've acquired over the last few years? Just trying to get a sense of sort of where that integration stands now. And then secondly, I think you mentioned it very briefly about in the sort of evolve stage about retail media and other opportunities. I was just wondering if you could give some more color on what that could look like, what that means for the proposition? And then just finally, Jo, I think in the prerecorded presentation, you gave the H1 FX hedge rates. I just wonder if you could give some -- give the H2 rates as well. Henry Birch: Okay. Adam, do you want to talk to the -- in terms of where we need the optimization, is it existing Halfords or acquisition areas? I mean the answer is both, but you'll give more color. Adam Pay: It is both, and there are a lot more together than they were previously now. So we're not talking about them internally any differently. The opportunity to work through improving processes, providing equipment, providing tooling and training that we need to smooth through at the front end is exactly the same, whether it's a Halfords, also center or one of the acquisitions. It's working really well for us now. And I think the fact that we've got so much unity across those brands now is really helping. Henry Birch: And I think it's worth noting that National was predominantly a tire brand. One of the things that we've done is moved more service maintenance repair into that, which has driven higher-margin revenue. So that's been a kind of clear and obvious thing to do. On the retail media network, we do actually have a -- we do actually use retail media today, but it is predominantly with existing suppliers. So if you think on the kind of battery side, we work with Yuasa, you'll find online and with our customers, we are promoting Yuasa and various other existing suppliers. There is an opportunity to go beyond our supplier base. So I'm kind of making it up, but a Nissan or a Toyota, if they want to access 20 million U.K. customers, car buying U.K. customers, then obviously, Halfords would be a kind of important partner. We don't currently do that at the moment. So I think there is a much bigger opportunity. We do make money today from a kind of limited, what you call, a retail media network, but there is a potential above that. Is there anything, Jess, sorry, that you want to talk about? Jess Frame: No, no. Obviously, I think the third party in offsite is actually really exciting and much bigger, but that won't be until sort of medium, longer term. Jo Hartley: Your last question on FX, Manjari. So yes, in half 1 this year, we saw a hedge rate in cost of goods sold coming through at $1.28 versus $1.24 in the prior year, which was obviously helpful and supportive of our margin progression during the first half. In the second half of the year, we expect broadly similar. It all depends on the stock turn really that comes through. We bought all of our currency requirements for the purchases we'll make in FY '26 at around $1.29, and we bought about 60% of what we need for our purchases next year at about $1.32. So we should continue to expect to see a bit of a tailwind from FX as we look forward. Henry Birch: Russell. Russell Pointon: Russell Pointon from Edison. Two questions. Going back to your criticisms at the start, Henry. First one was on the category management. You said you haven't done a good job of that. How quickly will you actually get through reviewing all the categories? Will it be done pretty quickly over 12 months? And the second one was, you also criticized the lack of synergies between the businesses, so do you need to incentivize staff in a slightly different way to push that through? Henry Birch: Yes. I wouldn't necessarily classify them as criticisms, more maybe observations. But maybe if Jess can talk to category management and the speed there. I think on the synergy point, we do -- I mean, Fusion, actually, our garage model, is a really good example of actually how assets work within Halfords, in Garages, in Retail, in as much as the model is driving Retail customers into our Garages. So we are doing that to good effect. I think my point is there is more that we can do. I'm not sure it's necessarily about incentives, but that is one way that we could do it. I think it's more around actually removing any kind of points of friction and making sure that our colleagues kind of understand how we drive value in the business. So I think it's more about operational management and communication. Jess, do you want to talk to the category management? Jess Frame: Yes, sure. Very happy to. I mean the short version is this will be pulsing. It will go through waves through all of the categories. This is an 18- to 24-month job. This is a massive, massive rebuild of all those ranges, starting with what does the customer need, how do we provide that. And within that, undoubtedly, there'll be a real opportunity for own-brand development. So Halfords has got incredible heritage in own brand, which is both higher quality and much, much better margin. So when we think about category management, it's not just a quick range review that really, really is challenging, bottom up, all of those ranges. So we're very excited. We've already started the first 2, but this is real sort of heavy lifting that will go on over the next 2 years essentially. Carl Smith: Carl Smith from Zeus. Two questions, please. First is on Fusion town. So previously, earlier this year, you talked about sort of doubling of profitability at the sites you invested in. Now you're sort of over halfway through your 150. Are those return rates sort of still applying now that you're getting a bit further along? And sort of expanding on that, do you think you'll go beyond 150 sites in the into the evolve phase even if the return rates become a bit lower for the incremental ones beyond 150? And then the next question is about the Motoring Club. How do you sort of intend to get more people on to premium? Is it more incentives? Is it more marketing or lower pricing? Or what's going to get more people to shift to premium? Henry Birch: So on the return rates for Fusion, the short answer is no, we haven't seen any deterioration. And clearly, we've kind of gone back and checked that prior to coming out today. So no, we're in good shape there. In terms of whether we can go beyond the 150, I mean, Adam is maybe best placed to talk to that. But I think there is then the question of what do we do beyond? We've got 600-odd garages. But Adam, do you see an opportunity for Fusion be extended or kind of Fusion light or... Adam Pay: Well, it's interesting. I mean if I think about the reason -- part of the reason that I joined the Halfords Group was the Fusion concept. I was really excited by that, and I continue to be excited. The fact that we can largely double profit in 2 years is absolutely fabulous. I mean we're going to have 100 by the end of this year, somewhere near, another 50. It'll get us to the 150. I think for me, the customer experience and the colleague experience is something that really stands out. So I think the broader question is not Fusion past 150; it's kind of what elements can we take forward into the rest of the estate moving forward. And I think there's some real benefits and some great learnings. So yes, it's very positive. Henry Birch: And on Halfords Motoring Club, look, I think we -- to my mind, we've made a brilliant start. And you may query me saying start when we've already got 6 million customers. But I think there is a piece of work that we need to do in terms of saying actually how do we drive premium more, what are the mechanics to drive membership, to drive value from that. So I think this is a kind of ongoing project that we are going to kind of drill down into, but it is an absolutely brilliant kind of asset and base to start from. Benedict Anthony John Hunt: So just one more question. First was club and less on strategy. But I'm wondering if we could just dwell a little bit on the [ sick job being ] tires. You mentioned that you think you can reenergize that. What's been going on there? And where do you see that turning around? Henry Birch: So look, I think, without question, tires, over the last couple of years, have been struggling in the U.K. in terms of growth. I think we've seen some improvement in that. I think as a company and talking to investors, I want to kind of change the narrative from talking about the tire market to talking about our performance because I fundamentally think that actually even in a static or declining market, we've got the potential to take share. And I think actually some of the stuff that we're doing, and I'm going to ask Adam to talk about, wheel balancing and alignment and actually how you can sell a tire and make money not just on the tire, but the services around it and the margin that, that drives is something which actually we're starting to do, to kind of good effect. So I think my kind of headline is I don't want to be talking about the kind of tire market endlessly. I want to talk about our overall Garages performance and within that, that actually we're running a kind of healthy and growing tire business. It may not be immediately, but we're getting there. Adam, do you want to talk about your specialist subject maybe? Adam Pay: Yes, I'll come dip off to one side and fit a fan belt in a second, too. Yes. I mean the opportunity for tires that I've seen since I've landed is significant for Halfords. The market has been tricky. There's no doubt about that. I don't want to go into all of the technical detail that sits behind that. But we are only 9% of that market, and it's a very, very attractive segment. And there's a lot that we can do internally to smooth the path for tires. So there's work underway around training for our colleagues. That's technical and soft skills. There's also different ranges being put into Garages right now. We've got different equipment that speeds up that process. So I think over the next short to medium term, we're going to start to see an uplift in our tire performance despite whether the market is in decline or in growth, I think we can certainly take market share and grow. Mark Photiades: It's Mark Photiades from Canaccord. Just on Cycling, you talked about pushing into premium and parts and accessories. Could you maybe just give us a sense of what those 2 categories represent in terms of the GBP 1 billion market? And the group has moved into that area before, particularly premium. It didn't necessarily go to plan. I just wonder what gives you confidence that you can make inroads this time around? Henry Birch: Jo, do you want to talk to that? Jo Hartley: Yes, I'll talk to that, and Jess may have some points to add on it. But if we sort of start at your last point, we were in premium cycling several years ago, and we owned -- we sort of had -- we came out of specific premium cycling shops actually some time ago. Our move back into premium cycling is not, to be clear, opening a load of premium cycling shops that are separate from our own Halfords business today. What we have seen though over the last 6 months is really good growth in those premium price bikes, in e-bikes and also in those slightly higher price point bikes. And it's really noticeable that Tredz, our performance Cycling business, which to be clear, just has 3 shops and a big online business, had the strongest growth in the group in the first half of the year with double-digit like-for-like sales growth. So that market is definitely coming back, and it's really where enthusiasts want to play -- are playing. We've got quite a lot of innovation that's been happening in that space, and I'll let Jess talk a little bit more about that in a second. But we're confident that there's a good growth opportunity for us there as we look forward. Jess Frame: Yes. Just to build on what Jo said, I think it's really important that there's nuance in terms of what is premium cycling and what is not. And the reality is there's an entire spectrum where we see a lot more people trading up than we used to do. And so actually, with our Tredz business and Halfords' core, it's a really, really exciting opportunity for us to actually serve across the set of need states. And we've identified some areas that aren't currently served across those 2 areas. There's some really interesting white space opportunity. And back to the point on own brands, we've developed and have just started to launch now. You'll see them drop into shops over the next 3, 4 months, a really, really impressive range of more premium e-bikes that we're very, very proud of, that we've developed with integrated technology and so forth, which again, so that sort of Halfords' product capability and own brand actually allows us to take features that are typically premium-only and bring that more into the mass market and make it more accessible for customers. So I think we have a really exciting role to play on that one. Henry Birch: I think we're nearly -- Rupert, you had a question? We're nearly up on time. Unknown Analyst: I was just going to ask a question on Cycling, too. Henry Birch: Okay. Unknown Analyst: And you've largely covered it. Sorry. The 9% like-for-likes, I just wonder whether that was aided by price promotion? In a challenged consumer environment, that feels like a good number. And a bit of color on what was behind it, please? Henry Birch: I mean Jess can talk to it in a bit more detail. We didn't do anything massively promotionally. I think you'll remember, earlier in the summer, we had warm weather that came in the kind of spring, which I think probably helped some of that performance, maybe pulled forward some of the Cycling sales from later in the year. But no, there wasn't anything we did promotionally. Jess Frame: We did outperform the market quite significantly, but that wasn't through Tredz, and essentially, we've got a great range. Tredz is the #2 online player in premium cycling, right? So across that when the market wants to buy, Halfords is the place to come. Jo Hartley: And particularly strong in Kids and Electric in the first half of the year from a Cycling perspective. Kate Calvert: All right. First and last. I was just going to come back on the garage utilization. What are the sort of main levers short term to improve utilization? Is it all about systems and processes? Or is there a skill issue and equipment issue in some of these centers? Adam Pay: No. It's a really good question. So the processes are the underlying piece. But what you've got then is making sure that we've got the right headcount and skills mix, to your point, in each and every one of our garages that meets the market needs and gives us the opportunity to grow. There's also an opportunity for us to really accelerate our apprentice programs to get more colleagues into Garages and make sure that we've got more people on the ground in the right place at the right time, but also protecting the future health of the workforce for us, too. Henry Birch: Brilliant. Thank you very much, everyone, for attending today. Thank you for those joining online. This concludes our presentation. Thank you.
Operator: Welcome to Hafnia's Third Quarter 2025 Financial Results Presentation. We will begin shortly. We will be brought through today's presentation by Hafnia's CEO, Mikael Skov; CFO, Perry Van Echtelt; Soren Winther, VP, Commercial; and Thomas Andersen, EVP, Head of Investor Relations. They will be pleased to address any questions after the presentation. [Operator Instructions] During this conference call, some statements may be considered forward-looking, reflecting management's current expectations. These statements involve risks, uncertainties and other factors, many of which are beyond Hafnia's control that could cause actual results, performance or plans to differ significantly from those expressed or implied. Additionally, this conference call does not constitute an offer or solicitation to buy or sell any securities. With that, I'm pleased to turn the call over to Hafnia's CEO, Mikael Skov. Mikael Opstun Skov: Thank you, and hello, everyone. We appreciate you joining in Hafnia's third quarter 2025 earnings call. My name is Mikael Skov, CEO of Hafnia. And with me today is our CFO, Perry Van Echtelt; our VP of Commercial, Soren Winther; and our EVP and Head of Investor Relations, Thomas Andersen. Earlier today, we released our Q3 2025 results, which are now available on our website. During this call, we will walk you through our quarterly performance, discuss key market developments and share updates on our financial position. We will also present our sustainability initiatives before opening the call for questions. Let's move to the next slide. Slide #2. Before we proceed, I would like to go through our safe harbor statement. The information discussed on this call is based on information we have today, which may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Nothing presented on this call should be construed as an offer to buy or sell securities. Thank you for your attention. With that, let's begin with a review of our results for the quarter. Next slide, Slide #4. The product tanker market started out this year on a softer note, but it strengthened significantly through the third quarter. Higher trading volumes and strong refinery margins drove this. Much of the growth came from increased export flows out of the Middle East and Asia with clean petroleum products on water continuing to rise throughout the quarter. This strong backdrop supported the spot market, and I'm pleased to share that Hafnia delivered another excellent quarter. For Q3, we achieved $150.5 million in adjusted EBITDA and a net profit of $91.5 million, our best quarter so far this year. As part of our fleet renewal strategy, we also sold four older vessels, all built between 2010 and 2012. Finally, in September, we announced a preliminary agreement to acquire 14.45% of TORM shares from Oaktree. This was followed by a binding share purchase agreement, and we are now waiting for the appointment of a new independent board chair at TORM before we can complete the acquisition. Moving on to Slide #5. Next, I'd like to give you a brief overview of Hafnia and highlight our key investment attributes. Hafnia is a global leader in the product and chemical tanker space. We operate one of the largest and most diversified fleets in the industry. As of the third quarter, we own and chartered in 126 vessels with an average fleet age of 9.6 years, significantly younger than the industry average. At the end of the quarter, our net asset value was approximately $3.4 billion, translating to $6.76 per share or NOK 67.55. Beyond our core fleet operations, we continue to give strength through our complementary business platforms. We commercially manage about 80 third-party vessels across 8 pools, and our bunkering procurement platform supports both Hafnia's vessels and external partners, creating additional scale and efficiency benefits. Let's move to the next slide, which is Slide #6. Another key investment attribute of Hafnia is our transparent and consistent dividend policy. We have delivered dividend consistently over the past several years, and our goal has always been to make them sustainable and predictable across the market cycle. Our net loan-to-value ratio improved from 24.1% in the second quarter to 20.5%, supported by strong operational cash flows. Approximately $100 million was used to repurchase vessels on the sale and leaseback financings. In addition, vessel market values have also recorded a slight uptick compared to the previous quarter. In line with our dividend policy, we are declaring a payout ratio of 80% for the quarter. This corresponds to a total cash dividend of $73.2 million or $0.1470 per share. For shareholders receiving dividends in Norwegian kroner, the exchange rate will be based on the value date, which is two business days before the payment date. With this quarter, we now mark 15 consecutive quarters of dividend payments, underscoring our commitment to consistent shareholder returns and long-term value creation. Soren Winther, our VP of Commercial, will now share the industry review and market outlook. Søren Winther: Thank you, Mikael. Let me begin with a review of third quarter market conditions within the product tanker market segment, where Hafnia primarily operates and then share our outlook for the months ahead. The product tanker market started 2025 on a softer note, but showed countercyclical strength throughout the third quarter, supported by higher trading activity and tonne-miles. Clean petroleum product volumes on water for 2025, continue to track above the 4-year average, with Q3 showing an unseasonal increase compared to previous years. Importantly, the corresponding rise in daily loaded volumes suggest that total oil and water is being driven by higher export demand rather than longer voice distances. Moving on to Slide 9. While high clean petroleum product volumes usually correlate with stronger earnings, the earnings recovery this quarter was more modest, yet 18% stronger for [indiscernible]. We also saw a strong rebound and ton-days during the third quarter, supported by tight gasoline and distillate supply in Europe, stemming from ongoing refinery closures. This dynamic has driven tonne-miles and supported strong trading margins out of the U.S. and the Eastern basin. Moving on to Slide 10. On the supply side, despite continued newbuild deliveries in 2025, overall fleet growth has remained limited. This primarily is driven by continued vessel sanctions, and the migration of LR2s into Aframax dirty trading. Year-to-date, roughly 88% of the coated LR2 newbuilds have migrated into the dirty market, supported by a stronger crude earnings environment. In effect, the Crude segment has absorbed about 45% of the 2025 coated newbuild program, significantly minimizing increases in clean trading deadweight. Moving on to Slide 11. Beyond the LR2 migration, sanctioned vessels also play a significant role in tightening fleet supply in 2025. The U.K., UN and OFAC have collectively sanctioned more than 400 tankers this year, with roughly 25% of them operate in product segments. This is supportive for product tankers. As it effectively reduces available supply and also limits crude cannibalization, contributing to a tighter overall supply-demand balance. EUs 19th sanctions package, adds another 19 vessels to this list with the new addition split evenly between dirty and clean trading. We estimate that approximately 280 additional vessels have engaged in trade with sanctioned regions, signaling the potential for further sanctions. The dark fleet refers to targets with questionable ownership and an older age profile, while the grey fleet is associated with more reputable ownership. Moving on to Slide 12. Bringing together the topics of LR2 migration and vessel sanctions detailed in the previous two slides, overall, clean petroleum product capacity growth in 2025 has been unlimited. Year-to-date, around 12 million coated deadweight has been delivered. We had only about 1.1 million deadweight has effectively entered clean trading. This translates to approximately 0.5% net growth in clean product tanker supply. Moving on to Slide 13. Looking ahead, the supply outlook is less concerning than initially feared or reported. If we apply a 72.5% crude migration factor to future coated LR2 deliveries over the next 3 years, this implies roughly 11% fleet growth based on the current order book. However, nearly half of that growth is concentrated in 2026 driven by a heavier delivery schedule in the first quarter. Slide 14. Clean product cannibalization remained a real threat in Q3 with cannibalization volumes exceeding the 3-year average. Despite this, clean product earnings proved resilient throughout the quarter. On a positive note and looking ahead, the current strong earnings environment in the VLCC and Suezmax segments has reduced cannibalization volumes for November to nearly zero. This sets the stage for a robust outlook for the remainder of 2025 into Q1 2026. Moving on to Slide 15. Apart from the factors we have discussed, the continued aging of vessels and potential scrapping also supports a positive supply outlook. Between 2025 and 2028, we expect around 114 million deadweight of newbuilds across Handy to VLCC segments. Over the same period, potential scrapping could approximately be around 167 million deadweight based on typical scrapping ages. Looking further ahead, an additional 87 million deadweight could exit the fleet between 2029 and '30-'31. It is important to note that these estimates do not account for differences in utilization between newbuilds and older vessels. Slide 16. Inventory levels are an important indicator within the product tanker market. European diesel inventories have seen significant draws in 2025. With the winter season approaching, Europe will look to replenish inventory. The end of refinery turnarounds in the U.S. Gulf, Far East and Middle East during November will free up additional export capacity to support the supply. As I'll explain in later slides, it's also worth noting that South America will rely on increased North American supply over the next two quarters, leaving the Eastern Hemisphere to cover the European import shortfall. This dynamic is expected to drive higher volumes and longer tonne-miles. Slide 17. With continued drawdowns and refinery turnarounds, refinery margins have been on the rise in 2025. This typically correlates with higher earnings, further supporting the underlying market strength over the first quarter of 2026. Slide 18. The longevity of strong refining margins and resulting transportation demand is set to continue in Q1 2026. Fundamentally, European supply and rising transportation volumes depends on sufficient oil availability and the pricing structure that supports underlying arbitrages. Forward arbitrage from the U.S. Gulf and the East to Europe, is trending high for the remainder of 2025 into 2026. This supports forward trading volumes and underscores the real and sustained demand from Europe to cover for the winter season and replenish low inventories. Slide 19. Geopolitical tensions continue to influence the product tanker market. Following Ukraine's drone strikes on Russian refineries, clean petroleum product exports from Russia have declined significantly, while crude exports have correspondingly increased. This leads Russia's ability to supply clean petroleum products to South America and West Africa, prompting substitute barrels from the U.S. Gulf and Europe. These shifts drive higher tonne-miles on the non-sanctioned fleet, pushing the overall utilization. We're already seeing a decline in South American imports from Russia, accompanied by corresponding increases in imports from the U.S. Gulf. Moving on to Slide 20. Further on geopolitical tensions. In early Q4, the Trump administration facilitated a piece plan between Israel and Hamas, aimed at ending hostilities. While this could eventually lead to a gradual reopening of the Red Sea, we expect the process to take time. Our analysis suggests that the potential impact of a Red Sea reopening may be less than initially anticipated. If Red Sea transits return to normal, Suez canal traffic could regain the equivalent of roughly 180 MRs in transportation demand. While tonnage demand loss via the Cape of Good Hope are projected at around 230 MRs. The net effect on total arbitrage transportation volumes, while the Suez canal is about 43 MR equivalents. This implies a minimal negative market impact of approximately 6 MR units. Moving on to the next slide, where Perry, our CFO, now will bring you through the financial developments. Perry Van Echtelt: Thanks, Soren. If we move to next page, 22. We indeed had another strong quarter as market conditions strengthened, fueled by higher trading activity and firm refinery margins. For Q3, we reported adjusted EBITDA of $150.5 million and a net profit of $91.5 million, which is our best quarterly results of 2025 so far. Our Fee-based business in the pools remained steady, contributing $7.1 million in fee income. And we maintained strong profitability metrics with an annualized return on equity of 15.9% and a return on invested capital of 12.8%. Moving on to the operating summary. We continue to generate strong operating cash flows, supported by a boost balance sheet and further declining breakeven levels. For the quarter, TCE income stood at $247 million with an average TCE of $26,040 per day. A meaningful portion of our fleet was built in 2015 and 2016, leading to a relatively high number of drydockings. And this quarter's performance also reflected the impact of several vessels undergoing drydocking. We recorded approximately 740 off-hire days in Q3, which is about 230 days above our initial expectations, primarily due to drydock glass and two vessels undergoing special cargo tank recoating. Across the first three quarters of '25, we have drydocked 32 vessels and expect to complete another 14 in the fourth quarter. While we still have several vessels scheduled for drydocking in the coming quarters, we do expect off-hire days to decline and taper down to around 440 in the fourth quarter. This positions us well for stronger utilization and earnings momentum heading into 2016. And turning to the balance sheet. We made significant progress this quarter. Our net LTV ratio based on our 100% owned fleet improved from 24.1% at the end of Q2 to 20.5%, supported by strong operational cash flows. Across 2025, we have also reduced our weighted average debt margins by more than 50 basis points, further strengthening our financial position by securing very attractive pricing on new financings. During the quarter, we have used $100 million of our excess liquidity alongside debt refinancing to repurchase 14 vessels that are under -- that were under sale and leasebacks. Vessel market values remained stable, showing a slight uptick from the previous quarter. On the right, you can see our liquidity position. Following the signing of our $750 million revolving credit facility, we ended the quarter with over $630 million in total available liquidity, consisting of around $130 million in cash and $500 million in undrawn financing capacity. As mentioned earlier, we recently announced the agreement to acquire 14.45% of TORM shares. And let me clarify how this will be reflected in our net LTV calculation upon effectiveness of that transaction. In addition to broker valuations for our wholly owned vessels, we will incorporate the lower of the investments market value or its purchase price. This ensures that the investment is reflected in our leverage metric, while also maintaining the integrity of our dividend policy, which is designed to balance our capital structure and our asset strength. Looking ahead, our solid financial position and effective cost structure supports an operational cash flow breakeven of below $13,000 per day for 2026. Given the current market environment, this positions us very well for another year of strong earnings. If we look for that on the next page. So we look towards conclusion of Q4, as of the 14th of November, we have secured 71% of our Q4 earnings days at an average rate of $25,610 per day. For 2026, we already have 15% of our earning days covered at an average rate of $24,506 per day, giving us a strong head start to the year ahead. If you look at that based on the Q4 covered rates and also the analyst consensus, 2025 points toward net profits for the full year in the range of $300 million to $350 million. This positions us exceptionally well as we also move into 2026. And Mikael, over to you for the next few slides. Mikael Opstun Skov: Thank you for this. And let me now turn to Hafnia sustainability strategy and goals, and we are on Slide 27. As a global leader in the product tanker segment, we do recognize the critical role we play in shaping the maritime ecosystem. We hold ourselves to the highest operational and environmental standards with a clear commitment to creating a positive difference. Across the value chain, we are deepening collaboration with strategic partners, regulators and key international bodies to codevelop solutions to the challenges our industry faces. These efforts ensure that Hafnia remains firmly positioned at the forefront of the energy transition, not just adapting, but leading the way forward. Moving to Slide 28. Here, we showcased some of the strategic initiatives we've been working on to strengthen our competitive edge. Take Seascale Energy, for example, this joint venture creates powerful synergies with our existing operations and enables us to deliver reliable, scalable solutions across the maritime sector. In parallel, we're advancing our technological capabilities through our strategic investment in Complexio. Complexio leverages both structured and unstructured data to create a detailed operational landscape, enabling automation of recurring processes such as chartering, ship clearance, finance management and contract negotiation. These initiatives reinforce Hafnia's position at the forefront of innovation in the maritime sector, ensuring we remain agile, efficient and future-ready. Slide 29. Looking ahead, Hafnia remains well positioned for the remainder of the year. With winter approaching, seasonal demand is expected to support the oil market, driving higher earnings through increased tonnes-miles activity and strong operational dynamics. I'm encouraged by the underlying market strength and proud that we've delivered solid results while maintaining our 80% dividend payout ratio. We will continue to exercise disciplined financial management and pursue strategic opportunities that enhance our competitive position. Before concluding, I want to stress an important concern. As Ukrainian ceasefire discussions progress, policymakers and the shipping industry must ensure the vessels from the dark fleet often operating with poor safety standards are not allowed back into mainstream trade. Doing so would undermine regulatory trust and create serious risks to people and the environment. With that, this concludes our presentation. I'd now like to open the call for questions. Operator: [Operator Instructions] Frode, I see you're having hand up? Can you please unmute yourself? Frode Morkedal: So the first question is on this coverage slide you had, I noticed you had booked 67% of the LR2 fleet in 2026. So maybe you can shed some color on that? Have you booked -- what type of contracts are you booked and the duration, I see the rate there, like $30,000 a day basically. Søren Winther: Hi, Frode, Soren here. Yes, that's correct that we, during Q3 and into Q4, have covered more of our LR2 fleet for three years. You're talking four ships, where three with 3-year deals and one is a 2-year deal, about the numbers you're talking about. Frode Morkedal: Okay. That's good. I guess coming back to Mikael's point in his final remarks. I want to ask about this Russian, see the key export decline we've seen, right? So you showed it in the slides, exports are down, probably been good for U.S. more liftings, right? Have you also seen like an offsetting effect from, let's say, shadow fleet coming back, let's say, drifting back into the conventional fleet. What's your data showing? Mikael Opstun Skov: Maybe more on the DPP side than on the actual CPP side. So probably on this DPP, I'd say that the supply into South America has gone back to the conventional tonnage, adding a little bit more tonne-mile there, whereby on the DPP trading side, especially on Aframax', you have seen some more influx of not sanction tonnage, of course, but the grey fleet entering into an already busy Aframax market on the dirty trade. Frode Morkedal: For CPP, it's a positive result. Mikael Opstun Skov: Yes, you can say it certainly feels like a positive for now, and we don't seem to find a lot of competition from the dark fleet yet, at least. Operator: Omar, I can see you have your hand up? Can you unmute yourself, please? Omar Nokta: Thanks for the update. I did have just maybe a couple of questions and perhaps maybe first, just on the -- do you mind revisiting that Red Sea slide? I thought that was quite interesting. You mentioned the opening would perhaps not be as significant to fleet supply as initially thought. And just want to get a sense of if you wouldn't mind just explaining a bit more how you got to those figures, especially that part about the 43 cross hemisphere regains. Søren Winther: Yes. Soren again, here. So the analysis we have done is based on historic data on a general note. So if you take pre-battle [indiscernible] closing volumes and anticipate that those volumes would come back the market if Suez reopened in the sense that Middle East will then be the more competitive supplier into Northwest Europe and Mediterranean again in the event of a reopening. So what you're looking at is that it's taking the volumes that you would regain out of Suez or trading by Suez again, and we have offset the full gains that we have had for trading via the Cape of Good Hope and added the volume to come back to normal averages of East to West volumes, which then boils down to a limited impact on the market. What you can see on that slide is what is that going to do to trade flows on a general note. Is that going to be a positive for the U.S. Gulf, which has been a big driver over Q3 for sure. And if you have more supply out of the Middle East, that's probably positive for the LR1s and LR2s, whereby there will be other trade flows out of the U.S. gold for the MRs and probably more tuned towards the South American region. Omar Nokta: Okay. That's quite helpful. And maybe just touching on that point in terms of just transiting and what compels that you or maybe the industry do want to return. Obviously, I think a big part of it is perhaps insurance premiums. Have you seen any kind of shift or change in insurance costs, what's being quoted to transit in the region? Søren Winther: Not really yet, the big -- well, the big, I mean, at least the well-known owners on the clean side is not yet transiting. So there's not a lot of movement there. You have seen other parts of the lead, for instance, some Middle Eastern traders, that is sending their tonnage through the Red Sea. So I think you would see a mild increase in the volume that actually goes through the Red Sea today. But on an insurance and on a general willingness to try it out, not so much, to be honest. Operator: So Clement, can you unmute yourself, please? Unknown Analyst: I wanted to start by asking about the exercise of purchase options you pursued on vessels under sale and lease back. Could you talk a bit about the effect you expect this to have on your all-in cash breakeven for the vessels involved? Perry Van Echtelt: Hi, Clement. Good question. It's Perry here. I don't have the effect on the specific vessels. We purchased -- we had quite good and regular frequent purchase options on those leases. So as part of our refinancing, we took them out across the board with all the refinancings that we've done since the summer, that has improved our cash flow breakeven quite significantly. I think for next year, that will bring us somewhere below the $13,000 a day. But we don't have anything for on a per vessel basis. It's also less relevant. Unknown Analyst: Makes sense. The color is still helpful. And you've continued divesting the older end of the fleet in recent months. How are you thinking about potential fleet renewal growth at current pricing? And secondly, should we consider the acquisition of TORM shares, likes that kind of fleet expansion, or how do you view it? Søren Winther: Hi, it's Soren, again. You can say that our strategy over the past couple of years on the newbuild purchase side has always been linked to bigger projects, will cover somewhat forward. Perry -- and looking at newbuild prices now, that will probably be our strategy still. But -- well, yes, it's I guess, it all boils down to a better market than this, I think we are probably not in a situation now where we would look at a big newbuild program at current levels. Thomas Andersen: And I'm actually not seeing any more raise hands, actually, so Omar -- so Clement, if you can take your hands down if you finished, and then Omar, can you unmute yourself? Omar Nokta: Yes, can you hear me? Operator: Yes. Mikael Opstun Skov: Yes. Omar Nokta: Just wanted a follow-up on just a net LTV for half year at 3Q, obviously, a very nice drop from 24% to 20%. Obviously, precise like quarter over quarter. It seems that you're pace to perhaps get below 20% at the end of the fourth quarter, which, I guess, presumably triggers you back into that 90% payout threshold. Do you forecast that happening, or do you take into account the pro forma acquisition of the TORM stake at that point? Perry Van Echtelt: Yes. Hi, Omar, it's Perry. Good question. Net LTV at the end of Q3 is 20.5%. As we always do, we are consistent with our dividend policy and our dividend payout ratio. So of course, that would depend on where values are in the quarter. As we've also announced earlier in September that when we include -- once that deal closes, we include TORM stake at market value and purchase price, low of the both and then also including the debt. So that obviously will bring the net LTV all in all some -- probably somewhere in the middle of that range. Operator: I don't see any more raised hands. So I'm actually going to move on to the chats and the Q&A. So we have a question in our chat, which I will direct to Perry, regarding whether we plan on purchasing further shares in TORM? Perry Van Echtelt: Yes, that's not so much to come down. We've mentioned also in the earnings release that there's one more condition outstanding for the close of the stake that we've announced for 40.45%, and can't really comment or add on questions or suggestion of further purchases. Operator: Moving on to the next question. So we have someone asking that we mentioned in our detailed release the pool earnings for the week beginning 17th of November 2025. Is it only the week's earnings, or is it from the first of October to the 17th of November 2025? Thomas Andersen: Thank you for the question. That's for the week of -- starting November 17, so that week's earnings only. Operator: Thank you, Thomas. I'm just giving it a few more seconds to see if we receive anymore raise hands or any more questions in the Q&A or the chat. All right. Well, thank you, everyone. So today, we've come to the end of today's presentation. So thank you for attending Hafnia's third quarter to 2025 financial results conference call. You can find more information available on our website at www.hafnia.com. Thank you, everyone.
Operator: Good morning, and welcome to the Tharisa plc results investor presentation. [Operator Instructions] I'd now like to hand you over to CEO, Phoevos Pouroulis. Good morning, sir. Phoevos Pouroulis: Good morning, and welcome, everyone, to this -- our year-end results for the financial year ending 2025 September. I'd like to start off with our mission statement or benevolent intent, which is clearly articulated on the slide, which states that we look to redefine resources, we innovate with purpose and we look to empower futures. And really, this is the theme that I'd like to carry through while we run through this results presentation. This is the agenda for this morning, running through primarily the financial highlights, but also looking at our business as a whole and the strategic imperatives in the Vision 2030. So if we look at our business, we believe that we are resilient today. We are future-ready. We have a strong balance sheet that supports our Vision 2030. And what is our Vision 2030? It's to deliver on our expansion and growth plans and opportunities and to commercialize the technologies and solutions that we've been working on through our novel processes, which we'll unpack later on in this presentation. So when we talk about empowering futures responsibly, it really is core to our values. And underpinning this is safety. We're an integrated resources group that covers the full value chain of exploration, mining, processing, beneficiation, marketing, sales and logistics for both platinum group metals and chrome concentrates. Our commitment to sustainable growth and impactful investment not only returns value to shareholders, but lifts performance, strengthens community relationships and builds long-term sustaining partnerships. And with this comes our disciplined growth strategy, which ultimately leads to disciplined returns. ensuring that we have sustainable multigenerational value. So we just touch on our key highlights for the financial year 2025. Safety is our core value, really excelled. We had a lost time injury frequency rate at the Tharisa mine of 0.03 incidents per 200,000 man hours worked and 0 incidents at the Karo Platinum mine site, which is a hive of activity, which we'll share with you later in the presentation. We were also acknowledged at 2 events, the MineSAFE awards here in South Africa for the best improved safety performance for open cast mining over the past 3 years and a double silver award at the 2025 NSSA Safety and Health Workers Award in Zimbabwe Harare. Also very pleasing to note is that the Tharisa mine is the first Level 9 compliant mine in South Africa and in fact, is a test site and a role model for other open cast miners to come and see technology and the advantages that it does provide in terms of safety and well-being and general efficiency improvements. Later on, we'll unpack in a lot more detail the developments that we've undertaken during this financial year. But just to highlight them, we've commenced and begun our transition to underground at the Tharisa mine. We've committed a massive $547 million worth of investment over the next decade. This is underpinned by a new facility of the $130 million that was signed with Standard Bank and Absa Bank. And our Karo Platinum mine site is developing in line with the capital that we've allocated, and we continue to derisk that project. So when we talk about redefining resources, it really talks to our co-production model, which is unique in its inception and in its origination, and that is the co-production of platinum group metals and chrome concentrates from the middle group reef horizons. But to set the context for the year, we averaged a PGM basket price of some $1,615 per ounce for the year, which was up 18.6% from the prior year. Contrary to that, our metallurgical chrome grade price was down some 11% to $266 per tonne. So this set the scene then for our revenue, which came in at $602.9 million, EBITDA at $187.3 million, with a net profit after tax of $80.8 million for the year. Pleasing to note is net cash from operating activities at some $94 million with a vast and extensive capital expenditure for the year of some $118.5 million, which includes $33.5 million invested into Karo Platinum. We ended the financial year with cash and cash equivalents of $175.1 million. All of this resulting in headline earnings per share of some USD 0.275. And we're pleased to note that the Board have approved and recommend to the shareholders an additional USD 0.015 final year-end dividend, coupled with a half year USD 0.015 already paid out to a total of USD 0.03 for the year. And this, including the share buyback is a return of 17.2% of net profit after tax to shareholders. I think Michael will unpack in some detail the favorable mining royalty credit that we achieved in a landmark victory in terms of the reversal of our mining royalty at some $67.3 million. When we look at the impact we have and the jobs that we create through our investments, which have a major impact, our group employees and contractors amounted to some 4,483 people for the financial year, of which 27% of those were female employees. We provided 35 adult learnership, bursaries and internships for the year. And this is something very close to our heart where we look to share, educate and allow upliftment in terms of adult education for those that are interested from our communities and our employees. In terms of our impact to the fiscus, currency inflows of some $430.5 million, that's direct and indirect inflows with global direct, indirect taxes and royalties of some $31.7 million. I think an astounding number and something we're very proud of is the amount of money we spend on BEE, historically disadvantaged individuals, women and BBBEE compliant procurement of some $331.1 million, a significant contribution to these up-and-coming growing enterprises. We spent on local and host community suppliers, some $2.6 million. And also, we attract most of our employment from the host communities, in excess of 40% of our employees come from the host communities. Included in that is our commitment to our SLP programs and CSI initiatives where we spent some $1.1 million during the financial year. So moving on to our commodities and really what underpins our investment case. And we look at the spot prices today of the Tharisa PGM basket, which sits at $2,215 compared to a price for the financial year of just over $1,600, a pleasing improvement in terms of that PGM basket price as well as the Karo PGM basket price at some $2,024. And we'll unpack the prill splits and the differences between the Bushveld Complex, particularly on the MG reefs and the main sulfide zone of the Great Dyke in Zimbabwe. But ultimately, you can see here the fundamental nature of PGMs and the role they have played and they will play in decarbonizing the planet. And if we look at the catalytic properties and applications, they are vast and varied, but what's really supported platinum and palladium demand is really the rollback of battery electric vehicle penetration, the tightening of global emission standards and the pivot to hybrid vehicle production and demand. And this has really supported the baseloads demand of those very key and fundamental platinum group metals, including rhodium. But also, we've seen resilient industrial demand from the chemical and petrochemical, electronic sectors, fiberglass and glass sectors, supporting rhodium amongst platinum and palladium as well. We're very heartened by future technologies, particularly hydrogen, electrolyzers, fuel cells, which have a strong outlook for demand for platinum and iridium. Ruthenium is an interesting test case because it has always been used in hard disk storage. And with the advent of data centers proliferating and the investment that we see going into artificial intelligence has been a big demand driver for data storage and rhodium has a massive role to play. And we've seen that with the price appreciation over the last 12 months, and we believe there's a lot more upside potential for that. I think what really shocked the market and really supported platinum was the investment demand and jewelry demand primarily coming out of China. And we continue to see continuous supply deficits and what this means that above-ground inventories are being destocked and we're starting to see tightness in the market, supporting the higher PGM basket prices that we're seeing. So if we come closer to home now and we look at the favorable Tharisa Minerals prill split on a 6E basis, you'll see that platinum constitutes almost 53%, palladium at just under 16%, but quite remarkably, rhodium at 10.5%. And Michael will talk about the impact of that 10.5% in terms of our revenue. Very little gold, very nice ruthenium at 16%, iridium at 4.5%. Moving to the Great Dyke, you'll see that there's quite a different makeup with platinum at 43.5%, palladium at 38.3%, rhodium at 3.8%, gold significantly more at 8.6%, ruthenium at 3.8% and iridium at 1.9%. So a very nice blend and basket across both jurisdictions. Moving on to our other key commodity, which is chrome, which is really pivotal to decarbonizing the planet. Again, if we look at the applications in terms of construction steels, white good manufacturing and infrastructure, special alloys, special steels application, heat and corrosion resistant applications, we see a continued growth in terms of stainless steel, which is surprised always to the upside in terms of manufacturing as well as demand. And this is not just an Asia-centric story, it is a global growth phenomenon. And we start seeing applications in renewable energies as well in the desalination plants, solar, wind, hydro, Redox Flow, which we'll unpack later, one of our key investments and huge upside potentials, electrolysis storage of energy as well as pollution control. And what makes stainless steel and chrome hugely environmentally friendly is that it's 100% recyclable. So South Africa plays a vital role, as we know, the Bushveld Complex contains more than 72% of the world's resources. And what's really been interesting to note is that we've had a fantastic growth story in terms of our South African chrome manufacturing of concentrates and chrome ores at some 9.6% compounded annual growth rate over the last decade. And this is in the context of a struggling ferrochrome industry. And there's been a lot of talk and noise around intervention from government in the form of either a quota or a tax. And ultimately, we, along with our peer group, believe that any intervention is most probably misguided and really doesn't talk to the root cause of the challenge, which is the cost of electricity. We know that electricity prices over the last decade have gone up some 900%. And really, the answer to enable the sustainability of the existing ferrochrome producers whom we support and really look to find a solution for their current challenges is really the cost of electricity. And that not only will enable and support existing capacity, but will also stimulate beneficiation. And as you'll see later on, we have a very clear beneficiation strategy, which looks at some unique and novel approaches to beneficiation of both PGMs and chrome concentrates in South Africa and the region. I'd like to hand over now to Michael, who will run through the financial highlights of the year. Michael, over to you. Michael Jones: Thank you, Phoevos, and good morning, and welcome to all those who have joined for our financial results presentation for this financial year ended 30 September 2025. When I reflect back on this year, I think one of the key themes to me was our continued investment, not only sustainability of operations, but also in the growth of our projects and for multi generations to come. And that includes underground transition at the Tharisa Minerals mine, the Karo Platinum project and the commercialization of the R&D at Arxo Metals. Again, our co-product business model has reinforced our resilience effectively with the PGM basket price, as Phoevos mentioned, strengthening by some 18.4% year-on-year and the chrome price while staying basically range bound, reducing by some 11%. We have continued to be net cash flow generative with cash flow from operations of $94 million. And our cash and cash equivalents standing at $175.1 million as at 30 September. We have continued to maintain our capital discipline, and we've invested, as mentioned, beyond 2030 with multigenerational sustainability. And to support this, and we'll touch it in more detail later, we have secured an additional $130 million of term loan and revolving credit facilities, principally to fund the underground transition and the mining fleet. Final proposed dividend for the year, $0.015, which matches interim dividend and aligns with our dividend policy. And we're in the process of successfully concluding our second $5 million share repurchase program, which as of 30 September was 87% complete. Looking at revenue for the year, the revenue for the year at $602.9 million, again, key contributor being the chrome at 57.2%. And this is on an FCA basis. In other words, we strip out the costs of inland logistics and freight, which is the prime destination for that chrome is the Chinese market. Just touching on the graph on the bottom right, you'll see the major production output is on the metallurgical grade, just under 87% and the balance of specialty grade at 11.3%, which is a higher value item. Just in terms of the actual numbers themselves, the sales just under 1.4 million tonnes at an average price of $266 per tonne, and that's on a CIF main ports China basis. The PGMs contributed just under 40% to our overall revenue. And if you look at the graph on the bottom left, you'll see that platinum remained a major contributor at 38%. And while rhodium comprised less than 10% of our prill split, the very strong price performance has resulted in it contributing in excess of 36% to our overall revenue from PGMs. Numbers again, 137,500 ounces sold at an average PGM basket price of $1,615 per ounce. If we look at the spot price today, this morning was trading at $2,215. So it has continued its upward trend. This is quite a busy slide. I'm just going to touch on some of the numbers on it. I think very pleasing, the reef tonnes mined, up 15.3% at 5.3 million tonnes. And if you look at the graph along side, you'll start seeing the benefit of that from the cost side or purchases were only less than 4% of our on-mine cash cost, and that's a direct consequence of the improvements in our reef tonnes mined. Cost per reef tonne mined, very well maintained from a cost perspective, up 3.5% at $41.7 per tonne. Tonnes milled relatively flat at 5.5 million tonnes. And then the on-mine cash cost per tonne milled increasing 12.9% to $59.7 per tonne. Our logistics team has done a remarkable job over the year and well managed on our inland logistics and freight costs with a slight reduction year-on-year at $83.2 per tonne. We do operate in a rand environment for Tharisa Minerals and normally benefit from a weakening of the exchange rate. We had no such benefit over this past year with, in fact, a marginal strengthening in the average exchange rate to ZAR 18.1 to the dollar, an effect of some 2.4%. We are a coproducer of both platinum group metals and chrome concentrates. If we just say what is the all-in cost per platinum ounce sold. So in others, we take the credits from chrome and all the other platinum group elements, including the palladium and rhodium and such like, you get a negative $445 per platinum ounce. When we calculate that sustaining cost, we do take out the cost of the transition to underground mining as well as the Karo Platinum project. If we then turn around and say, let's look on an all-in cost per PGM ounce sold, that's on a 6E basis. We apply the same metrics and calculations, you get a cost of $571 per ounce. I really like this graph because I do believe that it reflects very nicely the history of the company over the past year. We started with EBITDA of 2024, and that was $177.6 million. You'll see the favorable impact of the PGM prices, offset by reduction in chrome volumes and then the impact of the chrome price, fairly significant, but take into account the overall volumes sold, and that is a reduction in price of 11%. Increase in absolute mining costs, and you would have seen on the previous slide, the increase in the reef tonnes mined. And that really offsets a lot of the mining commodities, which is purchased run-of-mine ore. So there's almost an offset on that basis. And then savings on the processing costs and selling expenses, and we'll touch shortly on the mining royalties, resulting overall increase in our EBITDA by 5.5% to $187.3 million. Our gross profit for the year amounted to $191.3 million and a gross profit margin of 31.7%. If, however, we do offset the mining royalty credit, it does impact on the gross profit percent, reducing it to 20.6% year-on-year, but still a very healthy gross profit percentage in those circumstances. I'm going to touch briefly on the mining royalty credit. But I think before we start really just to touch on the accounting side of it. The mining royalty itself is not a tax. It is a lease charge paid for the consumption of the resource to the government. And therefore, it is a charge to the cost of sales on the income statement and not on the tax charge. The matter at hand relates to a 2015 and 2017 dispute with the South African Revenue Services on the interpretation application of the Mining Royalty Act. This eventually ended up in a tax court. We're very pleased to get a favorable ruling from the tax authorities and also engaged with the South African Revenue Services there afterwards, and we have agreed the basis of implementing the court judgment. And this is resulting in a reversal of a previous provision that we had of some $67.3 million, which is a credit to cost of sales. As a consequence, you have a royalty receivable of some $13.6 million and of course the increased income tax and income tax impact of some $18.2 million. But a very favorable outcome and one that is going to stand us in good stead in the years to come. In effect, what it did is it reduced the mining royalty payable to the minimum percentage over this period to 0.5%. Over this past year, we spent $118.5 million in our capital expenditure, and that is both in sustaining operations as well as growth projects. I'm just touching some of the key numbers there, $33.5 million invested in Karo Platinum, $12.6 million, which is a fairly nominal amount to date on the underground development as we commence that transition and then $9.8 million on the deferred stripping. The prior year was some $65 million on deferred stripping. Group capital commitments as of 30 September, $79.6 million, of which Karo Platinum comprised $25 million. Just look at the year ahead, capital budget of $165.9 million. This excludes Karo Platinum. We'll touch on Karo Platinum in more detail in the presentation. But effectively, once the funding is closed, there will be a strong acceleration in the spend on Karo Platinum. And we also excluded the deferred stripping to really focus on the actual capital items that we're investing in. You'll notice there on the chart on the right that the largest expenditure at the moment is underground development at $76.7 million as we accelerate that capital spend. There's also an increase in assets and infrastructure and importantly, the R&D and innovation as we start commercializing some of the downstream research results from the Arxo Metals. Our balance sheet has remained strong through this period with cash and cash equivalents of $175.1 million. generation of cash from operations, $94 million and net cash of $69.8 million. The table on the right, I think, really reflects it quite nicely if you have a look at the depiction there. So net cash from operations, $94 million, sustaining capital of $77 million. So free cash flow after investing in sustaining operations of $17 million. The $44-odd million on the growth projects and a marginal negative free cash flow for the year of $27 million. Total debt is $105.3 million, of which short term is $74 million. You'll note on the pie charts on the bottom right, that's the bond of 26.2% is a large portion of that. Subsequent to the financial reporting period, we have negotiated and agreed with the bondholders to extend that bond by a further 3 years with redemption 1 December 2028. So that will be transferred back into a long-term debt facility. Our commodity prices are dollar-based. That's both platinum group metals and chrome concentrates. So we have a tendency to have a bias towards dollar-based debt. 67.4% is U.S. dollar-denominated. It does have a natural hedge element. As mentioned, our balance sheet remains healthy, current ratio of 2x and a net debt to equity of a favorable 8.2%. We do have undrawn facilities as at 30 September of $76.6 million, and that excludes the trade finance facilities. We pride ourselves on our commitment to capital discipline, in particular, the return of funds to shareholders. We have proposed interim dividend of $0.015 per share aligns with the -- sorry, a final dividend of $0.015 per share. It aligns with interim dividend and after due consideration for the mining royalty credit, which is, to a large extent, a noncash flow item. If we include the share repurchase program, it is a payment of 17.2% of our consolidated net profit after tax. Over the past 10 years, we have distributed $119.8 million as distributions to shareholders. This excludes the 2 share repurchase programs. The one completed, I think it was last year at $5 million, and we're 87% complete as at the end of the financial year on the second one, which is again has been a very successful outcome overall. I'd like to now hand over back to Phoevos. Thank you. Phoevos Pouroulis: Thank you, Michael. So we move on now to our expansion projects and really taking a snapshot view of our facilities across the globe. So Redox One, which is our long-duration energy storage business is situated in Dortmund in Germany. Moving south to Harare, where we have our Karo Platinum project situated on the Great Dyke. And then into Tharisa Minerals in the Southwestern limb of the Bushveld Complex. Adjacent to the mine is the Arxo Metals Renewable Energy Center, where we do renewable energy projects as well as the manufacturing of the e-Lite for the Redox One batteries. And then in Brits, not too far from the mine, we have our Arxo Metals beneficiation site. And then we utilize 3 ports for the export of our commodities, Maputo in Mozambique, Richards Bay and Durban from South Africa. So as mentioned, we look to unlock multigenerational value. And the transition to underground was always envisaged when we embarked on the Tharisa Minerals mine. We will start in a phased approach on the West mine, which is illustrated in the photograph there, and we are currently busy with the portal makesafe, and we envisage that our first ore from the Apollo complex portal will be delivered in Q2 of this financial year, financial year 2026, achieving steady state 3 years thereafter in Q3 of FY 2029. The Apollo Portal complex, just to remind everybody, is a dual reef complex on the MG2 and MG4 seams with a 3-meter cut, respectively, in each of those portal developments. The average monthly run-of-mine or reef production will be 255,000 tonnes per month at that steady-state level. As we transition and start depleting the open pit, we will commence with the Orion portal development in the East Mine, and that will deliver our first ore in the fourth quarter of financial year 2031, thereafter, reaching steady state in Q3 of financial year 2033. At that point in time, the Tharisa complex and mine will be fully underground and will be sustainable for at least 50 to 60 years in terms of the current mine plans on that trajectory. You'll see that the Orion portal complex is limited to 210,000 tonnes per month, and that's purely a function of our nameplate processing capacity, which is 5.6 million tonnes. However, it is designed to match the Apollo at 255,000 tonnes, and there is potential for us to increase our throughput to over 6 million tonnes per annum of processing capacity. So just to look at the numbers and the strategic capital investment over the next decade. The capital allocated to Apollo is some $363 million, followed thereafter in the time line I just outlined by the Orion complex at $184 million. Due to the fact that we're doing on reef development and we'll be generating income, we have a peak funding number that is considerably lower at some $173 million over the period of the underground development. Our DFS has given us an all-in sustaining cost of mining, including capital development of $40.8 per tonne. Michael has mentioned the cash on hand at $175 million and the ring-fenced funding of $130 million for the underground, coupled with asset-backed finance of some $45 million. Even though we are going with the contractor mining model, we will be acquiring and purchasing the mining fleet for the underground. So that will remain our assets. I think what's pleasing to note is that the DFS kicked out an IRR of 25%, assuming a PGM basket price of $1,633 per ounce. You can imagine that today's $2,200 per ounce, the IRR is significantly improved. So when we look at the Tharisa Minerals and the Tharisa mine annual output, you can see us incrementally growing as we transition to less diluted, more consistent fresh ore from the underground, achieving our 2 million tonnes of chrome concentrate and 200,000 ounce per year of PGMs on a sustainable basis from 2033 onwards. And we believe we can maintain that run rate for the duration of the underground operations, some 50 years, as mentioned. So moving to the Great Dyke of Zimbabwe. We really have been blessed and endowed with a Tier 1 resource. It is only 1 of 2 major PGM projects under construction worldwide in a sector that we well know is facing growing deficit. What is our vision here is to become a globally significant low-cost producer of these very key and precious metals, including some significant base metal credits of copper, nickel and cobalt. When we talk about responsible growth, we talk about balancing profitability with environmental care and importantly, the community benefit and upliftment that a project and an ecosystem of this magnitude can provide. The long-term impact here is that we'll be positioned very much like the Tharisa mine to provide multigenerational output and value creation. So we're situated in the middle chamber of the Great Dyke complex in Zimbabwe, some 100 kilometers southwest of Harare. The Phase 1 operation is planned to produce 2.64 million tonnes of run-of-mine per annum, generating some 220,000 PGM ounces on an annualized basis. Our resources and reserves in the open pit, which is a 10-year life, which is our Phase 1, 12 million ounces of resource, 2.3 million ounces of reserve with a total resource that includes underground of 96 million ounces with a potential again of some 50 years. In terms of infrastructure, we've secured the water, electricity supply agreement is secured. We have a renewable energy program of 40 MVA solar to be installed post commissioning, and we have very easy access from -- with tie roads from Harare. What is really pleasing to note is that this project has substantially been derisked. We've drilled some 60 kilometers of diamond core geological exploration drilling with a high confidence. We have already defined a 10-year open pit mine, and that plan is complete with an underground drilling infill program to confirm the 50-year potential as well as the feasibility study, which will follow the infill drilling campaign, which is well underway. All metallurgical test work has been concluded, and we have a great degree of confidence in our recoveries of both PGMs and base metals from the lock cycle test work that has been completed. In terms of infrastructure and mining, you'll see an aerial photo there. Substantial work has been done to date. Design and engineering is complete. Earthworks are complete. Civil works are some 68% complete. 90% of all long lead equipment items have been procured and in storage and some have been delivered to site like the mills, which have been installed as well as bulk water and power being secured. We did complete a pilot open pit mining with equipment being tested and selected for the type of open pit mining that we'll be doing. So we've invested to date some $193 million, substantially derisking this project. And the capital and operating costs that we have are confirmed well beyond a definitive feasibility study level. When we look at the concentrator area and the infrastructure, we have a vast program to increase the Chirundazi Dam. We commenced that earlier in this year. We're at 27% completion, and that is forecast to be completed in June of next year. The Mill building, the steel work is some 78% complete, forecast to be complete in January. The overhead line, the 132 kV line, 25% of the base stations are complete, 28 of the 130 poles have been installed in terms of the bottom sections, and we forecast this very key and important power supply from the Salu Substation to be complete in February next year. The MV building is 37% complete, complete -- forecast completion in June next year and the LV building on the wet end is 100% complete. Just some photographs just to illustrate some of the work that I outlined on the previous presentation. And you'll see the substations, the MV building and the complete LV substation building on the bottom left-hand side. The aerial view shows the vast footprint that this processing plant and adjacent facilities occupies. You'll see that the primary and secondary mills have been installed on their plants with the steel work and support structures being installed as we speak. You'll see on the top right-hand and bottom right-hand images, the Chirundazi dam, which is an existing dam, and we're expanding that dam, which has a real material positive impact for farmers, rural farmers in the area, providing them with security of water supply as well as securing our water requirements for the Karo project for decades to come. We're very pleased to announce that we've awarded the mining contract to EPSA, who are a Tier 1 global mining company that have been in existence since 1962. They're a global enterprise. They do operate in Africa, but this will be their first contract in Zimbabwe. Mobilization has commenced and as well as site establishment, and they've commenced with the onboarding of all the regulatory approvals as well as employees in country. Equipment assembly and delivery will commence early in the new year. And the first phase is really early waste stripping, which will commence towards the end of Q1 2026. And this was a major milestone achievement for us attracting a mining contractor of this caliber that has a growing track record from South America to Australia and Africa and Europe. I'd like to hand back to Michael now just to touch on the funding update and to provide a context of the current PGM market for you. Thank you. Michael Jones: Good. Thank you, Phoevos. If we have a look at the Karo Platinum Project and the funding, Tharisa plc itself has committed equity of $178 million. We have secured funding through the bond that's listed on the Victoria Falls Stock Exchange. As mentioned earlier, that has been extended by a 3-year term. That's $37 million. Very pleasing, our senior debt is well advanced. We recently received the -- I suppose, the final outstanding work, which was the technical advisers report on the project received by the lenders and ourselves. That's busy being worked through. So the next step is effectively taking it through to credit. The disappointing thing is credit committees closed in about 9 days' time, so it will probably roll over into the new year. In conjunction with that senior debt, one of the parties providing mezzanine debt of $25 million, so that will run in parallel. And then also to ensure that we have a fully funded project, we are in discussions with both a strategic investment as well as a gold stream as an alternative to secure some $125 million to ensure that the project is fully funded. I think we look at the bar charts, the little charts on the bottom below the graph, you'll see that the spot price at the moment, $2,008 per ounce. That's for the Karo Platinum Prill split. The financial model with an all-in sustaining cost of $850 per ounce and therefore, very healthy margin at some 45% going forward. I think we also look at the graph above. You'll also notice that a number of the analysts, analysts 1 and analyst 2 in particular, are really forecasting further strong recoveries in the PGM basket price, and I think that will all go well for the project going forward. That is a very brief overview of that financing. I'll hand back to Phoevos. Thank you. Phoevos Pouroulis: Thanks, Michael. So the third -- or the second pillar of our benevolent intent is innovating with purpose. And this is something we're very passionate about, and we capture this in our wholly owned subsidiary, Arxo Metals, where we've challenged convention over the past decade, and we are busy commercializing 5 novel mine-to-metal beneficiation processes. I think for a business our size, the commitment and the capital that we've deployed responsibly and in a measured fashion will really bear fruit in the future. These processes have been developed in-house from ideation to laboratory scale test work and to commercial scale operations, including pyromet as well as hydromet operations that exist across multiple sites that we occupy or we share with the institutions. So we are constantly looking and evaluating the potential of additional metals and the full value chain contained within our basket of commodities, the polymetallic nature of the ore bodies that we mine. The Vulcan complex, I think, is most probably the first full-scale commercialization of an in-house grown technology where we've successfully commercialized the ultrafine chrome recovery at the Tharisa mine and are looking at further opportunities of deployment of these technologies. When we look at the 3 routes here of beneficiation, we have the PGM beneficiation route, which looks at us taking our concentrate that historically we've sold, putting it through a pyromet process and then processing it and refining it through a novel patented process called the Chloroplat process, and we're busy installing our first commercial reactor to pilot and demonstrate the end-to-end production of 495 purity PGM metals. In terms of the novel chrome alloy route, we have 2 routes there. One is a stainless steel route and the other is a grinding media route, and we've produced both products and in fact, sold some of the grinding media alloy to producers of that media. In terms of the energy applications, we have our wholly owned subsidiary, Redox One, which I will unpack on this slide here. And we really see a lot of excitement and interest in battery energy storage. And one of the key challenges the world is facing is how do you store all this additional energy that is being generated from renewable energy, be it solar, wind and even hydro to a lesser degree to provide baseload power. And this is where long-duration energy storage systems come in. And Redox Flow in particular. So we've been working on this technology since 2018. And one of the key developments and IPs that we have is the ability for us to produce electrolyte from the chrome concentrate that we produce. That electrolyte is a chrome chemical and an iron chemical. And we're taking the cheapest form of the metals, and we're converting them into highly cost competitive electrolyte. Key to these system is that they are inert, there are no environmental challenges, and they're 100% recyclable. They have a long duration life of some 20 years at minimum, and we believe that the electrolyte will continue to perform beyond that. But in the event that they are decommissioned, they can be recycled and utilized in multiple industries. We have undergone rigorous component and electrolyte system testing. And in 2026, we're very excited to deploy the first megawatt scale battery at the Tharisa Mine, at Tharisa Minerals and with a further 5 demonstration units to be deployed globally. As I say, there's huge interest from multiple jurisdictions and regions around the globe for cost-effective, sustainable long energy duration. When we look at the third pillar, empowering futures, this is something very close to our heart, and we can see the impact that we have not only in the form of employment and sustainable employment at that, but the impact that the supply chain has as well as the multiplier effect and the micro ecosystem that is created around these mining communities. And we're in a very privileged position where we have these long-life resources that allow us to invest in people, in the environment and into sustainable security of supply. And as we've seen from the geopolitics and the scramble for these critical minerals, we, as Tharisa are strategically positioned to provide a secure supply line of these key strategic materials for generations to come. And not only being a secure supplier, but also to be a continuous impact and force for change and positivity in terms of sustainable jobs, sustainable impact and value creation for all stakeholders. So if we look at our core investment thesis, why invest in Tharisa. We have an entrenched footprint in strategic commodities that have long-life asset bases, and we have exposure to these very unique and special polymetallics of platinum group metals as well as chrome. We have a clear visibility growth to Vision 2030 and beyond to deliver and commercialize on our downstream initiatives. We have a resilient balance sheet that is geared for growth, and we're positioned to leverage this efficiently and effectively. Our capital discipline has been enforced for over a decade where we've returned significant value to shareholders, and we've been able to fund our pipeline growth. And importantly, where we are positioned today, we see fundamental deep value, and this is consistent with delivery and profitability. If you look at our multiples on a price-to-earnings basis at spot, we're trading at a 4.4x multiple, price to NAV at 0.4x NAV, a significant discount to our peers who are trading at least 3x higher on those multiples. So when we look at where we'll be in 2030, unlocking multigenerational value, will be a smarter operation with lower emissions reduced by 30%. The Apollo mine will be fully operational and at steady state. Orion will be under development. Karo Platinum producing 220,000 ounces per annum and with some base metal co-extraction commencing at Karo Platinum. Arxo Metals will have commercialized and produced final PGMs from the Tharisa mine as well as chrome alloy and electrolyte production. Redox One, we would look to deploy 1 gigawatts of energy storage and be deployed globally. With that, I'd like to recap on our next 5 years' worth of journey, which is to deliver on expansion in terms of our growth opportunities at the Tharisa mine and Karo as well as commercialize our technological solutions, redefining resources, innovating with purpose and empowering futures. I'd like to thank you for your time and hand over to Ilja for the Q&A. Thank you. Ilja Graulich: Thank you, Phoevos. Let me start straight with you. We've had a question here on the operations. What drove the strong increase in the reef mined and obviously, following through on to the EBITDA and how will you build on this momentum? Phoevos Pouroulis: Yes. Thanks for that question. So if you recall that we were mining a backlog of waste stripping in the financial year 2024. We introduced the contracted Trollope mining on site to help us with that backlog. And part of that was opening up more strike length in the East pit, which then materialized and allowed us to access a broader reef horizon and have more flexibility in the open pit, which then enabled that increase of some 15.3% in our reef mining to 5.3 million tonnes. Ilja Graulich: Thank you. Staying with you, Phoevos, I know we discussed what the all-in sustaining cost at Karo is on the one slide, but what we didn't maybe highlight in detail is how long should it take to get Karo to first production. Phoevos Pouroulis: So on the current time line, and as Michael mentioned, assuming the funding comes in, in Q1 of the next calendar year, we anticipate putting first ore in mill in Q1 2027. So some 15 months or so from now. Ilja Graulich: Okay. Just a high-level question for you, Phoevos staying with you, the existing share buyback. I know we mentioned that we had roughly 87% complete. Is there an update on whether this will be extended? Phoevos Pouroulis: So at this stage, when considering the capital for the next year with the underground development as well as the Karo commitments, we elected at the Board to continue with the dividend and pause until this buyback is complete. We'll reconsider at the half year again, dependent on performance, production and commodity prices. Ilja Graulich: Okay. Switching over to you, Michael, in the interim to give Phoevos a break. Can you talk about the dividend policy? Is there still a policy of paying out a minimum 15% of net profit after tax? I think this relates to what you explained earlier with regards to the write-up of the $67 million versus where we should be standing. And I guess it also applies to previous years where we could have potentially paid a little bit more of normal tax had the royalty been applied the way it should have been. Michael Jones: Sure. The Board at the moment hasn't changed its dividend policy. So the dividend policy stands at 15% of consolidated net profit after tax. I mean it's reviewed at both the half year and the year-end period. It really depends on where you are, as Phoevos mentioned earlier, on commodity prices, your results and where the capital expenditure program is going. But we have consistently committed ourselves to capital discipline. That capital discipline includes returning funds to shareholders as we proceed. So there's been no change at this point in time. Ilja Graulich: Thank you. Michael, I have a question here with regards to the bond that has been extended. The question relates to why was there an increase in the interest rate payable on this bond? Michael Jones: That was painful. It went from 9.5% to 11%. There's a lot of negotiation around it. And what it really boils down to is the shortage of dollar liquidity in Zimbabwe itself. So while the external funders were still happy at the 9.5% and thereabouts, within Zimbabwe itself, we had significant investors from them. And I think that's strategic going forward. We have to build relationships with them and the confidence with them. There was really -- as we looked their cost of funding, the best we would be able to negotiate was at that 11% that we got away with. So in summary, shortage of dollars in Zimbabwe and also from a Zimbabwe perspective, a 3-year investment is a relatively long-term investment from a banking perspective. So very appreciative of the continued commitment, and this was unfortunately one of the giveaways that we had to do to ensure we got it across the line. Ilja Graulich: Fantastic. Phoevos, a question for you. One is more direct. We obviously saw the announcement last week by the Zimbabwean government of potentially changing the royalty rate with regards to gold from 5% to 10%. So how do we see that impacting on Karo? But that ties in with a sort of high-level question with regards to how you're finding working in Zimbabwe? Are you confident in the sustainability and reliability of the jurisdiction to maybe highlight the fiscal work we've done in Zim. Phoevos Pouroulis: Yes. Thank you. And I think it's a very important question to answer. So as you may know the government of Zimbabwe are shareholders in the Karo Platinum project at some 15% and they're fully aligned with the strategic imperative and the investment of this project. To that end, we've had a number of agreements over the years with the government and investment framework agreement thereafter special economic zone status, which was later revoked for mining companies. And the process that we followed was to enshrine those provisions in a special mining lease. And we're pleased to report that we've made great progress in terms of agreement on that special mining lease. Part of the agreement there is fiscal stability. And it's key in terms of securing our debt funding as well as strategic investment and gold streaming. And so part of what we, with the government are trying to ensure is enshrined in that document is fiscal stability and provisions that allow the bankability of this project over a period of time. We do know that the current economic environment in Zimbabwe is challenging, as Michael mentioned, with a lack of foreign currency or U.S. dollars in this case and the Zig conversion being one of the major challenges for operators in country. So I think from a fiscal stability provision, we are trying to protect our investment as well as future stability through the provisions we're negotiating, and we believe we'll be finalizing in short order. In terms of operating in country, it's a very pleasing experience. We have a highly skilled labor force, very effective, very efficient, diligent environment. And you can see by the quality of the site and the cleanliness as well as the safety record that it really is a highly productive environment. So we look forward to moving beyond these short-term challenges and getting into steady-state production and ensuring that sustainability that I think all stakeholders are aligned on. Ilja Graulich: Thank you. Michael, a quick one for you. Can you please elaborate on the Bank of China ForEx trade facility? If applicable, what is the maturity and coupon for this loan? Michael Jones: I will just quickly skim through, so I can refresh myself with the interest rate. It is a 2-year facility. It has a bullet payment. And I'll just pop back to you afterwards on the interest rate to give you the exact answer on that. Ilja Graulich: Thank you. Michael, maybe sticking with you, there was a question here. Could you reiterate Karo financing time lines and milestones? It was mentioned senior debt will likely roll over into the new year. I'm assuming that simply relates to the Christmas period coming up when we need to finalize documents and credit committees. Michael Jones: Correct. I think where we are at the moment is we've got the last requirement from the lenders, which was the technical report that has been circulated. They now need to finalize their packages for credit committee. I mean it has gone through a process that haven't gone blind up to this stage, getting necessary approvals. So I expect in new year we'll get to credit and then start the drafting of those particular documents as we go forward. If everything is aligned, I'd look at towards the end of the first quarter of the next calendar year. What we do, however, have to remember is that we do need to have a fully funded package for the lenders to draw down the senior debt facilities. And there's 2 work streams we're working on there, one a strategic investor and that is progressing well. But in parallel, we're doing a gold stream. Gold streams are notoriously expensive as far as I'm concerned, but it's also not a bad time with the commodity pricing to properly entertain a gold stream that would fund that shortfall. In the interim, we at Tharisa plc are still committed to providing ongoing funding to the project in this intervening period. Ilja Graulich: I'll give you a breather. Let me ask this question to Phoevos before I get back to you. How is your cost structure exposed to PGM and chrome metal prices? And do you have part of costs directly tied in with the metal prices, I think it's just a high level question on our costs. Phoevos Pouroulis: Yes. So I think we pride ourselves in being in the lowest cost quartile, and you can see that clearly illustrated when you look at the all-in sustaining costs that Michael ran through in terms of PGMs. So our co-product business model has proved resilient through the cyclicality of both chrome and PGM markets and prices. So we do focus on our costs, and it's down to the unit costs and the more productive we are, the lower the unit -- the cost per unit. And we strive continuously to manage those costs and reduce them through efficiencies, and that's where our innovative approach and optimization kicks in where we look at recovering more of the metal that we mine. I always say that we spend a huge amount of cost effort, time and energy to extract one cube of rock from our open pit finite resource. So we might as well maximize the amount of opportunity and metal we can get out of that cube, hence us reprocessing continuously through the various stages, be it Voyager, Challenger, Genesis and Vulcan, Vulcan X to extract that maximum value. So it's one area where I think we are very focused on and manage. We are obviously subject to the macroeconomics of commodity prices, and we can't control those, but we certainly can control our cost structure and efficiencies. Michael Jones: For the previous answer, I can give the answer on the cost of debt funding. So for the senior debt and the term loan, I just want to make sure it's correct that they both are the same interest rate. It is the South African JIBAR plus 220 basis points. And of course, that will change as our own year end in the new year once that's implemented. And it's a rand-based facility, it's not a dollar facility. Ilja Graulich: I'm going to split the one question here into 2 because it relates to sort of the CapEx that we're going to be spending over the next decade and how much we still need to spend at Karo and what the timing of it is. So there's a question here relating to the $547 million where that is being spent. And I guess how much do we need to spend at Karo to get to full production? So I'll let you answer that one. Phoevos Pouroulis: Yes. So I think if you look at the numbers holistically, they look daunting. But over a continuous period, if we look at the $547 million over a 10-year period, it's not too dissimilar to what we're spending in terms of replacement cost of our yellow mining fleet over the previous decade and you look at the deferred stripping capitalized asset. So as we transition, yes, there will be a double up of both stay in business in the open pit as well as the development cost, but it generates a peak funding of $173 million. And I think that's the key number to take away over the decade for us to transition to underground. Now when we move to Karo, the balance is just over $300 million that needs to be invested to complete the full project there. And one has to remember that we're putting in infrastructure, water, power, camp sites, reticulation around the mine that survives well beyond the 10-year life of the first phase of the open pit. So it is capital-intensive upfront, but you're really enabling the ability to continue mining and processing for 60 years. And that's really where the conviction comes in into the underlying fundamentals around platinum group metals, their unique nature, the constraints around new supply, dwindling capacity as well as what we believe is a very positive outlook for new demand drivers for platinum group metals. So we've got to look at it strategically and understand that these are not short-term quarter-to-quarter investments, and they are measured in decades. And so when you look at it on that basis, the numbers look large, but stretched out over a period of time, they are appropriate for the scale of the resources that we have under our control. Ilja Graulich: Thank you. Michael, a quick question for you here on the capital expenditure at Tharisa mine actual versus planned. And I guess if you have a sort of holistic number of what we still need to spend at Karo in terms of dollar terms. I know we showed on the financing slide, but maybe sort of delve into that. Michael Jones: Sure. I think I saw one of the questions come up here about the large-scale projects and the CapEx that we have going forward. I think previously touched on the key point is that on the transition to underground, while the CapEx is $547 million, that is over a 10-year period. And also that the peak funding requirement is about $173 million because of the quick access to the reef itself. And the plant has already been built, the infrastructure is in place and so forth for that. So the question is, are we comfortable with the large-scale projects, the capital size required based on the market capitalization? I think we have proved ourselves over the years to be -- or to manage our capital and our capital spend. If you look at the strength of our balance sheet, yes, we're leveraging it for growth now, but it will not be over leveraged as we go forward in terms of, I suppose, comparable metrics. And yes, I'm comfortable with where it goes. You always have to bear in mind that commodity prices move up and down, and we, of course, take advantage of those cycles as well. In terms of capital spend for the '25 year, substantially in line, except the deferred stripping, which was probably behind where I expected it to be. We had a higher number budgeted for that work, but we're already accessing those deep horizons. So going forward this next year, I would expect that capital expenditure on deferred stripping to be significantly higher than the $9.8 million, but also not as high as the prior period at $65 million as we continue with that stripping and access those deep horizons. I think that may have answered that question. Ilja Graulich: Yes, absolutely. Staying with you, Michael, last question before you can hand back to Phoevos to close off. And with regards, I guess, the question in the mining industry generally is sort of cost inflationary pressures. What guidance have we got for cash cost per tonne milled given we were roughly at $60. I think it's more about what the increases could be than the actual number and what pressures we are seeing or not seeing. Michael Jones: Sure. I think if we look at the cost pressures coming through, I mean, diesel is very well -- It's a big expenditure of ours from a power generation point of view. I think we all see that in the market. It's really stabilized. I don't see much cost pressure increases coming from there. Eskom needed for the mills. Unfortunately, they seem to continue to require above inflation increases. On the labor front, we have a wage agreement with our unions, which is largely inflation linked. So I do not see much cost pressure increases coming through from there. So overall, except for probably the electricity side, I'd probably be looking at inflation type increases just north of the 3% is what I would expect in dollar terms. Ilja Graulich: Phoevos? Phoevos Pouroulis: Yes. Great. So thank you all for your time this morning. We really are proud of what we've achieved at Tharisa, and we are excited about the next 5 years and 10 years beyond that, where we'll be able to deliver on these very exciting projects, the Tharisa underground, the Karo Platinum mine hitting steady-state production as well as commercializing our Redox Flow battery, our PGM beneficiation strategy as well as our chrome alloy downstream endeavors and initiatives. So with that, I'd like to thank you for your time and wish you all a wonderful day further. Operator: That's great. Well, thank you for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. On behalf the management team of Tharisa plc, we'd like to thank you for attending today's presentation.
Henry Birch: Good morning, everyone, and welcome to our strategy update for the Halfords Group. You'll be aware that today, we have also announced a strong set of interim results for the 26 weeks to the 26th of September. And these, together with the webcast are available on our corporate website. I'm very pleased to be setting out my vision for Halfords over the next 5 years and believe that we are at an exciting and compelling moment in time from an investor point of view. I joined Halfords because I believed in its potential. 7 months on, I'm even more convinced in its potential and believe we have a pathway to growing our business and creating value and benefit for all our shareholders, our customers, colleagues and most relevant to this forum, our shareholders. At the heart of my conviction is the unique set of assets and capabilities that Halfords possesses and the dynamics of the markets in which we operate. We have leading positions in fragmented and evolving markets. We have an unmatched and scaled combination of stores, garages, mobile vans and digital capability across Motoring products and services and Cycling. We have a trusted, universally recognized brand and over 12,000 expert trained colleagues. We have structural resilience with a focus on needs-based products and services, and 1/3 of our revenue comes from B2B. We have a debt-free balance sheet together with strong cash flow generation. And in combining assets and capabilities under one roof, the Halfords Group as a whole is much more valuable and has more potential than the sum of its parts. Today, I want to drill down into some of those capabilities and assets. I want to deliver some home truths about our past and where we are today. And most importantly, I want to elaborate on why I am so confident in our future and detail our plans to deliver for all our stakeholders. Jo will talk to how we're going to measure progress and ensure financial discipline, and I will introduce our team and wrap up proceedings. I mentioned scale and breadth of our assets. As a retailer, we have 370 stores across the United Kingdom and the Republic of Ireland, combined with a strong digital platform together generating about GBP 1 billion in annual Retail sales. We have 500 consumer garages delivering service, maintenance and repair together with tires. We have our Halfords Mobile Expert service with 250 vans, and we have our Commercial Fleet Services business with 550 vans serving business customers up and down the country. And we have Avayler, our Software-as-a-Service business, providing garage management software to third parties. Our more than 12,000 colleagues are solutions experts, trained and knowledgeable, and we continue to invest in young people, bringing 150 new apprentices through our doors last year. Amongst many other impressive statistics, that scale means that we serve over 20 million customers a year. It means we sell over half of all bikes in the U.K. and handle a significant share of the U.K.'s car keys. Scale in our business drives competitive advantage and is extremely difficult to replicate. But the power of Halfords is in its combination of assets and capabilities and the additional value that it drives. At the most obvious level, we have a single Halfords brand across all our businesses and services. That drives brand authority, relevance and resonance across all things, Motoring and Cycling, and gives us the potential for service and product extensions. The Halfords brand is served by a single consumer website where customers can buy products or book garage services. We have a combined loyalty program, allowing customers to move seamlessly between our different services, driving higher engagement and subscription revenue. We deploy central specialist functions across our businesses, driving cost and capability advantages. We have buying power, with many of the same suppliers across our divisions. And our B2B efforts, a key and growing part of our business, deliver benefits for corporate clients across the group, whether that is Commercial Fleet Services, Trade Card or Cycle2Work. The power in Halfords is the power of the group and the assets we bring together under one roof. From a customer point of view, we aim to deliver 3 guiding benefits: convenience, value and expertise. The convenience of digital and nationwide coverage with 85% of the population not further than 15 minutes from Halfords. Value, enabled through our scale, supplier relationships and our own brand products and expertise through our dedicated 12,000 colleagues. Our customers are diverse in their makeup, but broadly fall into 2 categories: those we classify as do-it-for-mes and those we classify as do-it-yourselves. Do-it-for-mes are much greater in number and, as their name suggests, are looking for advice or a service. And candidly, Halfords is often the only place they can get that advice or service, whether it's having a wiper blade or roof box fitted or getting advice on which oil to buy. The do-it-for-me population is large, and we have a significant opportunity in greater penetration of this market. DIY customers are typically high-value, high-frequency customers who recognize the depth and breadth of our range and our product and service expertise. Our B2B customers share many of the same priorities: convenience, value and expertise, but place an even greater emphasis on reliability and turnaround speed. Through our national footprint and fleet service capability, we offer a comprehensive single provider solution that keeps businesses moving throughout our nation. Over the last 5 years, we have built a much bigger B2B business across different sectors. This includes our Commercial Fleet Services business, combining what were Lodge, McConechy's and Universal, where we are typically serving HGVs and light commercial vehicles. B2B is also an important demand driver for our consumer garages where we serve fleet cars and light commercial vehicles with a growing proportion of them being electric vehicles. And on the Retail side, our Cycle2Work scheme helps drive bicycle sales with Trade Card also contributing B2B revenue. B2B gives us a reliable source of demand, can drive a higher utilization of our asset base and is more insulated from the volatility of consumer confidence and spending. If we look at the markets in which we operate, Halfords is in a strong position. Our largest market is Garages or Motoring Services, a market which is around GBP 17 billion in size. In this space, small local independents still represent the biggest share, leaving room for Halfords as a scaled professional operator, with the capability and credibility to meet the growing complexity of modern Motoring. Many of these independent garages are owner-operated and may face issues not just with generational succession, but with the scale of investment in equipment and skills needed to meet the changing dynamics of Motoring. So whilst it is early days, we expect competitor garage supply to diminish over time. We've spoken previously about a weak tire market that has struggled for the past 2 years. But the important thing here is that irrespective of growth or decline in the market, with the brand and scale that we have, we should be able to grow and take share in tires. The Motoring products market is worth around GBP 4 billion. We see significant potential in developing our digital offer, but believe our unique strength is in the combination of digital and physical stores. This is illustrated by the fact that 80% of our digital orders are click and collect. Our combination of products with an attached service is not something that Amazon or any other online retailer can easily provide. The Cycling market remains a core part of our proposition and strategically important, both as a significant business in its own right, but also as a gateway to Halfords, from the first bikes that introduce families to our brand to the enthusiasts who invest in the latest innovations through our specialist brand Tredz. This year, we have seen good growth in Cycling, and the market overall seems to be in improving health. Across the group, we represent more than half of the Cycling market in volume terms, including all parts and accessories as well as bikes themselves. Taken all together, the markets we operate in are large, robust and dynamic, providing a strong foundation for Halfords' long-term growth and future strategy. I mentioned that our markets are dynamic, and there are some clear trends that Halfords must navigate. Firstly, and most obviously, is the move to electric, and that's both cars and bikes. Electric vehicles currently constitute about 5% of the U.K. car parc of 35 million cars. Despite successive government inconsistency, we know 2 things with absolute certainty. First, that, that EV number will grow. And second, internal combustion engine cars will be on our roads for many, many years to come. Whatever the growth or scenario, we are well prepared. We have almost 700 EV trained technicians, and the majority of our garages work on EV cars. We're ahead of the curve, investing early and building capability to serve EV customers at scale as the demand arrives. And although there are differences between EVs and internal combustion engine cars, they all need tires, and they all need to be serviced, maintained and repaired. It's worth saying that the same goes for any other car powered by a different technology or fuel. At the end of the day, we are fuel and technology agnostic and are confident that we can navigate any shifts or trends. At the other end of the spectrum, another structural trend to touch on is the aging car parc in the U.K. Despite the rise of EVs and new technology, the average vehicle in the U.K. is now close to 10 years old, shifting demand away from dealer-based early life servicing towards independent aftermarket providers, a space where Halfords is exceptionally strong. Over the last decade, the U.K. has seen the rise of the convenience economy, and this has been reflected in the Motoring products and services market. More than ever, consumers want convenience. They want someone to do it for them, removing hassle and fitting around their busy lives. Today's customers are also more demanding and digitally engaged. With our nationwide reach, integrated service model and advanced digital capability, Halfords is uniquely placed to deliver on this shift towards convenience and service, both in our garages and our stores. Halfords has a long and illustrious history. But similar to most consumer businesses, it has had a fairly volatile decade post Brexit and lastly COVID. In that time, it has had to navigate some choppy waters, but it has made 3 important strategic shifts, which I've mentioned but want to reiterate. First is a shift to a greater proportion of services, with service-related revenue now representing over half the total. Service revenue is typically higher margin and more resilient being more needs based. Secondly, we've grown our B2B business with around 1/3 of revenue now generated by B2B sources. B2B revenue is generally less impacted by economic swings and consumer confidence and is therefore, more consistent and reliable. And thirdly, we executed a material cost reduction program to mitigate the inflationary pressures over the last 3 years. These shifts are the right ones to have made and set us up well for future success. Halfords is a fantastic company, brimming with potential, but arguably over -- our performance over the last 3 years has not matched that potential. And I think an element of candor and self-reflection is needed to ensure that as we map out the years ahead, we take the necessary learnings forward with us. First, as I have said, we have rightly evolved into a services-led business. But with that change, we have failed to deliver the uplift in margin we should expect from services being a higher proportion of revenue. That must and will change. And in particular, we will be targeting margin expansion in our Garages business. Over the last few years, we have made a number of acquisitions. These acquisitions have given us additional scale and capability, but our integration has not been good enough, and we have not driven expected returns. There is more to do here, but I am clear that in the immediate term, any further acquisitions would be a distraction from the task in hand. Halfords is a diversified business with breadth and inherent complexity, but we've often found ourselves spread too thinly chasing too many priorities. That will change, with a simplification of action and a focus on the things that matter and the things that will drive value in our business. Halfords has an enviably rich and powerful data set, which we use effectively for CRM and segmentation, but we are yet to use this data for real-time decisioning, personalization or predictive analytics, and we need to develop our data platform further. Doing so effectively will increase customer lifetime value and drive profit growth. And I talked about the power of the Halfords Group, how the combination of our assets yields considerable benefit, but we have not sufficiently joined these assets from a customer point of view. The customer journey between our group assets is not smooth enough, and it is not evident enough to customers what exactly we offer. We need to better join our assets together and better promote what we offer. If we do this well, there is much to gain. And overall, I believe we need to drive better and more visible returns on the capital we deploy. This is very much front of mind and something we will ensure we get the required focus. So there are both lessons to be learned and challenges to meet, but fundamentally, we have a unique and fantastic business. And while I've been candid about where we need to improve, it's equally important to recognize the many strengths already in place. So hopefully, I've given a clear articulation of where I see our strengths and also some of the home truths that we need to face into. I've also covered some of the dynamics and trends of the markets we play in, but I now want to talk about where we believe we can take our business and the future ahead. When I decided to join Halfords, it was because I could see a business with deep foundations, a strong sense of purpose and a differentiated platform most companies would envy. Now having spent time across the organization, I'm even more convinced. The fundamentals are intact, the potential is significant and the challenges we face are executional, not structural. And it's not just me who believes this. Let's hear from 2 of our newest team members of our executive team. Jess Frame: I joined Halfords because I believe it has the potential to redefine the specialty Retail business model for the future. I've had the privilege of advising many retailers in the U.K. and Europe and all of them were navigating the shift online, fiercely competitive marketplaces, how to create value-add experiences in stores, how to make cross-channel convenience come to life and also how to personalize their proposition for customers. I fundamentally believe that the retailers who thrive over the next decade will be those who successfully fuse products and services to create solutions for customers. And what excites me about Halfords is that we have the required assets and capabilities to drive that new model now. We have the asset to create an ecosystem around customers for all of their car and bike needs. We have the skills and operating model to deliver services in retail and our mobile vans and garages network for more complex jobs. We've got the colleague expertise and culture to offer trusted, helpful in-person advice. We've got the supply chain that can support click and collect within an hour on many of our lines, and the relevance of our store estate is underpinned by the fact that over 80% of our online sales are picked up in store. And finally, our data gives us deep understanding of our customers, their vehicles and bikes, their service history and a predictive view on where they'll need us next. There is still so much more we can do with our data to unlock value for customers and realize that potential. So I'm energized by the significant opportunity I see in Halfords, and I'm looking forward to realizing many of those over the coming few years. Adam Pay: I joined Halfords because I believe in the power of its brand and its unrivaled scale and coverage in the U.K. Halfords really is unique. In fact, there's no one else in the U.K. that can offer customers the same level of convenience and expertise at such scale, all wrapped up in such a trusted brand across stores, garages and mobile. It's a fabulous combination. And what I'm doing now at Halfords feels really familiar. I've done this before, transforming the mycar offer in Australia, and I see so much of the same potential in Halfords, and I can really see where the opportunities lie. Fusion is really exciting. I'm keen to unlock its full potential by creating an exceptional customer experience and driving profitability. I also see huge opportunity by simplifying operations and creating a culture of operational excellence, which will, in turn, drive profit from improved utilization across the existing garage estate. And I'm absolutely clear that our colleagues are indeed our greatest asset. And with focus on developing their skills and expertise and retaining that talent, we can create fantastic career opportunities and really deliver exceptional customer service. I'm incredibly proud to be part of the Halfords team and excited for the future. Henry Birch: Brilliant. So that's Jess, our Retail Managing Director; and Adam, our Garages Managing Director. What I've seen since joining confirms that we don't need to reinvent Halfords though. We need to execute with focus. The opportunity isn't in radical change. It's in doing the important things consistently well and sequencing them properly. Our strategy ahead is simple, disciplined and built around 3 clear phases: optimize, evolve and scale. I'll go into the detail of these phases shortly, but at a summary level, optimize means maximizing what we already have and what we already do. It's about getting more value faster and more consistently from the assets already in place. This is the near-term value creation phase, and the work is already underway. The evolve phase means having a business that is future-proof, lean, effective and efficient. It means strengthening our foundations to deliver sustainable growth and continuing to invest in key areas such as technology, data and our physical estate. And then as our core strengthens and our foundations evolve, we can have the confidence to grow in scale, taking advantage of our operating leverage. And the nature of how we scale will vary across our business divisions, as I will discuss. These 3 phases are time bound with some overlap between them, as you can see on this slide. But the important thing to note is that our optimization is already underway and realizing short-term benefits, contributing to the strong H1 results we announced earlier this morning. And likewise, we see an opportunity for scaling and building real value within a relatively short time frame. So let's have a look at these phases in a bit more detail. The optimize phase is a crucial first step in our strategy designed to establish early momentum and unlock the latent value within our core business. We have 3 focus areas to optimize our Retail business, better category management, services expansion and e-commerce. Firstly, category management. We believe that improved category management has the potential to significantly drive our sales and margin. Candidly, it's not something we currently do well at Halfords. In summary terms, it means taking each major product category and applying a forensic lens to optimize our product assortment, our pricing and promotions to drive relevance for customers and unlock growth. It requires a very keen eye on customer and competitor dynamics and for us, building on our strong own-brand products to create even more differentiation that is unique to Halfords. It's worth mentioning here that we have an amazing track record in own-brand products that is sometimes overlooked or forgotten. In Cycling, we have developed Carrera, the leading mainstream Cycling brand in the U.K. by value and Apollo, the largest brand by volume. Improving our category management will take a little time as we cycle through our categories, but we have started over the last month with Cycling parts and accessories and a few selected areas of Motoring. We expect to start to see results from this initiative as soon as early FY '27, but we have confidence in the scale of impact we can create when we focus on the right need states for customers. Through work in our impulse category, we've already driven over 70% year-on-year growth through much stronger impulse and gifting lines. Our second opportunity is to improve and better promote our services proposition, which sits at the heart of what makes Halfords unique. For millions of customers, we are not just a retailer. We are a trusted expert that solves their problems in one visit. We're therefore, really focusing on optimizing our service offering across both Motoring and Cycling, ensuring we have the right offer, pricing and operating model in place. And we're driving awareness of the full breadth of our services to attract more customers, which you'll start to see in our marketing and media in the coming months. The opportunity is clear. Services are one of our most defensible advantages. They also offer higher-margin revenue and are less price sensitive. They cannot be replicated credibly by online pure players or mass or discount retailers, and they deepen our relationships with customers who increasingly value the convenience and reassurance we bring them. Thirdly, as I mentioned, digital already represents around 25% of our total Retail sales, and around 80% of those orders are collected in store. That shows the strength of our integrated model and the importance of our digital channel in generating customer footfall. But it also highlights a simple truth: with the scale of our online reach and the breadth of our retail and services proposition, we should be capturing more of that demand more consistently. In short, we have an opportunity to grow our online share. Having come from a pure-play online retailer, I know that applying the right focus and resources will yield results. And moving forward, I expect our digital sales growth to outstrip our core physical Retail sales growth. Progress here is about improving core website functionality and performance, and it's also about improving customer journeys and processes. Alongside this, we're sharpening our offer, expanding our online ranges, improving availability, tightening product descriptions and applying a more scientific approach to pricing and presentation. These are the basics of good digital retailing and with our scale, they will have a meaningful impact. If we turn now to our Garages division, there is much we can do to optimize our business over the short term. As I've already explained, Motoring Services is a large fragmented market and our biggest opportunity over the next few years. I'll start with the program you'll know most about, our Fusion rollout. By the end of this financial year, we will have more than 100 Fusion garages in operation, with up to another 50 or so to roll out in FY '27. We have a tried and tested formula that customers love and typically drives a doubling of profitability within 2 years. Over the last 5 years, we have materially changed the shape of our Garages business. Today, we have scale and effective national coverage, but we now need to drive operating standards and improve garage utilization rates to drive margin accretion and profitability. The same principles apply in our mobile van business and our Commercial Fleet Services. Fundamentally, this is about operational excellence and a ruthless focus on efficiency and process improvement. We have a range of activities underpinning this that are all in flight. We're implementing a zonal operating model, which allows us to redeploy labor to high-demand garages rather than recruit new technicians, effectively balancing supply and demand. As well as improving total utilization, we're now focused on ensuring we have the right skills mix in each site, with our master technicians focusing on the complex work, and service and diagnostic technicians picking up the rest. By getting the right people on the right job, we will deliver a better service and reduce the cost per job. We're also bringing in new equipment to reduce job times. For example, we're rolling out new equipment for wheel alignment, which halves the time taken to complete the work. These are just a few examples of the work already in train in our garage business that I'm confident will create a more profitable garage and mobile business and deliver an even better customer experience. I mentioned that the power in Halfords is the power of the group and the fact that our assets are stronger together than alone, and there is much we can do to optimize that group dynamic. Uniting the Group is the Halfords brand, trusted and well recognized. But for understandable reasons over the last few years, we have not sufficiently invested in our brand. That has meant that we've lost ground in terms of consideration and some of our performance marketing channels such as Google and PPC have lacked cut through. We've been running localized trials in certain geographic areas, and we have a high degree of confidence that an investment in advertising will strengthen the foundations of the Halfords brand and yield a rapid payback. This is not about a big bet marketing campaign. This is iterative, spending little, proving return and driving overall business performance. We'll measure our success and returns here in customer numbers and in our brand health metrics and transaction volumes. Halfords Motoring Club has been a standout achievement over the last few years. From a standing start, we've built a loyalty base of 6 million customers, with over 400,000 of those taking up a paid subscription in premium membership. They generate about GBP 20 million of annual recurring revenue for an MOT subscription, which also offers a host of other benefits while providing us with valuable vehicle data. Over the medium term, we have plans to transform club and make it the central destination for our customers to manage all their motoring and cycling needs. But in the short term, we'll continue to prioritize premium and ensure that our promotional mechanics are driving incremental margin through our standard membership. We'll measure success here in the numbers and contribution of premium membership. So there is a lot to get our teeth into in optimizing our business. What I've mentioned today are some of the key parts of our optimize phase, but it is not exhaustive, and there are other aspects of what we need to tackle. None of this, though, is revolutionary or rocket science, and that is good news. It's all clearly within our grasp, and we are on with it with clear plans and associated resources. But we also need to think about how we drive value over the medium and longer term, how we strengthen and evolve our business. Some of this will require investment, but we are very clear on 2 things. First, we need to earn the right to invest further. That means that we need to show progress in optimizing the business, and we need to show improved financial performance. And second, if we do invest, we have to show a very clear line between investment and returns. So there is a phasing here, optimize first and earn the right to invest and evolve. The evolve phase, though, is not just about investment. It's about self-help and business improvement. There are 2 clear areas or pillars that will help drive value. First is having a lean and effective business being fit for the future. Second is evolving our tech and data capability, and I'll take each of these in turn. As a business, we've managed our costs over the last few years, but there is an element of painting the Forth Road Bridge here. As soon as you finish running a cost program, you need to go again. And frankly, that should be part of any well-run business. But I believe there are bigger opportunities to structurally reduce our costs and realize ongoing annual savings as well as having a more effective business. Having driven a GBP 20 million annualized supply chain benefit in my previous business, I believe we have a compelling opportunity to improve our supply chain logistics, take out cost and improve productivity. We will need to work through cost and benefit details, but we believe there will be a clear business case and compelling returns here. And likewise, we see an opportunity to reengineer our back office, build better business intelligence and reduce costs by upgrading our enterprise resource planning, or ERP system. These programs of work once ground businesses to a halt in their scope and enormity, but this will likely be an upgrade, not a replacement, and we will take a phased and iterative approach rather than in one big bang. This will also be an important enabler of our future scale phase, which I'll come on and talk about in a minute. Finally, we believe that there is an opportunity to improve effectiveness and reduce cost by looking at our organizational structure and how we work with outsourcers. It's worth saying that in all of these areas, we are highly functional today, so there are choices that we can make. But to be crystal clear, we will only proceed with a clear and quantified line between spend and return. However, with a debt-free balance sheet, we should have the confidence to pursue projects with clear returns that give us an uplift in our long-term profitability. Technology and data have the potential to fuel significant growth in our business. In the medium term, there are tech projects that we have already clearly identified that will drive value. Amongst these, we plan to fully roll out Avayler, our proprietary garages management software, to all parts of our Garages business. This will further drive utilization, improve margins and provide a better customer experience. And in time, in Retail, we want to upgrade our current point-of-sale system, iServe, improving speed to serve and freeing up colleagues to spend more time helping and advising customers. I mentioned earlier as part of our home truth that we had not yet made full use of our data potential and that we had work to do. Today, we use data effectively to reward loyalty and drive CRM. And this activity drives both spend and customer engagement, but we have the potential to do much more with significant benefit by further developing our data platform. Through our evolve stage, we'll build the capability for real-time decisioning and much greater personalization. We see an opportunity for predictive analytics for customers and their cars, allowing us to anticipate issues before they arise, provide proactive maintenance and deliver a rapid, seamless service. This will differentiate our customer experience, drive sales and reduce our cost to serve. We will also improve how we use data to inform business reporting and decision-making, enabling faster evidence-based decisions across the business. In particular, we see the potential to improve marketing effectiveness, pricing and use of promo. We have a lot of data. 20 million customers engage with us every year. We have 12 million vehicle registration numbers with owner data. And in Halfords Motoring Club, we're building an even richer data set with marketing permissions. Utilizing that data for our own purposes and in partnership with others, such as through a retail media network or through introducing other services will be a key area of focus for us. The next 5 years will likely see the widespread adoption of AI in businesses, and those who have workable data are likely to be the ones who benefit the most. Whilst we don't have a crystal ball, we see AI as being much more of an opportunity than a threat. We see significant opportunity in automating processes, improving back-office efficiency and in improving insight, and we're on with it. We started at a small scale to experiment and change things using both internal and external resource. But this is test and learn rather than anything transformational at this point, but we are enthused and excited about the potential, and we'll continue to look at ways in which we can harness AI. But at the other end of the spectrum, we do not believe our business or the services we provide risk being made redundant or being disintermediated. Much of the physical work in a garage is difficult to automate and likewise, AI or automation would struggle with many of the services we perform in our retail stores. Indeed, it's not just our opinion, in October of this year, Microsoft published a list of the top 40 jobs likely to be replaced by AI and the top 40 with most resilience. These included tire and garage technicians. Our services and products are unlikely to be made redundant, but AI should help us be much more efficient and free up our colleagues to spend more time supporting customers and so generating revenue. The third and final phase of our strategy is about the scaling of the business. Clearly, we're trying to scale our business organically every day of the week. But our strong belief is that as we optimize and evolve and invest in our business, we'll be in a position to scale at much greater pace. From a Garages' perspective, this will mean opening more garages, but only once our estate is at optimum utilization. More garages can be achieved through organic openings, but more likely, we will scale through acquisition. The dynamics here play in our favor, and we expect there to continue to be a number of opportunities on the market that will allow us to scale rapidly. For Retail, scaling is likely to come via our digital channel, where we see significant opportunity to grow our existing business, but also expand our markets and range in a low-risk CapEx-light fashion. We also believe we can ultimately broaden our offer in partnership to become the digital go-to destination for all things, Motoring and Cycling, a digital one-stop shop, a single point where you can access products and services for all things, Motoring and Cycling, under one brand, one account with a singular website or access. Today, we offer products, and we offer servicing, maintenance, repair and MOTs. In partnership, we see the potential to offer breakdown, insurance, financing, parking and many other benefits. From a customer point of view, the hassle of car ownership is removed. You have one entity to deal with and one monthly or annual fee that covers all your motoring needs. This is not an unachievable pipe dream. We've built the core component parts and have a working model in our Halfords Motoring Club Premium tier. But there is much more we can do and need to do before we really push and scale this. But ultimately, we believe we are by far and away the best positioned company to achieve this, and we see real value and potential here. So I've outlined the 3 phases of execution that we will implement and what those will mean in practice, but I now wanted to hand over to Jo to talk about how we will measure success and the financial performance and returns we can expect and the disciplines we will look to adhere to. Jo Hartley: Thank you, Henry, and good morning, everyone. Last time we talked about strategy was at our CMD in April 2023. We shared in detail our future targets and the building blocks that would get us there. The reality since then is that while we've worked hard to deliver the cost savings and market share growth we targeted, we struggled to meaningfully grow profits against the challenging consumer and inflationary backdrop. Our markets have been slower to recover to pre-COVID levels than anticipated, and the GBP 90 million of cost savings delivered in the last 3 years to March '25 have not quite mitigated over GBP 98 million of cost inflation during the same period. We have, however, manage cash and working capital well and strengthened our balance sheet throughout this period. Notwithstanding the challenges of the last few years, I'm pleased to say I'm more optimistic about our future. While I'm not going to share a detailed forecast today, I will lay out how we will measure success, the trajectory we anticipate and how we will allocate capital and manage our balance sheet going forward. As we move through the next few years, we will consistently come back to the same measures to indicate progress. Financially, we expect to deliver like-for-like sales growth, with faster growth through our digital channels, operating margin expansion, underlying PBT progression and a return on capital that grows to exceed the cost of capital. Clearly, as we look forward, we cannot predict the external forces that may impact us, specifically, how consumer spending patterns may change, what successive governments and budgets may bring, or how geopolitics will evolve, and the impact this may have on our cost base. But we do know our business, the strength of our brand, the attractive markets we operate in and the unmatched scale we have through our unique combination of digital and physical assets. We have a hugely differentiated service-led customer proposition, delivered through 12,000 skilled colleagues and led by a new and experienced management team. We also know we're starting from a relatively low profit base and the opportunity from data and technology is significant. And importantly, we have a strong balance sheet and a cash-generative business which gives us not only resilience, but the ability to invest in projects that will drive growth in underlying profit and returns for shareholders. As such, we do believe that with discipline we can deliver against these measures sustainably and over time. That said, each phase of the plan will have slightly different dynamics. Throughout the plan, we anticipate CapEx to maintain and drive optimization improvements within our existing business, continuing at broadly similar levels to those seen historically, with investment between GBP 55 million and GBP 65 million per annum. In the evolve phase, we see opportunity to deliver returns from additional investments to drive efficiency and cost savings in our supply chain and in our central overhead, including through upgrading our ERP. In this phase, we will make incremental investment where we see attractive and incremental returns. And we won't move beyond the previously mentioned GBP 55 million to GBP 65 million per annum investment range until we earn the right to do so by showing good momentum in our underlying business. We'll come back to you with more detail on these programs and their costs and benefits once we're confident in the business case returns and ready to get started. Finally, and to be clear, only once our model is optimized and our investments are paying off, will we enter the scale phase, using our balance sheet to enable investment in acquisitions, expansion and further growth. We will operate with discipline throughout all phases of the plan, delivering progress on the KPIs I've described and always operating within our previously guided net debt-to-EBITDA range of 0 to 0.8x, excluding leases. One of our strengths today is undoubtedly our strong balance sheet. We have GBP 180 million debt facility committed to April '29, our balance sheet is currently in a net cash position of GBP 18.6 million as reported this morning. And our lease lengths and therefore, liabilities are low. Leverage, including lease debt is 1.3x. We, therefore, have resilience in uncertain times and the financial firepower to invest where there's opportunity to deliver compelling returns. As we have updated the strategy, we've revisited our capital allocation priorities, and there is very little change. Maintaining a strong balance sheet remains our core guardrail and #1 priority as we look forward. We will continue to operate such that leverage, excluding lease, that does not exceed 0.8x underlying EBITDA at any stage through the plan. Secondly, we continue to see opportunity to invest to maintain and grow our business, as Henry has described. The dividend becomes our third priority, now ahead of M&A. This switch reflects our focus on growing the core business and returning to shareholders through an intention that the dividend progresses as underlying profit progresses. As such, our dividend policy remains unchanged in that we will pay a dividend that's covered 1.5x to 2.5x by underlying profit after tax. M&A, therefore, becomes our fourth priority, most likely once we get to the scale phase of our plan. And thereafter, we would return surplus cash to shareholders. To conclude, the plan Henry has described is clear and compelling. There's a refreshed leadership team in place with clear priorities and a focus on execution and as a team, we're all excited about this next chapter. I believe the potential in this business is enormous, and there are clear opportunities to drive shareholder value in the years to come. We will report consistently on the measures I've laid out today in future announcements, and we'll lay out our quantified investment plans and anticipated returns when we've earned the right to move into the next phase. The results going forward should speak for themselves. I'll hand you back now to Henry. Henry Birch: Fantastic. Thank you, Jo. So what I hope I have shown is that we have a clear, achievable and compelling plan for Halfords over the next 5 years. It may not be as shiny or gimmicky as the Tesla Cybertruck or Robotaxi launch, but we're okay with that. We're not pulling rabbits out of hats here, and we do not need to. Success and growth will be achieved by a clear focus and execution of a plan. But it does ask the question, "Who is executing that plan, and why will things be different moving forward?" Well, I'm very excited to be working alongside a very talented team of people, some of whom are new to Halfords, and all of them bring relevant experience and a track record of success as well as genuine leadership and drive. Earlier this year, we hired Adam Pay as the Managing Director of our Garages business. Adam spent 10 years of his career at Kwik Fit and most recently was the Managing Director of mycar, Australia's largest garages business. Over the course of 10 years there, he transformed the business from loss-making to market leader. Adam brings energy, leadership and hands-on experience, and he's the only person I know who can change a fan belt and read a balance sheet and at the same time. Jess Frame joined us 4 months ago as Managing Director of our Retail business. Jess was previously the Managing Partner of BCG's London office, advising many of the U.K.'s largest retailers. And she's done stints at Tesco and as Chief Executive of a PE-backed veterinary business. Jess has landed with pace and drive and has high ambitions for our Retail business. And most recently, Sarah Haywood joined us as our Chief Information Officer. Sarah had previously been the global CIO for the Carlsberg Group and brings a wealth of experience. Sarah's leadership will be key in navigating a changing tech world and guiding us through change. Our 3 newest executives join an existing team with huge experience and capability alongside Jo, our CFO; Paul O'Hara, our Chief People Officer; Karen Bellairs, our Chief Customer Officer; and Chris McShane, our B2B and Avayler MD, all of whom make up our team. And with the exception of Karen, all are here today, and Jess and Adam will join our Q&A in a minute. And culturally and stylistically, we intend for things to be different. In addition to driving more of a performance culture, we're pushing a simplification of activity, focusing on the core levers that matter, that create customer benefit or drive performance. Halfords is a broad and complex business. But over the years, I think we've made it unnecessarily complicated and have added too many new initiatives and projects. These have stretched us, spread us too thinly and distracted us from the basics of the business. We're looking to bring simplicity, focus and clear prioritization to what we do. Part of that is governance and cadence. Part of it is having the right people and leadership, and it's about creating the right culture. The good news here is that we are pushing against an open door when it comes to our people and the change, agenda we want to implement. As Jo outlined, we also want to make sure that we are disciplined and rigorous in spending capital and driving returns, and if we're not getting the returns, to be transparent and explain why. I also want to shift our narrative from sharing plans that then struggle to materialize to reporting on what we have actually done and achieved and the associated financial outcome. So I wanted to draw matters to a conclusion and summarize some of the key points that you've heard today. I believe we have a unique and valuable business, capable of sustained top and bottom line growth. No one else has our asset base, and we are operating in markets that play to our strengths. Although there are explainable reasons, I recognize our more recent financial performance has been underwhelming compared to our potential. I also recognize that the Halfords machine is not yet humming. We have a fantastic group of assets, but both in isolation and as a combination, they are some way away from their potential. But we do not need a strategic pivot. We need delivery of the basics. There is nothing broken, but we need to apply focus, simplicity and disciplined operational execution. In the short term, this focus will deliver progression in our profit performance across all our divisions. As we drive improved performance, we earn the right to further invest and evolve our business, building additional foundations for growth. We see a significant opportunity to better utilize the data at our disposal and harness technology. And as we optimize and evolve, we will significantly increase our ability to scale. It is a phased approach, but one that delivers returns along the way and will drive value. We're purposely not giving detailed forecast today, but we will consistently track and report on key performance indicators that will measure our progress. But we are clear. Our first job is to build confidence in our investor base that we can consistently deliver results and drive required returns on capital. We have clear plans to do this. We have a great senior team, and we have over 12,000 colleagues who are committed and passionate about the business. I'm excited for what together we can achieve. So that concludes today's presentation. And I'd like to invite Jo, Adam and Jess to join us for Q&A. And I think in terms of asking questions, if you can identify who you are and what organization you're from. Henry Birch: Kate? Kate Calvert: I'm Kate Calvert from Investec. Three questions from me. On the fiscal estate, does Halfords have too many retail stores? And what is the ideal sort of number of Autocentres over the longer term? In terms of my second question, I know you're not giving your forecast, but could you talk a little bit about the margin recovery opportunity? You did talk about expansion of margins within Autocentres, but you didn't mention Retail. So is the sort of 7% historic Autocentres profit margin that's being talked about, is that still valid? And what are your thoughts on Retail? And I think my third question is, when I go into a retail store in 3 to 5 years' time, how different is it going to look versus today? What sort of new product categories might there be or service proposition? Henry Birch: Okay. Brilliant. So just the one question, Kate. Kate Calvert: Yes. Henry Birch: Brilliant. Okay. So we -- if I tackle the first bit around size of estate and then maybe get some commentary from Adam and Jess on that, too. Jo, you talked to the margin point on -- I can't read that. The margin point... Jo Hartley: Margin recovery. Henry Birch: Margin recovery. And then what was the last bit? Jo Hartley: Retail store, how will they look. Henry Birch: What they will look? I'll let Jess take that. So I think, look, in terms of the Retail estate, important thing to note today is that they are all profitable and they're all on short leases. And broadly, we're comfortable with that. I think moving forward, there may be some change to that, but nothing radical. And I think on the Garages estate, post-acquisition, we've done a little bit of trimming in terms of ensuring that we've got the right garages in the right local markets. But again, we don't see significant change there. In any given year, there may be a few closures and a few openings. Indeed, we opened a new store this year in Reading. But fundamentally, those won't change significantly. I think over the longer term, and I think we've made kind of mention of like 800 garages. My view actually is that there shouldn't necessarily be an upper limit because actually, the Garages market is typically very local. So actually, one of the attractive things about Garages is that, frankly, we can continue to scale up and up and up, but it does require opening more units, whereas clearly, with digital retail, you don't need to do that. But yes, broadly speaking, I don't think there'll be a significant change. Jo, do you want to do the margin point and then maybe Adam and Jess can talk about... Jo Hartley: Yes, absolutely. So in terms of the margin opportunity in Autocentres, I think the numbers we previously had out there were 5% to 6%, Kate. And I think we do continue to believe that's an achievable target for our Autocentre business. The opportunity lies in driving utilization and reducing effectively the cost to serve as well as adding more high-margin add-on services, particularly within our tire business. And we've had a very successful first half of the year in terms of increasing income per tire and growing our wheel balance and alignment services using some of the equipment that Henry described earlier. So I do believe we can get to those targets in time. Adam, I don't know if you've got anything to add on that. Adam Pay: No. Spot on, Jo. I think they're realistic numbers. I think the work that we're doing to simplify processes, improve equipment, speed things up in Garages will help us get there in the short to medium term. Jo Hartley: Do you want to take Retail? Henry Birch: Jess, do you want to tackle the Retail bit? Jess Frame: I think your question on have we got too many shops is sort of the same in terms of what you're going to see. So just sort of reinforce Henry's point. So Halfords has had real discipline over the size of its estate over the last few years. So we've actually exited 100 shops since 2018. So what you see today is a tight footprint, which, as Henry said, positively contributes across the estate. And as Henry mentioned in his presentation, our network, our footprint is what gives us this convenience offer and the route of the omnichannel proposition. We must remember that Halfords, as we move more and more into services, our stores don't play a traditional role as they do for many retailers. This is where our service events are taking place in the car parc essentially. So it's a really important role. It's a huge part of the omnichannel proposition. And at the same time, there are clearly opportunities to drive sales densities out of our stores. So it's not necessarily about fewer, but it's certainly about making that space work much harder. In terms of how different we look today, I don't want to presuppose the answer of sort of 4 months in. I can say that my current point of view is that format innovation is not going to be where we see a lot of value in the short to medium term. There's a huge amount we can do. You alluded to it, Kate, with our categories driving more sales densities, really focusing our core range to create space for newness and innovation and frankly more reasons for customers to come and shop with us. I won't predict ahead what those categ going to look like. We will absolutely stay core to the motoring and cycling needs that we surround our customer with, but there is plenty of opportunity that we see to do that. Jonathan Pritchard: Jonathan Pritchard at Peel Hunt. You said the brand is extremely well known, recognition of the brand is high. What are the bits that people don't get? What don't they associate Halfords with that they should? And how are you going to change that? And then, just as it's a one rule, but I'll add another one, just a one word answer. A cycle membership club, feasible in the short term or more medium or long term? Henry Birch: Yes. So I think -- on the brand and what people don't necessarily get, I think there are 2 things. One, I think, our Garages offering, I'm not sure everyone fully understands that. And then I think the other piece is the services element, the convenience of actually going to a retail store and being able to have a wiper blade fitted or get advice or do more of this kind of do-it-for-me. So we talked about broadly our kind of DIY customers who I think are fully knowledgeable about what Halfords offers, but I think they can also go to a Halfords and kind of serve themselves. The do-it-for-me customers, I think, just don't understand the full range of our proposition, either in terms of into Garages or the fact that actually they can bring any motoring or cycling problem to us, and we will fix it. So I think it's those kind of core things. Cycling Club, I would say, is not a priority for us right now. And I think kind of going back to -- it would be very easy for me to say, yes, a great idea. We're trying to drive this prioritization and simplification of focus. So it is not a high priority right now. Ben, sorry, did you... Benedict Anthony John Hunt: Just a couple of questions. Firstly, just on the emphasis on online seems to be coming more through Retail. How does that sort of square with the whole sort of cross-selling more into the Garages? And are there any margin implications? And I guess you've answered Kate's question on the size of the Retail, but any sort of thoughts how you're going to sort of square that? Secondly, just on Motoring Club, it seems to have accelerated really strongly. What's been necessarily driving that? Has that actually been incremental customers who are new to Halfords who are coming in or -- anything really you can add to that? And I guess the third question is on the evolve side. It looks like there's sort of quite a lot of work to be done in the supply chain and how you are going to maintain your CapEx and the guide rails. It feels like there's quite a lot to spend there. But really, any thoughts there would be great. Jo Hartley: So would you mind repeating the first question? Henry Birch: Sorry, Ben. Benedict Anthony John Hunt: First question is just on, there seems to be an emphasis on online within the Retail and how that squares with the need to cross-sell services into Garages? Henry Birch: Yes. So look, I think overall, we have a -- we've got one website, which our customers go to, whether they want to buy a roof box or screen wash or put their car in for an MOT. So there is a big focus for us in terms of making sure that those kind of digital customer journeys are improved. So when we talk about digital, it's both the kind of experience, which hits all part of our business. For Retail, we then have kind of e-commerce where we're selling those products. For Garages, people will find and pay for services, but they will also then book to have that service in a garage. So for Garages, it tends to be more about the journey to the physical unit, whereas in e-commerce, people can buy from us without actually setting foot in one of our physical outlets. But absolutely, digital is important for Garages as well, but there is that distinction in terms of products and services. The Halfords Motoring Club, we haven't done anything particularly to drive that. It is something that we do push in our stores and in our garages. So I think it's just a reflection of successful execution of that. But yes, it is growing. And yes, it is important for us. And the... Jo Hartley: The third question was on the CapEx, to evolve the supply chain. The CapEx guidance that I gave of GBP 55 million to GBP 65 million is really the CapEx that we need to maintain and optimize our core business. What we said was we would only move beyond that GBP 55 million to GBP 65 million investment envelope once we've earned the right to do so by showing momentum in our underlying business. And then we would come back with the investment opportunities and clear line of sight to the returns that they would generate. So I think we would expect to invest beyond that to optimize the supply chain, but only when there's clear line of sight to returns, and whether that's a CapEx or OpEx investment, remains to be seen. Henry Birch: Manjari. Manjari Dhar: It's Manjari Dhar, RBC. I just had 2 sort of broader ones and maybe one quick one. Just on the sort of garage optimization work, I was just wondering how much of that is -- needs to be done on sort of the existing Halfords garages, and how much is it needs to be done on the garages you've acquired over the last few years? Just trying to get a sense of sort of where that integration stands now. And then secondly, I think you mentioned it very briefly about in the sort of evolve stage about retail media and other opportunities. I was just wondering if you could give some more color on what that could look like, what that means for the proposition? And then just finally, Jo, I think in the prerecorded presentation, you gave the H1 FX hedge rates. I just wonder if you could give some -- give the H2 rates as well. Henry Birch: Okay. Adam, do you want to talk to the -- in terms of where we need the optimization, is it existing Halfords or acquisition areas? I mean the answer is both, but you'll give more color. Adam Pay: It is both, and there are a lot more together than they were previously now. So we're not talking about them internally any differently. The opportunity to work through improving processes, providing equipment, providing tooling and training that we need to smooth through at the front end is exactly the same, whether it's a Halfords, also center or one of the acquisitions. It's working really well for us now. And I think the fact that we've got so much unity across those brands now is really helping. Henry Birch: And I think it's worth noting that National was predominantly a tire brand. One of the things that we've done is moved more service maintenance repair into that, which has driven higher-margin revenue. So that's been a kind of clear and obvious thing to do. On the retail media network, we do actually have a -- we do actually use retail media today, but it is predominantly with existing suppliers. So if you think on the kind of battery side, we work with Yuasa, you'll find online and with our customers, we are promoting Yuasa and various other existing suppliers. There is an opportunity to go beyond our supplier base. So I'm kind of making it up, but a Nissan or a Toyota, if they want to access 20 million U.K. customers, car buying U.K. customers, then obviously, Halfords would be a kind of important partner. We don't currently do that at the moment. So I think there is a much bigger opportunity. We do make money today from a kind of limited, what you call, a retail media network, but there is a potential above that. Is there anything, Jess, sorry, that you want to talk about? Jess Frame: No, no. Obviously, I think the third party in offsite is actually really exciting and much bigger, but that won't be until sort of medium, longer term. Jo Hartley: Your last question on FX, Manjari. So yes, in half 1 this year, we saw a hedge rate in cost of goods sold coming through at $1.28 versus $1.24 in the prior year, which was obviously helpful and supportive of our margin progression during the first half. In the second half of the year, we expect broadly similar. It all depends on the stock turn really that comes through. We bought all of our currency requirements for the purchases we'll make in FY '26 at around $1.29, and we bought about 60% of what we need for our purchases next year at about $1.32. So we should continue to expect to see a bit of a tailwind from FX as we look forward. Henry Birch: Russell. Russell Pointon: Russell Pointon from Edison. Two questions. Going back to your criticisms at the start, Henry. First one was on the category management. You said you haven't done a good job of that. How quickly will you actually get through reviewing all the categories? Will it be done pretty quickly over 12 months? And the second one was, you also criticized the lack of synergies between the businesses, so do you need to incentivize staff in a slightly different way to push that through? Henry Birch: Yes. I wouldn't necessarily classify them as criticisms, more maybe observations. But maybe if Jess can talk to category management and the speed there. I think on the synergy point, we do -- I mean, Fusion, actually, our garage model, is a really good example of actually how assets work within Halfords, in Garages, in Retail, in as much as the model is driving Retail customers into our Garages. So we are doing that to good effect. I think my point is there is more that we can do. I'm not sure it's necessarily about incentives, but that is one way that we could do it. I think it's more around actually removing any kind of points of friction and making sure that our colleagues kind of understand how we drive value in the business. So I think it's more about operational management and communication. Jess, do you want to talk to the category management? Jess Frame: Yes, sure. Very happy to. I mean the short version is this will be pulsing. It will go through waves through all of the categories. This is an 18- to 24-month job. This is a massive, massive rebuild of all those ranges, starting with what does the customer need, how do we provide that. And within that, undoubtedly, there'll be a real opportunity for own-brand development. So Halfords has got incredible heritage in own brand, which is both higher quality and much, much better margin. So when we think about category management, it's not just a quick range review that really, really is challenging, bottom up, all of those ranges. So we're very excited. We've already started the first 2, but this is real sort of heavy lifting that will go on over the next 2 years essentially. Carl Smith: Carl Smith from Zeus. Two questions, please. First is on Fusion town. So previously, earlier this year, you talked about sort of doubling of profitability at the sites you invested in. Now you're sort of over halfway through your 150. Are those return rates sort of still applying now that you're getting a bit further along? And sort of expanding on that, do you think you'll go beyond 150 sites in the into the evolve phase even if the return rates become a bit lower for the incremental ones beyond 150? And then the next question is about the Motoring Club. How do you sort of intend to get more people on to premium? Is it more incentives? Is it more marketing or lower pricing? Or what's going to get more people to shift to premium? Henry Birch: So on the return rates for Fusion, the short answer is no, we haven't seen any deterioration. And clearly, we've kind of gone back and checked that prior to coming out today. So no, we're in good shape there. In terms of whether we can go beyond the 150, I mean, Adam is maybe best placed to talk to that. But I think there is then the question of what do we do beyond? We've got 600-odd garages. But Adam, do you see an opportunity for Fusion be extended or kind of Fusion light or... Adam Pay: Well, it's interesting. I mean if I think about the reason -- part of the reason that I joined the Halfords Group was the Fusion concept. I was really excited by that, and I continue to be excited. The fact that we can largely double profit in 2 years is absolutely fabulous. I mean we're going to have 100 by the end of this year, somewhere near, another 50. It'll get us to the 150. I think for me, the customer experience and the colleague experience is something that really stands out. So I think the broader question is not Fusion past 150; it's kind of what elements can we take forward into the rest of the estate moving forward. And I think there's some real benefits and some great learnings. So yes, it's very positive. Henry Birch: And on Halfords Motoring Club, look, I think we -- to my mind, we've made a brilliant start. And you may query me saying start when we've already got 6 million customers. But I think there is a piece of work that we need to do in terms of saying actually how do we drive premium more, what are the mechanics to drive membership, to drive value from that. So I think this is a kind of ongoing project that we are going to kind of drill down into, but it is an absolutely brilliant kind of asset and base to start from. Benedict Anthony John Hunt: So just one more question. First was club and less on strategy. But I'm wondering if we could just dwell a little bit on the [ sick job being ] tires. You mentioned that you think you can reenergize that. What's been going on there? And where do you see that turning around? Henry Birch: So look, I think, without question, tires, over the last couple of years, have been struggling in the U.K. in terms of growth. I think we've seen some improvement in that. I think as a company and talking to investors, I want to kind of change the narrative from talking about the tire market to talking about our performance because I fundamentally think that actually even in a static or declining market, we've got the potential to take share. And I think actually some of the stuff that we're doing, and I'm going to ask Adam to talk about, wheel balancing and alignment and actually how you can sell a tire and make money not just on the tire, but the services around it and the margin that, that drives is something which actually we're starting to do, to kind of good effect. So I think my kind of headline is I don't want to be talking about the kind of tire market endlessly. I want to talk about our overall Garages performance and within that, that actually we're running a kind of healthy and growing tire business. It may not be immediately, but we're getting there. Adam, do you want to talk about your specialist subject maybe? Adam Pay: Yes, I'll come dip off to one side and fit a fan belt in a second, too. Yes. I mean the opportunity for tires that I've seen since I've landed is significant for Halfords. The market has been tricky. There's no doubt about that. I don't want to go into all of the technical detail that sits behind that. But we are only 9% of that market, and it's a very, very attractive segment. And there's a lot that we can do internally to smooth the path for tires. So there's work underway around training for our colleagues. That's technical and soft skills. There's also different ranges being put into Garages right now. We've got different equipment that speeds up that process. So I think over the next short to medium term, we're going to start to see an uplift in our tire performance despite whether the market is in decline or in growth, I think we can certainly take market share and grow. Mark Photiades: It's Mark Photiades from Canaccord. Just on Cycling, you talked about pushing into premium and parts and accessories. Could you maybe just give us a sense of what those 2 categories represent in terms of the GBP 1 billion market? And the group has moved into that area before, particularly premium. It didn't necessarily go to plan. I just wonder what gives you confidence that you can make inroads this time around? Henry Birch: Jo, do you want to talk to that? Jo Hartley: Yes, I'll talk to that, and Jess may have some points to add on it. But if we sort of start at your last point, we were in premium cycling several years ago, and we owned -- we sort of had -- we came out of specific premium cycling shops actually some time ago. Our move back into premium cycling is not, to be clear, opening a load of premium cycling shops that are separate from our own Halfords business today. What we have seen though over the last 6 months is really good growth in those premium price bikes, in e-bikes and also in those slightly higher price point bikes. And it's really noticeable that Tredz, our performance Cycling business, which to be clear, just has 3 shops and a big online business, had the strongest growth in the group in the first half of the year with double-digit like-for-like sales growth. So that market is definitely coming back, and it's really where enthusiasts want to play -- are playing. We've got quite a lot of innovation that's been happening in that space, and I'll let Jess talk a little bit more about that in a second. But we're confident that there's a good growth opportunity for us there as we look forward. Jess Frame: Yes. Just to build on what Jo said, I think it's really important that there's nuance in terms of what is premium cycling and what is not. And the reality is there's an entire spectrum where we see a lot more people trading up than we used to do. And so actually, with our Tredz business and Halfords' core, it's a really, really exciting opportunity for us to actually serve across the set of need states. And we've identified some areas that aren't currently served across those 2 areas. There's some really interesting white space opportunity. And back to the point on own brands, we've developed and have just started to launch now. You'll see them drop into shops over the next 3, 4 months, a really, really impressive range of more premium e-bikes that we're very, very proud of, that we've developed with integrated technology and so forth, which again, so that sort of Halfords' product capability and own brand actually allows us to take features that are typically premium-only and bring that more into the mass market and make it more accessible for customers. So I think we have a really exciting role to play on that one. Henry Birch: I think we're nearly -- Rupert, you had a question? We're nearly up on time. Unknown Analyst: I was just going to ask a question on Cycling, too. Henry Birch: Okay. Unknown Analyst: And you've largely covered it. Sorry. The 9% like-for-likes, I just wonder whether that was aided by price promotion? In a challenged consumer environment, that feels like a good number. And a bit of color on what was behind it, please? Henry Birch: I mean Jess can talk to it in a bit more detail. We didn't do anything massively promotionally. I think you'll remember, earlier in the summer, we had warm weather that came in the kind of spring, which I think probably helped some of that performance, maybe pulled forward some of the Cycling sales from later in the year. But no, there wasn't anything we did promotionally. Jess Frame: We did outperform the market quite significantly, but that wasn't through Tredz, and essentially, we've got a great range. Tredz is the #2 online player in premium cycling, right? So across that when the market wants to buy, Halfords is the place to come. Jo Hartley: And particularly strong in Kids and Electric in the first half of the year from a Cycling perspective. Kate Calvert: All right. First and last. I was just going to come back on the garage utilization. What are the sort of main levers short term to improve utilization? Is it all about systems and processes? Or is there a skill issue and equipment issue in some of these centers? Adam Pay: No. It's a really good question. So the processes are the underlying piece. But what you've got then is making sure that we've got the right headcount and skills mix, to your point, in each and every one of our garages that meets the market needs and gives us the opportunity to grow. There's also an opportunity for us to really accelerate our apprentice programs to get more colleagues into Garages and make sure that we've got more people on the ground in the right place at the right time, but also protecting the future health of the workforce for us, too. Henry Birch: Brilliant. Thank you very much, everyone, for attending today. Thank you for those joining online. This concludes our presentation. Thank you.
Operator: Good morning, ladies and gentlemen, and thank you for waiting. At this time, we would like to welcome everyone to Banco Macro's Third Quarter 2025 Earnings Conference Call. We would like to inform you that the third Q '25 press release is available to download at the Investor Relations website of Banco Macro, www.macro.com.ar/relaciones-inversores. [Operator Instructions] It is now my pleasure to introduce our speakers. Joining us from Argentina are Mr. Jorge Scarinci, Chief Financial Officer; and Mr. Nicolas Torres, IR. Now I will turn the conference over to Mr. Nicolas Torres. You may begin your conference, sir. Nicolas Torres: Thank you. Good morning, and welcome to Banco Macro's Third Quarter 2025 Conference Call. Any comments we may make today may include forward-looking statements, which are subject to various conditions, and these are outlined in our 20-F, which was filed to the SEC, and it's available at our website. Third quarter 2025 press release was distributed last Wednesday, and it's available at our website. All figures are in Argentine pesos and have been restated in terms of the measuring unit current at the end of the reporting period. As of 2020, the bank began reporting results applying hyperinflation accounting in accordance with IFRS IAS 29 as established by the Central Bank. For ease of comparison, figures of previous quarters have been restated applying IAS 29 to reflect the accumulated effect of the inflation adjustment for each period through September 30, 2025. I will now briefly comment on the bank's third quarter 2025 financial results. In the third quarter of 2025, Banco Macro's net income totaled ARS 33.1 billion loss, which was ARS 191.5 billion lower than the previous quarter. This result was mainly due to higher loan loss provisions, higher administrative expenses, lower income from government and private securities and lower net fee income that were partially offset by higher other operating income and a lower loss related to the net monetary position. Total comprehensive income for the quarter totaled ARS 28.4 billion loss. And in the first 9 months of 2025 Banco Macro's net income totaled ARS 176.7 billion, 35% below than the same period of last year. When total comprehension income totaled ARS 186.9 billion in the same period. As of the third quarter of 2025, the accumulated annualized ROE and ROA were 4.5% and 1.5%, respectively. Net operating income before general and administrative and personnel expenses was ARS 779.6 billion in the third quarter of 2025, 23% of ARS 233.7 billion lower compared to the second quarter of 2025 due to lower income from government securities. On a yearly basis, net operating income before general and administrative and personnel expenses decreased 29% or ARS 312.9 billion. Provision for loan losses totaled ARS 156.8 billion, 45% or ARS 49.4 billion higher than the second quarter of 2025. On a yearly basis, provision for loan losses increased 424% or ARS 128.4 billion. In the quarter, net interest income totaled ARS 686.2 billion, 7% or ARS 52.2 billion lower than in the second quarter of 2025 and 8% or ARS 63.6 billion lower year-on-year. This result was due to a ARS 113.9 billion increase in interest expense, while interest income increased ARS 61.6 billion. In the third quarter of 2025, interest income totaled ARS 1.32 trillion, 5% or ARS 61.6 billion higher in the second quarter of 2025 and 7% or ARS 84.7 billion higher than in the third quarter of 2024. Income from interest on loans and other financing totaled ARS 930.3 billion, 18% or ARS 139.7 billion higher compared with the previous quarter, mainly due to an 11% increase in the average volume of private sector loans and by a 111 basis point increase in the average lending rate. On a yearly basis, income from interest on loans increased 74% or ARS 396.2 billion. In the third quarter of 2025, interest on loans represented 77% of total interest income. In the third quarter of 2025, income from government and private securities decreased 24% or ARS 85.4 billion quarter-on-quarter mainly due to inflation adjusted bonds and decreased 52% or ARS 292.8 billion compared with the same period last year. This result is explained 97% by income from government and private securities at amortized cost, and the remaining 3% is explained by income from government securities valued at fair value through other comprehensI've income. In the third quarter of 2025, income from repos totaled ARS 6.3 billion, 493% or ARS 5.3 billion higher than the previous quarter and 74% or ARS 18.1 billion lower than a year ago. It is worth noting that as July 22, 2024, the Central Bank decided to terminate repos and replace them with LEFI's, which were issued by the treasury, which then were eventually terminated on July 10, 2025. In the third quarter of 2025, FX income was ARS 13.8 billion loss, ARS 37.5 billion lower than the second quarter of 2025, mainly due to the loss from foreign currency exchange, given the bank's short dollar position. It should be noted that the bank posted a ARS 23.2 billion gain related to investment in derivative financing instruments, which is basically the long futures position that the bank has. Therefore, when considering income from foreign currency exchange plus income from investment in derivative financing instruments, the bank posted a ARS 9.4 billion gain. On a yearly basis, FX income decreased 164% of ARS 35.2 billion. And in the quarter, the Argentine peso depreciated 14.4% against the U.S. dollar after the Central Bank of Argentina replaced the 1% crawling peg, allowing the Argentine peso to float [indiscernible]. In the third quarter of 2025, interest expense totaled ARS 528.4 billion, increasing 27% or ARS 113.9 billion compared to the previous quarter and increased 39% or ARS 148.4 billion compared to the third quarter of 2024. Within interest expenses, interest on deposits represented 94% of the bank's total interest expense, increasing 24% or ARS 96.6 billion quarter-on-quarter due to a 248 basis points increase in the average rate paid on deposits, while the average volume of private sector deposits increased 10%. On a yearly basis, interest on deposits increased 36% or ARS 131.3 billion. In the third quarter of 2025, the bank's net interest margin, including FX, was 18.7%, lower than the 23.5% posted in the second quarter of 2025 and the 31.5% posted in the third quarter of 2024. In the third quarter of 2025, Banco Macro's net fee income totaled ARS 177.3 billion, 7% or ARS 13.9 billion lower than the second quarter of 2025. In the quarter, credit card fees stand out with a 22% or ARS 14.2 billion decrease, followed by credit-related fees, which decreased 27% of ARS 3.1 billion, and were partially offset by a 7% or ARS 1.8 billion increase in corporate services fees. On a yearly basis, net fee income increased 14% or ARS 22.1 billion. In the third quarter of 2025, net income from financial assets and liabilities fair value to profit or loss totaled ARS 19.5 billion gain, decreasing 84% or ARS 101 billion compared to the second quarter of 2025. This result is mainly due to lower income from government securities. On a yearly basis, net income from financial assets and liabilities at fair value to profit or loss decreased 86% or ARS 117 billion. In the quarter, other operating income totaled ARS 69 billion, 42% or ARS 20.5 billion higher than the second quarter of 2025 due to higher credit and debit card income, ARS 14.7 billion. And on a yearly basis, other operating income increased 16% or ARS 9.7 billion. In the third quarter of 2025, Banco Macro's administrative expenses plus employee benefits totaled ARS 331.5 billion, 12% or ARS 35.1 billion higher than the previous quarter due to a 20% increase in employee benefits, while administrative expenses decreased 3%. On a yearly basis, administrative expenses plus employee benefits decreased ARS 431 million. In the third quarter of 2025, employee benefits increased 20% or ARS 38.7 billion, mainly due to a 139% or ARS 23.6 billion increase in compensation and bonuses as the bank builds up provisions for early retirement plans and severance payments. On a yearly basis, employee benefits increased 8% or ARS 16.9 billion. In the third quarter of 2025, the accumulated efficiency ratio reached 39.1%, deteriorating from the 35.9% posted in the second quarter of 2025 and from the 25.5% posted a year ago. In the third quarter of 2025, expenses, which includes employee benefits, general and administrative expenses, depreciation and impairment assets increased 10%, while income, basically net interest income, net fee income, differences in quoted prices of gold and foreign currency plus other operating income, plus net income from financial assets at fair value through profit or loss decreased 19% compared to the second quarter of 2025. In the third quarter of 2025, the result from the net monetary position totaled at ARS 203.1 billion loss, 6% or ARS 13 billion lower than the loss posted in the second quarter of 2025 and 46% or ARS 171 billion lower than the loss posted 1 year ago. Lower inflation was observed during the quarter, basically 4 basis points below the second quarter '25. Inflation reached 5.97% in the third quarter of 2025 versus 6.01% in the second quarter of 2025. In the third quarter of 2025, given Macro's net income, no income tax charge was recorded. Further information is provided in Note 21 of our financial statements. In terms of loan growth, the bank's total financial reached ARS 10.1 trillion, increasing 3% or ARS 332.4 billion quarter-on-quarter and increasing 69% of ARS 4.1 trillion year-on-year. In the third quarter of 2025, private sector loans increased 3% or ARS 278.2 billion, and on a yearly basis, private sector loans increased 67% of ARS 3.94 trillion. Within commercial loans, documents and others stand out with a 4% or ARS 60.4 billion and a 27% or ARS 453.9 billion, respectively. Meanwhile, overdrafts decreased 21% or ARS 364.9 billion. Within consumer lending, almost all product lines increased during the third quarter of 2025, except for credit card loans, which decreased 1% or ARS 21.3 billion. Personal loans, mortgage loans and pledged loans stand out with an 8% or ARS 156.8 billion, 12% or ARS 92.8 billion, 6% or ARS 13.1 billion increase, respectively. In the third quarter of 2025, peso financing decreased 2% or ARS 192.1 billion, while U.S. dollar financing increased 10% or $170 million. It is important to mention that Banco Macro's market share over private sector loans as of September 2025 reached 9%. On the funding side, total deposits increased 5% or ARS 556.4 billion quarter-on-quarter, totaling ARS 11.8 trillion and increase 11% of ARS 1.2 trillion year-on-year. Private sector deposits increased 6% or ARS 604.9 billion quarter-on-quarter, while public sector deposits decreased 5% or ARS 49.6 billion quarter-on-quarter. The increase in private sector deposits was led by demand deposits, which increased 10% or ARS 475.2 billion, while time deposits increased 4% or ARS 202.2 billion quarter-on-quarter. Peso deposits decreased 1% or ARS 48 billion, while U.S. dollar deposits increased 3% or $95 million. As of September 2025, Banco Macro's transactional accounts represented approximately 49% of total deposits. Banco Macro's market share over private deposits as of September 2025 totaled 7.4%. In terms of asset quality, Banco Macro's nonperforming total finance ratio reached 30.2%. The coverage ratio, measured as total allowances under expected credit losses over nonperforming loans under Central Bank rules reached 120.87%. Consumer portfolio nonperforming loans deteriorated 149 basis points, up to 4.3% from 2.81% in the previous quarter while commercial portfolio nonperforming loans deteriorated 33 basis points in the third quarter of 2025, up to 0.85% from 0.52% in the previous quarter. In terms of capitalization, Banco Macro accounted an excess capital of ARS 3.3 trillion, which represented a capital adequacy ratio of 29.9% and a Tier 1 ratio of 29.2%. The bank's aim is to make the best use of this excess capital. The bank's liquidity remained more than appropriate. Liquid assets to total deposit ratio reached 67%. Overall, we have accounted for another positive quarter. We continue showing a solid financial position. We keep a well-optimized deposit base. Asset quality remain under control and closely monitor, and we keep on working to improve more our efficiency standards. At this time, we would like to take the questions you may have. Operator: [Operator Instructions] Our first question comes from Carlos Gomez-Lopez with HSBC. Carlos Gomez-Lopez: I guess 2 questions. The first one is one has a sense that your result is worse than you had anticipated. You did not, I think, expect to have a loss. Was there anything special that we could point to? Or let's say, did you take the opportunity to take any charges to expenses that we haven't discussed? Could you identify anything which was special that perhaps was not forecast a little bit before? And second, what do you expect for next year in terms of loan growth and achievable returns, understanding that there's a lot of uncertainty? Jorge Francisco Scarinci: Thanks for your questions. In relation to your first question well, I think that is quite clear on the press release that there was a combination of different factors, and some of them were a bit more or deeper than what we expected at the beginning. First, in terms of the delinquency rate, we were expecting not such that amount of provisions that finally we have to post. That's a consequence, as you also saw in the other banks that also released results on the past week, that was a kind of an increase or almost peak in terms of NPLs. That is one of the reasons for that. Second reason, there were some additional expenses that we also accounted in the quarter that were not expected before. So -- and also the compression on the margins due to the big increase of roller coaster interest rate behavior during the third quarter. And also, I would say that last but not least, is the performance on the bond prices and the impact on the bond portfolio performance. So that is in relation to your first question. According to your second question in terms of forecast for next year, we are forecasting loans to grow 35% in real terms. Deposits to grow in the area of 25% in real terms, and we continue to expect ROE for 2026 to be in the low tens. Carlos Gomez-Lopez: And could you give some more detail about your extra expenses? Is that related to adjustment to the footprint or any consultant or any system that you have purchased? Anything we could know more about expenses and whether they're recurring or nonrecurring? Jorge Francisco Scarinci: No. Basically, Carlos, those that we posted there that are related to the early retirement plans that were not expected to happen and they finally happened. So that we're described on the press release, basically. Operator: Next question from Ernesto Gabilondo with Bank of America. Ernesto María Gabilondo Márquez: My first question will be on asset quality. So I just want to double check when do you expect the peak on NPLs? And if you can provide us a potential range? And where do you see the peak in cost of risk? And how should we think it for next year? My second question is a follow-up on your ROE. As you said, you're expecting low teens in 2026. But how should we think about the ROE for 2025? And then my last question is on your capital ratio and potential M&A opportunities. You continue to have an important excess in capital. You already have passed the midterm election. So when do you expect to start to have M&A activity? Do you think is something that could come next year? Any color on that will be very helpful. Jorge Francisco Scarinci: On your first question in terms of asset quality, we believe that the peak on NPLs should happen or should happen between October and November. And that is what we are seeing in terms of the delinquency ratio, also in terms of cost of risk. We posted at 6.5% in the third quarter. We expect this number to be maintained approx in the fourth quarter, and we are forecasting to be more close to 5% in 2026. So again, the peak should be between the third and the fourth quarter in terms of delinquency. In terms of ROE for 2025, we continue to maintain the 8% area for 2025 in terms of ROE. On your question about capital ratio, I mean, it is true that we continue to have this high level of capitalization of excess capital. Of course, we are honored and trying to find out if there is an opportunity to make the use of this excess capital in terms of M&A. Of course, you know that any player trying to leave the game is pretty sure that it's going to knock our door. And of course, we are going to analyze the target of the assets. And if it is good, we are going to go for it. If not, we are going to wait for another one. So that's the idea going forward. So we expect to have some news about that in the next maybe 12 to 18 months, basically, but it's not only depending on us. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: I have a question on growth, right, because probably this is the first option in terms of capital allocation, given the wide base of capital. Could you elaborate a bit on where will you focus this growth if you're going to give priority to corporates? Or do you think maybe it is time to gain share, be more aggressive on the consumer side? Just if you could maybe expand this guidance that you provided for 2026 by segment. I think that would be great. And then, Jorge, I think we spoke very recently, we had an event where we participated. I think we discussed sustainable ROE. Just wanted to check if maybe 2026 is part of this transition for, let's say, 15% to 20% of levels of sustainable ROE. Jorge Francisco Scarinci: In terms of the first question about loan growth going forward, I mean, we expect to grow across the board, both commercial and consumer. And the consequence of this is because there is a very low penetration in the Argentine banking sector. It is below 10% of loan to GDP. We're expecting, according to the consensus of the economies, a real GDP growth of around 3% in 2026 with inflation also estimated by the consensus of economies in the area of 20%. So we expect demand to come from both companies and also consumers. So the idea is to grow. If you want to put in that kind of percentages of our loan book, as of today, we are approx 65% consumer, 35% commercial. That could be at the end of 2026, maybe 60-40, but there's not going to be a big change in our loan book composition because we're expecting loan demand to come from every sector in Argentina. In terms of ROE going forward, second question, yes, 2026 is going to continue to be another transition year towards the area of 20% ROE that we are supposed to be delivering 2027 onwards. Brian Flores: No. Super clear. Jorge, maybe just if I can, a quick follow-up on these questions on capital allocation. Would you consider the current stock levels as attractive in terms to continue the buyback activity you showed during the third quarter? Jorge Francisco Scarinci: Well, Brian, that is something that the Board might consider. For the moment, the program that was said it is not more going on basically because of the price that's skyrocketed since then. And as a consequence of the election in the -- of the midterm election that happened here in Argentina, and of course, the mood that turned into positive for Argentina. So for another buyback program, we have to -- I mean the Board has to consider many issues going forward. For the moment, it's not going to be in place anymore. Operator: Our next question comes from Pedro Leduc with Itaú BBA. Pedro Leduc: Two, please. First, on NIMs. Now of course, this quarter, we had this very adverse environment for funding costs and liquidity reserves, et cetera. But we also saw a lot of repricing in local portfolios. So now that funding is normalized, can we expect, for example, 4Q NIMs to be back to, let's say, at least 2Q levels? And if we look at on an aggregate basis, 2026, there's a lot of moving pieces for NIMs in 2025 as well, so this is harder. But on an aggregate basis, should we see NII grow above this 35% real loan book growth in your view and if you can go over the driving forces there. And then last, that's just a follow-up on NPLs. Of course, it's been a trend there. Yours took a little bit longer, and it seems like you're more comfortable in seeing the peak already in 4Q. Some players might be seeing slipping over to 1Q, 2Q. So if you can share with us what you have done there to control this and maybe be out of the peak also already in the fourth quarter in terms of NPLs. Jorge Francisco Scarinci: In relation to the question about NIMs, yes. Basically, what happened with the cost of funding and also other interest rates that were ups and downs in the third quarter. We saw similar to other banks in this third quarter, our NIMs being affected. We posted at 18.7% NIM compared to the 23.5% that we posted in the second quarter. So yes, we hope and we believe that the NIM for the fourth quarter is going to be more similar than the one that we posted in the second quarter. Going forward, we expect in 2026 NIMs to be in the area of 20%, so should be slightly below the average that we are having up to now, that is 21.6% for the first 9 months of 2025. And we believe that the net interest income should be growing slightly above the 35% that we are going to grow in terms of real loan growth that I commented before. In terms of the NPLs, as I mentioned, yes, we could see some of more peak on the fourth Q, and that is going to bring additional provisioning for the moment. We expect these levels to be similar than the one that we posted in the third quarter. Going forward, as I mentioned, the cost of risk should be more in the area of 5% in 2026. And basically, we should be -- or sorry, we have been taking measures since the last part of the first quarter, beginning of the second quarter of 2025, where we became more restrictive in terms of the credit lines on -- basically on consumers. But basically, as we saw, the main consequence of the deterioration of the delinquency rate across the board in the Argentine banking sector was basically the increase in the real interest rates that we saw in the second and third quarter. So now that we are seeing real interest rate more slightly positive. And going forward, we believe that this trend will be maintained. We think that the behavior of the portfolio is going to become a bit more normal. But of course, you have to take into consideration that we grew our loan book 69% in real terms. As of the third quarter of '25, we expect to grow another 35% in real terms in 2026. So we maybe we should accustom to see the past due loans ratio in other levels, I would say, between 2%, 2.5% or maybe more than that compared to the ratio that we were accustomed to see in the Argentine banks when banks didn't grow their loan book as happened in the last maybe 3, 4 years. So now we have to move and to have to see these ratios more in the area of mid-2s with the level of real growth in loans that we are forecasting going forward. Operator: Our next question comes from Tito Labarta with Goldman Sachs. Daer Labarta: I guess a couple of follow-ups. Jorge, are you able to quantify how much additional expenses were related to those early retirement plans you mentioned, just to think about how much of that should go away in 4Q? And then second question, I guess, on the market-related income, which you mentioned was negatively impacted by the bonds and the government losses on the government bond. Do you expect that to sort of reverse in 4Q as things kind of normalize just to get a sense of the magnitude that can maybe improve in 4Q as well? Jorge Francisco Scarinci: In terms of the expenses that we commented there are the ARS 23.5 million that we posted in the expenses line that we explained in the press release, approximately 18.5% were maybe nonrecurrent in the third quarter. Honestly, it's a bit early to say what we are going to do in the fourth quarter but might happen that some of these could appear here. But again, it's a bit early to comment on that on the fourth quarter. In terms of second question, yes, the bond portfolio taking into consideration that approximately, we have 23% to 25% of our bond portfolio tied to market prices or market-related. So going forward, we expect this to reverse in at least for the moment, in the fourth quarter, we are going to have much better performance in the bond portfolio compared to the one that we had in the third quarter where we saw prices going down a lot. Daer Labarta: Okay. No, that's very clear, Jorge. Just could there be additional expenses related to the early retirement plans? Or is that it from last quarter? Jorge Francisco Scarinci: Could be. But again, honestly, it's a bit early to comment on that, but could be. Operator: Next question from Pedro Offenhenden with Latin Securities. Pedro Offenhenden: I wanted to ask what factors could catalyst for the deposit growth on 2026? And how are you seeing liquidity conditions after the elections? Jorge Francisco Scarinci: We're expecting real interest rates to be positive in 2026, similar levels as the one that we are seeing right now. That's why we are forecasting our deposit growth to be in the area of 25% in real terms. This is in relative terms, lower than the rate that we're expecting for loans. But in the case of we did additional funding here, of course, we have a bond portfolio where we can take liquidity. We can issue domestic corporate bonds or bonds on the foreign market. So this is not going to be a problem for the liquidity for Banco Macro. In addition to that, when you look at the liquidity ratios as of today, we have an extremely good liquidity ratios in both dollars and pesos. So going forward, we expect to maintain this performance. Operator: Next question from Alonso Aramburú with BTG. Alonso Aramburú: Just wanted to follow up a little bit on asset quality. You mentioned that NPLs should peak October, November. Maybe you can comment on what you're seeing in new vintages. You saw some deterioration in commercial, some a little bit more in consumer. So what are you seeing lately that gives you this confidence that the peak is now? And when you talk about margins, maybe a little bit longer term, you mentioned 20% ROE 2027 onwards, what sort of margins, what sort of NIMs do you see then, right? You mentioned 20% next year? Is that in the mid-teens? I mean, where do you see them? Jorge Francisco Scarinci: Yes, in terms of NPLs, what we are seeing in our vintages is that there is a stop in the deterioration trend, and we're seeing some stability, and we expect this to become better or improve in the next month or so. So that's why we are expecting to see this kind of a peak maybe early in the fourth quarter. Honestly, at the end of the fourth quarter, we really, for the moment, don't know which is the level of provision that we are going to post. That's why we are supposing that should be in the area of the one that we posted in the third quarter. But we are positive on the trend on the vintages in the next couple of months, and this is going to help, and that's why we commented that the peak should be between October, November. In terms of NIMs going forward, for sure, little by little, we are going to see a decline in the NIMs. Honestly, for 2027 should be in the area of mid-teens. And of course, 2028 onwards, we should be approaching to the low 10s. That is maybe the movie that we are seeing going forward for the Argentine banking sector, and we expect the volume growth to outpace the decline in margins. Operator: Next question from Nicolas Riva with Bank of America. Nicolas Riva: Jorge, I have a question regarding next year, the maturity of your 2026 bond, the $400 million. I understand it counts very little for capital treatment, I think, only 20% maybe. But I wanted to ask if the plan -- given that it's a large size in dollars, $400 million, if the plan would be to replace those dollars and probably do like a senior bond issuance of a similar size? Or what would be the plan regarding those $400 million? Jorge Francisco Scarinci: Yes, this bond is maturing at the end of November 2026. So we still have almost 12 months to figure out what to do. Honestly, we have many options on the table. We understand that markets are pretty positive on Argentina. We have to figure out our plan for future growth in U.S. dollar loans. And depending on all those -- on these assumptions and what happened in by mid-2026, we are going to make a decision whether to cancel it, to roll it to maybe issue another senior bond instead of subordinated. So again, many options on the table. Still, we do not have decided what to do. Operator: Our next question comes from Brian Flores with Citi. Brian Flores: Thank you very much for the opportunity to make a quick follow-up. Jorge, was just running here some back of the envelope math on your comments on ROE. I just wanted to check if what I am seeing here makes sense. You mentioned the 8% level of ROE -- real ROE for 2025 is achievable, right? You're not changing the guidance. But just looking at the run rate, it seems like the fourth quarter would need to be higher than the complete run rate of the first 9 months of the year. So I just wanted to check if, I don't know, there is something one-off that could really help results or if just it's a big spike in volume. Just wanted to understand if this is making sense or I'm missing something here in terms of what could really help the fourth quarter results to achieve the mentioned guidance? Jorge Francisco Scarinci: Well, first of all, the forecast is area 8%. Second, if you assume that we are going to post in the fourth quarter results similar than the one that we posted in the second quarter, we are going to be very close to the 8%. So for the moment, we are maintaining that. We expect, again, recovery in the bond portfolio, increasing in loan volumes and improvement on the NIMs. So these are the main reasons why we're expecting a much better fourth quarter. So we should be very close to the 8%. So that's the idea why we are maintaining the forecast for 2025 ROE. Operator: Our next question comes from [ George Birch Renardson with Oda ]. What is the average age of your workforce? Jorge Francisco Scarinci: Honestly, I have to check that. It's not an easy question. I have to check the data from Human Resources, the first time I received this question. But let me check it. And if you don't mind, I can get back to George later, please. Operator: Great. Next question from Marcos Serú with Allaria. What caused the ARS 28 billion loss on foreign exchange? Jorge Francisco Scarinci: I mean the ARS 28 billion loss in the -- when you look at the complete income on FX, it is -- we got a positive result of almost ARS 9.5 billion. This is a result on a combination of that we -- of the bank was sold in spot FX and the increase in the FX impacted on a loss in that position. However, also the bank was long in futures, and that resulted in a positive result because also futures increased in the third quarter. So the net-net was a positive income of ARS 9.5 billion in the quarter. Operator: There are no more further questions at this time. This concludes the question-and-answer session. I will now turn over to Mr. Nicolas Torres for final considerations. Nicolas Torres: Thank you all for your interest in Banco Macro. We appreciate your time and look forward to speaking with you again. Have a good day. Operator: This concludes today's presentation. You may disconnect, and have a nice day.
With markets near record highs and shifting consumer trends, here's where investors are finding new opportunities in 2026. 00:00:00 – Intro 00:00:26 – Market Outlook: Rogers' Take on the Latest Action 00:01:30 – Bitcoin Selloff & What It Signals 00:02:46 – Why Markets Stay Near All-Time Highs 00:03:59 – What's Happening in Capital Raising 00:05:23 – Private Equity vs.
It's a less than merry start to December on Wall Street, with all red and no green.
'The Big Money Show' weighs in on President Trump revealing that he knows who his pick for the Federal Reserve chair is and the anticipated rate decision. #trump #fedchair #federalreserve #interestrates #inflation #costofliving #useconomy #foxbusiness #thebigmoneyshow
American consumers are projected to spend $14.2 billion for Cyber Monday. That's up 6.3% from 2024 and follows record levels of eCommerce shopping on Black Friday, Reuters reported Monday (Dec. 1), citing Adobe Analytics data.
In the S&P 500, Nvidia is far from being the leading stock for 2025. In fact, there are about 95 companies that are outperforming it this year.