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Ruth: Please stand by. Morning. My name is Ruth, and I will be your conference operator today. At this time, I would like to welcome everyone to the Biogen Fourth Quarter and Full Year 2025 Earnings Call and Business Update. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please limit yourself to one question to allow other participants time for questions. If you require any further follow-up, you may press star 1 again to rejoin the queue. Today's conference is being recorded. Thank you. I would now like to turn the conference over to Mr. Tim Power, Head of Investor Relations. Mr. Power, you may begin your conference. Tim Power: Thanks, Ruth, and good morning, everyone. Welcome to Biogen's Fourth Quarter and Full Year 2025 Earnings Call. During this call, we will make forward-looking statements which involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Provide a comprehensive list of risk factors in our SEC filings, which I encourage you to review. Our earnings release and other documents related to our results as well as reconciliations between GAAP and non-GAAP results discussed in this call can be found in the Investors section of biogen.com. We've also posted the slides to our website that we'll be using during the call. On today's call, I'm joined by our President and Chief Executive Officer, Christopher Viehbacher, Dr. Priya Singhal, Head of Development, and Robin Kramer, our Chief Financial Officer. We'll make some opening comments, and then we'll move to the Q&A session. And to allow us to get through as many questions as possible, kindly ask that you limit yourself to just one. And I'll now hand the call over to Christopher Viehbacher. Christopher Viehbacher: Thank you, Tim. Good morning, everybody, and welcome to Biogen's fourth quarter earnings. We finished the year strongly with a very good fourth quarter, and I think finished the year in a very satisfactory manner. We finished slightly above the upper end of our guidance. And I think as we look at the business here, we've principally focused on our growth products, and they generated $3.3 billion in fiscal 2025. That's up 19%. Now you notice we actually include VUMERITY now in our growth products. Tended to just look at MS as one group. But, when you look at the oral segment, VUMERITY is about the only branded medicine left in that. And we have found that actually with intelligent investments, we've been able to grow that brand very nicely. So we're including that in our growth products going forward. When you look at just the products we've launched since 2023, the four, Lekembi, Skyclaris, Xerxuve, and Calcadi, they are now generating over a billion dollars in revenue. And they have also grown very strongly. And in the MS business, actually, still generated $3 billion. So from a commercial performance point of view, I think Biogen is functioning and firing on all cylinders, and doing very well. I think the big story of 2025 is really the advance we've made in our pipeline. You know, Priya will show a chart later on our pipeline, and that chart has really expanded over the course of the year. In this year, we expect to see a number of key readouts that can be iClick, and I'll come back to that. That's under review in The US, Japan, and China, and US as you know, we got a priority review and have a PDUFA date of May 24. Lidofilumab, which is an important new medicine in lupus, has been granted FDA breakthrough designation for the cutaneous form of lupus. And, you know, we are actually starting to expand our early stage pipeline. We put a BTK degrader into the clinic early this year. I'd also point out the acquisition of Alcion Therapeutics, which will really, I think, improve the experience of patients who get injections. You know, I think SPINRAZA, in the eyes of many physicians I talk to has a high efficacy, but at some point patients do consider that the intrathecal is a problem. And this is an opportunity to replace the intrathecal with a much more convenient delivery mechanism. We also have been in business development. And in the fourth quarter, we had new collaboration with Vanqua and Dara Therapeutics. Go to the next slide. So Leukembi is still the market leader, and can to be the market leader with about over 60% of the anti-amyloid therapy market share. I would remind everybody that we tend to wanna look at new Rxs. As a measure of a launch. And this is one of those areas where that might not be the most appropriate thing to look at because the competitor product really is only in therapeutic use for a limited period of time. And only the can be actually has a maintenance indication. So I think in this case, actually, looking at total prescriptions is the most appropriate way, and that's where Lucanbi clearly continues to be the market leader. Now this year, we're gonna see the, hopefully, the approval of the iClick. We've had the iClick approved, for maintenance last year. Along with getting the maintenance indication. That's already important. We're seeing a lot of patients come to the end of the plaque removal phase. And the persistency data suggests that we have about a 70% persistency. So that's people who are continuing on with therapy even after the plaque removal position. The iClick was introduced in October, Now that's a Part D reimbursement, and we won't have that reimbursed fully until 01/01/1927. However, patients who want that are able to request formulary exemptions. And from what we've heard, that virtually everybody who has been asking for that seems to be getting that. We don't have obviously very clear data on that. Now the game changer could be really the iClick for induction. One of the competitive aspects of dananemab is that it has once monthly infusions where we have once every two week infusions. Once you move to a subcutaneous injection, now we're not talking about infusions at all anymore. And, you know, we're hearing certainly stories that, people want to travel and people don't necessarily are aren't always able to long drive long distances to infusion centers. So we think that the iClick could actually, act create a whole new opportunity and certainly reduce the burden for neurologists. Remember, there are about 500,000 new patients diagnosed every year with Alzheimer's, and only really 13,000, neurologists. So to the extent that we can make this care path more convenient for both the physician and the patient, We hope that that can increase the throughput. We're already seeing with the, increased use of blood-based diagnostics that those patients who have their diagnosis validated and who are actually eligible for therapy has actually increased from about 50% to 70%. So, you know, all of these things, I think, are moving in the right direction. Remind everybody that the, you know, the market has more than doubled, anti-amyloid therapy. And I think we're seeing a growing we're see we're certainly hearing a number of stories from the from the physicians that they're actually seeing benefit in patients. The CDR Sum of Boxes is really only used in clinical trials. And not in actual practice. And so let's say, I think, this all augurs well for continued growth in this business. And perhaps going into next year, we might even see an acceleration of that growth. Go to the next slide. So here's where, you know, what we've been trying to do really is build a bridge to growth. And really the growth we see in three different ways. The first is, you know, obviously to grow those, new medicines that we have. And you see them on the chart, that's the today. And, you know, when you actually look at this chart, with the exception of VUMERITY, all of these were not only first in class but also first ever treatments for diseases. So that's meant that we actually are going in with breakthrough medicines, but we also have to create those markets. AKINBI, we've talked about. SPINRAZA, we've been able to launch the high dose in Japan. Early signs from the Japanese market are that we're actually going ahead of expectations on adoption. And actually seeing some, switchbacks. You know, we look forward to seeing more data it comes along. Europe will be next up. And, of course, we have PDUFA date in April for high dose in The US. Xerxuve is really been a surprise to all of us. Again, we more than doubled sales in 2025. This is really I think, also, opening opening people's understanding to the real burden of postpartum depression. And we're seeing a number of prominent people, like Jennifer Lawrence, and we were just featured in surgery way was just featured in People Magazine. And this is not only leading to some commercial success, but I think really changing the perception of postpartum depression. This is still highly undiagnosed, approximately half a million mothers every year suffer from this, and only about 80,000 are diagnosed. And still fewer obviously treated on zirzube. There's a real opportunity to both grow this market, but I think also really make a real difference in postpartum depression. Skyclaris continues to grow. We saw approval in Brazil, this past year, and we're looking for launching that this year. We're now into launching this product pretty much everywhere around the world except in Asia, of course, where this disease doesn't really exist for genetic reasons. You know, we often are running ahead on the numbers that patients versus sales because we're providing the product through early access programs and then negotiating as we go along. So I think we'll continue to see, steady progress. You know, like SPINRAZA, these are medicines that tend to have a bit of a lumpy sales trajectory. Personally, I like to look at rolling four quarters of these. We're in the low volume, high value, products. If you take SPINRAZA, there are some countries who only ship once or twice to in the year. So, the timing of shipments is, can actual trends if you're just looking at a single quarter. But then, you know, now that we've got those growing and I just told you about how strong those products have been, we've got a whole next layer, next wave of potential growth with ladafilimab, the SLE data coming, hopefully, by the end of the year, velzartamab, will show data in AMR potentially next year. Zorvenirsen, our partner Stoke has indicated that they might be able to be, having a data readout in '27 as well. Dipirolizumab, we already have one positive phase three, and we're executing on a second phase three. Salineersen had, extremely interesting results, after phase two. We were administering the drug in children who had already had gene therapy, for example, in infancy. But at age four or five were still not able to sit or stand. And, you know, we saw some examples of that. Obviously, all of this has to be confirmed in a phase three study, which we have ongoing. And then the can be preclinical is also potentially a real game changer. You know? We all have to remember that this disease is really a silent disease for many, many years before people ever get symptoms. And throughout that period of time, people are losing neurons. And so it would seem to make sense that, treating patients earlier and being able to preserve a maximum number of neurons should have a benefit. And that's really what this clinical trial is designed to show is going into early stage patients, can we see that we can either prevent potentially ever getting symptoms or at least deferring the disease into much later into the future. That's a huge undertaking. We began recruiting for that study in 2020. It's been fully recruited, and we would expect see results in 2028. So you can see that this is gonna be a very rigorous study. It'll be a landmark study. The be not only important from a commercial point of view, but this is really groundbreaking science and will inform the entire neurology community. So And then, of course, we still are investing in earlier stage. We have a potential readouts for some high risk, high reward, projects like the LARC two and in, in Parkinson's. We have a new modality, which could be extremely interesting, which is the anti tau ASO that will also read out of phase two this year. And we're really focusing on on our research portfolio. I talked about some of the collaborations we've been doing. We've got the the DTK. We've got an a rack four for lupus going into the that went into the clinic. And we're looking to add more early stage BD deals, but I think we've also got a few more INDs that could come into the clinic over the eighteen months. So next slide, please. So what are we focusing on really in 2026? Obviously, you know, we have an important date with the LAKEMBY approval for the subcutaneous AI initiation coming up on May 24, and we'll, obviously hope to see that, get approved. We also have the, hopefully, the approval of the high dose regimen for SPINRAZA in The US that has a PDUFA date in April. We've got the two phase three studies in lislelizumab in and I wanna congratulate Priya because, there are about 55 other clinical trials ongoing in lupus, and Priya and her team were actually able to accelerate. Originally, this was not gonna read out until 2027. So for me, I always from a commercial point of view, I like to see accelerated development because it augurs well for for later stage commercial potential. And finally, you know, we're advancing that high risk high reward pre POC pipeline I would say today, we feel pretty good about where our late stage pipeline is, but we do need build up our earlier stage pipeline. And that's gonna lead to full year guidance on a non GAAP diluted EPS basis of about $15.25 to $16.25. So I think with that, I'm gonna be turning that over to Priya. Priya Singhal: Thank you, Chris. I'm really encouraged by the progress that we've made to rebuild and transform our development pipeline. As you can see from this slide, most of these late stage, high scientific conviction opportunities are new. Having been added in just the last twelve months. And as we announced last quarter, we have accelerated TOPAZ-two our second SLE study for litifolumab, which is now expected to read out by the end of this year. What you can also appreciate from this slide is that 2026 is an important year that begins a multiyear registrational data flow for over the next several years. And in just the next eighteen months, we could see data from nitifilumab for both SLE and CLE, and data from talsadimab in AMR. All of these being registrational readouts. Importantly, as you have seen, we recently announced securing priority review for the Chembi iClick initiation and received breakthrough therapy designation for litifolumab in CLE. It is very encouraging to see that these programs are also being recognized externally as potentially impactful. We also continue to demonstrate and emphasize scientific leadership. We recently presented new data across some of our key franchises at medical congresses including meetings hosted by the American Society of Nephrology, and the American Epilepsy Society. In December, we also presented at CTAD where we highlighted the importance of continued utilization of lukembi in a maintenance setting. And just this week, we published Pivotal Devote SPINRAZA high dose data in Nature Medicine. All of this put together reinforces our belief that our pipeline will continue to play a critical role in delivering the new Biogen. Turning now to our full development pipeline. Which we believe we have transformed into a more balanced portfolio across the risk reward spectrum. This is the result of a very deliberate process that we have carried out over the last few years to discontinue lower value projects and bring in new potentially higher value assets. Today, our late stage registration pipeline consists of high scientific conviction programs with significant commercial potential. This is different than the Biogen approach in the past. It is also balanced alongside our early stage pre POC pipeline with the high risk, high reward assets where we continue to follow the science to determine next steps. We remain focused on broadening our early stage pipeline from both internal research assets and potentially business development opportunities. Today, we continue to make progress by adding Big one forty five our BTK degrader into the clinic, having recently initiated a phase one study in normal healthy volunteers. And we continue to look to potentially add more INDs into our pipeline over the next several years and months. Turning to the future. And looking forward to the next eighteen months, I'm really encouraged by the number of expected data readouts and key milestones. And I would now like to highlight some of these. Starting with SMA, we now have SPINRAZA high dose approval in Europe and Japan, while we await a regulatory decision in April in The US. With salinersen, which we believe could transform the standard of care in SMA, we expect to present exciting follow-up phase one b data at the Muscular Dystrophy Association meeting next month. With ladifilumab and billing on our v breakthrough designation for CLE, we are now planning and preparing to share new data from the phase two portion of the phase two, three seamless amethyst CLE trial at a medical meeting hopefully, in the first half of this year. Excitingly for the Kembi, with priority review, we now expect to have an FDA for iClick initiation in May. Importantly, we also have regulatory filings underway both in Japan and China. We believe iClick is a differentiated important opportunity that could provide additional optionality for patients as this important market continues to grow. We also expect to have data from our pre POC pipeline for 122 in Parkinson's disease, and BIB eighty in early Alzheimer's disease sometime around mid year. These datasets will guide us in determining the further development for these assets. Most importantly, for 2026, we are looking forward to the ladufilumab phase three data in SLE. Expect expected at the end of this year. And we continue to be encouraged by the opportunity in CLE. Where we expect to see data around midyear next year And in a similar time frame, we'll start to see data reading out for fezartumab in AMR. In conclusion, I hope you can appreciate the increased momentum of our pipeline over the next eighteen months. And we believe this will drive our goal of delivering the new Biogen. I would now like to hand the call over to Robin for an update on our financial performance. Robin Kramer: I'd like to provide some key highlights about our strong fourth quarter and full year financial results. Unless otherwise noted, the comparisons I make during my remarks are versus 2024 and refer to non-GAAP unless otherwise stated. Starting with earnings, Our fourth quarter and full year 2025 non-GAAP EPS came in above our expectation. Fourth quarter non-GAAP diluted EPS was $1.99. Full year non-GAAP diluted EPS was $15.28. As expected, our Q4 2025 GAAP and non-GAAP results reflected $222 million of IPR and D charges. For our fourth quarter business development transactions including the license agreements with WANCA Bio, Dara Therapeutics and the acquisition of Alcion Therapeutics. This had a $1.26 impact on EPS. I'd like to point out that our GAAP operating income was impacted by approximately $180 million of one-time charges that occurred in the quarter relating to litigation and other matters. We achieved strong revenue performance for the year, Our growth products performed well. Generating over $800 million in Q4 2025 and $3.3 billion for the full year 2025. Up 69%, respectively, versus 2024. In addition, we continue to see resilient performance from our U.S. MS business. Total revenue for the full year 2025 was $9.9 billion up 2% versus 2024. Our strong commercial execution, combined with disciplined expense management, enabled robust cash flow generation. As a result, we delivered $2.1 billion in free cash flow for the year, exiting the year with $4.2 billion in cash and marketable securities. This further strengthened our balance sheet and provides us with flexibility as we continue to invest for growth. I'll now cover our Q4 revenue performance. In Q4, revenue from our growth products exceeded revenue from our MS business excluding VUMERITY, which we include in our growth products. Akembi continued to see steady sequential demand growth globally, with fourth quarter end market sales booked by Eisai of approximately $134 million up 1054% versus Q3 2025 and Q4 2024, respectively. But can be delivered steady sequential and year over year growth in The U.S. And internationally. Skyclaris saw sequential global patient demand growth with Q4 global revenue of $133 million representing 30% growth year over year. In The US, Q4 revenue was $89 million. This represents sequential growth of $14 million which benefited from approximately $9 million of favorable inventory dynamics. We expect this inventory build will be drawn down in Q1 2026. Outside The U.S, fourth quarter revenue of $44 million was impacted by approximately $12 million in net pricing adjustments. Looking forward, we are optimistic about the future growth as we bring on new markets. Global SPINRAZA revenue in the fourth quarter was $356 million. In The U.S, we were pleased to see SPINRAZA growth year over year. Where fourth quarter revenue was $169 million. Outside The U.S, fourth quarter revenue of $188 million was impacted by the timing of shipments. Overall, SPINRAZA continued to demonstrate resilience in a competitive market with full year revenue down 2% year over year. VUMERITY fourth quarter revenue was $181 million driven by steady year over year demand growth boosted by improved affordability in The US, with the IRA Part D redesign. Q4 U.S. Revenue was negatively impacted by timing of shipments associated with the favorable inventory build we discussed on our Q3 earnings call. For the full year, VUMERITY generated $747 million representing 19% year over year growth. And we are pleased to see strong performance from ZERZUVE and CALSADI, driven primarily by increased demand. For our remaining MS products, global TESARBRI revenue in the fourth quarter was $398 million demonstrating continued resilience. In The U.S, we generated $244 million of revenue. Ex U.S. Revenue was $153 million where the impact of biosimilar competition for the IV formulation in The EU was partially offset by continued demand growth for our subcutaneous formulation. TECFIDERA saw the expected acceleration of generic erosion in The EU, which we expect to continue in 2026. Revenue from our anti CD20 therapeutic programs was $521 million in Q4 2025. Up 12% year over year. This increase was driven largely by royalties from Ocrevus, which benefited from the subcutaneous launch. Now a few comments on the rest of the 6% Q4 2025 versus Q4 2024 and ten percent for the full year 'twenty five versus the full year '24, primarily driven by continued cost reduction measures realized in connection with our portfolio prioritization initiatives and our Fit for Growth program, offset in part by our investment in our Phase III clinical programs including selzartamab and litafilimab, which was funded in part by an R and D funding arrangement. 1% for Q4 and full year 2025 versus 2024. Driven primarily by planned prelaunch activity supporting lupus and nephrology and direct to consumer advertising for the Lekambi and VUMERITY. As I discussed earlier, our GAAP and non-GAAP results include a $1.26 impact from our Q4 business development transaction. Our GAAP and non-GAAP tax rates in the quarter benefited from the release of reserves upon the expiry of a statute of limitation. We are pleased with the quarter and our full year 2025 results. This strong commercial execution, coupled with disciplined financial management, drove continued robust cash flow performance for both Q4 and full year 2025 with free cash flow of $2.1 billion for the full year 2025. And turning to the balance sheet, as a result, we have further strengthened our financial position and closed the year with $4.2 billion in cash and marketable securities, and $2 billion of net debt. Financial strength provides us with flexibility to support strategic investments as we look to drive meaningful innovation for patients and long term value for our shareholders. Looking ahead, we believe the transformation activities we have taken so far have established a strong foundation to deliver on the vision of the new Biogen. A crucial element of realizing this vision is our commitment to strategically invest in prelaunch activities to support our lupus and nephrology portfolio. We are focused on ensuring that we are well positioned for the portfolio of the future while continuing to maintain our focus on financial discipline. With our first Phase III data expected at the end of this year for liticilimab and SLE, and next year for falzartamab and AMR, we are making critical investments now to position ourselves to launch these products successfully. And at the same time, we are expecting to keep our core OpEx in 2026 roughly consistent with 2025. Now turning to our outlook for 2026. We expect full year non-GAAP diluted EPS to be between $15.25 and $16.25 reflecting growth versus our full year 2025 results. Total revenue is expected to decline by a mid single digit percentage for 2026 compared to 2025. Competitive pressures in MS are partially offset by increased revenue from our growth products. We expect our full year revenue for our MS product excluding VUMERITY, to decline by a mid teen percentage versus 2025. We expect our full year contract manufacturing revenue to be roughly $300 million in each half of 2026. Moving to the P and L. We expect gross margin to be roughly consistent with 2025, And building on my comments regarding consistent OpEx for the year, we expect Q1 expense to be roughly 10% higher than Q1 of last year due to phasing us spend in 2026. Be sure to review this slide and our press release for other important guidance assumptions. Now I'll pass the call back to Tim for Q and A. Tim Power: Thanks, Robin. Let's go to our first question, please. Ruth: Thank you. If you're dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. Again, that is star 1 to ask a question. Your first question comes from the line of Alex Hammond with Wolfe Research. Alex Hammond: Hey, guys. Thanks for taking the question. I guess one on Mackenzie. Can you walk us through how to think about the cadence of sales growth this year? We're really just trying to understand the timing and percent of patients likely to go on to maintenance and how that may impact revenue. You very much. Christopher Viehbacher: Sure. Thanks very much. So like I said, we don't really have clear data about how many patients actually go on to maintenance since we really only know how many vials we sell. But the data that we do have suggests that there is this persistency of about 70%. So that suggests that quite a number of people come to the end of the plaque removal period and go on to maintenance. Now the vast majority of those are still on the monthly infusion because you switch from a biweekly infusion during the plaque removal period once you go on to maintenance, that becomes once a month. Now we're also seeing a progressive take up of the subcutaneous pen, But, again, we don't have full reimbursement for that, so patients have to go through the formulary exemption process. So I think what you're gonna see is pretty much continued sequential quarter on quarter growth. There's increased use of blood-based diagnostics And that is, as I said earlier, helping to make sure that those patients who are eligible for treatment are actually getting to see the neurologist. An increasing number of neurologists, again, right now, our estimate is about 10 to fifteen percent, but that's expected to grow. Are using the blood-based diagnostics to validate the diagnosis. Which will hopefully reduce the number of PET scans and lumbar punctures. There's an economic reason for that too. A PET scan costs about $5,000. The cost of a test is, I think, somewhere around $140. So there'll be an economic reason to move to the blood-based diagnostic. Obviously, if we can get the pen for induction approved, that is a major benefit. I think we're also gonna see, though, that not everybody is going to immediately go to that. I think certainly, for those patients who are perhaps more rural based, and have a long drive to an infusion center, you might see a more rapid uptake. We've certainly heard some physicians talk about the desire to continue to have the patient come in at least in the early phase of plaque removal to monitor the potential for ARIA and do the MRIs. So, now what we do hope is that with the approval of the subcutaneous for induction, that as payers start to look at their formularies for 2027, I think there is a good chance that some payers will take the subcutaneous for both induction and maintenance. And that both of those become fully reimbursed on January 1. Now that's kind of an individual payer decision, and we won't know until they announce their formularies, in the fall of this year. So I think, you know, you're gonna continue to see as I said, that linear growth pattern. But, you know, I think we're also seeing some very strong response to direct to consumer advertising. So all of these factors are accumulating. We're certainly hearing anecdotal evidence that physicians seem to be appreciating the benefit that they see in their patients. So, you know, I think in the first half, it's probably continued linear growth. Sometime in the latter half of the year and certainly potentially going into '27, there's a potential for acceleration in that. But you know, I think we really need to see the full reimbursement to make sure we take full advantage of the subcutaneous pens. Thanks, Chris. Rose, can we get Ruth, beg your pardon. Could we go to the next question, please? Ruth: Yes. We'll go to Phil Nadeau with TD Cowen. Phil Nadeau: Chris, I think the number one thing investors are debating is when Biogen's top line could return to growth. What are your thoughts on that? When do you think the growth products could overtake the legacy franchises? And what role could business development have in Thanks. Christopher Viehbacher: Well, so far, the growth products in the last two years certainly last year, did outstrip the decline of EMS. Now this year, we'll see a full year of TECFIDERA generic erosion in Europe. We had about six months of that in 2025. I think we will see a little bit more erosion of the MS portfolio as a result of that. At the end of last year, we also saw the introduction of a biosimilar for Tysabri, It's early days yet, so we can't really determine the erosion. But I think we're reasonably optimistic that we can maintain a strong market share, for Tysabri brand. This is a there's a limited number of physicians who are very strongly, believers in the importance of Tysabri. So, you know, that's what we're gonna rely on. We also have an extraordinarily strong patient services organization in our US company. I think to really return to growth, I think there's two things really need to One is we do need to start seeing the positive Phase III results come out and the launch of products. So you know, if we assume that the phase three for ladafilumab is positive for SLE, know, that could be launching in '28. If we assume that the AMR data are positive, that could be a launch in 2028 as well. And I think particularly AMR could be a launch that takes off quite quickly. Just given the identified patient base that exists and the fact that there's no treatment. The other, of course, is BD, and we continue to look for potential acquisition opportunities. These are companies that are post phase III results and early or early stage in their commercialization. You know? And certainly no more than around the $5 billion ish 5 to $6 billion mark. But you know, the reality is is that it's hard to find things that actually generate value for our shareholders. There are certainly companies out there, but we haven't found one that we can acquire for a price that we think makes sense for our shareholders, but we continue to look. We are looking every day out there in the marketplace, and I think that's an opportunity. But equally, I would say, you know, we have some pretty high conviction in our late stage pipeline. Now nothing is ever given in research and development as we all know, But, you know, 10 phase three programs, that's a real achievement from over the past year because, you know, at the 2024, you know, we really only had ladifilumab. Now we, you know, we not only have those programs, but, you know, we've got, a potential know, let's see what happens with BIB 80 and the LARC two and we're starting to put programs into the clinic. So you know, we're continuing to look, but I think it's really seeing these products launch and if we can, find, find an acquisition. But otherwise, you know, I think we've been able to really again create that bridge to growth. We're generating cash. We're generating profits. And we're investing significantly in our growth brands. Tim Power: Thanks, Chris. Let's go to the next question, please. Ruth: Our next question comes from the line of Brian Skorney with Baird. Brian Skorney: With the BIB080 catalyst coming up, I was just wondering if maybe I can get a comment from Chris or Alicia if she's on the call. Obviously, you guys have been very successful SPINRAZA as an as an intrathecal injection even in the face of oral competition. But Leukembi has been much harder in Alzheimer's as an IV, which I think most would agree is an easier mode of administration. Than intrathecal. So I guess how would we be thinking about the commercial opportunity for 80? And what sort of clinical data is really needed Success over LeCambi? to kind of see the next level of commercial sec? Christopher Viehbacher: Well, I think we really wanna see the data. You know, what I can tell you is that the neurology community is gonna be also looking at these data very closely. Every Alzheimer's expert I talk to really thinks tau is an important target, and if you look at the severity of Alzheimer's, that's really related to the level of tau. So there is there's a logic there. And with BIB 80, we know we can actually reduce tau. The question will be how long do you have to reduce the tau for to move the needle on cognition. And, you know, I think you've seen from the GLP one data that it's quite hard to move that level of cognition. So I think we wanna see the data first, I think if there is, then you also wanna see what the side effect profile is. There's a belief that we're not going to have anything like ARIA. But, again, we need see those data. This is a phase two data that is really breakthrough science. Nobody knows. Nobody has been able to move the needle so far. Our belief is also that, you know, it's the intracellular tau that matters as opposed to the extracellular tau, which is why the antibodies haven't worked. I do think it's a complex disease, Alzheimer's, and most complex diseases require multiple modalities. And so from a commercial point of view, obviously, there's already a lot of speculation about what would be the sequencing of these treatments. Would you treat the tau first? Would you treat the abeta first? Are you put these in combination? And then there's also an opportunity once you see the data. Can you go into other tauopathies? So it's a little premature to say, but I can say that if it is positive, I think the neurology community is gonna be very excited about that. But I would also remind everybody that we would then have to go into a phase three program and anything in Alzheimer's doesn't happen on a very quick basis. This would take several years again, to be able to do that phase three and launch the product. Tim Power: Thanks, Chris. Let's go to the next question. Thanks, Ruth. Ruth: Yes. Our next question comes from the line of Michael Yee with UBS. Michael Yee: Hey, guys. Thanks for the question. Following up on Bib 80, which I think is gonna be really an important readout. I understand the primary endpoint is CDR some of the boxes after eighteen months, which is great. And I think the study is well designed. But how important is looking at subgroups for example, high tau versus low tau or any of those prespecified how important is the tau sub study where, obviously, PET tau imaging is gonna be critically important to see if we're actually doing Thank you. Christopher Viehbacher: Priya? Priya Singhal: Thanks, Michael. No. It's very important. I would say, I think as Chris just outlined, this is a very important test of the scientific hypotheses. So we'll be looking at tau PET. We'll be looking at fluid biomarkers. We'll be looking for trends and clinical data, and we'll be trying to triangulate all of that. And importantly, I think we've set it up well because we do have a tau sub study. And we are testing as I'll just remind everyone. We are testing three doses and two dosing regimens. And it is a randomized controlled trial. So all of that will be very informative. We believe this will be very important to assess. Yeah. All of it. Tim Power: Thanks, Priya. Let's go to the next question, please. Ruth: Yes. We will go to Salveen Richter with Goldman Sachs. Salveen Richter: Good morning. Thanks for taking my question. When I look at your late stage registrational pipeline, you've put that whole basket under high conviction here. And I just wanted to understand in the context of lixilimab, with these phase three trials reading out and the kind of mixed phase two datasets here and just the innate risk around lupus, what it is that leads you to believe that this is high you know, that you have high conviction here in the outcomes on the phase three? Priya Singhal: Thank you, Salveen. Well, I'll just start off by saying that we really believe that ladasolumab is a scientific conviction late stage program. And the reason for this is that it targets the b d c a two pathway, as you know. And we know that b d c a two is really a receptor that is expressed exclusively on what we know as the PDC cells, human plasma cytoid dendritic cells, which regulate immune response and then control the type one interferon signature pathway. And I think that what we've shown, and we have published this in the New England Journal of Medicine, both the parts of the LILAX study where in the first part of the study, we looked at systemic lupus, and in the second part, we looked at cutaneous lupus. And in both independently, we believe we had important data that we would classify as proof of concept. So I think we have designed the trials to really be assessing that and confirming that. Our primary endpoint is also similarly, you know, established as SRI four, which is the SLE responder index. And what's important about this primary endpoint is that it requires a more than a four point or greater reduction with no worsening. So really captures disease activity. And I think that because of the pathway, which is very relevant for skin and joints, we have targeted our inclusion in the litifilumab topaz one and topaz two trials to be really appropriate for the mechanism of action. So overall, we remain encouraged and optimistic. Of course, we have to wait for the readout. And, again, the readout for SLE is end of the year. And CLE will be sometime midyear next year. Tim Power: Thanks, Priya. Let's go to the next question, please. Ruth: Yes. We have a question from Umer Raffat with Evercore. Umer Raffat: Good morning, guys. Thanks for taking my question. Maybe I'll switch gears to selzardimab. For a quick second. How important is it for you to hit on the EGFR endpoint beyond the primary endpoint? And I'm asking because in back in phase two, it was hard to evaluate that endpoint given the massive imbalance on EGFR. And on this pelsartan map point two, I guess, do you think about limiting the scope of development to just kidney transplant AMR? Why not AMR and other organ transplants as well? Thank you very much. Priya Singhal: Thanks so much. So overall, I think it's a very important endpoint. I think, you know, as we've set it up, the primary endpoint is what we'll be focusing on, but we'll be definitely looking at all the secondary endpoints. And I think eventually, as is in most cases, the totality of data will matter. We remain really excited about it based on the proof concept. It was a small trial, but the magnitude of effect of greater than 80% that we saw in that small phase two trial, was really compelling. And I think that that's really the piece that is very encouraging. Now speaking of other transplants, thank you for that because we are ourselves evaluating the impact of the c d addressing the c d 38 autoantibodies in other transplants. So it remains an important area of internal evaluation and query. And, you know, obviously, we'll communicate more on that as this becomes important. I also wanted to call out that we have you know, we are in the process of initiating another sort of sister indication trial with the microvascular inflammation, which we think is going to be a very important aspect as we continue to, you know, think about what do patients and prescribers really need in the field of antibody mediated rejection. Christopher Viehbacher: Yeah. I think the only thing I would add is that we do we are aware of some physicians who are experimenting with CD38. I know of some physician, for example, in heart transplant, and we'll be monitoring, obviously, a lot of that activity. We're not sponsoring any of that, but certainly be looking to learn from whatever experience they have. Tim Power: Can we go to the next question, please? Ruth: Yes. Our next question comes from the line of Evan Seigerman from BMO Capital Markets. Evan Seigerman: Hi, guys. Thank you so much for taking my question. Want to touch on HD SPINRAZA With The Potential Approval In The U.S. Coming in April. Should we think about what that could do to your top line growth for 2026 in the rare disease business? Thank you. Christopher Viehbacher: So like I said before, the first country to approve this was Japan. And again, we are seeing higher results initially. I mean, we're the first few months of launch, so, it's difficult to draw definitive conclusions, but we're certainly, off to a better start than we even had expected. And it's not just, as I said, in terms of adoption, but it's also switchbacks. You know, we certainly have seen much higher levels of efficacy in the study, which suggests that there's an increased benefit to getting to a therapeutic level faster. I know in Europe, it is our teams are very excited about the launch, and they'll be next up, and we'll see results from that. And, you know, the feedback again is the community as everybody's been waiting for these data. So the big thing in the SMA market is really efficacy versus convenience. You know, most physicians I talk to, and I like to go and talk to physicians who prescribe SPINRAZA around the world. And if you ask them about efficacy, they will most of them believe that it's really SPINRAZA. But, you know, at some point, the convenience of the oral starts to attract patients. Now here, we're gonna be dramatically increasing, the level of efficacy, and I think the choice between oral and efficacy will be harder for some physicians and parents. Market research suggests that there could be, an increase in sales, but I think I would say there's no market research like actual sales. So I think there is an opportunity for upside here. How fast physicians will be willing to transition patients is something that I think we have to wait and see. For practical purposes. But it is an important launch. And, again, it's been highly looked, to toward from the part of the patient advocacy groups as well as the physician community. Tim Power: Ruth, can we go to the next question, please? Ruth: Yes. We will go to Brian Abrahams with RBC Capital Markets. Brian Abrahams: Hey. Good morning. Congrats on all the progress, and thanks for taking my question. So you have a slide detailing some of the prelaunch activities. And guess I was wondering if you could maybe talk through the on the ground process of pivoting and redeploying the existing commercial infrastructure ahead of the potential lupus nephrology launches and while sounds like cost structure won't change much this year, Broadly speaking, I guess, I'm wondering how you would expect commercial investments will need to evolve longer term in order to support the potential growth that you're bridging to? Like, do you have a long term margin target? Christopher Viehbacher: Well, the first thing is acquisition of experience and capability. Because we're going into areas where Biogen has not been present in the past. You know, with AMR, we'll be seeing transplant nephrologists. With IGAN, we'll be seeing nephrologists. With lupus, we're going to see rheumatologists. And, so in each of these, and, of course, outside of US, we're going to see epileptologists and neurologists. So we need to build capabilities. And there, you know, I think I'm extremely encouraged. Market research is always hard to do because it a little theoretical for physicians. So one of the surrogate markers I look for is the ability to attract pay talent. And we've brought in a number of people from companies who have already a strong presence in those areas. And, you know, when you're betting your career on a product, I think that's an important move for people. And so people who are joining Biogen are joining because they see potential in these products. So I'm already encouraged by that. But the interesting thing is, I remember when we were developing Dupixent, you know, all of the indications that DUPIXENT has today, are areas where Sanofi previously had no experience. And yet, actually, by recruiting really not very many people in medical and commercial. Sanofi's obviously made that a successful product. And the reality is is that you don't need to have the entire team necessarily have that experience. You need to have enough medical capability. And on the commercial side, at least the commercial leaders with that. So I don't foresee that this is gonna have a massive impact on our OpEx trajectory. But it is important that we have people who understand these spaces because as I always say, if you've launched one product, you've launched one product. There are so many differences, between physician types, the patient. We have to really understand the patient journey. So today, we're investing mostly actually in market research. We're gonna be obviously present in congress and presenting the data as they come along. But, it's more of a getting ready, at a global level and then progressively at a regional and local level, and we're not this stage really looking at seeing any major change in, as I say, in the actual level of investment. Robin Kramer: Yeah. Chris, what I would might add is that we look to the largest degree possible to reallocate resources from our legacy business towards our growth products, both in launch and those that are in the pipeline where we may have the opportunity to bring them to market. Tim Power: Let's go to our next question, please. Ruth: Our next question comes from the line of Jay Olson with Oppenheimer. Jay Olson: Congrats on the quarter. Thanks for taking the question. We have a financial question to follow-up on part of what Brian was asking. We're curious about the product margin for Lycanby. Can you talk about the level of expense that you're investing in Lycanby? How does it compare to where you would like it to be longer term? And what's the steady state target for Lakenby's product margin? Thank you. Robin Kramer: Yeah. So, we don't get into the specific product margin associated with the But as was the case with most launch products, as the launch progresses and we continue to make enhancements on the manufacturing processes, we would expect that we would see improved margins over the near to mid term. Christopher Viehbacher: Yeah. Like most products, I mean, this is really gonna be driven by revenue. Right? I mean, they we are certainly investing significantly still in r and d. We have the AHEAD three four five study. We've been developing the sub subcutaneous formulations, and all of those are extremely important for the development of the can be. From a commercial point of view, there's still a significant investment. This is an area, again, where we're having to create the market and educate. And so I wouldn't necessarily expect, though, to see the OpEx level totally to expand, but I would see if we're gonna see margin expansion it's gonna be because the revenue starts to grow into the OpEx level, if you like. So I would say we should see increasing margins time as long as the revenue increases. Tim Power: Thanks, Chris. Let's go to the next question, please, Ruth. Ruth: Our next question comes from the line of Eric Schmidt with Cantor. Eric Schmidt: Thanks. Maybe another one for Robin on capital redeployment. Your balance sheet is meaningfully stronger than it was. You're still creating a lot of cash flow. And Chris just asserted a lot of confidence in the pipeline, including the late stage pipeline. Is this the right time for a share buyback or otherwise a return of capital to shareholders? Thanks. Robin Kramer: Yeah. So as it relates to deployment of capital where we're focused on deploying capital in a manner that creates long term shareholder growth. As Chris mentioned, we are looking to deploy capital towards business development transactions. But we do think about capital deployment in a broad manner, and so it's not out of the question that we might consider share buyback. But at this point, we're primarily focused on growing that top line. Tim Power: Thanks, Robin. Let's go to the next question, please. Ruth: Yes. Our next question comes from Chris Schott with JPMorgan. Chris Schott: Great. Thanks so much for the question. Just a bigger picture one on the pipeline. Chris, I know one of your priorities when you joined was creating a more balanced pipeline Seems like you've clearly been doing that in the late stage. But on the earlier stage pipeline, just elaborate a little bit more on your priorities here. Should we just thinking about there being more of these kind of high risk, high reward type assets is that part of the pipeline we should think about that same kind of balancing out approach? Christopher Viehbacher: Playing out over time? No. I don't think we have the size as a company to be in the high risk, high reward business. So I think we do have a lot of capability and all Alzheimer's and ALS. So I think you know, ALS, I think we believe that we can still invest there without so much risk because for us, at least, the neurofilament is an important biomarker. And so we believe that we'll get an early read as to whether a molecule is working or not in ALS. And that makes it a whole lot less, high risk, but it's still a very high reward area, obviously, if you could do something for the sporadic ALS population. So we haven't abandoned that. In fact, we have several targets in preclinical that we're working on. Alzheimer's is an area that we believe is gonna be a core part of Biogen going forward. And beyond tau, we are working on some other areas and mechanisms. But that's pretty much the extent of our neuroscience. There's still MS, We are working on MS, but you know, the area of unmet need in MS is pretty narrow now. It's really progressive MS, and that's an extremely important area of unmet need, but it has equally been a very difficult target to hit. So there is some limited work on MS. But most everything else in the early stage really looking to immunology. And immunology is obviously a big space. And I would say, you know, if I'm in a five year time horizon, we're really sticking with this rare immunology, space as we've seen with elsartanib, for example, and, and other products. But as you get into earlier stage, then I think we can open up the aperture a lot more. And if you look at something like a Dera, or even the VANQUA, those are those both are opportunities to have a portfolio and a product. That's the really interesting thing about immunology. Is that as you follow these immune pathways, you're gonna have a principal target. But once you have derisked the safety of that, it's relatively cost efficient to be able to go and do, signal seeking studies in other areas. And so I think that's one of the areas we were looking for because it's a highly cost efficient area, for a company of our size. And most of I would say there's gonna be probably a lot more in immunology than neuroscience. But as I say, ALS and Alzheimer's and to a degree MS continue to be a target for us. Tim Power: Thanks, Chris. Let's go to our last question, please. Our next question comes from the line of Danielle Brill with Truist Securities. Danielle Brill: Hey, guys. Good morning. Thanks so much for the question. Maybe a couple modeling items here. You mentioned the one time reimbursement true up for Skyclaris What was the magnitude of that, and how should we be modeling the quarterly run rate in 'twenty six? And then additionally for XERZUVEY, how should we be thinking about the impact of the European rollout? Thank you. Robin Kramer: Yes. So in respect to Skyclaris, and the true up that was occurring in Ex US, that was $12 million. And I would look at that in relation to the occurring in the fourth quarter. Now it's Chris has mentioned in the past, as we go and launch Ex US, you have a situation where you have reimbursement occurring on a country by country basis, and so you have timing of booking to an until you get finalization of that reimbursement in place. And so periodically, you may see true ups or changes in estimates. But in respect to this, it related to two countries in Europe and it was a one time item in the fourth quarter. Christopher Viehbacher: But I think you're gonna continue to see nice steady growth of Friedreich's ataxia. We still see this as a major opportunity. There are a lot of patients in South America, and so I think the launch in Brazil will be particularly important for us. That'll be, initially in a private market, and then we'll progressively get, state reimbursement as well. You know, Xerxovay, XERZUVEY will be interesting in Europe. Initially, the pricing assessments were coming back such that it didn't make sense. But I think one of the things that we have seen from the success in The US is that some of that is translating into Europe as well. So I think we are gonna be doing a highly selective rollout in Europe. It's not gonna be, pan European, because of the pricing questions. But I think we're already seeing pricing levels that are actually enough to be able to launch. And obviously, we are very mindful of the MFN environment. And, you know, while we have not not one of the companies that signed an agreement, as you've seen, there are, demonstrations projects now that have been launched by the administration. And so as we launch new products, we are certainly looking at this from an MFN point of view. And that's that will mean that, it's probably a target of about three or four countries that we're gonna be starting with as opposed to the whole 27. Tim Power: Right. That concludes the call. Thanks, everybody, for your time today. If you've got more questions, just reach out to any of us on the IR team. Thank you. Ruth: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good day. And welcome to the Centene Corporation Fourth Quarter and Full Year 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Investor Relations. Please go ahead. Jennifer Gilligan: Thank you, Rocco, and good morning, everyone. Thank you for joining us on our fourth quarter and year-end 2025 earnings results conference call. Sarah London, Chief Executive Officer, and Drew Asher, Executive Vice President and Chief Financial Officer, of Centene will host this morning's call, which also can be accessed through our website at centene.com. Also, slides can be found on our website alongside the webcast. Any remarks that Centene may make about future expectations, plans, and prospects constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Specifically, our commentary on 2026, including drivers of adjusted diluted earnings per share for 2026, are forward-looking statements. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our fourth quarter and year-end 2025 press release and 2026 guidance presentation filed this morning, and other public SEC filings, which are available on the company's website under the Investors section. Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. We will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our fourth quarter and year-end 2025 press release and 2026 guidance presentation. With that, I would like to turn the call over to our CEO, Sarah London. Sarah? Sarah London: Thank you, Jen, and thanks everyone for joining us. This morning, we reported a fourth quarter adjusted diluted loss per share of $1.19, contributing to our full year 2025 adjusted diluted EPS of $2.08. While 2025 was undeniably challenging, disciplined execution enabled us to close the year slightly ahead of the expectations we outlined on our third quarter call. Medicaid profitability improved, strengthening the trajectory of our largest business. Underlying medical cost trend within marketplace and across the Medicare segment was in line to slightly favorable as we closed out Q4, and both segments delivered 2026 enrollment results consistent with our expectations, creating a solid foundation for next year's earnings power. As we look to 2026, we are positioned to deliver meaningful margin improvement and renewed adjusted EPS growth. We expect full year 2026 adjusted EPS to be greater than $3, representing more than 40% year-over-year growth and marking important progress toward restoring the enterprise's embedded earnings power. This outlook incorporates Medicaid margin stability, significant margin recovery within our marketplace business, and continued progress towards our goal of breakeven in Medicare Advantage. Now let's take a look at our business lines beginning with Medicaid. As an organization, we have been laser-focused on restoring our Medicaid business to sustainable profitability while maintaining our focus on quality outcomes for our members and the communities we serve. As a result of strong cross-enterprise execution, we demonstrated significant progress on this mission in the back half of 2025, with continued momentum through Q4. Our fourth quarter health benefits ratio of 93 was consistent with expectations we set for investors in October, representing 40 basis points of sequential improvement and 190 basis points of improvement from Q2 levels. While flu drove significant national media coverage, flu and influenza-related illness cost within were consistent with the elevated expectations we had incorporated into our financial outlook. Trend patterns remained largely consistent in Q4 compared to Q3, with behavioral health still driving roughly half of excess trend and both home health and high-cost drugs as secondary pressure points. As we head into 2026, we continue to organize around the key levers that will drive improvement in the Medicaid business, including optimizing our networks for cost and quality performance, thoughtful implementation of new and enhanced clinical programs, rate advocacy, and collaboration with our state partners on program reform, increasing vigilance in our detection and reduction of unnecessary utilization, and a more aggressive approach to fraud within the provider ecosystem in service of our mandate to protect Medicaid program integrity. Our applied behavioral analytics or ABA task force established in 2025 is a perfect example of how we have pulled critical levers to manage costs on behalf of our state partners while improving the quality of member care at the same time. Leveraging Centene's scale and reach, the team analyzed our ABA data across our 29-state footprint. What we found were consistent patterns of outlier providers with volume versus outcomes-driven care patterns, where the maximum number of hours are prescribed for every patient instead of an individualized care plan. We found children who had been in therapy for five to ten years, clinical evidence suggests the optimal duration is two to three years, as well as those enrolled in forty hours per week of therapy instead of balanced school-integrated care. And we saw a lack of appropriate board-certified oversight of behavior technicians. These dynamics drive cost in the system, but far more importantly, they are red flags relative to the quality of patient care for a very vulnerable population. Centene's approach has been data-driven and multi-pronged. We engage directly with providers on gaps we see and focus our network on providers who follow evidence-based best practices. We meet directly with our state partners to share data, inform program design, and reduce outlier payments. And we launched an ABA-specific engagement program to support members, their parents, and their providers. These programs are developed and led by PhD-level board-certified behavioral analysts who are still practicing. So this is not algorithmic or theoretical for us. It is about being responsible stewards of taxpayer dollars and transforming the health of the communities we serve one kiddo at a time. In this case, rates continued to be another powerful and important tool to ensure program sustainability. On this front, we closed 2025 with a composite rate adjustment of approximately 5.5% above 2024 levels, consistent with our prior commentary. One one final rates were in line with our expectation, and as the underlying data naturally rolls forward, we believe rate decisions will increasingly be made on data that reflects the acuity and trend dynamics we have experienced in Medicaid over the last two years. We will continue to be proactive in our engagement and data sharing as we move through 2026 and prepare for 2027 program changes. Standing here today, we have greater visibility into the drivers of our core business and command of the levers needed to drive earnings recovery in Medicaid over the next few years, while maintaining and improving the quality of our care our members receive. Turning to Marketplace. Fundamental medical cost trend for our Marketplace business came in slightly better than expectations in Q4. In December, we also received an updated view of the 2025 weekly data, which showed favorable development relative to our reserve. We experienced two out-of-period items in the quarter, including a 2023 CMS reconciliation and costs related to No Surprises Act disputes. This prompted us to add an accrual for further NSA development related to 2025 dates of service, which ultimately pushed the segment HBR up by a 100 basis points versus our original expectations. We have accounted for estimated 2026 MSA costs in our guidance. While the No Surprises Act was designed to protect consumers, it has increasingly become weaponized by market participants looking to extract profits from the system through the independent dispute resolutions or IDR process. We are vocal in advocating for NSA reform, and in the meantime, we'll be taking a more proactive litigious posture as necessary. As an example, earlier this week, we filed a multimillion-dollar lawsuit against a New York provider alleging fraudulent manipulation of in-network and out-of-network claims. We will continue to take aggressive action to protect the system from fraudulent and abusive exploitation of NSA loopholes. Turning to 2026, the Marketplace team executed incredibly well over the few months in a dynamic open enrollment period, investing in additional operational support to care for a customer base navigating significant change and uncertainty. In the absence of congressional intervention, enhanced advanced premium tax credits expired at the 2025. As a reminder, we accounted for this assumption and the impact it would have on the market risk pool and cost in our 2026 pricing. Ambetter membership developed in line with expectations, and we are on track for first-quarter ending membership of roughly 3,500,000 members as compared to our December membership of 5,000,000. While market sign-ups are being reported publicly, this isn't the most helpful indicator of true market dynamics. Now that we are into February, paid membership is the most important metric for planning and forecasting. Through the January, Ambetter paid rates, while below historical levels, are right in line with our expectations in a post-EAPTC environment. Relative to member demographics, our membership is more notably enrolled in bronze plans for 2026 compared to prior years, with many of those members still able to access $0 premium products. Bronze membership will represent a little over 30% of our marketplace enrollment this year compared to a range of 19 to 24% over the past four years. Age and gender demographics remain consistent with recent years. Risk adjustment was obviously a source of significant deviation from our financial plans last year. As you think about the expectations incorporated into our 2026 plan, we anticipate being in a meaningful payable position for the 2026 plan year at this time. Consistent with other years, we will reassess our risk adjustment position and assumptions as we move through the year and receive additional data. That end, in an effort to drive additional visibility at an industry level, we are pleased to have worked closely with Wakely, the independent actuarial firm, to support publication of a new report reflecting market-wide paid membership metallic peer distribution, and statewide average premium set to be released toward the '1 in order to help market participants better inform adjustment assumptions going forward. While 2025 was a difficult year for the Marketplace business, we believe the actions we took in the 2025 set us up to navigate 2026 with increased visibility and confidence. We continue to advocate for program reform that will drive affordability, and further stabilize the individual marketplace overall, as an alternative to employer-sponsored insurance and a solution for small business owners and other hardworking Americans and their families. Finally, Medicare. Our Medicare segment delivered strong results throughout 2025. Fourth quarter fundamental Medicare Advantage performance was in line with our expectations, setting us up with a solid jump-off point for 2026. We completed a review of our provider contract portfolio in the quarter and adjusted certain receivables accordingly, which drove the slightly elevated HBR compared to expectations. Overall, we continue to look for opportunities to position the business for improved profitability in 2026 on the way to our goal of breakeven Medicare Advantage results in 2027, an important enterprise milestone. Our Medicare Advantage product positioning yielded the intended results for 2026 membership, and we expect to end the first quarter with a decline in MA membership consistent with our strategy to refine our footprint and fine-tune our value proposition for Medicaid beneficiaries. EDP ended Q4 with some additional favorability, thanks to slightly moderating trend, and that team deserves a well-earned shout-out for having managed the business expertly through significant program changes. As we look ahead to 2026, Part D enrollment is tracking to high single-digit percentage growth at the end of the first quarter compared to year-end 2025, with member mix across the products aligning well with program and formulary design. This year provides an important to build on the meaningful progress we've made in Medicare Advantage and further strengthen the platform that will most effectively serve Medicare beneficiaries as well as dual-eligible membership. Continue to focus on STARS improvement, clinical engagement, and overall SG and A efficiencies. At the same time, we launched a redesigned duals operating model, leveraging insights from our deep experience managing complex populations to enhance our service and member experience for a decent member base that now accounts for roughly 40% of our Medicare Advantage business. Last week's 2027 advance notice, at least initially, suggests a more pressured view of rates than industry expectations, but it does not change our focus on returning our Medicare book to profitability. Aligning closely with our key Medicaid markets and continuing to invest in quality programs and benefits that support our core member base. We expect rates to be finalized in early April consistent with prior years. Taking a step back, our long-term goal across our businesses is to deliver industry-leading outcomes at an industry-leading cost structure. As we create the roadmap to harvest Centene's full potential earnings power, there is no question that data, technology, and artificial intelligence will be a critical lever and accelerant to this work. Over the last few years, we have been building the necessary data foundation systematically integrating AI into our operations. Resulting in proof points around accelerated prior authorization approvals, improved call center operations, enhanced member navigation and engagement experiences, and advanced analytics capabilities that support our medical economics work and our payment integrity operations. As an example of the latter, we currently score our claims data against 75 algorithms designed to triangulate potential fraud. Alerts are triggered and sent to a group of cross-functional experts for immediate review and intervention. As we step into 2026, we are closely tracking the inflection GenAI and accelerating our integration of AgenTek capabilities into our core operations to drive automation and efficiency and using it as a catalyst to reimagine and elevate the we deliver to our members, partners, and other stakeholders. You should expect to hear more on this in the quarters ahead. 2025 challenged us it also made us stronger. Amid continued landscape volatility and with the benefit of enhanced visibility across lines of business as we move through the back half of the year, we took the opportunity as an organization to reassess and refresh our views of both existing and emergent headwinds and tailwinds. We have prudently positioned our 2026 outlook incorporating an expectation that policy-related variability will continue to influence our core business lines. We are confident in our ability to execute against the outlook we have provided today building on the positive momentum we have generated in recent months. And we see continued opportunity for margin expansion in the months and years ahead while keeping our members at the center of everything we do. As I have said before and feel only more strongly after the year we have navigated, the Send team is an incredibly powerful engine. They are fired up and focused on the opportunity ahead, and committed to the hard work necessary to deliver margin that will power our mission. With that, I will turn it over to Drew to provide more details about the quarter and our view of 2026. Drew Asher: Thank you, Sarah. Today, we reported fourth quarter and full year 2025 results, including $174.6 billion in premium and service revenue, and adjusted diluted earnings per share of $2.08. The fourth quarter GAAP diluted loss per share of $2.24 includes a $389 million net loss prompted by a Q4 definitive agreement to divest the remaining Magellan business. Recall, we previously divested the Magellan Pharmacy and specialty businesses at Gaines over the past few years. From an adjusted earnings standpoint, we are pleased that the underlying fundamentals in Q4 are tracking our prior forecast full year adjusted diluted EPS of greater than $2, and this sets us up well for our 2026 guidance we'll cover in a minute. Starting with Medicaid. We saw continued progress and improvement in the HBR with Q4 improving to 93%. We have a lot further to go in Medicaid to achieve a reasonable HBR and margin, but 2025 was a good start with two consecutive quarters of HBR improvement. Our one-one net rates are supportive of our 2026 guidance of a stable Medicaid HBR with an assumed full year 2026 net rate impact of mid-fours and the corresponding mid-fours 2026 net trend expectation. As expected, we continue to see slight attrition in membership closing out 2025 at 12.5 million members. We continue to drive quality and affordability health care initiatives, and work with our state partners on the optimal programs structures and associated rates. While certain areas are still elevated, behavioral, home health, and high-cost drugs, we can see tangible progress in the business. Overall, this is another quarter of good progress in Medicaid. Our commercial segment HBR in Q4 was about a point higher than our forecast with a few items moving in both directions, but the elements that matter most for 2026 were positive. Importantly, the current period medical cost and trend were slightly better than our expectations in the fourth quarter. So we feel good about Q4 fundamentals as we turn the calendar into 2026. Another positive sign in the quarter was a favorable change in our view of 2025 relative morbidity or risk adjustment based upon the third round of weekly data. This was a couple hundred million worth of net P and L outperformance in the quarter which also bodes well for our 2026 pricing assumptions. So what more than offset this good news? Two items. 2023 membership recon revenue reconciliation with CMS has no bearing on 2026. And increases in cost and accruals related to the No Surprises Act that Sarah covered. Those two items drove the net 1% higher than planned H HBR in Q4 which otherwise would have been quite favorable. Consistent with our Q3 commentary and now bolstered by Q4 insights, we expect our marketplace pricing actions to adequately capture the 2025 and 2026 market shifts, 2026 trends, and policy changes in place during the open enrollment period all of which support meaningful pretax margin expansion in 2026 compared to losing approximately 1% in 2025. In our Medicare segment, we executed well in 2025, including the fourth quarter. In our growing PDP business, we delivered strong 2025 performance including Q4, despite the headwinds and uncertainties created by the Inflation Reduction Act. This is a testament to our experience, cost structure, and market positioning in PDP. In our Medicare Advantage business in 2025, we progressed nicely toward our goal of breakeven in 2027. Q4 fundamentals were on track. And the reported results include a write-off of some older provider receivables. As Sarah covered, we'd like our 2020 positioning as we wrapped up the annual enrollment period. We will provide CMS comments on the disappointing 2027 advance notice Medicare rate which will likely cut into seniors benefits and product selection. As we construct the 2027 bids over the next few months, we will do so with the same goal to solve for breakeven performance in 2027. Our Q4 adjusted and A expense ratio of 7.5% brings our full year 7.4% which is a 110 basis points lower than 2024. Reflecting continued discipline and scale. We ended the year with about $400 million of cash available for general corporate use. We reduced debt by $189 million in the quarter, and ended up with a debt to cap ratio of 46.5%. Our medical claims liability totaled $20.5 billion and represents forty-six days in claims payable, a decrease of two days. As compared to the 2025, driven by payouts of state-directed payments and the elimination which is corroboration of the Medicare premium deficiency reserve in Q4, of the progress we are making in Medicare Advantage for 2026. That's a wrap on 2025. A strong finish to a rough year. Let's move to 2026 and associated guidance elements including a few slides we posted on our website. We expect premium and service revenue of $170 to $174 billion. As you can see in the bridge, Medicaid premium revenue is down a couple billion, including some member attrition in 2026. Partially offset by rate increases. We expect Medicaid member months down five to 6% in 2026. We expect marketplace revenue to be down about $8 billion driven by policy and market impacts, including the expiration of the enhanced APTCs net of rate increases designed to increase yield and improve margin. Give you some membership magnitude as Sarah outlined, we expect around 3.5 million marketplace members as of the end of Q1, and slight attrition thereafter, though we are still on the payment grace periods, which could swing membership somewhat during Q1. We expect the Medicare segment to grow premium revenue approximately $7.5 billion driven by our Medicare PDP business the majority of which is from the premium yield increase which we'll touch on in a moment. Coupled with growth in membership, which sits at about 8.7 million coming out of open enrollment. Medicare Advantage revenue is projected to be essentially flat from 25 to 26 with membership down intentionally and yields up. The forecast to 2026 revenue split in the Medicare segment is approximately 41% Medicare Advantage and 59% PDP. We expect a consolidated HBR of 90.9% to 91.7% in 2026 at the midpoint down 60 basis points from 2025. That's driven by an expected recovery in marketplace as you can see in the bridge. Consistent with previous commentary, we initially expect a flat Medicaid segment HBR in 2026 compared to twenty twenty five's 93.7%, In the Medicare segment, we expect improvement in the Medicare Advantage and a higher PDP HBR driven by two things. One, we are initially assuming a 2026 pretax margin around 2% down from a good year in the threes, And two, there was a meaningful increase in the direct subsidy a $143 to $200 reflecting industry pricing for higher pharmacy trends due to the IRA. So think about a rise in premium and pharmacy expense, without any need to increase SG and A. This drives a higher mathematical HBR. That's factored into our initial 2% pretax margin forecast for PDP. You can see the other guidance elements, including stability in the SG and A rate, continued pay down of debt and associated impact on interest expense, reduced investment income from assumed Fed fund rate cuts, and adjusted tax rate of 26% to 27% slightly higher than a normal statutory rate given the mix and level of earnings forecasted for 2026. No share buyback reflected in guidance. We will continue to assess the field of capital deployment opportunities as we generate excess cash. With respect to seasonality of earnings, as we sit here today, we expect the majority of 2026 adjusted EPS in Q1 stepping down in Q2, and further to around breakeven in Q3 with a loss in Q4. This is driven by the seasonality and benefit design of marketplace and PD products, both with lower HBRs in the beginning of the year, and higher at the end of the year. Our EPS outlook of greater than $3 reflects a meaningful forecast to turnaround of marketplace margins Medicaid stabilization, continued Medicare Advantage progress, a prudent PDP margin assumption, and lower interest expense from continued deleveraging. I'm sure you are too, but we are pleased to turn the page on 2025 with 2026 one step towards restoration of earnings for Centene. Thank you for your interest in Centene. And, Rocco, please open it up for questions. Operator: Thank you. We will now begin the question and answer session. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. Please press star then 2. At this time, we'll pause for just a moment to assemble our roster. And today's first question comes from Ann Hynes at Mizuho. Please go ahead. Ann Hynes: On your rate of application for Medicaid for four and a half percent, I would think that would be higher just given trend has been so elevated over the past couple of years. Can you just give us more details what's happening on the state level and view that as conservative would you be able to get some midyear rate increases Any color would be great. Thank you. Sure. Thanks, Ann, for the question. So a couple of things. One, as we said throughout 2025, the conversation with our state partners continue to be constructive. We also have the benefit of the fact that as we step into this rate cycle, we have a full two years of both the acuity dynamics and the step up in trend encapsulated in the data. And We think that is important and helpful to inform rate decisions So again, we're starting with a prudent assumption around that 4.5% for 2026. I would point to the fact that our 2025 rates matured favorably from where we started at the beginning 2025 and ended with that composite rate at you know, roughly five and a half percent. And then balanced against that, obviously, is all of the work that we've done over the back half of '25 to really bend trend, which is what's driving the assumption of the flat HBR year over year. Operator: Thank you. Our next question today comes from Jessica Lake of Wolfe Research. Please go ahead. Jessica Lake: Thanks. I wanted to kinda follow-up on Anne's question here. First, you talked about trend in 4.5%. In 2026 for Medicaid. Curious what that trend was in 2025, and maybe can help us understand first half versus second half. Just to get the run rate kind of coming out of the year versus that 4.5% assumption next year. And then to Ann's question on the rates, your your rates were five and a half last year. Your rates are four and a half percent this year. I'm just curious how the states justify that given when you have your conversations with them given what's going on in the market, what's going on with Trend and Acuity, etcetera? And maybe you could just tell us how one one looks versus the four and a half one year. Thanks. Sarah London: Sure. Lots of pieces there. So so one one rates were consistent with expectations. Let's go back to trends. So 2025 trend was in that mid six which I think we we talked about on the Q3 call. And then the view of 2026 around mid-fours is really a net trend assumption. And so, again, important to think about the fact that We are jumping off of an elevated baseline that included that ninety-four nine in Q2. And all of the aggressive action that we took in the back half of the year, obviously, coming through Q4 with a 93. Equally important is sort of the assumption around the proof points that we have in terms of vending trend in the back half of the year. As well as bankable proof points around actions that we took in Q3 and Q4 four that don't take effect until 2026. That's part of what gives us a view of sort of that mid-fours net trend assumption. And then relative to rates, to your point, we ended the year with that composite of five and a half. We started the year lower than that, so believe that we've sort of taken a prudent view of rates in the mid-fours for 2026, and we'll continue to you know, work with the states as we have all along to make sure that they have the most recent trend data. Again, a full we have the benefit of that sort of trailing two years now, which we've been working our way up to. And then, you know, also talking to states about places where in the absence of feeling like they can push rate, they can also make program changes. And we've called out a a number of those, but if I just think about the 2025, we have proof points around states carving out high-cost drugs. They have clipped ABA outlier providers who are overbilling. We've seen PBM control and formulary control sort of shift further back to us. Guardrails around CCBHCs. So lots of, I think, thoughtful program decisions that are sort of a proxy for addressing trend without having to do it explicitly through rate. So just net net, you know, we're we're obviously calling for flat HBR year over year. And I will say, as I have said if that is all we deliver, I will be very disappointed, and I know the team will too. Thank you. Operator: Our next question today comes from Kevin Fischbeck with BIA. Kevin Fischbeck: Great. Thanks. I guess moving to the exchanges, can you talk a little bit about the confidence and the visibility? Obviously, the exchange members have changed dramatically. You gave a little bit of color there. But I guess, in particular, you know, you talked about the shift tier shifting. I kinda remember bronze not being a great plan historically. And and now it seems to be growing overall. So I just wanna make sure that, you know, we're not gonna be caught off sides by this know, metal tier shift that you're gonna be seeing next year. And then any other additional color you give about why you feel comfortable in margin improvement on exchanges this year? Thanks. Sarah London: Yeah. Thanks, Kevin. So let's go all the way back to Q3, as we kind of read and reacted to the 2025 weekly data and a much improved visibility over the baseline morbidity that we would be carrying into 2026 and just incredible execution by team demonstrating agility and depth of expertise to reprice and reposition the, you know, the entirety of the book in that short period of time and taking into account the baseline morbidity, trend assumptions, the risk pool impacts of both 2025 and anticipated 2020 program integrity measures as well as the expiration of the enhanced APCs, all of which netted out to that mid-30s percent rate, you know, pricing increase for 2026. So part of the confidence comes from, I think, the work that we did and sort of the assumptions that we made coming into the year. Then as we stepped into open enrollment, really watching membership progress through kind of effectuation and down into paid membership, where we sit here today in early February, we actually have a very good view of sort of that paid membership base. And given our history, a view of how that paid membership matures through the, you know, February, March time frame where there's still a little bit of administrative opportunity and sort of grace period to get worked out, and that's where we get to that 3,500,000, member estimate by the '1. So feel like standing here where we are today, feel like we have, pretty good visibility into how open enrollment played out, and then we'll you know, the tail of that will continue to shake out. To your point, the distribution of metal tiers is different this year than in past years. So we're a little over 30% in bronze, which is up from that 19 to 24% range we talked about in past years. We do see stability in core demographics around gender distribution and average age. Has not changed. And then to your question about how bronze has has operated historically, the bronze products operated differently pre EAPTCs than they did during the EAPTC period. And, again, one of the benefits of having been in the market for as long as we have is that we have all of that data, we had all of that data back in Q3 when we went through and sort of re underwrote all of our assumptions relative to 2026. We did that across metal tiers. And were thoughtful about what the impact might be. And I think what you would see year over year is also sort of a reduction in the footprint where we are a low-cost bronze player. So you know, again, just trying to leverage not just increased visibility that we had from the data, but just the depth of experience and data we have from sort of end to end the tenure of the program to give us a view of where we're sitting today and, also, I would just add, have the benefit of, you know, having set 2026 guidance with full visibility into how 2025 and the vast majority of open enrollment played out. So all of that goes into why we feel confident that we will be able to deliver meaningful margin improvement in this business in 2026. Operator: Thank you. Next question today comes from Steven Baxter of Wells Fargo. Please go ahead. Steven Baxter: I wanted to come back to the the Medicaid moving pieces. I guess I just love a little bit better of a sense of maybe how much incremental decline in membership. I think the membership months were guided down. Five or 6%, but I think a good deal of that would be explained by basically what you saw in 2025. And if you think about the Acuity impact, to the extent that you continue to see disenrollment at pace closer to what you saw this past quarter, so down, like, a percent and a half, does that place any weight on the acuity assumptions that you had in the guidance at this point in time? Thanks. Sarah London: Yeah. Thanks, Steven. I'll hit this at a high level and then ask Drew to add any color. So what we talked about member months, we talked about flight attrition in Q1, that there was an assumption for continued attrition consistent with what we've seen, for example, through 2025 in terms of states tightening the eligibility and normal reverification process coming out of COVID. And then we also have a couple of program changes that we know about, including, for example, the Florida CMS program rolling off tenone, as well as sort of a probability weighted bucket of member puts and takes that we track state by state If you were to unpack that, would find that we're pretty prudent in our assumptions around membership there with an eye to what the additional acuity impact might be, and all of that is sort of considered in guidance. I don't know if there's any other additional pieces you wanna call out. Drew Asher: Yeah. Right. The you mentioned, Steven, the five to 6% member months reduction through the year. The full year would be higher than that in terms of the membership attrition. And I think about it in two buckets, as Sarah indicated. One, would be sort of a you know, maybe a a little over a point, per quarter of continued attrition, and we saw that basically throughout 2025. And then the children's medical services, business that we expect to roll off ten one. And then as Sarah mentioned, sort of a pool of other sort of RFP related probability weighted membership items. The only other thing to think about is there's very few impacts of OB three in terms of membership in 2026. But one of those is I think, around seven one, then a subset of the New York essential plan will be rolling off know, due to sort of an o b three provision. That's about a 140,000 or so members for So that's also in the 88,000,000,000 midpoint of guidance, the 5% to 6% member months reduction and the little bit higher than that full year absolute membership attrition. Operator: Thank you. Our next question today comes from Sarah James of Cantor. Please go ahead. Sarah James: Thank you. Can you help us understand the mechanics of the actuarial soundness look back process? Like, how far back are they looking now? How long of a lag does that typically take to come to an agreement on what trends actually were. And as we move forward into continued periods, of disruption through work requirements or additional redeterminations. How are you thinking about being able to shorten that period or move forward to rate adjustments in a a faster pace? Yeah, thanks, Terry. It's a great question. The short answer is that we are very focused on trying to shorten the period and maximize the amount of most recent data that's being included in the actuarial process. But this is not a new thing. Right? That has that has really been what we have been working on since the 2024 as we started to see that dislocation between rates and acuity from redeterminations and then the step up in trend that we saw in 2025. And so as we've said, we continue to very proactively engage with states. We're obviously not alone in doing that, so our peers are also part of that conversation, bringing forward most recent data direct correlation to the program changes. If I take a step back, I think that perhaps the silver lining of, what has been bit of a painful process to watch these rates lag is the fact that we have now sort of proof points that you can actually have you know, a significant forward looking trend in ABA unlike anything the actuaries had ever seen before. We do have the proof point of states actually bringing forward more recent data and making your adjustments, again, the Florida CMS contract, Q3 of last year is a great example of that. That was a very quick turnaround time between observed behavior and rate correction. And so all of those lessons learned, we carry into the work that we're going to want to do in 2026 to try to preempt the changes that may come in 2027 and 2028 and make sure that we have appropriate rates as we think about what the impact of work requirements are going to be. It's also why I keep pointing back to the fact that as time rolls forward, our need to push for, you know, that more recent data of being included is just happening organically. And so now those those acuity shifts in '24, the rate the sorry. The trend impact in '25 is now basically sitting you know, in the middle of that two-year look-back period, which is probably the more conservative look-back period or standard starting point for the actuarial process. But it is it's a dynamic process. It's why it has been really important for us to build and continue to have really strong relationships with our states. And to lean in and help them as they're going through that process by bringing forward very specific data. And then the last thing I would say is just to go back to Justin's question, is the idea that in the absence of rates and the states are thinking about what budget pressures they may be facing, it's also a great moment to talk about where there are program refinement opportunities that get us back into sort a reasonable cost of care that doesn't just come through the rate. And so we're finding those conversations to be really productive and seeing, again, some of those bankable proof points in the 2025 that we think will bear fruit in 2026. Operator: Thank you. And our next question today comes from Josh Raskin of Nephron. Please go ahead. Josh Raskin: Could you just give a little more specifics on your actual segment margins that are in implied in the 2026 guidance and then maybe remind us what your long-term margin targets are by segment in case anything has changed there? And should I be reading into no PDR in Medicare Advantage, meaning that you may be closer to breakeven in 2026, you know, a little ahead of 2027? Sarah London: Yeah. So I think, obviously, a lot of stuff has changed across the business. So it's probably premature to talk about long-term margin targets for each business while policy is still shaking out. But the bottom line there is certainly that we do see opportunity for margin improvement in all lines of business and meaningful margin improvement across the enterprise over the next couple of years. But let me turn it over to Drew to walk through the specific margin assumptions by line of business in 2026 guidance. And then talk through the PDR? Drew Asher: Yeah. Sure. I'd express Medicaid, margins in terms of a stable HBR year over year the commercial segment, which is largely marketplace, we were at minus one last year. You could do the math on the HBR guidance slide. And get to something, you know, around 4%, pretax. For 2026 in marketplace. And then the Medicare segment, as I said in my remarks, PDP around 2% would be our target. We think that's a prudent starting place relative to, you know, well into the threes for 2025. And then Medicare Advantage within that segment, not quite a breakeven yet, but you're right to recognize no PDR in 2026. Means that on the margin, it's not losing money, but know, there are things that aren't incorporated in the accounting of the PDR such that it's still operating at a slight loss, on a fully allocated basis for 2026. Operator: Thank you. Our next question today comes from AJ Rice at UBS. Please go ahead. AJ Rice: Thanks. Hi, everybody. You know, we still are trying, and I still get this question a lot. Maybe an unfair one to ask you guys, but I'll do it anyway. If you look at your national peers in Medicaid, two are still forecasting pretty significant drops in margin in '26 versus twenty-five One who was more optimistic, is now sort of come in line with you with their comments today. And we all struggle to think about how can the company see such a different outlook. Do you think geographic footprint explains the or is there anything else there? And I specifically, in your case, wanted to ask, about the PBM contract because you haven't said a lot about it. But, your vendor, your PBM partner, has said that they had renegotiated your contract among a couple other big ones. And then it's a a drag to them this year, presumably, you're on the receiving end of that and benefiting. And I wondered if that might be accounting for some of the difference or maybe that's helping you in other, business lines. But any comment on that as well would be helpful. Sarah London: Yeah. Thanks, AJ. So let me hit Medicaid, and then I'll turn it over to Drew to talk about our bespoke contract, with our PBM partner. So sort of going all the way back to where we're starting, which I think is really important. So, again, it's important to remember that we are jumping off an elevated baseline. As you think about trying to foot relativity with peers, just absolute, we are dropping off that elevated baseline in 2025. We also have, again, proof points sort of Included a 94.9 in Q2. rates that matured favorably in 2025, so that's an important thing to think about relative to that mid-fours rate assumption. And then we have aggressive execution through the back half of the year, that played out, you know, with that sequential improvement in HBR in Q3 and in Q4, getting to that 93 as the jump off as we step into 2026. And so, that momentum, I think, is really important. And the fact that we laid out sort of the the key levers that we were going after, and again executed on those really well in Q3 and Q4, but also took action and influenced decisions in Q3 and Q4 that aren't effective, for example, until oneonetwenty six. And so just as a reminder, right, in some of those proof points, rate, obviously, an important one. The the, you know, favorable maturation of the 2025 can composite the fact that oneone came in line with our expectation, fact that we saw in year rate correction like Florida, Second biggest lever is network. And, again, you heard me talk about the ABA example, but really making sure that we focus our network on the highest performing, highest quality providers. The introduction of clinical management programs, you know, hitting transitions of care and member engagement, Program reform, I I talked about a bunch of those. Ongoing provider engagement, payment integrity, and really addressing opportunities where we're seeing pressure on coding from providers. And then again a more aggressive stance in fraud, waste, and abuse. And you heard us talk about a provider that we termed in New York back in Q3. Around ABA, but really leveraging that suspect list to go after bad actors. So a lot of proof points that did actually hit the P and L in the back half to '25 and are teed up for 2026. So that's where I think, you know, our view is that we've taken a prudent assumption around rates. That the net trend assumption of four and a half in 2026 takes into account sort of the work that we've done relative to trend vendors and being able to see additional actions bear additional fruit in 2026. And I will say it again because I will just keep saying it both internally and externally. If all we do is deliver a 93.7 in Medicaid, I will be very disappointed. But with that, I will let Drew talk about, our PBM relationship. Drew Asher: Yeah. AJ, thanks for the question. Over the last, really, decade plus, we've had a tailored, transparent, and flexible contract with like, our current PBM, even our predecessor PBM. So we had those provisions before they were cool and before they were legislatively legislatively dictated. Think we benefit by having $60 billion of pharmacy spend and not owning our own PBM. In other words, every ounce of the economic benefit of that PBM arrangement and how we collaborate with our partner to go to the market together. Whether it's pharma or network or other decisioning around formulary benefit plan designs, we've got immense flexibility in how we work with our partner. That goes into the cost structure of our products, and our margin targets. So all of that is captured in our insurance risk business in our three segments. And, pleased with, you know, pleased with what we talked about last quarter. In terms of the continued collaboration with our partner. And we will continue to to fight for affordability in health care, you know, including other parts of the ecosystem that have margins including what I saw on CNBC the other day boasting about a 40% margin in his pharma business. So we we we will continue to drive affordability on behalf of our low income and medically complex members alongside with our PBM partner. Operator: Thank you. Our next question today comes from Scott Fidel with Goldman Sachs. Please go ahead. Scott Fidel: Hi, thanks. Good morning. Was that helpful if you maybe just sort of drill in a little bit more into Part D and and walk us through the book in terms of some of the dynamics, Drew, around the LIS versus the non-LIS populations and what you're seeing. In the market trends. Obviously, your book of business heavily weighted towards the LIS. And in particular, just, you know, some of the underlying inputs like risk scores and and '25 and and expect continue to do that in '26. Thanks. Drew Asher: Yeah. Really good question and special questions especially around the impact of the IRA in '25, which there were, you know, shifting sands. So the good news in '25 is the industry we had that expanded or more protective risk corridor that then reverted in '26 back to the statutory risk corridor been in place since the inception of the Part D program. But that gave us some, let's say, breathing room in terms of navigating pretty severe non-low-income specialty trend when the maximum out of pocket dropped. To $2,000. And so we got through that, really well. That's in the rearview mirror. And now we and the rest of the industry had that data going into the bids in the '25 as we set them for 2026. With, you know, eyes wide open in terms of the impact of the IRA on that non-low-income population that, you know, was availing themselves of a much lower maximum out of pocket. So we can look at our January data you're right. We're growing, you know, the the revenue growth is largely driven by that yield increase because the direct subsidy increase, but we're still growing membership from about 8.1 to around 8.7 million. Across both the low-income population or the auto assigns and the non-low-income population. So feel pretty good about the mix of business we got We like both populations. You can have earnings on both populations. And provide a really great value proposition for the senior giving them access to, you know, to a great drug program. So that in conjunction with the answer to the last question in terms of, you know, cost structure is an important leg of the stool. The underwriting acumen, having great actuaries, to support, and business teams to support that product, which is now know, a $26 billion product for us. With a, with a good margin as well. So we're we're pretty pleased with that business, our positioning. And and maybe most importantly, what we're able to do for seniors to have an affordable product, in the open market. Operator: Thank you. Our next question today comes from Lance Wilkes with First Please go ahead. Lance Wilkes: Great. Thanks. Wanna talk a little on Medicaid and if you could, could you walk through Medicaid trends kinda 25 contrast with 26 in a couple different ways? Because so many different moving elements. So I was interested in your views as to how much risk shift had impacted '25 and if you saw any continued impacts in '26 with that. And whether you're seeing any impacts, either negative or positive from states making benefit, design changes. And then I'm kind of assuming that the remainder would be sort of core trend. And so then if in core trend, could kind of describe, oh, what's your your experience with categories, you know, inpatient, outpatient, and or units and and cost inflation. And maybe as a tag onto that, if you could just talk a little bit about what you're seeing as far as competitive dynamics in states given the margin pressures in Medicaid. Are you seeing any issues with small plans not being able to fulfill obligations or any, lack of folks stepping back up to try to renew, contracts? Thanks. Sarah London: Yeah. Thanks, Lance. I'll I'll hit that at a high level and, have Drew chime in as well. So as we said, we did continue to see sort of a low level of continued membership attrition through 2025 as states were getting tighter with their eligibility criteria, which I think naturally put some pressure on, on trend relative to core trend. The the drivers were really consistent with what we called out throughout, you know, Q2 and rolling forward in terms of behavioral health, home health, and high-cost drugs, those did not materially shift over the course of the last 350% of that excess trend, ABA being sort of a primary underpinning of that. Home health and home and community-based services being another, and then those high-cost drugs. Relative to impact, those you know, particularly the those excess trend areas were kind of how we chalked the field in terms of organizing and and looking to to mitigate that trend. And so lots of proof points in the back half of 2025 in terms of actually being able to intervene, and help moderate that trend, which is what contributed at least in part to ending the year at a 93%. So again, feel feel good where we stand today in terms of having really solid visibility into the various forms of trend that are influencing the business and being organized around the levers that impact them. Relative to competitive dynamics, we are seeing continued rate pressure is having an impact on different markets and certainly some of the the smaller, nonprofit plans. And, frankly, that's that is an important input into states thinking about making sure that they're funding the programs to sufficiently so that they have a competitive marketplace and that members have the quality of services that they that they want and they deserve. And and I think over time, you know, it it's something that we would watch relative to potential membership growth, if competitors choose to exit any of those geographies. Drew Asher: Yeah. Just two quick things to add to that. Interesting facts relative to your question, Lance. Inpatient looks good. In Medicaid. And then if you isolate our TANF population, the continuous TANF population, which is, like, 5 million members, so it's a statistically valid cohort. And you set aside behavioral health, that trend looks fine. Looks normal, like it would historically. So that enables us to sort of zero in on, as Sarah said, both those areas that we started talking about and recognizing in '25 as well as policy, and product and benefit changes with our state partners to really you know, zero in on what we need to do to pull those levers. Operator: Thank you. And our next question today comes from Andrew Mok at Barclays. Please go ahead. Andrew Mok: Hi, good morning. When I look at the segment MLR components embedded in guidance, the ACA improvement and Medicaid stability look consistent with prior commentary, but the guide seems to imply incremental pressure within Medicare Advantage beyond the PDP reset. So first, is that correct? And second, can you help us understand the sources of that pressure and what that means for your target to achieve breakeven in 2027? Thanks. Drew Asher: Yeah. I think you'd have to understand bifurcating under Medicare, we absolutely expect progression in Medicare Advantage, meaning in improvement, in that HBR PDP, yes, there's a piece of going from, you know, well into the threes pretax margin to 2%, and that's HBR related. But also think about the math on the direct subsidy going from a $143 to 200, And as I said in my script, you know, roll that through a p and l and the yield impact where you need zero incremental admin for that. So you're increasing premium revenue. You're increasing medical cost. That has a mathematical impact on the HBR. That's embedded in that 35 basis points segment impact on the consolidated HBR as well. So I think that might be the missing piece Andrew, of what you're trying to achieve. Operator: Thank you. Our final question today comes from David Windley at Jefferies. Please go ahead. David Windley: Thanks for squeezing me in. I wanted to come back to exchange Bronze, I think bronze margins have been a little more volatile or MLRs have been more volatile in the past. You're you're seeing trade down as I think a lot of people expected. I'm wondering if you have enough data, so far to see whether the utilization patterns of those, those you know, buy down bronze members are meeting your expectations. Are they you know, is their gross medical cost declining because the individual bears more of the cost in bronze, things like that. I'm just wondering what that trade down profile looks like. Thank you. Sarah London: Yeah. Thanks, Dave. So I would say, in general, sort of the the what we're seeing in terms of trade down again, sort of largely consistent with what we would have expected. We expect that it's probably a market dynamic as well. And, you know, with contemplated as we thought about overall pricing. And then taking into account not just how the bronze products have operated over the last you know, five years, but what they did pre-COVID and making or sorry, pre-EAPTCs and pre-COVID, and making sure that that was part of the calculus. It's obviously very, very early. We have not closed January yet, but I would say based on a a very early look, nothing alarming relative to utilization patterns. Operator: Thank you. Concludes our question and answer session. I'd like to turn the conference back over to Sarah London for closing remarks. Sarah London: Thanks, Rocco. Thank you all for your time and interest this morning. Despite the challenges of 2025, we entered 2026 with increased visibility and important momentum. I believe that we are well positioned to drive margin improvement in 2026 and over the next few years. While ensuring access to high-quality affordable health care for the members and communities we serve. Finally, to my son team colleagues, just wanna say thank you for your incredible resilience and commitment. I am excited to see what we can deliver this year. And in the words of my legendary hometown quarterback, let's go. Back to you, Rocco. Operator: Thank you. Everyone, 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 day, and thank you for standing by. Welcome to the Philip Morris International Inc. 2025 Fourth Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, James Bushnell, VP of Investor Relations and Financial Communication. Please go ahead. James Bushnell: Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2025 fourth quarter and full year results. Emmanuel Babeau: The press release is available on our website at pmi.com. A glossary of terms including the definition for smoke-free products as well as adjustments, other calculations, and reconciliations to the most directly comparable US GAAP measures for non-GAAP financial measures cited in this presentation are available in the company's Form 8-K dated today's date and on our IR website. Remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projected projections or forward-looking statements. I'm joined today by Jacek Olczak, Group CEO of PMI, and Emmanuel Babeau, Chief Financial Officer. Over to you, James Bushnell: Thank you, James, and welcome, everyone. 2025 was another outstanding year for PMI. Jacek Olczak: The shift of adult smokers to better alternatives is a lasting structural movement, one that we continue to lead and from which we are generating strong sustained growth. Our leading global position in smoke-free products enables us to deliver a fifth consecutive year of positive volumes with rapid top-line progress and significant margin expansion. We grew our smoke-free products volumes by an excellent 12.8% with the increasing profitability of the portfolio, reflecting inorganic smoke-free gross profit growth of 18.7%. IQOS remains the core driver with both shipments and adjusted IMS growing around 11%. This includes an impressive acceleration in the fourth quarter with a return to strong double-digit growth in Italy, and a very promising start in Taiwan, just two examples of the broad growth across geographies. This performance also reflects the success of our multi-category strategy with Bonsin, ex Nordics, and Viiv more than doubling shipment volumes in international markets. Our strong brand offering, which includes high-quality science-backed products in all three smoke-free products categories, allows us to better serve consumers and enhance our financial performance. While the nicotine pouch category remains nascent in most geographies, Zen gained significant international share as we expanded the product portfolio and market reach. The more established e-vapor category VIVE is the fastest-growing brand of any major player in international closed pots and holds the number one position in eight markets with a substantial increase in gross profit. Although our performance continues to be fueled by the international business, we generated the vast majority of total PMI organic net revenue growth led by SFPs. We have a substantial opportunity in the US where ZYN grew shipment by 37% despite supply constraints in the first half, a significant price premium, and competitive portfolio gaps. Our Aspire Wellness Business also grew organic net strongly. Combustibles delivered robust top and bottom-line performance, notwithstanding a more normalized industry volume decline and supply chain issues in Turkey. We accomplished this through strong pricing, portfolio resilience, and disciplined execution, with Marlborough reaching a historic high share. Managing this business responsibly enables us to invest boldly in better alternatives and sustain our smoke-free momentum. Together, these factors enabled us to deliver 15% adjusted diluted EPS growth in dollar terms, the strongest growth since 2011, excluding the pandemic recovery year of 2021. This reflects currency-neutral growth of 14%, well above our expectations at the start of the year, and the second year of mid-teens progress. Indeed, we have successfully achieved our three-year CAGR targets for organic OI and currency-neutral EPS in two years. With another strong performance expected in 2026 despite some transitory headwinds, we are today renewing these growth targets for the next three years, further validating our best-in-class growth profile within consumer packaged goods. Importantly, this is accompanied by strong and increasing cash generation, and we target the leverage ratio of close to 2x by 2026 at prevailing exchange rates. With our dividend payout now close to our objective of around 75% of adjusted diluted EPS, this provides capacity for strong returns to shareholders. Before I turn it over to Emmanuel, I would like to highlight the achievement of several important milestones as we entered the second decade of our smoke-free journey. Our total net revenues reached over $40 billion in 2025, with 41.5% or close to $17 billion generated by our smoke-free business. Even more impressive is the smoke-free gross contribution, which has essentially doubled in five years to 43% of total PMI. Our adjusted operating margin also returned to above 40% this year as our transformation expands profitably. Our business is increasingly smoke-free, with 27 markets exceeding the 50% net revenue milestone, including South Korea, Poland, Italy, Romania, and, of course, the US, which is also one of eight markets exceeding 75%. In 2025, the Europe region also surpassed 50%, making three out of four regional segments majority smoke-free. We continued to scale our global smoke-free presence, reaching 106 markets, 52 of which have already deployed the category strategy, which is a critical accelerator of consumer adoption and long-term growth. As adult nicotine consumers search for better alternatives to smoking, we continue to lead the broader industry transformation. A prime example is Japan, where the heat-not-burn category crossed the 50% total threshold in December, driven by the undiminished trend of 106 smoke-free markets, our double-digit adjusted IMS volume growth continues to outpace the industry, demonstrating the collective strength of our leading brands. While we are proud of what we have accomplished so far, our focus remains sharply on the future. With an exciting pipeline of initiatives and innovations over the next three years, this is supported by increasing digitalization and our new organizational model. With that, I will hand over to Emmanuel to discuss our results and outlook in more detail, and I will come back at the end of this presentation. Emmanuel Babeau: Thank you, Yatzek. I will begin with the headline financials for the year, which were indeed impressive. Organic top-line and operating income growth were in line with our forecast ranges set at the 2025, and currency-neutral adjusted diluted EPS growth exceeded with expectation by 1.7 points. Positive shipment volume, strong smoke-free category mix, and pricing drove organic top-line growth of plus 6.5% or plus 7.9% excluding the technical Indonesia impact, positioning us at the high end of our plus six to plus 8% midterm CAGR targets. We delivered another year of double-digit organic operating income growth at plus 10.6%, above our midterm target range and reflecting plus 140 basis points of organic margin expansion. In dollar terms, adjusted operating income grew by plus 11.8% to $16.4 billion. Excellent currency-neutral adjusted diluted EPS growth of plus 14.2% was ahead of our expectation. This was driven by strong underlying business performance, notably in international multi-category and in combustible, coupled with a more favorable effective tax rate and lower net financing cost. In dollar terms, adjusted diluted EPS of $7.54 was at the high end of our last guidance range. Despite a lower than expected currency tailwind of 4¢ due to nonrecurring transactional losses in Q4 largely related to the Russian ruble, and the Swiss franc. Robust cash generation enabled us to deliver operating cash flow of $12.2 billion, matching the record delivery of 2024. Now looking at Q4 specifically, while growth rates were below the overall year, partly due to the shipment and phasing factors was ahead of our expectation outlined last quarter. Underlying performance This enabled us to deliver almost plus 10% in diluted earnings per share growth, to $1.70 or plus 9% excluding a 1¢ currency tailwind. I will now cover our 2025 performance in more detail, starting with volumes. As Jacek mentioned, we delivered our fifth consecutive year of positive volumes total shipment growth of plus 1.4%. This was driven by the continued dynamism of our smoke-free business, which generated more than a 100 billion incremental units over the past five years, combined with a very resilient cigarette performance. In 2025, smoke-free shipments grew plus 12.8% or plus 20 billion units to 179 billion, more than offsetting the 1.5% decline in cigarette shipments. All smoke-free categories grew strongly with IQOS h shipment growth of plus 11% to 155 billion units, This plus 102% to 3.3 billion equivalent units, and oral smoke-free product plus 18.5% to 20.7 billion units. Notably, this includes plus 37% growth from US ZYN to 11.9 billion pouches, making up close to 7% of total smoke-free product volumes. As expected, adjusted IMS growth for IQOS HTU accelerated in Q4 to plus 12%, while shipment volumes were impacted by the dynamic flagged last quarter and grew by plus 7.5%. Notwithstanding this impact, total Q4 smoke-free product volume increased by a healthy plus 8.5%. The full-year cigarette volume decline of 1.5% was slightly better than our expectation of around 2%, with our category share performance in the second half proving resilient in several markets, including Egypt and India. The total international cigarette industry, excluding China, declined by an estimated 1.1%, with continued divergence between markets where smoke-free products are available which declined by around 3%, and market where smoke-free products are not permitted still at low level of penetration which were broadly flat. The composition of our 2025 top-line performance was extremely consistent with the five-year average of each key component demonstrating the sustainability of this dynamic drivers. Continued volume growth is the first pillar of our growth model. The second is pricing, which contributed plus 4.1 points. The 2025 impact reflect plus 7.6% pricing from combustible and low single-digit pricing on IQOS, partly offset by the H2 normalization of US zine promotional activities. The third pillar of growth is smoke-free mix, which contributed plus 3.5 points in 2025. Combustible geographic mix and other factors had an unfavorable impact of 1.1 points, whereas currency and scope effect added plus 0.8 Breaking down now our full-year performance by category. Both smoke-free and combustible contributed to our strong net revenue and gross profit delivery, with gross margin expanding organically by plus 220 basis points to over 67%. Smokefree net revenue grew organically by plus 14.1%, while gross profit advanced by plus 18.7%. As a result, adjusted gross margin increased by 270 basis points to reach 69.5%. Further widening the gap to combustible to four points for the year. IQOS was, again, the primary driver of this performance, combining global top-line momentum with increasing scale and cost efficiencies. This improving profitability also contributed positively and while the normalization of U. In commercial activity in H2 had a dilutive year-over-year impact, its gross margins remained best in class Above the average of our IQOS business, including in Q4. As mentioned last quarter, we expect this to be an enduring positive mix driver. Combustible performed well in 2025 with low single-digit top-line growth and low to mid-single-digit gross profit growth, a proxy of what we expect this business to deliver over time. Strong pricing more than offset volume decline and unfavorable mix with disciplined cost management supporting gross margin expansion of plus 160 basis points to reach 65.5%. Moving to operating margins. We delivered full-year organic expansion of plus 140 basis points and plus 160 basis points in the last year to reach adjusted operating income margin of 40.4%. We achieved this in a year of strong investment in commercial marketing and brand building, behind our smoke-free portfolio. Including international multi-category deployments and US ZYN. We also continue to invest in expanding our US capabilities to capture the substantial growth opportunities ahead. This performance was supported by a relentless focus on both cost of goods sold and back-office efficiency, enabling meaningful margin expansion even as we continue to invest for growth. We have delivered around $1.5 billion in growth cost savings since 2024, placing us firmly on track to achieve our $2 billion objective the 2426 period. Focusing now on our smoke-free business. Where all categories have an important role to play. Our global presence continues to grow with PMI smoke-free product now available in 106 markets. This includes the recent launch of ZYN in Argentina and IQOS In Taiwan. We increased the number of markets with all three categories to 26, compared with nine markets two years ago. We continue to outpace the smoke-free market. Measured in the categories where we are present across these 100 markets, we delivered over plus 12% estimated in market sales volume growth for the year, compared to over 9% for the industry. We estimate our volume share of smoke-free product on this basis is around 60%, and our 2025 share of category growth is over 70%. With our portfolio of leading premium brands, our share of smoke-free in value term is notably higher than 60%. As we expanded our portfolio and geographic reach, the number of legal age consumers of our smoke-free product reached an estimated 43.5 million as of December 31, an increase of around 10 million users in two years with broad-based growth across categories. IQOS adjusted IMS growth accelerated to an outstanding plus 12% in the fourth quarter, reflecting strong momentum across the globe and a presence now in 79 markets. All regions contributed as illustrated by exceptional performance in key cities such as Mexico City, Manila, Riyadh, Rome, London, Madrid, and Munich. You can find further key city and European shared data in the appendix to this slide. This enabled us to achieve full-year growth of plus 10.5% within our target range. Annual adjusted IMS again increased by around 15 billion units despite the continued headwind of the EU characterizing flavor ban, and a step up in competitive intensity. Our global share of the hypnot band category remains increasingly resilient at approximately 76%. This is supported by brand engagement initiatives, and continuous innovation across devices and consumables, including the continued introduction of Illumina I to reach a total of 55 markets. Importantly, ICO's profitability continued to increase significantly, driven by pricing scale and productivity improvement on consumables and device cost. This is illustrated by a substantial increase in product contribution over time. Turning to nicotine pouches, ZYN is the global number one brand with a 2025 PMI category share of around 40% in pouch terms. The US represents approximately two-thirds of the category today, while international markets though still relatively small, are growing rapidly. We made excellent progress this year, expanding ZYN's presence by plus 19 markets to 56 and delivering plus 36% shipment growth to 13.6 billion pouches or 880 million CAN, achieving our 2026 target one year early. US shipments grew plus 37%, while international volume grew plus 31% or plus 112% excluding the more mature Nordic market, where Q4 performance was impacted by a demanding shipment comparison. We are focused on the future growth of the category, broadening our portfolio to address the need of legal aid smokers looking to switch. This includes new strengths and flavor variants, including zinc, x low 1.5 milligram, which was successfully rolled out to around two-thirds of the zinc market. Driving a significant improvement in first experience acceptance among adult nicotine consumers. While we are in the early stage of developing the category, which makes up only a low single-digit share of total nicotine in most markets, it's very encouraging to see ZYN share of international purchase excluding The Nordics, rise by around plus 60% in 2025, to reach 16% following the launches and relaunches of the past one to two years. Jacek Olczak: In e-vapor, this is the fastest-growing international vape brand of any major player within Close Pods. The pod segment is growing rapidly as disposables decline, and Vive is gaining significant volume share in the fragmented landscape, sourcing primarily from legal age consumers of other vaping products and adult smokers. As I covered earlier, shipments doubled for the year with a meaningful improvement in profitability. These is now present in 47 markets, and grew notably well in Italy, Romania, Greece, The UK, Germany, and Indonesia. Reviewing the smoke-free portfolio now by geography, starting with Europe, where as Yatzek mentioned, smoke-free products now represent more than 50% of regional net revenue. Total IQOS, ZYN, and V volume grew by an impressive plus 13% for the year with significant further growth potential given the overall penetration of SSP remained low compared to Japan or The US. IQOS delivered another strong quarter with an acceleration in adjusted IMS growth to plus 10.3%. This was led by an exceptional performance in Italy, where we successfully navigated the impact of the flavor ban supported by recent innovation. With an acceleration through the 2025 to deliver double-digit in-market sales growth for the year, quarterly market share passed 20% for the first time. Other notable call outs strong double-digit growth include Bulgaria, Germany, Greece, Spain, and Romania. Zinc pouch shipment volumes grew plus 9% for the year, and while The Nordics make up close to 60% of regional volume, shipments more than doubled elsewhere with good progress in The UK, Poland, Italy, and Austria. As noted earlier, excellent V momentum continued with shipment growth of plus 110%. Emmanuel Babeau: In Japan, we reached an impressive milestone in December as the heat and urban category surpassed 50% of total industry offtake volumes driven by the continued strength of 250% has not been linear, and following two years of very strong expansion in '23 and '24. Category growth moderated in 2025. The adjusted in-market growth of IQOS HTUs has reflected this trend with a healthy plus 7% in 2025 representing very robust absolute growth. In Q4, the Japanese nicotine industry and the heat not burn category grew slightly below the full-year trend with some impact from inflationary pressures on consumer purchasing power. Jacek Olczak: Nonetheless, ICO's HTU adjusted IMS grew plus 5.8% while Q4 adjusted share grew plus two points, year on year to 32.6%. While competitive intensity increased markedly this year, IQOS category share was broadly stable with most movement occurring among other players. We are encouraged by early signs that the increase in category activity is generating higher interest among more traditional adult smokers, a positive indicator for category growth. Looking forward, the upcoming excise tax increases on heat not burn in April and October make 2026 an atypical year. As discussed at the Morgan Stanley conference in December, the level of person makes this a headwind for the category representing about 50 to 100 Japanese yen per pack, which translates to two to 10 to 20% of current retail prices. With the greatest impact for products at lower price points. As announced recently, we have submitted an application to increase our prices in April. We anticipate these price increases will impact category growth and volume for 2026, despite the fact that heat not burn consumers have demonstrated higher price resilience than cigarette smokers in the past. Shipment volatility in 2026 is also possible driven by in-market sales trends around the April and October excise increase. Importantly, we do not expect the underlying category growth trend to change and we target substantial further growth from IQOS in Japan in the years to come. We are also pleased to report ZYN's successful pilot launch in Tokyo. Outside of The US, Japan, and Europe, all three of our small free categories are delivering strong broad-based growth with full-year shipment up plus 17%. This includes ICO's strong start in Taiwan during Q4, where we exited the year with around 4% of tech share, and rapid progress in markets such as South Korea, Malaysia, and The Philippines. ZYN momentum was notably strong in Pakistan and Mexico. In e-vapor, we've achieved excellent results, particularly in Asia. Our global travel retail business further supports all three brands, and continues to deliver impressive multi-category performance, serving as a powerful platform to showcase our portfolio. Turning now to The U. S. Which made up around 7% of our global net revenues, and around 8% of our adjusted operating income in 2025. Nicotine pouches remain the fastest-growing US segment, representing a high single-digit percentage of total nicotine industry volume. Despite supply constraints, commercial normalization, and portfolio gaps, ZYN continued to lead the category in 2025, with its premium offer capturing around 50% of category growth 61.5% can volume share, and a value share of over 67%. ZYN offtake volume also grew strongly by plus 25% for the year as estimated by Nielsen. Shipment grew by plus 37% or 230 million can, to 794 million. The gap between shipment and offtake reflects a net channel inventory rebuild and we estimate the underlying 2025 shipment base corresponding to consumer offtake was around 740 to 750 million cans. This was notably concentrated in the 2025, and we estimate the underlying shipment base by quarter for 2025 was around 160 million can in Q1, one hundred and eighty million CAN in Q2, two zero five million in Q3, And 200 million in Q4. Indeed, Q4 saw a lower than expected destocking of about 5 million can, as we deploy promotion, limited time offers, and announced a generalist price increase of 10¢ per can in December. Looking ahead to 2026, we expect ZYN shipment volume to broadly reflect offtake growth from this underlying base, before any further channel inventory movement. We estimate there remain around 25 million cans of surplus inventory the downstream supply chain, which we assume will normalize in due course most likely in the first quarter. The level of offtake growth for XIN in 2026 will be influenced by three key factors in which we are investing. The most critical over the mid to long term is ZYN's brand equity, we strengthen marketing in a responsible manner, enhance point of sale visibility, and deepen the connection with our legal edge consumers. Accessing all segments of The US nicotine pouch category, will require us to navigate a dynamic and uncertain regulatory environment. We have developed and are preparing to launch innovation to address a broad spectrum of consumer preferences. We have a number of pending gene submissions before the FDA, including ZYN Ultra, which is included in FDA's pilot program. ZYN ULTRA offers higher strength and an expected range of adult-oriented flavors. Are taking steps to prepare for the launch of ZYN Ultra as soon as possible pending FDA action. Also believe ICOS ILUMA strong application and demonstrated track record, converting smokers to better alternative warrants expeditious FDA action. We also continue to optimize ZYN's premium price position. Despite elevated promotional intensity across the category, ZYN remained the leading premium brand by a clear margin, fully aligned with our strategy for sustainable long-term growth. We have a comprehensive commercial program plan for 2026, And as a reminder, commercial activities, including promotions, were unusually low in the 2025. As I mentioned before, we continue to expect ZYN to deliver best-in-class gross margin within PMI above the average of IQOS. We are very excited about the significant growth potential the brand over the coming years, which fully justify the above-mentioned investment. One example of our enhanced brand building effort is the recently announced global partnership between ZYN and Ferrari, which recognize our long-standing heritage in Formula one. We smoke-free product now at the forefront. Formula one's overwhelmingly adult audience provides a highly impactful platform to engage consumers responsibly and reinforce ZYN's premium equity. Finally, moving to combustible, which delivered another robust year of pricing of plus 7.6%, including plus 6.8% in Q4, and very good growth profit growth. Our full-year cigarette share declined by 0.2 points to 25.3% mainly due to Turkey, was otherwise stable including record high for Marlboro, both for the full year and in Q4, where its share reached 11% of the international category excluding China. For 2026, we forecast a convertible pricing variance of around plus 6%, reflecting continued dynamic performance. With that, I will now hand it back to Yatzek. Jacek Olczak: Thank you, Emmanuel. This brings me to our outlook for 2026, where we expect another year of strong and profitable growth despite several transitory headwinds. Starting with volumes, we expect continued strong underlying momentum in our smoke-free business for all three categories. Both shipments and adjusted IMS volumes are projected to grow in a high single digit after factoring in the headwinds from Japan excise taxes and US zinc inventory comparisons described earlier. For combustibles, we forecast a cigarette decline of around 3% with weaker industry volumes in India and Mexico following the recent excise tax increases and our own recovery in Turkey likely to impact comparisons in the first half. Altogether, this results in a broadly stable outlook for total shipment growth subject to the usual variability in shipment timing and trade inventory movement as compared to a forecast total industry decline of around 2% for cigarettes and HDUs. led by combustibles We expect another strong year overall for price notwithstanding the impact of US first half comparisons. And for continued positive smoke-free mix. Taking all these elements into account, we forecast 2026 organic net revenue growth of five to 7%. We expect the same factors in addition to operating leverage and ongoing cost efficiencies to drive further robust margin expansion with projected organic operating income growth of seven to 9%. This includes continued strong investment behind our smoke-free portfolio. We are forecasting currency-neutral adjusted diluted EPS growth of 7.5% to 9.5% factoring in broadly stable net finance cost and an effective corporate tax rate approximately in line with 2025 at around 21.5%. Including an estimated 28 pen currency benefit at prevailing exchange rate, This translates to 11.3 to 13.3% growth to a range of $8.09 to $8.54. Which would mark another year of double-digit EPS growth in dollar terms. We expect a significant acceleration in operating cash flow growth at around €13.5 billion at prevailing exchange rates and is subject to year-end working capital requirement. The strong cash generation is expected to support further meaningful deleveraging in 2026 which I will come back to shortly. On a quarterly basis, we expect the first quarter to be the softest quarter of the year, reflecting demanding year-on-year comparison and investment phases. We expect first-quarter combustible volumes to decline by up to 5% as the lap a prior year quarter of volume growth whilst having the highest expected impact of the dynamics in Turkey, India, and Mexico, which I mentioned, for the full year. Smoke-free product shipments will also be by the US ZYN shipment dynamics explained by Emmanuel and the strong HDO comparator. With low levels of commercial activity on ZIM in prior year impacting the net revenue per car per can comparison and a higher quarter of investment globally behind our smoke-free due to phasing we anticipate broadly flat year-on-year first-quarter organic net revenue and operating income. We forecast high single-digit adjusted diluted EPS growth of $1.80 to $1.85 including a 14¢ tailwind at prevailing grades. Supported by a favorable comparison to transactional currency impact in the prior year. As I mentioned earlier, we have delivered dollar freer CAGR targets on operating income and EPS in just two years. Combining our 2026 forecast with the strong results of 2024 and 2025, we expect to meet up or exceed all of our 2024-2026 CAGR targets presented at our 2023 Investors Day. This is especially the case for operating income and EPS growth despite our algorithm assuming a more favorable corporate tax rate. In addition, our expected adjusted EPS CAGR in dollar terms to represent a strong double-digit delivery. This brings me the 2026-2028 outlook where we are renewing our medium-term growth targets in the next three years. We continue to target positive total shipment volume with the growth of smoke-free products more than offsetting cigarette volume decline. While our 2026 forecast ranges are marginally lower due to the specific factors we explained for the three-year period to 2028 we continue to target compound annual growth rate of six to 8% in organic net revenues eight to 10% in organic operating income as margins expand and 9% to 11% in adjusted diluted EPS constant currency. This renewed target reflects our confidence in sustaining the strong pace of top and bottom-line growth over time. They also reaffirm our best-in-class growth profile within the large-cap consumer packaged goods sector. We target smoke-free product shipment and adjusted IMS volume growth of high single digits to low teens. Our multi-category strategy in international markets will continue to be the dominant driver of smoke-free products growth further amplified by the substantial opportunity in The US. As we progress through the period, we expect this to be both by the new market openings and an active innovation pipeline. The US launch of icosiloma is included in this target including initial commercial investment with the precise cut in subject to the timing of launch. Meanwhile, the resilience of our combustible portfolio provides a critical backbone providing the infrastructure financial firepower, and consumer connection to accelerate smoke-free growth. We look forward to sharing more with you on this topic at the Cognex conference on February 18. We remain a highly cash-generative business which is based on the strength of our brand and reinforced by disciplined management of cost and cash. This gives us the financial capacity to invest strongly behind our smoke-free business Product. Alongside superior business results, we are committed to delivering superior shareholder value. Having essentially reached our target dividend payout ratio of around 75% of adjusted diluted EPS We have the capacity to pursue dividend growth closer to the level of earnings growth as demonstrated by the 8.9% increase announced in September. Strong cash flow and EBITDA growth enable us deleveraging. Closed 2025 with an adjusted leverage ratio of 2.5 x, reflecting solid progress despite the unfavorable impact of year-end currency movements in our net debt. We expect further improvements in 2026 targeting close to the 2x by year-end at prevailing exchange rate. Providing increased flexibility for capital allocation. In summary, our full-year performance under strength and the momentum of our global smoke-free business supported by investment in our premium brands and continued resilience of combustible ibles. Despite the complex operating environment, shaped by economic uncertainty, geopolitical tensions, and evolving regulations, we continued to make significant progress towards our vision of a small free future. As we delivered consistent best-in-class growth we are reinvesting in our leading brands innovation, and the critical capabilities which support long-term performance. This allows us to generate significant value for our shareholders, including the largest dividend increase in over a decade. We look forward with confidence to 2026 and beyond. Thank you. Emmanuel, and I will be happy now to answer your questions. As a reminder, to ask a question, please press 11 on your telephone. And your name will be announced. Emmanuel Babeau: To withdraw your question, please press 11 again. Our first question comes from Matt Smith with Stifel. Your line is open. Matt Smith: Hi. Thank you, Yasek and Emmanuel, for taking my question. Good morning, Matt. Starting with the new medium-term targets that you provided today, can you expand on the reacceleration in smoke-free volume growth compared to the 2026 growth guidance? And you called out The U. S. As a new market in the outlook How are other currently closed markets and the opportunity to expand platforms into existing IQOS markets considered? Thank you. Jacek Olczak: Yes. So the acceleration in, of BEYOND '26 is the at this stage, we mainly see coming from all the implementations of the tax changes, which of price or excise driven price changes in Japan you may recall, Japan has the multi-step excise tobacco nicotine product, the excise tax changes. It starts with the asymmetry of heated tobacco products increasing the taxes first. And then I followed by the cigarette price increases as of '27. So I believe I will believe at this stage, will be some headwinds on maybe some headwinds on the category growth And, obviously, IQOS growth in a '26, but once we start moving to the '27 and beyond, more symmetry with regard to the fiscal policy and treatment between a cigarette and heat not burn, I mean, IQOS of the category should be returning or resuming a growth. So that's the one factor. And second factor, obviously, is that you know, as we highlighted in our remarks, I mean, there is a highly, you know, competitive environment in The US, and despite, you know, US in the total smoke-free volumes, may doesn't have that much of a weight, but for a growth, it's very opportunities, and the growth is very important to us. There are some asymmetries on the portfolio. Versus what is, presumably the most dynamic part in the total market, and we believe we've pending authorization with FDA once we will start moving hopefully, through '26, but definitely '27, etcetera. We're gonna put the portfolio into the symmetry of whether the consumer market expectations. Now, obviously, the other fact which we mentioned, they are more on the combustible side. I mean, I'm not gonna small free product. I mean, that we mentioned India, Mexico, couple other smaller places which have some quite outsized, I would characterize, I increases, which obviously will drive the quite outsized, the normal price increases. So I believe once we will we don't think it's gonna be recurring, type of events, 2728. So we can come back and resume the the strong top bottom line growth in the outer years? I think I just highlighted the the the key drivers. There was obviously the factor of innovations, but you know, you will ask me the questions what exactly is the innovation for competitive reason. Will not be able to discuss. But this will be the main drivers coming or or starting from a '26. The excise Japan, Xi is in a few other places, and the ZYN portfolio asymmetry and bringing this to the symmetry. Matt Smith: Very clear. Thank you for that. I look forward to seeing you at the CAGNY conference, and pass it on. Okay. Thank you. Our next question comes from Eric Sarota with Morgan Stanley. Your line is open. Eric Sarota: Great. Thanks so much. Jacek Olczak: Guide for 26 Good morning, Eric. Oh, good morning. Terms of the 26 guide for Emmanuel Babeau: smoke-free volumes up in that, you know, high single digits to low teens range. How are you thinking broad strokes? I know you're not guiding specifically, but how are you thinking in terms of ICOS, HTU, shipments, and IMS. Obviously, there's the, some of the specific headwinds you you called out in terms of, the excise in Japan, And then you know, in terms of the competitive environment in Japan, I believe it sort of started to step up around the second quarter of year with some competitor product launches. How has that been kind of evolving on a sequential sequential basis, particularly heading in now to the season where you know, competitors have have filed with the finance ministry for their for their price increases. Jacek Olczak: Yeah. So I start maybe with the the the the second part of the second question. I mean, yes, there is a this year and the year before, there was an increase competitive activity in the in Japan. Judging by how strongly IQOS holds the share in Japan and continuing its growth, I think it all goes well. I think, look, we have a ten year of IQOS brand built in Japan, and you know, number of steps of smaller, but also the big innovations, including icosiloma. So I think, you know, IQOS is entering this a bit challenging from a price perspective, period to to, I think, you know, relatively strong. Now, I think there are very legitimate questions how we see IQOS in Japan, but we know we try to stand away from giving a very precise volume and other outlooks for the ones with specific geographies that, you know, you will appreciate. There was a you know, there was a competition, and we don't don't want to highlight too much. To reveal, you know, whatever plans with regards to the price and you know, share expectations, the volume expectations. But when we come up with their guidance for the total smoke-free product volume evolution next year, I mean, all of these factors baked in, if you like. And maybe, Eric, on your first question globally on the IQOS outlook among this high single-digit growth for our s p SFP volume in in '26 We're very pleased with the growth of IQOS. Mean, we finished '25 very strongly, more than 12% adjusted in market sales growth. Yes. Japan has been slowing down a bit as we as we mentioned, but the number of markets reaccelerated. Italy is one of them. Europe is showing a number of markets which are I would say, accelerating, like Germany, like Spain, you still have markets such as Romania, Bulgaria that are very nice complement to the growth. So the picture is is very nice for for IQOS. And, of course, we continue or we expect that to continue in in '26. And then you have all these new markets in in new economies that are being very successful. We have we we have Emmanuel Babeau: Indonesia, Philippines, The Gulf, mixed I mean, you have plenty of markets where IQOS is accelerating. And, last but not least, we are super pleased with the launch in Taiwan. I mean, 4% in only a few weeks, It's quite an achievement. And we're excited about, about the outlook. So that is globally giving a nice picture for the continuation of a of a of a very good growth for IQOS in '26. Eric Sarota: Great. And just one clarification question just to be explicit in terms of the the midterm or twenty six to twenty eight guidance, Is '26 correct me if I'm wrong, but '26 does not include anything for Oluma in The US. But there is something included for the you know, sort of 2728 time frame? Is that fair? Or, correct me if I'm wrong, please. Jacek Olczak: It is it is the other case is broadly fair. Well, I don't know. I'll pass it on. No. No. No. No. On a serious note. Sorry. On serious note, you know, we've had a number of discussions over the last two years with regards to the, you know, estimated or expected timing of, you know, this long overdue authorization from FDA, but we have somehow made the assumptions for IQOS entering The US market in a planned period. But I don't think the algorithm which will lay down in front of you today is heavily or material dependent on the IQOS, on the IQOS in The US. But IQOS is including their both from the investment that some expected volumes. Eric Sarota: Got it. Thanks so much. I'll pass it on. Thank you, Ike. Emmanuel Babeau: Thank you. James Bushnell: Thank you. Our next question comes from Bonnie Herzog with Jacek Olczak: Goldman Sachs. Your line is open. Bonnie Herzog: Alright. Thank you. Hi, everyone. Emmanuel Babeau: I am Bonnie Herzog: wanted to follow-up on, you know, Japan and the excise tax situation. As you mentioned, we've known or seen that you're applying or you did apply for a price increase on top of the TAC So hoping you could talk a little bit more about the elasticities you're expecting, you know, with volumes I assume being pretty negatively impacted? And then I guess, will the leverage on the incremental pricing you're hoping to get be enough to drive margin expansion and income growth in the region? Jacek Olczak: Yeah. It's. Okay. The price consumer will be will start being impacted. They will start seeing the prices as of April 1. Right? So this is still a a little bit in front of us. There obviously will be some IMS shipment type of distortions, you know, consumers can do some buying their head or maybe not. I mean, all of these things will somehow wash out for the year. Now there are two steps of excise increases for heated tobacco products in in 2026, one which, again, will kick the sorry, will hit the consumers in April 1. And the number in October. Okay? The amount or the size of the excise may not immediately warrant that will I don't want to now talk about the pricing strategy, etcetera. May not immediately warrant depends on which strategy is at play on the margin expansion, but I do believe, you know, what is our approach to passing on prices and continuously working on the margin expansion. I think over a bit longer period of time, we will get where we want to to get. But I cannot comment more Bonnie, for for Got it. Emmanuel Babeau: Reasons. Yes. Bonnie Herzog: I figured I just alright. That would still help. I appreciate it. And then I did wanna just maybe ask a high-level question on your guidance this year. Could you maybe frame for us or touch on the key growth drivers that really will allow you to deliver on your top and bottom-line guidance and possibly beat it, considering, you know, you're laughing. Several strong years of growth. I think that's been a key question just given, you know, the momentum. So it'd be helpful just to kind have you kinda frame for us, you know, what are kind of the key drivers of this And then in the context of that, I did wanna just make sure to understand how much of an increase or not. Your guidance assumes in terms of planned investment spend this year. Versus last? And I guess, again, I'm asking, thinking about everything that you're planning on rolling out, of course, depending on the FDA. Thank you. Jacek Olczak: Look. I mean, obviously, there is some degree of assumptions with we're taking on FDA. And okay, let me answer this if not. If we talk specifically about the ZYN and the ZYN Ultra our pending application. Which is very much in the higher nicotine strength obviously, moist version, you know, some flavors, etcetera. We have a readiness to launch the product essentially as well, essentially as we speak. So it all depends now how quickly can get an answer from FDA, and I will stay from any fortune telling you by the way. About precise timing of FDA. I mean, I didn't have a great track record of forecasting FDA in the past, so I I have to okay, validate with this. But I think it's gonna happen. Okay? Summer this year, I think the plan is well balanced. And, obviously, we will be mean, I sorry. ZYN is growing in The US, but it not growing at our expectations You know, if you measure the category growth versus then growth, at least the recently, etcetera, I mean, this will have to other this will have to be addressed. Cycles, and I said it's somehow baked in the plans. And the way we did this, algorithm provides a good balance between timing, volume expectations, and and, you know, investment. Now we need to remember that you know, when we talk about the ZYN and v for example, on international, mean, these two product categories are vastly enjoying the infrastructure, which we have built over time on IQOS. And I believe the longer we wait also in The US, we will we may end up in the similar, but reverse thing. It is a Zen energy infrastructure, back office capabilities, etcetera, which you know, will start being later on shared for IQOS. So you know, I I remember you always were asking these questions about how much was the interest behind the IQOS, but everything depends about what other investments until this date we have been making and so on. Obviously, there will be some variable investment. You need to build awareness and so on. But these are not, that heavy, maybe structural, long-lasting investments, which are already built because we we we we continue investing behind Emmanuel Babeau: But it just to to maybe complement there is no rupture in '26 versus the trend of the past years. So the fundamental drivers remain exactly the same. You have a powerful smoke-free portfolio, which is continued to be dynamic. Yes. You have this Japanese situation, which is a one-off. You have, the high base of comparison in The US, which will have an impact in term of growth versus what is real underlying growth. So that is something we are taking into account. But fundamentally, the dynamism is there. With a very nice positive mix impact on the margin, and that is playing. And on combustible, we have this resilient business model Yes. In '26, we are expecting slightly more decrease, which is coming from first of all, Turkey, where we still have an each one of comparison even if things are gradually improving. But mainly two markets, India and Mexico, where you have massive excise duty that are going to happen. In India, you talk about 40% plus price increase for the consumers. We're gonna have huge impact on the market. So this is impacting the volume. But even with that, we are targeting to have this resilient model where with a decline in volume, we believe we can grow low single digit the revenue and low to mid-single digit the growth profit. So as you can see, the 26 objective is not very far from the CAGR of the midterm growth algorithm. Fundamental remain exactly the same. We have a couple of special events we're going to to to to overcome and offset, and that is really what is driving the difference. But fundamentally, the powerful dynamic behind the business remain exactly the same. Bonnie Herzog: Alright. Very helpful. Thank you. I'll pass it on. James Bushnell: Our next question comes from Faham Baig with UBS. Your line is open. Good morning, guys. Thanks for taking the the question. I've got a couple as as as well. Faham Baig: I do wanna push you on innovation a bit as we approach the five-year mark since since the launch of ICOS ILUMA. We look forward to the next evolution, what technical or functional do you see could could further improve consumer can conversion, particularly, in in in the emerging markets. And the second question goes back to Zinn. We've observed a notable absence of of ZYN promotions. Over the last two months, in in in The US. Can you can you clarify, is this is this a deliberate shift as you await the the the offer of Zen Ultra, which is a higher moist product, which you which you mentioned, or or or is there a shift between how aggressive you want to currently drive trial versus looking to capture the 50% category growth you've you've alluded to historically? Jacek Olczak: Okay. So, yeah, it's like I take the I take the question. Okay. Starting with your first question. I'm very pleased and I honor this you know, representative of PMI that you're tracking the innovation engine of PMI. You're absolutely right with plus minus in the plan period approaching the five years of icosilumab. So I think your predictions are pretty good, but I will not answer second part of that question, what the denervation's gonna be for the reasons which I guess understandable. Now when it comes to promotions, I actually think is the two months. There was obviously the difference in what promotions and intensity of repromotions US market Has deployed in Q3 and Q4. There were a couple of schemes which we didn't repeated for you know, that was our decisions. But I wouldn't just conclude that, from a, you know, shorter period of time about the promotional promotional intensity of activity. We have it in a plan. We cannot, you know, again, talk about this. But the way to look at this, and I think we've been a very transparent in our remarks, there are three aspects of what will make, long-term success of a our pouch business in The US. And we're repeating what we always were doing on so far on the international. One is the brand, and the world has there has to be quite a degree of the support from a brand building activity. There is obviously the component of a portfolio, which is meeting at least the current trends. We can have a separate con conversations which of the trends we think may be longer lasting, which of can be longer lasting. But the fact is that, you know, ZYN is doing okay within a day group of a three six milligram. But clearly, it's missing a higher nicotine strength Okay. Particularly, maybe nine, maybe others. Okay? So that's the thing which we'll have to address, and here we need to deal a work with FDA. And there is a third component into into this thing, which is obviously price. And a price premium, which you know, consumer is willing to pay for them in exchange for having a reputable, vibrant, dynamic brand and the right product. So there will be element of it's almost like we're going to the to the, you know, textbook of, old, maybe forgotten marketing mix. And to have the right price, right product, right place, right promotions. And we will be diligently deploying all of these components to get I hope I answer at least partially your question. Faham Baig: No. That's that's very helpful. Given my first question wasn't answered, can I can I squeeze in an an another one for Emmanuel? Jacek Olczak: Sure. Sure. Yeah. Sure. Sure. Emmanuel, Faham Baig: the the currency guidance for the year was significantly better than the three estimates. Could you maybe share the key drivers why that could have been? And and also provide the hedge rates for the year for the key currencies would be really helpful. Emmanuel Babeau: Yeah. So probably the I mean, the reason why is that we are going to benefit from some significant negative transactional impact in 2025, which are not going to repeat. Based on the current Forex in 2026. So when I look at the 27¢ guidance, you have twothree that is coming from translation, but around onethree is coming from a a transaction. So I believe that is probably what the street doesn't have, of course, because it's difficult to to to have. I'm not going to share precisely the hedging, but yes, we continue to have some hedging that are helping us a little bit notably on the yen because the euro has been going up. So the hedging on on the euro are no longer making a big difference. So we still enjoy a slightly better rate than the the spot you can see on on your screen. And that is limiting a little bit the negative impact. But let's be clear, in '25 the yen had a negative impact, and we are expecting in '26 another negative impact coming from the Japanese yen. Faham Baig: Thank you. Appreciate it. Thank you. James Bushnell: Thank you. Our next question comes from Gerald Pascarelli with Needham and Company. Emmanuel Babeau: Your line is open. Gerald Pascarelli: Thanks. Thank you very much for the question. Hi, Gerald. Jacek Olczak: How you doing? I I just have one. I'd love to get your thoughts But last month, it was reported that New York is considering a significant excise tax increase on nicotine pouches. So I'm just would love to get your thoughts when you consider the obvious potential for other states to maybe adopt similar proposals. And then maybe the impact you believe that this could have a promotional environment or the competitive landscape. Jacek Olczak: Thanks. Yeah. We're aware of obviously, we're aware of this proposal. I mean, the comment I can make at this stage that this is counterproductive to the health benefit for nicotinals smokers this product provides. So I think the legislator there is taking everything in the consideration. Like, states, in The US you know, very well, all driven by their own thinking, process and not necessary one state actions are translating to other state actions. But let's see how that's gonna you know, unfold. Again, I repeat because for me for us, it's very important that know, shortsighted approach to the exercise and the products which are vastly better than cigarettes undermines undermines real public health, objectives. So I think it's just it's just the wrong idea. Emmanuel Babeau: Thank you. James Bushnell: Thank you. Our final question comes from Damian McNeil with Deutsche Bank. Your line is open. Damian McNeil: Hi. Thank you. Hi, Daniel. Jacek Olczak: Hi. Damian McNeil: Thank you. Just one question for me, really. Just Emmanuel Babeau: just on costs. You've indicated that you're on track to deliver GBP 2 billion of cost savings by the end of this year. Just wondering whether you're in a position to quantify whether we should expect a similar level of cost savings, for the medium-term guidance at the '28. And what scope AI may have to accelerate cost savings, please? Jacek Olczak: Well, so it's not part of the guidance we we providing today, but we certainly ambition to continue to be very efficient Emmanuel Babeau: on our cost Roughly speaking, you know, not going to give precisely the speed, but it's around 60% on on COGS and and the rest is on the our notably back-office cost and G and A. It is clear that we are targeting to build efficiency in the future coming from AI. Again, that that's that's a topic that is quite sensitive. You know, if you start to say what to invest and what to expect from AI, but you should certainly expect that AI is gonna be an engine for more efficiency and and and for cost performance in the future. Absolutely. Damian McNeil: Okay. Thank you. Emmanuel Babeau: Thank you. Damian McNeil: Thank you. I'm showing no further questions at this time. I would now like to turn it back to management Jacek Olczak: for closing remarks. So I have a last remark and this is just the best proof that we're leaving in the know, in the environment when we have a digital AI and the human. Both of us were human, and this is not that AI was hallucinating I think I misread one number when it comes to the guidance of the zero. Emmanuel corrected the number in terms of a currency impact going into the 2026. The number which you had on the slide, the number which you had on the release, and the number which Emmanuel has quoted at the right numbers. Apologies. For this inconvenience, but this is the best proof that it was a lie. Conference, not a digital conference. See you all at Cognizant. Thank you very much. You soon. Thank you for your time. Thank you. Operator: Thank you for joining us. Please do contact the investor relations team if you have any follow-up and have a good day. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Piper Sandler Companies Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call is being recorded and will include remarks by Piper Sandler management followed by a question and answer session. I'll begin by turning the call over to Kate Winslow, Please go ahead. Kate Winslow: Thank you, operator. Good morning, and thank you for joining the Piper Sandler Companies Fourth Quarter and Full Year 2025 Earnings Conference Call. Hosting the call today are Chairman and CEO, Chad Abraham, our President, Debbra Schoneman, and CFO, Katherine Patricia Clune. Earlier this morning, we issued a press release announcing Piper Sandler's fourth quarter and full year 2025 financial results which is available on our website at pipersandler.com/earnings. Today's discussion of the results is complementary to the press release. A replay of this call will also be available at that same website later today. Before we begin, let me remind you that remarks made on today's call may contain forward-looking statements that are not historical or current facts including statements about beliefs and expectations, and involve inherent risks and uncertainties. Factors that could cause actual results to differ materially from those anticipated are identified in the company's reports on file with the SEC which are available on our website at pipersandler.com and on the SEC website at sec.gov. Today's discussion also includes statements regarding certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. Katherine Patricia Clune: The non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure is provided in our earnings release issued today. I will now turn the call over to Chad. Chad Abraham: Thank you, Kate. Good morning, everyone. Thank you for joining us. Our business performed well during 2025 driven by strong execution and improving market conditions. We had a strong finish to the year with record adjusted net revenues of $635 million in the fourth quarter, a 27.2% operating margin, and adjusted EPS of $6.88. On a full-year basis, adjusted net revenues were $1.9 billion, achieving a 21.9% operating margin and adjusted EPS of $17.74. There are a number of highlights from 2025. Adjusted net revenues grew 22% with contributions from all businesses, resulting in a 39% increase in adjusted net income compared to 2024. We delivered a record year in advisory, with over $1 billion of revenues representing 55% of total net revenues. We grew our Investment Banking MD headcount to 187 managing directors and meaningfully increased productivity per banker. We completed the acquisition of G2, complementing other key hires to expand and strengthen our technology investment banking practice. We generated record revenues in equity brokerage and recorded our second-best year in both public finance and fixed income brokerage. We returned $239 million to shareholders through share repurchases and dividends. 2025 marks another successful year for Piper Sandler. We have now achieved nine consecutive quarters of year-over-year growth, underscoring our strong execution and sustained momentum. This progress is supported by our ongoing investments in the business, the diversification of our sector and product capabilities, and an improving market backdrop. 2025 also marked our firm's 130th anniversary. The foundation of our success is serving the best interests of clients, employees, shareholders, and the communities where we live and work. I'd like to thank my employee partners for their continued hard work and dedication to providing best-in-class service to our clients. Turning now to corporate investment banking. During the fourth quarter, we generated $469 million of revenues, up meaningfully over the prior year driven by robust M&A activity as well as solid debt capital markets advisory activity. For the year, Corporate Investment Banking revenues totaled $1.3 billion, representing a 28% increase from the prior year. Sector contributions were diverse, as five out of seven industry teams grew revenues versus 2024. Within corporate investment banking, advisory revenues for the quarter were $403 million, up 44% year-over-year. Our Financial Services and Services and Industrial teams led sector performance. For the year, advisory services generated $1 billion in revenues, up 28% from 2024 and exceeded our previous high watermark from 2021. This reflected a strong relative performance compared to a 7% growth rate in overall M&A activity in the middle market. During 2025, we completed 135 advisory transactions, 16% more than the prior year and earned higher average fees. Advisory revenues from both corporate and sponsor clients were up meaningfully year-over-year. We were ranked as the number two adviser based on the number of announced U.S. M&A deals under $1 billion. In addition, non-M&A advisory generated another record year and increasingly constitutes a meaningful amount of our total advisory revenues. Industry team contributions were led by financial services followed by a record year from Services and Industrials and solid contributions from our healthcare, energy, power and infrastructure, consumer sectors. Our performance within financial services was led by depositories, where a more accommodating regulatory environment bolstered a resurgence in bank M&A activity. We were the number one adviser in U.S. Bank M&A based on the number of announced transactions during 2025. Additionally, we saw solid contributions from our insurance, asset management, and specialty finance subsectors. Record performance from our services and industrials team in 2025 was driven by larger transactions generating higher average fees. These results reflect investments we've made in this sector developing and recruiting exceptional bankers with deep client relationships particularly with the financial sponsors community. In addition, our non-M&A advisory teams have been a key driver of performance. In recent years, we have made substantial investments in these capabilities to expand client offerings and increase market share, especially with private equity. The most meaningful components of our non-M&A advisory revenues are debt capital markets advisory, private capital advisory, and restructuring. Non-M&A revenues have outpaced the growth of our M&A revenues for several years and exceeded 25% of total advisory revenues in 2025. Our debt capital markets advisory business has been a significant contributor to this growth as it recorded its third consecutive year of record revenues, benefiting from higher average fees as well as a broader and more diversified client base. We also have significant opportunities within our private capital advisory group to leverage our sponsor relationships and sector expertise to further grow market share. Looking ahead, while several larger advisory transactions closed in the last week of 2025, our pipeline of engagement mandates is building, and we expect to see another strong year of advisory revenue in 2026. Corporate financing markets were solid throughout the quarter, and we generated $67 million of revenues. We completed 31 financings, raising $15 billion for corporate clients, with activity centered in healthcare and depository sectors. For the year, corporate financing revenues of $217 million increased 25% from 2024 driven by a strong second half of the year. During 2025, we completed 122 equity debt and preferred financings raising $48 billion for corporate clients. Sector contributions for the year were again led by our healthcare team, which served as book runner on 37 of the 38 equity deals they priced during 2025. And we participated in all six MedTech IPOs that priced in the market. Our financial services team also contributed a strong underwriting performance in 2025, pricing 65 transactions that raised $19 billion in capital for our clients. As we look ahead, January financing activity has been strong. Our pipeline of new issues is healthy, and we are seeing strong demand from institutional investors looking to deploy capital across sectors. Shifting to talent. We finished the year with 187 investment banking managing directors. While our net MD headcount increased modestly from 2024 levels, we strengthened our talent base and improved productivity helping to drive profitability in the business. Over the last ten years, we have grown MD headcount at a 10% CAGR. We're consistently looking for talented partners who strengthen the platform and position us for growth in our product and sector teams, expand our geographic reach, or add additional capabilities to support our clients. Overall, our 2025 results were strong. And we're pleased with our performance. The combination of improved activity levels, strong execution across business lines, and a constructive market environment resulted in excellent financial returns. We've entered 2026 with good momentum, strong client engagement, and an accommodative regulatory environment and meaningful opportunities to gain share. Before handing it off to Deb, I'd like to highlight a recent leadership announcement. In January, we named J.P. Peltier as co-head of investment banking and capital markets. JP will co-head the group alongside Mike Dillehunt and James Baker, who have served together as global heads of investment banking and capital markets since 2021. JP is a 25-year veteran of Piper Sandler, an exceptional banker, and growth-oriented team builder. He recently served as co-head of the healthcare investment banking group where his leadership helped build a market-leading franchise. I'm confident that JP, Mike, and James will successfully lead our corporate investment banking business to accomplish the medium-term goal of growing annual revenues to $2 billion plus in the coming years. With that, I will turn the call over to Deb to discuss our public finance and brokerage business. Debbra Schoneman: Thanks, Chad. I'll begin with an update on our public finance business, where market conditions remained favorable with record issuance levels driven by funding needs for infrastructure upgrades, and strong investor demand. We generated $39 million of municipal financing revenues for the quarter, flat sequentially and down 5% compared to the strong prior year quarter. For 2025, we generated $146 million of municipal financing revenues, our second strongest year on record. These results reflect the diversification of our business and strong relative performance. Our revenues increased 19% over last year, exceeding the municipal negotiated market issuance growth of 12%. We underwrote 555 negotiated transactions during 2025 raising $19 billion of par value for our clients. Additionally, we maintained our position as the number two underwriter based on the number of transactions. Activity was solid across both our governmental and specialty businesses reflective of our client and geographic reach. Performance was broad-based with strong results in Texas, California, Oregon, and the Midwest, as well as our special district healthcare and hospitality sectors. In addition to revenue growth, we focused on local market relationships and knowledge to strengthen our market leadership in our core sectors. Our special district team has 50% market share in the states in which they compete, and we ranked number two nationally in K-12 education by number of issues and par amount. In terms of outlook for 2026, we anticipate public finance market conditions to remain favorable with similar issuance volumes to 2025 albeit back to the more normalized seasonality. Our equity brokerage business finished 2025 at record highs, following a year with strong volumes and volatility. Fourth quarter 2025 equity brokerage revenues of $64 million, a quarterly record, led to record revenues of $230 million for the full year. These results demonstrate successful collaboration and the integration of products and investments across our platform. The strength of our platform attracted approximately 1,700 unique clients, and we traded 11 billion shares on their behalf in 2025. As we look forward to 2026, we expect our equity brokerage revenues to be similar to 2025. And last, we generated $48 million fixed income revenues for the fourth quarter down from both a strong third quarter and year-ago period. For 2025, we generated $203 million of fixed income revenues, up 9% from the prior year. Driven by robust activity with our depository clients. The increase in bank M&A activity during the year along with depository clients adjusting to the changing rate environment, provided more opportunities to advise on balance sheet repositioning. We also experienced healthy growth across other client verticals including asset managers and public entities. From a product perspective, both municipal and taxable fixed income showed significant growth year-over-year. We continued to elevate the platform by investing in talent that expands our product expertise and enhances client relationships, allowing us to provide differentiated advice. In our municipal franchise, we have established ourselves as a trusted advisor with a specialized sales force able to find liquidity for our institutional clients. In the taxable space, we have expanded our expertise in structured products, experienced talent, and leadership. As we look to 2026, we expect clients to be more active in anticipation of further rate cuts and anticipate additional work stemming from a robust M&A environment. Now, I will turn the call over to Kate to review our financial results and provide an update on capital use. Katherine Patricia Clune: Thanks, Deb. My comments will address our adjusted non-GAAP financial results which should be considered in addition to and not a substitute for the corresponding GAAP financial measures. For the 2025, we generated net revenues of $635 million, operating income of $172 million, and an operating margin of 27.2%. Net income totaled $123 million and diluted EPS was $6.88. For 2025, net revenues totaled $1.9 billion, operating income was $411 million, and our operating margin was 21.9%. We generated $318 million of net income, and $17.74 of diluted EPS. Net revenues for the 2025 increased 39% from the sequential quarter and grew 27% over the fourth quarter of last year. This growth was driven by robust advisory revenues, the second strongest quarter on record. For the year, net revenues increased 22% compared to 2024, powered by a 28% growth in advisory revenues as well as strong performance across the rest of our businesses. Turning to expenses. We reported a compensation ratio of 60.1% for the 2025 and 61.4% for the full year. Both ratios improved from the comparable periods of 2024 driven by increased net revenues and continued operating discipline. We continue to drive leverage where possible while balancing employee retention and strategic investment opportunities. We expect our 2026 compensation ratio to be similar to 2025. For the 2025, non-compensation expenses excluding reimbursed deal costs, were $67 million. Including reimbursed deal expenses, non-compensation costs were $81 million or 12.7% of net revenues. This ratio improved 440 basis points from the third quarter, and 270 basis points from the fourth quarter of last year. Non-compensation costs for 2025 excluding reimbursed deal expenses, were $271 million. An increase of 8% compared to last year. The increase in expenses was driven by three factors: increased business activity, relocating our Minneapolis headquarters office, and investments in the business, including technology and related consulting fees. Including reimbursed deal costs, non-compensation expenses were $315 million for the year and our non-compensation ratio was 16.7%. An improvement of 160 basis points versus 2024. Looking ahead to 2026, we anticipate a modest increase to non-compensation expenses, with the most notable driver being the relocation of our New York office. Our diligent management of the fixed controllable costs, continues to be a key driver of leverage. Going forward, we expect our full-year non-compensation expense ratio to be similar to the 2025 level with some variability across quarters depending on the timing of expenses. Moving to income tax expense. Our income tax rate for the fourth quarter was 28.5%. For the year, income tax expense was reduced by $30 million of tax benefits related to the vesting of restricted stock awards. Which resulted in an income tax rate of 22.6%. Excluding the $30 million benefits, our effective tax rate was 29.8% for 2025. We continue to expect our full-year tax rate to be around 30% excluding the impact from the vesting of restricted stock awards. Now finishing with capital. During the quarter, we returned an aggregate of $35 million of capital to our shareholders through stock repurchases and quarterly dividends paid. In 2025, we returned an aggregate $239 million to shareholders, which includes: repurchases of approximately 421,000 shares of our common stock or $125 million related to employee tax withholding on the vesting of restricted stock awards as well as in the open market. These repurchases offset the share count dilution for this year's annual grant. It also includes an aggregate of $114 million or $5.7 per share in dividends paid to shareholders during 2025 through our quarterly and special cash dividends. Given our level of earnings, today the Board approved a special cash dividend of $5 per share related to our full-year 2025 results. Including this special cash dividend and our quarterly dividends paid, our total dividend for 2025 equals $7.7 per share common stock, or a payout ratio of 43% of adjusted net income. In addition, the Board approved a quarterly cash dividend of $0.70 per share. Both the special and the quarterly cash dividends will be paid on March 13, to shareholders of record as of the close of business on March 3. Lastly, as part of our ongoing commitment to delivering shareholder value, I'm pleased to announce that the Board has approved a four-for-one forward split of our common stock to increase liquidity, and help make our stock more acceptable to a wider range of investors. The split will be accompanied by a proportionate increase in the number of shares of our authorized common stock. Our common stock will begin trading on a split-adjusted basis at the start of trading on March 24, 2026. 2025 marked another successful year for Piper Sandler. We grew revenues and profitability while furthering the strategic expansion of our businesses. Looking ahead, we remain focused on executing on our strategic priorities, to drive continued growth and strong returns for our shareholders. With that, we can open up the call for questions. Operator: Thank you. If you'd like to ask a question, please signal. If you are using a speakerphone, please make sure your mute function is turned off till buyers signal to reach our equipment. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Devin Ryan with Citizens Bank. Devin Ryan: Great. Good morning, everyone. How are you? Hi, Devin. Hey. I want to start on the advisory business. Obviously, I think terrific results on the year. Revenues up 28% even though we had quite a bit of volatility earlier in the year and then sponsors, seem like they're they're just starting to to really come back and reengage in a more meaningful and at the same time, your bank M&A is really picking up. So be great to just maybe talk through kind of those two components, like, how much more activity you're seeing with sponsored clients today relative to maybe six months ago? And then the other piece we get, you know, questions from investors around is, like, order of magnitude in a more functioning bank consolidation backdrop. Like, how much incremental revenue could that be for Piper relative to maybe what you were doing previously? I know they're couple $100 million on top, or or just any ways to kinda think that piece through? Thanks. Chad Abraham: Yeah. Thanks, Devin. Yeah. Maybe just to step back relative to the 28% growth, you know, 2024, you know, was a pretty good year for us, but on relative performance, you know, we were a little probably off where we wanted to be in in financial services and healthcare. Obviously, if those are your two biggest businesses, you know, that has a big impact. They both those teams had very good years in in 2025, which know, given our concentration in those sectors, that, you know, leads to outperformance when that happens. Would say relative to the sponsor business, I do think we outperformed. I think it's been frankly, a pretty good market for a good six months here relative to deals we're getting done, deals we we're getting closed. And I think that's really just emphasized by probably the team that had you know, like, the the biggest year, not in total revenues, but just in sort of step functions was our diversified services and industrials team, which is pretty much entirely a private equity sponsor business. And then relative to bank M&A, you know, obviously, that was a big contributor for us both in M&A, starting to refinance the balance sheets, We see that a continued pace. There's obviously a big deal recently announced, but I I always do have to sort to sort of stress you know, it's part of our advisory business, which is part of the total, and depositories is only half of our financial services. So while it's a while it's important, it's a big part of the business. It's hard for just depository to move the top line in in any meaningful meaningful way. Devin Ryan: Got it. Thanks, Chad. Appreciate it. And then just a follow-up on, it's kind of capital allocation, but also kind of M&A opportunities for the firm. You obviously generating a lot of capital right now. Potentially accelerating. Can you talk about potentially appetite to, I guess, one, buy back more stock in this environment, particularly with the stock being more liquid and creating more capital. the years on the M&A side. You've been able to And then two, as an outlet, you've been very active do some really nice tuck ins. What are you seeing on that front right now? And is that another kind of good use of capital? And could we potentially see some bigger deals in 2026? Just curious kind of how that fits in as you're thinking about capital allocation into 2026? Chad Abraham: Yes. And I would say relative capital, I think for the last few years, we've been pretty consistent. We we sorta need all the tools in the toolbox with the sorta cash we're generating and sort of not not much of a need for on on new capital sort of besides investing in growth. And acquisitions. You know, obviously, it's sort of in this order. We're always focused on the quarterly dividend. I do think as our liquidity is improved as many of these acquisitions have matured, it's it's also helped our float obviously, with the stock split. So I think there'll be a chance for us to probably lean into the buyback a little more than we have in the past just because we've always been conscious of of that float. But I would say we we really need all of those tools. And then, you know, number one is just we've delivered great returns in terms of the and deals. We've done And I think we're in a really good environment for that from the perspective of we're doing really well, we've added a lot of products. I think the platforms appealing. But also, some of these relationships we build over a few years and the time to transact those transactions, you know, while sometimes partners have to transact when things are tougher, they don't really choose to do that either. And so now that some of the boutiques and sectors we're seeing are seeing a bit of a recovery, think there's a lot more interest on the sell side. So I'm pretty optimistic about the pipeline there. Devin Ryan: Okay. Sounds good. Thank you very much. I'll hop back in the queue. Appreciate it. Operator: We'll go next to James Yaro with Goldman Sachs. James Yaro: Good morning, and thanks for taking the questions. Chad, you've had a lot of success adding new businesses in in for example, non-M&A advisory. And that's been a combination of organic and inorganic growth. As Are there any other businesses you're looking at and that you're interested in potentially exploring or expanding into? And, would you have to use the inorganic route to to get into those businesses? Chad Abraham: Yeah. I I think you're obviously mostly talking about products we've added, I would say, of certain products ebb and flow and then there's more and more interest. I would say right now relative to the product side, we've added quite a bit in terms of the last five years, restructuring, private capital advisory, obviously longer than that ten plus years ago, we added debt capital advisory. I think we're mostly focused right now on we've got a lot of runway in those products and sort of the collaboration. We've, you know, we've recently done some analysis in some of those products in terms of how many of our bankers have used the various products in and there's there's just still a lot of upside there. So I think we're we're pretty focused on continuing you know, that that penetration. But in some of our other businesses, obviously in equities, we added some of the private stock trading. So I always think we're evaluating that the bigger, stronger, the the platform gets, you know, the those opportunities become available. James Yaro: Okay. Great. So you delivered quite healthy corporate financing results this quarter. But the equity markets are clearly struggling. Could you help us think through the puts and takes on the equity capital markets backdrop from here? Chad Abraham: Yes. No. And I've been doing this a long time, so I'm always reminded how quick and humbling the equity capital markets can be to to your financing business. For us, the big key is just to be diversified across those sectors. Obviously, healthcare is a big part of our equity capital markets. I would say relative to the recent sell-off, healthcare has performed quite a bit better. You know, this is obviously what we're in now is really led by a tech and software sell-off. So I I you know, obviously, those financings are gonna be impacted and and, you know, I don't know if you say we're one week or two weeks or three weeks into this, but we're we're pretty into it. But I've seen enough markets where it only takes a couple weeks and then it impacts the whole market and then accounts sort of shut down on on new issues. But we had a a a very good January for ECM. But I think you're you're right to say we we just don't spend a lot of time trying to predict more than a few weeks out what the the market environment's gonna be for new financings and ECM. James Yaro: That's really clear. Thanks a lot. Operator: We'll go next to Brendan O'Brien with Wolfe Research. Brendan O'Brien: I guess to start, I just wanted to touch on sponsors. And get a sense as to how you would characterize the conversations that you're having with your sponsored clients at the moment and just specifically, you know, whether there's been any notable shifts the tenor of these discussions following the recent moves in equity markets that might further delay the acceleration in activity that everybody is hoping for in 2026? Chad Abraham: Yeah. And and I feel I feel like I've been reasonably on this. I mean, for us, it's it's you know, the last couple years have just been a steady march of, you know, improvement, sort of nothing gangbusters, but more and more sponsors, you know, trying to get liquidity on their one or two top things. I think, you know, we we had a really good kinda last summer, fall sort of pitch calendar, which, obviously, led to a really good end of the year and, you know, end some of that trickles in. But I would also say just relative to market conditions, unlike ECM, the sponsor of the A markets like turning the the Titanic. It it turns slow. We've been on that sort of slow improvement. And sort of weekly jolts to, you know, interest rates or what's going on in the equity capital markets doesn't usually impact that. So I feel like we're just still getting slow, steady improvement and know, that's really coming across in lots of products, you know, not just our sponsor M&A business, but we had a record year in our debt capital advisory business, and that's a heavy sponsor business. And, you know, we we've added resources sort of in our private capital advisory business and the continuation vehicles, and while we saw some success kind of in our first full year last year. You know, we're we're we're now really positioned in that business. For 2026. Brendan O'Brien: Great. That's a excellent segue to my follow-up question, which is on your debt capital advisory and PCA businesses. Comments on the strong growth over the last couple of years definitely caught my attention. But just given the constructive outlook for M&A, I just wanted to get a sense to whether you think these businesses can keep continue to keep pace with the growth in your M&A platform, and what do you see that growth potential, for the PCA and debt capital markets advisory business in particular? Chad Abraham: Yes. I mean, we've this is the first time we've sort of disclosed what that mix of business on an annual basis is just to give people a flavor of sort of the size and scale for the last several years it has outpaced. Now some of that has been we're also adding adding products, and there's, you know, a lot of runway in PCA. I think, you know, part part of why we disclosed that is is, you know, that provides some diversification from various M&A markets. Honestly, do I think, you know, my my guess is that over time it continues to outpace the M&A market. But in a very strong M&A market, I'd be super happy if M&A outpaced that business. So some puts and takes. I think we're just trying to make the point that that many of those products have become a scaled, and frankly a lot of them line up with the M&A business. Many times, the debt capital advisory business is is tied to a M&A transaction. Brendan O'Brien: Great. Thank you for taking my questions. Operator: Go next to Daniel Cucchiara with Bank of America. Daniel Cucchiara: Hi. Good morning. Your 2026 was just dominated by the large cap M&A. I was just hoping you could give us a current mark to market on deals under $1 billion. And if you've seen any momentum in this cohort towards the 2025? And if the momentum is kind of carried over into the first month '26. Thank you. Chad Abraham: Yes. I would say, I mean, obviously, we get that question. People they just look at M&A volume, total volume, and sort of forget that sometimes that's driven by whatever the top five, six, 10 transactions, especially if there is some large ones. So, yeah, we're we're much more focused on volume in the middle market. I think in our release, we talked about some of the data we had that that grew high single digits. Obviously, with our advisory business, we outpaced that I do feel like the M&A market in that sort of middle market range, which for, you know, a lot of for a lot of our stuff, you know, north of 50% is is sponsor based. I do feel like we think that, you know, accelerated in the back half of the year. You know? But but we'll have to watch that mix. That mix is is very important to us. I mean, get our fair share of large transactions, but the vast majority of our volume is in that middle market. Operator: We'll go next to Mike Grondahl with Northland Securities. Mike Grondahl: Hey. Congrats. On a on a very strong finish to the year. And on that note, Chad, could you just talk a little bit about the pipeline or backlog on the advisory side? And I think you mentioned a couple larger transactions happened near year end. How does that affect your thinking about like first half 2026 versus second half 2026? Just trying to think through the cadence as we kind of get into '26 here. Chad Abraham: Yes. I mean that is a funny, I've been doing this a long time. Sometimes, we're always lining up the planes for last couple of weeks. And some years, we land most of them and some some years, we have a handful that slip. I mean, I think we made the comment, we we landed a lot in the last week of December. So that obviously always has a bit of an impact on January. You know, January is never a huge month for new announcements, so it's sort of always hard to tell, but would say our backlogs are good. Our seasonality is fairly typical. You know, Q1 is always our toughest quarter to predict. So we'll have to see that seasonality. Mike Grondahl: Got it. And and then Deb, on the municipal side, and sort of trading side, how are you feeling about the environment and just sort of you know, approaching priorities for '26. Debbra Schoneman: Yeah. So if I take that broadly across municipals from our financing standpoint, we continue to see and feel like the market will remain solid here, similar trends to what was coming out of 'twenty five. I mean, part of that is we need to look at both the supply and demand side of that equation. So rates definitely matter there. I mean, to the extent we see rates coming down, it could burst more refinancing opportunities, which just haven't been there yet. We also just continue to watch the fund flows as those continue to be again, solid, watching that particularly in high yield, that's going to help support the municipal financing business. On the trading side, I would say holistically, this is true for municipals as well as taxable products as spreads are really tight and so it's just causing a little bit of a pause for investors as they, you know, look to see what might happen there and a little nervous to step in too strongly because of that. So watching spreads on the fixed income is going be an important part for you to try to see what's happening with our business. And and I guess the other thing I would just say relative to twenty six, is as we see bank M&A improved here in '25. We saw the repositioning of balance sheet that we're able to do as part of that. You know, continue, and that's something we see going into 2026 as being likely to continue to be strong along with the bank M&A environment. Mike Grondahl: Great. Hey. Thanks a lot, and good luck in '26. Chad Abraham: Thanks. Bye. Operator: At this time, there are no further questions. I'd like to turn the call back to Chad for any additional or closing remarks. Chad Abraham: Okay. Thank you, operator, and thanks, everyone, that joined us this morning. We look forward to updating you on our first quarter results in a few months. Have a great day. Operator: This does conclude today's conference. We thank you for your participation.
Philip Carlson: Good morning, and welcome to Ispire Technology Inc. Earnings Conference Call for the 2026. I'll now hand the call over to Philip Carlson, from KCSA Strategic Communications. Please go ahead, sir. Michael Wang: Hello, everyone, and welcome to Ispire Technology Inc. earnings conference call for the 2026 ended 12/31/2025. At this time, I would like to inform you that the conference call is being recorded and that all participants are in a listen-only mode. Following the company's prepared remarks, we'll be holding a question and answer session. With us today are Mr. Michael Wang, the company's Co-Chief Executive Officer, and Mr. Jie Yu, the company's Chief Financial Officer. Michael Wang will start by discussing Ispire Technology Inc.'s second fiscal quarter financial results and recent corporate highlights. Jie Yu will then discuss the company's financial results for the 2026 in more detail. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in its announcement are forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the company in terms of its experience and its perception of historical trends, current conditions, and expected future developments, as well as other factors that the company believes are relevant. These forward-looking statements involve known and unknown uncertainties, and many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Further information regarding this and other risk factors are included in the company's filings with the SEC. The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or to changes in its expectation except as may be required by law. I will now hand the call over to Michael Wang. Michael Wang, please go ahead. Michael Wang: Thank you, Philip. And welcome to all of you joining us today. I'm pleased to share our financial results for the 2026 and the recent corporate highlights. This quarter represented an inflection point for Ispire Technology Inc. after our year-long cost-cutting and customer quality rationalization efforts, and we believe future quarters will see top-line growth, consistent cash flow, and bottom-line improvement. We are confident we have laid a solid foundation for future success. During the 2026, we continue to fortify our financial position and strengthen our cash flow. Since late fiscal 2025, we have consolidated our customer base to prioritize high-quality clients. This aligned with our strategic focus on the higher value nicotine sector and the shift away from the cannabis sector and from slower-paying clients. We have seen this translate to promising results across key measures, including improved accounts receivable. While our revenue declined in the second fiscal quarter, this was an expected outcome due to our deliberate move towards higher quality nicotine sector customers and away from lower value clients who have difficulties meeting payment timelines. Several key metrics, including accounts receivable, operating expenses, and net loss, indicate how our efforts to solidify our financial stability are beginning to deliver improvements in these areas. In addition, there were headwinds for the nicotine sector internationally, with the e-cigarette volume declining with the pressure from Chinese manufacturers making an impact. It is worth noting that with China's cost base going up, this will benefit Malaysian producers, aligning with Ispire Technology Inc.'s strategic pivot to Malaysia as e-cigarettes are no longer a preferred industry in China. For the 2026, our net accounts receivable improved to $37.9 million, down from $47 million at the end of fiscal 2025. Other measures demonstrating this progress include average payment terms and the days sales outstanding, which have all improved. In particular, cash collected versus revenue for calendar year 2025 was 116% versus 67% for calendar year 2024. Also, our average payment terms were shortened, and the average days sales outstanding improved by eight days, comparing the 2026 to the 2025. We were also able to reduce our net loss to $6.6 million from $8 million in the 2025. And for the six months ending 12/31/2025, net loss was reduced by $3.7 million compared to the same period year over year. One important item I would also like to highlight is that from April 2025, towards the end of calendar 2025, we burned only $1 million in operating cash as we focused on our cost reduction and customer quality rationalization efforts. This is a significant measure, and combined with other financial metrics, shows that our stringent cost management and focus on financial discipline have yielded positive results. And these are trends that we expect to continue through fiscal 2026. The Ispire Technology Inc. team progressed several significant projects over the second fiscal quarter, mostly related to our iTech joint venture Gmesh technology, and building out our Malaysian facility. We continue to see increased traction worldwide for our groundbreaking age-gating technology joint venture with iQTEP. In the US, in particular, interest from and discussions with several major tobacco players have intensified over the last three months. After the FDA indicated that age-gating technology is the only way to unlock the legal flavor of the e-cigarette market. As we all know, the US nicotine vaping market is mainly dominated by illicit products. In other words, products that have not been authorized by the FDA. By various estimates, the US e-cigarette retail market is nearly $100 billion in size and more than 90% of it is illicit in nature. Consumers want flavored e-cigarettes, but the legal market does not have FDA-approved flavored e-cigarettes. As such, consumers can only purchase flavored products from the illicit market, potentially risking their health and life. We strongly support the FDA's initiatives to use age-gating technology to unlock the flavored market with legally approved products, to not only offer consumers the flavor that they want, but also to protect consumers from using dangerous products from the illicit market that are currently being sold across the US illegally. While there are several technology solutions out there, our technology stands out for its reliability and low-friction nature. Our revolutionary technology uses a blockchain-based age verification chip and requires timely authentication at the point of use in order for the user to power it up. This contrasts with existing systems that just rely on single verification only at the point of purchase and therefore ensures that only adults can vape, not just purchase these products. We have been working with regulators globally across Europe, Southeast Asia, and the Middle East to institute age-gating technology as a compulsory standard for the industry, and we have made material progress in getting these measures mandated in several countries across the world. Also, recently, we were invited to participate in the FDA's small manufacturers roundtable session, with Steve Casbella, our Chief Legal Officer and ICTECH board member, representing the company on the panel taking place next week. While we welcome the US federal government's stringent enforcement mandate of the illicit trade effects, we want to emphasize that this can only be effective when combined with technology-based solutions that are able to secure devices before misuse occurs. This is where we are seeing macroeconomic tailwinds in our favor relating to the US FDA stance on flavored products and age-gating technology. The FDA's explicit position is that you must have age-gating technology if you want flavored products approved. Our joint venture, iQTEC, as most of you already know, has the leading and the most low-friction technology in that space, and we look forward to capitalizing on this opportunity in due time. Ispire Technology Inc. and iQTEC's first-ever premarket tobacco product application or PMTA with the FDA last year shows our commitment to advancing safety and compliance for consumers. It's no surprise that our age-gating technology is receiving a lot of attention from the big tobacco players globally. Furthermore, we look forward to announcing a significant development deal around our age-gating technology with a leading global nicotine company in the coming weeks. Another area where Ispire Technology Inc. is leading innovation is with our Gmesh technology. Gmesh vaping hardware is built with superconductive glass, which unlike traditional ceramic or cotton core, provides higher purity which enhances user safety. As we mentioned on our last earnings call, Gmesh is garnering attention from several medium and large-sized nicotine companies who are interested in the opportunity that technology presents for their next-generation vaping devices. We are currently involved in discussions about these opportunities. We'll share an update on this in the coming month for a potential licensing and/or partnership agreement. Lastly, an update on the progress of our manufacturing facility in Malaysia. The build-out is on track to ramp up production in fiscal 2026. The modest increase in capacity that the Malaysian facility could hold once finished, which will go to 80 production lines from the current six lines, is a material improvement and aligns with our focus on Malaysia as a production center. We look forward to providing more updates on this in the coming quarters as well. To sum up, we are excited about the innovations that our team is working on, and we are optimistic about upcoming developments over the coming quarters. Our focus on fiscal management and pivoting to quality nicotine sector customers is delivering results with improved net loss, operating expenses, and accounts receivable. We expect these trends to continue through fiscal 2026, as well as a pickup in revenue generation as we move closer to profitability. I will now hand the call over to our Chief Financial Officer, Jie Yu, to review our second quarter financial results in more detail. Jie Yu: Thank you, Michael. And thanks to everyone with us on the call today. As we discuss Ispire Technology Inc.'s key financial results for the 2026. To recap, I will refer to the 2026 as the quarter ended on 12/31/2025. All comparisons are to the prior 2025 ended 12/31/2024, unless stated otherwise. For the 2026, Ispire Technology Inc. reported a total revenue of $20.3 million, a decrease from $41.8 million in the 2025. As Michael has discussed, this was largely due to our strategic realignment of the business away from lower value cannabis customers to high-quality nicotine customers with better payment profiles. Gross profit for the 2026 was $3.5 million, declining from $7.7 million in the 2025. Gross margins decreased to 17.1% in Q2 2026, down slightly from 18.5% in the 2025. The decrease in gross margin was primarily due to changes in product mix with fewer higher margin products being sold during the three months ended 12/31/2025. As Michael has spoken to in recent quarters, we have continued to improve our accounts receivable balance by focusing on quality customers in the nicotine sector, which has allowed us to collect account receivables in a timely manner. As of 12/31/2025, our net account receivable balance was $37.9 million, down from $47 million at 06/30/2025. In addition, we were able to reduce operating expenses for this three-month period to 12/31/2025 to $10.3 million from the $15.1 million in the 2025. For Q2 2026, we also reduced net loss to $6.6 million compared to $8 million for the same period in fiscal 2025. On top of these results, from April 2025 through the end of calendar 2025, we burned only $1 million in operating cash, which showed that we remain focused on expense management and reducing costs across our business. We expect this trend of declining costs and improved account receivable to continue through fiscal 2026. Moving on to the balance sheet, as of 12/31/2025, Ispire Technology Inc. held cash of $17.6 million versus $24.4 million at 06/30/2025. Net cash flow used in operating activity was $5.2 million over the six-month period to December '85, versus $400,000 provided by in the six months to 12/31/2024. Net cash used in investing activity for the first half of fiscal 2026 was $900,000, compared to $1.1 million used in investing activity for the same period last year. Net cash used in financing activities for the six months to December '95 was $0.7 million relative to nonuse over the same period ending in 12/31/2024. That ends the detailed recap of Ispire Technology Inc.'s financial results for the 2026. I will now hand the call back to Michael for closing comments. Michael Wang: Thank you, Jie. In closing, the 2026 marks an inflection point for Ispire Technology Inc. as our year-long cost-cutting and customer quality rationalization efforts are taking hold, and we believe future quarters will see top-line growth, consistent cash flow, and bottom-line improvement. Furthermore, we have several exciting and game-changing opportunities that we continue to make significant progress on, which include our iTech venture, Gmesh technology, and the Malaysian facility build-up. We have continued to strengthen our company's financial footprint by improving cash flow, as well as cutting operating expenses, reducing our account receivable, and the net loss. Our focus on higher quality customers in the nicotine sector is also delivering improvement in these areas, and we expect this to continue through fiscal 2026. With the progress we have made over the past year, and our industry-changing technology and the infrastructure we continue to build up, the future is extremely bright for Ispire Technology Inc., and we look forward to sharing our Q3 results on our next quarterly call. Thank you all again to everyone joining us today. Investors can always email IR@iSpiretechnology.com with any questions. This concludes our prepared remarks. And I will now ask the operator to open the lines for questions. Operator: Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Nick Anderson with Roth Capital Partners. Please proceed with your question. Nick Anderson: Yeah. Good morning, and thanks for taking the question. First one for me, just on US Retail. Walgreens announced the resumption of selling vape products in January. Just curious what you've seen or heard from retailers regarding the category and what that might mean for shelf space allocation moving forward. Assuming as we get regulatory clarity around flavor products, legal retail adoption would closely follow. But just want to hear your thoughts. Thank you. Michael Wang: Thank you. The Walgreens situation is not an isolated case. Through our conversations with representatives of the retail space, there is tremendous demand, number one, for e-cigarettes, and number two, for flavored, especially. Convenience stores, like 7-Eleven or Circle K, a gas station network, those are typical retailers who really are desperate for flavored e-cigarettes. As we all know, even though cigarettes and e-cigarettes do not occupy that much shelf space in those retail stores, they represent tremendous revenue and foot traffic to the stores. So, they have seen significant reduction in their retail traffic just because they control our flavored e-cigarette side. As far as the FDA is concerned, because large chains are not going to risk any compliance issues by selling unauthorized products, consequently, they are losing business. I strongly believe, and some players in the industry strongly believe, there is a tremendous potential for retailers such as Walgreens to get into this game, especially as the enforcement efforts from the US Customs and the FDA are intensifying, and consumers still need flavored e-cigarettes. So when flavored products indeed get authorized by the FDA, I think the dam will get wide open. So on the other hand, enforcement and solution will have to go hand in hand. If there is not a solution that the FDA and the consumers can depend on, enforcement efforts will be very, very ineffective. Nick, I hope I answered your question. Nick Anderson: Yeah. That's encouraging. Thank you for the color. Second one for me on iQTEC. Congrats on the Charlie's partnership, but just wondering if you could provide a little more color on the deal. What the expected production numbers are, regions you'll be focused on, and just whether or not this is driving more interest from other pipeline candidates as they look to integrate the age-gating process. Thank you. Michael Wang: Yeah. Charlie's deal is certainly a groundbreaking deal for us and for Charlie's. Charlie's has always positioned themselves as a consumer safety-oriented brand, and they have done a lot in that area. So certainly, I think many people, because Charlie's is a publicly traded company, many people are aware of their situation. So from that point of view, they are launching a brand new product. Initial volume, of course, this is based on customer's feedback and assessment, that would be somewhere between 2 million chips a month and 3 million chips a month, with the goal of selling up to 10 million devices, therefore, chips, on a monthly basis over a twelve-month period. But, of course, that's based on customers' feedback. With a few months of experience behind, I think we'll all have more confidence in indication with exactly where that's trended. This is slated by Charlie's to launch in the next two to three months. So we don't expect to see a lift in terms of volume for iQTEC in the immediate quarter, this current quarter, but we should start seeing results in the next quarter. As far as your second half of the question, yes. Indeed. In the last year, we have talked to the MSOs and the large brands in the cannabis space. Every single company showed interest in introducing age-gated products on the regulated cannabis side. And they all have shared the same concern about the devices getting in the hands of youth. So, they have been embracing this technology and solution. We are in rather deep conversation with a couple of players there. For the time being, even though there is immediate revenue potential there, we have spent most of our energy on the nicotine sector because of the potential volume available. Nick Anderson: I appreciate that color. If I could squeeze just one more in on the Chinese imports, it looks like they've been curtailed in the 2025, but then significantly grew in the second half of the year. Do you have any color as to what drove that spike? And it looks like some states have implemented measures to combat this. Have any of these states seen any differences in illicit vape mix? Any color there would be helpful. Thank you. Michael Wang: Yes. So the surge in export late last year was partially driven by the expected policy change in China toward the manufacturing of e-cigarettes. As most of you are aware, effective April 1 this year, the Chinese government will stop what they call the VAT refund initiative. Even though export is not for domestic consumption, generally speaking, the government shouldn't impose a VAT on such products for export purposes. However, the regulators there are saying effective April 1 this year, the 13% VAT tax would also apply to e-cigarette export. So that means the cost base and the selling price would both go up effective April 1. So I think that was one reason a lot of the manufacturers really tried to rush before this new deadline to get as much product to the international market as possible. I suspect the increase would continue into the current quarter. But, of course, I expect a bit of a slowdown when April 1 kicks in. But so far, the feedback and the data we have gathered is the US states' efforts and initiatives have barely put a dent in the illicit market. The general feedback is it's not affecting at all, even though enforcement activities took place across the country, with the seizure of products and arrest of players. But it has not put a dent in the illicit market on the demand side. So that's why an adequate solution like iQTEC's age-gating is so crucial to using the FDA's term to unlock this flavored market to protect consumers at the same time. So, Nick, that's my answer to your question. Nick Anderson: Got it. I appreciate that color. Congrats on the quarter. I'll jump back in the queue. Operator: Thank you. Our next question comes from the line of Pablo Zuanic with Zuanic and Associates. Please proceed with your question. Pablo Zuanic: Thank you, and good morning, everyone. Look, just first, Michael, a bit of a housekeeping question. Can you remind us of what percent you own of the iQTEC joint venture? And if that business begins to take off, you know, how will you fund the expansion needed, the expansion capital? Is there a risk of dilution, or would you want to take full control of that business? You can just remind us of that. Thank you. Michael Wang: Yeah. Pablo, thank you. Yeah. The joint venture was created almost two years ago. Actually, twenty-one months ago. And very rapidly, we got on this mission of developing age-gated technology using the IP of our other joint venture partner, a company called Verifi. So far, as you know, a few three things I want to highlight. Number one, in November 2024, we had a meeting with the FDA, and through that conversation, of course, with the suggestion and guidance of the FDA, we worked on the so-called component PMTA. And we did that work early last year. And we turned in the component PMTA in May. And of course, as you have heard recently, especially in early November, the acting director of the Center for Tobacco Products made an opening remark at the Food and Drug Law Institute's Institute Conference. That FDA clearly understood the consumers wanted demand flavored e-cigarettes. However, so far, there was no way of authorizing flavored market without some sort of safety mechanism. So, hence, the very concept of age-gating being the solution right now. So FDA, I think, is certainly embracing that. By all indication, they are going to review PMTAs, whether with the products or, in our case, the component or solution PMTA in short order. We strongly believe, with our technology advantage, we'll get a fair shake out of this review process. So we are really optimistic about the potential, especially as I indicated in the last year and more importantly in the last three months. Activities involving discussions about our technology have really intensified. So, to answer the second half of your question, right now, the joint venture is operating with the technical engineering IP and business development contributions from the three joint venture partners. And Ispire Technology Inc. is providing the financial funding for the day-to-day operation there. With the Charlie's development and potentially a few other key, significant developments materializing in the coming months, Pablo, I strongly believe on one hand, we'll get strong interest from investors overall. On the other hand, we will be at a point where we could use some additional working capital to really blow this thing up on a global stage. As we all know, regulatory change requires a lot of efforts and resources. We are on a mission to fundamentally transform how age-gating can be used worldwide to protect consumers, both youth and adults, because of the dangerous nature of the illicit market. So Pablo, I hope I'm not answering your question. Pablo Zuanic: Yes. No. That's good. Thank you very much. Just a quick follow-up. You know, assuming that the FDA were to legalize flavored nicotine because they are happy with the age-gating technology, there's not going to be just one technology out there. Right? Different manufacturers will have their own technologies. You will have yours, and you will supply it to small, midsize, maybe large manufacturers. I'm just trying to understand. Will there be different technologies out there or will, for example, the US only have one technology that will be only allowed? Do we know? Michael Wang: Based on what we know, there are other solutions out there. However, as far as we know, no solution is as what we call frictionless. Of course, our solution is not 100% frictionless. But in comparison to what other people are developing, we have the least friction in our experience with the consumers using the technology or the product. So that we have strong confidence here. And the other key advantages, Pablo, include because we are using blockchain technology, we don't actually transmit detailed consumer personal information through the Internet. Instead, we are just sending tokens back and forth between us and the back-end identity verification providers, such as CLEAR or ID.me or Encode and so on. So because the communication is through tokens only, there is no chance that a consumer's information would be stolen by hackers. So that's another key advantage. As far as we know, all other solutions actually transmit consumer private information. So we all know, no matter how well protected the network, the system, are, there is always a risk to be hacked and to get the information stolen. So that's another advantage. Third one, based on what we know of other products out there, for example, the initial identity verification process for all solutions, it would take just over one minute. And for other solutions, it would take anywhere between five and twelve minutes. So we all know consumers cannot bear that. So, that's why all the brands are mindful of the impact this age-gating solution would have on consumer ease of use side. So from that point of view, we know we stand out. This is partially, Pablo, because our technology transmits only tokens, and it's low bandwidth requirement and so on. And plus, the whole process is simpler than what other solutions would require. For example, some solutions would even require the consumer to type in their Social Security number online to get verification. That's just, let's call it, unscalable. Not too many consumers would give up their Social Security number for that. So I hope I answered the question. Of course, there are other solutions out there. Pablo Zuanic: No. Good color. Thank you for that. And I know it's a lot of detail there, but just to know that, going back to your prepared remarks, I think you said that some countries in Europe or the Middle East or Asia have already mandated age-gating technology. I mean, I want to make sure I hear that right. And, if you can say which countries specifically, and are they using your technology already? Or were you talking more in general about future plans in those countries? I'm just trying to understand if anyone has actually implemented this anywhere in the world right now. Michael Wang: No one has implemented it. That statement says we have been working with those regulators in those countries to push for a mandate. And the reception has been very positive because similar to the US, in addition to consumer safety and protecting youth from using e-cigarettes, there is another consideration. Same is true in the US. The illicit market generally does not pay their share of sales tax. So that's made sales tax or excise tax because that's where the government gets their share of the trade. So the illicit market generally avoids paying a lot of tax. So some of those countries basically are saying not only do we want to protect, say, adults in using safe devices, not only do we want to prevent youth from using the devices, we also want to collect sales tax, our revenue, tax revenue. So with these three objectives in mind, many countries are looking at our technology. Some are even contemplating mandating all e-cigarettes sold in their countries must have age-gating. So right now, I can't share under NDA. I can't, I guess, share their name with everybody. But two countries in Southeast Asia, actually, one country in serious conversation in the Middle East, second one, a war-torn zone. And in Europe, we have been working with the UK regulator lawmakers for just nearly a year in changing the requirement, especially, we try to make a difference towards the upcoming UK tobacco bill, which is likely to be formed up in the next two to three months. But the support in the UK for this technology has increased tremendously over the ten-month period. And both from the parliament and the house floor and the executive branch, we are receiving support from every branch. So the best indication for where this technology is going. Certainly, the FDA is the most important consideration for us now. But we know through our talks with regulators outside the US, there is increased interest in this technology outside the US as well. So we are trying to work. In some countries, as we know, regulations and laws could be established in short order, unlike, let's say, heavily democratic countries like the UK and the US. Right. So we hope we would actually be able to launch the technology in other countries, potentially even ahead of the US. Pablo Zuanic: Right. Thank you very much. Very last one. And just a short answer. I think you, I know you're gonna make forward comments, but you talked about that you will be disclosing a new deal in the coming weeks. Is this something similar to a Charlie's partnership, or are we talking about something much larger? Can you just give some general context? And I realize that we cannot forward comments here. Thank you. That's all. Michael Wang: Let's say much greater strategic and financial impact. Pablo Zuanic: Right. Thank you very much. That's all. Thank you. Michael Wang: Thank you, Pablo. Operator: Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Michael Wang for any final comments. Michael Wang: Thank you all again. We really, as I said a couple of times in my prepared remarks, we saw Q2 as an inflection point for us, not only financially but strategically as well. So I hope to have more advanced, exciting developments to share with you all in the coming weeks and months as they come about. Thanks again. Operator. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the RXO, Inc. Q4 2025 Earnings Conference Call and Webcast. My name is Ina, and I will be your operator for today's call. Please note that this conference is being recorded. During this call, the company will make certain forward-looking statements within the meaning of federal securities laws, which by nature involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. You should refer to a copy of the company's earnings release in Investor Relations on the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of non-GAAP financial measures that the company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin. Drew Wilkerson: Good morning, everyone. Thank you for joining today. With me here in Charlotte are RXO's Chief Financial Officer, James E. Harris, and Chief Strategy Officer, Jared Ian Weisfeld. This morning, I want to cover three key points. First, we continue to take decisive actions to mitigate the effects of the prolonged soft freight market and significant capacity reductions which are squeezing our brokerage gross margin. We have a rigorous disciplined approach to optimizing our cost structure and our gross profit per load. We are taking steps to augment our carrier base, grow brokerage volume, grow businesses that are stable sources of EBITDA, and leverage our deep customer relationships and last-mile hub network to design unique solutions for customers. Second, we have a strong brokerage late-stage sales pipeline for new business, which grew more than 50% year over year. Most of that growth is driven by full truckload. Our managed transportation business continues to win and also has a very strong pipeline. Third, we finalized a new asset-based lending facility which replaces our revolver. Our new facility is right-sized for our needs, decreases our cost, and provides us with increased flexibility across all market cycles. Now let's discuss our fourth-quarter results. In brokerage, overall volume declined by 4% year over year. Less than truckload volume growth of 31% was more than offset by a 12% decline in truckload volume. Brokerage gross margin was 11.9%. In complementary services, managed transportation was awarded more than $200 million of freight under management, and last-mile stops grew by 3% year over year. Complementary services gross margin was 20.2%. Overall, RXO's EBITDA was $17 million in the quarter, below our expectations primarily due to a more pronounced brokerage margin squeeze towards the end of the quarter. This was primarily driven by capacity exits which led to the largest November to December increase in industry-wide buy rates in sixteen years. In December, rates increased by about 15% month over month, much faster than our contractual sale rates. At the same time, demand remains soft with not enough spot loads to offset the rise in purchase transportation costs. Sonar tender rejections and the load-to-truck ratio reached the highest levels of the year in December and both increased further in January. Because our book of business is largely contractual, with enterprise customers, this affected our near-term brokerage gross margin performance. That said, winning contract business is a hallmark of our brokerage model because it positions us to win accretive spot opportunities, mini bids, and special projects. The capacity reductions in the industry represent one of the largest structural changes to truckload supply since deregulation and should set the market up for a sharper inflection when demand recovers. The regulatory actions will also help improve the overall safety of the industry as well as help combat theft and fraud. But they do put pressure on near-term results. We are continuing to take decisive actions to navigate the market. Specifically, we remain disciplined when it comes to cost and optimizing our gross profit per load. We are expanding alternative sources of capacity like private fleets to help reduce buy rate volatility. We are working closely with our customers to optimize volume, service, and price dispensation. We are also working to convert the strong late-stage brokerage sales pipeline and we are developing more creative ways to leverage our hub network within Last Mile to provide customers with customized middle-mile solutions. I remain extremely positive about the actions we are taking to mitigate this part of the freight cycle and all those we are taking to position RXO for future outperformance. More importantly, now that we are past the bulk of the integration, we are more unified than ever with a singular focus on returning to growth mode, leveraging our scale and outperforming the market. We will do that through our differentiated approach to sales and customer service and our unified tech platform. Our multilayered sales team focuses on building exceptional customer relationships. This helped us grow our late-stage brokerage sales pipeline by more than 50% year over year, strong momentum as we start 2026. This pipeline is composed of high-quality new names, and long-tenured existing enterprise customers for which we have built successful solutions in the past. While bid season is not yet complete, we have seen early wins. The strength and makeup of our pipeline give us confidence that we will resume year-over-year truckload volume outperformance as early as the middle of this year. In managed transportation, we also continue to win. We were awarded more than $200 million in freight under management in the fourth quarter and still have a very robust pipeline of opportunities. These wins will result in increased synergy loads to RXO's other lines of business. We are very proud of the strength of our customer relationships across RXO. Recently, we received awards from blue-chip customers including Kelanova, Lowe's, and Electrolux. Another reason I am excited is our team is now operating on an integrated platform. Which includes our CRM, our pricing tools, and our proprietary systems. RXO Connect and Freight Optimizer. The integration work we have done over the past year is now providing unparalleled visibility for our sales and operations team. It has enabled us to leverage decades worth of proprietary data from both legacy RXO and legacy Coyote to power our pricing algorithms and recommend the best truck for each load. We are positioning RXO for the long term through our investments in transformational AI capabilities. Our vision is that RXO will lead the next decade in freight by arming expert people with the best-in-class intelligence to solve problems before they happen, delivering a level of speed and flexibility that makes the old way of thinking unimaginable. Later in the call, Jared will talk more about the rapid progress and real results we are seeing from our initiatives. RXO has a strong balance sheet. And we took steps in the fourth quarter to further improve our capital structure. We finalized a new asset-based lending facility which replaces our revolving credit facility. We have tailored the new facility to better align with our business needs securing better pricing and greater financial flexibility across all parts of the market cycle. Jamie will walk you through these details later. In summary, we continue to take strategic actions to better position RXO for both the short and long term. I remain confident in RXO's ability to deliver outsized earnings growth driven by five key factors. Scale, Scale allows us to purchase transportation more effectively. Our technology platform and the Coyote acquisition have helped decrease our cost to serve by more than 20% since our spin. We also expect buy rate favorability to continue improving. Profitable growth. We are focused on gaining profitable truckload market share, and we are expanding the parts of our business that are stable sources of EBITDA like managed transportation, SMB, and LTL. In the fourth quarter alone, LTL volume grew 31%, the fourth consecutive quarter of double-digit growth. Underscoring our momentum in this area. Technology. We invest over $100 million annually in our best-in-class tech. All in service of achieving our future state tech vision, which will be driven by AI. Once fully implemented, our capabilities will fundamentally change how our people get work done and provide customers with a faster, more seamless way of managing their freight. Cash generation. Our asset-light model is resilient. Despite soft market conditions, we achieved adjusted free cash flow conversion of 43% in 2025, within our long-term target range. Cost structure. Since becoming a stand-alone company, we have taken out more than $155 million in costs through targeted initiatives, including AI investment, real estate optimization, and productivity. We are not done yet. Notably, brokers' headcount declined by mid-teens percentage year over year. Over the last twelve months, we also achieved a 19% increase in productivity. Our streamlined operations will provide us with substantial operating leverage. While we are not satisfied with near-term results in this soft environment, we are very excited about the path ahead for RXO. We have shifted from integration mode and are returning to growth mode to take advantage of our larger scale. We continue to adhere to the formula that has driven our success for over a decade. Exceptional service, comprehensive solutions, deep customer relationships, and cutting-edge technology. RXO has a unique algorithm for long-term growth. Now Jamie will discuss our financial results in more detail. Thank you, Drew, and good morning. Let's review our fourth quarter and full-year performance in more detail. For the quarter, we reported $1.5 billion in total revenue, James E. Harris: Gross margin of 14.8%, adjusted EBITDA of $17 million, and adjusted EBITDA margin of 1.2%. Gross margin and adjusted EBITDA were negatively impacted by the increase in cost of transportation within our brokerage business and soft demand within Last Mile. Our interest expense was $9 million. For the quarter, our adjusted loss per share was $0.7. You can find a bridge to adjusted EPS on Slide eight of the earnings presentation. Of note, we had a $12 million goodwill impairment associated with the restructuring of our express service offering within our managed transportation business. This impairment was noncash. Turning to our lines of business. Brokerage revenue was $1.1 billion and was down 14% year over year due to continued soft freight market conditions. Brokerage represented 72% of total revenue in the quarter. Cost of transportation increased in the quarter due to tightening of the full truckload market, primarily driven by regulatory developments and associated capacity exits. This occurred without a meaningful corresponding increase in sales rates or sufficient spot opportunities causing a margin squeeze on our contractual book of business. Jared will provide more details later in the call. Given the market tightening, and resulting margin squeeze, brokerage gross margin was 11.9%. Slightly below the low end of our outlook. Brokerage gross margin declined 160 basis points sequentially and 130 basis points year over year. Complementary services revenue in the quarter $431 million was flat year over year and represented 28% of total revenue. Complementary services gross margin was 20.2%, down 110 basis points sequentially and 90 basis points year over year primarily due to weakening demand within last mile and the impact of the fixed cost structure of our last mile hubs. Within complementary services, managed transportation generated $133 million of revenue in the quarter, down 6% year over year. Encouragingly, our year-over-year automotive headwind eased as company-wide automotive gross margin dollars declined by low to mid-single-digit percent. Year over year. Our last mile business generated $298 million in revenue in the quarter, up 3% year over year. Last mile stops also grew by 3%. As we communicated during our last call, big and bulky demand weakened towards the end of the third quarter and that continued throughout the fourth quarter. Turning to the full year, we reported $5.7 billion in total revenue. Gross margin of 16.2%, adjusted EBITDA of $109 million, and an adjusted EBITDA margin of 1.9%. Now let's discuss cash. We ended the quarter with $17 million of cash on the balance sheet, in line with our expectations. Cash decreased by $8 million sequentially with no change to the revolver balance. As a reminder, the quarter, we made our semiannual bond payment of $13 million and we had a $9 million cash usage associated with restructuring, transaction, and integration activities. For the quarter, our adjusted free cash flow conversion was 6%, and for the trailing six months, it was 39%. As you can see on slide nine, adjusted free cash flow for the year was $47 million yielding a solid 43% conversion from adjusted EBITDA. This was primarily driven by disciplined strategic capital deployment and favorable working capital, Net CapEx for the year was $57 million compared to our outlook of $65 million to $75 million. We also harmonized working capital processes across the organization. Given our asset-light business model, we remain confident in a 40 to 60% conversion over the long term and across market cycles. We are very pleased with our full-year conversion at this point in the freight cycle. Turning to Slide 10. Quarter-end net leverage was three times 11, I'd like to spend time walking through our new asset-based lending facility which we announced this morning. The ABL is a $450 million facility and replaces our previous $600 million revolver. The ABL provides us with more flexibility through all market cycles. There are a few important points and key benefits associated with the new ABL facility. First, we intentionally structured the credit facility to $450 million of capacity based on the needs of the business, saving approximately $400,000 of annual unused commitment fees, This facility also has a $200 million accordion fee available. We have access to 100% of the facility to use for our cash needs and letters of credit requirements. At current utilization levels, our interest rate is approximately 35 basis points more favorable. Lastly, all covenants under the revolver, including the leverage and interest coverage covenants, have been replaced with a fixed charge covenant that has minimal impact on our ability to borrow. Now let's move to slide 16 and discuss our outlook for the first quarter and our full-year 2026 modeling assumptions. Similar to last quarter, our outlook continues to reflect weak freight demand across all our lines of business. Within our brokers business, we are not assuming a meaningful increase in either spot opportunities or sale rates in the first quarter. Additionally, our outlook reflects elevated purchase transportation costs, For the combined company in the first quarter, we expect to generate between $5 million and $12 million of adjusted EBITDA. Jared will provide more details on our outlook shortly. For our 2026 modeling assumptions, we expect the following. CapEx to be between $50 million and $55 million. Depreciation expense between 65 and $75 million, amortization expense between 40 and $45 million, stock-based compensation between 25 and $35 million, net interest expense between 32 and $36 million, and cash tax outflows of approximately 6 to $8 million. We anticipate restructuring transaction, and integration expenses to be between $25 million and $30 million. It's important to note that approximately one-third of these expenses relate to actions taken in prior periods. The associated cash outflow with these actions is expected to be 30,000,000 to $35 million about half of which is related to prior periods. We expect a fully diluted share count of approximately 170 million shares. To summarize, while elevated purchase transportation costs are squeezing our contractual brokerage gross margin, and impacting profitability this is a positive development for the long-term health of the freight market. As we think about the macro economy, we continue to see many developments that have the potential to stimulate demand. These include lower short-term interest rates, new tax legislation, proposals for housing affordability, and domestic investment announcements. As an example, Monday's ISM report showed many positive developments in the manufacturing data a key leading indicator for The US economy the transportation industry, and an important vertical for RXO. Specifically, US manufacturing activity in January expanded by the most since 2022. While it's difficult to predict the timing of the demand recovery, any significant improvement in demand, could set up for a sharp inflection and RXO is well positioned to benefit. Now I'd like to turn it over to Chief Strategy Officer, Jared Weisfeld, who will talk in more detail about our results and our outlook. Thanks, Jamie, and good morning, everyone. As I typically do, I'll start with an overview of our brokerage performance in the quarter. Jared Ian Weisfeld: Overall brokerage volume declined by 4% year over year, outpacing the CAS freight index, declined by 8% year over year. LTL volume increased by 31% year over year and represented 26% of brokerage volume in the fourth quarter. Truckload volume declined by 12% year over year and represented 74% of brokerage volume. As a percentage of our brokerage business, truckload volume increased by 500 basis points sequentially. As a reminder, support of a seasonal ramp with some customers, our brokerage business typically sees higher truckload volume in the fourth quarter when compared to the third. Truckload volume was impacted by our continued efforts to optimize price, volume, and service with our customers. As well as broader market weakness, Let's now discuss what we saw within the we support within our truckload business. Industrial and manufacturing trends continue to outperform our broader truckload trends. Volume within this vertical declined just 1% year over year, benefiting from some special projects and opportunities. We remain well positioned to capture our customers' special project freight due to our close relationships, and excellent service. As Jamie mentioned, the year-over-year headwind in our automotive business eased in the quarter. Automotive volume and brokerage declined by a mid-teen percentage, easing from declines earlier in the year of almost 30%. And from a company-wide standpoint, overall automotive gross margin declined by only a low to mid-single-digit percentage. Contract volume was 72% of our overall truckload volume in the quarter. Contract business increased by 100 basis points sequentially. Spot represented 28% of our truckload volume in the quarter. Total spot volume on an absolute basis increased slightly sequentially as we capitalized on some additional spot opportunities. However, these were not meaningful enough to offset the significant margin compression in our contractual business. I'll talk more about this shortly. Before reviewing our financial performance, and market conditions in more detail, I'd like to highlight the results from our transformational AI efforts that Drew described. We deliver technology that drives improvements across four key pillars. Volume, margin, productivity, and service. During the quarter, we made progress further enhancing our AI capabilities across each pillar. We recently introduced a new proprietary AI spot quote agent will unlock an incremental margin opportunity. We continue to make improvements to our pricing engine, And in the quarter, we extended pricing tooling with increased automation, and launched the contract pricing model view for enhanced decision making. We rolled out AgenTic AI capacity sourcing in the quarter as we continue to attract qualified carriers to the RXO platform and we also automated thousands of tracking updates via AgenTic AI tooling and delivered a generative AI assistant to support customer sales and operations. Here are some of the results we achieved. We saw a 24% increase in digital bids per carrier with a new AI-based load recommendation in RXO Connect, We enhanced our theft prevention processes across thousands of loads in high-risk cargo areas by deploying an AgenTik AI solution and we performed thousands of customer tracking updates in the quarter by leveraging Agentic AI. We're applying AI to structurally improve the long-term margin profile of the business. Let's now review our brokerage financial performance and market conditions in more detail. Starting with revenue per load on slide 12. In the fourth quarter, truckload revenue per load trends remain muted. Year over year, revenue per load excluding the impacts of changes in fuel prices, length of haul, increased by 1%. This reflected a continued weak demand environment and limited accretive spot opportunities. Additionally, our cost of purchased transportation increased at a faster rate than revenue per load. Let's discuss that more on slide 13. Which shows brokerage margin performance. Truckload gross profit per load decreased by 10% from November to December alone. As margins in our contractual book of business were squeezed. This squeeze was due to a significant tightening of the truckload market in the fourth quarter and industry buy rates were up 15% in December month over month. Industry KPIs also moved higher, which has persisted into the first quarter. In fact, this week, tender rejections exceeded 13%, a level not seen since early 2022. Tighter market conditions have been primarily driven by supply-side dynamics as overall demand remained soft. This tightening in supply is largely due to enforcement actions related to nondomiciled CDLs, and English language proficiency. Specifically, following regulatory changes effective in June, English language proficiency violation rates have climbed back to pre-2016 levels near 3% with the out-of-service enforcement rate spiking to over 30% from less than 5%. Turning to slide 14. As we just discussed, truckload gross profit per load declined in the fourth quarter given tighter capacity, and continued soft demand. Our truckload gross profit per load in the month of December was about 30% below our five-year average. Excluding COVID highs. Moving to slide 15, RXO's LTL brokerage volume continues to outperform the broader LTL market. In the quarter, LTL gross profit per load also improved sequentially. We continue to grow our LTL business with existing truckload customers and new customers that trust us with their freight because of our excellent service. Increasing the stickiness of these relationships. I now like to look forward and give you some more details on our first-quarter outlook. We're assuming continued soft demands across all our lines of business. Starting with brokerage. We expect total brokerage volume to decline five to 10% year over year. It's important to note that our truckload volume has stabilized. On a sequential basis, we outperformed the cast rate index in the third and fourth quarters. While we do anticipate truckload volume to seasonally decline in the first quarter, given the strength of our late-stage brokerage pipeline, we expect our truckload volume to resume its year-on-year outperformance versus the market as early as the middle of the year. Turning to LTL. We expect LTL to grow by mid-single-digit percentage year over year. Recall, have tougher comparisons due to the large LTL onboarding from last year, and year-on-year growth can be lumpy depending on new customer wins. Moving to truckload gross profit per load. In January, market conditions tightened to the highest levels in four years and we captured incremental spot opportunities helping to mitigate some of the margin pressure on the contractual book of business. This resulted in January brokerage truckload gross profit per load slightly higher when compared to December. We expect tight market conditions to persist for the remainder of the first quarter. We anticipate that brokerage gross margin will be between 11-13% in the first quarter. Let's now talk about complementary services. Managed transportation has strong sales momentum, However, please note that Q1 is seasonally a softer period for managed transportation. In last mile, we expect big and bulky demand weakness will continue. We expect last mile stops to be down mid-single-digit percent year over year. The first quarter is also typically the weakest quarter for Last Mile. Putting it all together, we expect RXO's first-quarter adjusted EBITDA to be in the range of $5 million to $12 million. The main drivers of the sequential decline from the fourth quarter to the first are the seasonal decline in truckload brokerage volume, and last mile. The winter storms also impacted the month of January. James E. Harris: To close, Jared Ian Weisfeld: Capacity exits and tighter market conditions are impacting the near-term profitability of our brokerage business. This supply-side shock is a result of continued enforcement of nondomiciled CDL restrictions, and English language proficiency. These changes represent a major structural change to the industry which we expect will lead to an increased freight rate environment. Continued enforcement will also improve safety, and reduce theft and fraud. Longer term, this is a very positive development. For large-scale brokerages like RXO that have access to massive high-quality capacity. While the current demand environment remains soft, and it's difficult to predict the timing of the recovery, the supply-demand balance in the industry is fragile. With generally lean inventory positions. Any significant improvement in demand could set up for a sharp inflection. We are also not waiting for the market recovery. We are taking aggressive actions to improve results including reducing buy rate volatility, going after new profitable truckload volume, growing our SMB business, growing stable sources of EBITDA, including LTL and managed transportation, and leveraging our hub network. With our focus on best-in-class service, and continued investment in transformational AI capabilities, we are well-positioned to drive significant long-term earnings and free cash flow growth. With that, I'll turn it over to the operator for Q and A. Thank you. Operator: Ladies and gentlemen, we will now begin the question and answer session. And should you wish to cancel your request, please press 4 by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. And your first question comes from the line of Ravi Shanker from Morgan Stanley. Please go ahead. Ravi Shanker: Great. Thanks. Good morning, everyone. So Drew, you mentioned the 50% increase in the late-stage brokerage pipeline. Can you just unpack that a little bit? Drew Wilkerson: What drove that? What kind of customers are they? What kind of timing do you think with that starts to come on? And what kind of pricing does that look like? Ravi Shanker: Yeah. Good morning, Ravi. When you look at the pipeline apples to apples, from last year is up more than 50%. And I think it speaks to the focus of the team. Last year was a big year for us in terms of the integration of Coyote into the organization. This is the largest acquisition. That has ever happened in the brokerage space. And this is all about us returning to what we do. It's returning to growth mode for the organization. It speaks to the strength of the relationships that we have with our largest customers have been with us for more than fifteen years on. So a lot of the pipeline is existing customers. And then we do have some new names in there as well. And these are big new names and attract new names to do business with. For us, the pipeline is important because you don't get the spot opportunities without having a significant presence on the contract side. And so when you look at that, that's a huge opportunity for us. Second part on the timing, the bids are typically implemented throughout the second quarter, which is why we speak to the optimism and the confidence that we've got about being able to return to outperforming the truckload market around the middle of the year. On the pricing side, you know, I think in line with what most other public companies have said, you're talking about something on the contractual side. In the low to mid-single digits. On the spot side, we expect it to be significantly more than that. Ravi Shanker: Got it. And then maybe as a quick follow-up kind of on the on the AI initiative, kind of you you spoke of what you're doing there. I think late last year, you had spoken about a kind of midyear inflection, in that productivity coming through. You just talk about what the second half of the year looks like? And maybe kind of how much this AI is helping with your SMB outreach? Thank you. Jared Ian Weisfeld: Hey, Ravi. It's Jared. So we are making significant progress with continued investment in transformational AI capabilities. We really look at it across four key pillars, volume, margin, productivity, and service. And you hit it right on the head because it's it's really two components. When we think about the ability to go ahead and improve the cost structure of the business, by leveraging AI efficiently, We look at productivity in 2025. Up 19% year over year. On a two-year stack, up almost 40%. So being able to go ahead and drive incremental throughput throughout the network at a rate that is disproportionate to volume growth. When you think about that volume growth really decoupling from headcount growth, bringing those strong incremental contribution margins, really important we think we are still in the early innings. The other key aspect to it, to your other point, was driving incremental margin opportunity across the business. We look at the initiatives that we have across the company. Especially on the volume side. We talked about rolling out AgenTic AI capabilities and the quarter. We feel really strong as we think about the second half of the year and into into the rest of the year with rolling out these AI capabilities and what they mean from an incremental margin standpoint. Ravi Shanker: Understood. Thanks, guys. Operator: Thank you. And your next question comes from the line of Stephanie Moore from Jefferies. Please go ahead. Hi. Good morning. Thank you. Stephanie Moore: You know, maybe as I as I think through the the results and and your commentary, I mean, I think it's very clear that there's kinda two dynamics underway right now. You know, the first, the cycle does appear to be turning, and then second, I mean, you guys do have kind of numerous company actions underway. I mean, you called out a lot of them. For AI actions, the Coyote integration, you know, buy rate. Improvements. You also have, you know, you know, easier comps in 2026 as well. So can you speak to how and when these two dynamics can maybe start working together in 2026? Meaning, can your own actions start to offset some of the market dynamics near term, or do we need to see the market improve first? Thanks. Jared Ian Weisfeld: Hey, Steph. It's Jared. I can start, and, the rest of the team can come in. We think about RXO entering in 2026, to your point, we're certainly seeing some positive developments as it relates to the macro earlier this week. Jamie talked about encouraging results from the ISM hitting its highest level in four years, but we're not waiting just for the macro to turn. And we do company-specific initiatives, and I would point to that late-stage pipeline that Drew just talked about, up more than 50% year over year with high-quality enterprise accounts, existing customers, new customers, the ability to go ahead and drive growth and resume our historical outperformance versus the truckload market. The team is very confident in executing on that pipe and resuming our truckload outperformance. Stephanie Moore: Great. And then maybe just as one follow-up. I know that you called out a little bit of winter weather activity in the first quarter. I'm certainly not I'm certainly very familiar with that activity, but, you know, maybe talk a little bit you know, any impact that it could have had, in the first quarter thus far. Thanks. James E. Harris: Yes. Stephanie, it's Jamie. We did have some a lot of winter weather in the Southeast, Southwest had two major snow, ice storms back to back, which is Drew Wilkerson: very unusual. James E. Harris: We've quantified it through January to tune of about $2 million of our EBITDA impact to the negative. So it's, you know, definitely impacted. Stephanie Moore: Thanks, guys. Drew Wilkerson: Stephanie, just to add to that, it's not just on the brokerage side that it impacts. If you think about the last mile section of the business, it has a huge impact on there whenever driveways are iced over and you can't get into them. So the the brokerage piece is one on the purchase transportation, but it also has an impact on our last mile business. As well. Operator: Thank you. And your next question comes from the line of Scott Group from Wolfe Research. Please go ahead. Scott Group: Hey. Thanks. Good morning. So Drew, a couple of things. For for a while, you've been saying, hey. Once we get these tender rejections north of 10, we're gonna start seeing spot volume. Why do you think it's been a couple months now. Why do you think we're not seeing the spot volume? And then I get, you know, one q squeeze. I get that. Like, what I'm not sure how to think about is you know, if this market stays tight and we get some seasonal Drew Wilkerson: demand improvement, like, Scott Group: how much of a of a bounce in EBITDA earnings do you think is realistic as we look out Drew Wilkerson: quarter or two? Scott Group: Yes. Thanks, Scott. When you look at Tinder rejections being north of 10, I would say you are starting to see spots. When you look from the third quarter to the fourth quarter, you saw an increase in spot loads. And a lot of that was driven in December when you saw the tender rejection start to climb right there around 10. You saw that increase continue into January. But it has not been enough to offset the compression of what we've seen on the contractual side of the business in terms of gross profit per load. I think that we're in the early innings of continuing to see that as you look out this week, tender rejections continue to climb. When you look at what's going on in the regulatory side, we think that you know, you're setting up with any sort of demand to where you're going to see tender rejection come, and the spots will be more robust. We're already starting to see it in the waterfall routing guides. Where it's making it past the first, second, third, fourth carrier. So you are starting to see some waterfall routing guides break down. On the impact to EBITDA, Scott, know, we talked about gross profit per load being more than 30% below our average excluding the COVID highs, off of that. And when you look at that, you know, we've said in the past that for every dollar that gross margin per load improves, is well north of a million dollars in EBITDA annualized. So when you think about the earnings power during a recovery, it's extremely strong. Operator: K. Just a quick Scott Group: Do you can you just say, like, what are spot volumes James E. Harris: tracking up or down year over year so far in Q1? And then maybe just Jamie, can you just walk us through puts and takes on cash and confidence in free cash flow positive free cash flow this year. Drew Wilkerson: I'll take the first part. Spots are up on a year over year basis as we look into January, and then I'll I'll turn it over to Jamie on the cash. James E. Harris: Yeah. Thanks, Scott. Cash, you know, we ended the quarter Scott Group: 17,000,000. We had a great year from a conversion standpoint. 43%. As we look into next year or or actually this year now, twenty six, know, Q1, you you heard it. The guide you know, if you take the midpoint of the guide, we'll use, you know, low single digit amount of cash for the quarter. I think as you look at the company, over the kind of the annualized basis, you know, if you take our cash outflows, which we've given in our guide, and you just apply, let's just say, 25 EBITDA as a proxy, you know, that ends up being in the 45% range of a free cash flow conversion. And we'd have a positive free cash flow. If you can, you know, extrapolate that to what the cash flow production of this company will be in an up and mid cycle. It'll be significant. You know, short term cash is good. We've, you know, had a good cash year, good cash quarter. But, you know, look forward to, you know, still being in that 40 to 60% conversion rate over the long term. Scott Group: So so you think you have positive free cash flow on a reported basis this year? James E. Harris: It obviously depends on where earnings line up, but absolutely, we we believe it'll be a strong cashier. Scott Group: K. Thank you, guys. Appreciate it. Operator: Thank you. And your next question comes from the line of Lucas Cervera from JUVIS Securities. Please go ahead. Lucas Cervera: Hey, guys. Good morning. Thank you for the question. Drew Wilkerson: So you took steps this quarter to streamline parts of managed transportation. How should we think about the earnings contribution from that business going forward after those changes? Lucas Cervera: Lucas, I don't know if I got the full question, but I think it was on managed transportation and the earnings of that business going forward. Is some of our higher EBITDA margin business comes through our Managed Trans Solutions business and so that's the first piece that I would say. It's measured on a net revenue basis, not a gross. When you look at that business, we continue to grow our FUM on a year over year basis. But importantly, for managed transportation, is the synergy that it provides to the rest of the organization. And you know, if our brokers team and our last mile team have the right service, have the right rate, they've got the opportunity to grow with Managed Trans as a customer. And you know, for every new win, it doesn't just impact managed transportation. It impacts the rest of the organization. So that's the beauty behind managed transportation is you actually get to touch a customer across multiple lines of business. Lucas Cervera: Okay. Jared Ian Weisfeld: Thanks. Operator: Thank you. And your next question comes from the line of Ari Rosa from Citigroup. Please go ahead. Ariel Luis Rosa: Hi, good morning. So Drew, you've mentioned a couple of times that you expect truckload year over year volume up performance, or to improve. I'm just curious how you how you define outperformance in that context. Like, what should we be looking for Drew Wilkerson: from kind of a pricing standpoint, from a volume standpoint, and from a, you know, from an EBITDA Ariel Luis Rosa: standpoint, Drew Wilkerson: terms of what we could be looking at for second half of the year and into 2027. Thanks. Drew Wilkerson: Yes. So, I mean, the the way that you broke it up was volume pricing and EBITDA on the outperformance. So first on the volume side, I think there's very clear external metrics of how well you're performing. Versus the market. And so when we say outperforming the market, that's what we mean, external met metrics. Is something that we've got a history of doing. Over the last decade plus We've been one of the largest share takers in the industry. And now that we've got Coyote largely integrated into RXO, we as expect to return to growth mode. The pipeline supports that. What we're hearing back from customers on the wind supports that. On the pricing side, I said earlier that I think that you know, we're we're setting up for somewhere in that low to mid single digits on the contractual side. And what we're paying close attention to is what happens on the spot rates because those are the rates that if you've got the contractual book of business, customers understand that typically during tighter times, you see contraction on that gross profit per load where you more than make up for us on the spot side. So I expect those rates to be significantly higher. And on the EBITDA, I think it goes back to to Scott's question. It's it's in the biggest driver there is in gross profit per load. And so when you look at what that does that every dollar of gross profit per load improvement on an annualized basis is well north of $1,000,000 of EBITDA. So for us, there is a lot of earnings power behind that as we continue to improve gross profit per load. We're not just sitting and waiting on the market to return to improve gross profit per load either. When you look at what we're doing on the purchase transportation side, we're expanding the utilization of private fleet You look at the investments that we've got in AI and the way that we're sourcing capacity, we expect to continue to improve our purchase transportation versus market as well. Ariel Luis Rosa: Okay. That that's helpful. And then just as a follow-up, I was hoping you could talk about the different dynamics that you're seeing in LTL versus truckload. I understand that there's some things that are unique to RXO within those numbers given kind of the evolution of the business, but we saw a similar trend from one of your main competitors who reported recently. Just talk about how those dynamics are different and and why the strength is so much greater on the LTL side. Drew Wilkerson: Well, I think, you know, typically, when you think of LTL in the brokerage market, Ariel Luis Rosa: is Drew Wilkerson: transactional loads and it's a lot driven by SMB type customers. We built out LTL in a different way. It was customers that we had really strong relationships with and a lot of them of the enterprise nature. And these customers came to us and said, LTL is a pain point. There's a lot of touches. There's a lot of different carriers. We're having to track down claims, lost shipments, and damages. And so it became more of an out or all of their LTL. And so when you look at our LTL, going to be lumpy because it's depends on when the onboardings happen. You saw us onboard several large customers last year. The pipeline in LTL is robust. Right now, but it'll depend on the timing of that as far as what that goes. On the truckload side, you know, those bids are typically implemented throughout the second quarter. And which is why we point to the confidence being able to return to outperformance on the truckload volume around the middle of the year. Ariel Luis Rosa: Perfect. Drew Wilkerson: Okay. Thank you. Operator: Thank you. And your next question comes from the line of Ken Hoexter from Bank of America. Please go ahead. Kenneth Scott Hoexter: Hey. Good morning, Drew and team. Drew Wilkerson: Drew, if you could just maybe expand on that last answer. Right? So the volume is down in truckload. Versus, peer significantly outperforming and growing? I know you talked about flipping to growth and not using price. Is that is this something different in your end markets that you want to highlight? Guess, how should investors view the the the different compares we're seeing here? And then, essentially, maybe I'll explain on that. Sorry. Just let me throw it all in at once. But the in a view of where your first quarter outlook where EBITDA is getting worse sequentially, right, fourth quarter to first quarter, and I think well below consensus. So I maybe just helping people understand why the why the differential pressure points are, you know, continuing to expand. Drew Wilkerson: I think I think, one, we've gotta acknowledge that the the peer you're referenced in CH Robinson is executing well, and they had they had a they had a great year last year. For us, our year was about integration and making sure that we were holding on to the people, to the customers, and integrating the technology, and we executed on that strategy. When you look back at 2025. You know, when when you look at integrating Coyote, we thought that we would stabilize the volume decline faster than what we did. As you start to look at what happened in Q3 and Q4, we actually outperformed the truckload market on a sequential basis and what happened there. So I think when you look at that, we've stabilized the business and it's returning to growth mode for us. And it's something that we have done in the past, something that we're confident in. And it's not just blind confidence. It's confidence based off of the feedback that we're getting from our customers. When you look at the last part of your question or two more parts of your question, the end markets as well as the EBITDA, The end market is a diverse pipeline, and we're touching a lot of different things. But where we're seeing some great wins is in high cargo value, and technology. We've seen some recent wins come over in the automotive side. And there's a strong pipeline in industrial and manufacturing as well right now. On the EBITDA Q1, you know, when you look at it, like, obviously, we've talked about the squeeze that is happening in the brokerage business. Last mile is a business that typically sequentially goes down from Q4 to Q1 That's being magnified this quarter because of the weather. So I I think when you look at it, that's where we're pointing to towards the optimism as you start to get towards the middle of the year and you start laughing some of these things. Kenneth Scott Hoexter: Yeah. It it seems like a a a gap. Drew Wilkerson: The the re restructuring costs seem to be, you know, still till still ramping up, maybe a little more aggressively than I would have expected. Is there you know, maybe walk through what what the costs are and and where that should head? James E. Harris: Yeah. Ken, this is Jamie. So year over year, you know, we are we are we do have some restructuring there. We still got some initiatives going on. But our restructuring charges are actually down about 60% year over year. Of that of that number we gave, 25 to 30 for the year, about a third of that relates to actions taken last year that are running through the p and l this year. So those actions, you know, we've already talked about. And then, you know, we are you know, couple of initiatives, and you still got some transformation work going on where we think there's some good opportunities for process improvement. We are you know, we're still not a 100% done with all the technologies side of the integration, so that's to come. And then we're really putting a big focus on our on our footprint and our our real estate, and we've got some plans to consolidate even some more real estate to make us more efficient there. And so those are the three big buckets. But, you know, keep in mind, down 60% a third of that number that we that we gave as we got is really actions that carry over from prior years. So we we feel like we're in a good spot, and we feel like we've got some really good initiatives of producing good ROI on it. Going forward. Kenneth Scott Hoexter: Thank you. Operator: Thank you. And your next question comes from the line of Tom Wadewitz from UBS. Please go ahead. Thomas Richard Wadewitz: Yes. Good morning. Drew Wilkerson: Drew, I wanted to get your thoughts on just Thomas Richard Wadewitz: how much, I don't know, visibility. It's tough to visibility in these markets. But how are you thinking about second quarter and both from a gross margin perspective and then just kind of how much visibility on improvement in loads, mean, seasonally, you can see some pressure with you know, spot rates going up in May and road check and things like that, stronger freight. So, you know, seasonality might say gross margin percent could be lower 2Q, but if you get some catch up on contract prices going up a bit, that could help. So I mean, do you think gross margin could be show a little less pressure in 2Q? And then I guess, on the volume side, I don't necessarily recall brokers talking a lot about like pipelines. I think of that for more like logistics or a little longer cycle businesses. But how good of an indicator you think that is Is that I mean, you're so you're bidding on a lot more business, but are you confident that, that will actually flow through? It's just not necessarily something I I don't know how good the the read is from that. Thanks. Drew Wilkerson: Yeah. Tom, I think I'll break the question up into three parts. First, on the second quarter gross margin. I think it depends on what's happening in the market and where where we're sitting at in tender rejections. I think there's certainly opportunity whenever you start talking about the contractual price going up on a year over year basis you start talking about spot loads, there's certainly a a strong opportunity there, and we're ready to execute, and we're ready to execute in any market. This on the second part on the improvement in loads, high confidence in improving loads from Q1 to Q2. On the third part, pipeline indicator. So the way that you we break down the pipeline is there's a pre And, you know, when you look at the pre pipeline, that's what you're digesting this all coming in from the customers and it's big, big numbers. But that's more of what we would call a spray and pray where you're just putting out rates and just seeing what comes back. As you get into the late stage pipeline, this is where discussions become extremely targeted. It's a lane by lane basis. It's the value that you're adding to the customer. It's how much capacity you have coming in to a certain inbound lane. It's how much capacity did you've got to be able to reload certain lanes. We're whenever you're doing drop trailers, that you have trailer capacity that you're able to do. What what are you able to do from a consolidation standpoint? So when we get to the late stage pipeline, our confidence is pretty high. Thomas Richard Wadewitz: Okay. Yep. That that's helpful. And then just one other one. On the cost side, so you got a lot of tech initiatives happening. Is there a way to think about translating those to kind of operating cost reduction whether that's like an impact in '26 or a kind of multiyear impact James E. Harris: Yes. So this is Jamie. I'll start and turn it over to Jared. Know, it it definitely has from a pure cost out standpoint. So some of the things I've talked about, you know, finishing up the completing integration, totally sunsetting old systems where way down the the field on that. Got a little bit more work to do that we'll finish early twenty six. Secondly, we've got a lot of initiatives that just bring automation to the table. All of those have good cost reductions. Jared talked about kinda what our overall tech and our AI strategy is. A lot of opportunity there to grow on the four pillars, and it definitely includes cost and and really honed in on productivity and service. Jared Ian Weisfeld: That's right. And, Tom, when you when you think about the other side of this, not only is you know, have we taken significant actions, to Jamie's point, on removing a $155,000,000 of cost post spin but then you think about leveraging technology to make the organization more structurally efficient. It's all about the incrementals. So like we talked about earlier, how do we decouple volume growth from headcount growth because the incremental margins in brokerage for every dollar that comes in in gross profit can be as high as 80% in terms of flow through to EBITDA. So making our people more productive by leveraging that tech it's not just about the cost out, but it's how do we our people more efficient. To benefit from the incremental margins. Thomas Richard Wadewitz: Okay. But there's not necessarily a frame in terms of how much cost impact this year. It's maybe more further out, you can we can have a little more visibility to that, I guess. Jared Ian Weisfeld: I think that's fair. But to Jimmy's point earlier, we do have some cost benefits 26% versus 25% based on the actions we've taken. And we continue to drive incremental productivity that we expect to benefit in 2026. Six. Thomas Richard Wadewitz: Right. Jared Ian Weisfeld: Okay. Thank you. Operator: Thank you. And your next question comes from the line of Brian Ossenbeck from JPMorgan. Please go ahead. Jared Ian Weisfeld: Hey. Thanks a lot for getting me on the call this morning. I Appreciate it. Brian Ossenbeck: Maybe two quick ones for Jamie and then a strategy one for Drew. Jamie, can you just talk a little bit more about James E. Harris: I think you said restructuring in the express service line. I don't know if that were related to maybe some of the high value automotive stuffs. Maybe you could elaborate a little bit more on that. And then what's the cash component of restructuring and integration costs for this coming year? Drew, would be great to get your context on these customer conversations, you know, given the capacity squeeze we've seen here recently, is there any tilt towards asset based carriers? Are they indicating they have any more preference to that and maybe away from brokerage, or does that not come up in these conversations? Brian Ossenbeck: Thanks very much. Yeah. James E. Harris: Yeah. Hey. This is Jamie. I'll start. You know, the goodwill that you're speaking of wasn't an express service line that we had inside the managed transit. It we restructured how that delivery service was delivered. We know, we spread the customers out amongst other service lines in our business to continue to do a good job there. you know, over ten years ago that We had some old goodwill that related back to an acquisition that was required an impairment because we restructured how we deliver that. It did not specifically relate to any of our, you know, auto business. In terms of cash and the the restructuring charges for this coming year, We think you've counted the $30,000,000 range there. Half of that relates to actions taken prior to '26. You think about, you know, we take a charge to to for the p and l. Some of the cash flow will trail that as payout. Think about half of that number is cash out related to prior years. And then the the couple big initiatives, you know, footprint consolidation on the real estate, and just our general, you know, restructurings and cost savings initiatives will will be there the reason for the rest. Drew Wilkerson: Yeah. And, Brian, on the Brian Ossenbeck: the Drew Wilkerson: context on the customer conversations that we're having, obviously, we're very bullish about what we're seeing in the late stage pipeline, and if I think of conversion from asset base to brokers, you know, I mean, those conversations were the conversations in the early two thousands. And if you look at what's happened over the last twenty years, brokers have taken significant market share the truckload market. It it's gone from mid single digits to the mid twenties. Right now, the conversation with customers is all about consolidating the carriers and finding the right carrier for the right load. And brokers offer large brokers, financially stable brokers, offer a lot of flexibility in a market like this where you can flex capacity up and down. As you start to have brokers like RXO who have a strong trailer pool, actually able to flex capacity up and down on dropped trailers and take business that was typically held by large asset based carriers. So for us, like, like the setup we're in. And as you go into a tighter market, that's up for that sets up for brokers to take more share. Brian Ossenbeck: K. Great. Thanks guys for the time. Operator: Thank you. And our last question comes from the line of Bruce Chan from Stifel. Please go ahead. Brian Ossenbeck: Hey, good morning team. This is Matt Myelas for Bruce this morning. Thanks for squeezing us in here. Just piggybacking off one of the earlier questions, we're curious to what extent you believe demand recovery is ultimately needed to really drive some more spot opportunity? And I guess, you know, maybe barring that demand improvement, you know, how much would supply need to tighten before you see the spot opportunities really flow into the business? Drew Wilkerson: Yep. So I think when you look at what's happening on the regulatory side, basically gone from mid single digit tender rejections to double digit tender rejections with a decline in demand. And so for the first time, you're seeing pressure on the the supply side that is causing spot loads. Typically, do need a demand driven inflection, and demand will certainly help watching a lot of the data out there. When you look at what's going on in the ISM data, when you look at what's going on from some of the reports on the homebuilding side, when you look at where inventory levels are, demand will obviously be something that can be a catalyst there. But you got into double digits that what what was strictly happening off of the supply side. Brian Ossenbeck: Great. And then as a quick follow-up, if you could maybe provide sort of a diagnostic of the synergies that you expected from Coyote And if that's been sort of realized at this point, how you might bridge any differential between what expected EBITDA could have been pre integration versus maybe where it is now? Thanks. James E. Harris: Yeah. So I'll just I'll take kinda where we are, '25, and roll into '26. You know, we talked about around $70,000,000 of synergies, 60 of which was to hit OpEx, 10 of which hit CapEx. A majority of that has flown through the the p and l in '25. We see about an incremental $10,000,000 of additional p and l realized in '26 versus '25 related to synergies alone. The other $10,000,000 of CapEx spend we see you you see that through in our guide for CapEx in '26. That's where we've been making capital investments on kind of both legacy RXO, legacy Cody that has now been put into one. And so we continue to see those savings that will continue throughout They have obviously not been enough to offset the change in gross margin that we've had over the last couple of years. But we see that as put really positioning the company cost wise When we see demand inflection, we'll see a lot of flow through the p and l. Brian Ossenbeck: Thank you, guys. Operator: Thank you. We have reached the end of the question. And answer session. I'll hand the floor back to Drew Wilkerson for any closing remarks. Drew Wilkerson: Thank you, Ina. Our team has taken the right actions to navigate the current market conditions. We're in growth mode and focused on converting our very strong sales pipeline we expect to get back to outperforming when it comes to truckload brokerage volume as early as the middle of this year. We're operating on one tech platform, which is providing better data to our people and unparalleled visibility to our and carriers. We're making significant investments in our technology and are seeing real results from our AI initiatives. We have a slimmer cost structure, that we continue to optimize and our capital structure provides us with more flexibility across all parts of the freight cycle. We will continue to focus on what differentiates RXO. Exceptional service, comprehensive solutions, deep customer relationships, and cutting-edge technology. I remain confident in our ability to deliver outsized earnings growth over the long term. Thank you all for your time today, and we look forward to seeing you at the upcoming investor conferences. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Pierre Anjolras: Ladies and gentlemen, good morning. Thanks for joining us for the presentation of Vinci's full year results. So you'll see -- you will have noticed that our performance is once again outstanding. Today, I'm joined by the members of the executive committee, several changes of late, the appointment of Thierry Mirville, Deputy CEO, who follow-on from Christian during the course of the year. We're also with the Investor Relations team, who you know well and will be available to answer your questions. So first of all, on this first photograph, we're heading for the Bay of Biscay where VINCI Energies, Cobra and VINCI Construction are working together on the new electricity interconnection project between France and Spain, the INELFE project set to be completed by 2028. It's the largest DC interconnector line between France and Spain, the 400,000 submarine cable with 2 conversion plants. It's a fine example in Europe and elsewhere, future exponential investments in power grids. Electrical infrastructure, we, first of all, think of production infrastructure, nuclear power as well as renewable power and equally essential infrastructures, which are the power, transmission and distribution grids that require as much investment, if not. And these electrical infrastructure projects are key components of the energy transition, but to a growing extent of energy security and sovereignty; a powerful driver, possibly the most powerful driver for Vinci's business developments. Other photographs now in the Concessions business on the left, London Gatwick airport managed by VINCI Airports, a major milestone reached last autumn with the final approval by the U.K. government of the transformation plan of the Northern Runway to allow for dual use with the main runway. This will increase the airport's capacity by 20 million passengers at the turn of the decade, increasing it to 80 million. Through this decision, the British Airways pragmatic implementing the key role of air traffic in the country's economic development as well as its capital. On the right, in Brazil, Entrevias highway, 600 kilometers crossing the state of Paulo. We own 55% of Entrevias now fully consolidated in early March 2025. We resumed operations on the highway of BR-040, 600 kilometers long and the Belo Horizonte Brazil route, managing over 1,200 km of highway. It's our largest highway network outside France and Brazil to give you an order of magnitude, 1,200 kilometers, slightly longer than the Cofiroute network that we manage in France. Energy Solutions now on the left, a fine shot of the Cadiz yard from the North Sea in Germany of the offshore wind plant BorWin5, 900 megawatts for TenneT, the second such platform installed successfully by Cobra. It's a feat of engineering, not always easy to implement Cobra teaming up with Siemens Energy constitute an unparalleled tandem in the world. Cobra has 8 other contracts in its order book for a cumulative capacity of 14 gigawatts gives us visibility on the activity and profitability through to the next decade. These offshore converter platforms are strategic also for Germany's energy transition and sovereignty and more broadly, that of Europe, as was reminded recently last week in Hamburg, a joint declaration of 10 European countries that want to make the North Sea the largest hub of offshore wind, targeting 300 gigawatts by 2050 back to Germany, the second largest VINCI market internationally and will become a leading international market this year through acquisitions by VINCI Energies in that country. And growth opportunities in infrastructure. VINCI Energies isn't just expanding in Germany. On the right, EnergoBit, that's a company acquired by VINCI Energies at the end of last year in Romania. This acquisition fits fully with our plan to strengthen our leadership in electrical infrastructure. For Construction, on the left, this is Auckland, the City Rail Link, the first underground rail link of the economic capital country. Work began in 2019. This design build project will be delivered in 2026 by VINCI Construction. It's a powerful lever for social integration and also sustainable development as a rail infrastructure for Auckland. Staying in New Zealand, let me remind you that VINCI Construction announced a fortnight ago that it signed an agreement with a view to acquiring Fletcher Construction with an annual revenue of over EUR 600 million. Next ahead. Construction, this acquisition will allow VINCI Construction to strengthen its position on the very dynamic infrastructure market in New Zealand and to increase the group's annual revenue to about EUR 1.5 billion in that country. We can say that as rugby fans, we've always converted our tries in that country, both in VINCI Energies and VINCI Construction, and we hope that will continue for the current highway PPP project being looked at by the teams of VINCI Concessions and VINCI Construction. Right back to France, heading for Nantes, shown here is the construction of the new University Hospital Center by VINCI Construction and VINCI Energies. This worksite is the largest hospital construction project in Europe. VINCI Construction is deploying ultra-low carbon concrete and this worksite illustrates one of the many hospital work sites currently being executed by the group. There are some dozen such projects at VINCI Construction France, Monaco, another 10 in the U.K. and 6 in Poland. VINCI Energies, many technical work packages in hospitals and not forgetting all the contracts in the health care sector for the pharma industry. So both these projects are fine illustrations of vital infrastructure with mega trends, the environmental transition with rail or health generating countless opportunities for VINCI Construction worldwide. And I'll return to that in greater detail when I discuss the group's exposure to major mega trends. Moving to the results proper. The takeaway of 2025 for VINCI, as I said, outstanding performance in line with previous years, outstanding performance in spite of the macroeconomic and global geopolitical context that you know of the highlights. Next slide, revenue growth driven by Concessions and Energy Solutions. Revenue growth with an increase in EBITDA and operating income across all our businesses. That's what counts for us more than volume growth. What counts for us is profitable growth, net income is up and that in spite of a very significant increase in taxation in France in 2025. Free cash flow reaches another all-time high at EUR 7 billion. We'll return to that in due course. For 2026, we're banking on a further increase of activity and the group's results. And lastly, the Board proposed a dividend in respect of FY 2025 EUR 5 per share. That's an increase in excess of 5% over 2024. This outstanding performance indicates that the group's decentralized and multi-local organization of the group has demonstrated its relevance once again, it reflects the group's culture, unique culture, more about that later. On this slide, the main financial indicators. Christian will return to that in detail. At constant taxation, the net income group share would have grown 10% at EUR 5.4 billion and free cash would have reached EUR 7.4 billion. On this slide, you see that our share of revenue international outside France is close to 60% proportion increases year-over-year. It's not that revenue in France is declining on the concrete activity in the country has grown 2%. It's international that's growing faster. You see also that at 5 countries accounted for total revenue, France, U.K., Germany, of course, which tomorrow, as I said, well, our leading international market as well as Spain and the United States. You will have noted that our net income is achieved over 50% outside France. This internationalization strategy, we've been rolling it out consistently for some 15 years now, and we'll continue to do so. Some key figures by business in Concessions. Revenue growth is 5% plus 4% like-for-like EBITDA margin comes in at 66.9%, up 10 basis points (sic) [ 14 basis points ] over 2024, driven by solid tariff increases, both in airports as well as highways, both in France and international, driven by the successful integration of our recent developments; well done to our teams led by Nicolas. Concessions accounted 60% of the group's EBITDA this year. In greater detail for VINCI Airports, the momentum is sustained. VINCI Airport passenger traffic continued to grow across almost all 14 countries of the network. That's down to several factors, increased capacity of low-cost carriers, the development of long-haul routes in several airports and more generally stemming from customer demand that remains robust. Even if the post-COVID rebound is dwindling, the demand for mobility is a vital need. In total, 334 million passengers used our airports, an increase of 5% over last year, in particular remarkable progress achieved in Japan, notably a consequence of the Universal Fair in Osaka last year and recently acquired airports, Budapest, Edinburgh, the OMA airports in Mexico, Cabo Verde. All this demonstrates the discipline with which M&A is undertaken, our serious analysis as well as the momentum that we can in part to the new airport. This dynamism of passenger traffic in VINCI Airports is due to our own capacity, thanks to the network effect, our unique network of airports to offer new routes, offer new routes to airlines, 400 in 2025, and I can't resist the pleasure of just an invitation to travel to mention a few, Porto Montreal, Gatwick, Bangkok, Edinburgh, Boston, Budapest, Nantes and from Mexico, Monterey, Paris. Once again, we have collectively demonstrate that this portfolio of unique airport assets achieved many operational, technical and commercial successes throughout 2025. Autoroutes, highways in France, VINCI Autoroutes traffic posted a growth of close to 1%. VINCI Highways EBITDA continues to grow, whilst remain penalized by the tax on transportation infrastructure since 2024. We continue to challenge that before the courts. But we've renewed constructive and calmer engagement with the state as illustrated by the ESCOTA works program to ensure the good maintenance of the structure between now and the end of the Concession contract in 2032. That program was approved by the government early 2025. We just owned a new planning contract for Cofiroute with more about that later. For VINCI Highways in Denver, united States. We're doing what we said we wouldn't, faster than expected. A year ahead of time, we put in place the toll modulation system with tariffs vary depending on the time of day. That has a positive upside on revenues. In Brazil, we reviewed resumed operations of the Via Cristais and we now fully consolidate the Entrevias accounts in the group accounts. As you know, we are the leading private airport manager worldwide and handful where the leading private highway manager in the world with 8,200 kilometers of network gives us great pride and it's a fine responsibility. Energy Solutions remaining very dynamic, revenue of Energy Solutions at VINCI. Okay, let's round it off, let's say, EUR 30 billion. That's an increase of some 8% at actual structure, plus 6% like-for-like. Strong momentum in Q4. This revenue is driven by international business that represents over 60% of the revenue. This growth is accompanied by further progress in margins over 20 basis points at 7.6% positions as once again and without challenge, one of the most efficient players of the industry globally. Well done to VINCI Energies and Cobra. Energy Solutions represent almost 1/4 of our EBIT. This year confirms the excellent positioning of Energy Solutions, rate dynamic markets driven by the energy transition, the digital transformation as well as by defense and sovereignty issues. In greater detail, you can see top right that the 4 areas of activity of VINCI Energies that represent an unparalleled range of expertise. We're all posting revenue growth. You can see that VINCI Energies continues its crop in terms of external growth with about 30 a year. That's one acquisition every fortnight. Internationally, VINCI Energies revenue is up 8%, notably in Germany, the leading market, the Netherlands and also in Belgium, and in France, growth comes in at 3.4%, that's way above GDP growth. Turning to COBRA. Flow business activities remain well oriented, particularly in key markets such as Spain, Portugal and Brazil. Overall, this segment grew by nearly 5%. In large EPC projects, which happens to be Cobra's area of excellence, the strong increase in activity, plus 24% was driven by the construction in Germany of offshore electrical converter platforms for the North Sea. And also in Germany, the development of LNG regasification terminal. In Brazil, high-voltage power transmission line. And of course, we talked about that very much in July, the launch of the major PPP project in Australia. These are all strategic projects that contribute to the energy sovereignty of the regions concerned. In the Construction business revenue increased slightly. As you know, selectivity is our guiding principle in this business. And the lower revenue observed on a like-for-like basis is evidence that this selectivity policy is effectively being implemented. However, our teams successfully improved profitability by nearly 30 basis points compared with last year. So once again, excellent work the VINCI Construction and VINCI Immobilier teams. At VINCI Construction, revenue increased by 1.1% to EUR 32.1 billion despite a significantly negative ForEx impact, minus 1.5%. Market conditions vary across regions and business segments. Activity in major projects declined reflecting the phasing of progress on a number of large infrastructure projects, core flow business activities remained at a solid level, both internationally and in France, where activity increased, thanks to sustained demand for road, rail and hydraulic works as well as building refurbishment projects. Specialty activities at [ Soletanche Freyssinet ] also remained at a good level, particularly in the nuclear sector. Let me also remind you, you can see the pie chart on the screen that the vast majority in Construction revenue is generated from smaller scale projects delivered for recurring local customers, what we call our core flow business activities. And that is unusual among our top competitors. In other words, the share of major projects in our overall activity is deliberately limited representing around 10%. In the property development sector, in France, market conditions remain extremely challenging. VINCI Immobilier's teams are demonstrating our ability to stay the course despite headwinds as illustrated by the return to positive earnings in 2025. Order intake reached a high level in 2025, EUR 63 billion. Our key takeaways include flow business activities, which account for the vast majority of growth revenue in Energy Services Solutions and Construction, that remains well oriented, increasing by 3%. So order intake overall remains higher than revenue, particularly in Energy Solutions. And this means that the backlog continues to grow. I will now hand over to Christian Labeyrie, who will present the group's financial performance for the year in detail. Christian Labeyrie: [Interpreted] Thank you, Pierre as Pierre explained, our 3 businesses delivered very different growth rates; plus 8% for Energy Services or Solutions, plus 5% for concessions, plus 1% for construction, resulting in overall group revenue growth of plus 4%. And these trends reflect differing market dynamics and geographic mixes across our businesses. This is not by chance. It's the outcome of a long-standing diversification strategy designed to reduce the group's exposure to economic cycles and geopolitical risks. This strategy enables us to grow in a sustainable manner, delivering solid results and steadily increasing cash flows year after year. To achieve this, M&A growth is a key pillar of our strategy. In 2025, changes in scope contributed plus 2.5% to group revenue growth. And for international operations, the contribution was higher at 4.1% as most acquisitions were completed outside France, and this represents close to EUR 2 billion in additional revenue. Full year impact of 2024 acquisitions, EUR 700 million, including over EUR 400 million for VINCI Energies. And the consolidation of Edinburgh Airport mid-2024 to the tune of EUR 162 million. And the 2025 acquisitions contributed EUR 1.2 million -- actually EUR 1 billion, including Conway EUR 664 million, VINCI Energies, EUR 278 million; and VINCI Highways EUR 93 million, so nearly EUR 100 million. By contrast, ForEx impact had a negative effect on group revenue of minus 1% or EUR 686 million with a significant share, EUR 462 million or minus 1.5% attributable to VINCI Construction. So the euro appreciated year-on-year against several currencies, including the U.S. dollar, 4.4%; the Canadian dollar, plus 6.5%; Australian dollar, 6.9%; and New Zealand dollar, plus 8.6%; the Brazilian real, 8.3%; and sterling, plus 1.2%. On a like-for-like ForEx basis, group revenue growth would have exceeded 5%, while international revenue growth would have reached plus 7.4%. Now the geographic breakdown. France accounts for 41% of total revenue, which means a 2% increase in line with domestic growth and inflation. Europe, excluding France, 38% of total revenue, up 9% or plus 3.7% on an organic basis. The U.K., 10% of total revenue, up 10% organic growth of 1.2%. Germany, close to 9% of total revenue, so EUR 6.5 billion in revenue, up 17% or plus 11% on an organic basis. Spain, 5% of total revenue, broadly stable. The Americas, EUR 10 billion, 13% of total revenue, organic growth plus 2.2%. The U.S., EUR 3.4 million, up 4.6%, but up 7.2% on an organic basis. Canada, EUR 2 million; Latin America, EUR 4 billion, up 6%; Brazil, 1.8%, plus 18% or plus 13.6% organically. Australia and New Zealand, over EUR 2 million, but down 10% due to an unfavorable ForEx impact. And Africa is back to growth, EUR 1.8 million, up 14%. If we look at operating profit from ordinary activities, 2025, EUR 9.558 million, representing 12.8% of revenue. So plus 6.2% versus -- that's an increase of 6.2%, exceeding revenue growth of plus 4.2%. Now comments on margin trends of VINCI Concessions. There's an impact from higher depreciation charges of VINCI Autoroute, mainly reflecting the commissioning of the A57 widening project in the Toulon area. So for VINCI Airports, there is a mix effect between the different platforms with the end of the [ Pumping ] concession. Highways, you're not seeing the impact on the slide, but we're seeing a strong increase in [indiscernible] VINCI Highways due to the consolidation of Entrevias and Denver. For Energy, VINCI Energies is seeing a margin that's up 20 basis points. And you've got to understand that this margin rate is rather homogeneous between the different divisions and business lines of VINCI Energies. It's also true for Cobra. We're seeing an improvement of 20 basis points, so 8% margin and margin levels are broadly comparable between flow business activities and EPC projects. VINCI Construction, margin up 10 basis points to 4.2%. Again, the impact is quite clustered. We're seeing that the U.K. is back in the lead. The U.K.'s profit margin is close to 4%, and this has never happened before. And this is in part due to Conway being consolidated. Now in real estate, this business was making loss last year due to restructuring and impairments for commercial housing projects. Now we're seeing an increase in the IFRS 2 expense, and this reflects the impact of the PEG employee shareholding project and an increase in employee subscription. And because the share price has increased, this has led to an impact that was higher than in 2024. And this is offset by the improved contribution from the equity accounted affiliates as well as the airports in Japan. Also Cobra's stakeholding in electrical transmission lines in Brazil. Recurring operating income, 6.2%, but we're seeing differences from one segment to another, plus 5% for concessions, plus 1%. And if we look at the breakdown, we find that there are 3 equivalent blocks, VINCI Airports and other Concessions, 31% and Energy Solutions and Concessions, 35%. Now if we look at the situation the previous several years ago, we were highly dependent on French motorways. Now there's a much better balance between the different contributions of the different segments to the group's financial performance. Previous slide, please. Now if we look at nonrecurring items, there are positive impacts of disposals in 2025, particularly the pullout from our Russian auto route activities and also our participation in access and also divestments for Cobra, including a pullout from offshore wind farm development. Now there's an increase in net financial expense because we paid over EUR 7 billion for new acquisitions in 2024, but the impact is rather limited. It's much lower than expected because of the volume impact due to the growth in debt because of the acquisitions has been offset by cash flow better than expected. And we've been -- we've enjoyed a favorable ForEx impact in particular, thanks to our strategy, partially floating rate debt. So we've been able to curb the increase in financial expense. Now if we look at our P&L, this comes as no surprise, but tax is up significantly, plus EUR 560 million, including EUR 449 million related to the [ surtax ] on large corporate profits introduced in France in 2025 and extended to 2026. As a result, we're leading -- we're seeing an effective tax rate of close to 35% versus 29% in 2024. If we restate, for that, the effective tax rate would have been 29%, broadly in line with 2024. The corporate tax rate in France increased from 25.83% to 36%. So net income, EUR 4.9 billion despite the higher tax burden in France was slightly above the 2024 level, which came to EUR 4.86 billion. Earnings per share increased by 2.6%, reflecting share buybacks that reduced the number of shares outstanding. The number of shares outstanding decreased from 562.4 million to 556 million at the end of 2025, and that's a 1.1% reduction, and this continued through 2026. As you can see, we have a new share buyback program, which will cover Q1 2026. On a constant tax basis, net income would have reached EUR 5.35 billion. So that's a 10% increase and earnings per share would have reached EUR 9.44 per share, so up 12%. Now if we look at the cash flow statement and analysis of the change in debt net for -- during the year, consolidated net financial debt decreased in 2025 from EUR 20.4 billion to EUR 19.1 billion at the end of 2025. Why? Well, first of all, because our EBITDA improved by EUR 800 million, increased more than our revenue, so up 6.4%. Also a positive change in working capital requirements and current provisions causing contribution in cash of EUR 2.5 billion, which is higher than the already very strong 2024 level, EUR 2.3 billion. What we can say is that over 2 years, thanks to strong control of working capital in 2024, we're talking plus -- we're looking at plus EUR 1.8 billion, which is comparable with 2024. And also, we have a prudent provisioning policy. So plus EUR 0.7 billion versus EUR 0.5 billion in 2024. So the group generated an additional EUR 4.8 billion in cash. Contrary to what some of you expected, this remains a strength for the group. And this reflected sustained efforts across all divisions, particularly at VINCI Construction to structurally improve our collection process for customer receivables and also our billing process, which delivered results beyond our expectations. You got to understand that Vinci's business is 90% flow business. I'm talking about construction, of course, in energy. So contingencies pertaining to major projects have much less of an impact than they used to when it comes to changes in working capital requirements. Now I'm not going to back to tax. Tax is up, financial expense is up. CapEx remained broadly stable year-on-year, EUR 4.9 billion, although there are different trends across divisions. Concessions, EUR 1.3 billion versus EUR 1.4 billion last year. Energy, EUR 2.3 billion versus EUR 2.2 billion last year; and construction, EUR 1.3 billion, same as last year. Financial investments made in 2025 amounted to nearly EUR 1.8 billion. That's the difference between disposals and acquisitions, but there's a sharp decrease compared with the EUR 7 billion in 2024 when we consolidated Edinburgh, Budapest and also the Denver Highway project. This year, what are we seeing? Well, we've seen the consolidation of FM Conway, EUR 0.5 billion, VINCI Energies acquisitions, so about EUR 400 million. And this includes 3 important affiliates in Germany. We dealt with ACS to finalize the EUR 300 million project and also integration of Entrevias. We have a 55% stake in this project in Sao Paulo in Brazil, which didn't use to be fully consolidated. And following renegotiations on governance, we're now going to integrate the debt for this project. Now the divestments amounted to BRL 300 million to BRL 400 million following the disposal of a corporate stake, in particular, in this project in Brazil, offshore activities in Brazil, the sale of access and also the sale of VINCI Highways' Russian assets. So cash return to shareholders is significant, BRL 3.8 billion, including BRL 2.7 billion in dividends paid to VINCI S.A. shareholders and also the dividends paid by Gatwick, Edinburgh and OMA to minority shareholders. Now we bought Edinburgh over 1 year ago. And this is the first year that we've been able to extract cash from that entity. Share buybacks, I talked about that, EUR 2 billion. So share issuances, EUR 0.8 billion, representing 7.5 million shares -- and we need to look at the difference between gross debt and net cash. And this is increasing over a year. Seasonality of free cash flow, that's the next slide. Nothing new under the sun. VINCI's businesses are characterized by strong seasonality in contracting activities, business volumes are lower during the winter months and I am assuming the obvious year. In Concessions, activity is particularly strong during the summer period. Fixed costs, however, remain largely stable throughout the year. So most of the group's cash flows generated in H2, particularly the last quarter of the year as illustrated by the chart. This is why it's difficult to have a reliable forecast. We did go out on the limb this year, but we were dragging our feet for that very reason previously. An additional challenge in producing reliable full year free cash flow forecastings from the group's highly decentralized organization. So over 4,000 business units, over 3,000 businesses consolidated and our BUMs, Business Unit Managers who are the core of our business, usually adopt a cautious approach when communicating the forecast. And that prudence is understandable, but the cumulative effect can result in significant variances at year-end as layers of conservatism add up. Now 10-year trend in free cash flow and net income cash conversion, we're seeing that we generated close to EUR 50 billion over 10 years, including over EUR 30 billion over the last 5 years. And this illustrates the effectiveness of the group's business model and the relevance of its -- and the power of its decentralized management organization. Secondly, and this in spite the fact that we weathered as many others, a lot of extraneous crisis during that period, thanks to the diversity of our activities and our geographical footprint and a prudent financial policy, we've been able to deliver year after year solid results. We've improved them as well as free cash flow generation. It's the fruit of the work of our business units, our thousands of BUs, all efficient companies, very customer-focused, responsive, fleet footed to take account of market changes to end our financial policy. It's not revolutionary what I'm going to say. I tend to repeat myself every time. Financial policy rests on several pillars. Firstly, it's key for us to have considerable liquidity. It's the price of liquidity, EUR 15 billion cash. That's EUR 2.4 billion increase, a credit line, EUR 6.5 billion by our banks, maturity extended to January 2031. In spite of the cyclical variations in market conditions at all times, we can generate resources to continue to invest in our businesses, seize development opportunities that form part of our strategic plan and return to our shareholders. We have to manage significant debt, EUR 34.5 billion that is actively managed. It must be refinanced regularly and its cost must be optimized. 2/3 of the debt are housed in infrastructures that we managed for long-term contracts. That's about EUR 10 billion for ASF and Cofiroute and as much on our airports. So debt service with the concession -- debt service is insured by cash flow generated by projects to calibrate fully our capital injections and optimize return on investment debt housed on projects is fixed rate, whereas corporate debt has a variable rate. At the end of 2025, fixed rate debt accounted for 46% and 34% and variable debt, 54%. We've been able to reduce the average cost of our debt by 60 bps in 2025, bringing it down to around 4.3% despite of the fact that 60% of the debt is not denominated in euros, the euro where we arrive at very low rates. It's not the case when we borrow in real. So Colombian currencies, dollar or sterling. And lastly, we're preserving our excellent credit ratings. As you know, minus A3 S&P, Moody's, they're periodically reviewed, but they're confirmed year after year. And thanks to all that, we're able to issue in 2025, EUR 5.7 billion additional debt to refinance EUR 4.2 billion. Excellent conditions. Our signature is widely appreciated by bond investors as we demonstrated successfully in January with a new ASF issue, EUR 500 million over 8 years that have cost below 3.5%. Thank you. Pierre Anjolras: [Interpreted] Thank you, Christian, for those very clear explanations. In terms of outlook now, our outlook reflect our value creation strategy in both our long-term and short-term activities, long-term activities, mobility infrastructure. This year, VINCI has signed with competent authorities, major agreements that strengthened visibility and offer promising growth prospects in airports. I'd like to emphasize the expansion potential of the airports that we operate in addition to our M&A growth. In this complex world, one of the great strengths of VINCI is to forge relations based on trust throughout the world. And thanks to this constructive dialogue, several major agreements were signed these past few months. A few examples. London Gatwick, I mentioned we have the approval of the Northern Runway in Lisbon, Portugal. Our teams in January 2025 at the request of Portuguese authorities began to study the development of a new airport at Alcochete, Lisbon. A major milestone was reached after consultation of the stakeholders with the receipt of a favorable response from the grantor regarding the launch of the preliminary design phase. Let's cross the Atlantic. In Mexico, OMA subsidiary signed at the end of December, a new 5-year economic regulation contract defines investments over the period, around EUR 800 million as well as the associated tariff increase in Cape Verde, further investments in excess of EUR 140 million over and above those already launched early 2026, increase the airports of the island state to boost their traffic, but above all to maintain the economic and tourist dynamism in the country. We can mention the start of the launch by VINCI Airport in close conjunction with VINCI Construction, VINCI Energies, the new terminal of the Santo Domingo Airport in the Dominican Republic. In France, following a constructive and confident dialogue with the state, VINCI has just signed a new rider to the concession contract for Cofiroute. Through moderate tariff increase, it allows the application of the court decision on the composition of the increase on the regional development plan and an investment of some EUR 350 million on the network. These are essentially shared mobility investments, regional development and use of e-vehicles for electromobility. 100% of the VINCI service areas have charging stations as well as some 40 service areas, making it the best equipped highway network in the country for 2,400 charging points, that's 54 every 100 KM. Thanks to that, the number of charging stations could double. Through all these examples, our infrastructure is vital, but also changing, evolving, being renewed and needs development, many opportunities for value creation by VINCI for VINCI, both in our airports and the highways that we manage. In terms of energy infrastructure, long term. In 2025, the group decided to combine the energy production activities, essentially PV developed by Cobra Zero.e. That's the dedicated subsidiary to better nurture performance to optimize financing arrangements and asset rotation if need. Zero.e has a total capability for renewable power production of 5 gigawatts. 1.2 gigawatts in operation and 4.2 gigawatts under construction already to build to date. Cobra has invested EUR 2.3 billion in that portfolio. This investment policy is selective, targeted on limited number of geographies, Spain, Brazil, the United States and also Australia. We plan to strengthen the value of these assets with battery projects. And on the basis of this current portfolio, we're banking for this activity by 2030 on an EBITDA in excess of EUR 400 million. So furthermore, still long-term energy assets, Cobra benefits, as does VINCI Energies of long-standing expertise to implement construction and maintenance projects for high-voltage power lines, Cobra is currently in charge of 4 PPPs for over 200 kilometers of lines in Brazil and Australia. This is the beginning of an asset portfolio in the field of energy transmission lines where opportunities are numerous in Brazil. They're developing in Australia. And we believe that they will also expand elsewhere, notably in the United States. Short-term activities, all our businesses are driven by the world's mega trends. And on this slide, we're presenting a selection of 6 megatrends that we view as dynamic, both short and long term. For electrical infrastructure, the group generates over EUR 10 billion revenue with the backlog of close on EUR 20 billion. We're one of the world leaders, if not the world's largest utility, rail works, EUR 6 billion with a backlog of EUR 11 billion. Defense and sovereignty, EUR 2 billion in revenue and EUR 3 billion by way of backlog. Water infrastructure, EUR 3 billion revenue with similar backlog; digital infrastructure, we assess our revenue at EUR 7 billion, backlog EUR 6 billion; healthcare, EUR 2 billion in revenue and equivalent backlog. All these vital assets are already reflected in our figures, account for half of the revenue and 2/3 of our order intake in Energy Solutions, and that's set to continue to grow. Our order build continues to grow reaching an all-time high of some EUR 70 billion. That's over 14 months of activities. Offices visibility, we can view the future with confidence without departing from our selectivity policy margin over volume. On the right, the share of France, 29%; Germany, 20% share; and the rest of the world, 51%. Shown here is our guidance, 2026 by business. VINCI Airports' passenger traffic should continue to increase overall in line with global economic growth with various situations across region. VINCI Autoroutes in France, traffic growth should follow French economic output and that of its neighbors, including Spain and Italy. Energy Solutions are expected to see their revenue growth in a mid- to high single digit range, expected improvement of the operating margin already at the highest level in the sector. Total capacity of Zero.e in operation and construction ready-to-build could go from 5 gigawatts currently to about 6 gigawatts at the end of '26. Construction revenue, excluding ForEx impact, is likely to be broadly similar to the 2025 level with at least the same operating margin. Based on these expected developments, assuming no change in taxation, similar corporate tax rate as in 2025, VINCI will deliver further growth in its revenue in 2026, increase in its operating earnings. And further increase in its net income and as initial estimate of free cash flow, which could reach EUR 6 billion. The dividend on the basis of the remarkable performance in 2025, the free cash flow generated and confident in the prospects, the Board will propose at the upcoming shareholders' meeting a dividend of EUR 5 per share, EUR 1.05 has already been paid as an interim dividend. This would be an increase of 5% over 2024, and that would be a payout ratio of 58%. A word to remind you of our capital allocation strategy, consistent strategy for their shareholder on the right, the dividend with the payout ratio target, 60% of net income and share buybacks over and above the prime aim to offset dilution brought about by the issuance of shares to employees. The group will undertake opportunistic share buybacks based on our financial leeway taking into account M&A and the share price performance whilst seeking to maintain, as Christian said, a solid financial structure to maintain the excellent financial ratings. In terms of development on the left, we'll continue to invest in long-term infrastructure concessions, be it auto routes or airports through M&A or investing in our existing assets as well as in long-term assets for the production of renewable power storage and transmission lines. Short-term activities, the group strategy is to go all out on Energy Solutions for 20 years now. We've demonstrated our know-how when it comes to acquiring and integrating successfully new companies and the group remains open in the construction field to opportunistic acquisitions. Shown here is a summary of our capital allocation strategy over the past 3 years. Free cash flow totaled some EUR 32 billion, 3 broadly similar segments. EUR 11 billion, EUR 2.7 million for developing energy assets and PPP transmission lines, EUR 10 billion in M&A to prepare confidently our future. There are main deals over the 3 years. The equity IRR and EUR 12 billion in dividends and share buybacks. Shown here is a recap of the major acquisitions in 2025 already discussed, and I'd like to emphasize what Christian said, we regularly undertake disposals so as to optimize our ROE and improve clarity. The portfolio reviews are regularly undertaken leading possibly to an increase in investments in some assets or disposals in others. With Christian, we've just presented VINCI's financial performance for the year. It's remarkable. This ability to generate long-term value rests on a very strong VINCI culture that is shared by all that makes VINCI unique. This culture is shown on screen, is the long-term mind-set, the quest for all-round performance. We consider both financial and nonfinancial performance inextricably linked. That's the all-around performance. Our Group culture is decentralized, multi-local, agile organization, which is particularly relevant in this polarizing world. Our culture is its trusted management with common principles across its 1,400 BUs, unmatched execution policy, focus on cash generation and great discipline and cash allocation. This culture characterizes VINCI in all its businesses, in all its geographies and characterize its -- all its global assets. It's this synergy, the shared values that make VINCI a rare precious value. At least for us, it's the only way of continuing to create value long term, and we once again demonstrated in 2025, and as we'll continue to demonstrate. Thank you for listening. I'd also like to warmly thank Christian today with some emotion. Christian, you've been Group CFO, if I'm not mistaken. since January 1999. It means that VINCI duration and long term is also present in its executives and management. And if I'm not mistaken, you've just presented for the 28th time the group's financials since you were appointed, I haven't taken into account the share price performance today. 1,100% and over 3,000% with the dividends, that's an average 14% a year on behalf of the almost 300,000 employees of the Group, majority of whom are shareholders. Thank you. Well done. Pierre Anjolras: [Interpreted] You can do just as well. Even better. Let's go with the bank. Together with Christian and the rest of the Executive Board, we are at hand to answer any questions you may have. Eric Lemarié: [Interpreted] Eric Lemarie, CRC. I have 3 questions for starters, if I may. Question number one, future potential calls for tender as part of renewing concession contracts in France. What about the timetable following the presidential elections? The press talked about 2028. Do you have additional information on that? Question number two, the rider to the Cofiroute contract, could you please give us some color regarding how things worked out? Who approached who? We often bear in mind the political risks, but maybe those risk are lower than what we'd expect. Could we expect a similar amendments to Escota contracts or ASF contracts? Do you intend to proceed similarly? And also the EUR 300 million in CapEx, could you give us the sequencing year-on-year and also the return on capital employed for this particular plan? And 1 last question regarding free cash flow. The guidance stands at EUR 6 billion. So what are your assumptions when it comes to working capital requirement fluctuation? Pierre Anjolras: [Interpreted] Regarding the first 2 questions, I'm going to hand over to Nicolas. Nicolas Notebaert: [Interpreted] Now on a more short-term basis, the investment program contract with Cofiroute and also prospects for investments. As Pierre rightly said, what's important when it comes to concessions, particularly when there are legal contract disputes, always maintain dialogue. And that's what we did. And we now have a constructive dialogue. So what is disagreement all about? It's about transferring investments. In the life of a contract, a certain type of investments were not being made. So mechanically, we were able to transfer them to new types of investments, particularly for decarbonizing motorways, multimodal exchanges, reserved lanes, et cetera. So one important factor, compensation. The Court of Appeals issued a ruling in 2025 and so the increase in the TAT divisional development tax which was specific to motorways was supposed to be offset for Cofiroute. Since May 2025, the government orders for the past increase in tax and also for the future increase in tax, and this generated additional investments. And as a result, the court ruling in May 2025, plus our partnership-driven approach meant that we were able to find common ground. So you also referenced other companies. We have submitted a new joint project together with the government regarding Escota. So that's work in progress. The investigation is underway. And of course, we're not ruling anything out when it comes to ASF, but it will be a different approach. As Pierre rightly said, we have completed Stage 1 when it comes to the end of the concession contract because 7 years ahead of time, concession contracts require an agreement when it comes to residual investment we made, and that's what we did for Escota for future competitive bidding. You know that the government believes in dialogue, that's part of the France transport ambition. And they've recognized the merits of infrastructure concession contracts and also tolling for the future because when a country such as ours is heavily in debt, you got to understand that 20% to 25% of tolling proceeds come from international operations. Spain's economic growth outperforms the European average. As you know, VINCI Autoroutes, Highway -- highways are connected to our Spanish highways. So parliament will be discussing that. We will be discussing the framework legislation to prepare for future contracts now that the current -- once the current contract lapse around 2030. So we lay the groundwork for 2028, 2029. And of course, we will continue to be selective and disciplined. We will look at the terms and conditions of these contracts and see to what extent we can take part in those efforts. But we will look at the terms and conditions of those contracts in a couple of years. Eric Lemarié: [Interpreted] Now the CapEx sequencing between 2027 and 2030. In the meantime, still CapEx underway when it comes to networks. I'm talking about new contracts. Were you talking an additional EUR 350 million in CapEx? Nicolas Notebaert: [Interpreted] Could you please repeat the question? Eric Lemarié: [indiscernible] Nicolas Notebaert: [Interpreted] Well, you can do the math easily enough. There's a difference between the EUR 6 billion and the slight increase in revenue. Now that assumption is worth whatever it's worth. But there's a breakdown between working capital requirements on the one hand and the recurring provisions. As you know, we externalize our results, but we do it cautiously. There are 4,000 business units. Everybody provisions for risks that may or may not materialize. And -- it's a structural thing as far as we're concerned. So that's where part of the gap comes from and working capital requirement is managed as close to the field as possible by our operations teams and our administrative managers. And that's been a strong focus in a number of years. And the COVID period served to reveal the issue because we used to choose the path of least resistance, then we start rolling up our sleeves and now it's paying off. It's been 5 years now. And we're still reaping the benefits of those efforts, maybe not along the same proportions of the past few years because there was a catch-up effect. But this means that the EUR 6 billion estimated assumption is pretty reasonable considering the other parameters that we discussed in the press release. Yes, this affects Cobra, Construction and VINCI Energies. This was particularly true for the Construction business this year because the Construction was lagging behind the other businesses when it comes to improving its customer receivable collection processes and billing processes. Now from an operational point of view, because the global environment is trapped with increasing uncertainty, this means that our managers business unit managers are much more cautious when it comes to cash predictions. We usually estimate cash predictions throughout the project. But from this get-go, we try to be in a cash plus in a cash positive situation from the get-go because of the growing uncertainty of the global environment, irrespective of the contracts or the relationship with the customer by definition. The customer is always smarter when their cash is already in our pocket. So from an operational point of view, many talks and working capital requirement talks as well. And so our entire reporting structure is -- has been made aware of that. Now we went through a period of low interest rates. Remember, in Italy, there were 0 interest rates, sometimes even negative interest rates. And so good habits were taken back then to collect as quickly as possible. But when it comes to our vendors, the best thing we can do is pay them in due course. So it's a good thing. It's a good thing, those good habits have continued to prevail. And this explains in part the improvement in working capital requirement. And to our minds, that is a structural thing to a great extent. Sven Edelfelt: [Interpreted] Sven Edelfelt, ODDO. Congratulations for your excellent results. And thank you, Christian, for your contributions. I have a couple of questions. Number one, regarding ANA rate, the ANA output. Could you give us some idea of the CapEx and also the phasing of the initial investments into the Alcochete Airport if you have some idea already. Question number two, Pierre, you talked about the handover between Thierry and Christian. Sometime this year, maybe at the beginning of next year, maybe you'll be willing to share your vision, your 10-year vision of the growth, maybe during a CME, Capital Markets Day. Won't that be an opportunity to add color? Pierre Anjolras: [Interpreted] Nicolas, would you like to take this question on ANA? Nicolas Notebaert: [Interpreted] It's a little early to give you an economic guidance. Now there are contract milestones. We are crossing those milestones and is proceeding at pace. We have an order of magnitude, EUR 8.5 billion. That's been published. Now we're going through an important phase and that's the environmental assessment. As you know, in all Western European countries, the period during which we secured that environmental authorization is an important one. So that's Phase I. That's the environmental phase. And meanwhile, we're working on the final design of the airport, so we can optimize it considering renewed air traffic constraints, which are different now than they were a couple of years ago. And we are also looking at financial mechanisms. So the figure I'm giving regarding Portugal is already 1 year old, and it will shift further based on how we optimize the projects and also based on the outcome and the environment assessment. But it's not going to start right away. This is a project that will take several years to achieve. But the order of magnitude for this airport in Portugal is EUR 8.5 billion, as I said. Now in terms of financial reporting, that's something we pay close attention to because it is important. And that's why we all gathered here today. If we look at the timetable and the content of the Capital Markets Day, we don't have a clear guidance yet, but we've put our heads together, but I can't make any promises as to the outcome. Pierre Anjolras: [Interpreted] Other questions? Unknown Analyst: [Interpreted] I have a couple of questions, more anecdotal questions. You talked about BESS, Battery Energy Storage Systems. Do you -- are you thinking of signing a similar contract between Cobra and Tesla, for example, regarding the EUR 6.4 billion, you gave us some idea regarding EBITDA. You gave us a figure during the presentation, but the EUR 2.3 billion when it comes to current operations, is that generating EBITDA? And when it comes to M&A, you talked about the Fletcher acquisition in New Zealand, I think, and also FM Conway. Now in terms of mergers and acquisitions, I have in mind VINCI Energies, VINCI Construction is also making acquisitions. What should we expect? Should we expect regular acquisitions internationally from VINCI Construction? Or do you have countries that you prefer when making acquisitions? And also, you talked about the EUR 7 billion in revenue for digital infrastructure. So how much -- what's the share of data centers out of the EUR 7 billion? Pierre Anjolras: [Interpreted] Regarding the BESS, Battery Energy Storage Systems, your question is twofold. First of all, you're asking about our design and build contracting activities, VINCI Energies and Cobra are doing that. Arnaud can tell you more. Jose Maria can tell you more. And then there are investments being made in terms of long-term assets, and we are planning to invest into Battery Energy Storage Systems so as to further enhance the value of our solar PV facilities. Arnaud, anything you'd like to add? Arnaud Grison: [Interpreted] Yes, it's true. For a number of years, we've seen a roll-up in those BESS installations and facilities for various customers in Europe. So we have an EPC positioning. We don't have a framework agreement with any battery provider or even Tesla, but most of those batteries are Chinese batteries. China is a major provider of battery technology. So it's up to the developer and to the -- it's up to the investor to decide what kind of battery they want. Pierre Anjolras: Jose Maria? Jose Maria Lacabex: [Interpreted] [indiscernible] Invest only for supply our projects. We are not going to do or invest in a standalone capacity. And we expect to invest at least 5 gigawatts hour for our own projects in the next 3 years. And this allows us to increase our equity IR in around 200 basis points. Pierre Anjolras: And to add to that, we are considering, as I said in the presentation, a new investment on the renewable plants in Australia and actually an investment in a plant includes the investment in BESS. [Interpreted] Now in terms of construction, as we said before, our investment policy is an opportunistic one, usually designed to strengthen our existing strong positions where we're already feeling comfortable. Now as it happens, 2 years in a row, we had an opportunity to make the Conway acquisition in the London area. And back to back, there was another opportunity for another acquisition, Fletcher. And before that, the latest significant acquisition by VINCI Construction was back in 2018, Lane. So just because we make 2 major acquisitions back to back in 2025, 2026 means that we will do the same in 2027. It will depend on opportunities. If the opportunity arises, we'll go for it. Otherwise, we'll abstain. Now VINCI Energies, however, is more of a continuum because we have a recurring bumper crop of 30 acquisitions per annum. We're talking hundreds of millions in annual revenue, thanks to M&A. And that's part of our modus operandi. And we do it so often that it's almost akin to organic growth. But like I said, it all depends on what opportunities arise as indicated when I talked about our capital allocation policy. When it comes to digital infrastructure, I did emphasize the fact that regarding construction, flow business against 90% in major projects remaining 10%, but we could be saying the exact same thing regarding Energy Solutions. If you look at the share of EPC contracts for all Energy Solutions at Cobra, it's about 10%. For digital infrastructure, we have pretty much the same take. Now I don't have the exact figure top of mind to try and answer the question you posed, but we have major projects and there's a lot of visibility there. I'm talking data centers. And there's a lot of activity, a lot business around digital infrastructure between anything that happens between the hyperscaler and your smartphones. We're talking a lot of networks, a lot of assets. A lot of installation and maintenance contracts, a lot of cybersecurity aspects. So we have to factor it all in, into that EUR 7 billion figure. Now I said the flow business accounts for 90% of the mix. And that's much more -- that's much more recurring business than data centers. So data centers, we're talking major contracts, Cobra's EPC contracts, whenever they do want such a contract, there's a lot of visibility, and it's easy to understand. But you've got to bear in mind the recurring repeat flow business, which accounts for 86% of our contracting activities. And I know, I believe that this is a major differentiating factor when it comes to construction for VINCI. And this also explains the high quality for results. But whatever is happening around the data centers is going to fuel our business throughout the digital infrastructure segment. So yes, we do have a presence in data centers, but we mostly have a presence in the recurring multiyear flow business, what VINCI Energies calls Axians. I mean that accounts for 25% of VINCI Energies. And digital infrastructure can also be found in Energy Solutions because you can find it within a building, that's what we call [ sport ] building. You'll find that in electrical grid as well. That's what we call smart grids. Digital infrastructure is everywhere, smart grids, smart buildings, microphone please, regarding the contribution, no forecast yet. We have tentative figures only in 2023 where we have a full over 1 gigawatt on a full year basis when it comes to operations. So I can't -- I prefer not to give you a figure, first of all, because it wouldn't be significant, not even at Cobra scale, let alone at VINCI scale. But yes, this will start to generate EBITDA as early as 2026. We started generating EBITDA in 2025 a little bit because, Jose Maria, correct me if I'm wrong, operations began in June, July, started generating earnings, but I don't know how significant that is. So that is why I prefer to wait until '27 before I give you the guidance. That's how long it takes for the asset development pipeline to actually reach cruising speed. Unknown Analyst: [Interpreted] Well done for your results. Just following up on Zero.e, 1 giga for this year, we report the figures separately as of '26. A question on airports. We see slight margin erosion, traffic increase. Could you maybe just rehearse the reasons for that? And Gatwick specifically, could you give us some color and a time horizon? And final question, you mentioned a bit more portfolio rotation going forward. Could you enlighten us as to the criteria that will be applied? Pierre Anjolras: [Interpreted] On the Zero.e figures, I won't answer immediately, when it becomes significant, we'll report. But there's no point giving overly small numbers that can be misread. I think we'll be still in that situation in 2026. So it's preferable for us to give you an indication once these assets are in operation in -- reach cruising speed, it's far more significant. Question on the airports. A couple of questions on the airports, Nicolas. Nicolas Notebaert: [Interpreted] So your question on the airports. Well, firstly, we regularly make acquisitions that don't necessarily have the same EBITDA EBIT margins. The annual comparisons are not always like-for-like. Secondly, that we had some one-off high turns EBITDA and EBIT in 2024 versus 2025 and EBITDA EBIT margin, very high, that's grown significantly. And final point mentioned in the presentation, I believe it was Christian, we're going to change the motor contract on Phnom Penh Airport through September. We were in full concession. We were compensated, that was a one-off of the earnings. But today, we have an operation contract for Phnom Penh Airport, which obviously doesn't have the same EBITDA or EBIT margin. Those are the prime reasons that justify this consolidation and margin on VINCI Airports. Gatwick. Color on Gatwick -- Gatwick, as we said, we have a plan that we're now rolling out the CapEx, same to that's being development, about GBP 2.2 billion for that with the latest legal challenges are underway that approval was given. But as I said, we have to follow the latest rulings. But without delay, we're launching the design and works phase, 45 million is Gatwick capacity that will grow to 80 million passengers. So with that investment, we can up the capacity significantly. On portfolio revenues, just to reaffirm that we're doing that. And Christian drawn up an inventory. I mean there are a number of significant disposals. Those are amounts in the P&L and cash. Yes, we're active. We're developing and we're active to focus and we've done that, but we've always done and we'll continue to do. Pierre Anjolras: [Interpreted] If there are no further questions in the room, we can take questions on the call. Questions in French first. [Operator Instructions] First question, Patrick Creuset from Goldman Sachs. Patrick Creuset: [Interpreted] Christian, congratulations for the great numbers. In your release, you mentioned the strategic review of the portfolio through your businesses with the goal of optimizing the return on capital. Could you tell us what type of asset will be involved? What will be the criteria, the potential scale of this review. And also in terms of capital allocation, how you currently assess opportunities for M&A business, region and also size? Christian Labeyrie: [Interpreted] As I've just indicated, this principle of reviewing our portfolio concerns all our businesses, all our geographies, we do it. We'll continue to conduct that review. I'm incapable of saying to produce -- or depends what the ROE asset by asset, how to improve the Group's clarity. That would guide us, but we are not saying that these are times where we're going to increase the capital -- the volume did for M&A. There's a pipeline of M&A at VINCI Airports an M&A pipeline at VINCI Highways, at VINCI Energies and VINCI Construction that remains active for opportunities. We do that across our businesses, and we remain open to all geographies as long as we're comfortable there. And with stronger reason, we're more comfortable in geographies where we're already present, where we're already strong to do the various deals that we've mentioned. But if we go back further, without being present in Japan, we had the smart idea was from Nicolas to go to the Osaka and Kansa Airports. And Christian mentioned that. So we remain very open and very opportunistic. And similarly, we have no M&A investment targets per year. You've seen it's far lower this year than last year. And on average, that is pretty much the same thing, 3-year average. I presented that on the reflection over the past 3 years of M&A CapEx. But we're disciplined when we need to be disciplined, that is we don't do any old things. And if there are 3 or 4 deals to be sealed, Christian has the wherewithal, the munitions to strike a good deal or several good deals when we believe the time is right. And what we could add on that, says, Christian, that across our businesses, I mean we're not an investment fund. So we're not in the business of buying assets for the pleasure of buying. When we buy something, it's to nurture it, manage it to extract value through management that is a position of control even 100% in Energy, Cobra, VINCI Construction and in Concessions to be in control or co-control. If it's just to be a passive partner, not really in terms of the revenue that we contribute extensively through our work. The idea is to have a hope of improving receipts if it's a pure PPP with a fee paid linearly over the duration of the contract. It's a less interest. Cobra did in 2025 to seed its stake in a project acquired in Brazil, for which there was no upside on the traffic. It was clearly a financial deal. Once the development and construction risk is behind it can be -- can make sense to sell the asset to a pure financial player, an investment fund. Patrick Creuset: [Interpreted] So the minority stakes that might be sold or disposed of as your portfolio rotation? Christian Labeyrie: [Interpreted] It's possible. Look at the disposals of the year. There weren't just minority stakes or investment. Pierre Anjolras: [Interpreted] Next question. Elodie Yvonne, JPMorgan, over to you. Elodie Rall: [Interpreted] Yes. Sorry not to be with you this morning. Best wishes, Christian. Just to start, we sense that you're more ambitious regarding your return to shareholder policy. You mentioned opportunistic share buybacks to what level could you go and notably regarding the dividend 5%. I mean that's a priority. So clearly, that we're moving away from a payout policy so with things possible in terms of a dividend increase going forward, perhaps more dynamic, the net income. And maybe another question, if I may. Would you have a comment on the German contract, you're beginning to see the fruits of that and also highway traffic year-to-date? Are you seeing an inflection on the residential -- French residential market that you lost at '25. You see some green shoots of hope there. And I see on the portfolio review, you mentioned that at a great length, but how -- where does ADP feature in your thinking? Pierre Anjolras: [Interpreted] On the dividends, I've spoken about that, our goal down the road was 60%. I mean if the payout ratio is to head to 60%. On the share buybacks, in fact, we're pretty much the end of the catch-up of the dilution several years. generating new shares for the group savings scheme. So we're not ruling out the possibility of going beyond that. But once again, it will be opportunistically, as I indicated, based on the capital that we have to allocate on the expansion, be it M&A or developing existing assets and depending on the share price performance. I can't give you more guidance than that. But you can say is that the dividend policy. We don't want to change it every other day. But to give some guidance that we've always done on the share buyback, there we can be more opportunists I suppose you look at the Americans who're massively buying back shares when it suits them. depending on their CapEx plan, the GAFA is spending hundreds of billions in CapEx, maybe they'll do a bit less share buyback. That's part of the financial strategy. Highly complementary dividends and share buyback, we do both. In the CAC 40, same return to shareholders in terms of its market cap as VINCI today. Next, on highway, auto route traffic, they're significant. I mean January is never significant month of January. Not much to say what to draw from that. On residential housing construction with the exception of VINCI Real Estate, that's a fine company and the impact is limited on VINCI as a whole, notably construction is not at all very little dependent on the building of new homes. It's negligible share. And so the impact of residential property development aside from VINCI Real Estate has a little impact on the Group financials. What we can say Virginie, what the market is challenging. The housing stimulus plan announced to [indiscernible]. So that hasn't yet been placed on the statute. But so we wouldn't really see the effects of that before the coming months and that we're in a year of local municipal elections that are never times that are propitious to the dynamic launch of new projects. But whatever the housing stimulus plan is a good signal for the sector to kickstart the momentum after 3 years of crisis. There's a question about Germany. Well, in Germany, there are 2 major stimulus plans. There's one for defense and stimulus package for infrastructure. From what our German teams tell us and when we ask them, we need to question them several times to get a sense of what's happening between the EUR 500 billion at federal level and twice EUR 500 billion and how it percolates down to contracts. It's not easy to read. But the sense, yes, it's beginning to be visible in defense. I remind you that in defense, VINCI Energies made an acquisition of a company SAN last year that primarily works in German shipyards for the German Navy and has very sustained activity and growth prospects. And so that momentum is part and parcel of the defense stimulus package. So for the infrastructure stimulus German teams have great difficulty in seeing a significant shift to date on that front. Arnaud? Well, what we can say is we indicated ahead of phase on energy infrastructure stimulus package, there are major needs, but they're not fast-track projects because they need authorizations, there are appeals, et cetera, a lot of design work. So it's positive over the long term, but they're not hyper growth rates short term in defense, it's production capacity. So it's positive for one sector, but it's not hyper activity, either short or medium term. But what is, however, clear is that these announcements have generated a climate of confidence and that weighs heavily in the economy of the country. And -- the Germans are fortunate in that respect. That's why it's good to be in Germany. It's good to continue to expand in Germany. And as you saw these past few acquisitions, as you saw in the contracts, be it VINCI Energy, of course, but also Cobra with the major Cobra projects in Germany, VINCI construction there for a long time. Also VINCI Highways, which is the leading operator of German highway PPPs, and we haven't seen nothing yet in terms of project launch, but that could form part of the stimulus package. We're very well positioned to benefit from that. Questions in English. If you want, you've got the translation headsets. Okay. Let's have the first one. Operator: Our very first question from the English conference is coming from Harishankar of Deutsche Bank. Harishankar Ramamoorthy: I have a few. Maybe the first one would be around order inflows. When I look at your outlook for 1C Energies, solid mid-single digits to high single-digit growth. But in Q4 -- till Q4, we have not seen inflows improve a lot. So does the outlook imply that you are expecting inflows to turn the corner pretty soon? The second one on the German side of things. Any time line by which that could overtake U.K. And lastly, on the working capital, I do see you referencing better customer payments and so on. But when we look at the balance sheet, it looks like trade receivables are broadly flat, whereas it's the payables that have increased significantly. So is it a question of delayed payments to vendors? And if that is the case, then is that structural? Unknown Executive: [Interpreted] Quick answer to the second part of your question. The answer is no. It's been a long-standing policy for us to pay our vendors in due course. I don't know what it is like in other countries, but in France, the authorities pay close attention to that and Vinci has never been named or shamed with that kind of thing. we don't artificially prolong paying our vendors. Pierre Anjolras: As for the order inflow, it's complicated to look at quarter-by-quarter. And I think what you have to do is in the 12 months rolling. And another thing is the order inflow of SCNG was impacted also by a very large project in the past years. And when you restate that of the very large project, over EUR 50 million, the order inflow is still increasing. I think it's plus 4% this year. So yes, there's no worry. And as the guidance is supported by the -- what we see in the order inflow. Unknown Executive: We need to be very vigilant when it comes to analyzing the order inflow because VINCI has a lot of multiyear contracts, a lot of recurring business. So usually, we input the contracts at the beginning of the year. So during the year, we burn through the contracts that came in the year before, and we generate business for the year after. And this is true for VINCI Energies as well as other players. Now regarding the question on Germany, these are our estimates. Next year, revenue for VINCI in Germany will be higher than VINCI's revenue in the U.K. I'm not saying that the U.K. revenue will go down, but we will simply grow ours faster. In 1 year's time, things will have been reversed. Germany will be our second international contributor to revenue after France. That's our prediction. Next question. Operator: Our next question is from Ruairi of RBC. Ruairi Cullinane: Congrats on the results. One question on tax. So do you think the tax targeting large French corporates specifically needs to be exceptional to be constitutional? Would you challenge this tax if it became an even more regular feature of French budgets? Yes, I'll leave it there. Arnaud Grison: [Interpreted] Don't ask me, ask the government and ask parliamentarians. We can answer that question, particularly since last year, the surcharge was presented as a one-off thing that would apply just that year. And we're almost at the end of the budget approval process because it's been through parliament. So without too much surprise, that surcharge, that surtax is going to be approved and this means that a promise was made to us last year, but they're not keeping it. So I can't possibly tell you what will happen in a year's time. We do realize that for a while now, SME leaders and corporate leaders in France, major corporation CEOs are making statements to the effect that this goes on for too long. Tax-wise, France will be less competitive than the rest of the EU member states, and this could actually hurt the French economy. I think as the Head of Total Energies, who said that if corporations have a choice between 2 countries where the tax rate is 15% to 30%, what do you expect them to do? Where do you expect them to go? So -- and there's also an impact on the surrounding ecosystem, the employees, the vendors, suppliers, et cetera. So reason should prevail at some point. You can't continue to hurt the French economy's competitiveness compared with Spain, Italy, the U.K., Germany, et cetera. So we can hope that eventually reason will prevail. Who knows... Let's move on to the next question. Operator: We have a question from Nick Mora, Morgan Stanley, a question in French. Nicolas Mora: [Interpreted] Congratulations, Christian. I'm sure you're looking forward to retirement. [Indiscernible] To sell shares here. Now profit margin, let's start with that. Could you please give us an update on the upside for construction, Energies, Cobra, AS. So 2025 went pretty well overall. Profit margin was driven by M&A in construction and also profit margin for Cobra is being driven by renewables. So -- is that just a medium-term thinking? Or are you expecting that the improvement of 20 basis points to continue year after year? Now regarding airports, profit margin is under pressure -- was under pressure in 2025. If we look at '26 and '27, what should we expect? We're seeing an increase in costs. We look at the U.K. business rates. Prices are being moderated. Now the traffic situation is so so. So do you think that profit margin has already passed its peak? Arnaud Grison: [Indiscernible] Nick Mora -- regarding our contracting business, there's still potential. But we've been seeing it for a while now and yet people struggle to believe us. And this is true for construction as well. Thierry Mirville gave us a chart regarding the past 10 years, showing a regular steadfast increase in construction EBIT and also a cash conversion pattern that is as good as VINCI Energies and Cobra. So yes, those are value contributors and the value should be assessed properly. And needless to say, VINCI Energies and Cobra, you heard this several times in the course of the presentation is actually being supported by all customer requirements. There's so much to be done. So obviously, we're not going to double the profit margin, but there's still room for margin to continue to thrive. And the guidance has been set accordingly. Now how long will that last? It's hard to say. But yes, over the short term, we expect that trend to continue. When it comes to airports, that's slightly different. Nicolas can tell you more about that. We have a mixture of different platforms and each platform has its own trajectory. Nicolas, why don't you go ahead? Nicolas Notebaert: [Interpreted] And sometimes it takes a while for the effect to be fully felt. Now we have a new economic regulation contract in Mexico, as we said before. And -- so we're talking 6% to 7% above inflation over the 5-year period, which is good enough already because usually, our method is based on regular capitalization. And clearly, this platform has been outperforming the sector. Obviously, we've got London Gatwick and we've got the Lisbon Airport. So there will be regulatory discussions as well. So we haven't yet set the course in terms of tariffs, but we are aligned with inflation. So future expectations in terms of profit margins from airports have yet to reach the peak. But the situation is highly fragmented geographically, so is growth. But the recent news regarding Mexico is showing that these 5-year contracts are helping us to renegotiate so as to renew our profit margin prospects in the future. Operator: [Interpreted] Very well. If there's nothing further, if there are no other questions. Over to you, Pierre, for the conclusion. Pierre Anjolras: [Interpreted] Well, thank you so much for attending. Enjoy the rest of the day. Enjoy the rest of the year and see you very soon.
Operator: Good afternoon, and welcome to the MGM Resorts International Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining the call from the company today are Bill Hornbuckle, Chief Executive Officer and President; Ayesha Molino, Chief Operating Officer; Jonathan Halkyard, Chief Financial Officer; Gary Fritz, Chief Commercial Officer and President of MGM Digital; Kenneth Feng, Chief Executive Officer of MGM China Holdings; and Howard Wang, Vice President, Investor Relations. [Operator Instructions] Please note, this conference is being recorded. Now I would like to turn the call over to Howard Wang. Please go ahead. Howard Wang: Thanks, Marco. Welcome to the MGM Resorts International Fourth Quarter and Full Year 2025 Earnings Call. This call is being broadcast live on the Internet at investors.mgmresorts.com, and we have also furnished our press release on Form 8-K to the SEC. On this call, we will make forward-looking statements under the safe harbor provisions of the federal securities laws. Actual results may differ materially from those contemplated in these statements. Additional information concerning factors that could cause actual results to differ from these forward-looking statements is contained in today's press release and in our periodic filings with the SEC. Except as required by law, we undertake no obligation to update these statements as a result of new information or otherwise. During the call, we will also discuss non-GAAP financial measures when talking about our performance. You can find the reconciliation to GAAP financial measures in our press release and investor presentation, which are available on our website. Finally, this presentation is being recorded. I will now turn it over to Bill Hornbuckle. William Hornbuckle: Thank you, Howard. To everyone dialing in, we truly appreciate your flexibility in joining us this earlier-than-expected call and look forward to providing you with some important color in detail about our fourth quarter and full year performance. Before I get started, I'd like to introduce everyone on today's earnings call to Ayesha Molino, our new Chief Operating Officer. Ayesha was previously our Chief Public Affairs Officer and President and Chief Operating Officer of ARIA and Vdara, which flourished under her leadership, and we are thrilled to have her in the COO role. I also want to congratulate Kenny Feng, who has been leading the MGM China as President and Executive Director since 2020 and is no stranger to these earnings calls on his recent promotion to Chief Executive Officer of MGM China. And finally, I'd like to congratulate Tian Han on his promotion to Chief Operating Officer. Tian has also been integral to the success of MGM China in recent years, and I'm extremely excited to see the great things the entire Macau team does going forward. MGM Resorts is the leading global integrated resort operator across physical and digital channels, converging gaming and hospitality with entertainment and sports, and this diversity helped us once again to achieve consolidated growth for the fourth quarter and the full year 2025. It's worth noting some of our key accomplishments last year: achieving record 4Q and full year EBITDAR in Macau while maintaining margins and outsized market share throughout the year, accomplishing a nearly $470 million EBITDA turnaround at our BetMGM North America venture, which commenced distribution to its parents in 4Q; breaking ground in MGM Osaka, which we believe will be the world's largest integrated resort upon opening; and investing in upgrading experiences across our portfolio from dining to enhanced VIP gaming environments in Las Vegas to our regional operations and most notably in Macau. These, along with other successes throughout the year drove growth in consolidated net revenues of 6% and positioned us well for further progress into 2026. Last year marked the return to a more balanced environment after several years of exceptional growth in Las Vegas. And even with the Las Vegas-specific headwinds, we were able to achieve record full year slot win in 2025 driven by our luxury offerings. From this reset baseline, we see a path to grow in Las Vegas for the full year of 2026. First off, we will benefit from a full year contribution from the various capital projects completed last year, including and notably MGM Grand's room renovation. We had anywhere from 700 to 1,000 rooms offline per day for most of last year, but that will not be in the case in 2026. We've received tremendous positive feedback on the refreshed product and are excited to have the full complement of rooms available this year. Other projects completed mid- to late '25 included the high-limit slot rooms at Bellagio and additions to our already deep roster of elite dining experiences with CARBONE RIVIERA here at Bellagio and Gymkhana at ARIA. Within the group and convention channel, we are experiencing mid-single-digit revenue growth in 2026. This year's mix will be closer to 20%, and the quality of the groups, I feel, has improved because of meticulous action carried out last year focused on improving profitability. To date, we've had solid performances during city-wide events, including CES in January, and we're excited for the return of CON/AGG with expectations of getting back to 2023 attendance and achieving more than our fair share among the 140,000 attendees arriving into Las Vegas. Even more exciting is the fact that we have group and convention room nights on the books for future years that we've had more -- group and convention nights on the books for future years than we've ever had in our history. While 2026 event calendar continue to fill out, we are seeing comparable arena capacity city-wide events relative to last year, which will help provide stabilization levels of business given the proximity of our properties to the golden triangle of venues, Allegiant, T-Mobile and MGM Grand Garden Arena. Tent-poling events such as Formula 1 also continue to drive visitation this year, and our Strip properties saw higher room rates and increased cash ticket sales at the Bellagio Fountain Club, which remain the premier ultra-luxury hospitality venue to watch the race. We are continuing to invest where we see the greatest growth potential in our luxury offerings. This includes casino operations. We are out to improve on the success of last year's first one-of-a-kind invitation-only gaming experiences, bringing previously unheard of prize purses into a $5 million slot tournament and a $10 million baccarat tournament. We will be hosting both of those tournaments again this year. We're also busy continuing to innovate especially around the opportunities provided by the geographic proximity of major sports events including this weekend's Super Bowl in Northern California and the international visitation accompanying the upcoming World Cup given several matches taking place in Los Angeles and Southern California. We know these programs are working as our 2 top luxury offerings, Bellagio and ARIA, together saw a 7% increase in EBITDAR in 2025. We also continue to build on efficiencies driven by our technology innovation, which drove an 18% increase in digital check-ins that have resulted in a significant improvement to check-in speed, which now averages 1.5 minutes versus the 6.5 minutes while checking in through traditional front desk, not including your wait time in line. We also saw 1 million chats through our digital concierge last year as we utilized AI to both transform guest engagement and accelerate productivity. And finally, we are busy at work creating programming that will target and highlight the great value MGM has to offer. We'll share more of that and have exciting news and announcements soon. At the end of the day, there's nothing comparable to Las Vegas. People are visiting to have unforgettable experiences and their exceptional value is the optionality of what our guests can enjoy and discover on any particular visit. There's also value in the unmatched energy and excitement that surrounds everything you do in this town. That's why Las Vegas was selected to host the College Football Playoff National Championships in 2027 and the Final Four in 2028. Las Vegas is where the NBA's exploring expansion and Major League Baseball is now establishing operations. We've also extended our relationship with F1 for 5 years. And there has always been and always will be extraordinary value here in Las Vegas. Our regional operations continue to deliver solid results regardless of the macroeconomic, thanks to their outstanding asset quality, their strong demographic placement and experienced operating teams. During the quarter, they reported not only record fourth quarter slot win but also the best full year slot win ever. MGM China remains a strong outperformer, ending the year with a record high quarterly and full year segment adjustment in EBITDAR. We achieved a 16.5% market share during the fourth quarter and impressively maintained share of over 16% for the full year, a record market share level for an annual period as our operating team continues to command a strong understanding and relationship with the premium mass customer driving the market. Considering our execution, reflecting in our ability to maintain an over-indexed market share and solid EBITDA margins, MGM China's trading value is at sub 7x forward EBITDA multiple versus an industry average of over 8.5x, seems significantly discounted to us. Yesterday, we heard impressive results from Adam and Gary on our BetMGM North America venture. BetMGM beat 2025 guidance during the year where they started by inflecting positive and ending by turning annual EBITDA around by nearly $470 million. The strong performance resulted in a $135 million distribution of MGM during the fourth quarter. And during 2025, monthly player volumes increased 24%, while active player days increased 14. This momentum remains positive, highlighted by the plan outlined on the earnings call to reach $500 million of adjusted EBITDA in 2027. MGM Digital also continues to see encouraging momentum. We are excited by the scaling of the BetMGM brands in key international markets, where Sweden continues to be our top market. We exited 2025, making significant headway in Brazil, particularly after the December launch of our in-house sportsbook. The Brazilian market is new, robust and evolving, and we are confident that our product and our JV with Globo and the value Globo marketing assets have created funding opportunities that are worthy of sustained investment in the coming year. Progress also continues with our development projects, setting long-term growth pipeline for our business. Construction remains on schedule in Dubai with Bellagio, ARIA and MGM Grand Hotel towers scheduled to open in 3Q of '28. And in Japan, construction remains on time and on budget for MGM Osaka. Currently, about 20% of the foundation piles have been installed or completed, and the project remains on track to open in 2030. The outlook for the coming year is encouraging. With a more constructive backdrop and a stabilizing environment, our message last quarter holds true. We are optimistic that growth in Las Vegas can be achieved this year. There are also potential macro catalysts that could benefit both Las Vegas and MGM more broadly, including lower trending interest rates, certain tax regulations including no tax on overtime and tips and other stimulus benefiting consumers and further progress at the Las Vegas Airport as about 50% of the lost capacity left by value airlines and select international carriers have been backfilled by other airlines. Beyond the macro drivers, MGM is driving convention and group nights with more future room nights on the books than we've ever had. We also continue identifying opportunities to operate more efficiently and make further progress on our AI and technology initiatives, all while our improved liquidity and cash flow generation allows us to pursue innovative ideas and strategic investments that can and will deliver meaningful value. With that, I'll now turn this back to Jonathan to provide additional details on our performance for the quarter. Jonathan Halkyard: Thanks very much, Bill, and thanks to all of our employees who stepped up throughout a challenging year, strengthening the foundation we have today and allowing us to take advantage of the growth opportunities in 2026. Consistent with our third quarter commentary surrounding Las Vegas, we saw stabilization in the fourth quarter. Las Vegas EBITDAR declined 4% year-over-year, an improvement versus the declines experienced earlier this year, driven by the completion of the MGM Grand room remodel in October, a year-over-year improvement in convention mix and holds settling in above our normal range. Luxor and Excalibur continued to have a disproportionate impact to this quarter's decline in Las Vegas, though keep in mind, these 2 properties only represent about 6% of Las Vegas segment adjusted EBITDAR in 2025. While we do not see immediate changes to value customer habits, we are seeing strength in the south end of the strip when we have robust programming at Allegiant and as Bill referenced, we're working towards some creative concepts on marketing our value proposition to these customers. Additionally, the comparisons just become more favorable toward the end of the first half of 2026. The return of the MGM Grand room inventory has been a benefit. And it's worth noting upon completion, the average age of our Las Vegas rooms since renovation is about 6 years. We have a strong maintenance capital program to reinvest in our properties regularly, and I would argue that we have the best maintained portfolio of assets on the strip, which is recognized in the positive feedback from customers and of course, the outsized room occupancy share that we command in the market. Our regional operations had another strong quarter to close out a record-breaking year. Not only did they achieve best-ever fourth quarter slot win, but they accomplished the best-ever annual slot win performance for 2025, resulting in a 2% rise in net revenues in the fourth quarter and stable EBITDAR. I'd also highlight that the sale of the Northfield Park operations remain on track for the first half 2026 close. MGM China just crushed it this quarter. During the fourth quarter, net revenues grew 21% and segment adjusted EBITDAR grew by 31%, a new fourth quarter record. A relentless competitive environment is the norm there, but our team has consistently maintained mid-, high-20s margins with their focus on maintaining high service levels while anticipating evolving customer tastes and preferences. MGM China recently announced new terms for its branding fee, which will increase this year from 1.75% to 3.5% and secures the MGM branding through the life of the concession and auto renews for up to 20 years upon a concession renewal. The rate is comparable to the only other U.S.-based Macau operator and is sensible, given the strength of MGM's brand, its market size and global reach. The brand has proven its value over time, helping drive MGM China's market share and EBITDAR, both of which have almost doubled since 2019. The renewal terms also result in greater cash flow generated for MGM Resorts, which, if we use 2025 results, would represent over $50 million in incremental cash flow to our company. We remain highly confident in the long-term growth prospects in Macau and remained aligned with the MGM China shareholders and our desire to increase profitability and ultimately, the enterprise value of MGM China. Our BetMGM North America venture had a tremendous year with growth in fourth quarter net revenue from operations up 39% and EBITDA improving by $176 million to $71 million in the quarter. As reported on their recent earnings call, MGM -- BetMGM provided 2026 adjusted EBITDA guidance of $300 million to $350 million and $50 million of expected CapEx, along with the expectation of regularly distributing excess cash to its parents. MGM Digital saw impressive 35% growth in net revenues due to continued momentum across the various international geographies, including our legacy LeoVegas markets and Brazil. We plan to continue investing in growth initiatives throughout 2026, including integration of our sportsbook platform that we expect to launch in several of our key markets, including Sweden, as well as continued investment in Brazil. We anticipate another year of solid top line growth and an improvement in 2026 EBITDAR that we expect to be approximately half the losses that we had in 2025. In Japan, we're expecting our 2026 funding commitment to be approximately USD 350 million to USD 400 million. Much of it will be addressed with proceeds from the yen-denominated credit facility we closed last October, which we upsized to approximately $350 million during the quarter at a low single-digit cost of capital. We bought back over 15 million shares during the fourth quarter for $516 million, bringing our total 2025 share repurchase activity to 37.5 million shares for $1.2 billion, and that represents an average price of $32.43. And over the last 5 years, we've decreased our share count by almost 50%. Finally, I want to remind everyone of our various sources of cash flow spanning the business, including cash generated from our Las Vegas and regional operations our MGM China branding fees and distributions, and now our BetMGM distributions. The cash sources from MGM China and BetMGM, in particular, are high-margin, recurring sources of income and should be assessed accordingly when valuing our company. We've augmented these recurring sources of cash with other actions, including raising a low cost of borrow yen-denominated facility to fund most of our Japan commitments this year; selling our Northfield Park operations, which will close in May; and reallocating capital previously earmarked for our pursuit of a table games license in New York. In aggregate, these growing sources of cash flow enable us to fund growth opportunities, including the entirety of our MGM Osaka commitment and any future CapEx projects we choose to pursue. It also covers share buybacks, maintenance CapEx, interest expense and rent expense. And keep in mind, not all leases are created equally. None of our triple net real estate leases allow for rent to escalate above 2% in the first 10 years, and the most aggressive lease terms cap our rent escalators at 3% for the next 10 years after that. As a result of our aggregate cash flow sources, we can convert our diverse operating strength in a meaningful, durable free cash flow to drive shareholder value. I'll turn it back to Bill. William Hornbuckle: Thanks, Jonathan. A couple of thoughts before we go to questions. We exited 2025 with Las Vegas showing signs of stabilization and an improving trajectory. We continue to see those positive trends as we begin 2026 and expect to make even greater progress from a reset baseline in Las Vegas when we lap earlier leisure comparisons in the second half of the year. Our diversity supported consolidated growth in 2025 and has proven to support our growth in almost any environment. Everywhere we operate, we have the best portfolio of brands, physical assets, leadership and employees who once again set a new annual record for Gold Plus NPS scores. We have a growth pipeline that includes digital in the near to medium term and arguably the greatest global integrated resort opportunity with MGM Osaka opening in 2030. We have a solid balance sheet, low relative leverage and favorable lease structures with reasonable rent escalators. We generate substantial and growing cash flow that provides us with the ability to pursue any opportunities that may drive value creation. We have a massively shrinking share count, and we are reverting to growth in Las Vegas. Operator, if we could open it up for questions now, we'd be happy to take them. Operator: [Operator Instructions] Our first question today comes from Dan Politzer with JPMorgan. Daniel Politzer: Bill, I wanted to just pick up -- pick back up on your last comment there on the path to reverting back to growth in Las Vegas. I think you laid out certainly a big -- a number of factors with group and convention pacing up mid-single digits, CON/AGG and obviously, strong OpEx control with some of those technology benefits. So I mean, other than the second half comparisons getting easier, I guess, how do you think about the path forward in terms of the first quarter and second quarter in terms of getting back to normalized EBITDA growth in Las Vegas here? William Hornbuckle: Look, I'll kick this off and maybe Ayesha can pipe in here as well. This current quarter we're in, as compared to the first year, you know there are some differentiators that I think we will intend and should go through. As it relates to occupancy, it has clearly stabilized. Obviously, we have CON/AGG coming up. We have seen and have demonstrated the ability to continue to drive the high-end luxury pieces of our business, and that will continue, I think, all the way through 2026. We've seen, and particularly in gaming, the high end, and I don't mean premium, super high end. I mean, high-end business led by things like our holiday gift shop, which was the second highest holiday gift shop, I think, we've ever had. And so it's fair to say the K economy is alive and well, but given the positioning of our assets, the programming, I think as we get through into April, particularly May and beyond, I think you're going to see some really strong performance. Obviously, the MGM piece is a big piece for us. I've never seen a remodel impact of property the way that one did, only because we had so many rooms out at the same time. And so all of those things, I'm thinking, are looking favorable, and generally, I think things will stabilize. I think we've begun to see it. The convention authorities are expecting 1 million more visitors. And so '24 was an amazing year. And so '25 was difficult. Yes, we need to solve for Canada and leisure travel, but generally speaking, we feel very positive, positive enough to think that we're going to exit '26 on an up. Ayesha, I don't know if you want to add. Ayesha Molino: Yes, just a couple of thoughts. Certainly, I think, as Bill noted, as we look at CON/AGG, we're certainly looking at that favorably for our business. When we think about CON/AGG and we think about that combined with our own convention base, especially as we head into the latter part of Q2 and into Q3, I think we have reason to have a very favorable outlook. I'd also note, in the near term, we have events like the Super Bowl that are continuing to drive a lot of excitement among our meaningful customer base, and so we continue to see that base turn out, as Bill noted, particularly at the high end but with a lot of excitement for our business. Daniel Politzer: Got it. That's helpful. And then just for my follow-up, in the fourth quarter, obviously, we saw that the table hold was a bit higher and we can kind of triangulate on the math there. But were there any other one-offs in particular in the fourth quarter, either in Las Vegas or any of the other segments you would call out just for modeling purposes? Jonathan Halkyard: Yes. The hold was a little bit above average for us and a little bit above prior year. We consider that impact in the fourth quarter to be kind of $20-ish million to the bottom line in Las Vegas. The only other really onetime items would be some in corporate expense. And so for modeling purposes, the corporate expense number is around $110 million, $115 million per quarter. We had some unusual expenses in the fourth quarter and some in the first quarter of last year that should not recur this year. Operator: And our next question comes from John DeCree with CBRE. John DeCree: Maybe to continue the discussion in Las Vegas, Jonathan, I think in your prepared remarks, you've mentioned the value customer a little bit. I think I heard you say there isn't really any change there. But as we think about value customer or leisure more broadly, can you elaborate on some of the things that you might be able to do, the city is doing as a whole to kind of help get that customer kind of stabilized throughout 2026? Jonathan Halkyard: Yes. And I certainly didn't mean to minimize the contribution of our Luxor and Excalibur properties. We love those properties, but I do think they are the ones that cater most to that value-conscious customer, and they do represent about 6% of the EBITDA for our properties here in Las Vegas. That being said, we're -- we've done a number of initiatives already, both on the revenue driving and the cost side to address those customers, and we have more planned this year. I may invite Ayesha if she wanted to add anything else. Ayesha Molino: Yes, sure. Just a couple of things. When we think about the leisure customer, in particular, like a lot of companies in the hospitality industry, I think over the last year or so, we did see that shortening of the booking window. But that being said, we're paying close attention to that customer, and we are starting to see a response, particularly to sort of large-scale events, that feels positive to us. In terms of some of the broader initiatives, the city late last year ran a city-wide sale that was very well received, and so I think there is constant effort at coming together to make sure that we are driving visitation to the city. John DeCree: That's helpful. Maybe one more as a follow-up on Vegas. The gaming revenue volumes, the win, even outside of some favorable table holds, I think volumes were quite good and have been all year. Can you talk a little bit about your casino room night mix or what you might attribute some of the resilient or better gaming volumes to in spite of lower occupancy on the Strip? Obviously, you've mentioned the high end is doing well. But anything you can add to give us some color on why you think the casino business, the table slots is doing so well in spite of lower occupancy? William Hornbuckle: John, this is Bill. I'll kick it off, and Ayesha can finish it in terms of the mix. Look, I think we mentioned it throughout our comments, and we've done this and seen it work. If I think about Bellagio, we've reinvested in the high-end slot room by way of example. We've reinvested actually in almost all of our high-end slot rooms across the company. I was just at National Harbor over the weekend and saw that one. It's paid dividends. That market, which, obviously, those are high-end customers but not to the extreme you get into some of our table games customers, it is working. So we've picked, I think, the right things to invest in. I think it's working in Macau of note. I think Kenny and the team there have particularly picked the right things. And then the activity case -- we have this dialogue around value. There are value in high-end activity. When people come to Las Vegas for whatever the event is, we've got a bunch of stuff coming up, as we mentioned, they're not afraid to spend money. And so we need to be value-conscious. We need to understand that mix and how we price certain things to be sure. But when you think about the top end of our business and the experiences people continue to seek and want, we think we're doing a rational and a good job both marketing to them and ultimately provide -- and we've pushed hard on BetMGM, by way of example. I think one of the reasons for the success of holiday gift shop was our ability to provide omnichannel into that program and those people. And so we continue to do that, so that's been an added nice channel and I think the Marriott channel, underlying a lot of this. Those customers, many of them come having -- not have to pay for their room per se, meaning in cash. And so I think the opportunity to enjoy Las Vegas and all that we do, I think, has been paying off. And so I think it's a combination of a lot of things, really. Ayesha Molino: Yes. The only thing that I'd add is we have a very strong database, and we've been fortunate to see the resiliency of that database over time. And I think even as we think about forward-looking casino bookings, those are remaining strong for us and so -- especially from the medium to the high end. And so again, I think that the strength of that database continues to pay dividends. Operator: And our next question today comes from Shaun Kelley at Bank of America. Shaun Kelley: Bill or Jonathan, just kind of wanted to think about some scenario analysis around Las Vegas, specifically. And if I could, margins have been down the last 3 years, I think, as businesses kind of normalized a little bit post-COVID. And just kind of trying to think about what you're seeing on the expense side of the ledger. So I think we now know some of the drivers and what you're looking forward to, to drive '26 on the top line. But help us think about, yes, 2 things. Like one would be just run rate, operating expense growth and any internal initiatives you have to sort of kind of manage that. And then secondarily, remind us on the room renovation cadence, what was the disruption for MGM Grand in this past year, if you could put it in EBITDA dollars. I you know you talked about room nights. More importantly, relative to, I think, ARIA was slated for this year, is that still the case? And any other major projects for this year that could be a little disruptive? Jonathan Halkyard: Okay. Thanks a lot, Shaun. I'll take those in turn and certainly invite Ayesha to comment as well. In terms of expense growth, we'll be able to hold our overall expense growth to the very, very low single digits this year. Wage -- of course, wages are an important part of our cost structure, and we have been able to largely offset wage growth, unit labor cost growth with the labor complement that we have, even adjusting for modest occupancy declines in 2025. So we had FTEs down slightly in Las Vegas regions and in the corporate office during 2025. In terms of the renovation impact for the MGM Grand last year, it was about $65 million in EBITDA during the year. And that is -- of course, that's already completed, so we'll not only not suffer that this year but hopefully enjoy some benefit from those remodeled rooms. There's not going to be much renovation impact at all in rooms in Las Vegas. We are starting the ARIA project, but that won't be until midway through the fourth quarter. So that will be a more -- more of a 2027 discussion for us in terms of room renovation disruption from ARIA in Las Vegas. Anything you want to add on the cost structure? Ayesha Molino: Just a couple of thoughts on that. I think the teams have done a really excellent job with FTE management throughout the year, and they're constantly looking for ways to improve upon that through technology or otherwise. And so we've certainly seen the dividends of that -- of those actions over the course of the year. And as Jonathan noted, a couple of major differences between ARIA and MGM Grand. MGM Grand, of course, we did the bathrooms, which are not slated to be done at ARIA, which will cause significantly less disruption in terms of the number of rooms that have to be taken out at any given time. And as Jonathan noted, we very thoughtfully scheduled this so that the vast majority of the disruption will take place over slower periods. And so we're looking to mitigate revenue impact there as well. Operator: And our next question today comes from Chad Beynon with Macquarie. Chad Beynon: Wanted to shift to Macau, really strong quarter, particularly compared to what we've seen in terms of market growth and some others experiencing some cost creep. So can you maybe touch on that, what the margin environment is like if you believe that the Macau margins can remain in this area? And then anything that you're seeing in terms of early bookings for Lunar New Year? William Hornbuckle: Kenny, all yours. Xiaofeng Feng: Yes. Thank you. Thank you for the question. We do see very rational competition in the current marketplace in the past few quarters. Particularly if you look at our reinvestment rate over the GGR trend, that could be a little bit of volatility due to the mix of business, but in general, it's fairly, fairly stable. MGM China margin has always been in mid- to high 20s as we guided. We always delivered what we said for the past few years. As to Chinese New Year, we are very optimistic. We see very, very encouraging booking trend for Chinese New Year. We have -- we even have a long waiting list for our top tier, the hotel products. The player quality is very high. MGM China here, I mean, we do have a limited room inventory, but we are good in premium mass. We are very focused on quality over quantity. And yield management is always our strength. We are confident about the demand. We will make sure that we yield our products wisely. And we will make sure what we are doing to serve customers what we want. There's a new phenomenon. These days, even ahead of holiday, there's no slow period. So we are -- we feel good about it in general. Thank you. Operator: And our next question today comes from Brandt Montour with Barclays. Brandt Montour: So a couple on Vegas for me. You guys gave us a lot of helpful details. Bill, you talked about stabilization and you sound pretty confident about the stabilization you're seeing. I was hoping that we could sort of dig into that because if you look at the fourth quarter from a KPI perspective, right, RevPAR was down a decent amount, but then casino revenue was up a lot. And so when you think about monthly October, November, December to January, what does the stabilization look like from a KPI perspective? And maybe said another way, can you get back to growth with RevPAR, yes, with RevPAR declines like you're seeing or even maybe less so but still material? William Hornbuckle: Go ahead. Go ahead, Jonathan. Jonathan Halkyard: Yes. So I would say the general cadence in the fourth quarter was October was -- and I'm talking about kind of ADRs. October was down more than December was. November was pretty stable, and it was driven a lot by special events and F1. And then as we started to look into the first quarter, we saw, again, moderating declines versus prior year in ADR. We are confident about the casino's ability to drive revenue growth through events and through omni-channel marketing and just through more effective casino marketing. And it's interesting to note that RevPOR, so overall revenue per occupied room was actually up slightly for MGM Resorts in the fourth quarter. And so we're constantly doing this shifting between the different pockets of demand and different revenue channels in order to optimize revenue. And as we look into the first quarter, we're just seeing some of this continued stabilization that we saw developing in the [ forward ]. Brandt Montour: Jonathan, that's really helpful. And also in Vegas, you made a comment, Jonathan, about hold -- table hold settling in and the level that you guys are achieving, yes, it's been pretty consistent on an annual basis for the last couple of years in the '24 and change area. That is above pre-COVID average. So the question is what structurally has changed for the hold. And is this the new CO that we should be forecasting? William Hornbuckle: I wouldn't agree to the last comment, but I would say more relative. Look, we see a lot of high-end activity, so the premium, premium customers [ that we were able to accommodate ], you can see it in our baccarat share. If you think about our baccarat share, we're well into the high 40s, I think, this last couple of months. So that, more than anything, is driving it, but we continue and consistently do that. And while that business can -- is volatile at times, I think our market share of that is what's been continuing to lift that number more than almost anything else. Operator: And our next question today comes from Steve Pizzella with Deutsche Bank. Steven Pizzella: Just pivoting to the regional segment. Any color you can give us on how the year started off for the regional portfolio and if you have any thoughts on a range of outcomes for the regional business this year? Ayesha Molino: Our regional business has continued to be really steady over time, and certainly, we're seeing that steadiness continue into the first quarter. And as Bill noted earlier, there have been some real meaningful pockets of excitement for our regional properties. I'd point here to Borgata and the investment in the high-limit table rooms there, which has paid really nice dividends for us, and we're continuing to invest, as Bill noted, in that product at various of our regionals. So we're proud of how steady that -- those assets have remained and continue to see that steadiness. William Hornbuckle: And I would remind us, I don't think that baccarat product and those high-limit rooms came on until May. When did they come on? It was later in the year is my point. So we'll have the benefit of the first couple of quarters there. And then you probably all saw and we're excited by -- we'll see if this comes to fruition or not, but we believe it will based on conversations I've had. But the notion of a Sphere coming to Maryland is very compelling and very exciting, I think, for the project, the region and ultimately, National Harbor. If it's executed as thought about, it could deliver a couple of million more customers a year there. And so we remain very excited by some of our regional properties. They're well placed, and they're great assets, and that, we think, will continue to grow over time. Steven Pizzella: Okay. And just real quick for my follow-up. You mentioned the World Cup in your prepared remarks. Are you expecting incremental visitation to Las Vegas as a result from people visiting. And have you seen any kind of advanced bookings indicated increased demand from that? William Hornbuckle: We are expecting, yes. It's a unique opportunity to particularly bring high-end customers who will be in the region to Las Vegas, potentially in and out of L.A. or on their way to New York or any place else for that matter. And so we're highly focused on that. I think it's a little early on the overall mix to tell. But I think when it relates to particularly the high end of the market, we're pretty excited by what may come out of South America and some other markets as we would all understand them. Operator: And our next question today comes from Barry Jonas with Truist. Barry Jonas: One narrative on the Vegas softness has been that perhaps there's trade down where some folks aren't going to Vegas but perhaps gaming closer to home. Curious if you've seen that dynamic as you look at your database. William Hornbuckle: No. This becomes the constant is digital gaming offsetting brick-and-mortar gaming. I think the closest analogy we have is Michigan, where we have a robust sports and iGaming business, yet our property continues to gain share. And so no, we think, ultimately, it's additive. When you think about the opportunity for database for omnichannel, people come here. They get to go home loaded up, if you will, with BetMGM app and continue the experience. And so no, it's nothing that has shown itself as a significant issue. To the contrary, we see it still as a benefit. Barry Jonas: Great. And then just for a follow-up. Bill, what's the latest on the 90% gaming loss tax deductibility? I guess what are next steps there? And how impactful could this be to your business if it unfortunately would stand? William Hornbuckle: I'm going to let the expert handle this. Ayesha? Ayesha Molino: We're continuing to see significant strength in our slot handle into the first quarter, even as that has taken effect. So we are watching it closely, but we are partnering closely also with our industry, our fellow colleagues in the industry to advocate for a fix on that. Operator: And our final question today comes from Stephen Grambling at Morgan Stanley. Stephen Grambling: Apologies if I missed this, but it looks like you ramped up the buyback in the quarter and talked through some of the sources of liquidity from here. So how should investors think about the right level of potentially parent-level buyback versus MGM China maybe buying back there where I think you mentioned you saw value? And as a related follow-up on that, if MGM China is part of the direction you want to go, are there any limitations in terms of how high you can take that share? Jonathan Halkyard: Okay. I'm a little unclear on the final part of the question. But as it relates to buybacks at MGM Resorts, it really is a -- it's a constant evaluation we do around the value that we see in our shares versus the other uses of cash that we have that we think are high priorities. In the last 6 months, of course, we made the decision not to proceed with the New York license. That was $500 million at least that had already -- had been previously earmarked for that. We see great value in the shares, and so we began share repurchases again in the fourth quarter. I think share repurchases are always going to be in our capital allocation mix because, fortunately, we can -- with our level of free cash flow now that the distributions we're getting from MGM China and BetMGM, we can afford to invest in our properties, invest in MGM in Osaka and as well as repurchase shares. I didn't go through the multiple math that we all know very well on MGM Resorts right now, but suffice to say, it's a really compelling investment, we believe, and that's why we're doing it. I'm not going to speak for the... William Hornbuckle: Stephen, on the China question as I think I understand it, there's about 22% float in the company. We have to keep that. And so the idea that we would buy back from the open market is -- we've got to keep that float, and frankly, the exchange is pushing to have more. So that's not what was implied there. The simple implication was the multiple value seems cheap. Stephen Grambling: No, that's exactly what I was saying. That's helpful. So it sounds like, again, the parent, you get that cheapness through buying back at that level rather than directly anyway. William Hornbuckle: Correct. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Bill Hornbuckle for any closing remarks. William Hornbuckle: Thank you, operator. Just a couple of quick comments before you all go, and we appreciate your time given the time of day. Look, diversification is clearly working. Our consolidated EBITDA growth was up 20% in the fourth quarter, and I think we have proved it. You've heard us stress signs of stabilization in Vegas, and obviously, we believe that. We've seen it in various segments, whether it's group, the MGM discussion. We see stimulus coming in helpful, both in leisure and particularly in our regionals. We see Macau continuing to perform at the performance level it is. We've all been challenged with, yes, but how do you do this in the market conditions. We've been doing this for a couple of years now, and so hopefully, we've built some faith and credibility in that. And then BetMGM had a remarkable year, and it sets itself up for when we think and say, in 2027, we think we can be at $500 million, we believe that. And we didn't say that until recently, and we are now saying it with belief. And so we think we're in great shape as we think about '26 and the things in the immediate future. And with that, operator, I will end the call, and I thank everybody for their time. Operator: Thank you, sir. 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 evening.
Essi Nikitin: Hi, everyone. Welcome to YIT's Financial Statements Bulletin 2025 Webcast. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. The results will be presented to you by our CEO, Heikki Vuorenmaa; and Interim CFO, Markus Pietikainen. Without further ado, I will hand over to Heikki to go through the latest developments in the company. Please go ahead, Heikki. Heikki Vuorenmaa: Thank you very much, Essi, and welcome, everyone, to today's webcast. Today, we will have a comprehensive agenda ahead of us. First, we review our full year '25 performance. Then we will take the deep dive into the fourth quarter and following up on providing some additional details regarding the news related to earlier today. But let's begin with the overview of the full year. So the first year of our strategy that we introduced 2024 is now behind. We made progress across the several targets, areas, including our adjusted operating profit margin, return on capital employed, gearing and the customer and employee NPS levels. Our financial position continued to strengthen. It was supported by improved financing terms and EUR 120 million reduction in the net debt. The business segments delivered different types of performance throughout the year. In the Residential Finland, the inventory of unsold completed apartments declined, and we initiated new consumer projects in response to market demand. However, the activity in the primary market remained limited. Within the Residential CEE, our apartment sales grew by over 30% as the market conditions strengthened. We launched a record level of new project starts. Both of these will further establish this region as our principal residential market within the company. The Infrastructure segment achieved robust results. Revenue increased by more than 30% and the positive trend across all the key performance indicators continued throughout the year. In the Building Construction, we secured multiple new contracts with both public and private sectors and continue to focus on capital release from non-strategic assets. For the full year of '25, our revenue decreased, while the adjusted operating profit increased. Full year revenue amounted at close to EUR 1.8 billion, and adjusted operating profit increased to EUR 54 million, representing 3.1% of the total revenue. The profitability continues to improve. However, as our strategic objective is to exceed 7%, further progress and actions are required. Our full year operating profit improved to EUR 45 million. That is approximately EUR 100 million more than in 2024. This improvement was primarily driven by improved operational performance and significantly reduced adjusting items compared to the previous year. Adjusting items in 2025 amounted to EUR 9 million, which were associated, for example, to our operations in Sweden. In contrast, transformation-related adjusting items in '24 were substantially higher at EUR 86 million, even including the gains from selling of our equipment at the beginning of 2024. But let's close the full year results now and move to the Q4 '25 overview. And we start with some key highlights from the quarter. Revenue and adjusted operating profit both increased. The net debt and gearing continued to decline, and it's reflecting the good progress in the capital efficiency initiatives as well as the strong operational cash flow during the quarter. Our order books increased in both contracting segments, supported by a robust industrial construction activity. Residential CEE delivered a solid quarter with a higher revenue and profits. Market conditions remains favorable for us. The revenue growth for the quarter was driven by the Residential CEE and Infrastructure segments, while the revenue from Building Construction and Residential Finland declined year-over-year. This was actually a first quarter since second quarter 2023 in which the group's revenue increased. Adjusted operating profit increased from EUR 13 million to EUR 25 million during the period, resulting in adjusted operating profit margin of 4.5%. Overall, quarterly performance aligned with our internal expectations. But now it's the time to double-click on the segment performance, and we start from the Residential Finland. Market conditions continue to influence the performance of this segment. And that is, of course, reflected across all the key performance indicators. Also, there has been improvements in the segment performance during '25, it is evident that the additional measures are necessary given the financial results relative to our established strategic targets. I will discuss some of these actions in more detail later. During the quarter, our unsold completed apartments inventory continued to decline in the Helsinki Metropolitan Area. Several projects reached the full occupancy. However, overall inventory in the capital region remains higher than we prefer. We achieved a total of 211 completions during the quarter, primarily outside of the capital area. While the inventory levels in those regions have increased slightly, they continue to be within normal or low ranges. On the full year comparison, our unsold apartment inventory declined approximately 25%. It is again important to note that there are no scheduled completions in the Residential Finland business over the next 6 months. And when we look at our starts, sales and the inventory levels, we have now achieved balance between those three different elements. We have been reducing approximately 50% of the unsold inventory what we observed in 2024 from those levels. Initiation of a new project is guided by the consumer demand and the current product portfolio has also experienced a significant transformation in the past year. We remain to commit to launch new developments in accordance with the evolving market requirements. Completions in '26 will be again back-end loaded, mostly focused on fourth quarter. Overall, there is a moderate increase in projected completions from 2025. However, it is important to highlight that the 450 units that we are expected to complete during 2026 still falls significantly below the typical levels what we have had in this business on historical terms. But leaving the Residential Finland behind and moving to our business here at the Central Eastern European countries. We achieved a significant number of project completions in the fourth quarter, and that resulted increase in revenue and profit compared to the same period last year. The profitability margin for the full year was temporarily affected by the upfront investments and our ongoing regional expansion, which are part of our strategic initiatives. Project gross margins have remained at targeted level and the market conditions continue to be favorable. And also despite increased investments in the new project starts and plots in '25, capital employed remains well managed and under control. In the fourth quarter, we sold a total of 873 homes within the Residential CEE market. Out of these, 286 were sold directly to consumers, while the remainder were sold to investors or cooperative housing companies. The sales performance remained strong across all operating countries. So following of that, there has been a significant acceleration in the project starts last year, and we started construction on a total of 1,600 apartments in '25. Our current plot inventory is sufficient to support the development of approximately 15,000 additional homes. However, in selected cities, we are seeking opportunities to accelerate growth and further invest in the plot reserves to secure our future development pipeline. For the 2026, we are anticipating an approximately 50% increase in completion compared to 2025. The business continues to demonstrate significant seasonality, as you can observe from the slides. The residential completions are expected primarily in the fourth quarter. And as our financial reporting adheres to IFRS standards, both revenue and profits are recognized exclusively upon completion. Sales from our joint venture projects are also progressing well. During the quarter, we sold a total of 220 YIT homes and are particularly pleased with the launch of sales in our new KALEVALA project in Czech. This year, the completion targets with the joint venture business model is set to increase to 650 units, which then will bring additional 40% volume next to our stand-alone project. We will continue to utilize these SPV structures for selected projects in the residential CEE region. It provides us a flexibility on the project starts and minimizes our own equity investment requirements for those selected projects. And as always, all equity commitments are fully disclosed in our annual reports. But leaving the Residential segments now behind and moving to Infrastructure. Our Infrastructure segment delivered a revenue increase of over 30% in 2025, exceeding EUR 500 million for the full year. The growth was primarily driven by the successful tendering across the various Infrastructure Construction segments and higher volumes within the industrial construction. The profitability remained consistently above the 4% throughout the year, and the team continues to seek further internal efficiencies to achieve the strategic targets established for the segment. The improvement in the capital employed during the fourth quarter was largely connected to our operations in Sweden, where several projects were successfully completed at the year-end. Our order book also is strong and has grown compared to the previous quarter. It is on a robust level of 20 months work and level is nearly EUR 900 million. When we look at the infra market here in Finland, so the market remains dynamic, both in private as well as in the public sector. In early 2026, we announced strategic investments to acquire rail construction capabilities, further strengthening our position within the Finnish Infrastructure market. Notable highlights from Q4 include the order of excavation works for the Vantaa Energy project and the data center development in Kouvola, both which are already now under production. Moving on to the Building Construction. Then the main news from this segment during the Q4 was the capital release from Tripla Mall, totaling of EUR 51 million. It reduced the capital employed on this segment significantly. For the full year, the profitability increased despite the decline in the revenue. The adjusted operating profit over the past 12 months stands at 2.5%, indicating that the additional efficiency improvements are necessary to achieve the segment strategic targets. The order book has increased compared to the previous quarter, with the team achieving notable success in tendering activities, particularly during the fourth quarter. The order book represents approximately 18 months of work and approaches EUR 1 billion in value. Few highlights from the quarter include the school project in Espoon, swimming and sports hall in Helsinki, and the implementation phase of the Kupittaa project in Turku. It is important to note that the certain project value is added to the order book in full only after the development phase is completed. Then when we look at our key operational metrics, we can say that the homes currently under the production is about 3,700 units. 80% of the production is concentrated within the Residential CEE area. Project margin deviations remained well managed and implemented measures to enhance the productivity are evident throughout the project portfolio. The status of the overall supply chain remains robust. Then when we look at the overall market and our assessment of the market situation, it remains unchanged. The Central Eastern Europe, residential sector continues to demonstrate favorable conditions, whereas in Finland, primary market sales volumes are not expected to increase in 2026. The Infrastructure market is performing well and Building Construction, which includes several types of construction activities, remains stable. This concludes my remarks for now, and I will hand over to Markus to you to provide more detailed overview of our financial performance. Markus Pietikainen: Thank you, Heikki. I will walk you through the financials. This is a Q4 2025 summary slide. Return on capital employed was at 3.9% at the end of Q4, up year-on-year from 2.1%. Operating cash flow after investment was in line with Q4 2024 at EUR 111 million. Gearing at 71%, which is close to the strategic target of between 30% to 70%. Net debt, down EUR 120 million year-on-year at EUR 560 million. Guidance, EUR 70 million to EUR 100 million adjusted operating profit for continuing operations in 2026. Let's look at each of these topics in more detail in the following slides. Capital release and capital efficiency in the business operations are top priorities for us. And during the Q4, we released almost EUR 100 million of capital. This was especially supported by the successful refinancing of Tripla, which enabled Tripla to pay us EUR 51 million as return on capital and profit distributions. Our return on capital employed improved by 1.8 percentage points from 2024 to 3.9%. We will continue to drive profits and capital turnover to reach our financial target of at least 15% by end of 2029. Some highlights regarding capital employed from the segments. In Residential CEE, we were able to release EUR 30 million of capital during the year, even though at the same time, our apartments under production have increased by over 60%. This is mainly thanks to our apartment sales and strong portfolio. The Infrastructure segment continues to operate with negative capital employed, supporting the whole group's financial performance. Let's move on to the cash flow development. The operating cash flow after investment has been positive for the last 2 years. Here, we can see strong seasonality with most of the positive cash flow being realized in Q4, just like in 2024. The seasonality reflects the timing of the residential completions. The operating cash flow after investment was EUR 65 million for 2025. We will continue the work to improve cash generation. Gearing decreased to 71%, down by 17 percentage points year-on-year, supported by positive operating cash flow and hybrid bond issuance in Q2 2025. Net interest-bearing debt was EUR 560 million at the end of Q4. This is a decrease of EUR 120 million from the end of 2024 and EUR 235 million from the end of 2023. The net interest-bearing debt include IFRS 16 lease liabilities of EUR 258 million as well as housing company loans of EUR 130 million. The housing company loans decreased by some EUR 50 million year-on-year. This is an overview of the main components of assets and liabilities. YIT had EUR 712 million worth of plots, enabling a pipeline of some 15,000 apartments, both in Finland and CEE countries. This is down by EUR 81 million year-on-year. The book value of the completed inventory amounted to EUR 322 million. This is down by EUR 72 million year-on-year. Production has increased by around EUR 60 million as we have accelerated our production, especially in the favorable residential markets of the CEE countries. The book value of Tripla is now EUR 136 million, reflecting the EUR 51 million capital return received during the quarter. The adjusted net debt was EUR 173 million, and this excludes the operational IFRS 16 lease liabilities and housing loans. The maturity structure remains also in balance. When comparing interest-bearing debt to our key assets, we can see that our underlying asset base is 2x the gross debt number. When we announced our strategy in November 2024 for the next 5 years, we said that our strategic focus in capital allocation is to only employ capital to our residential projects during the construction period. Today, we announced that we have defined non-strategic items that are not part of the company's strategic core operations in line with our strategy and which we intend to dispose during the strategy period. These non-strategic items are in the Residential Finland and Building Construction segments and include, for example, our investment in the Mall of Tripla, equity investments in long-term property development and completed self-developed commercial projects with sales risk. The total value of these non-strategic items was EUR 340 million at the end of 2025, which is 2x our adjusted net debt. This also brings changes to our financial reporting. Going forward, the profit impact from non-strategic items is excluded from the adjusted operating profit. Also, capital employed will be presented as operative capital employed, which includes assets and businesses aligned with the company's strategy. Return on capital employed will be calculated based on the operative capital employed. As a result of the change, the reported adjusted operating profit and operating capital employed will more clearly reflect the profitability, capital usage and capital efficiency of the company's strategic business operations. The changes will take place starting from the beginning of 2026. The changes do not have any impact on the company's financial targets. Then on to the guidance. We expect the group adjusted operating profit for continuing operations to be between EUR 70 million and EUR 100 million in 2026. The guidance is aligned with the new adjusted operating profit definition, which was discussed in the previous slide. The residential market in the Baltic countries and Central Eastern Europe is expected to continue favorably, contributing positively to Residential CEE segment's capability to generate profit. In Finland, the primary apartment market volumes are not expected to increase in 2026. In Residential Finland segment, low amount of completions during 2026 will limit the segment's capability to generate profit. In Building Construction, the operational performance is expected to improve. In Infrastructure, the operational performance is expected to remain stable. Heikki Vuorenmaa: Thank you very much, Markus. And there are also several important topics remaining, like I said in the beginning of the webcast that we need to address. And those are primarily regarding the news released earlier today. But before going there, so let's take a look on how did we do the progress against our strategic targets now on the full year basis. We achieved improvements in our adjusted operating profit margin and return on the capital employed despite the ongoing revenue decline still in 2025. Each segment advanced in line with its respective plans given the prevailing market conditions and the internal performance and efficiency indicators are trending positively. This gives us a good foundation to enter second year of our strategy execution. And as a result of the progress, we are increasing the growth targets previously communicated for our contracting segments. The Industrial Construction business pipeline has exceeded the expectations, supporting us to double the revenue growth targets for both the Infrastructure and Building Construction segments throughout the strategy period. Accordingly, we will -- we intend to reorganize our Energy and Industrial Construction operations into a new Digital Infrastructure business unit. In external reporting, we continue to share both revenue and profits under both contracting segments for now. Over the past 12 months, we have strengthened our team by recruiting additional talent, and we will continue to do so to enhance our capability to deliver the comprehensive turnkey solutions for our customers in the Digital Infrastructure space. But while we are witnessing a faster-than-expected progress in the Digital Infrastructure business, it remains essential to pursue additional operational efficiencies to align our operations with the current market conditions, both in Residential Finland and Building Construction segments. We intend to transition from a regional line management structure to function-based organization. And this shift will enhance our focus on core capabilities and provide greater flexibility to scale the business in response to the market demand. In connection to this change, we are also evaluating our internal management processes, how we are following up the performance and evaluating if we would move to percent of completion management system. This could also then impact on the external segment reporting principles as well. Today, we have initiated change negotiations in Finland to plan for these needed changes. The estimated cost savings are projected at EUR 15 million with full realization expected by end of '27. Our forthcoming quarterly reports will include updates on the progress towards these targets. But this is all for now. And operator, it is time for the questions. Operator: [Operator Instructions] The next question comes from Svante Krokfors from Nordea. Svante Krokfors: A couple of questions. First one regarding the slow apartment sales in Finland. What kind of measures are you taking to continue to reduce the number of unsold apartments going forward? Heikki Vuorenmaa: Thank you, Svante. And of course, when we look at the demand picture and the activities are taken. So we have been applying different type of campaigns during the past couple of years to significantly reduce the inventory levels from, let's say, the highest level that what we had in 2024. Those have been quite effective when we look at certain cities outside of the capital area, where we see that we are actually operating in a relatively normal levels and achieving our fair share of the market. The inventory level remains elevated here in the capital region, and we need to look then project-by-project selectively what type of actions are needed in order to boost the sales there. Svante Krokfors: Okay. That's quite clear. Then a question regarding the EBIT guidance for 2026. What kind of assumptions do you have for the high end and low end of the guidance? I guess you mentioned that Residential Finland will have difficulties to generate positive results this year. So, where will the EUR 30 million to EUR 50 million -- sorry, EUR 20 million to EUR 50 million increase from the EUR 50 million baseline come from? Heikki Vuorenmaa: If you look at the overall different segments, so what is quite notable is amount of completions that will take place in our Residential CEE business this year compared to the previous year. So we expect the completions to increase by 50% compared to 2025. We also, like I said, so we expect our operative performance in the contracting -- both contracting segments to improve while we do not expect the market conditions in the Residential Finland to improve in 2026. As usual, so there is -- at this point in time, so there are uncertainties in the market picture, which is then reflecting the range of our guidance that we have given today. Svante Krokfors: Okay. And could you tell something about the timing of the EUR 50 million cost savings announced by the end of '27. Will that have an impact on '26? Heikki Vuorenmaa: So we have initiated the change negotiations or kind of communicated that we will initiate the change negotiations today. So we will come back to the further details as well as the specific outcomes then on the following quarterly results as we have made a progress against the target. Operator: The next question comes from Anssi Raussi from SEB. Anssi Raussi: Just one question from me, and it's regarding your financing expenses. So how should we think about financing items in 2026, like, let's say, if we compare it to Q4 run rate or what kind of impacts or factors you see here? Heikki Vuorenmaa: Thank you, Anssi, for the question. We do not specifically provide a guidance on that specific element. But Markus, if you want to maybe give a bit flavor on that topic. Markus Pietikainen: Sure. Thank you, Anssi, for the question. I think it will be an equation of part our capital release program, how that will progress. As you've seen, we've now announced that the EUR 340 million is non-strategic in the balance sheet. And obviously, this will be disposed by the end of the strategy period 2029. So very much that depends the financing cost based on the timing of those disposals. Otherwise, I think that that's the biggest delta, if you will, for that item. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Essi Nikitin: As there are no more questions, we thank you all for participating and wish you a great rest of the day. Heikki Vuorenmaa: Thank you. Markus Pietikainen: Thank you.
Allison Chen: Hi. Good morning. Thank you for joining us today. I'm Allison. Happy to host you for CICT's for your results briefing. So apologies about the minor delay. We are very excited to have you with us today, whether you are with us in person or tuning in from your desk. So as per usual, today, we will start off with a presentation by our CEO, Choon Siang, who will walk us through his key highlights. After that, we'll move on to the Q&A where the management team will join us on to the stage to address your questions. So if there some good ones, please save them for later. We'll try to get to as many as we can. And with that, I would like to invite Choon Siang on to the stage. Choon-Siang Tan: Hey. Hi. Good morning, everyone. Thank you for joining us today. So we just announced our results this morning. Quite happy with the overall outcome of how last year went. A lot of things to go through today. So bear with us. I will spend just maybe about 10, 15 minutes just walking through the highlights, and then we can move on to Q&A, as Allison has mentioned. Okay. So first on the numbers. I think CICT delivered a very strong performance for the year FY 2025. Full year NPI, we grew by about 3.1% year-on-year to $1,189.7 million. Second half NPI grew at a faster pace at 6.8% year-on-year to about $610 million. The strong growth was due to strong quite a few factors across the board, strong asset performance across the portfolio and the step-up acquisition of the 100% interest in CapitaSpring, which was completed on 26th August last year. Full year distributable income rose 14.4% year-on-year, while second half distributable income expanded 16.4%. Unitholders will be pleased to know that CICT's full year DPU increased 6.4% year-on-year to $0.1158 despite an enlarged unit base from a private placement in August last year. This was supported by a very strong second half, which provided uplift with a 9.4% year-on-year growth in DPU to $0.0596. On the capital management front, we have been proactive putting CICT in a very favorable position in terms of cost of funding. At the end of 2025, our aggregate leverage has improved to 38.6%, down 0.6 percentage points from 30th September, giving us greater financial flexibility. Our average cost of debt has declined to 3.2% from 3.3% 3 months ago versus the end of 2024, we are down by about 0.4 percentage points from 3.6%. This was supported by the easing interest rate environment and our refinancing efforts. Our current portfolio property value is at $27.4 billion, an increase of 5.2%. Operationally, our portfolio remains strong. Overall occupancy 96.9%, WALE 3.0 years. Rent reversions for both retail and office, 6.6%. Tenant sales per square foot, up by 14.9% year-on-year, largely due to the inclusion of ION. Shopper traffic up 20.5% year-on-year. Excluding ION, tenant sales per square foot would have grown by about 1.2% year-on-year while shopper traffic will be up 4.6%. The momentum was stronger in the second half with tenant sales rising 1.9% year-on-year excluding ION Orchard. In 2025 and year-to-date January 2026, we continue to execute our value creation strategy across acquisitions, divestments, AEIs and even development. These have strengthened the quality of our portfolio, enhance income resilience and position CICT for sustainable long-term growth. I will cover more on the newly announced initiatives in the next few slides. In January 2026, we announced the divestment of Bukit Panjang Plaza for $428 million. The price is a 10% premium to the latest valuation and 165% uplift over our purchase price in 2007. The exit yield was around mid-4% level if we were to complete the divestment in end 2026, gearing would have fallen 1% to 37.6%. We expect to complete this divestment by the first quarter of this year. We'll be embarking on the development project this year. We won the Hougang Central Site through a joint bid, which includes CapitaLand development. This is the first major GLS site in the precinct since 2019. We will own and develop the commercial component. The site is in a prime location served by the existing Northeast line and upcoming Cross Island line and will be seamlessly integrated with a new bus interchange. Surrounding the site, there are established amenities, including schools, sports center, community club and parks. We see this as a compelling opportunity to address the underserved demand in the precinct and to curate a retail environment that meets the needs of both residents and commuters. The total development cost for this project is about $1.1 billion, which translates to approximately $3,600 per square foot and an expected yield on cost of over 5%. This compares very well with the recent retail transactions at a low to mid-4% level. And this will be a brand-new mall built to our specifications. Taking into account inflation, the sites prime location and the integration with the 2 MRT lines and the bus interchange, we believe the total development cost is reasonable for a high-quality brand-new mall. For reference, the capital value for our Bedok Mall is about 3,700 psf, while some of the recent market transactions were done at 4,000 psf. We will be financing the development through both internal funds and external borrowings. Target completion is expected to be in 4 to 5 years. The development is strategically important for a few reasons. Firstly, it increases our exposure to Singapore, which remains our core market and a key source of stable long-term income. Secondly, the site is in a prime location in the heart of Hougang with excellent connectivity as I have articulated earlier and a large residential catchment. Thirdly, this is a rare opportunity as well located suburban malls at transport nodes in Singapore are tightly held and rarely available. Through this development, we can establish a strategic foothold in the Northeast region and expand our retail footprint in Singapore. The development sits within a strong population catchment, one of the top highest in Singapore. There is also likely spillover demand from neighboring towns like Kovan, Punggol, Sengkang and Serangoon. Our JV partners will further expand this catchment by introducing 830 residential units to the mixed-use development. Hougang has only 2.8 square foot of private retail space per capita, far below the national average of 11.4. This presents an untapped potential, supporting the development's long-term prospects. Next, moving on to AEI. This year, we'll be starting a new AEI at Capital Tower. Essentially, this is to -- what we are doing is basically reposition our Level 9, which is this floor. Some of the amenity space into a community space and create a higher-yielding F&B space at the ground floor of the Urban Plaza. On Level 1, we'll be introducing a 2-story multi-tenanted pavilion with F&B offerings. On Level 9, the space will be reconfigured to become the first workplace mental wellness center in the CBD. The AEI works will be from third quarter 2026 to the fourth quarter 2027. An update on our ongoing AEIs, Gallileo have completed -- has completed a progressive handover of Phase 1, the office tower to ECB. The target handover of Phase 2 is expected by this quarter. AEIs at Tampines Mall and Lot One and Raffles City are progressing well. On valuations, the key assumptions remain largely unchanged and cap rates remain fairly stable. Our portfolio property value grew 5.2% to $27.4 billion, largely driven by the step-up acquisition of CapitaSpring and the strength of our Singapore portfolio. Germany's valuation went up after factoring in Gallileo's AEI. I'll conclude my presentation here. Happy to take your questions after this. Thank you. Allison Chen: Thank you, Choon Siang. Can we invite the management team to the stage? Okay. Now we have come to the Q&A segment. Before we dive into it, let me introduce the management team. So on Choon Siang's right, we have Wong Mei Lian, our CFO. And to his left, we have Jacqueline Lee, Head of Investment. And to Jacqueline's left, we have Lee Yi Zhuan, Head of Portfolio Management. Okay. A few housekeeping rules before we start. We'll take questions one person at a time. We kindly ask that you keep your questions to 2 per turn. If you have more questions, we'll come back to you as we know, some of you always do. [Operator Instructions] If you have questions, please raise your hands, and we'll bring the mic to you. So I see, Mervin. Go ahead. Mervin Song: I'm Mervin from JPMorgan. Congrats Choon Siang, very strong results. Glad to see you keep doing Tony's very strong legacy. I would say this is probably the best results amongst the S-REIT season. If I annualize the second half DPU, it looks like you're hitting the pre-COVID 2019 level already. I know you're not supposed to annualize it given the second half is very stronger -- is much stronger. But why you're excited about this year in terms of growth drivers, maybe you can share that with us? And second question is divestments. I think previously you mentioned about asset rejuvenation, is Germany something you want to be in. Choon-Siang Tan: Thanks, Mervin. Okay. So yes, this year, well, on your DPU question, yes, so we don't typically provide forecast. And typically, second half is stronger than first half, seasonally speaking. So while we hope to improve on our results for this year, but let's see. I think the -- maybe we will just break it out into what are the potential growth drivers in terms of our DPU, right? I think underlying performance for the organic portfolio still remains healthy. I mean we're still reporting positive rental reversions and the positive rental reversions from last year will also continue to contribute to the organic growth because as you know, we calculate rental reversions based on average to average. So in fact, the last 2 years, rental reversions will also still be figuring into next year's -- this year's growth drivers. So that's one for organic -- on the organic side. Second thing on the AEI. This year, we have Gallileo completing. So Gallileo will fully contribute for this year. Last year, it started contributing towards the end of the year, probably not significantly. So that would definitely be one of the cost drivers as well and one of the growth drivers as well. Third, of course, there are some of the other AEIs, like Lot One and Tampines Mall that will progressively contribute as they -- but those are likely to happen closer to second half of the year. So the contribution for this year will probably be slightly smaller. Third thing on the AEI front is that last year, we also completed I mean IMM towards the middle of the year. So there will be a full year contribution. But last year, they started contributing probably from the middle of last year. So those are some of the incremental growth drivers from AEIs. On the third growth driver, I would say, while we had the benefit of a full year ION already. So that's -- so the base has already included 12 months of ION income. So whatever we get from ION going forward will be the incremental organic growth. But last year, we acquired CapitaSpring in August, and that's a fairly accretive transaction. So that contributed about 4 months last year and this year will fully contribute for 12 months. So some of the improvement in the second half was actually attributable to CapitaSpring as so we're likely to see this flow through to this year. And of course, last but not least, very importantly, interest cost savings. We know that there's a big swing factor when for REITs. Every time interest rates come down, we will see a significant benefit. But of course, I think I mean, nobody knows what the direction is going to be this year. It looks like SORA has kind of found a footing. But of course, a lot of our rates are -- a lot of our loans are still fixed at higher rates. On average, it's 3.2%. Marginal rate is probably closer to the mid-2 handle. So there is still some room but it all depends on -- we don't have a lot of loans for refinancing this year, to be honest. I think we did a lot of refinancing last year. But of course, we still have a large proportion of loans in floating. So that will benefit from the drop in floating rates. And it also means that it will help with our ability to continue to grow and acquire going forward. So I think those are the growth drivers. So hopefully, that should -- if the economy remains nice and chugging along nicely, that should help us. I spent a lot of time on answering your first question. I forgot your second question. Allison Chen: Divestments. Choon-Siang Tan: Divestments. Okay. So we just announced one divestment. Take it easy, man. Give us some breathing room. We haven't actually closed the Bukit Panjang. So I think we'll as be focused on closing Bukit Panjang first, and then we will think about the next step in terms of divestment. But we do have -- I mean there are a few possibilities. As you rightly pointed out, we will start looking -- reviewing some of our assets outside of Singapore as well. But of course, those will always depend on the market conditions in the respective markets. But I think -- I mean you brought out Germany, which I'm sure is something that's on quite a few people's mind. But I think Germany is it's -- the way I see it, it's slightly de-risked now because we have Gallileo that has already been handed over to the tenant. So from this year onwards, you will start contributing income. So there's not as much urgency. So we can actually benefit from the uplift in NPI from the asset in any case, whether we divest or not. But of course, if you divest, then you probably have to worry less in a sense. But actually, the asset itself has a long-term tenure lease. So it's pretty much de-risked. But we have another asset in Germany that is not of the same tenancy structure, of course, so there will be some -- so we potentially can look at that as well. Allison Chen: Rachel, please? Lih Rui Tan: Congrats on the very strong results. My first question is probably, if you could -- I think you spoke a little bit on interest cost. You have done very well in 2025. Could you guide us a little bit on the 2026 interest cost? And my second question is on -- since Mervin have asked divestments. I will ask acquisitions. Are you still keen on Singapore retail, like, say, your sponsor pipeline Jewel? Or are you keen to buy the office assets that's out in the market? Choon-Siang Tan: I'll take the second question and then maybe Mei Lian can take the first question later. In terms of acquisitions, no, I think we continue to look at our portfolio reconstitution. I think the current environment in terms of our cost of funding, actually, is very conducive for us. Interest cost is low. Our cost of equity is fairly reasonable, but I think we have always been quite selective about what we look at in terms of acquisitions. There are not that many opportunities in the market. I mean, on the retail, you talked about retail and office. So let's maybe look at retail. Retail, I think there aren't that many opportunities in the market. You mentioned Jewel, which is our sponsor pipeline. I think that potential -- I mean that has been there for a while. I think it needs to -- it needs -- it might take some time because I think the financials need to match our pricing expectation as well before there can be a transaction. So we'll have to see how that goes. And also, the vendor needs to be willing to sell at some point first. We don't know what's the thinking there. On the office front, there are a few assets that has been out in the market. The challenge, I guess, is the pricing expectation and the yield expectations for some of those assets, whether they can make it work. I think safe to say we are unlikely to acquire an asset that is -- doesn't contribute financially or doesn't really help unitholders. If it's not accretive, it will be quite challenging. So if you're talking about those chunky assets, if it needs equity funding, it's even more challenging. I don't know. I think it depends on -- probably not answering your question, but taking a long time to not answer your question. But I think it's quite difficult for some of those assets that are trading at fairly low use. Yes. Mei Lian Wong: On interest rate, like what Choon Siang mentioned earlier, the amount of loans that is due for refinancing is not that big. So given where current interest rate levels are. In terms of interest rate guidance, I think we could be in the range of 3% to 3.1% level. Yes. Allison Chen: Geraldine? Geraldine Wong: Congrats on the very strong set of results. My first question will be on valuation. I think foreseeing the lower bound of the value cap rates, seems to have tightened a little bit, are you able to share what has changed? Is it because of the market transactions? And second question is on really if we are looking forward, the picture looks very rosy. I was just thinking a lot what are the kind of concerns that you have in mind for 2026? And anything further that you like to de-risk in 2026? Choon-Siang Tan: Okay. Maybe I'll take the second question first. First question, I will refer to Yi Zhuan. But our cap rate lower bound move, I don't recall it moved. Geraldine Wong: Retail. I think 4.35. Choon-Siang Tan: Last year it was 4.35 also, right? Geraldine Wong: Last year, I believe it's 4.5. No. Yes. I think 4.35 is the first time I'm seeing such a tight cap rate. And for office, also was 3.15. Last year, I'm not sure. I think it's closer to 3.25, a very slight movement. Choon-Siang Tan: I believe it's the same. Yes. I think it's the same as last year. Okay. Maybe, Yi Zhuan, you can double check, and then we can get back later. What's the second question? Allison Chen: Our concerns for 2026. Choon-Siang Tan: Risk. Yes. Yes. Okay. To me, the biggest risk is actually interest rates because we have come down quite a bit over the last 1 to 2 years. And there is always this fear that we might start reversing the trend. Australia just high rates last week. So there's always this pressure. But I think Singapore is in a fairly stable environment. So hopefully, we will be -- I think and also from most people's perspective, SORA has come down to low 1%. How much lower can it go, right? So -- but I think there's a lot of liquidity still in the system. There's still a lot in flow. So hopefully, SORA remains at the current levels. And it doesn't look like -- I don't -- I think the risk to SORA going out is if the U.S. rate starts going up. It doesn't look like that's happening anytime soon. But it's always the risk at the back of my mind. Secondly, obviously, it will be the economy, general economy. Last year, we have a lot of good things going for us. I mean at the start of the year, we were forecasting a recession in Singapore. And we ended the year at, what, 4.8% GDP growth. So there's a big swing from beginning of the year to the end of the year. Whether we are able to repeat last year's performance in the general economy, I don't know. So that could be a big risk. I think last year, there was also a lot of pump priming, right? I mean, CDC vouchers and all that. So that could be -- we'll see what the budget brings next week. So there could be some effect there. Third, I don't think it's a big risk, but people in The Street will always put it as a risk, of course, is the completion of RTS this year, whether that will have an impact. I think we have talked about this at length many times with many of you. Different people have different opinions. So we'll see what happens. So -- but we can't rule it out as a risk yes. Maybe we'll go back to the first question on cap rates. Yi Zhuan. Lee Yi Zhuan: Yes. The range compared to last year, year-end is the same range for both the office and the retail at least for the lower bound. Allison Chen: Okay. Can we go to Joy, please? Qianqiao Wang: Joy from HSBC. congrats. Two questions from me. First on development on Hougang. So if I look at the lower end of your cap rate is 4.35%, do you think roughly about 70 to 100 basis points of spread is sufficient to compensate for development risk? And with Hougang, can we assume you won't look at redevelopment of your existing assets in the near term? So that's one. Second question is on NPI margin. So I think historically, Q4, your retail NPI margin usually is lower. If I look at the quarterly trend, this quarter, you actually bucked the trend. Your NPI margin is very strong. Can I understand what has -- is there -- what's the swing factor? And can I take this as the base for next year? Choon-Siang Tan: Okay. So I think on the development premium front, I mean there's always a judgment, right? And when we say it's at least 5%, we didn't say it's 5%. So that's one. But if you look at 70, 80 bps, it sounds small, but it's 20% of the value. When you move when you have a compression of 80 bps is at 4% is 20% of the value. So I don't know, is that enough for a development premium? When developers do residential development, I think the pricing typically a 10% to 15% margin for -- so but let's just think of it, if we don't do this and somebody is developing and we had to buy from them 5 years later at 4.3%, would investors have preferred that? I don't know. I mean it's a tough call. I think there's no right answer. It also depends on how we manage the cost. I think if we are able to manage the cost well. Of course, when we plan -- it's all about execution on the development and how it turns out in 5 years. Nobody knows what the market is going to be like in 5 years. I mean even if you assume the inflation of a certain rate, rent should theoretically go up by then. So if you're able to get entry of 5-plus percent, then $3,600 per square foot, to us, that's reasonable. Yes. So it's a bit of a judgment call. But the reality is there's -- I think it's hard to find an asset at the kind of yield in this market as we have found out in the last few months. But of course, we also go the safe -- go down the safe path and buy a core asset at maybe 4.2%, 4.3%. Yes. So -- but we think that this, but I think for the calculation for this is also a bit different. It's not just simply comparing an asset to another asset. I think we like the location. I think the location in this -- but this precinct is very underserved. in terms of retail demand. I mean I don't know for those who stay around the area, you know that there is not that much in the neighborhood. I think neighborhood is tough of a retail mall, a big retail mall, which is -- which there's been quite a lot of new neighborhoods in the area. That's a very new from Hougang all the way to Sengkang, Punggol. There's a lot of new flats that have come up. And I don't think the growth of the retail space have been commensurate with the growth of population there. Okay. I think second question on NPI. I believe the NPI margin is partly because we have also added CapitaSpring, which obviously is a higher NPI margin. So it may not be a like-for-like when you compare year-on-year, a specific retail. I think for retail, we did have some cost savings, I think. Utilities costs have come down. I think we have entered into better contracts last year. So there were some utilities cost savings. So that has improved our margins. Yi Zhuan, anything else to add in terms of margin? Lee Yi Zhuan: Largely in part your utilities savings is one. And then there's a bit of rebates on electrical front. For 2026, probably, you can see a little bit of that continuing. But I will say that this is slightly a slightly improved NPI margin that we can expect for 2026 also. Redevelopment. Choon-Siang Tan: I think AEIs to us is BAU. So whether we did Hougang or not, we will continue to go ahead with AEIs. That's the -- I mean, yes, so it's not. And I think Hougang actually -- doesn't really see the rationale of spreading out AEIs is that it tends to create a drag on our cash flows. Because when you do AEI, you have to sacrifice some NPI because you have to shut down some of the spaces to rejuvenate. The difference with Hougang is that you don't give up any NPI because you're not carrying out anything. There is definitely balance sheet consumption, but interest cost is capitalized during construction. So there is no drag on DPU as well. So the only cost to this, I guess, is gearing. So gearing will go up, but I think we are quite comfortable with the divestment of Bukit Panjang, we are gearing at 37.6%. So that gives us a very comfortable position. So in a way, we are not sacrificing any DPU to go into Hougang. So it shouldn't affect our other BAU initiatives. So if a redevelopment comes along and it makes sense, it shouldn't matter whether we have done Hougang a lot. But of course, the only thing is if we whether we had the balance sheet to do the redevelopment, but we -- I think we are fairly comfortable at 37.6%, gives us a lot of debt headroom. Every 1% for us is about how much $27.200 billion. Yes. So we are about maybe just under $1 billion from debt headroom. Unknown Analyst: Just one quick question on the Hougang site. Does $1.1 billion include capitalized interest costs? And secondly, on Bukit Panjang Plaza divestment proceeds, would you set that aside for development? Or is there a chance that you could actually redeploy during the next 1 to 2 years? Choon-Siang Tan: Okay. I think the short answer to the first question is, yes, it includes the capitalized financing costs. I mean it includes all of our construction costs and all the contingencies that we have provided as part of our normal planning purposes as well. Bukit Panjang proceeds, I mean money is fungible. You can see as whether we had -- I mean, last year, we made some acquisitions. You can see it stopping up the balance sheet. We can also use it to fund future acquisitions, you're right? In a way, selling at mid-4% is no different from -- in fact, slightly cheaper than raising equity at -- currently, we are -- our cost of equity probably 4.8%, 4.9%. So yes, so we do -- we can use it to redeploy into future acquisitions, definitely. Unknown Analyst: Next is on forward guidance. Maybe just a comment REITs P&L is probably one of the easiest to forecast. As Jack has said that forward guidance is encouraged. So maybe next time we meet you, you can be the first brief. Choon-Siang Tan: Noted. Allison Chen: Thanks, Shen. Derek, do you a have question. Derek Tan: Maybe just a follow-up on Hougang. Don't mean to flog this, but how did this come about? I mean I don't think we generally don't participate in GLS sites even as a joint venture partner. So how did this come about? Do you volunteer or... Choon-Siang Tan: Yes. Okay. So yes, that's an interesting one. So if you had asked us a year ago, we -- whether we will do a pure development project, probably the answer might be closer to no than yes, probabilistically speaking. How did this come about? So I think one is I mean we have always been quite focused on growing over the last -- and we have looked at many opportunities along the way. And we have also found that it's quite difficult to do acquisitions in Singapore, as you might appreciate. And a lot of assets that are available for sale have been sold at very aggressive pricing. I mean I wouldn't say aggressive, maybe it's fair pricing. Five years later, we could go back and think that, wow, that's cheap. So okay -- so then this Hougang site came about and it was -- it has a fairly large commercial component. I think if it was a small commercial component, we probably won't look at it. So then we think -- and I think if it's not a big project, we also are less likely to look at it. The reason why we wanted to do Hougang, I think one is very sizable enough, right, billion, $1.1 billion of deployment. Secondly, competition. I think because not many people out there can do a residential come commercial project. I mean we have seen from, say, for example, the Clementi Mall bid, the competition was quite tough. When you have 10, 15 people bidding for the same project, the value gets competed away. We know that there probably won't be that many people who can bid for such a huge project. I mean if you add in the residential and the commercial component, the total development value is north of $2 billion. I mean there aren't that many parties in Singapore that can do that. And in a way, true to that, it's -- there were only 3 parties that bid it. Of course, we know there are likely 2 or 3 parties that are likely to bid. I mean -- so actually, we look at it for a while since the site was announced. But of course, we didn't really want to invite competition, so we didn't really put it out there, obviously. The alternative was for -- I mean the other consortium which are CLD and UL consortium to bid. I mean the earlier conversation was that they will bid, win it or not. But if they win it, we can potentially just buy over from them, which is our normal process. But if they were to do that, then they have to then we will have to buy at a different price, which is fine because it's de-risked. Not that a higher price -- higher price doesn't always mean worse, obviously, because it's a de-risked product. But the difference this time is that if they were to do that, then they can bid as high as well because they have the price in the margin, right? So they can only bid -- maybe -- because when they sell it to us, they also have to they have to hold it for 5 years and then sell it to us. They probably have to bid in a certain margin. So then we thought that, okay, if you come in directly, then we can get rid of that, that safety net for them and then we will be able to bid a little better than if they would do it themselves. So I mean we debated that maybe that's the better outcome for everyone. It also means that we have a higher probability of securing a win. If we are able to -- if the REIT is able to come in directly. And we know that very few other REITs can do that because $1 billion because there's a limit to how much development headroom you can do. So for us, our total AUM is $27 billion. 10% of that is $2.7 billion. So it gives us a very comfortable headroom and still able to do other projects. For some of the other REITs, probably we know that they are more limited by that. So we know that -- so that is our thinking. And that was a strategy that we went in with. And fortunately, for us, that worked up relatively well. And despite that, we only won by a relative margin. So we really needed that competitive pricing. But even though you won by a small margin, but I think that pricing is generally -- I mean, we are quite happy with the outcome. We think that buying at that price is fairly reasonable. It's probably no worse off than buying a brand-new retail mall that is de-risked at mid- to low 4%, say, for example. Derek Tan: But some of the malls are like Choon-Siang Tan: Sorry? Derek Tan: Some of these malls, low 4% are better locations also, strong catchments. Choon-Siang Tan: Depending on how we -- yes, it depends -- location -- more central doesn't mean a better location, I guess. I think location to us means it depends on the catchment and the scarcity in the area as well. Yes. So. Derek Tan: Okay. And just one last question on reversion outlook, especially for retail. How does that look like and how does it stack up against your occupancy costs? Choon-Siang Tan: I think last year, we have about a 6.6% reversion. This year, I think we'll probably -- I would say that we'll probably stay at moderate to about that level, mid-single digits for retail reversions. Yes, I think that's the guidance we will give. Yi Zhuan, anything to add? Lee Yi Zhuan: For office retail, probably looking at now, I mean, 12 months later, a lot of things can change, but I think we are pretty much looking at our mid-singles kind of reversion. How it's backed up against for the retail out cost? I think if you look at the year-end occupancy cost, it's relatively okay, 17%, right? And downtown, if I look at the suburban is actually on the 16-ish kind of percent. So I would say our cost perspective, we are still quite healthy. Of course, along the broader market, you see on and off, there's pockets of the retailers having some of these challenges. On a like-for-like basis, we probably have to tackle some of the localized kind of specific issues across the different trades, right? Like, for example, we talk about cinemas, whether or not there's an immediate replacement to cinemas or we are taking a short-term kind of extension to some of them. So that will play out a little bit, in fact, in terms of rent reversion, but I would say, by and large, we should be okay in terms of the our cost and reversion. Allison Chen: Can we pass the mic to Gola, please? Unknown Analyst: [ Gola ] here from the edge. Okay. I've got a couple of questions on the office front because your occupancy fell. And in terms of the expiring rents, which is on this slide -- slide 34 because they're a bit high for -- next year, they're a bit high. So I'm just wondering for this year and as well as this year. So I'm just wondering whether you said mid-single-digit reversions for this year, but I'm just wondering what you think is the outlook? And why did your occupancy fall for that's the office front? And then for the retail, there's another retail question. I just wondered, what is the F&B percentage of the just the retail portion? Because I think you put it as 17 -- 16% or 17% for the whole portfolio. But I noticed that your peers that only do retail very, very high retail portions by GRI and by NLA. Lee Yi Zhuan: Okay. Yes. I'll take the office one first. So okay, if we look at the expiring rents, right, it's true that if you look at this to 2025 and 2024, actually, the expiring rent versus the market rent, right, we are kind of closing up, right? So actually it's a much tighter now. So how do we then actually explain the kind of outlook? I said a lot of things can change in the next 12 months. And we are looking at some of the leases that were in discussion for the office side. If we look at the consultants, actually, they are a lot more bullish than us in terms of rental growth in '26 as well as '27 given that there's actually a little bit of tightness in supply, especially for good quality assets in centralized location. So they do expect the market rents to actually go up quite substantially. And then if you look at the expiring rents, naturally, we are -- the growth in expiring rent is not going to grow as fast as how the outlook of consultants market rent growth. So that kind of supports a little bit of hope that some of these things that we set out. Because if I give a very low guidance in terms of reversions, you all will think that I'm being conservative about it. So I think it's just realistically how we are looking at this. And the next thing I would look at is actually the expiry profile for our assets, right? So if you look at how our expiry profile is like for office in the '26, '27, '28, the kinds of the '27, '28 kind of is in the window where there's actually tightness in terms of supply again. So hopefully, we can take advantage of the tightness in supply that supports a higher rent, right, to again negotiate for better outcomes for office portfolio. Choon-Siang Tan: I think there's a second question on retail. I didn't really quite understand your question. When you say are you talking about retail portion of office? Unknown Analyst: I'm talking about retail portion, F&B. What is the percentage of F&B in your retail malls because there's so much F&B will all grow fat the next few years because and because they have a lot higher rents than your cinema or your supermarket? Choon-Siang Tan: You don't necessarily have... Unknown Analyst: And they keep on opening and closing. I mean the -- these food places keep on opening and closing. Yes. I'm just wondering. And is it a risk for you? Choon-Siang Tan: We have a slight right on the percentage of our F&B. I think it's about 30-odd percent. Okay. It's say 17.8% here, but this is overall our entire portfolio. But overall, our retail space is typically around depending on which mall probably about 30-odd percent. Your question is whether how are they doing? Unknown Analyst: Whether there's too much F&B especially when the RTS comes and everybody goes up to Malaysia. So that's the point. Choon-Siang Tan: But I think actually, people who go to Malaysia are less likely to be consuming -- I mean, they will continue F&B, but I don't think that's the trade that will get affected most because everyone can only eat 1 lunch a day. So if you go to Malaysia, you can only eat 1 lunch. But you go there and buy groceries, you can buy like 10 detergents. So actually, F&B is probably the least at risk to the RTS opening although there will be some leakage, but it will be very small. So we're not so worried about that. Actually -- so in a way, having more F&B is likely to be more defensive. Yes. So I mean, I think, F&B opening and closing has actually been part of retail trade for the longest time. I think it's -- I mean it's been a bit more on the news lately, but I think a lot of the closures are also not really in our malls. A lot of this opening closings, you tend to find them in shop houses because the rent variance tends to be a bit higher because some of these shop houses can be very low rent for a long time. And then suddenly, when the owner wakes up one day or a new owner comes in and then you can have a rent adjustment. Whereas in malls, you are less likely to see that, right? I mean our contract, most of our rent escalations are 2%, 3%. We're seeing like average rental reversion of 6.6%. We never ever see it 40% in our rental reversion. So you don't really see that. So -- and 6% rental reversion actually means 2% per annum, which is not significant. So most of the F&B that are in our malls, it tends to be able to survive as long as the business model is sensible and is sustainable. So those that are not able to survive typically means that they are not able to survive even if the rents don't increase because 2% is not idly to make a difference to your business model and your sustainability, right? Unknown Analyst: So can I just ask a question on Clarke Quay as well because I think when you mentioned opening and closing, I mean, Haidilao is closed. Have you decided what's going to come in its place and how you're going to -- because Clarke Quay, we've been to it, and my colleagues have been to it, not me so much. But there's not much I mean it's not as buzzy as other some places? Choon-Siang Tan: Yes. Haidilao closure does draw headlines but I wouldn't say it's one of those that open and close. Actually, Haidilao has been there from day 1, and it's one of the first stores that opened. But while we have rented out the space, maybe Yi Zhuan can elaborate. Lee Yi Zhuan: Firstly, I mean, thanks for coming to Clarke Quay. Please do come more. It's -- I will say that actually it's a little bit -- I can understand why people are saying now Clarke Quay less busy, but I think there's also a change in the type of crowd that we are seeing in Clarke Quay where previously a very -- to almost some like extend route part of certain our kind of crowd, right now, you kind of disperse the crowd across the day rather than just concentrated at night and then you have a lot of tourists because a lot of them tons by to the other [indiscernible] and stuff like that. So for the [indiscernible] we already have a replacement. And of course, I would say that it's not a finished product yet because a lot of things is also when -- if I say that actually, I have exactly what Clarke Quay has to be for the market today, it's probably not true, right? It's a product that is evolving as we try to also find where is the threshold of the market's preference when it comes to your day and night trade mix. And then, of course, the other part that will be important for us is when eventually Canning Hill is completed, then we will see when the whole precinct kind of be a bit enlightened where there's residential, hotel, tourism and all these things, we can again fine tune that trade mix a little bit. So that's an evolving process. And in fact, actually, as I shared previously, there's also an element of experiment that we are trying to take with Clarke Quay. So some of the tenants are deliberately CapEx short-term or temporary, right? Because we didn't want to sign on a tenant, not sure whether that concept -- they can promise you a lot of things, right? But eventually, you want to see the execution. We don't see the market acceptance towards it. And that's why we will try out some of these concepts and see how all these things pan out. So it's a work in progress. I would say that there's a few good things that's happening. I mean, [ Zum ] is going to do a renovation. And like all brands for a long time, when everything is doing stabilized, nobody really go. When you say it's going to do close down for renovation, everybody starts to go [ hooters ] -- nobody went to hooters for probably a while, but there's some day everybody is asking what is going to happen to this. So I think that it's very inherent that all these things catch like the headlines. But at the end of the day, when we see it's really that when you look at occupancy costs of all the retailers. We know some that works. We know some that don't. And that's why we will talk to tenants, either we help them to grow their sales. If not, then we will have to look at replacements. So I think if you see across some of the closures across, I think recently, there's another one about some of the closures in malls, right? Oftentimes, it's not just about the rents. It's really about manpower constraints. So some of the retailers that we spoke to previously, they did share that they have overexpanded and they're looking at how to rightsize because they don't -- simply the manpower constraint, manpower cost, all these makes a lot of the operating costs not sustainable. And then that's why, naturally, then we will feel the pressure because at the end of the day, they want to protect their margins, right, and something else goes up, they will try to find to cut from other place. So I think there's all these things that's ongoing. But I'll say F&B, it's one that we do see a shift in the consumer patterns, right, where now actually they go to something that's not overly pricey, but they like something innovative, experiential and everything. So when it opens, right, the first month is very good. So she done very good. And the challenge is that when we bring all these new to market in, right, we are not here to do a tenant for 1 or 2 months. We want to make sure that, that kind of product that they do is actually something that can sustain their sales going forward. And that's why I think there are a lot of challenges for some of the F&B operators. It's not difficult to open F&B. But when they start to open F&B, that is offering something that pretty much everybody is offering without something that's differentiating and still without the scale of operation efficiency -- operational efficiency, that's where they are under pressure in terms of their survivability. Unknown Analyst: We passed my 2 questions. Just one more, Australia. What are your views on your Australian assets given that the [ RBA ] moved cash rates up 25 basis points. Yes, the third of the... Choon-Siang Tan: Thanks for the question on Australia. Actually, Australia is generally doing quite well. If you look at -- if you -- the market consensus on Australia is that things have bottomed up probably last year. And rents are actually going up in at least in the core CBD. Core CBD actual occupancy is quite strong. There's been quite -- unlike some of the other cities in Australia, Sydney is holding up quite well and there's a bit of a flight to quality, right? So supply is getting tighter. Rents are going up. Vacancies are coming off and the incentives in Australia are also coming off. So actually, it's -- which is the reason why if you look at Australia, today, they are actually quite a bit of capital market transactions going on. So people are actually getting a bit more optimistic in terms of what's happening in Australia. If you look at our occupancy in Australia, it's also picked up slightly across our properties. Allison Chen: Perhaps now we'll turn to the online audience. Thank you for being with us virtually. We have four questions. First one is actually from Andy, DBS -- sorry, OCBC. Can you provide the debt breakdown schedule for the Hougang development project? Choon-Siang Tan: What do you mean by that? Allison Chen: The drawdown. Choon-Siang Tan: As in how much money is debt. Is it maybe [indiscernible]? Mei Lian Wong: Well, I don't have the exact amount, but a large part of it will be in this FY, given that we will be paying for the land acquisition. Choon-Siang Tan: Yes. I don't know what's the -- I'm guessing the question actually is not about debt. It's about the how much is needed per year. The deployment schedule -- the cash deployment schedule for the next few years, whether it's debt or otherwise. Jacqueline Lee: Mei Lian said, of course, the land cost that will be paid this year. So I mean, we will be paying within 90 days, I think the 100% of the land cost and then, of course, there's stamp duty as well. But for construction costs and the rest of it, right, it will be progressive because construction will probably begin only in 2027 after the planning period, which I think probably it's going to be like about 1.5 years. So construction will really in 2027. And then that construction cost will be drawn down progressively. Allison Chen: Another question we have from Helen CBRE. Will CICT's consider another development project before Hougang completion as we are still debt headroom available? Choon-Siang Tan: I think I mean, it's a hard question because it depends on what's the opportunity, right? But I think quite -- less slightly, but I mean, like I mentioned earlier, AEIs continue to go on. So depending on how you view what's development. To us, AEIs is BAU. Whether we will -- if the question is whether we will bid for another development project, which I think is what the question is driving at, probably less slightly. I mean we try to not manage too many projects on an ongoing basis. Let's do this really well first and build a track record of doing executing development projects well before we look at subsequent projects. But of course, never say never, is something that's very attractive, that comes up, who knows. But I think the current thinking now is quite unlikely. Allison Chen: Okay. The next question we have from Derek UBS and Mr. Yap. What is the status of the ION tax transparency? Choon-Siang Tan: I think no new updates on that. So as I mentioned in the last earnings update -- so this is unlikely to come anytime soon. Yes. Allison Chen: Okay. And then last question from Frasier. We have -- he is congratulating us on the strong results. The like-for-like revenue growth seems low versus the strong reversion. What is the cost? Is It due to AEI? Choon-Siang Tan: What's the like-for-like growth? I think it was about... Allison Chen: 1.4%. Choon-Siang Tan: 1.4%. Okay. So I think 1.4%, I guess a little bit of that -- I mean if you look at our reversions, it's about, call it, 6%, average 2%. So should we be tracking closer to 2%? It could possibly -- some of it could be possibly due to the AEI, but maybe we can break down the details and then get back to you, Frasier. Allison Chen: Yes, Frasier, we'll get back to you. Thank you for the question. Okay. Now we turn our attention back to the physical audience. Jovi? Unknown Analyst: Jovi also from Singapore. Just one small question here also about retail. Combining a few threats mentioned here with the new Hougang with the line from the slide is about establishing a strategic foothold in the Northeast region. And reading that along with your comments on the lack of retail offering for debt catchment, also your comments on RTS, just broadly, what is your thinking about the entire North of Singapore right now? Would there be a catchment of interest to CICT, perhaps somewhere near like the [ Turf Club Crunchy ] area away from the more crowded established areas now? Choon-Siang Tan: I don't think we have a specific view in terms of -- I mean we went into -- in Singapore is always and in real estate in general, it's always very localized. I mean to talk about North in general, it's very hard. You can have 2 more things with each other and the performance will be quite different. So it always depends on the actual location, right? I think generally, we are Singapore-centric. We like Singapore in general. If there's an opportunity in Singapore, we will definitely look at it. And when we look at it, we will evaluate, obviously, holistically in terms of whether that particular location makes sense for us. But definitely, we did mention that one of the reasons why we went to Hougang was because we don't have anything in the North-East, because it always helps us to expand our customer base. I mean, we have a loyalty reward program. The more malls we have across, it gives our customer base a wider selection and offering as well, right? Because then we can then access the database and customer base in the Northeast, because people naturally always shops somewhere near their residence. Yes. So I think we are not -- we are fairly agnostic in terms of whether it's North-East. Obviously, I think there is market talk about how the northern part of Singapore is going to be more affected by RTS. I guess, partly true, but you will also benefit from the inflow. So there will be a certain vibrancy at the entrance too. So maybe more leakage than less, but I don't know. I mean for us, fortunately, we don't have that much exposure in that area. Whether we see that as a -- I don't -- I think I said, we will look at it specifically on each individual location on its own merits. Allison Chen: Okay. Pass the mic to Vijay. Vijay Natarajan: Congrats on a good set of results. I think most of my questions are asked. Just two questions from me. In terms of office, Singapore office occupancy drop during -- seen during this quarter, maybe can I know the reason why? And specifically, with office rents hitting multi-year high, do you think -- do you see pushback from tenants in terms of increasing it higher, some tenants moving to out of CBD areas? That's my first question. Second question is in terms of retail sales, I think if I look at your tenant sales, overall tenant sales looks a bit soft. I think it's in line with broadly with market while I expect you to outperform. Any specific reasons? And with this level of sales, do you still see pushing up rents possibility in the next few years? Choon-Siang Tan: Okay. Maybe I will take the second question and then Yi Zhuan can take the first question. I think tenant sales -- we are up about maybe -- yes, I think it's on the [ Board ] now, call it, just slightly over 1% for the year. But I think we also have to be mindful that the first half of the year was a slightly more cautious environment. So if you strip out the effects of the first half, if you look at it on the second half alone, which was -- I think I mentioned it earlier in my presentation as well, we are up close to 2% year-on-year, which I guess is -- I mean, sales growing at inflationary rates, I guess, it's business as usual, whether we should be outperforming that. I think it's okay. I think we are quite happy we have 2% growth on a year-on-year basis. if anything else -- if nothing else, it's in line with our rental reversions of about 6% per annum, which then allows us to maintain the same occupancy cost. But as we have also mentioned a couple of times, our occupancy cost is actually not super demanding at the moment. We are at 17-odd percent. Pre-COVID, we are about 19%. And our sales have gone up quite significantly, probably much faster compared to our rentals over the last few years. Sales always lead rents, right? I mean your sales have to go up before your rents can go up. So we have already had the benefit of sales going up quite strongly the last few years. So we do have rooms, I think, for rents to grow up to catch up with the occupancy cost. But if nothing else, at least if you continue to grow at 2%, 3% sales per annum, at least you are able to maintain the same occupancy cost as this year. So I wouldn't call it weak growth rates. Maybe the first question on drop in office occupancy. Lee Yi Zhuan: Yes. Okay. So for fourth quarter, actually the main reason for the drop in occupancy actually some transitional vacancies that we see in the Singapore office portfolio. So of course, we have one -- I think previously, I mentioned that one of the City tenants actually left. So that one on its own is quite a big void. And Six Battery Road, we have a few of the kind of smaller kind of tenancies that expire. So these are kind of things that we are aware of ahead of time. And so actually, there are already some of the space has actually backfilled. So for example, the one in Capital we got what, 20-plus percent backfilled. And then it's fortunately had a positive rent reversion and the ones at Six Battery Road, we have also backfilled some of the spaces. Some of the spaces in these in part this drop in occupancy. So we have to set aside for some of the things like, for example, fire compliance for Six Battery Road before we can put it back out under the market yes. So it's largely that -- I would say that if -- so we are aware that -- I will even say that going forward in the next quarter so we probably will see a little bit of volatility in a little bit of these occupancies because some of these movements in the market is quite natural, especially at a point in time where we see movements in the market as there's flight to quality, there's people consolidating expansion, and then there will be natural downtime to some of these things. I think there's a second part of that question where you talk about where the tenants push back on rents. I would say actually, not really at this point. Of course, naturally, everybody is a bit cautious in terms of with all these go by uncertainty, market uncertainty, then, of course, they try it a bit more prudent when it comes to rent negotiations, right? But by and large, I'd say the broader themes that is still happening, right, flight to quality because ultimately is about talent attraction, talent retention. So centrality is actually a key theme, not just in Singapore and Australia as well. As we see the core CBD markets are the one that always recover and grows faster. So there's actually companies are prepared to pay for the right space given that in the view of the broader business, actually, real estate cost is just one function of the other parts that they are concerned about. In fact, actually, right now, the challenge for a lot of them is not so much the ongoing rent in a monthly payment perspective, but it's actually more the initial CapEx that is involved in moves. So that's the reason why you can see in many cases, right, some of the landlords are starting to do fitted out offices to help companies bring down the initial setup costs and all these things then becomes rentalized into the rents. So that's gaining a little bit of popularity across quite a few buildings in CBD. But by and large, I think that the companies are aware that ultimately, there's only so much space that's available and they had to make a choice on whether all these ESG central location fits their business banner or cost efficient. And the delta between a decentralized and CBD is still not wide enough for them to then say that actually a decentralized location is a better way to go for just pure cost reasons. Allison Chen: Do we have any more questions? Unknown Analyst: [indiscernible]. Can I ask -- I know to hop back on this point. On the RTS, do you have actually done any modeling to kind of talk about leakage or modeling in terms of how much leakage you would see on that front? And also on the retail side, again -- sorry to hop on this point, but what kind of demand are you seeing now in terms of tenants for your retail malls? Is it still largely coming from overseas, the usual suspects? And on the office side, obviously, there has -- capital market seems to be improving like how you can pointed to. Is there any -- if you guys approach to sales over assets, will you be considering that? Choon-Siang Tan: Okay. If we have -- your question is if we approached to sell some of our assets, will we contemplate the... Unknown Analyst: On the office side. Yes. Choon-Siang Tan: Yes, on the office side. I mean we have sold off [indiscernible]. So we are not adverse to selling assets. We sold off 21 Collyer Quay, which is an office asset. So we are not adverse to selling office asset. So I think between office or retail, I wouldn't say we have a preference over either, right? Because I think the cycle always changes. So for us, it always depends on what is the proposition in hand. If someone offers us -- I mean, never say never. If someone offers us a price that is very attractive, I think we will always take a look. We are not -- I mean, if it's attractive enough, we will definitely always take a look, is I would say. Yes. So that's on the office and retail front. I think the first part of your question is on RTS leakage, whether we have done some modeling. I think we did before. I think there are 2 parts to this, right? Question is the existing leakage, which has already happened and the incremental leakage as a result of RTS. I think existing leakage -- I think when people talk about leakage, there's some confusion about the truth because actually, existing leakage doesn't affect the numbers anymore. They have already leaked. So it forms a new base. So whatever delta from a year-on-year basis does not make a difference. So what we should concern about is the incremental leakage from the RTS which I think is a bit hard to model, I think. If you look at it from a pure -- I mean, if you look at it from -- today, the people who drive are likely to remain drivers into JV because you cannot substitute that away. You drive because you want to be able to move around from point to point because you spend a whole day there and you want to be able to -- if you have the ability to drive most likely, you drive. So I don't think that will substitute a way to RTS. So RTS is likely to create the additional demand from people who used to take the Causeway bus. I think there is an existing Causeway bus, which I have taken to test it out and see how convenient it is. It is already very convenient because just from one side of the Causeway to the other side, it only takes like 10, 15 minutes. But of course, there's that additional time that you have to take from your house to the -- each of the Causeway. But just crossing the Causeway itself actually is already quite convenient. But of course, with the RTS, it makes it even more convenient. Maybe 15 minutes can cut down to 5 minutes. So likely, you will take away the demand from the -- those who are currently taking bus and move it over to RTS, but that's not incremental leakage. The incremental leakage is the people who are currently not going to Johor and then suddenly decide to go to Johor. So if you are currently not going to Johor, why is that? And why would RTS make you go to Johor? -- must be because of the added convenience and a slightly shorter time line. But actually, it doesn't take that much of a long time today anyway. So if you are the type that will go to Johor to shop for cheap goods, you're probably already doing it today. So I think the incremental effect to me is not as big, but I could be wrong. But to me, people who have the propensity to shop for cheaper products in Johor are probably already doing it. But what RTS will also do is that it allows Malaysians to then more easily come into Singapore. And this facilitates cross-border labor flow, right, which then allows us to tap into incremental demand in terms of labor flow both ways. And you also -- and RTS also -- I mean, the whole Johor is booming, right? And there will likely to be greater population growth in Johor, either organic or -- I mean, you can't have economic activity without people, right? So you are likely to attract people from other parts of Malaysia coming out to Johor. So there are a lot of things that Johor doesn't have that Singapore has. Some of these people will likely want to come to Singapore, over weekends, et cetera. And then you have expats and all that moving to Johor because of all the development of industrial activity. So there's also the incremental benefit. And previously, these people probably may or may not drive into Singapore. And then RTS now creates an avenue for them to come to Singapore. So I don't think it's all bad. It's not all doom and gloom. So there could be some incremental leakage as what I mentioned earlier. But I think it's probably not as big as it is because it's -- because all the leakage that started to happen has really probably happened, but it also facilitates flow back to Singapore. So that's how I would think about it, but it remains to be seen. So let's see how that goes. Was there another question on the RTS? I think that's about... Unknown Analyst: So can I -- would you have a number on that point? Because you seem like a net negative in the sense from a Johor plan. And on the retail side, again, can I also ask, right, in terms of the just adding right, in terms of softness, I think which popped up about just now, are you seeing change in consumer habits in terms of, obviously, the footfall seems to be increasing, but spending seems to be coming down. Have you seen that in your malls as well? Lee Yi Zhuan: Sorry. You are asking if we have a number for the sales leakage. Unknown Analyst: Yes. Lee Yi Zhuan: Okay. So, have we done the modeling? Yes, we have done the modeling. We won't be [indiscernible]. So whether it's there a number I can share with you I only can say that it's not a number that I worry and lose sleep over there. Then if anything, I will refer you to the DBS report, probably that was a good reference point. I hope that I address that question. Unknown Analyst: And on the previous occupants. Lee Yi Zhuan: So on the retail consumer pattern, I would say that generally, I think, for example, some of the -- it's very hard to just use a single line to kind of capture the whole market shift. But of course, what we see is a little bit of at risk of generalization, we do see that people are moving away from very, very big ticket items. So you'll start to see people are trying to spend on experiential dining, experiential entertainment lifestyle elements. Of course, there's a little bit of a shift towards mall like sports and healthy kind of living things. But the shift in trend also does not always reflect in the kind of sales that you see because, for example, we talk about year-on-year, if you compare it, for example, sports equipment and then you I mean, just using Brompton by example, right? You see it coming down. It doesn't mean that less people are cycling compared to 3, 5 years ago. It's just that on a year-on-year basis, because it grew a lot in the prior year and the base is high and then it came off subsequent. But by and large, that trend and inherently directionally is still going a certain way. We also see that actually, for example, IP is doing -- IP collectibles are doing very, very well. Like everybody, I'm not sure -- we used to ask who are buying blind boxes. Now as we have not bought one before. right? And I don't know if any of you have not bought one. But even if you don't really believe in it, people will still try and buy. And in fact, we do also see like some of the traditional like operators that sell toys to kids are now also trying to pivot a little bit into this adult kind of thing. So toys, games, all these things no longer become something that used to be for kids. And nowadays actually the one that's spending a lot of all these things. Fortunately, for us -- I won't say unfortunately, but it's actually the end up. So that's the kind of shift that we do see in some of these consumer patterns. And that's also the kind of things that we always say that the retail products are evolving. Then we talk about all these closures and whatnot, are we seeing a lot of brands from overseas, right? In the past, right, the comment has always been that malls are cookie-cutter malls. So then, of course, when we start to bring in overseas brands, we start to say, there's too many overseas brands, new-to-market brands. And then what does it mean for local, it's finding the right balance. I don't think in any of our malls, I can't say for the rest, but I don't think in any of our malls, you can see that our malls are predominantly tenants from one particular location. It's not a local versus foreign thing. It's really getting the right mix, right, that when somebody goes to our mall, they can buy things that is from local fashion, they can buy a local F&B. They can also -- if they choose to do something else, even Chinese food is very, very good. Today, you have options. And I think that's important when people come to the mall, because especially the mall nearest to you, right, it's all one style, one pattern, one product line, right? I don't think you want to go back there even though it's the nearest mall to you all the time. So overseas exposure, we do see continued interest from Chinese brands, of course. But that aside, we also see a lot from the Western part, right? So like, for example, again, I bring back Chick-fil-A, I bring back like new concepts from -- we see like permutations, right. For example, certain things that tend to be high-cost items, now they try to make it more mess pricing. So people can still experience the same thing for a much cheaper price. So we see some of these things evolving along the way. Allison Chen: Yes. I'm just mindful of time. Maybe we'll take one last question from John. Can we pass the mic to John, please? Unknown Analyst: Congrats on the very strong DPU growth. My question relates on growth and how that changed your view on country allocation. So for example, would you be open to expand into retail in Hong Kong? Would you be open to expand into office in Japan? So right now, locally, asset prices are quite high. And given that you're already the largest REIT in Asia Pac, would you be a bit underrepresented overseas? And would this be the right time to expand more overseas? Choon-Siang Tan: Interesting. Thank you. Thank you. No. So I think question is whether if one day -- I guess I mean you prefer your question because of the new growth mindset, whether we will look at overseas. I guess the assumption is that if we want to continue to grow, but we run our opportunities in Singapore because at the end of the day, if we have to -- if you are able to find something in Singapore, we'd rather spend the money in Singapore and continue to grow in Singapore. The question is, have we run out opportunities because you're asking if this year is the right time to look at overseas. No, I think we have shown in our track record that we are still able to find opportunities and decent sizable opportunities that continue to be accretive financially makes sense for us and puts our portfolio in a good position. I mean we did -- this outcome is also another way that we deploy capital in Singapore as well. And that also is another reason why we also look at it because it offers us another way to grow in Singapore. I don't think we have run our opportunities. I mean there are still so many assets in Singapore that we can look at without going into details and names. So I think the short answer is if we are able to deploy the next dollar in Singapore, we'd rather do that than going overseas. Do we like Hong Kong and Japan exposure? I think Hong Kong is probably going through quite a bit of challenges as we can see in some of the other -- our sister REITs that have assets there. Rental reversions are still on a negative trend. I don't think it's something that we will keen to look at, if you ask me. And as I mentioned, I think it's -- I mean as -- most of our investors, I think, prefer us to still be predominantly Singapore. I think we have also addressed some of these questions in previous. I think, in fact, if we have a choice, I guess, we may even look at reconstitute things out of our overseas portfolio, if possible, before we look at growing if possible. Japan wasn't on my mind, so I guess I forgot about that. I guess that was indirectly answering your question. Allison Chen: Okay. I think that's all the time we have. Before we conclude, Choon-Siang, would you like to share some closing remarks. Choon-Siang Tan: No -- I think this is a very good set of results, and I think I really want to thank all of you for continuing to support us. We know that this sets the bar even higher for us, makes it 2026 bigger hurdle to climb over, but we will continue to work hard, push for results and stay disciplined in terms of what we do. I think our team is -- we have a very strong team. I think credit to everyone sitting here and everyone sitting there. That's the reason why we are able to deliver on so many fronts. I think it's not just the acquisition front, although that's the things that people -- a lot of people are focused on, but actually, organically. The organic assets still make up 98% -- 95% of our portfolio. And if we are able to deliver performance from organic assets, that will make our job a lot easier actually looking -- in terms of looking for growth. So hopefully, we continue to deliver, but we know it gets much harder and harder each time. Okay. Thank you. I think we have some tea right outside, right? Allison Chen: Yes. If you have further questions, please feel free to reach out to us. Otherwise, have a great day, and those in person and join the refreshments outside. Thank you. Choon-Siang Tan: Thank you. Lee Yi Zhuan: Thank you.
Frank Maao: Good morning, and welcome to Telenor's Q4 2025 Results Presentation. I'm Frank Maao, Head of Investor Relations, and our Group CFO, Torbjorn Wist, will take you through the presentation today. As previously communicated, our CEO, Benedicte Schilbred Fasmer, is not here due to a planned surgery. And as you can see, we've a packed agenda, including an update on dividends and capital allocation. Before we get started, a few quick notes. All service revenue and EBITDA growth rates are organic and made on a constant currency basis as always. When we mention EBITDA, we're referring to adjusted EBITDA. Note that this time, Telenor Pakistan has been booked as discontinued business and is thus excluded from the P&L figures that we show you today. And with that, I'll hand you over to Torbjorn. Torbjorn Wist: Thank you, Frank, and good morning, everyone. Now let me start by saying that Benedicte is recovering well from her surgery, and she sends her warm regards to all of you. We certainly look forward to welcoming her back. Now knowing Benedicte, I wouldn't be surprised if she has joined us online to follow this exciting results presentation. Now what a year we have behind us. We closed 2025 with strong operational momentum and disciplined execution across the Nordics and Asia. Our results underline some clear messages. First, we delivered a strong Q4 that brought our full year financial performance in line with the outlook we communicated earlier in the year. Our customer first approach and disciplined operation enabled us to deliver EBITDA growth of close to 9% in the Nordics despite brisk competition, particularly in Finland. Our full year free cash flow before M&A reached NOK 12.9 billion for the year, in line with our around NOK 13 billion outlook and financial ambitions since 2022. The free cash flow, including M&A, was NOK 17.3 billion in '25. Secondly, consistent with the strategy we outlined at our recent Capital Markets Day, we continue to simplify the group portfolio, reinforcing the group's Nordic center of gravity. We remain committed to long-term value creation in our remaining Asian assets. The third message today is that we propose to make the 16th consecutive increase in dividends per share and prepare for a NOK 15 billion buyback program. And I will come back and talk more about the capital allocation and distribution later in the presentation. Now 1 year ago, right after Benedicte and I stepped into our roles, we outlined our priorities for the first year. These included strengthening customer centricity and reinforcing our people and execution culture, sharpening our focus on return on capital, and delivering on our 2025 financial ambitions, including our strong commitment to shareholders on dividends. One year later, I'm pleased to say this is exactly what we have done. During the year, we evolved and refreshed our strategy, which we presented along with the detailed financial ambitions to the investment community at the CMD in November. Over the last months, we have also stepped up on execution on portfolio simplification, closing the clean, and I underline the word clean, exits from Pakistan and Allente, and last but not least, with the agreement to sell Telenor's ownership in True announced on the 22nd of January. The True transaction represents significant value creation for our shareholders as we will be exiting Thailand at more than 3x the NOK 12 billion market value we had in dtac at the time we started the merger talks with True 5 years ago. All in all, we are pleased with these steps to further sharpen the group's focus. Now as mentioned, delivering on the '25 outlook was a top priority, and I am happy to confirm that we delivered on all parameters. During the year, we saw solid operational performance in the Nordics, in line with the outlook provided for all three parameters and an EBITDA growth of 5.8% for the group compared to the outlook of 5% to 6%. Note, however, that the 5.8% excludes Telenor Pakistan, as Frank mentioned initially, while our outlook included Telenor Pakistan. If Pakistan had been included in the actuals, EBITDA growth for the group would have been 1 percentage point higher. As such, we outperformed the outlook on this metric. And as mentioned in the highlights, free cash flow before M&A ended at NOK 12.9 billion, in line with our guidance. Then moving to the highlights for the group financials. Group service revenues reached NOK 15.3 billion, up 2.6% year-on-year. Adjusted EBITDA increased 11.7% to NOK 8.6 billion, driven by the strong performance in the Nordics, while being helped 3 percentage points by effects related to accounting adjustments and reversals. In Q4, adjusted EPS was NOK 2.21, a material uplift from last year. Free cash flow before M&A came in at NOK 4.1 billion, up 33% year-on-year. The group CapEx to sales ratio was 15.5%, 4 percentage points lower than in the same period last year. For the Nordics, the ratio was 17.2% for the quarter and 14.3% for the full year. The leverage ratio closed the year at 2.2x, returning to its target range, mainly driven by positive year-on-year effect in total free cash flow. Now as we repeatedly stated, driving return on capital employed, return on investment and the like over time remains a top priority for us. We are pleased to note that for the last 12 months, ROCE came in at 9.2%, up 1 percentage point over the previous quarter. If you exclude the associated companies, the group ROCE would have been 13.6%. Then zooming in on the top line. The group service revenue growth of 2.6% year-over-year remained constrained by macro conditions in Bangladesh. If you exclude a VAT adjustment in Norway and a revenue correction in Grameenphone, both in Q4 last year, the underlying growth for the group would have been 1.8%. Our Nordic business area was the main contributor, as usual, while underlying growth was flat in Asia. Now turning to OpEx. OpEx declined by close to 2% in Q4, helped by relentless cost focus throughout the group, a NOK 75 million withholding tax reversal related to Telenor Pakistan in other group OpEx and OpEx adjustments in the Nordics in the same quarter last year. Adjusted for these effects, OpEx was practically flat year-over-year for the group and for the Nordics. In the Nordics, OpEx in Norway increased by 3.4%, mainly caused by high activity related to robustification and transformation, as previously flagged, as well as reparation expenses following the Storm Amy. Now sales and marketing expenses also increased in the Nordics, in line with the expectations we shared with the market early last year. Moving to group EBITDA, which grew strongly at 11.7% in Q4. As you can see from the chart to the right, all business areas contributed to this growth, even though the main part came from the Nordics. Amp delivered significant improvements across most of its businesses and Infrastructure continued its stable EBITDA growth. EBITDA contracted in Asia. However, this was due to timing of internal cost allocations between the Asia headquarters and the Telenor Group. Then regarding the reporting segment called Other, which mainly consists of our corporate functions, in Q4 '24, a retroactive true-up was made for internal charges from Asia to the Other segment, while in '25, these charges were more evenly spread out through the year. On the chart to the right, we have visualized this effect. As you can see, the negative year-on-year in Asia from these timing effects offset the similarly positive year-over-year effect in the other segment. Finally, excluding this effect, the other segment also contributed meaningfully year-over-year, largely explained by external revenues in Telenor Procurement Company, which tends to vary significantly between quarters. The positive growth contribution from group eliminations was due to the mentioned NOK 75 million reversal. Now clearly, 11.7% is a significant number compared to recent quarters. In this regard, note that 3.2 percentage points is a result of the mentioned effects I talked about earlier. Adjusted for this, EBITDA growth for the group would have been 8.5%. Then turning to revenues in the Nordics. The Nordics continued to deliver top line growth in line with recent trends. This quarter, we reported 2.8% organic growth, driven by our more-for-more strategy. Adjusted for the reversal effects I mentioned pertaining to Q4 last year, the service revenue growth would have been 2.5%. Norway was the largest contributor but we did see solid execution and solid contribution from across our Nordic markets. We grew mobile service revenues 4% driven by ARPU uplift across all markets in addition to customer growth in Sweden. Fixed service revenues grew only marginally with growth in both Norway and Finland being offset by active base management with focus on profitability in Sweden, as we've talked about in previous quarters. Across markets, churn continued to rise. We also expect a significantly sharpened price competition in Finland. We nevertheless added 59,000 new postpaid customers in Sweden and Denmark during the quarter, while seeing a total of about 24,000 prepaid -- sorry, postpaid subscribers leave us in Norway and Finland amid high promotional seasonality. I'll now take you through each market in some more detail. Norway remained the strongest contributor at 2.9% growth, underpinned by healthy ARPU trends with 5% for mobile and 6% on fixed broadband. In Sweden, mobile service revenues rose 4.5%, offsetting a 5% managed decline in fixed service revenues as talked about. And we posted strong mobile net adds of 45,000 in Sweden, helped by a successful Black Month with strong traction in 5G broadband. In Denmark, service revenues grew by 3.6%. A new development is that all Danish operators have increased list prices over the last months. Still, the market remained highly promotional in Q4. In the Finnish market, we saw a more visible presence of the new MVNO as well as deep promotional discounts led by one of the network operators. While DNA defended its customer base well amid elevated market churn, the price level on incoming subscriptions was significantly dilutive compared to DNA's back book ARPU. Still, DNA grew mobile service revenues by 4.3%, driven by upselling, solid commercial execution and a larger mobile subscriber base compared to last year. As a result, DNA kept its postpaid smartphone base steady during the quarter as the negative net adds were driven by a prepaid cleanup and some decline in mobile broadband. Total service revenues rose by 3.9%. Overall, Nordic's 2.8% service revenue growth reflects continued strong performance of our value-driven commercial strategy, despite broadly pronounced seasonality and increased competition in Finland. Now moving to EBITDA. EBITDA growth in the Nordics came in at 8.7% for the quarter. Gross profit was up more than 4%, supported by upselling, pricing, product mix, wholesale revenues and the fixed transformation in Sweden. Ongoing transformation programs helped reduce OpEx by 0.7% despite higher commercial activities and increased spending on robustification. Yet again, Norway remained our top contributor with 9.3% EBITDA growth, helped by the VAT reversals in the same quarter last year. An additional 5 percentage points of growth came from the national roaming agreement, and adjusted for these factors, EBITDA growth would have been about 3% in Norway. In Sweden, the continuation of the mentioned fixed transformation had a positive impact on gross profit, which grew 3.4%, contributing to the 11% growth in EBITDA. Further helped by disciplined OpEx and customer service transformation efforts, this brought EBITDA to the 40% margin, which is a milestone for Telenor Sweden, which just surpassed the incumbent on this metric on a last 12-month basis. Even when excluding the VAT-related reversal last year, EBITDA growth was still rock solid at 7.6%. Telenor Denmark continued to execute commercially while relentlessly tweaking cost, leading to an EBITDA growth of 5.8%. The small OpEx increase was mainly due to higher commissions from external retail. DNA both grew its top line while cutting back on costs, resulting in a 6.6% organic growth in adjusted EBITDA. This is quite impressive result given the demanding market conditions just described in Finland. Now in summary, we are pleased with the continued strong execution in the Nordics. Now then let's move over to Asia. Before enjoying the fireworks on New Year's Eve, we closed the sale of Telenor Pakistan, which is now out of the books. As a consequence, our Asia revenues and EBITDA, as charted on the left side of this slide, are nominal NOK amounts that only reflect Grameenphone in addition to the cost of regional Asian hub in Singapore. Grameenphone delivered organic service revenue growth of 3.4% in the quarter. But as you can see, the NOK amounts came down due to a weakening -- a 14% weakening of the Bangladeshi taka. Note that when adding back the accounting corrections last year, Grameenphone revenues and EBITDA were basically flat year-over-year amid cautious consumer spending environment and continued tough price competition on data. Grameenphone was just recently awarded important spectrum resources in the 700 megahertz band at the reserve price, which will be key to improve indoor and outdoor coverage for our customers going forward. As for the associated companies, the major event was the recent announcement of the True exit, which will be a two-stage deal, as mentioned earlier. This transaction is a major value creation milestone for Telenor as it concludes our 25-year history in Thailand. Benedicte and I would like to thank both current and previous employees that have contributed a big part of their lives to this fantastic journey. Note that we expect to close the first sale of the first tranche before True will pay its Q4 '25 dividend. CelcomDigi managed to improve commercial execution in its third quarter, swinging back to top line growth. While Q3 EBITDA declined due to higher data costs and bad debt, the company paid out a stable dividend in Q4. We continue to work with partners to support CelcomDigi in strengthening its associated 5G company, DNB, whose financial situation was, as described in their own report, distressed. Our goal is to ensure a setup with more efficient use of spectrum resources and network assets to the benefit of customer and society in Malaysia. DNB is expected to secure an additional 100 megahertz of key mid-band spectrum ahead of the government's planned exit in Q2 '26, which will be a helpful step for the company. Now finally, we have noted a lot of speculation about our other Asian assets in the wake of the recent announcement of the sale of True. As such, let me be clear, as an active owner, Telenor is a committed partner for long-term value creation in both Grameenphone and Celcom Digi. And the sale of True should not be interpreted as signaling any imminent or near-term plans to sell our other Asian assets. Now then let's turn to Amp, which delivered a strong quarter. At our recent CMD, we presented a focused approach to portfolio management in Amp. Part of that is to develop companies close to core within security and IoT, and we saw meaningful progress in several business units but would highlight two here. Firstly, KNL made a strong contribution on both revenues and EBITDA. Now KNL offers mission-critical services for defense, more precisely software-based and ultra-secure tactical defense communication solutions for use over long distances. Crucial to this progress were deliveries on contracts with the Swedish and Finnish national defense forces announced earlier in the year. This is a truly scalable business with telco margins but far higher growth, and we look forward to see what the future holds for KNL. Secondly, the largest -- Connexion, the largest single contributor to Amp's EBITDA and cash flow on a yearly basis. This company is the #5 IoT player in Europe and #10 globally within managed IoT connectivity. In Q4, Connexion delivered 9% organic revenue growth, thanks to its solid volume growth, achieving 24% year-over-year growth in its global SIM base. EBITDA in Connexion was, however, affected negatively as FX and OpEx growth weighted on the margins. Overall, we are pleased with the development of the Amp portfolio, which is seeing continued value uplift from a net asset value perspective. Further details on this, including a portfolio overview, can be found on our website. Then moving on to the profit and loss highlights for the group. We're pleased to report that strong growth in adjusted EBITDA and net profit from associated companies drove adjusted EPS to an 89% increase in the fourth quarter while growth reached a solid 24% for the full year '25. In terms of special items and notable swing factors this quarter, other income and expenses was higher than last year due to increased scrapping of IT equipment as well as workforce reductions. The NOK 0.5 billion fourth quarter fluctuation in net financial items was due to fair value changes related to True. And finally, there was a NOK 3 billion loss on the discontinued line in addition to a NOK 0.4 billion tax expense in conjunction with the divestment of Telenor Pakistan. Next, let me walk you through the main variables behind our free cash flow before M&A of NOK 4.1 billion in the fourth quarter. In addition to our EBITDA of NOK 8.6 billion, we need to add back the discontinued contribution from Pakistan of NOK 0.5 billion since this was part of our cash flow in the quarter. As indicated, we had a solid contribution from working capital, including about NOK 900 million from the use of handset financing. We received NOK 1.3 billion in dividends from associates and CapEx paid amounted to NOK 2.9 billion, of which NOK 2.2 billion came from the Nordics. Telenor Sweden made a scheduled NOK 390 million prepayment on its share of the multiband spectrum license won in '23, bringing the total spectrum spend for the group to NOK 0.5 billion in Q4. On the M&A side, net cash proceeds included NOK 4.6 billion for the sale of Telenor Pakistan, along with NOK 0.6 billion for the sale of Allente on top of the pre-closing dividend the company paid. And this led to a total free cash flow of NOK 9.1 billion this quarter. Now then let us take a look at our leverage ratio. Our leverage ratio edged down to 2.2x, within our target band of 1.8 to 2.3. The net debt reduction happened despite a NOK 1 billion increase due to NOK weakening during the quarter and the NOK 6.3 billion payment related to the second tranche of our dividend paid out in '25, which was now more than by the mentioned NOK 9 billion free cash flow in the quarter and the deconsolidation of NOK 1.8 billion in net debt relating to Telenor Pakistan. Then let me move on to shareholder remuneration. Telenor has a 16-year track record on delivering on our dividend policy of year-on-year growth in ordinary dividends per share despite significant structural divestitures in the same period. The group has changed over time, as you know. Over time, this ordinary dividend has been complemented by extraordinary dividends and share buybacks when appropriate. As you may recall, we reconfirmed our strong commitment to our dividend policy at our CMD in November. Adding another year to our track record, the Board has proposed a dividend for '25 of NOK 9.7 per share for approval at the upcoming AGM with payments happening in June and October 2026. Now then let me move on to the use of proceeds from True once the transaction has been completed. At the recent CMD, we explained our capital allocation priorities and our return mindset as part of the value creation engine of Telenor. How we distribute capital back to shareholders is a very important part of our capital allocation priorities. We need to ensure that we are effective and targeted in how we allocate capital to the best projects to create and compound value over time expanding the return on capital employed. This includes organic reinvestments, but also value-accretive inorganic investments that help us strengthen our customer proposition and enable us to drive further scale and efficiencies. We are now preparing to allocate the first NOK 32 billion of proceeds to be received from the first tranche of the sale of 25% in True. And we plan the following use of proceeds: NOK 15 billion will be allocated to a share buyback program, and I'll give you more details on that in a minute; NOK 11.5 billion will be allocated to repayment of the EUR 1 billion bond, which matures now in May; and NOK 6 billion will be allocated to finance the closing of our announced acquisition of GlobalConnect's Norwegian consumer fiber division likely due in the second quarter. The remaining NOK 7 billion to be received from the second tranche of True in a couple of years, we will deal with the use of proceeds at that point in time. We will be retaining some extra financial flexibility near term to consider further value-creating acquisitions in the Nordics. We will be looking at opportunities that offers attractive long-term return on capital by driving customer reach and satisfaction, scale and efficiencies. Now to the extent that sufficient inorganic investments would not materialize, we will, of course, consider further return on capital to shareholders to ensure balance sheet efficiency while protecting our credit rating. Now then let me talk a little bit more about the buybacks. The Board has stated its intention to initiate a share purchase program over 3 years once the first sale of shares in True is completed. The buybacks are to be confirmed each year by the AGM. The objective is to support per share value accretion and dividend coverage by reducing the number of shares over time. As in the past, our stock exchange repurchases will be executed by a broker on an arm's length basis and will be made in full compliance with market abuse regulations. The exact time to completion may therefore depend a little bit on the liquidity of our shares on the Oslo Stock Exchange. As usual, the Norwegian state is expected to participate with its proportional share of ownership in line with historical practice. So then if I move on to the financial outlook. The financial outlook is in line with our indications at the Capital Markets Day. Our mid- and long-term ambitions remain unchanged and are shown here only for context. For 2026, we expect a low single-digit growth in service revenues in the Nordic. As for Nordic's EBITDA, we see mid-single-digit growth while we forecast CapEx to sales, excluding leases, of around 14% in the Nordics. Please note that we do foresee quite significant variations between quarters in '26. While we have solid momentum into the start of the year, in Q2, the Nordics is facing a particularly tough comparable period. Firstly, we benefited from particularly favorable timing of back book price increases in Q2 last year. Secondly, the year-on-year uplift from the national roaming contract in Norway will be lapped in mid-March. We had around NOK 550 million in national roaming revenues from Lyse in '25, which was more than originally expected. We have said we would expect these wholesale revenues to start fading during '26 and particularly in '27. Following this week's news from our competitors, this remains our view. Our best estimate is currently that these revenues will be around the same level in '26 as last year, although quite low, if at all present, in 2027. I might add on this that in terms of the financial ambitions for '28 and '30, there are no national roaming revenues. In Bangladesh, we are, of course, hoping for a gradual macro upswing following the February elections, but we find it prudent to have modest expectations. For the group, we anticipate adjusted EBITDA to grow in the low to mid-single digits. A key sensitivity for the outcome will be the shape and strength of a potential macro recovery in Bangladesh. Finally, we forecast free cash flows before M&A, excluding dividends from associates and incremental spectrum, to come in at between NOK 10 billion and NOK 11 billion. We expect to see a somewhat back-end loaded profile on this metric in '26, similar to '25. All in all, outlook for the current year reaffirms our overall traction and long-term trajectory. To conclude, in '25, we delivered on our financial ambitions. We are executing on the strategy of top line growth through customer excellence, efficiency through transformation and overall simplification, including becoming more of a Nordic-centric group over time, and we are executing on our long-standing commitment to capital distribution to our shareholders. With this, I would like to hand the word back to Frank. Frank Maao: Thank you, Torbjorn. Good presentation. We will go through then to the analyst Q&A. And as usual, please limit yourself to only one question and, if needed, a quick related clarification follow-up to give your colleagues a chance to ask their question as well. So operator, please go ahead. Operator: [Operator Instructions] Our first question will come from Sofija Rakicevic with Goldman Sachs. Sofija Rakicevic: Just one question for me, and that is, what potential headwinds are you factoring in your medium-term Nordic EBITDA outlook given that underlying 2025 growth for this year is around 5% and a bit more than that if we exclude Ice and one-offs? And you're guiding for mid-single-digit growth in 2026. So what do you expect to deteriorate on an underlying basis over the medium term? Torbjorn Wist: Yes. As far as our outlook is concerned, the -- of course, the market will continue to be competitive as it has been in all our Nordic markets. And we expect this to continue, whilst at the same time, we will, of course, do what we can to strengthen our competitive position with our leading network position in Norway and a strong network position in the other areas to ensure that we compete on a normal basis. So we don't have any particular headwinds over and above the normal competitive behavior. Competition has always been tough and will continue to be tough. And those are normal assumptions that we have into our overall ambitions going forward. So in terms of the forecast for '26, we have been clear on that there will be step-ups on sales and marketing spend to ensure that we defend our positions. At the same time, we will continue to push forward on our strong transformation program as we have over many years now to ensure that we offset these effects. So that gives us comfort that the forecast for '26 in terms of our Nordic expectations is something that we believe we can deliver on well. Operator: Our next question comes from Ondrej Cabejsek from UBS. Ondrej Cabejšek: That took a while. And let me join Torbjorn in wishing Benedicte a speedy recovery, if indeed she is listening. I just wanted to follow up on the point that you made in terms of capital allocation opportunities in the Nordics as a key focus area for you going forward. And I just wanted to understand from where we are standing today, what in your view are some of the key hurdles preventing you from moving ahead? And when do you expect these to be cleared? Torbjorn Wist: Sorry, which hurdles are you referring to then, Ondrej? Ondrej Cabejšek: So some of the -- well, there are clearly hurdles, I guess, when you're looking at the capital allocation opportunities in the Nordics, which you mentioned, which Benedicte mentioned in the summer, et cetera. Torbjorn Wist: Yes. No, look, we -- first of all, we obviously don't comment on specifics. But clearly, we've been very clear at the Capital Markets Day that we see ourselves becoming more of a Nordic-centric group over time. That means, of course, that we will be looking at value-accretive opportunities that will help strengthen our footprint in this region. And the regulatory hurdles that you may allude to will, of course, depend on whichever transaction would be considered. What is key for us is to ensure that any transaction is value accretive, will strengthen our customer offering, ensure that we get scale and efficiencies that will help drive return on capital employed. And we will, of course, have a good process with the regulators, as we do in any particular deal, to ensure that we maximize the chance of success for whatever we decide to pursue. But if we don't find appropriate opportunities, then we will, as mentioned in my presentation, of course, consider further returns of capital to shareholders. Ondrej Cabejšek: And if I may follow up on this. So obviously, we've had the development in Norway, where Telia is now signing the RAN with challenger Ice, which you are now hosting. Is this something that is placing a bit more urgency on you to kind of do anything in the Nordics? Torbjorn Wist: Not this deal in and of itself. Just a couple of comments on this one. We are, of course, used to network cooperation, and we have that in some of our other Nordic markets. As I mentioned in my presentation, the revenue effect, we do expect revenues from this agreement to be similar to last year in '26, but then taper off. We don't have any NRAs into the future plan. I think what this deal really brings to the forefront is that Norway is the only market that we remain regulated in. We believe it's long overdue that this regulation is removed and particularly now with the creation of a strong second network. So our strong message to the authorities will be now is the time to take away this regulation for the future. As far as them pulling together their network assets or whichever structural form they do it, we're used to competition. We've had competition here for a long time. We are the leading network in our way, both on scale, coverage, quality. And we will, of course, continue to defend that position and, of course, invest in services, whether it be cyber or entertainment in order to reinforce the strong customer relationship and the market position we have here in this wonderful country. Operator: Our next question comes from Christoffer Bjornsen with DNB Carnegie. Christoffer Bjørnsen: Can you hear me? Torbjorn Wist: Yes. Christoffer Bjørnsen: Great. Yes. Congrats on all the exciting news over the last period. I just wanted to kind of follow up on the Telia JV thing and trying to ask a question without asking the question. But given that, I would expect it's fair to assume that they are a decent customer both Lyse and Telia in the tower business, can you maybe help us understand a bit like what the exposure is there? Like are there significant overlaps where they could consolidate? I think I saw in the local accounts of the TowerCo in Norway that the external revenues was about NOK 650 million in 2024. So just trying to gauge in the longer term for that 2030 target of NOK 14 billion to NOK 15 billion of free cash flow, what kind of effects could be there in like a base and a bear case scenario or -- yes. Torbjorn Wist: Yes, on our towers we have been working consistently to, of course, raise the tenancy ratio, which, of course, is other operators using our infrastructure. As far as -- if there should be, call it, an effect from this -- the recently announced agreement between our two competitors, we estimate that we have about NOK 120 million to NOK 160 million potential negative revenue impact from 2027, which is about 4% to 5% of the towers revenue. I think -- so it's not something that we deem substantial. There are other parties like emergency network, et cetera, that is on our infrastructure. So it's about 4% to 5% or NOK 120 million to NOK 160 million. And we don't anticipate that to hit before maybe '27 at the earliest. I would like to add that using infrastructure, co-locating on towers is, of course, a capital-effective way. So whether or not they will decide to remove this NOK 120 million to NOK 170 million remains to be seen. Frank Maao: NOK 160 million. Torbjorn Wist: NOK 160 million. Thank you. Frank Maao: And mind you, that's due to the overlap that is present in the colocation of the towers between the two parties. Christoffer Bjørnsen: All right. That's helpful. And then just finally to follow up on the Bangladesh, you mentioned the spectrum award there and so on. Still there are material parts of the portfolio coming up for like renewal or expiry later this year. Can you give any indications of how confident you are that there will be timely auctions and whenever they could end up being? Torbjorn Wist: I don't have any new information on that. These will be renewals, and I'm sure that there will be an orderly process there. We were satisfied with the 700 auction and the result of that. And so we'll deal with the renewals when the time comes. Operator: Our next question comes from Felix Henriksson with Nordea. Felix Henriksson: The question is on Finland, where you saw a tough competition in Q4. The market leader, last week commented that they've seen some easing in the environment in January with one of the MVNOs becoming a bit more passive and also the market leader raising prices also followed by the peers. Do you sort of agree with this? And have you seen easing in the competitive environment in Finland into Q1? Torbjorn Wist: Yes, we see the same or have the same observations of what's happening in the Finnish market. It was a very competitive December, but that seems to have normalized then into January. Felix Henriksson: Okay. Fair enough. And then if I may, just with a quick follow-up, partly unrelated, apologies for that, but I noticed that Bangladeshi CapEx in Q4 were still quite low. I think you've commented that you plan to ramp that up a bit into 2026. So can you sort of confirm that, that is still the plan? And if you have anything to share about the expectations regarding the spectrum renewals in Bangladesh as well? Torbjorn Wist: As I think I've covered the spectrum renewal in Christoffer's question. But as far as the CapEx is concerned, we've been very clear that Bangladesh is a country where there is a voice to data transition going on. We have, of course, now secured low-band spectrum, which is critical for excellent indoor and outdoor coverage of data in the country. So that will, of course, entail some CapEx. We have -- due to the macroeconomic situation in the country, we have been very prudent in how we release CapEx into the country so that we're not pushing in a lot of CapEx when the market environment is very muted. So we continue to release CapEx on a quarterly basis. And that is also to ensure that we help protect the cash flows in the business. Top line has been challenging. I think the team has done an excellent job in terms of managing costs there. So of course, we are very mindful to ensure that we release CapEx on a staged basis, but that there will be some increase in CapEx to ensure that we strengthen our data position is something that we have clearly flagged, but we will always do this in a very disciplined manner. Frank Maao: Yes. And I might add that we're not going to see a big surge in the CapEx even in case of a decent macro upswing. It's a more normalization to what you've seen in the past. Thank you, Felix. For the coming questions, I would remind you to please stick to one question and potentially a related follow-up. Thank you. Next question, please. Operator: Our next question comes from Keval Khiroya with Deutsche Bank. Keval Khiroya: You're still waiting for the GlobalConnect deal to be approved in Norway. Do you see merits of exploring other fixed deals in the Nordic footprint? Or do you think mobile is the main focus for Nordic M&A? Torbjorn Wist: Yes. Look, I'm sure you would love for me to answer detailed on that question, but which areas and which companies we will be looking at is something that you would hear about along with everyone else at the same time. But we have, of course, now taken a step in strengthening our fiber position in Norway with the proposed acquisition of GlobalConnect. And it's, of course, natural that we will look at both mobile and fixed in the years ahead, given that both are an important part of the critical infrastructure we provide. Keval Khiroya: Great. And just by way of follow-up. You mentioned that you will explore Nordic M&A. And if not, if that doesn't -- if that's not available, you could return additional capital to shareholders. I appreciate you can't be precise on timing of M&A, but is there any form of time line by which you want to decide whether to still leave that capacity for M&A or actually explore giving additional returns back? Torbjorn Wist: Well, I think we've obviously announced a significant return of capital to our shareholders today with the proposed ordinary dividend as well as the NOK 15 billion buyback. So we will have to come back and update you as and when we see potential for additional return on capital in the absence of any value-accretive opportunities. Operator: Our next question comes from Fredrik Lithell with Handelsbanken. Fredrik Lithell: I would like to listen a little bit to you digging into your OpEx and what your plans are for OpEx in 2026 in the Nordics, not maybe so much on the actual numbers, but on the operational work you intend to do or that you have ongoing that will sort of give you effects in '26 would be interesting to hear. Torbjorn Wist: Yes. I think we obviously spent quite a lot of time on the transformative efforts and initiatives at our recent Capital Markets Day. So sort of to -- could be a very long answer, if I'm going to go dig into all those details. But clearly, we continue to work on getting rid of what I refer to as technology debt, which, of course, ties up a lot of costs. These are important aspects of managing down operations and maintenance costs. It is ensuring we drive down the cost of procurement, using common products to ensure we get scale benefits. It is deploying AI in the consumer side, the networks and IT. We've talked about use of shared services where we have added additional elements into shared services. And then, of course, local markets will also have some specific -- market-specific transformations ongoing. So that kind of gives you a flavor. We have extensive programs running that are being coordinated and are being very well run, and they will continue full force into '26 as well. Frank Maao: And I may add, as we said on the Capital Markets Day, '26 will be kind of on a peak level when it comes to the implementation costs related to some of these transformative efforts, particularly in Norway and Denmark. Fredrik Lithell: Okay. So it's fair to assume that you see in front of you a slight sort of OpEx decline sort of on fixed FX figures in '26. Torbjorn Wist: Well, as Frank said, in '26 there are still costs related to the transformation efforts, which we'll carry out through the year. As we've been clear on the past, in Denmark, we have a big BSS project on the go. So it is -- but of course, the transformation program will continue with some local variances, depending on where they are in their relative transformation efforts. But the areas that I touched on, whether it be shared services, getting rid of technology debt, procurement, those are things that will span across. Operator: Our next question comes from Ulrich Rathe. Torbjorn Wist: Ulrich, are you there still? Operator: I believe we have lost Ulrich. So we will take our final question from Ajay Soni with JPMorgan. Ajay Soni: Yes. So the question was just on Sweden. You mentioned that some of your growth there came from 5G broadband net adds. So just wondering what the contribution was from that and what that currently represents within your mobile base? And then I'll just ask a follow-on now, which is that is this going to be an area of growth, given that you've been phasing out maybe some of the less profitable fixed lines in the last year or so? Torbjorn Wist: Yes, I don't think we're going to go into sort of trying to break out what contribution that we'll give. But clearly, focusing on our sort of the mobile broadband effort, as you talked about. It will definitely be key. We added, I believe it was about 12,000 5G broadband in the quarter in Sweden. And that, of course, is an important contribution to the growth in this particular area. And I think Telenor Sweden is doing a phenomenal job in pushing this product going forward. And I think that's -- the great thing is to see that in combination with the cleanup of the fixed portfolio that they have been working on, which has contributed so strongly to the growth in gross profit and hence, EBITDA in the country. Okay. If that -- that was the last question, operator? Operator: There are no further questions. Torbjorn Wist: Okay. All right. Well, in that case, let me use this opportunity to thank everyone for listening in, and I wish you all a very good day. Thank you.
Kazumi Tamaki: Now, we'd like to start the full year financial results briefing for FY '25 for AGC. The moderator is myself. My name is Tamaki of Corporate Communications and IR. Let me introduce the participants from AGC. We have Mr. Yoshinori Hirai, the President and CEO; Executive Vice President and CFO, Yoshio Takegawa; General Manager of Finance and Control Division, Tomoyuki Shiokawa. So today, first, our CFO, Takegawa, will present the financial results for the full year 2025. And then our CEO, Mr. Hirai will talk about toward profitability improvement, and then we take questions. We plan to end this session around 04:45 p.m. So I'd like to ask for your cooperation. Now I would like to invite Mr. Takegawa for you. Yoshio Takegawa: This is Takegawa, CFO. Thank you very much for joining us today. So let me get started. Please go to Page 3. So this shows the key points of FY '25 results and FY '26 outlook. For the FY '25 full year results, net sales were flat and operating profit rose slightly year-on-year. Improvement of automotive contributed the operating profit increase. Profit attributable to owners of the parent improved significantly. ROE improved to 4.7%. Outlook for FY '26. Operating profit is expected to increase driven by a recovery in Life Science. Profit attributable to owners of parent is also expected to improve. ROE is expected to improve to 5.2%. Please go to Page 6. So I'd like to explain further on the results. Net sales were JPY 2.0588 trillion, down JPY 8.8 billion year-on-year. Net sales increase factors include product mix improvement and pricing policies affecting automotive, pricing policies effect and higher shipments in Performance Chemicals and pricing policies affecting Architectural Glass in Europe and Americas. Decrease factors include lower sales price of PVC, decrease in shipments of EUV mask blanks and lower sales prices in architectural glass in Asia. Operating profit was JPY 127.5 billion, up JPY 1.6 billion. Despite the higher raw materials and fuel prices and deterioration in manufacturing costs and others, the realization of the earnings improvement measures in Display and others pushed up the profit in addition to the earlier mentioned factors. Profit before tax was JPY 124.8 billion, up JPY 174.8 billion, significant increase. In addition to the earlier mentioned factors, disappearance of the losses on share sales in connection with the Russian business transfer and large impairment losses related to biopharmaceutical CDMO booked last year. Please go to Page 7. This is the performance by segment. Sales and profit of Architectural Glass and Automotive increased, while the sales and profit of the Electronics, Chemicals and Life Science declined. Regarding operating profit, I would like to explain the factors contributing to the difference year-on-year. Sales volume, price and product mix contributed positively, JPY 19.9 billion Y-o-Y. PCB price and shipments of semiconductor-related materials were down, but the product mix for automotive glass improved. Pricing policy had positive impact and also pricing policy for architectural glass in Europe and America and Performance Chemicals contributed. Raw materials and fuel costs of JPY 4.6 billion and other costs of JPY 13.7 billion, both had negative impacts. Resulting OP increased by JPY 1.6 billion year-on-year to JPY 127.5 billion. Please turn to Page 9. This is our balance sheet. Total assets amounted to JPY 2.9501 trillion, an increase of JPY 60.4 billion from the end of last year. D/E ratio stood at 0.37. Please turn to Page 10. Operating cash flow was JPY 274.5 billion. Investment cash flow was minus JPY 178.4 billion, and resulting free cash flow was JPY 96.1 billion. Please turn to Page 11. To explain CapEx, depreciation and R&D expenditure on this page. CapEx amounted to JPY 251.3 billion; depreciation, JPY 179.8 billion and R&D expenses, JPY 60.3 billion. Main CapEx projects are listed on this slide. We will now move on to the explanation by segment. Please turn to Page 13. Starting with the Architectural Glass segment. Net sales increased by JPY 3.2 billion to JPY 441.1 billion, while OP rose by JPY 0.9 billion to JPY 17.3 billion. In Asia, net sales decreased by JPY 4.4 billion due to lower shipments and lower sales prices in Indonesia and other regions. In Europe and Americas, although shipments declined in Europe, and there was a revenue reduction impact due to the transfer of the Russian business in February of the previous fiscal year, net sales increased by JPY 7.6 billion, benefiting from the effects of pricing policy and weaker yen. OP increased by JPY 900 million despite higher costs, such as labor costs due to the aforementioned sales growth factors. Subsegment ratio of OP was approximately 20% for Asia and 80% for Europe and Americas. Please turn to Page 14. Next is the Automotive segment. Net sales increased by JPY 21.8 billion to JPY 520.6 billion, and OP increased by JPY 15.3 billion to JPY 29.3 billion. Shipments declined in Europe but increased in Japan. In addition to improvements in product mix and the pricing policies impact, the weak yen also contributed. OP increased by JPY 15.3 billion, driven by the revenue growth factors, which was mentioned before, despite increases in costs such as raw materials and labor expenses. Page 18. Next is the Electronics segment. Net sales decreased by JPY 9.5 billion to JPY 355.1 billion, and OP decreased by JPY 6.9 billion to JPY 47.5 billion. The Display segment saw a JPY 5.5 billion increase in net sales due to higher shipments in LCD glass substrates. Electronic Materials saw a JPY 15.1 billion decrease in revenue due to the transition period towards higher functionality of optoelectronics, coupled with a decrease in shipments in EUV mask blanks. OP decreased by JPY 6.9 billion, reflecting the negative drivers that was explained and the costs associated with the withdrawal from the specialty glass for chemical strengthening business. The breakdown of OP was approximately 70% from Electronic Materials and 30% from displays. Please turn to Page 16. Next is Chemicals segment. Net sales were JPY 584.2 billion, down JPY 9.4 billion. Operating profit was JPY 53 billion, down JPY 3.7 billion. Essential Chemicals net sales were down by JPY 28.4 billion due to lower PVC sales price. In Performance Chemicals, pricing policies effects and higher shipments of fluorine-related products for electronics and mobility applications contributed to the net sales increase of JPY 18.2 billion. Operating profit was down by JPY 3.7 billion due not only to the lower Essential Chemicals sales, but also to manufacturing cost deterioration related to the facility repairs and others. Subsegment ratio to operating profit is 20% from the Essential Chemicals and 80% Performance Chemicals. Please go to Page 17. This is the Life Cycle segment. Net sales were JPY 133.1 billion, down JPY 8.1 billion. Operating loss, JPY 22.3 billion, down JPY 1.1 billion. Sales of the small molecule pharmaceuticals and agrochemical CDMO remained steady. Net sales of biopharmaceutical CDMO were affected by disappearance of one-off revenues associated with the settlement of contracted projects booked last year and the negative impact of the closure of U.S. Colorado sites. Although fixed cost reduction measures taken at the biopharmaceutical CDMO in the U.S. have shown positive effects, fixed costs increased due to the facility expansion in Europe, which started operation last year in addition to the negative factors on the sales mentioned before. Please go to Page 18. Strategic businesses net sales were JPY 501.5 billion, down JPY 1.8 billion year-on-year. Operating profit was JPY 58.7 billion, down JPY 8.6 billion. Overall, operating profit decreased year-on-year due to the lower shipments of electronics and decreased net sales of Life Science, although the net sales of Performance Chemicals and mobility increased. Please go to Page 20. This is the outlook for FY 2026. Let me explain the assumptions for the major economies and markets in '26. While some markets continue to face challenging conditions and despite the uncertain geopolitical situation, global economy is expected to grow moderately with expanding AI-related investments and monetary easing of major economies is expected for Europe and China, while the U.S. economy will trend strongly. Looking at the market environment, auto, smartphone, TV, we cannot expect the production growth. However, we expect that the shift to high function and larger size will continue. Caustic soda, PVC prices in Southeast Asia remain low. And the semiconductor market is continuing to grow, driven by AI-related demand. Biopharmaceutical CDMO market is expected to gradually recover. Please go to Page 21. I would like to explain the outlook for the full year. Although the business environment remains challenging, we forecast net sales of JPY 2.2 trillion, an increase of JPY 141.2 billion Y-o-Y and OP of JPY 150 billion, an increase of JPY 22.5 billion. ROE is forecast to improve to 5.2%. Exchange rates are assumed to be JPY 155 to the U.S. dollar and JPY 180 to the euro. Please turn to Page 22. Outlook breakdown by segment is shown on this slide. Improvements in Life Science are expected to contribute. Further details will be explained on the following pages. Please turn to Page 23. Starting with Architectural Glass. In Asia, shipments are expected to increase due to recovering demand in Thailand and Indonesia. We will continue our pricing policy and productivity improvement initiatives. In Europe and Americas, the economic downturn is expected to continue with only limited recovery in shipments anticipated. We will focus on maintaining price levels and reducing costs. Next is automotive glass. Shipments are expected to decline due to decrease in automotive production. In addition to improving product mix and pricing policy, we will continue our efforts towards structural reform and productivity improvements. Moving on to Electronics. In display, shipments of LCD glass substrates are expected to decline slightly. We will continue our profit improvement measures. Within electronic materials, shipments of semiconductor-related materials such as EUV mask blanks are expected to increase. Shipments of optoelectronic materials are expected to remain at the same level as the previous year. Please turn to Page 24. Moving on to Chemicals. Integrated Chemicals is expected to increase the shipment of fluorine-related products for electronics and chlor-alkali products. Essential Chemicals, Southeast Asia is expected to see increased shipments due to the full operation of expanded facilities. Moving on to Life Science. Sales for synthetic pharmaceuticals and agrochemical CDMO are expected to increase by launch of expanded facility. This is an increase of net sales. In addition to the increased sales, the biopharmaceutical CDMO is expected to see a significant reduction in losses due to the closure of the Colorado site in the United States. Please turn to Page 25. This is the full year performance outlook for strategic businesses for 2026. Net sales is projected to reach JPY 560 billion, driven by growth across all strategic businesses. OP is forecast to reach JPY 80 billion, primarily driven by profit improvement in Life Science. Please turn to Page 26. CapEx for 2026 is forecast to be JPY 190 billion; depreciation, JPY 183 billion and R&D expenditure, JPY 62 billion. CapEx will be smaller in 2026 as the major capacity expansion investment concluded in 2025. So this is '26 and beyond. That concludes my explanation. Thank you very much for your kind attention. Kazumi Tamaki: Thank you very much. Next, I would like to invite Mr. Hirai. Yoshinori Hirai: As Takegawa-san explained, last year, a slight increase, the 3 years in a row, the profit declined, but we turned it around. So as a result of the various initiatives, I think we have hit the bottom to some extent. However, what is important is that how can we go to the full-fledged recovery. So from our side, from my side, I'd like to talk about how drastically we try to improve the profitability. That will be the major part of my part of presentation. Let's look at the business performance, the operating profit. At the beginning of the year, we did not achieve the forecast, and we revised it downwards. That's one of the major requests. Last year, finally, we increased the profit. However, our expectations were not good enough. So that was one of the major issues. And the major issue is that the stability of earnings. There was a major impairment display in '22 and biopharmaceutical CDMO in '24. So those major impairments made us fail to increase the ROE. Now what about ROCE? This is last year's results. ROE of 8%. ROCE is considered to be around 10%. So that is the basic level. Electronics on the left and the Performance Chemicals, which is strategic and the integrated chemicals. Electronics Integrated Chemicals have had high profitability, so 15% or higher ROCE. Last year, among the core businesses, automotive achieved higher than 10% ROCE. So that's the result of the initiatives that we have taken. The major impairment was booked in '22 in display. And we have also taken the initiatives to improve the profitability, and we are seeing the improvements. And the major challenge that we see is the Essential Chemicals Southeast Asia. The stagnation continues and the Life Science still is in red. So we want to turn it around, and we are still not able to do so. Now for this fiscal year, financial targets is 5% of ROE. We will make sure that we achieve that '27 and onwards as soon as possible, we would like to achieve 8% or higher ROE above the shareholder capital cost. So operating profit of JPY 150 billion, strategic business operating profit, JPY 80 billion. And as a result, 5.2% or higher ROE is something that we would like to achieve. Now ROCE improvement, what kind of measures? In all the businesses, the way of thinking is the same. So first, it's to increase our -- that's shown on the left. So to lower the cost, clearly. And it's not just cost cutting, but because that is not sustainable. So we want to have a stable production and improve the productivity. And then we would like to reduce cost. That is important. And the next is the pricing policy. a price which is suitable for the value is something that we like to offer to the customers and agree with the customers. I think that's very important. The third clearly is to increase the value of products. And at the same time, denominator side, that is the CE operating asset. We want to be meticulous in selecting investments and also the major portion is the inventory. So we want to reduce the inventory level as much as possible. And another thing is to consider the exit from some of the businesses. And we want to make sure that if there are any questions about the growth potential, we will make a big decision to exit or sell such businesses. On the right-hand side, in 2025, those are the major exits that were announced. Now earlier, I talked about the ROCE chart from the left, I showed the electronics integrated chemicals with a high level and the Life Science on the right-hand side. Let me explain each one of them. And first, about the electronics. Last year, unfortunately, optoelectronics was changing one generation of the product to another. So the growth was stagnant. And EUV mask blanks, the demand was coming down for us. So because of those reasons, there was a negative growth in terms of the profit. But from now on, optoelectronics, the new generation will be starting, and we intend to expand our added value. As for the semiconductor, EUV mask blanks compared to last year will become positive. So last year, it was down for both, but we think that we can go back to the growth trajectory. The key for that is the EUV mask blanks. Leading-edge node, we would like to make sure that we can deliver our products, which are suitable for them to the customers. So the 2 nano, we have already completed the development and moving toward mass production and also the next 0.7 nano is what we are focused upon. As for the integrated chemicals, mainly the performance chemicals, the upstream, the chlor-alkali in Japan were integrated to the integrated chemicals. So here, in the chain of the production or the chemical chain, there are upstream and downstream, and we should really not separate them clearly. We want to have an integrated operation to have a total optimization. So that's why we made this organizational change. Now highly profitable performance chemicals, electronics, energy, mobility, those are the 3 major areas, especially electronics, as you're shown on the right-hand side, one of them is the semiconductor manufacturing equipment use and another is semiconductor process application. So those are high value that we can offer to have a high profitability. Now moving on to the automotive. 2020, because of the pandemic due to the lockdown, it almost stopped in Western markets. So it came down and it could not recover. So we struggled for about 3 years. But we have taken various measures to improve. So profitability has been increasing. ROCE of 10% is something that we achieved last year. So, so far, we have taken the measures to improve the profitability, and we will continue to make those initiatives and achieve 15% ROCE. And to set the pricing policy is important and also to improve the productivity, we need to look into the structural reform and to have higher functionality and higher added value. So through those, we would aim for ROCE of 15%. And what becomes important is to increase the percentage of the high-function mobility products. So it's not just shifting to the EVs, but the next-generation cars, the autonomous driving at different levels are being promoted. And it's not just the EV, but hybrid and plug-in hybrid various cars are emerging. So new technologies need to be deployed. As for the architectural glass, this is really the regional businesses. So in Europe, the market condition is not very good right now, but the supply is being controlled. So supply-demand balance is good and the price has been kept at a high level. The South American market is strong. Now the Japanese market is not growing, but the refurbishment or renovation is strong. And with that, a certain level of the demand exists. Southeast Asia is the most difficult region. So the price competition is happening right now. And in each region, we have to look into the different strategies. For Europe and Japan, we need to increase the percentage of the highly value-added products so that we can have stable prices. And as for the Southeast Asia, we have to enhance the competitiveness so that we need to work on the structural reform. We have been implementing measures that we decided in 2020 when we had a major impairment and ROCE is improving every year. And we expect ROCE to exceed 10% by 2027. stopping low productivity line and the large glass substrate, G11 line, we want to concentrate on this high-performance line. And we also want to present a price that is proportional to the value that we provide. So this is pricing policy, a new attempt in display industry. And thirdly, by introducing new technologies, we want to improve productivity of manufacturing as well. Now this third part, the technology part will start contributing fully from this fiscal year. So ROCE, 10% is the target for 2027. Now in terms of challenges, we have Essential Chemicals, Southeast Asian situation. Capacity expansion in Thailand has been finished and it started operation in fourth quarter last year and fully operational this year. In Southeast Asia, the markets themselves are growing continuously. There is strong demand. And the PCB and caustic soda, we can basically sell as we produce because we manufacture. The problem -- the challenge is the Chinese economic stagnation, especially surrounding real estate. So whatever is not sold in China is coming out of that country at a very low price. So there is demand in Southeast Asia, but the price is being pushed down because the products are coming in from outside of these Southeast Asian countries. So demand is strong. And within this region, we have 50% share and that's our strength. Including logistics, we will be trying to reduce the cost and increase the margin through better relationship with our customers so that we can achieve higher profitability. Lastly, Life Science, current status. Please look at the left-hand side. This is the AGC status by modality. 70% on the right-hand side, this is biopharmaceutical. And then we have small molecule pharmaceuticals and agrochemicals, 30%. And half of the biopharmaceuticals is a mammalian antibody business. And then within bio, there is microbiome, bio and also cell gene therapy, leading-edge modality as well. Now microbials and cell and gene therapy and small molecule pharmaceuticals, these are stable and always producing profit. And the biggest challenge is mammalian cells, which is about half of this total. So what has been challenging about mammalian cells? As you can see at the bottom left, our cost was big, and it was generating huge losses. Majority of this JPY 20 billion loss was generated from mammalian business. And as for last year, Colorado large SUS-based mammalian production was the biggest challenge. We were basically running loss of more than JPY 10 billion. So we announced last August to withdraw from this business and also the fact that we were entering the divestiture process. The production is completely suspended. There is no more fixed cost being generated basically. So this loss should be resolved in '26. As for the divestiture, we wanted to conclude this before the end of last year, but still this is ongoing. Now cost reduction. So we stopped Colorado. And also, we reorganized the headcount dramatically. And using the AGC Group's capabilities, we stabilized the production. And as was mentioned before, in Copenhagen in Europe, capacity was increased. And there was increased fixed costs related to the facility. So we want to increase the orders and improve the utility -- utilization of this line. This is very important for profitability improvement. So we stopped Colorado, we stopped the major bleeding. The production is now stable. And now we want to make sure that the utilization of the expanded capacity will increase. well, we wanted to be profitable before the end of '26, and we made such announcement. But unfortunately, after we take the order and the actual production starts and that's reflected into the profit, it takes time. So we get inquiry and something was in the pipeline and the actual manufacturing starts maybe 1.5 years later. So for the full year, we will not be profitable for this business in '26. We have to wait until 2027. Now R&D investment policy. So we have market and technology perspectives. We have existing market and customers. We want to innovate the production engineering capabilities and basic technology. We also want to create the next-generation products. We also are focusing on new markets, introducing new technologies, creating new businesses. So these are 2 different directions. And in terms of R&D investment breakdown, since I was the CTO of this organization, we have been always been focusing on the scope of the strategic business. And we have an example of automotive mobility at the top. In January this year, CES was held in Las Vegas, and we received the innovation award at that conference. This is a new type of head-up display. And example at the bottom, this is drilling really, really tiny holes on the glass at a very high speed. And this is a joint research with the University of Tokyo. And this is actually 1 million times. It's hard to believe that it's 1 million times faster than the conventional methodology. It's really, really fast. And on the next page, you can see the semiconductor-related, especially back-end process technologies. And this is where this new technology can be leveraged. In semiconductor business, Well, we have electronics and also performance chemicals. And in both, we are providing the latest leading-edge materials as a strategic business to semiconductor. So not just the front end, but the back end is now attracting a lot of attention these days. As you can see at the bottom of the slide, multiple chips can be mounted on top of each other in order to increase the density because each chip is as dense as they can be. So now the idea is to mount multiple chips on a single substrate so that they can increase the density. And our organic materials and inorganic materials can be effectively leveraged in this effort. Accurately processed and also stably produced, we have this technology. And this is the new area of industry, semiconductor packaging. We can provide solutions to this industry and contribute to the semiconductor industry as a whole. So I talked about making tiny holes. Substrate basically means glass. And you need to drill multitude of holes, very long wears on these glass substrates and how fast you can do would determine that cost reduction. Now in terms of CapEx, in '25, we have basically completed major investments for capacity expansion. So '26 and beyond, our new expansion will be dramatically shrunk. So we will focus on collecting the return for investment. And as for shareholder return policy, ROE of approximately 3%, which we announced in '24, we are still maintaining this. And in '26, we will keep the dividend level flat from '25. But from '27 and beyond, going into the future, depending on the level of recovery of performance, we may take another look at our shareholder return policy. Moving on to corporate governance. We want to further enhance corporate governance. And to that end, we will become a company with Audit and Supervisory Committee. And this will be -- is expected to be approved at the AGM at the end of March. So we started inviting outside director, 2 of them in 2002. This is how the corporate governance reform started. And then we started -- established a voluntary Nominating and Compensation Committee. And now Chairman of the Board as well as the Chairman of the Nomination and Compensation Committee are external directors. And by transitioning to a company with Audit and Supervisory Committee, majority of the Board will be outside directors, which will strengthen the supervisory function -- overseeing function of the Board. In line with the change of this governance, we have redefined the role of Board of Directors. First of all, setting the overall direction of management from a long-term perspective. So this is policy direction. And another is to encourage appropriate risk taking by the management. So this is a supporting function. And further overseeing the management to the realization of value creation and evaluating and appointing executive officers. This is the oversight function. Board would have these 3 functions to help support the management. And also we will endeavor to further enhance our corporate value based on a competitive advantage. Thank you. Kazumi Tamaki: Now I would like to take questions. So first, we take questions from those people who are here with us. And then after that, we would take questions which were asked beforehand. And if we still have time, we will come back to this room. So at the beginning, we will get the questions from this room, but we would like to ask you to ask 1 question per person. Thank you very much for your cooperation. So any questions? The person sitting in the first row, is it Maeda-san? Takuya Maeda: Yes, Maeda from SMBC Nikko. One question, ROE, ROCE, current situation and other challenges in future were explained. So I have a question on that point. Life Science and essential chemicals, those are some of the challenges that you are faced with. So drastic review of the business is also possible. So what is the time frame or the size? And what kind of options or menus are you considering? And also, looking at your forecast, the pretax profit or operating profit is probably a little bit weak. So before going -- moving on to the next medium-term plan, are there any actions that you'll be taking? Thank you. Kazumi Tamaki: So I would ask Hirai-san, CEO, to respond. Yoshinori Hirai: So first of all, those Essential Chemicals and Life Science on the right-hand side, those are the challenges. As for Life Science, if it becomes normal condition, ROCE of 15% to 20% is possible because in the past, we had those numbers. So that's the type of business. So that's why it is included in the strategic businesses. But the issue is what is the time frame? So fiscal '26 by the end will be difficult. But by closing the Colorado sites, there was a major reduction of the fixed cost. So we'd like to see the higher orders, and it would take 1.5 years to 2 years before we see that impacting our performance. So maybe within 2027, we should be able to recover to some extent. Otherwise, that will become a very serious matter. Another is the essential chemicals. In terms of the time line, it will probably take longer. Now right now, I think it is the bottom and China -- the product coming via China, I think that they are lower than the cash cost. So currently, we are at the bottom. And with the improvement initiatives, we can take advantage of the relationship with the customers and increase the margin and to improve the profitability. But it will take time. That's the key here. 50% share is what we have. And even the market condition is so poor, it is the business that will give us some kind of a profit. But going beyond the shareholder capital cost, how do we make sure that we can maintain such profitability will be the key. FY '26 pretax profit you mentioned. Yes. Fiscal '25, other revenue, other expenses, there were some sale of the assets, net plus was the condition. And the foreign exchange fluctuation also was quite volatile. And it was slightly profitable. So this would be the plus side, the positive side. But FY '26, as of now, other expenses, we do not expect any major ones. So normal fixed asset depreciation and also the removal and so forth. So in some cases, the FX loss will emerge, but we do not expect any specific ones, but it's just the normal factors or the items. Kazumi Tamaki: Any other questions from the floor? Yuta Nishiyama: This is Nishiyama from Citigroup Securities. I have a question about Life Science. For the new top line net sales increase of 20% is forecast. So this seems to be quite aggressive. In the United States, bio-related financing is getting better, I heard. However, in Europe, your peers are struggling. What is the likelihood of you achieving this top line target? And also your assumption for the profit change, I think you're just looking at the increase in marginal profit only. But what about cost? Are there any changes, differences year-over-year? Can you please supplement? And on Page 55, when I look at this graph, '27 OP is expected at JPY 5 billion or so. But -- so sales -- net sales grows at the market pace and then depreciation cost increase is may be incorporated. Is that the correct way of reading this? Kazumi Tamaki: Thank you. Hirai-san, our CEO will explain. Yoshinori Hirai: This year's top line, as you have mentioned, industry recovering in the United States. However, the interest rate cut is slow. So this is still uncertain, but we believe that our Seattle site can be recovered this year. So last year, we increased the capacity, and we now have fixed cost in Copenhagen. And how much recovery can we see in terms of order and production in Copenhagen. I think this is going to be the key for profitability improvement. And with the existing pipeline, it's not just Seattle, but it's also Copenhagen that we need to see recovery in and the sales increase. So that's part of the plan. However, we are not achieving overall profitability in '26 because compared to the increase in fixed cost, we have not been able to show a difference just by a higher level of top line. I hope you understand the situation. Rather than looking at the overall growth, we are doing this bottom-up of what's happening at each site. And as you may know, the marginal profit is quite big. And once you cross the threshold, the profit that can be generated can be quite huge. So profitability improvement is totally dependent on the order recovery, order expansion. So we are really focusing on the order expansion. Kazumi Tamaki: Any other questions from this room? No? Okay. So let's move on to the questions that we received beforehand. First, Q4 results. How were they in comparison to your expectations? Could you comment on that? That was one of the questions that we received. So we would ask Takegawa-san, CFO, to respond. Yoshio Takegawa: Yes, '25 fourth quarter, our expectations compared to that, the sales and operating profit, overall company base, it was higher. That was the results. The reasons for that, basically, first of all, in terms of net sales, automotive the volume were higher and the product mix was also another factor. And another is electronics. Optoelectronic products volume increased in Q4. So higher sales, those 2. And as for the profit, the major ones is the architectural, auto and chemicals. First of all, about the architectural Europe price policy effect, it was one of them. And also in the architectural, the raw materials cost was lower than what we expected. So the cost came down. And with that, profit was positive. And also about auto said that the higher sales led to higher profit. And lastly, the Chemicals, the Performance Chemicals demand was stronger than what we expected. So that contributed to the profit. So as a whole, sales and profit both were positive or higher than expected. Kazumi Tamaki: Next question, 2026 full year forecast, how does it compare against 2025? What are some of the key differences? Takegawa-san will answer this question. Yoshio Takegawa: 2026 forecast, how does it relate to the actual '25? For the overall company, sales increase and profit increase and with specific factors, in terms of net sales, architectural glass, chemicals and life science would contribute positively. Architectural Glass, Japan, Asia pricing policy and also demand in Asia will increase from the second quarter onwards, and we believe that will push up the sales. For chemicals, fluorinate-related product shipment is expected to increase and also alkali capacity increase in Thailand. Now this is operational. So therefore, we can increase the shipment there. And as for Life Science, bio CDMO sales is expected to increase. And also in Spain, small molecule pharmaceuticals and agrochemical CDMO capacity was increased, and it will become operational, contributing to increased sales. With regard to profit, some of the factors -- positive factors will come from Architectural Glass, Science and Life Science. Architectural Glass, we have a pricing policy in Europe, and also we expect to see the demand in Asia to grow. And the cost reduction in Europe will continue to progress. As for auto, structural reform and productivity improvements are the key points. And in Europe and Americas, we should be able to recover from the lower production and profit-wise, this should be a positive contributor as well. For chemicals, shipment will increase. And in Thailand, chlor-alkali expanded capacity has started operating, contributing to profitability. And we also expect fluorine-related products to increase in shipment. And life improvement of profitability due to the closure of Colorado and also overall sales increase. Kazumi Tamaki: So about the future investments, the policies is the next question. So I would ask Hirai-san to respond. Yoshinori Hirai: About the materials investment, it's difficult to understand. But after making one investment, maintaining and updating would also require investments. So roughly speaking, half of the investment is for the maintenance and updating. So it does not lead to the capacity expansion. So after making an environment, in order to maintain it, half of that investment needs to be kept or maintained. Up to last year, up to '25, what we did was expansion investment that was higher than the maintenance and the updating. But from this year, we would only focus on the expansion investment to only the necessary ones. So high productivity of the auto electronics investment will continue, but the major investment for expansion have already been done. So from now on, we will focus on the updating and maintaining. So roughly speaking, our future investments will be within the depreciation and amortization and half of that will be for the maintenance and updating. Kazumi Tamaki: Next question. [ OP ] of JPY 150 billion. Is this the company's commitment? Is it the right way to understand it? This will be responded by Hirai, our CEO. Yoshinori Hirai: Whenever we announce a number externally, we intend the number to be a commitment, but I know that we have not achieved our commitments for several years in a row. So we have to really apologize. And this year, based on our past experience of not meeting the target, we believe that this is a level that the market would require us at the minimum level. And also, this is the level that we believe that we can achieve. So yes, it is okay to see this as commitment line. I know that we have failed in the past, but it is high this year. Kazumi Tamaki: Related question. So for this year, operating profit of JPY 150 billion, are there any upside potential or downside risks? If there are, could you talk about what they are? So I would ask Mr. Shiokawa to comment. Tomoyuki Shiokawa: Upside and downside were the questions. So we have various businesses in each one of them, there are both upside and downside risks usually. But among them, this fiscal year expectations, as Hirai-san mentioned, this is a commitment and especially about the downside, as of now, what we can are already factored in. So in that sense, the further upside or rather downside is not something that we expect as of now. Kazumi Tamaki: The next question is about electronics. OP forecast for this year, well, JPY 2.5 billion down in profit. This is the plan. Can you please explain the drivers, factors behind this? And this is going to be answered by Mr. Takegawa. Yoshio Takegawa: So we believe that we will have reduced profit in Electronics. This is for display and digital materials, both for display, slight decline in shipment is the general factor. It's not that the total market is coming down, but there is a slight decline overall. So this is one factor and also impact of weaker yen. And this is why we have lower profit in display. And Electronic Materials is the same. Optoelectronics had an impact. Optoelectronics materials is currently in a transitional period moving into higher value-added products. So there is a flattening and this is why there is a slight decline in profit. It's not that the whole market is declining or our production is disappearing. This is due to some transitional period, and there is only a slight decline within the normal range of slight decline or increase. Kazumi Tamaki: Next is about the EUV mask blanks from '25 to '26, the shipment outlook is the question. I would ask our CEO, Hirai-san, to respond. Yoshinori Hirai: Yes. Before talking about '25, I'd like to look at '24. We expected JPY 40 billion sales in '25, but we were -- it was brought forward to '24. Last year, in comparison, the sales came down. In terms of percentage, I cannot give you the details, but the double-digit decline in percentage was what we saw. But for this year, it's not the lower profit, but the higher profit is what we expect. And is this going to happen very quickly? The recovery would be moderate or weak. So the major customers recovery and also other expansion of the customer base. But the profit is going to increase year-on-year, but it's not going to be a big growth. So that is our view. Kazumi Tamaki: Moving on to the next question. Life Science, Bio Colorado site divestiture. Can you please update us on the progress? Hirai-san will answer this question. Yoshinori Hirai: In the middle of last year, we announced the withdrawal and the sales of this business. And since then, we have been discussing with multiple candidates -- by our candidates, but it hasn't been concluded. We're still discussing with multiple potential partners. And hopefully, within the first quarter, we want to conclude the deal. So please understand that the negotiation is still underway. Kazumi Tamaki: Next question, Southeast Asia, PVC and caustic soda market conditions. Could you talk about the outlook from the AGC's perspective? And also, what would change or turn the market condition around? Takegawa-san will respond. Yoshio Takegawa: First of all, as of now, the caustic soda and PVC '26 expectations. Right now, the market, we believe, is at the bottom. So at the beginning of -- or in Q1 '26, it was the bottom. And in Q2 and onwards, a gradual recovery is what we expect. But for the full year, it will be much higher than the year before. We do not think that it will be much higher than the year before. But what could trigger the turnaround of the market? As of now, there are some uncertainties, but the major ones would be the exports from China to Southeast Asia. What would happen to that flow? I think that would be one of the keys. It is not definite, but April this year and onwards, export from China, there will be an evolution of some of the tax-related matters and also the production cost of China is increasing. We have that information. So from China to Southeast Asia, the flow will come down or the price will go up. If that happens, our chemicals market, Southeast Asia for us, that will be a positive impact on us. Kazumi Tamaki: Now we want to come back to the venue and receive questions from the audience. Maeda-san, please. Takuya Maeda: This is Maeda from SMBC Nikko. Question about electronics over the mid- to long term. Page 57, Page 58 show strategy for semiconductor and multiple items. So in 2026 and beyond or thinking about 2028 or 2030, right now, it's mask blanks and optoelectronics being the key. But over the mid- to long term, do you think the drivers will change, for example, glass substrate or maybe the laser that you have shown us today? And how soon will they ramp up? And what kind of size should we expect? Kazumi Tamaki: Yes, this will be answered by Hirai-san. Yoshinori Hirai: We believe that the back-end process centering on packaging will definitely grow, but it doesn't mean that the front end will disappear. EUV mask blanks and the CMP slurry demand are expected to grow over time. So this is -- these are still growth drivers. What's important is what will be the next pillar? Glass interposers or glass cores, yes, we do have some additional expectations there, but not just that. Because if you look at the packaging materials, you can see that a whole variety of different materials are used in the packaging process for semiconductor. So we want to get in there based on the relationship that we have with the customers. Now glass core and glass interposer is attracting the most attention right now. But in the beginning, we expect this to actually materialize in 2027. But you cannot do this alone. All the different companies need to get aligned. So there is a possibility that it could be later than '27. But clearly, 2030 and beyond, this is going to be one of the pillars of the materials for the next generation of semiconductors. Kazumi Tamaki: Yes. Next question, Nishiyama from Citi. Yuta Nishiyama: Nishiyama from Citi. Capital allocation is my question. So a year ago, you showed us cash allocation slide, and we did not see that this time. So is there any change? And the strategic framework, JPY 100 billion, M&A and share buyback. Could you talk about your views on that? And on Page 60, shows that '27 and onwards, it says that the return policy could be revisited. So what is the direction? Cash allocation and the shareholder return policy? Kazumi Tamaki: Okay. So I would ask Takegawa-san, CFO, to respond. Yoshio Takegawa: First of all, about the cash allocation, strategic investments, we had that until now, the repayment of the loan and the shareholder return, strategic investments, there are different applications. But as of now, the destination or allocation have not been finalized. But in comparison to the cash in, it is being declining and the strategic -- total strategic framework is becoming smaller. So we need to wait and see what happens. As for the share buyback, we would like to look at the potential investments and also the cash situation to make a comprehensive decision. We have not yet decided whether to do the buyback or not. We'd like to look into the situations. But we do not plan to buy or repurchase our own shares just to push up the share prices. That is not something that we plan to do because that would only have a short-term impact. So in any way, we would like to look at the total picture comprehensively before making a decision. Kazumi Tamaki: Any further questions from the room? Yes, please. Yuta Nishiyama: This is Nishiyama from Citi. Electronics assumptions for the new fiscal year, I would like to get more information. Display shipment is expected to go down, but Page 20 shows that the size will be larger according to the market outlook. So is the market share going to go down? Is that your outlook? And Page 52 shows you will continue to implement pricing policy in '26. So are you expecting price increase? And for optoelectronics, you said that profit will go down. But on Page 23, I can see that the shipment of optoelectronics is actually flat. So is there a downward pressure on the price? And also high value-added products. You mentioned that the product is a transitional period. So foldable, mechanical aperture, I know that there are many changes happening. So can you please elaborate a little bit more? Kazumi Tamaki: Yes. This is going to be answered by CFO, Takegawa-san. Yoshio Takegawa: Yes. With regard to display, shipment slightly down, but the profit decline will not be very big. Basically, we will be promoting larger size more and more. The profit looks down slightly. This is due to product mix. So this is a transitional period to larger size. So this is just due to product mix. And Optoelectronics is in the same situation basically. It's not the question of the volume going up or down. Well, there's going to be a slight increase and slight decline and that cycle gets repeated. So this is not a big drastic decline in profit or increase in profit. Now we want to connect this to the next high functionality product. So right now, we are in a transitional period. So the number is not going up or down dramatically. In other words, it's a little bit on the stagnant side. I hope that's how you can interpret it. Kazumi Tamaki: [Operator Instructions] The questions that we already received, I would like to introduce rare metal procurement risk, the higher precious metal price, the impact from it. And those are not -- are they factored into the forecast of the performance. So I would ask Shiokawa-san to respond. Tomoyuki Shiokawa: Well, it is true that recently, the precious metal prices are at high level. And so the procurement risk exists. But in our case, as of now, we do not expect that this becoming the major risk or major issue. If it becomes a long-term issue, it is possible that we will be impacted. But as of now, we do not expect this to be a major factor. Kazumi Tamaki: [Operator Instructions] We have already received another question. You mentioned that the 2-nanometer level of EUV mask blanks has been developed -- development is completed. What about the status of certification? This is going to be answered by our CEO, Hirai-san. Yoshinori Hirai: Development is completed. And with some customers, certification is also completed. And with other customers, we are in the middle of being certified. We cannot really comment on the specific status of each customer. So 2-nanometer already completed. And next is 1.4 nanometer. So this is the development process that we have just entered. Kazumi Tamaki: Questions from the online participants, we have already covered all the questions. Are there any other questions from the participants in the room? Nishiyama-san? Yuta Nishiyama: Nishiyama from Citi. Life Science, the top line 20% increase in the new fiscal year. I think that's the sum of each site. And based upon the backlog, is it likely to get to that level? And you mentioned that the deficit is likely to continue for the fiscal year, but it will be higher in the second half. So when do you think that you can expect to turn it around? Kazumi Tamaki: Our CEO will respond. Yoshinori Hirai: About the top line with the CapEx, the line investment is done in CRO and Copenhagen. As for Copenhagen, as mentioned, right now, we are starting it up, and we will plan to increase the orders. So from this year, it will start to contribute, but the major contribution is expected for CRO. So that's about top line. As you said correctly, for the full year, turnaround will start from fiscal '27. But for that, second half of this year, I don't know whether it will be monthly or quarterly, but we need to turn it around based on that. So cost reduction and expansion of the orders will be something that we'll be working on. So border, the handling of that is over. So the regular order expansion and the regular production phase will be starting. So we would like to make sure that we do this well. Kazumi Tamaki: It's time to close the Q&A session at this point in time. If there are further questions, please contact the IR representative or contact us at the following phone number 03-3218-5096, 03-3218-5096. [Operator Instructions] And that concludes full year earnings call for 2025. Thank you very much for joining us despite your very busy schedule.
Natalia Valtasaari: Good morning, and welcome to KONE's fourth quarter results call. My name is Natalia Valtasaari. I'm Head of Investor Relations here at KONE. I'm joined today by Philippe Delorme, our President and CEO; and our CFO, Ilkka Hara. So as usual, Philippe will start by talking about the highlights of the quarter of the year, particularly focusing on what's going on in terms of strategy execution and our progress there. Ilkka will then continue by running through the financials and the outlook, both market and business outlook for the full year. And then Philippe will wrap up, and we'll be ready for your questions. [Operator Instructions] Hopefully, we'll get very active dialogue, and that will enable as many people as possible to participate. With that, Philippe, please. Philippe Delorme: Thank you, Natalia, and good morning, everyone. I'm very pleased to be here today presenting our full year results. Let me start by saying that our success in 2025 was a result of determined and disciplined strategy execution. Order growth was one of the key highlights of the year. Our ability to capture the modernization opportunity together with our focused efforts to grow in the residential space were important contributors. We also delivered consistently on our profitable growth ambition. Central to this was the continuous strength and improved performance of our service business. This year, service became our largest business at over 40% of sales, making KONE more resilient than ever. Supported by our solid operational performance and strong cash generation, the Board is proposing a dividend of EUR 1.80 per Class B share, which represents a dividend yield of nearly 3%. Last but not least, I'm very pleased to report tangible results of our work in all our strategy shifts. I will share some more concrete example in a moment, but let's first look at our financial performance in more detail. Let's start with orders. So as I said, growth momentum was strong throughout the year, and Q4 was no exception. Comparable growth of 12% is a very good outcome. I'd like also to take a moment to highlight Asia Pacific, more specifically India and the Middle East. The team has done an excellent job positioning KONE as a leader in these markets, capturing growth opportunities while also driving meaningful operational improvements. Turning to sales. We grew just over 4% at comparable currencies, supported by roughly 10% combined growth in service and modernization. Modernization continued its strong trajectory with growth of around 15%. Service growth was somewhat moderated by the actions we are taking to strengthen performance and margin in China. And with that in mind, 6% growth is a good outcome. Our adjusted EBIT margin expanded by 60 basis points, thanks to a richer sales mix. And finally, cash generation in the fourth quarter was solid, though lower than the exceptionally strong comparison period in 2024. So all in all, we had a good finish to the year, very much in line with our expectation. Let's now look at our strategy execution has progressed this year. First, I want to highlight the excellent progress we've made in accelerating our digital transformation. The share of connected units in our maintenance base now exceeds 40%, up 7 percentage points from the previous year. For me, this step change in pace reflects our ability to better articulate the value of transparency and real-time data to our customers and their growing recognition of the benefits. We also significantly expanded the reach of our productivity-enhancing tools. With the U.S. about to go live, dynamic maintenance planning is effectively covering 2/3 of our installed base. This is starting to deliver measurable improvements in field efficiency, which can be seen in the expansion of our service margin. It has also supported service growth, particularly through increased repair sales. Moving now to modernization. I'm really pleased with the great customer response to our partial modernization offering. This is clearly visible in its rapid growth, now making it the largest part of our modernization portfolio. The modular concept resonates strongly with customers because it directly addresses their biggest concern, minimizing disruption to daily life during the elevator upgrade. Commercial traction in the residential market has also been very strong this year, and this reflects the success of our efforts to improve offering competitiveness, especially from a cost perspective. Achieving double-digit residential order growth in all regions except China, where market challenges are well known is a very, very strong accomplishment. And we all know why this matters. Strong residential orders today secure future service business and residential is a highly attractive service market for us. Now let's take some example of our strategy in action with customers. Let's start with China, where we are providing a full scope of digital service solution to Nanjing Golden Eagle World, a landmark multi-use complex in East China. Transparency, actionable insights and the ability to elevate tenant experience with proactive communication were cited by the customer as a key benefit. Turning to the Americas. We have recently won a partial modernization project for 22 units at the American Airlines Center, a premier sports and entertainment arena in Dallas, Texas. Our ability to adapt the installation work to minimize disruption during the busy game season was key in the world. So staying with modernization and turning to Europe, where we have a great example of how sustainability is influencing customer decision. In this project, the original plan was a full-scale modernization. However, by highlighting the opportunity to reduce emissions and energy use by grinding only the outdated components, the customer chose a partial modernization instead. And last but not the least, India, where, as mentioned, the team has delivered an outstanding quarter, very much supported by our focus on driving growth in residential. We have one particular prestigious win with the order to supply a wide range of equipment to DLF premium residential development, Privana, under construction in Gurgaon near New Delhi. Let's now turn to sustainability, where we have a lot to be proud of. As you know, we track our performance with the sustainability index, and I'm happy to share that we exceeded our targets in 2025. A key driver was a stronger-than-anticipated increase in regenerative drive sales, which contributed to a reduction of nearly 13% in Scope 3 emission from the previous year. Another important contributor was a step-up in cybersecurity performance, a core strategic priority as digitalization accelerates across our products and services. One measure of our progress is our Bitsight rating, which this year placed us in the top 1% of our global engineering peer group of over 24,000 companies. This is a fantastic achievement and testament to the dedicated work of our cybersecurity team. I'm also very pleased with the external recognition we have received, most notably our inclusion in the Corporate Knights ranking of the world's most sustainable companies. I want to highlight that sustainability is not just a set of commitments for KONE, it directly drives our business performance. Our impact revenue grew over 20% last year, and today, it represents over half of our overall sales. This is an excellent indicator of how our strategy is progressing. Digital service solutions, partial modernization and regenerative drives all contribute to climate impact mitigation and thereby to our impact revenue. So as said, we have a lot of great example of strategy progress from 2025. And now, of course, our focus is on maintaining this momentum. Let me next hand over to Ilkka, who will go through the market development and financials. Ilkka Hara: Thank you, Philippe, and also a warm welcome on my behalf to this fourth quarter result webcast. Let's start by taking a look at how our markets have developed during the past few months. The elevator and escalator markets were again resilient in the fourth quarter. In services and modernization, the market environment was very positive, and we saw growth in all areas. In New Building Solutions, the picture is more polarized. The well-known challenges in China construction once again drove significant decline in elevator and escalator market activity. In contracts, the activity increased in all other regions. Looking at the chart, Americas growth stands out. This is largely due to the last year's relatively low comparison point. What is more relevant is the sequential trend, which remained quite stable, a solid outcome given the broader geopolitical environment. Let me next go through our financials in more detail, starting as usual with our orders received. As Philippe highlighted, the positive momentum seen in previous quarters continued in the fourth quarter. Overall, the orders received increased by 12.2% at the comparable currencies, and growth was broad-based across the portfolio. With the exception of New Building Solutions in China, all business lines and regions contributed. We also had a very strong quarter in major projects across several geographies. From a geographical perspective, growth was strong in Asia Pacific, Middle East and Africa. The over 20% growth in both modernization and NBS in this area highlights our ability to effectively capture opportunities in this rapidly expanding market. From a business line perspective, modernization continued to grow at a healthy double-digit rate. New Building Solutions followed the market trends with pressure in China and growth elsewhere. Our orders received margin remained stable year-on-year. Pricing conditions in China continued to be challenging, but this was offset by more stable orders margin in other regions and our product cost reductions. In terms of sales, we had a good end to the year with a 4.3% comparable growth in the fourth quarter. Looking at the development by business, continued good growth -- good order book rotation in modernization was the highlight. This delivered 15% sales growth in the quarter. In New Building Solutions, China remained a drag, although this was partly offset by growth in other regions. Service sales grew by 6%. Outside of China, growth was in line with our targets. While in China, sales were slightly below last year. We also saw some negative impact from separation of our doors business. Shortly on China. As discussed in previous quarter, our priority there is to safeguard margin and cash flow across all of our businesses. In service, this has meant reassessing our contract base and taking targeted actions to strengthen the performance. I'm pleased that these actions have delivered the intended results. Looking at growth tailwinds. Our maintenance base continued to expand and pricing developed favorably. Here, we saw support from sales and operational excellence performance initiative, where we have focused on professionalizing our pricing and driving repair sales. This is closely linked to our digital transformation. As Philippe explained, by improving field efficiency, we free up time that can be proactively directed towards repairs. For me, this is an excellent example of tangible benefits of digitalization. Then moving to adjusted EBIT and profitability. Let me start by saying that I'm pleased that we have continued to consistently deliver profitability improvement, moving steadily toward our midterm target of 13% to 14% adjusted EBIT margin. Our margin expanded by 60 basis points in the quarter, taking adjusted EBIT to EUR 402 million. Looking into details, our biggest headwind continued to be margin pressure in China. On the positive side, the business mix continued to be favorable. What I'm happy about is that service margins continued to improve, supported by repairs growth and our efforts to take more strategic approach to pricing. Product cost reductions has also continued to -- contributed to profitability and will continue to be supportive in the coming year. Then turning finally to cash flow. We had a strong year in terms of cash generation, supported by growth in operating income and changes in working capital. For the full year, cash flow from operations rose to nearly EUR 1.8 billion with a solid quarter-by-quarter development. Looking at the working capital in more detail, FX swings had a bigger-than-normal impact to this year. If we adjust for negative currency impact of approximately EUR 60 million, working capital improved moderately. A key driver was the increase in advances, and I'm also pleased with the work the teams have done in driving collections. Then let's look at how we are thinking about '26, starting with the market environment. Our outlook for the year is very consistent with how activity developed in '25. We see attractive opportunities in all parts of the world. This is particularly true in modernization and services, where we expect markets to remain very active in every region. In New Building Solutions, we expect the decline to continue in China. The lower rate of decline is mainly due to the comparison period rather than the meaningful easing of the underlying pressures. Outside of China, we expect growth, slight in Europe and North America and clearly stronger in Asia Pacific, Middle East and Africa. So overall, operating environment looks to be favorable this year. Of course, the geopolitical environment continues to be a risk, and we're keeping a close eye on how this could be reflected into market activity and potentially our financial performance. That's a good bridge to our business outlook for the year. Let's start by going through the headwinds and tailwinds. As mentioned, the market conditions in China remain under pressure. So this is burdening our performance as is the wage inflation. At the same time, our order book, combined with a strong outlook for service and modernization provides a healthy foundation for growth. Beyond the resulting positive mix effect, we also expect tailwinds from increased contribution from our performance initiatives and from the product cost reductions achieved during '25. So with all this in mind, our guidance for '26 is for the sales to grow 2% to 6% at the comparable currencies and adjusted EBIT margin to be in the range of 12.3% to 13%. This keeps us firmly on track towards achieving our midterm financial targets. With that, let me hand back to Philippe to close the presentation and open the Q&A. Philippe Delorme: Thank you, Ilkka. So before I move to the summary, let me take a few moments to highlight our priority for 2026. First, we will continue driving the excellent progress we've made in digital. We'll push for even higher maintenance-based connectivity and focus on further leveraging the productivity gain we are seeing in the field. In modernization, it will be important to build on this year's strong momentum in partial modernizations with a particular emphasis on reducing installation time. We've made very good progress in our initiative to drive performance through sales and operational excellence and improved procurement efficiency. The first results are already visible in our financials, as you heard from Ilkka, now we must maintain and, in some way, accelerate this momentum to ensure we deliver the intended bottom line. And finally, to support all of these priorities, we will continue to strengthen a high-performance culture across the organization. This will help us drive greater precision and discipline as we drive our business transformation forward. So to wrap up, we can be pleased with what we achieved in 2025. For me, most important was the great progress we've made in strategy execution. This was especially visible in the acceleration of our transformation to an even more service and modernization-driven KONE, supporting our performance and further strengthening our resilience. Finally, both last year's results and our guidance for 2026 show that we are advancing well towards our midterm financial targets. So a big thank you to all KONE teams for an outstanding commitment once again. Thank you all for your attention, and I suggest we now move on to your questions. Operator: [Operator Instructions] We will now take our first question from Daniela Costa of Goldman Sachs. Daniela Costa: But maybe we can start, you talked about the tailwinds from the operational actions that you're doing. Can you help us out thinking in 2026, the balance between how much should we expect in savings versus what we will have in, for example, raw materials? Will that be a headwind? Where -- how should we think about that balance? That's the first one, and then I'll ask a quick one afterwards. Ilkka Hara: Okay. Maybe I'll take at least the start of it, and Philippe is quite excited about this, so I think you will add. So we are expecting a slight headwind from raw materials in '26. And -- then separately, so we have, as we said, been pleased how we've been able to now get both the performance initiatives ongoing. So the focus on purchasing as well as on the sales and operational excellence. And actually, in '25, we did see both contributing positively. But like we said already when we started the new strategy that we expect an increasing impact from the performance initiatives through '25, '26 and '27 contributing increasingly in those years. And we are guiding for improvement in profitability. So it's also visible in our guidance. Daniela Costa: Okay. So we will exceed any raw material. And then the second question is, why haven't you increased the dividend this year given you obviously have earnings growth, you have strong balance sheet. Can you elaborate a bit on how you're thinking about shareholder payback and priorities there and yes. Ilkka Hara: Well, first, it is, in my mind, a strong dividend that the Board decided for the year or a suggestion for dividend for the AGM. And we've had a strong performance, and we also do value a strong balance sheet. So at the end, this was a decision this year. And I think it's a strong dividend and a good yield as a dividend yield as well. Operator: Nick your line is open. Nicholas Housden: The first one is just some clarification on the guidance. I mean the low end of the growth guidance is at 2%, and we had 4% growth in 2025. And this year, it feels like you've got some very good growth tailwinds, modest, very strong and a bigger share of sales. NBS outside of China looks good. NBS in China is an ever-declining share of sales. Service growth is strong. So it just seems very unlikely that you would kind of end up anywhere near that 2% growth number. So I was just hoping you could maybe give some comments and some sensitivity around the growth guidance there, please. Ilkka Hara: So of course, like I said already in my remarks on the guidance that the uncertainty in geopolitics continues to be high. Then if I look at KONE business, we have a good order book in our NBS business, like you said. Uncertainty is more around how our customers are taking the projects forward. And it's good to note that one part of the good growth in '25 was related to major projects, which clearly have a lower order book rotation than the volume business. In modernization, we still are accumulating orders throughout the first half that we will deliver in the year. So it's more a question of how good are we executing against our target of more than 10% growth in modernization. And indeed, in services, it's more of a consistent good growth business. So those are the moving parts in the guidance as we see it. It's early in the year, and we see that this is a good range of outcomes for the business. Philippe Delorme: And it's aligned with our long-term targets -- or midterm targets, sorry. Nicholas Housden: Great. And then just a related follow-up regarding service growth. So 6% in the quarter, still a solid number, but a little bit slower than the dynamics that we've been seeing before. So I was hoping you could, a, just comment on what you're seeing in the quarter; and b, obviously, you've done a really good job over the past couple of years of aligning pricing with the customer value that you've been delivering. So I'm just curious to hear your thoughts about how you see this pricing dynamic going forward and whether there was almost a one-off element in the past couple of years as you sort of raise prices on existing contracts and whether it might be a little bit less of a tailwind over the next 2 to 3 years? Ilkka Hara: I'll try to comment on all of the components. But first, on the growth of services. So we target close to 10% growth in services business. And if you look at the full year, we're actually quite well in line with what we have guided. Then in the fourth quarter and maybe also in the second half, we had an impact from actions we took in China. As I said, we are prioritizing all of the businesses around cash flow profitability. And we reassessed our service base based on those priorities. And that's something where we saw a good impact to our performance, but it did slow our service growth as an overall down. And we also have been very explicit that we want to separate our doors business to a separate business. And as that separate doors business is reported under the services. And during the separation, of course, it takes some management bandwidth as well as system changes, which impacted the growth as well. So all in all, I think it's quite in line what we targeted, excluding these 2 actions we've taken. Then on pricing, so I'm actually very pleased that we've now been able to take much more strategic, much more analytical approach to pricing. And we've seen both pricing as well as our repair volumes growing very nicely as a result. And I don't see that this work has been done yet. I think there's further opportunities going forward. I don't know if you want to comment on services more. Philippe Delorme: No, I would say more broadly on services, there is no reason for us to change the strategic direction we're having, which is we want to differentiate with digital, both on the efficiency side and the customer value. We see it working very well. We were planning -- we are growing very well in 3 of our 4 areas. We made a choice in '25 to prioritize differently in China to privilege cash margin. And then picking the right customers. We've done exactly what we wanted. We were expecting this pruning of the portfolio and therefore, the impact on the top line. We see a very strong momentum in the 4 other area. Now we are back in China much more on the growth side, but growth and profit, and we've delivered better profit in China in service. So we are sticking to the plan, and we are very confident in where we want to go. Operator: And we'll now take our next question from Vivek Midha of Citi. Vivek Midha: Hope you can hear me well. My question is really following up on the China service story. Within the slight decline you have in the fourth quarter in China, would you be able to indicate whether you saw units under service still growing in the quarter with the decline driven by price mix? Or did you see a decline in the quarter in units under service? And the follow-up is you commented that the actions in China have seen the intended results. I'm curious to understand, should that effect then not continue in 2026 and onwards? Or given that you took the actions in the second half, should we expect some carryover effect on the China service growth rates in the first half of '26 before the comps ease up a bit again? Philippe Delorme: Do you want to start? Ilkka Hara: I can start. So in services in China, so there's 2 things that you need to take into account. One, yes, there is still an add-on. The market is growing as we -- as there are NBS units being installed and that's adding to the maintenance base. And we take a fair share of that with our good NBS business there. At the same time, we really took these targeted actions to look at our customer base with these 2 targets. And we continue to do so, but I don't expect a similar one-off impact going forward. It is more about working with each of the customers like we've done in other regions to find the right strategic pricing approach, drive repairs and so forth. So it is more of a one-off impact. But then as we see the market in NBS declining, so that is having an impact on the growth rate of the service unit base in the market. Philippe Delorme: And just to complement, every time you think about our service business, it's not as simple as number of LIS x the price. So that's one part of the business. The other part is really the repair business everywhere, including in China. And we believe that in China, specifically, we can do much better when it comes to our spare and our repair business. And we are working on packaging repair that will feed the customer demand, plug this with much more digital marketing to be responding to our customer request, and we see actually a very good traction here. So it's -- and for the rest, I would not repeat what Ilkka said on doing 1 year of really pruning our portfolio, which was much needed and which we believe has been largely done. Ilkka Hara: One more addition. So if I still take a larger content -- context, and it's also true in China, the modernization as a source of new elevators, the maintenance base is increasing its impact. So the more we go, especially on the parcel modernization, modernized equipment, which is not in our elevator base. It is maintained by somebody else. Those units actually then convert to our maintenance base with a very high conversion as a result. And as we grow the modernization business, this will be more and more important source of new elevators to the maintenance base compared to the NBS business. Vivek Midha: I don't know whether I might be able to do a quick follow-up on that. But just on that last point, we know that there's been some pressure on conversion rates in China given the competitiveness of the market. Within the modernization business that you had in China and the growth there, is the conversion rate on those modernizations still holding up relatively well? Ilkka Hara: Yes. Yes. Simple answer. Operator: And we'll now take our next question from Vlad Sergievskii. Vladimir Sergievskiy: If I can follow up on service growth. Would you be able to give us some idea of what your 2026 growth guidance implies in terms of service growth? Does it imply an acceleration versus 7.6% growth you did last year? And also, how should we think about this 10% -- or close to 10% growth over the strategy period? Does it mean that to achieve this growth, you would need to go to low double-digit growth in 2027? Ilkka Hara: Sorry, Vlad, can you repeat the last sentence? I failed to capture that. Vladimir Sergievskiy: Absolutely, Ilkka. In terms of your target for the strategy to grow that close to 10% your service business, does it imply that 2027 number should then be low double digits to achieve this close to 10% growth? Ilkka Hara: Got it. So first, I think this close to 8% rate that we got for the '25 year is actually a good number. We took some targeted actions and -- but in other areas, we actually saw the growth to be very much in line with targets. Then going forward, we don't give guidance by business line, but we repeat what we've said, we target to grow on close to 10% rate in services. And for example, this China action, we don't expect that to continue as one-off impact. So maybe that's implicit answer to your question. Philippe Delorme: Or the best answer we have. Operator: And we'll now take our next question from Andre Kukhnin of UBS. Andre Kukhnin: Can we start with just helping us to size the China business in terms of profit contribution? Could you give us some idea where it sits overall now versus the group or where the kind of margin level is for China? And within that, clearly, New Building Solutions margin has declined. Are we kind of still positive over around mid-single digits? If you could help with that, that would be great. Ilkka Hara: So indeed, I think the first comment is that the contribution of China is declining as the revenue has declined last year and also margin declined slightly last year -- declined further slightly in last year. And our NBS business in China continues to be profitable, and we aim to continue that. At the same time, we see the movement to services and modernization, which is now 40% of the business, continuing to happen. And the target is to get to 50-50 as soon as possible. And both services and modernization are with a higher profitability than NBS in China. And that's why the move -- strategically, that's a growing market, but also it has a positive impact to our mix -- profitability mix. Andre Kukhnin: Sorry, but is that service and modernization of China has a positive mix effect to the group? Ilkka Hara: So I was talking -- you asked about China and about China. So in China profitability, the move to services and modernization has a mix -- positive profitability mix impact for China. Andre Kukhnin: Got it. And if I may just follow up on the pricing questions that have been asked specifically for the, I think, price increases that you're seeing from suppliers that are based on copper and silver and a few other component inflation. Do you have price escalation clauses that you can action to pass that through on the new equipment? Or does that require a specific kind of pricing action one by one with the customers? Ilkka Hara: So now we see a slight headwind in our raw materials, and it's those base metal copper being the #1 for the year '26. And it's not a bigger headwind, and that's why I'm not calling out the number. It's a slight -- some tens of millions of headwind. And then -- it is, of course, relevant information when we price our new orders for our customers, and we take it into account. And with some of the contracts, we have escalation clauses for bigger raw material swings. I would not say that in the grand scheme of things, this is a bigger swing and would trigger those clauses. And a material part of our orders that we have booked don't have those clauses in place. But right now, I think the mix between product cost actions as well as the raw material impacts is something that is still a positive. So we are able to see more product cost reductions than the raw material increases. And I said orders that we booked in fourth quarter had stable margins more because of the price impact in China versus the product cost. In other places, it was more neutral. Operator: And we'll now take our next question from Delphine Brault of ODDO BHF. Delphine Brault: We'll go one by one. First, in your comment, you said that partial modernization now represents the majority of your modernization activity and that it grew twice the rate of full replacement. Can you help us understanding by how much this mix contributed to your margin improvement? And are we right in assuming that the modernization margin is not that far away from the group margin? Ilkka Hara: Before I let you go on partial modernization, just on the fact. So yes, the movement to partial modernization has a positive impact to our profitability within modernization. And the aim for modernization is to continue improving its profitability. And as I said in the strategy, the aim is that it's not dilutive to our margins while it grows and becomes a bigger and bigger business. But do you want to comment the partial modernization? Philippe Delorme: Yes. It's -- I mean I'm somewhat new to this industry. I've been only 2 years in this industry, but I'm fascinated to see that actually the industry was not responding to the customer needs, which is when you have a running building, the first point that matters is time. And what we are doing is just responding to customer needs and say, you know what, instead of having this project in 3 months, we are going to make that project in 1 to 2 weeks. We are not going to do everything, but we're going to do what matters. And once that work is done, the elevator is connected, and we can actually guide for the coming 5 years what really will be essential for you, Mr., Mrs. customers. This value proposition is working very well. By the way, from a financial standpoint, the other benefit is that it brings a very good order book rotation, fast order book rotation and the conversion rate to service is very good. So from a model standpoint, it's a great business. And what I like is that it's a business that corresponds to what our customers are asking for. So we are pushing as fast as we can to really organize ourselves to be extremely efficient in delivering this so that we -- success drives success, and we really make our name, and this has been working very well in the past 2 years as being the best company to drive fast and partial modernization. Delphine Brault: And then it's now -- no, coming back on your margin guidance. What do you need to reach the upper end of your range this year? What are the main assumptions between your 12.3% and your 13%? Ilkka Hara: Of course, a big part of the margin is related to the revenue guidance as well. So the more we are able to deliver the revenue on the top end, the more we will get also leverage on the profitability part. Then second part is around the revenue mix. So again, the more services contribute, the higher end we are at the guidance and modernization will help. And of course, the mix is more on NBS, then it is something we need to tackle. And -- that's number one. Number two is related to our performance initiatives that are, of course, contributing positively to our margins. And I would want to emphasize the fact that in sales and operational excellence, really what we're looking for is the lowest level, the branch, the region that is close to our customer, how they're able to deliver to our customer needs and how are they able to manage the business to produce profitability, pricing going forward. And I think there, we are seeing very good -- the best branches that have really adopted it first, very good outcomes. So that's naturally contributing to the profitability positively. Maybe those are the key variables, I would say. Philippe Delorme: So the question is how fast we can strike on all these cylinders to make them all align and contribute to the upper part of our guidance. Operator: And we'll now take our next question from James Moore of Rothschild & Co Redburn. James Moore: I wondered if I could circle back to Andre's question about Chinese profitability. Would it be possible to quantify where we really are on the overall Chinese margin now or the difference versus the group and to try to quantify the difference between NBS and service and maintenance numerically so we can think about, a, the effect to the group that is now less as China declines; and b, the impact of the positive mix within China? That's really the first question. Ilkka Hara: Well, first, over 90% of our profits are services and modernization. So it is really if you -- we look at the profitability of the company, it is how we are able to grow and manage those businesses. And that's really why we talk so much about services and modernization. So that's a big change in the last years. In China, now the share of revenue has declined for the total company and its profitability is below the group average. And I said already that it declined further in '25. And the more we can make services and modernization be a bigger part of the revenue in China, that's the way for us to then turn the margin also towards stable and growing again going forward. And we don't do segment reporting. So it's more the qualitative comments we're giving, but it's clearly below. And NBS is the lowest margin business we have in China and services and modernization are not that different in margin in China. Philippe Delorme: And the last point I would complement is our cash generation is China is extremely healthy, which is a point where we think we really stand out competition, which is a point that actually leads us to move away from customers. But in the end, we believe cash is key. And we want to make sure that we translate all the hard work we are doing on the ground to money in the bank or in our bank. And we are actually on that side, looking at profitability and EBIT level, but also in cash generation. And that part is actually very, very healthy. James Moore: Maybe I could just go back to the service growth and say it, I didn't really understand the answer you gave earlier about the pruning being a single quarter impact, having covered companies for 30 years. Typically, when revenues drop on pruning, you've got 4 quarters of impact before it comps out. Can you help me understand why that's not the case? And is it possible to talk about what the speed of asset under management percentage growth in units was in the quarter, please? Philippe Delorme: That's not what I said. So I said -- so I think Ilkka and I said that we worked in 2025 on pruning our portfolio, but we worked on the full year 2025. So we started in Q1, and we've seen the impact coming as we were working on it. But -- and we think we've done the essential work to move away from customer either would have low profitability or negative profitability or customers where we believe we had no chance to be paid. So we think we've done the biggest chunk of the work that's needed. Then we've worked within our pricing priorities everywhere in the company looking at our lower profit margin risk profile on cash, but we think that the biggest chunk of the cleaning work that needs to be done in China has been done. James Moore: That's great. And anything on the asset unit growth speed in maintenance? Ilkka Hara: So we see in maintenance, the growth. So I've said it earlier. So we have 3 components when we look at the growth. First is really the repair volumes. How can we continue to drive repair volumes. And that's why the digital part is so important that we can free up capacity to drive that repair volumes to be both sold and installed. Second is related to pricing and value. And value to me is including the digital offering we have facing our customers. So how do we differentiate to get the maximum price and actions we take. And then third one is the units. In units, last year, we had lower growth mainly due to China. In other regions, we've actually seen quite a good development. And we don't see that our strategic direction in terms of unit growth is changing. Philippe Delorme: The only thing we could say as a change is stronger contribution coming from mold and partial mod and a bit less coming from NBS. So in that regard, the whole model of our business, which was a lot of selling elevators and driving the service is changing a bit to actually trying to get a better retention with digital and moving actually a part of our modernization business towards lift in service and expanding our service base. Ilkka Hara: And then lastly, I just wanted to comment because we started with China. You see that China service market is growing at a low single-digit speed. It is also a good signal that we are seeing and are expecting going forward that our service growth is higher in the 3 other areas as a result. And yes, we will grow in China as well, but really the growth rate is higher in the 3 others given the dynamics. Operator: And we'll now take our next question from Tomi Railo of DNB Carnegie. Tomi Railo: This is Tomi from DNB Carnegie. Two questions, if I may. Coming back to the NBS profit contribution, you mentioned over 90%. Any further comment? Is it 95% or is NBS contribution, how much less than 10%, if I can formulate it that way? Ilkka Hara: It's less than 10%. That's -- I won't go to more details, but it's less than 10% and it's -- the modernization service is more than 90%. Tomi Railo: And then another follow-up. If you could just still state clearly if China NBS is lower than global or above than elsewhere? Ilkka Hara: It's slightly above elsewhere. Operator: And we'll now take our next question from Aron Ceccarelli of Bank of America. Aron Ceccarelli: I have a question on modernization, specifically in Europe. At your CMD in 2024, you highlighted the European market for modernization to be probably the largest opportunity in terms of units. And I think today, you're guiding for slower growth compared to other regions. So I was wondering why that. And also if you can discuss a little bit the role of subcontractors in modernization business as the modular strategies speeds up would be useful. And I will go with a follow-up after your answer. Ilkka Hara: I just clarify before you take the modernization. So we said the market is expected to be growing at 5% to 10%. It does not mean that we could not grow faster than that, and that's what... Philippe Delorme: Then I mean, we are -- in Europe, as everywhere, we are ramping up our actions on modernization. We are doing actually pretty well on at this point, full modernization and partial modernization of our own installed base. And now we need to do better on partial modernization on our -- not on our installed base. So the market -- we have a lot of questions like what is the limit of the modernization market. And my answer is always the same. There is -- frankly, at this point, it's such a big ocean that there is very little limit. Now on your point about subcontractors/ISPs, independent service providers, we see them, frankly, as much as competitors and in some case, partners because actually, they cover markets that we don't always very well covered. So we actually see an opportunity to work with them in a targeted manner in places where we don't have the geographic coverage to actually bring our technology. Very often, these companies are not very good in digital, where actually we bring the whole digital gear very well. So we still see an opportunity of plenty of new business model, leveraging more companies that are not strictly KONE to address much better this very vast market. Aron Ceccarelli: And my follow-up would be on your cost structure. Clearly, when I look at one of your competitors have done a very remarkable job on cutting costs. And I believe you have a fairly new head of procurement. And when I look at your SG&A on the other hand, you also have higher SG&A as a percentage of sales compared to other peers. I was wondering, could you perhaps provide a little bit more granularity on what you can actually do on the procurement side now and what opportunities are on SG&A as well. Ilkka Hara: Well, I think on procurement, indeed, we have a new -- not so new. Michelle has been with us now for 6 months. But clearly, what we see is we have an opportunity to professionalize our teams, upskill our team and put purchasing at the right level of attention within the company, which is exactly what we are doing. We actually started this work like before Michelle came in, but we see now an acceleration. And therefore, there is an opportunity to drive better purchasing productivity. On SG&A, you're right. We are -- we have more costs relative to sales than many of our competitors, and we have to do a stronger job of driving efficiency, and we are working on it. Operator: And we'll now take our next question from Antti Kansanen of SEB. Antti Kansanen: It's Antti from SEB. I have 2 questions, both on the service growth. So I'll start with the mention that the modernization, partial modernization is emerging as a driver to the maintenance base growth taking over from the NBS. Is this something that you have already been [indiscernible] on a significant manner in, let's say, '24, '25? Or was this a question more going forward that it will start to accelerate as an impact? And how does it work? Is it elevators that are too old to be relevant in your maintenance space? Or are you converting non-KONE brands through this modernization? Philippe Delorme: Maybe I can take it. So just correction, I've not said that partial mod is taking over NBS. I'm saying, I love competition, and I'm telling to the modernization team, raise the bar so that you become a stronger contributor to service. Now in size, today, this is already significant to very significant. Now are we at the level of what's coming from our NBS business? No. But when you look at the big parameters, if we keep doing the good job we are doing on partial modernization, this indeed will become very mainstream into driving more LIS. And on your question, is it more KONE unit, non-KONE units? My assessment today that we do a decent job on our KONE units. Are we perfect? No. So it's okay to be perfect and raise the bar. On non-KONE units, we can really do much better. And by the way, I don't think the industry is very good overall. So the point about responding with time to do the job and really compress the time by being very optimized is one thing where the industry is average. It's up for us to be very good. Antti Kansanen: Would you guys say that in the past few years, which of the contribution has been, let's say, more relevant on offsetting the decline impact from NBS, your increased acquisitions or conversions from the modernization side? Ilkka Hara: I don't -- so we'll come back to this partial modernization in more detail, but it is starting to be more and more relevant. And of course, for us, it is very compelling. So we don't put capital in play and actually get a modernized -- modern digital elevator as a result of the partial modernization. And actually, it's quite a fast turnaround business. So it is -- from that perspective, return on capital is very good. Antti Kansanen: Okay. And then the second was just a clarification on the pruning work you talked about in China having been over. So do I understand correctly that starting from Q1 this year, there will not be any more negative sales growth headwind in terms of the actions have done and the impacts have already been seen on the P&L? Ilkka Hara: So we took the actions throughout the year. And I said it was more visible, and that's why I called it out in second half of last year. And we expect now a more normal business. It doesn't mean that we would not be focused on profitability and cash flow going forward as well. But I think this was more of a targeted action. Operator: And we'll now take our next question from Rizk Maidi of Jefferies. Rizk Maidi: I just want to go back to this modernization conversion into sort of new installed base, I think, was the previous question. I was wondering if you could -- I thought this was a '27, '28 sort of impact, but you start to see it in China, if I heard you correctly. Maybe can you help us sort of quantify this perhaps in the last few quarters, when you look at your modernization sort of growth, how much was it on KONE units on non-KONE service units or perhaps even on the installed base growth, whether you could actually have a contribution from modernization conversion, if I could call it this way, I'll stop here. Ilkka Hara: So first, the conversion rate of modernization is actually very high. So that's why it's such a compelling place. Philippe Delorme: And maybe to explain why because when you sell a new construction elevator, you sell it to the contractor. And then the building goes on, there is all kind of things that can happen up to someone who is now in charge of dealing with elevator, which is very often not the contractor. When you deal with the modernization and even more a partial modernization, the person who is buying the partial modernization is a person very often will operate the service. So if you do a good job and actually, if you really go beyond what's possible in terms of time and customer satisfaction, there is little reason that, that customer is not going to stay with you for service, especially when we at KONE bring in the package the connectivity that gives transparency, predictive, remote capabilities. So sorry, close the bracket, but I think it's important for all of us to really understand what's going on here. Sorry I cut you. Ilkka Hara: That's fine. And then it's -- we've increased our modernization business, grown it. We've also increased the proportion of partial modernization. So it's in China, but also outside of China, more and more meaningful contributor. But still NBS is a bigger contributor. But in the future, it could be other way around. Rizk Maidi: But at this stage, you're not willing to quantify how much of your mod growth is on KONE units versus now? Ilkka Hara: Most of them are still KONE units at this stage. Philippe Delorme: I think it's -- I'm repeating on modernization. It's a blue ocean. So it's a place where -- I mean, there are 10 million units in front of us, and the industry is modernizing a fraction of this, a real fraction. If we look at the number of -- I think we've released that figures, a couple tens of thousands of units every year. So we are -- every time the team is coming saying, "Oh, we are so happy we did that grow, yes, you can -- I mean, we can do better. And it starts by listening to our customers and responding to their needs. Rizk Maidi: The second one is we've seen -- if you think about connectivity, it started quite slow, I think, back in 2015, '16. Then you ramped it up quite quickly. I think the number this morning was above 40% of the installed base being connected and you improved that by 7 percentage points. Just thinking what's the blue sky here? How we should we think about this improvement over the coming years? The installed base is still quite old and my understanding, if you want to have good readership or good value from connectivity, you have to force modernization or partial modernization. Just thinking about the blue sky here, basically. And the benefits as well to your business. Philippe Delorme: It's one of my favorite topics. But when you say, okay, we started, we increased and then we plateaued and now we are reincreasing. What has been the difference, focus and leadership. And very easy to say, very hard to do. And I think where I'm very happy with the team is we've managed to mobilize the company and make it clear for everyone in the company that this thing is a game changer and therefore, a sense of urgency. It's very hard to copy. And I think we've managed to bring that focus in mind. So what is our ambition to have all our elevators and escalators connected. So is it possible tomorrow next quarter? No. But I think everyone at KONE understand that this becomes the norm that we want to be digitally enabled on the field with apps that make us more efficient and that once an elevator is connected, it brings transparency, meaning everyone knows and is on equal base to understand what's going on. We get predictive. We get 800,000 elevators connected where our AI is scrolling and sending service need to our field technician to correct the problem before they will happen. We think we can filter up to 80% of the issues before they would happen. And then when the code allows us, we can actually remote rescue people who are being entrapped, which is a big difference. So where is the limit? At 100%. Are we going there next quarter? No. Is it hard to do? Absolutely, yes, because it touches the DNA and the culture of the company, but I'm really happy to see that step up, and we are very committed to that transformation. Operator: And we'll now take our next question from Martin Flueckiger of Kepler Cheuvreux. Martin Flueckiger: I've got 2, and I'll start off with the U.S. According to your assessment, market in the Americas was up significantly in Q4, which seems counterintuitive given the fact that we had the longest U.S. government shutdown in history, but also if you look at indicators like ABI and so on, I was just wondering -- and also, by the way, your outlook for 2026 is still positive, but clearly much slower than it was in Q4. Just wondering what the issue was or what the narrative was for the strength in Q4? That's my first question, and I'll come back with the second one. Ilkka Hara: Yes. So as I said, Q4 market in the U.S. was impacted by the low comparison point the previous year. If you look at it sequentially, it's more stable and the full year is a slight growth for the market. We're expecting similar environment to continue in '26. And yes, there are many uncertainties also in U.S., also outside of U.S., but that's our best forecast for the market activity. Martin Flueckiger: Great. And then my second question is on some of the financials. I guess that's for you, Ilkka. I was just wondering, net financial results seemed weaker than expected. Is that FX related? And what is the reason for what seems to be a higher-than-expected income tax provision in Q4? Ilkka Hara: Yes. Thanks for asking. So we actually had a one-off item in taxes in the fourth quarter related to our intercompany legal structuring. And we don't expect that to repeat. So it's -- the expected tax rate is fairly similar, this 23.5% going forward. So it is a one-off impact that caused it. Martin Flueckiger: Okay. And in the net financial result, how large was the FX impact? Ilkka Hara: The FX impact -- let Natalia come back to you on that. I think we have it also in the deck -- behind the deck, so I don't say incorrectly. Operator: That's all the time we have for Q&A. I will now hand it back to the host for closing remarks. Natalia Valtasaari: Excellent. So thank you, Philippe. Thank you, Ilkka. A special thanks to everybody who followed us online. Great questions, lots of interaction there. So we appreciate that, your interest and your time. And if there are follow-ups, I'm happy to answer them. I will certainly come back to you, Martin. And with that, yes, have a great rest of the day and weekend ahead. Philippe Delorme: Thank you, everyone. Ilkka Hara: Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Antonia Junelind: Good morning, and a warm welcome to the presentation of Skanska's Fourth Quarter and Year-End Report. I'm Antonia Junelind. I'm the Senior Vice President for Skanska's Investor Relations. And joining me on stage here in our studio today is our President and CEO, Anders Danielsson; and EVP and CFO, Pontus Winqvist. Shortly, they will take you through an update as of the last quarter, provide you with some further insights on the business operations, financial performance and our market outlook. And after their initial presentation, we will open up for questions. And there is an opportunity for you to ask questions either if you're joining us here in the room or you can use the telephone conference number provided, and then the operator will put you through to us here in the studio. But more information on that will follow later. So with that brief introduction, let's take a look at the fourth quarter performance. Anders, please take it away. Anders Danielsson: Thank you, Antonia. And good to see everyone here in the room, and welcome to you on the web as well. Before we start the presentation, I wanted to look at the picture here on the slide to the right. We had a very successful divestment quarter when it comes to commercial property development. And one of the deals was in Port 7, as you can see here on this slide in Prague, Czechia. That was 3-office building that was divested in deal. If you look at the fourth quarter report, so we had a very good construction margin in the quarter and also the full year. It is on all-time high levels. So very good performance by the whole organization, and we will come back to that. But all geographies, all units are performing on a very high level. So that's very encouraging and good. Mixed performance in Residential Development. We continue to have a strong market in Central Europe, weaker in the Nordic. So we have divested some unsold completed in the quarter with lower -- that was started before the market went down. And by that, we also have a lower profitability on those. But it's good that we are able to divest completed homes. Good divestment activity in Commercial Property Development. We managed to divest 8 real estate in the quarter and also solid performance in investment properties. Operating margin in Construction, 5.6% in the quarter, very, very high, strong. And for the full year, we managed to beat our new targets in Construction of 4%. So we managed to deliver 4.1% for the full year. Return on capital employed in Project Development, lower 1.8% due to the weaker market, rolling 12. And return on capital employed in Investment Properties is stable, stable result, 4.7% on the rolling 12 and slightly up from last year here. Return on equity, 10.2%, rolling 12, and we continue to have a robust financial position. So we are able to maintain that. The Board has proposed a dividend of in total SEK 14 per share, which is SEK 8.5 in ordinary dividend and SEK 5.5 in extra dividend. And we also managed to reduce the carbon emission in our own operations, Scope 1 and 2 with 65% since the baseline year 2015. Here, we have a target of 70% reduction in 2030. I will go into each and every stream now, start with Construction. Revenue close to SEK 44 billion, and we have some slightly up from last year, if you look at local currencies. Order bookings, SEK 43.5 billion, and we have a good order intake. And you can see that we have a book-to-build of 105% for the rolling 12 months, which means we are able to fill up the order backlog compared to how much we produce here. And the order backlog is continued to be on a high level, historically high level, close to SEK 258 billion. Operating income, SEK 2.5 billion, and we have an operating margin, as I said earlier, 5.6% in the quarter. So strong quarter result and all markets, all geographies are delivering very good results. So great work by the whole organization and being consistent with the strategy and also able to execute the projects in a very good way. We -- as you know, we have raised our target. We did that -- communicated that in the Capital Markets Day in Q4. The target is at or above 4% operating margin, and we have beaten that for the full year. Order intake was good and remains on a high level. Going to the Residential Development. The homes -- sold homes has been lower than last year. We have a revenue of SEK 1.7 billion. And you can also see that we started fewer homes compared to the same period last year. And you can see that we started -- the project we have started is in the Nordic countries. We haven't -- in the quarter, we haven't started any project in Central Europe. But that's a single quarter. You should look at the full year or rolling 12, and it's still a good market in Central Europe. And also, it's very encouraging to see that we are managing to sell the unsold completed and reducing that inventory to 358 homes. Commercial Property Development. Operating income of SEK 670 million gain on sale, SEK 758 million, and that includes the divestment, of course, of the 8 properties, but it's also some release of provisions of already completed project. Return is on a low level, far below our targets on a rolling 12-month basis. So we are working hard with that and both to increase the capital turnover and also to divest the completed assets we have. We have 16 ongoing projects, which corresponds to SEK 14.4 billion in total investment upon completion. And we have 21 completed projects, which correspond to SEK 19 billion in total investment. Of those, we have a reasonably high leasing ratio of 72%, which means we are -- we can see that we have a positive cash flow from those assets. It's good asset, high quality in good location. So I'm confident that when the investor market comes back in U.S., we can see -- we have a good product to offer the investors. Again, 8 projects divested in Q4, 12 during the year, 2 projects handed over and 2 projects started in the quarter. We started the projects in Central Europe and the Nordics. And we can see a good leasing activity and strong average leasing ratio in the portfolio of both ongoing projects and the completed projects. Moving on to Investment Properties. Stable result, SEK 83 million operating income. We have increased the occupancy rate to 85% compared to 83% in the Q3. And portfolio consists of 7 high-quality office buildings properties with a total property value of SEK 8.3 billion. Very solid performance in Q4 and for the full year. We go back to the Construction and show you some order bookings here and the order backlog. Here, you can see the blue bars are the order backlog development 5 years back, and you can see the lines rolling 12 on the book-to-build, the yellow revenue, development on the green and order bookings on rolling 12, the gray one here. So you can see that we have a historically high level of the order backlog, and there's also some currency effect there. So if you compare Q4 2025 to the same quarter the year before, it's actually increasing somewhat in local currencies, around 3% increase. So we have a good position here, 19 months of production. So you can see that on -- if you look at the different geographies as well. All geographies has over 100% book-to-build, and that's also encouraging for the future. We have 19 months of production. So a solid position here when it comes to our order backlog. And we can continue to follow our strategy to be selective in the market and go for projects where we can see competitive advantage and a good track record as well. With that, I hand over to Pontus. Pontus Winqvist: Thank you, Anders. So let's dig in a little bit deeper into the numbers. And you can see that we had a revenue of SEK 43.9 billion here in the fourth quarter. That's actually an increase with 1% if you take local currencies. If you then, at the same time, look to the revenue for the full year of SEK 171.1 billion, that's an increase of 7% year-on-year. The operating income in the quarter increased from SEK 2.1 billion to SEK 2.5 billion. That's an increase of 25% in local currencies. So quite a good increase here in Construction. And as you heard earlier, we had an operating margin of 5.6% in the quarter, which is good. But even better, I would say, is the margin for the full year of 4.1%, in line with our just raised targets. And if you look into the different geographies here, you can see that we are actually delivering a higher profit in all of the geographies and also a higher margin if we compare to the quarter -- or to the fourth quarter last year. Worth to mention is that there is a release of a claim provision in the U.S. impacting with around SEK 400 million. But you should also remember that this is how we are recognizing our claims. We are very conservative, and we are releasing them when we are sure that there are no outstanding risks. So in total, I think what you see here is a very strong delivery from our Construction business in the fourth quarter and for the full year. Going then into Residential Development, is maybe not as good as Construction, impacted by the market. You can see also that the revenue in the fourth quarter is quite much lower than it was the fourth quarter last year. That's because we are selling less than we have done the fourth quarter last year. And that is, of course, some reflection of the market and also it comes a little bit different when we are starting projects. What you can see is though that the S&A costs has went down in the quarter from SEK 138 million to SEK 122 million, but even more for the full year from SEK 605 million to SEK 460 million. So I think that is a sign that we gradually has, what you say, adjusted the organization according to the current market standards. We have also sold quite many of the previously unsold completed properties, and that has an impact of the gross margin because we -- it's good to be out of that stock of unsold residentials, but of course, impacting the gross margin and then the operating profit. So you see in the quarter, 1.8% in operating margin. That's, of course, not where we want to be. For the full year, 6.5%. That's better. But as you know, we have a target for this business to reach 10% or better. Then if you look into different geographies within Residential Development, you can see that the Nordic operations is where we have a weak quarter. And the European operation is delivering a solid quarter, but we have a lower sales rate than we have been used to during the previous quarter. And that's not dependent on the market. That's dependent because we haven't had any projects actually to launch during this quarter, which means that we cannot have any new sales start, which then takes down the number of sold units and impacting the profit somewhat also in the European part of the residential business. And here, you can see how this -- that started, then is 376 compared to 620 last year. And that's a result then also of -- sorry, now I mixed, but it's around the same. You see that we sold 379, and we started 376 units here in the quarter. And if you look then into the homes in production, you can see that the top of the bar here in the fourth quarter, the unsold completed, as I explained, has reduced. So we reduced from the end of last year from 477 to 358, and we have also decreased that during the fourth quarter as such. And as I said, when we are selling those residential units, that is impacting the gross margin for the quarter for the Residential business. Going then into the Commercial Development business. As you heard earlier here, we divested 8 different projects, representing a revenue -- or a divestment of SEK 4.6 billion. And here, it's also worth to mention that these divestments is positively impacted from release of previous -- release of provisions from previous projects. So if you are looking into the Commercial Development portfolio, I would say a more representative profit content is looking into our unrealized values that we have than to take what we actually delivered this quarter. So it's good, but it's also very good to see, I would say, that we were able to divest in such a good manner in the fourth quarter. So it's the highest number of divestments in a single quarter for quite a long time. If you're then looking into the unrealized gains, you can see here that what I just explained regarding how you should forecast the coming gains from this business that the top of the bar here has decreased, which means that the unrealized gain within the completed properties is quite low right now. Then if you look into the completion profile of when our properties in Commercial Development will be completed, and you see that in the different bars here. And at the same time, you see the leasing ratio on the green dots. You can see that then we have around SEK 17 billion of completed properties with a 72% occupancy rate. It's one quite big property that has been ready in the fourth quarter. So it's taking down the total leasing ratio in the completed properties somewhat. But if you're looking into the total profile here and if you would -- are interested and compare it with earlier Qs, you can see that it's actually quite a positive development in many of these different assets. So do that. That's quite fun. And then here, you can see that we had a leasing in the quarter of 46,000 square meters. And you can also see that we have a higher leasing ratio in the ongoing projects than the completion ratio, which is always a good sign that we have -- we are leasing in the same tempo as we are continuing our projects. So that is good, I would say. IP, Investment Properties, I would say, quite a calm quarter. We have a representative operating net here. We haven't added any properties. We haven't done anything with the values. So SEK 83 million is very representative for, I would say, that portfolio that we currently hold here. What is good, though, is that we increased the occupancy rate from 83% by the end of quarter 3 to now when we have 85% leased. So a good development there. And then if we are going into the total group and the income statement here, you can see that we had an operating income of SEK 3.3 billion. Then we have central costs of SEK 281 million. Those are impacted of that we have a little bit less of income from our combined portfolio of asset management and BoKlok UK. And we also have a negative impact of periodization effect from insurances, that actually was positive in the same quarter last year. I would say, though, that the full number of central costs of SEK 712 million is quite representative for what you could expect going forward if there is no special things that is happening. Going a little bit further down, you see a financial net of SEK 141 million for the quarter and a tax of SEK 653 million. That's a tax rate of 21%, same tax rate that we are showing for the full year. And I will also say that this is reasonable, representative with the current business mix that we see right now. Of course, if we have 1 quarter where we have more divestments of properties, that could impact. And if we have more -- another geographical composition of the profit, that could impact somewhat. But I would say that this is representative. Going then into the cash flow. Here, you can see that we had a strong cash flow here in the fourth quarter, SEK 2.5 billion, actually the same as we delivered in net profit. So I would say, a continued good and stable cash flow generation from the business. And an important part of that cash flow is, of course, coming from our working capital development within the Construction. And here, you can see that the working capital came up from SEK 30.1 billion in September to SEK 31.7 billion here for the full year. And even though it looks like it's a decrease compared to the fourth quarter last year, if you were looking into real cash flow, it was actually an increase with SEK 1.4 billion. But then we have a currency effect, a negative currency effect of SEK 4 billion for the working capital. So you can also see if you're looking to the average free working capital compared to the revenue that, that is stable with a slight increase. So solid cash flow generation from our Construction operations. Looking into investments and divestments, you can see that we are actually now in some net investments territory. We have, for a couple of quarters, been in net divestments, but it's also so that we divested a couple of those Commercial Development properties here in the fourth quarter, but they will be transferred to the buyer and paid of the buyer during the first half of this year. So that will improve then the cash flow from divestments during Q1 or Q2. If you look into the capital employed, you can see that, that has decreased somewhat from SEK 66 billion to SEK 63.8 billion. Also here, you have, of course, a currency effect. So I would say, without currency, it's relatively stable. And this cash flow then takes us into, I would say, a very stable situation when it comes to our ability to use funds. We have available funds of SEK 28.6 billion. And here, you can also see that we have a quite balanced maturity profile of our outstanding debt. And this takes us then to the financial position, where you can see that we have our adjusted net cash position of SEK 11.5 billion. And you also remember that here, we have a target to below -- to be above the net debt position of minus SEK 10 million. So the delta there is SEK 21.5 billion. And you can also see that we have had quite a stable development of the financial position here during more than a year. We ended last year with SEK 12 billion. We have now SEK 11.5 billion. And it's also then actually taking up our equity to asset ratio from 36.6% to 39.9% by the end of the fourth quarter. So by that, Anders, some comments regarding the markets? Anders Danielsson: Sure. So if we look at the overall market outlook, it's unchanged overall compared to the last quarter. But if I comment on the different streams here. Construction, the civil market in U.S. and Sweden is -- we expect it to continue to be strong. On the building sector -- in the building, its -- the market outlook is stable. We could see a good inflow of data centers in the fourth quarter, close to SEK 10 billion, which is encouraging, and we expect that market to continue to be stable. The civil market in the rest of Europe is pretty much stable, which is good, driven by infrastructure, defense, investment and so on. So weaker in U.K., however. And the building market in Nordics are weaker due to the less residential construction and commercial property construction, but stable in Central Europe. Residential Development, very good activity in the Central Europe. We believe it's going to continue to be a strong market and weaker in the Nordics. And we can see some improvement when it comes to interest rates decrease. We can see amortization rules are easing up in Sweden. But I believe it will take some time. And we -- even though it's underlying need for homes in the market we are operating in, it will take some time. It requires economic growth. So the consumer confidence increases. But we are ready to start. We already start project today where we see that we can deliver according to our targets. And Commercial Property Development, stable in Central Europe and in the Nordics. You have seen the divestment activities here. We also have a good leasing activity. Weaker -- continues to be weaker in the U.S. market. Recovery is lagging compared to Europe. But there is a clear trend that flight to quality, so to say, in all markets. And we have very attractive building to offer the market. And we can see that we have a healthy leasing ratio. But the investors in the U.S. are still hesitating before they go on and invest in properties. Investment Properties, polarized occupier market. We have a healthy leasing ratio. And also here, we can see a polarized market. You have to offer Class A building in a very good location, high quality, and that's exactly what we can offer. So I'm confident in that. But it's a competitive market, but we believe that the rents will remain mostly stable. So if I ending up this presentation, we're looking into how we're doing compared to our targets and limits here. 4.1% in Construction margin, above our recently increased target, very encouraging to see. Return on capital employed, 1.8%. We were not satisfied with that, obviously. So we are working hard to increase that return for the project development. Investment Properties, 4.7% is on a good level to reach. Be able to reach the 6%, we need to see some market increase -- market value increase in the properties we have. So that's an ambitious target for the future. Return on equity, 10.2%, also below our target. And we have a very strong financial position of net cash -- adjusted net cash of SEK 11.5 billion. And the payout ratio, as you can see, we have 40% to 70%, but that goes for the ordinary dividend. And we have proposal, is SEK 8.5 in ordinary dividend, increase from last year, before was SEK 8. And then we have this extra dividend, which gives us an outcome if the AGM approves that of 93%. With that, I hand over to Antonia to open up the Q&A. Antonia Junelind: Very good. Thank you for that. So yes, now it's time for your questions. If you are joining us online, please use the telephone conference number provided and follow the instructions by the operator, and he will put you through to us here in the studio, and you will be able to ask your questions to us. If you are here in the room with us, then you can just raise your hand. We will bring a microphone, and I will ask you to start by stating your name and organization. So looking out into the room and checking with our external guests here, it doesn't seem like there are any raised hands at the moment. Or yes, we have one over here. Yes. Thank you. Unknown Attendee: Yes. [ Oscar Sandstrom ], entrepreneur. Regarding Construction, you're growing in the Nordics, but do you see any bottlenecks that could hinder further growth? Anders Danielsson: I see good opportunities when it comes to the civil market, if you're asking about the Swedish market. So we see increasing investment in infrastructure. The need is very high on that. And we also see increasing investment in defense. So that's -- I'm encouraged by that. Then on the lower side in Sweden is Residential construction. It's not only our development that is on the low side here. It's all, very few new homes that are coming out in the market, and that goes for the Commercial Property Development. So we are dependent on economic growth as an industry. So I would like to see some GDP growth, and that will absolutely help us. But we are in a good position. Antonia Junelind: Excellent. So I will then move over to the online audience, and I will ask you to please introduce the first caller. Operator: The first question comes from the line of Keivan Shirvanpour with SEB. Keivan Shirvanpour: I have just 2 questions. And the first question is on capital allocation. So you have about SEK 11 billion in net cash, and you expect nearly SEK 6 billion in cash flow in the first half of the year from -- transfer from property projects. So that equates to the size of the dividend that you are proposing. Given that, what can you say about opportunities here in terms of capital allocation? How should you allocate your capital in 2026? Anders Danielsson: Yes. We don't give any forecast of that. We have a dividend policy to 40% to 70%. Our ambition is, of course, to continue to deliver good results and be able to be a predictable dividend provider for shareholders. But we don't give any forecast for this year, obviously. Keivan Shirvanpour: But would you consider increasing investments in CD projects or potentially evaluate buybacks would be an alternative? Anders Danielsson: We said in the Capital Market Day that we have -- right now, we have enough capital for the project development operation, and that, we have the same view right now. Keivan Shirvanpour: Okay. Good. And the second question is then related to commercial property development and the completed portfolio that you have. So you made quite a lot of divestments in Q4, but you also have this completion in the U.S. So if I'm not mistaken, your completed property portfolio should be about 80% to 90% in the U.S., including some residentials. What can you say about the prospects for divestment of these assets? And do you consider residentials to be potentially easier to divest than the commercial buildings in the U.S. Pontus Winqvist: First, I would say, regarding our portfolio in the U.S., you are right. It's reasonably big, and it's both commercial offices and some rental residentials. But you can say we are evaluating each and every project as such, working with leasing the properties in order to receive a decent operating income from those. Then if we think that we get the price that they actually are worth, we are absolutely ready for divestments. But because we have a very solid financial situation, we are not interested in any kinds of fire sales, but we are interested in reasonably good deals. Keivan Shirvanpour: Okay. And you have previously mentioned that when the bond -- 10-year bond yield is about 4%, you see that divestment prospect is quite weak. Do you continue to have that view? Pontus Winqvist: We continue to have the view that we are following the market. And if someone, as I said, is interesting to buy and pay a decent price, we are interested to negotiate. Antonia Junelind: Thank you very much. And we will move to our next person in line here to ask questions. I think it is from Jefferies. Operator: [Operator Instructions] Our next question comes from Graham Hunt in Jefferies. Graham Hunt: I'll ask 2. Maybe I'll just come back to the capital allocation and try in a different way. Just on the special that you have announced, would you be able to just provide some color on the thinking around why you felt that was appropriate to propose? And should we take it as a signal that you're relatively comfortable with now the level of net cash that you have on the balance sheet and this is a signal that you're limiting any further buildup there? And then the second question, I think just back on Construction. I wondered if you could comment on sort of what you're seeing in the early stages of Q1, how you're seeing particularly on the data center segment where, as you mentioned, you had a flurry of good orders in Q4. We've seen some enormous CapEx numbers from some of the hyperscalers this week. I just wondered if you could comment a little bit on how the outlook for those types of projects in the U.S. is looking and whether we could expect -- if you're seeing anything in the pipe already for 2026 on that front? Pontus Winqvist: Okay. Thank you, Graham. I'll start with the first one, and I think Anders take the second question. And regarding the capital allocation, and as I understand your question, it's about our reasoning -- or actually the Board's reasoning when it comes to the special dividend and the ordinary dividend. I think it's clear, as you see, we rose the ordinary dividend from SEK 8 to SEK 8.50. And then we think that, yes, we have a stable financial position, which allows us to also distribute some extra dividend. And having said that, that is, of course, taking in consideration to be able to be active in our market and take the opportunity for potential deals that may occur both in CD and RD. So I think it's a balanced adjustment of where we are and what we know right now. Anders Danielsson: Graham, I will take the last question on the data center. We have been talking about the data center market for quite some -- few quarters now. And it's a good opportunity, important part of our operation as well, especially in the U.S., but we also see some investment in data center here in Europe. We believe it will continue. So we have a good pipeline. We have repeat customers, and we saw that the order intake in Q4 was really good, close to SEK 10 billion. So I'm confident in that, and we are well positioned to take advantage of that market going forward as well. Graham Hunt: And maybe just one quick follow-up on the capital allocation. Are you considering any other investment opportunities given your flexibility on the balance sheet beyond your core business lines around Commercial and Residential Property, whether that's in -- you have been in the past in PPPs or some of your peers are looking at data center development itself. I just wondered what your thinking was around that. Anders Danielsson: Yes, I wouldn't rule it out, but our main focus is on the core operation, Residential and Commercial Property Development and also that we will continue to invest in the -- our own portfolio within Investment Properties. That's for sure, to build that portfolio just above SEK 8 billion today, and the target is between SEK 12 billion to SEK 18 billion over time. So that's the focus. Antonia Junelind: Thank you, Graham. So we will now continue with the next caller. Operator: The next question comes from Albin Sandberg with SB Land Markets (sic) [ SB1 Markets ]. Albin Sandberg: Sorry, SB1 Markets that would be. But a question on the reversal of the U.S. provision. Pontus, you mentioned that -- you said it was business as usual when you reverse this kind of provisions when you feel sure enough about it. So the question is if you could quantify if there are substantial left of these provisions? And how long are they dated? Are we going back to the 2017, 2018 issues? Or that is too long to go back? That would be my first question. Pontus Winqvist: Okay, Albin. So I'll try to answer. When it comes to provisions or potential, this was actually a claim settlement. And you -- what is happening here is that we were not taking any kind of profits when there were claims there that was connected with some uncertainty. Then when this was solved, this situation, then we released that part of the claim. And there are, of course, other potential claims out in the project portfolio, but it's nothing that we can comment also for the future. They can happen, and they will probably happen from time to time when we have some kind of issues with our clients. So I would say it's a part of the regular business. But this was, of course, quite big. Normally, they are smaller amounts, and then we don't think that there are any reasons to comments on those. But when we have this $43 million, it's substantial, and therefore, we think it's worth for you to know. Albin Sandberg: Great. And any comment about how old project this was related to? Was it a new one or older one? Pontus Winqvist: It's completed, I can say. Albin Sandberg: Okay. And my second and final question was on the starts in Residential. And you mentioned that we should look upon it on a rolling 12-month basis, still see you have a quite positive market outlook for that business. So I just wondered were there any specific reasons for no starts in Q4? I don't know what that could have been or -- because maybe I would have expected a little bit higher number for starts. And whether there's a sort of, I don't know, if you can call it, a catch-up effect heading into 2026 because of the fact that there were no starts in Q4? Anders Danielsson: Yes. I would say that the lack of start in Central Europe in Q4 is not any signs of lower market outlook. We believe, in that market, we have a good pipeline, but it's -- if you look at a single quarter, we didn't have any project, was ready to start in the fourth quarter, but we are working with the pipeline, and I'm confident in our position going forward. Antonia Junelind: Thank you, Albin. And I will just check now with the operator here. It looks like we've come to the end of the list of people that want to ask questions for us here. Can you please confirm that? Operator: There are no more questions over the phone. Antonia Junelind: Perfect. Thank you very much. So that means that we have answered all the questions that were here for us today. So I would like to first say thank you, Anders and Pontus, for your presentations here. And I would like to say thank you for all of those that joined us here in the studio in Stockholm. And lastly, thank you to those of you that watched us online. A recorded version of this webcast will be available on our web page shortly after this. And we will be back with more comments and presentations when we release our first quarter report in May. Thank you very much, and have a lovely day.
Operator: Welcome to Balder Q4 Report 2025. [Operator Instructions]. Now I will hand the conference over to IR Jonas Erikson. Please go ahead. Jonas Erikson: Good morning, everyone, and welcome to this call for Balder's Q4 and Full Year Results 2025. With me in the room, I have Erik Selin, CEO; and Ewa Wassberg, CFO. And we will run through some slides as usual, and then open up for questions. Erik Selin: Erik here. If we look at Balder at a glance by year-end, we have a portfolio value of SEK 229 billion, and the composition is 54% resi and 46% commercial. Occupancy rate at 95%. We have good liquidity, SEK 24 billion, debt to assets, 48.1% and NAV is SEK 94 in this quarter. Looking at the Q4 numbers specifically, we have rental income and NOI up 4%, and it's important to bear in mind that this is in Swedish krona that has been pretty strong lately. Profit from property management in earnings capacity goes down 7%, and that is connected or explained by our proposed distribution of Norion share as a dividend to the shareholders. And also important to just bear in mind that if we look at year-end figures, the dividend is roughly SEK 5.25 per Balder share, but NAV will decrease SEK 4 per share. And like-for-like rental growth is in the positive territory of 2.7%. And here, we have the earnings capacity then updated in more detail. And there you can see Norion effect is on profit from associated companies that goes down, but that is totally explained by the Norion distribution that we will most likely do after the AGM. So now it's the balance sheet booked as another asset that will be distributed, and that's why it will not be included in earnings from this year. So with that, we end up with SEK 6 billion and SEK 5.06 per share ex-Norion. The portfolio is 80% in larger city and capital, as always, and we have the usual one, Helsinki, Stockholm, Gothenburg, Copenhagen. And you can see the split also residential, 54%, as I mentioned, and then you have office 15%, retail, 12% and logistics, 7%. The longer-term trend is that we have been having quite a good increase over the long time period in profit from property management. This curve is only 10 years. But if we look back another 11 years, we have a long good trend. The latest year has been sort of flattish, and that is, of course, interest rates moving from 0 and upwards. And in our case, we more or less compensated with higher income. And we also had a lot of fixed interest rates. So the effect came gradually. But then having said that, if interest rates are flat, then the long-term trend will be that this curve will start to go upwards again. And here, we can also see development for property value and LTV and occupancy. So LTV, 48.1% and occupancy now is 95% is rough -- it's almost always 96%, but every now and then it happens with 95%, and this is whole percentage points. So behind that is actually sometimes that move up or down, and then we round it up to 2%. So we think this is an okay result, and thanks to our organization for achieving this stable development year after year after year after year. Ewa Wassberg: Looking at the financing, the current mix of funding is largely where we want to be, which is 50-50 split between bank and bond financing. The level of available liquidity is in line with last quarter, which is a little bit higher than usual. And we will also continue to have slightly higher liquidity during '26 due to higher concentration of maturities in the beginning of '27. The interest rate fixing and hedging ratio is stable and the average interest rate is unchanged since last quarter at 2.9%. Yes. So here, you can see the long-term trend of the portfolio value in relation to the net debt to total assets. As you can see here, net debt to total assets continue to go down a little bit. And the current encumbrance level is at 23.4%, which also is a reasonable expectation for the future given our funding mix that is somewhere between 20% and 25%. So over to the maturity structure. If we start with the bank loans, the maturity structure is a result of the Swedish bank financing. It's typically quite short, even though we have bank financing in other countries as well. So on the bank side, it has been business as usual, rolling maturities. If you look at the bond side, we have more maturities in '27, which is the reason for the higher liquidity position. The funding market is very strong. And in such a situation, we might maintain a slightly higher level of liquidity as the cost of additional liquidity is small relative to the security it provides. And here is more sort of a structural overview of the funding and capital side. As we have said before, we will continue to have a balanced capital allocation until reaching our target of 11x net debt to EBITDA, even if the distribution of the Norion shares as a dividend will temporarily work in the opposite direction. Here's also an updated calculation on the convertible bond, which when that is converting, assuming that we are above strike price, obviously, will have a very positive effect on the indebtedness number as well. And in terms of funding strategy, there is really no change compared to previous quarters. And that was actually all from us. And on that note, I will leave the floor and open up for questions. Operator: [Operator Instructions] The next question comes from Stefan Andersson from Danske Bank A/S, Danmark, Sverige Filial. Stefan Erik Andersson: A couple of questions -- sorry, a couple of questions from me. Starting on Norion there. Just a little bit curious on the technique on that one. Earlier distributions we've seen, there's an -- just before the distribution, there is an adjustment of the value to market value. So like it was a write-up made when Anaheim was distributed. Now I guess 2 questions in one here. I guess the valuation right now after the drop here is similar to what you have in the books on group level. But will you have such an adjustment of value before distributing? Or are you going to net it out somehow? That's the first question. And the second question is when you say distributing SEK 5.50 and the NAV drop is 4%, is that based on the year-end valuations? Or is that based on today's valuation? Jonas Erikson: Yes. So there won't be any sort of value change before the distribution. So the distribution is sort of separated as of year-end. And now it's booked as an asset that will be available for distribution and the NAV will be adjusted sort of accordingly. It's not going to be any value increase or realization gain booked through the P&L. And the numbers are per year-end. Stefan Erik Andersson: Perfect. Then secondly, B shares. I'm a little bit curious if you could maybe mention a little bit about why are you thinking about issuing B shares? Is it -- is this something you need for the Norion distribution? Or is it has anything to do with the hybrid? Or is there anything else? Erik Selin: No, we don't need it for Norion or hybrid. It's just to have optionality going forward. So it's a practical way to be able to do it. And then we add that when we have the AGM instead of potentially if we need it later, have an EGM. Stefan Erik Andersson: Okay. Then I'm a little bit curious about your thinking about repurchasing your shares. I mean the -- with the NAV growth and the stock flat, the discount is increasing even further. I've seen that you made some acquisitions, and I guess you have to evaluate the capital allocation on that. So right now, do you see actually any good options or alternatives to the Balder share actually? Erik Selin: Difficult to tell beforehand. But I think we can do both, as we said last quarter. So it's possible that we buy some shares and do some investments at the same time. But the split between those is a bit depending on share price and what possibilities comes around. Stefan Erik Andersson: Yes. On the co-ops, the apartments business there, with the loss that came through and has come through the year, what is your thinking there? Have you started to discount stuff? Or is it more a volume issue that makes those unprofitable? Erik Selin: No, we have running cost, and we took over some apartments in Karlatornet that was slightly negative when we sold them. So it's highly likely that, that figure turned positive this year. Stefan Erik Andersson: Okay. Good. And then I guess I won't get an answer, but I answer anyhow. I mean, I hear what you're saying with the liquidity that you've had now for a while on a relatively high level versus history and even though you say it's cheap, but it's still costing you a little bit. Is that something that you use to have some maneuvering room to do some bigger transactions? Or is it purely just to wait to pay out in '27? Jonas Erikson: The majority of it is because we have a lot of maturities in Q1 '27. We have 2 euro benchmark bonds maturing in the same quarter. So that in itself will lead to a liquidity position that is sort of SEK 5 billion, SEK 6 billion higher than usual up until we've had those maturities. Then I think you also have to look at how the pricing in the funding market is from time to time. If you see attractive pricing, if you have a lot of incoming interest from investors, you might issue a little bit more or you do it a quarter or 2 before you have planned. If you issue a bond 1 or 2 quarters, ahead of schedule, and you can do that at attractive pricing that might still make sense even if you actually carry a little bit higher liquidity cost. We're trying to optimize and think sort of 24 months ahead in terms of maturities, liquidity needs and how the market is currently and what we see on the horizon. And we try to optimize it from there. Operator: The next question comes from Jan Ihrfelt from Kepler Cheuvreux. Jan Ihrfelt: A couple of questions from my side. I start off with rental agreements on your resi here in Sweden. How have that developed? And are you able to give any guidance on maybe a possible range where it could land? Jonas Erikson: So most of them are finalized. So we landed at slightly below 3.5%, 3.2%, 3.3%, I think. Jan Ihrfelt: Okay. Okay. And my second question relates to Finland. There has been a quite heavy oversupply in the market there for some years. We see some early signs on maybe lower vacancies, but could you give a short -- I mean, put a little bit more flavor on that market just in terms of vacancies and rents? Jonas Erikson: I think there's no change to our sort of outlook for the medium term. There's been quite a drop-off in new supply coming -- de facto coming to the market. And with that, we know that occupancy should go up steadily. And at some point, there will be an increased sort of pricing tension in the market as well. It's very difficult to find this, I think, on a quarterly basis. What we can see in the later part of 2025 is that it actually has slightly less impact on the occupancy compared to what we had expected. But that might also be temporary issues in terms of how migration flows move. So the official statistics in terms of people moving into the urban areas is still very strong actually. So we feel that the picture is very similar to what we've said all along, and it's difficult to time it from a quarterly perspective. But if you think about the big picture, I mean, we've had in the last 7 or 8 years, hardly any rent increases. At the same time, disposable incomes are up by 25-plus percent. There's no issue with affordability. We know that new supply is falling off a cliff. And we see that in some of the cities where that has already happened, you see pretty quick recoveries in occupancy actually. And at the same time, you have a sort of unabated movement of people to the urban areas. So from a pure mathematical standpoint, something new needs to happen for this not too many recovery in the coming couple of years is our view. And let's see when and how and in which order things happen. Jan Ihrfelt: Okay. If I interpret, you're right that the lower vacancies hasn't impacted the rent levels to any extent or. Jonas Erikson: No. I mean there's always some seasonality in the Finnish market. So we can't see any sort of trend shift yet. That's a little bit too early, I think. Jan Ihrfelt: Okay. And my last question regards your key ratio net debt to EBITDA, which is currently at 12x. You have a target of 11x. And my question is really how eager are you to bring it down to 11x for 2026? Jonas Erikson: We've said that's a long-term target. And obviously, the Norion distribution will deteriorate that number slightly. So we set us back a little bit. So I think you need to look at it. I think we've said for a few quarters now that we care more about the direction and the pace of change in the current market conditions. We also know that we have in 2028, the convertible presumably converting into shares, which will obviously support that number slightly as well. So I think you should see it as a directional statement and in terms of where we want to end up, but it's not the 2026 target. Operator: The next question comes from John Vuong from Van Lanschot Kempen. John Vuong: On the Class B shares, so hypothetically, if you were to issue those today, what would you do with the proceeds? Jonas Erikson: I mean there are no such plans. I think it becomes very speculative. We haven't sort of made this disclosure because we have any plans of doing a new issue of the shares. We want to get it into the docks so that we have the opportunity and possibility to do so. So there are no plans currently at all. So you shouldn't see this as a preparation for raising more capital. John Vuong: Okay. That's clear. And then if you -- given that you're looking into this flexibility, how do you think about dividend distributions on Class A and B shares? Jonas Erikson: I think we -- I mean, we have had a capital allocation that has been very flexible for a very long time. And I think that we will be eager to remain flexible on that. If we, hypothetically speaking, should have the shares outstanding, we obviously need to change the dividend policy to accommodate that. But I wouldn't expect that you shouldn't draw the conclusion that, that also means that we will become a regular dividend distributor on the B shares. And we will pretty much, in that case, do what is required to cover the coupon or the dividend for the B shares. And then the rest will be a capital allocation decision as per usual where we really will always prioritize investing in the business and/or doing share buybacks as a means of employing capital, then if we sort of really find no attractive ways of employing capital in an accretive way, then obviously, at some point, the distribution of a dividend becomes the remaining choice. But that principle will still stand in regards to the B shares. And there might always be a little very small dividend because from a rounding error perspective because you can't pay exactly the amount to cover the B shares only, but it's not going to be any material numbers as a default. Operator: The next question comes from Lars Norrby from SEB. Lars Norrby: A couple of questions on the earnings capacity. Now focusing on the profit from property management line, SEK 6 billion. It was SEK 6.6 billion in the Q3 report. And obviously, you're now excluding Norion. What would the number have been in the Q3 report, excluding Norion? Is it -- we see the change in the associated company line some SEK 700 million lower. So would it have been SEK 5.9 billion? Is that the way to interpret it? Jonas Erikson: Honestly, I don't actually have the exact numbers we have in the model. I mean they're always -- given that we give rounded numbers to equal or sort of rounded SEK 100 million, I don't want to say which side of that we would end up if we hadn't had Norion in Q3. But mind you also, there's quite a lot of FX movement that has taken place in the last couple of quarters, and that's obviously impacted the total profit from property management side as well. So I think that's worth keeping in mind, you've had some weakening, especially year-over-year, you've had some pretty noticeable weakening of the NOK, which impact the associate line in terms of you also have obviously the strength vis-a-vis the euro, which will impact everything we have in Denmark and Finland. So that's part of the development that you need to factor in as well. But I think if you just look at the way things are accounted for, Norion is accounted for as a proportion of their -- it's pretty easy to the precise contribution for last year. Lars Norrby: Okay. Second question on the earnings capacity. What type of impact and to what extent have CPI indexation on the commercial side from the 1st of January and for that matter, new rents in particular are in the Swedish resi portfolio, how much has that affected rental income in the earnings capacity since it's unchanged compared to Q3? Jonas Erikson: We always factor in all negotiations discounting and all the indexations that we know of when we cross the year-end. That is being factored in. I would say the unchanged part is more of an FX movement. It's currency who lowered down the number actually. So in constant currency, it would be higher, of course. Operator: The next question comes from Fredrik Stensved from ABG Sundal Collier. Fredrik Stensved: I just have one follow-up. On the occupancy rate, specifically for the industrial and logistics segment, it looks to be down 3 percentage points Q-on-Q. In the same time, rental income is up. So I'm trying to sort of understand the sequential move. Is it Balder acquiring vacant properties in this segment? Or is there something else happening here in between Q3 and Q4? Jonas Erikson: I actually need to dig into that number a little bit further. I don't quite recognize it. But I know we've done some acquisitions that has impacted the number, as you say. But I can't say whether that is the full explanation. Can I get back to you, Fredrik, on that? Fredrik Stensved: Yes, absolutely. Operator: The next question comes from Pranava Boyidapu from Barclays. Pranava Boyidapu: You mentioned that Norion Bank is no longer included in the profit. So it's not in the P&L numbers. Does it mean that it's also not in EBITDA and hence, the net debt-to-EBITDA 12x leverage is already excluding Norion. So upon distribution, it shouldn't change on that basis? Jonas Erikson: No. So sorry for being unclear there. So it is included in the reported numbers for Q4 and the full year 2025. But in our report, we have something called the earnings capacity, which is more of a snapshot as of the 31st of December as a proxy for annualized earnings given the portfolio we have at the 31st of December. And in there, we have excluded Norion. So if you want to look at that as some kind of forward-looking earnings capacity, there, Norion is already excluded. But the 12x net debt to EBITDA still includes Norion shares. So that will be impacted by 0.89%, something like that negatively. Pranava Boyidapu: And you also -- you're doing your share buyback presumably, but also you talk about the convertible in 2028. Would you say that taken together, the impact on leverage should be broadly neutral? Jonas Erikson: I think the major impacting factors between now and if you take a 2-, 3-year perspective is obviously that we have an underlying growth in our earnings and EBITDA. We have a cash flow annually that improves the balance sheet position as well. So I think those are sort of probably more impacting in that time horizon compared to the buybacks that we've done so far at least and compared to the conversion of the convertible. So the convertible would be corresponding to roughly 1 year's free cash flow for the company. So it more depends on how we sort of steer the balance sheet from here in terms of growth opportunities and potential buybacks depending on where we find the most value really. Pranava Boyidapu: Sure. That makes sense. And then just one final thing for me. There is a small amount left on your hybrid, which -- who have a first call in 2026. So I was wondering, is that included in your bond maturities as 2026? Jonas Erikson: No. So that's recorded at the formal maturity, which is longer. So we think we have sort of a couple of billion SEK to SEK 3 billion outstanding remaining of that, but it's not recorded in the '26 maturities. Operator: The next question comes from Andres Toome from Green Street. Andres Toome: A couple of questions from my side. Firstly, just maybe on Finland residential. I was just wondering what are the sort of implications you're seeing in the market from the housing allowance rolling off and then sort of stricter rules also on permanent residency coming in, in January. Is that sort of impactful for the rental market as you see it? Erik Selin: It's difficult to know exactly what is doing exactly what it should have some effect, but it's -- for us, it's impossible to quantify it. But I mean, it's happened. So from now on, it's already -- I mean, it's there. Andres Toome: Right. And then I guess the housing allowances, they already were coming off. So is there, I guess, some sort of a demand impact you're seeing maybe on smaller apartments because I guess students would have used them a lot as well in the past. Erik Selin: Most likely, but I mean, it's impossible to know exactly right. I mean -- but most likely, that have been the effect, most likely. It must have some effect if you take away subsidies. But for us, it's impossible to quantify it. But could explain some of the weakness, absolutely. Jonas Erikson: There is a tendency in 2025 that the population growth does not fully correspond to the occupancy increase. There's a slight dispersion between the 2. So that suggests that there, on average, should be slightly higher number of people living in each apartment compared to the previous year. That might be one such impact. But I think the important thing from our perspective when we both sat around the business and we think about it strategically is that, as I said before, you've had a number of years with too high supply into the market. There's one of the best affordability situations that we've ever seen. And we all know that the Finnish economy has been pretty weak in the last few years, but it doesn't take away the fact that there is a large need for housing in the urban areas. We have that available. We feel pretty good about the sort of medium-term perspective in that sense. Then you might always have some of these more technical factors impacting the quarterly development from time to time. But I wouldn't say it changes our view on a couple of years horizon. Andres Toome: Understood. And then maybe on Denmark residential as well. I guess there was quite a lot of noise in Copenhagen with municipal elections around rent controls and things of that nature. But I guess what are your views around that in the sense that could this become sort of a national debate? And could it be the case that buildings built after 1992 could become sort of strictly regulated as well? Jonas Erikson: I think there's already a regulation in place in Denmark, which basically stipulates that when you first move into an apartment, then there's a market rent setting from there on, the property owner can only index by CPI. That's sort of fair model that is transparent and easy to sort of understand for all parties, definitely protects the tenant. And in some cases, you obviously have buildings where tenants have been staying for a very long time. So -- but let's see what happens. It's impossible, I think, for us to speculate on potential regulatory changes. But there's even been discussions in -- by some of the political parties in Sweden to adopt the Danish model into the Swedish system because it is balanced between having on one hand, the market economy at the same time protecting tenants. But let's see. I don't have any sort of great insights into what might happen to the Danish regulation. Andres Toome: Got it. And then final question, just on capital allocation. I just wonder where do you see sort of best opportunities right now if you look across sort of your own portfolio, where would you like to add exposure also being cognizant of what's available in the market? And I guess, adjacent to that, for hotels, you have some exposure and there's this large portfolio from Pandox on the market. Is that something of interest perhaps? Erik Selin: I don't think we will be buying from Pandox, if I'm guessing. I don't think so. But otherwise, we're very happy with the hotels, and it's been a good year in -- especially Copenhagen, if you look at RevPAR and occupancy and stuff. Otherwise, we do, as always, we look at the -- basically in the Nordic market and try to see what makes sense to add to the portfolio. to increase the shareholder value over time. We don't decide before what's good or bad. It's all about pricing. Operator: The next question comes from Othman El Iraki from Fidelity International. Othman El Iraki: Just a follow-up on previous question on the hybrid. Just taking your latest thinking, are you still thinking that you don't need the instrument in your capital structure and that you would call this year? That's my first question. Jonas Erikson: We haven't announced that we will make an announcement before we call it and say, but in the past, we always call it first call date. We felt -- and we've said this before as well, we felt that the hybrid instrument is a bit complex as it says. It tends to be very attractive cost of equity in good times and less good times in the credit market, it becomes a bit more cumbersome to roll the outstandings forward. And you also have an optionality in there that is embedded that you pay for, but in practice, you can't really utilize. So far, we've come to the conclusion that we are not looking to issue any new hybrid at this point. And obviously, things might look different, I guess in the last, let's take that in. Othman El Iraki: Okay. And my next question is on the Norion distribution. Have you been in touch with S&P? And are they fully involved in that? Jonas Erikson: Yes. I mean we've been -- this has been announced quite a long time ago, and the growth informed even before it was announced as well. So this is already sort of part of the plan and should be part of their modeling for the future since -- well since 6 months back basically. Othman El Iraki: Okay. So you don't expect a negative reaction from S&P? Jonas Erikson: No, that would be immensely surprising. Othman El Iraki: Okay. Okay. And my last question is, given where the bond markets are at the moment, pretty hard to say the least, how does that compare to your bank funding at the moment? Jonas Erikson: A little bit depends on how you look at it. It's always difficult to compare side by side because one is secured, the other is unsecured. You might have slightly different tenor structures, et cetera. But I would say, currently, we are roughly on par between bond financing and bank financing, a little bit depending on which market and tenors you look at it. Bonds might actually be slightly higher than the bank financing in the short-term. Operator: The next question comes from Pierre-Emmanuel Clouard from Jefferies. Pierre-Emmanuel Clouard: Yes. Just coming back on the Class B share that you may want to issue. Just to fully understand how you are seeing it. So you said that you want to streamline and simplify Balder with the Norion disposal, which is a fair assessment in my view. But you want to add a new class action that would, in my view, further complexify the structure. So just to understand how do you view this item? Is it equity or perpetual debt for you first? And if that's equity, would you keep your current internal metrics unchanged as like net debt to total assets of 65%? Jonas Erikson: Yes. So there's no change in our view on the financials or credit metrics at all. Class B shares -- sorry, we should probably have specified that in the report. So the Class B share is an instrument that is pretty common in the Swedish market, which is a fully -- it's an ordinary common equity class of shares. The differential is between the B shares or the current outstanding shares is only in terms of the dividend distribution. So that's the difference. And in the Swedish market, the custom is that you always pay a dividend, which is enough to cover the dividend coupon on the B shares at least. So it's actually from a credit metric standpoint, capital standpoint, there is literally no change. There's no difference in -- compared to ordinary shares in a liquidation situation. There's no difference from an S&P perspective. There's no difference from an accounting perspective. It's all part of the same common equity. The only thing is that you differentiate between 2 share classes and who gets a dividend first. Pierre-Emmanuel Clouard: Okay. I'm asking the question because as you know -- as you may know, some investors could classify the Class B shares as perpetual debt, but it's open to debate. And my second question. Jonas Erikson: Sorry to interrupt you. I think there are instruments that might be open to debate. I don't think Class B shares is one of those that might be open for debate because there is no -- in the past, there's been quite a lot of companies that used and ourselves included actually a number of years ago, they use pref shares of various kinds. Those had in addition to the dividend preference, they also had a differentiation in a liquidation situation and they also had accumulation of unpaid coupons. So the difference here and the reason why S&P credits this as a fully 100% equity and why it's accounted for as equity is that there is no such thing. So if the company can afford to pay a dividend, these guys would, in theory, then get their dividend first. But there is nothing binding the company to -- in a stressed situation, leaking cash flow. So this is actually not one of the instruments that is difficult to interpret in that sense. Pierre-Emmanuel Clouard: Okay. I understand. And my second question is on your top line growth expectations. So can you guide us through the like-for-like rental growth for 2026? And what is your estimated indexation and occupancy changes for this year? Jonas Erikson: No, we don't give any outlook in that sense. So in 2025, we had a like-for-like of 2.7% for the full group. This year, we will have -- if you just look at the delta, this year, we will have slightly lower indexation for the Swedish resi portfolio. Then I think in Denmark, there shouldn't be a large change. The Danish inflation and CPI indexation has been pretty low for some time now already. So that should be pretty similar to what we saw last year. There's not been any dramatic changes in the Swedish CPI numbers either on the commercial side. It will more be a matter of what pricing tension you will see in the market based on how occupancy moves. And then the Finnish resi market, as I alluded to before, we see that occupancy is going up. And at some point, we should have slightly better pricing tension in that market. It hasn't happened so far. Let's see when that starts happening. It's difficult, I think, to give a precise prediction of that. But the trend, I think, is in our favor there. So I think that's broadly what I can give you. So it should be fairly similar, slightly lower probably due to the Swedish resi on a pure like-for-like basis, then obviously, you will have the reported numbers being impacted by everything from transactions to FX movements, et cetera. Pierre-Emmanuel Clouard: Okay. I see. And maybe a final question, as a follow-up on Swedish resi. Do you see a lot of opportunities currently on the market? And do you have any clue on the pricing? Jonas Erikson: Do you mean sort of final transactions in the property. Pierre-Emmanuel Clouard: Yes, on portfolios that could be on the market currently, actually. Jonas Erikson: If you look at the transactions that we have done in the last 12 to 18 months, and we tend to like do transactions where we can get an accretion in terms of yield compared to what we already own. I mean the first test is obviously that it needs to be in a location where we want to be and where we have our property management organizations in place. But other than that, we want to have an accretive impact on the full portfolio when we do incremental transactions. And we have been extremely tilted to the commercial side in the last 18 months and the transactions we've done on the Swedish side. SATO did an acquisition of 1,000 apartments last summer in Finland. We've done 1 or 2 smaller resi transactions in Sweden as well in particular cases where we already have a decent footprint in some area and then another property comes out for sale. If we can get a decent yield on that, that might be worth doing. But there's no -- I think the pricing is actually fairly both on centrally located commercial and on resi in Sweden, it's not that easy actually to go out and buy things that are accretive compared to our back book yields. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Jonas Erikson: Okay. Thank you very much, everyone, for listening in. You know where to find us if you have any follow-up questions during the day. And just feel free to reach out. Thank you.
Operator: Welcome to the Boozt Q4 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Hermann Haraldsson; and CFO, Michael Bjergby. Please go ahead. Hermann Haraldsson: Thank you, and welcome all to our Q4 [Technical Difficulty]. We will have the usual agenda for the presentation. I will present the highlights of the quarter and the business update before handing over to Michael for the financials. So next slide, please. Well, 2025 has been a defining and transformative year for Boozt. It's no secret that it was a challenging period where we faced a continued tough market environment. However, we have not been idle. We used the year to trim the organization to carry out excess inventory and make a deliberate shift in strategy between our 2 platforms, Boozt.com and Booztlet, focusing more on our premium side. And finally, we're also moving to a new headquarters in Copenhagen, and this is a major step that gives us better access to talent and position us in one of the capitals of the Nordics. Looking at the fourth quarter, net revenue grew 4% in constant currency. This is a slight acceleration compared with Q3. Growth was driven entirely by Boozt.com, which is already benefiting from a strategic shift towards a more premium in-season sales. On the profitability side, our focus on efficiency continues to pay off. And despite a competitive market and a high promotional intensity, we managed to improve our underlying EBIT margin. This was supported by efficiency gains across the entire value chain, proving that our leaner technology-driven structure is working and driving tangible results. The highlight of the quarter and also the full year is our cash generation. We delivered a record high free cash flow of over SEK 1 billion in the quarter, supported by our disciplined effort to rightsize our inventory. Basically, we have essentially derisked the balance sheet, leaving us in a very strong position as we enter the new year. Because of this strong cash position, we intend to continue returning capital to the shareholders through a new share buyback program later this spring. We are currently completing the SEK 800 million capital return we promised at our last Capital Markets Day, and we plan to continue distributing excess cash to the shareholders. Looking into 2026, our focus shifts from defense to offense. We are ready to start expanding our market share again as we target a gradual return towards double-digit growth levels. We have several growth drivers in place that I will cover in the following slides. So please turn to Slide #5. I would like to start my presentation by looking at the journey we've been on so far. Since our launch in 2011, the industry and Boozt as well has moved through distinct phases. from early expansion and price leadership to the surge in online penetration we saw during the COVID years. The last 2 years have been a period of deceleration for the industry, marked by a decline in consumer confidence and the stalling of the post-pandemic online growth. On top of this, we at Boozt have also had currency headwinds due to the strengthening of the SEK. However, as we enter 2026, we are moving into a new phase that I would like to call a rejuvenation. The next wave of growth will be driven by our leadership in service and convenience and AI is the engine that will drive this, making the customer journey more seamless, faster and more personal than ever before. This push should then be supported by a healthier Nordic consumer as market conditions are likely to improve gradually throughout the year. Next slide, please. To fuel our return to growth in 2026, we have several engines running in parallel. We see small signs of market conditions beginning to turn with fiscal support for the Nordic consumer and likely some pent-up demand coming through. We are meeting this with a stronger assortment. This means bringing in new premium brands and ramping up our inventory to make sure that we have the right products for the market. We're also pushing forward with personalized shopping using targeted curation and personal prices to make sure that every customer feels that the experience or shopping journey, if you will, is built just for them. Another big milestone is the relaunch of the Club Boozt in April. It's based on a new concept designed to be much more commercial focused and drive direct sales. Finally, supporting all of this is our AI integration, which is driving both the consumer journey and our overall operational effectiveness. So next slide, please. Technology has always been the engine at Boozt, and we are now moving fast to embed AI into the core of our operations. The projects I'll highlight here are just examples as AI is already a part of our daily operations across the board. Broadly speaking, AI is a primary lever for our efficiency from optimizing the warehouse and forecasting demand to automate routine tasks like invoice handling and product categorization. By letting technology handle the heavy lifting, we're able to operate a much leaner and much more efficient organization. This is also changing how our customers shop. We've just gone live with AI-powered search on Boozt.com, delivering much more intuitive and relevant results. Along with the visual search and AI generated inspiration, we are making product discovery faster and more personal. This, at the same time, as our service bots already handle 35% of inquiries, letting us scale without compromising quality. And finally, we have just recently launched a virtual shopping assistant to act as a personal shopper through natural conversation. Looking ahead, we intend to stay at the forefront of this development. We are already in talks with Google and OpenAI about agentic commerce and how AI agents will shop in the future. Our approach is quite simple. We want AI to help customers find the right products, but we stay disciplined about how the actual buying happens. This ensures that we neither lose the curated feel nor the high average order value that makes Boozt unique. So you might say that we are, in just following these new standards, we are positioning Boozt to lead through them. So now let's move on to the next slide, where we continue to see the department store model prove its worth, especially in a year where fashion demand remains soft. By offering a true department store experience, we create a natural hedge. When one category is muted, others step in to support the overall business. In 2025, 44% of our revenue on Boozt.com was generated from categories outside of fashion, and this is up from 42% last year. Our goal remains to move this towards 50% in the near term. The diversification, of course, is not just about risk management. It's also about the bottom line. As we have stated on earlier occasions, multi-category shoppers stay with us longer, return fewer items and spend more per order. Today, 54% of our customers on boozt.com shop from more than one category. This is a clear step-up from 52% last year, showing that our efforts to encourage cross-category discovery are paying off. Next slide, please. And if we look closer at how our customers shop, the trend is actually quite encouraging. We are seeing robust growth across the board for customers buying into multiple categories. As you can see on the slide, we saw an increase of between 6% and 9% in every group of customers shopping from 2 to 6 different categories. And this is exactly what we want to see. It shows that once we get customers into the Boozt ecosystem, they find value across our different departments. Overall, our active customer base on Boozt.com stands at 2.8 million, which is a 2% increase over the last 12 months. While we always want to grow faster, the stability in a tough market really shows the strength of the department store model in building deep customer loyalty. So with that, I would like to hand over now to Michael and the financial review. Michael Bjergby: Yes. Thank you, Hermann, and good morning from my side as well. I will start out by presenting our financials for the quarter, which were characterized by solid profitability and also record free cash flow. Afterwards, I'll go through the details of our outlook for 2026. Please go to Slide #11. So we grew 4% in constant currency, which was just slightly above our growth in Q3, but it is important for us that we continue to improve our growth momentum. And across the value chain, we are laser-focused on accelerating growth even further as we move ahead. The incremental growth improvement was, to a large extent, driven by an increase in activity in women's fashion, which is our largest product category. As previously announced, we have created a sharper distinction between Boozt and Booztlet, and we saw the results in September, but it really came to full effect here in Q4. As planned, we have generated solid growth at our more premium side and negative growth on Booztlet. The change of strategy between the 2 sites was a tough decision because we knew it will impact our growth short term, but it is the right long-term strategy and will support both growth and margins going forward, but it's also accretive to our relationship with our brands. From a country perspective, the growth was relatively stable across our key markets, but I want to highlight double-digit growth both in Boozt and Booztlet in Norway, which is a market where we see continued great potential and where we are heavily underrepresented. Now please go to the next slide and some comments on our profitability. The profits were strong in Q4 with an improvement of 0.9 percentage points on the EBIT margin if you exclude the effect from last year where there was a positive one-off of customs from Norway. Q1 to Q3 benefit was included in Q4. So in that sense, Q4 was distorted, but the year is comparable. The gross margin was under pressure from 2 external headwinds: one, the continued SEK appreciation; and two, our promotional environment driven by price-sensitive consumption and especially in the Black Friday period. This is not specific for Boozt, but something that has been communicated consistently also by peers on the stock exchange and particularly related to the Swedish market. The FX impact contributed by a bit more than half of the decline in gross margin. Even with the negative development on the gross margin, we delivered almost 10% EBIT margin driven by operational efficiencies really across the value chain, and this is even without any material leverage from higher revenue because net revenue only increased by 1%, but rather, it's really true cost increases across fulfillment and marketing and administrative costs. It illustrates the strength of our business model and how scalable it is. And overall, we delivered a small EBIT improvement for the year, even with some FX headwind. Now please move to Slide 13 and our cash development for the year. We delivered record free cash flow in 2025, and the cash conversion was far above 100%. And needless to say, this is not sustainable in the long term. But the year and the cash really reflects that in an inventory business model like ours, where working capital swings far outweigh cash generation from profit, then there will be fluctuations. And fundamentally, Boozt has a very strong cash flow generation, easily above 70% of EBIT over the cycle. 2025 was a year of consolidation and improving the health of our inventory and working capital really was a driver of the free cash flow. So in rough terms, 50% of the cash flow was driven by normal profit cash, which is sustainable long term and 50% was driven by working capital improvements. Please go to the next slide. We ended the year with a net cash position above SEK 1 billion, and it should be noted that year-end is the time of the year where working capital requirements are the absolute lowest. So this is not reflective of the excess cash available. But we want to be disciplined in returning excess cash back to shareholders, which is why we are today announcing a new share buyback program. And with that, we commit to distributing SEK 300 million back to shareholders in 2026, which comprises more than 5% of our market cap based on yesterday's closing. We will continue to generate and optimize cash and return it to shareholders and combined in '25 and '26, share buybacks are now expected to amount to around SEK 750 million or 14% of the market cap based on yesterday's closing as well. So with this, I have finished my financial review for 2025, and we will now look forward and turn to the outlook for 2026. Because as Hermann described, we believe that we are going into 2026 in a position of strength. And we have the right quality and quantity of our inventory. The organization is strengthened, and we have lined up a number of commercial initiatives that can drive growth, not least within AI. As such, we have created an expansion plan, I think a growth plan to deliver this growth acceleration during the year, and we are putting capital behind it, which is why we invest both in inventory, people and commercial initiatives to drive that growth. Our outlook reflects the plan. And while we do not want to focus on what is out of our control, I will, before we jump into the details, consider the implications of the FX development on Slide #16. Firstly, related to the FX, I think it's important to understand why we are sensitive to FX movement. Boozt is a highly centralized business, and that makes a difference. We don't have subsidiaries across the globe where revenue and cost exposures offset each other. We do everything from Sweden. And as such, we have our inventory recorded in Swedish krona, fulfillment costs, administrative costs, all in Swedish krona, and we get revenue in many other currencies. As an example, when we lose revenue from NOK depreciations against SEK, then there's around 90% drop-through to EBIT because we have very limited cost in Norway, only a bit of distribution and marketing cost. So in 2025, we lost more than SEK 160 million in revenue from changes in currency and with a relatively high drop-through to EBIT. And with the recent development in December and January, currencies will remain a headwind in 2026, even though our Danish kroner exposure will be much lower for March after our headquarter move. As such, you can see the rates here on the slide to the right-hand side, and it's based on yesterday's fixing from this [indiscernible] and implies more than 2% negative impact on revenue. This can be calculated from the table to the right because euro and DKK represents, as you can see, almost 50% of revenue and has declined by 4% if you compare the spot to the average of 2025, which means that 4% time 50% implies 2 percentage points on group revenue alone from these 2 currencies. On top of this comes depreciation of smaller currencies against the SEK. So with the estimated drop-through, then this has an effect of 0.6 percentage points on EBIT margin at the current FX rates in 2026. Now please go to Slide #17. So we plan to accelerate growth and increase margins and thereby growing profit by double-digit amounts even despite of this currency headwind. We are guiding constant currency growth of 3% to 8% and an adjusted margin of 5.3% to 6.5%, which includes the negative impact from currency. It is important to highlight that we expect growth momentum to accelerate through the year, and we will continue to look at the acceleration, thereby gradually building towards very strong growth in the second half. This is driven by an offensive inventory buying plan, and that's particularly the [ AV26 buy ], but also our commercial initiatives, which gradually will have effect. One of these initiatives is the launch of our Club Boozt in April. And the new concept is more commercially incentivizing and designed to drive growth. From a technical perspective, please note that this will temporarily impact reported figures because there will be deferred revenue recognition related to the programs' unused discounts. This may impact timing of revenue, but for the full year, the impact of both revenue and margins is expected to be very limited. This brings me to the margin where we implicitly are underlying delivering minimum 20 basis points improvement for the low end of our revenue range and for higher revenue, there is significant potential for further operational leverage. It should be noted that the drivers of the margin are different from 2025 because we expect to drive profitability through gross margin, while we continue to be more effective also on marketing and fulfillment cost ratios. The admin cost ratio is expected to increase. As we move to Copenhagen, the conversion of salaries from SEK to DKK will increase costs by approximately SEK 10 million to SEK 15 million, but this will be fully offset by lower costs related to social charges on the LTI program. But from an adjusted EBIT perspective, it will have a negative impact because the social charges for LTIPs are today booked as an adjustment. So from reported EBIT and from a cash perspective, it will be neutral. We also see a double-digit SEK amount related to our people and organization. This is new commercial initiatives, but it's also increased running cost of our headquarter in Copenhagen compared to our headquarter in Hyllie. We consider these important investments for both talent acquisition and our organizational development. CapEx is expected to amount to SEK 165 million to SEK 185 million, which is a bit higher than in 2025. The CapEx includes SEK 40 million one-off investment that we have already started at the warehouse, which relates to insurance compliance and does not really give any other benefit than improved compliance and the fact that we can have insurance at reasonable prices. On top of this, we have real, I would say, CapEx investments at the warehouse of SEK 40 million to SEK 50 million that support efficiencies and will create savings on the fulfillment line. And this year, our CapEx projects are focused on the return handling, but also the handling of what is classified as dangerous goods such as some beauty products. And these combined is very, very attractive investments. So with our continued underlying margin improvement, we are firmly committed to reach our 10% EBIT margin target in the midterm. Since we announced our target of 10%, we have had significant FX headwind, and we've also seen muted consumer spend. But regardless of the label, our focus is on delivering continued margin expanding every single year towards the 10% mark. Please move to my final slide of the day. So looking at cash flow in 2026, then as we also saw in 2025, we can easily deliver cash conversion of around 70%, and this includes even inventory increasing in line with revenue. But 2026 will be impacted by timing factors, which will be a benefit in the following years, particularly the exit tax and the inventory buildup with the cash outflows in 2026 will be beneficial to the cash flow in 2027 and beyond. Now with the inventory buildup, we're also able to overperform compared to what we have guided today if there is demand in the market. The one-off moving cost has been recognized from the income statement in 2025, but we have cash effect during 2026, and this relates to double rent, cost of restoration of the old headquarter and practical handling of the move, et cetera. Consequently, our free cash flow in 2026 is expected to be relatively moderate. As we continue to drive our margin, we will drive cash generation further, and this will create capital both for investments and further distribution back to shareholders in future years. That concludes my prepared presentation for the day, and I will now turn to Hermann for the closing remarks. Hermann Haraldsson: Thank you, Michael. And yes, to conclude, I would like to leave you with the mindset that is driving us into 2026. 2025 was a year of consolidation. We focused on strengthening the foundation through necessary and tough decisions, meaning cleaning up our inventory, trimming the organization and sharpening the distinction between Boozt and Booztlet. We did the heavy lifting to ensure the business model is as scalable and lean as possible. So now we are playing offense. We are in the process of moving into a new headquarters in Copenhagen. The move is all about top-tier talent access, adding even more specialized depth to our already strong team as we scale. So with this new energy, we're actually quite bullish. We are ramping up inventory to meet demand, adding new brands and targeting a broader and more inspirational assortment. Tech will be a catalyst, utilizing AI as our copilot to deliver an ultra-personalized shopping experience and maximize customer value. The foundation is solid. The talent is coming on board, and we are very ready to execute. So with this, I would like to conclude our part of the presentation and open up for questions. So operator, please go ahead. Operator: The next question comes from Niklas Ekman from DNB Carnegie. Niklas Ekman: Can I ask you a little bit about the reason for your increased optimism on the market and your sales in '26? And more specifically, I'm thinking that the market has been challenging for several years now, and yet you delivered very strong growth in '23, and it slowed a little bit in '24, it slowed considerably further in '25. So what is the main reason for your optimism in '26? Because I mean, we've already seen the market picking up in '25, at least the online market has picked up in '25. So why should your performance be much better in '26? I guess that's my first question. Hermann Haraldsson: I'm not sure how much the market picked up actually in '25, to be honest. But the reason why we're optimistic is, on the one hand, external factors where you see fiscal stimulus, both Sweden and Denmark should kind of give a more optimistic and consumers feeling that they have more in their purse. And then on the other hand, kind of internal factors, we are in a very good shape. We are being more bullish on our inventory buy, as we said, buying more broadly and inspiration of Boozt.com. And this combined means that we are actually relatively optimistic. We have been going into probably especially '25, where we had a bit too much stock and we're a bit negative. We were too cautious on our buying and too narrow. So we are seeing good receipt. We're seeing that our core customer, the women is coming back and they're buying more. So we are actually seeing a gradual improvement. And if you look at local currency, we are accelerating, albeit slow growth, Q3 and Q4 with 4% in local currency growth in Q4. So we are actually heading and aiming towards getting back to double-digit growth towards the end of the year and going into '27. Niklas Ekman: Very clear. And Booztlet, you mentioned here a sharp slowdown in the second half because of deliberate moves. Is this something that will continue to hamper your performance in H1? And is that a contributing factor to why you expect slower growth for the group in the first half? Hermann Haraldsson: You might say that kind of the Booztlet mission accomplished, Booztlet was supposed to help clear excess inventory during 2025. They managed to do so. And also, we also had too much kind of in-season inventory where we allowed Booztlet to clear that as well. We stopped that. And of course, this comes at the expense of Booztlet growth. But then on the other hand, we can see that the mothership Boozt.com is again growing healthy, 7% local currency growth in Q4. So you will see Boozt.com growing and Booztlet being a bit more muted because there is not that much inventory to clear for them. So you're right, Niklas, that it will come a bit at the expense of Booztlet. Niklas Ekman: Okay. Fair enough. And just last question, just the formality. The SEK 180 million exit tax payment, is this a pure cash flow effect? Or will that also impact your P&L? Michael Bjergby: Yes. Thank you, Niklas. This is a pure cash flow impact. And so it will not impact the tax on the P&L. And I just want to emphasize that the SEK 180 million is the full amount, which were only SEK 112 million will be paid in 2026. And it will be offset by benefits on Danish kroner tax, which is why we expect that the net tax effect from this in 2026 will be SEK 140 million. Niklas Ekman: Very clear. And then you will get that repaid in the coming 4 years as well? Michael Bjergby: Yes, exactly. So the exit tax payment creates a tax asset on the balance sheet, and this can be used for the following 5 years in Denmark. Operator: The next question comes from Benjamin Wahlstedt from ABG Sundal Collier. Benjamin Wahlstedt: I'll start by saying that, yes, I sort of agree with Niklas that your optimism is sort of back and refreshing to see. But you also mentioned bringing in a couple of new brands in the quarter. I was wondering, could you give some examples of this? Hermann Haraldsson: Benjamin, that's a difficult question. We have some new brands. So I don't think I would like to highlight any more because we're getting big stock back among other brands and Hunter Boots, some kind of -- it might not be kind of huge brands, but they are kind of adding some flavor to the shopping experience and then a lot of kind of local brands within different price points. So it's kind of across the board in general. So we're going from being too much data focused and too much depth to also providing more inspiration going in 2026. Benjamin Wahlstedt: All right. And I was also interested in hearing your comments on the competition in the beauty segment, especially, [ please ]. Obviously, there has been some competitors really struggling here. So what's your read on the market? Hermann Haraldsson: It's very red, if you ask me. We have a lot of players that want to take the market and want to grow. So our kind of strategy for the Beauty segment is to basically tag along and get our customers to just add a beauty item into baskets, so maintaining a high average order value. So this is why even our beauty baskets are actually quite profitable. But it's not going to be beauty that's driving our category growth. It's more like it's kids, especially sports and then home. So the beauty is -- I think beauty is a very tough market, especially in Sweden at the moment. Benjamin Wahlstedt: Perfect. And a question on Denmark. You previously said or commented that you did not expect any like cost lift up or cost ramp-up from moving the staff to Copenhagen and that message has somewhat changed in this quarter. Could you elaborate a bit on that, please? Michael Bjergby: Yes. So I think what is -- the difference is probably what we see from -- if you look at the salary, then salary conversion has led to some increase, but this will be fully offset by lower payments of social charges. So I think that was the message from that. And then on the location change of the headquarter, then the rent is actually exactly the same in Hyllie as in Copenhagen, but it's the operational cost that is more expensive, such as property tax, we have the canteen running and as well as maintenance of the building, which is more expensive. So there is a bit more cost related to running in Copenhagen compared to Sweden. Benjamin Wahlstedt: Perfect. You also mentioned running quite a few commercial initiatives during the year. How should we think about that in relation to your admin costs or personnel costs, looking into 2026? Hermann Haraldsson: When you say commercial initiatives, are you talking about marketing or what do you mean, sorry? Benjamin Wahlstedt: Well, commercial initiatives, I believe that was the word you used. So yes, are you adding any marketing staff or are you adding any sales staff and... Hermann Haraldsson: Sorry. We are improving the organization being considerably more localized. It has been kind of a challenge for us to attract local marketeers to our office in Sweden, meaning when we talk about local marketeers, it could be marketeers from Finland, Norway, even from Sweden, where you have some people from Stockholm. But now that we're moving to Copenhagen, we're able to build a kind of a community of local marketeers sitting in Copenhagen. So we actually kind of strengthened the commercial organization considerably by moving to Copenhagen and being a bit more kind of localized at the same time as we're getting the benefits from sitting together. So we're actually ramping up on hiring commercial people to be able to be even stronger in the different local markets because currently, Denmark has been a strong market because we have a lot of things, to be honest, that are driving that and partly Sweden, but a lot of the strong markets here in Sweden are sitting in Stockholm and we have had difficulty in attracting them to Malmo, but they would like to work come to Copenhagen and the same for Finns and Norwegian. So I think that is kind of a big part that will strengthen the commercial organization of that. Michael Bjergby: Just to add to that, there are also other initiatives that we don't disclose where we also add some employees. And when we add marketing employees, then it actually goes under the admin cost line because all it seems they are in admin, just to be clear. Benjamin Wahlstedt: Perfect. Do you mind putting a number on that as well? Michael Bjergby: No. So we don't disclose the effect of that. But I think what we have said is that the admin cost ratio could increase by, let's say, in rough terms, 0.5 percentage point, and this includes both the salary conversion, the additional relocation costs and the additional FTEs. Operator: The next question comes from Daniel Schmidt from Danske. Daniel Schmidt: Just back to what you talked about in terms of Boozt.com and the increased focus on premium sales. Did this trend that you talked about or the shift that you've conducted, did it trend favorably into '26? Did you see sort of an underlying pickup of that shift that you conducted in terms of the sort of the customer picking that up basically into '26. Sort of could you shed some more light on that? Hermann Haraldsson: Daniel, actually, you can see that from the numbers where you can see that Boozt.com grew 7% in Q4, where we kind of slightly started to be a bit more premium, expand our range and actually do a little less discounting. And we're not going to be a luxury store. So we are still going to be mid- to premium, but we want to kind of elevate Boozt.com a bit more. And we actually can see that consumers are picking up, and we see quite a good sell-through of the more premium brands that we have introduced during the quarter. Daniel Schmidt: Okay. I was just more referring to where are you in that process? Are you adding more and more of that premium assortment as we go into '26? Or has that been sort of done now, you're happy where you are as you leave '25? Hermann Haraldsson: We are relatively happy. I think we will always be kind of trying to add more brands, and we are seeing some attractive brands in the pipeline, but it's more to do with that we are broadening the assortment. buying more width, maybe also buying slightly more expensive price points than we did in 2025. And then, of course, there's going to be less promotional activity on Boozt.com. So we're kind of trying to -- it sounds kind of a bit [ cheesy ], but we're trying to elevate the experience on Boozt.com and being less discounted than we were kind of exiting '24 and the beginning of '25. And we actually see encouraging signs of that, especially because the women are actually also coming back. Daniel Schmidt: But it sounds like you've sort of neglected inspirational part of the assortment over the past couple of years, like you said, and been quite data-driven and now you're getting your head around that going into '26. But if you compare where you were in terms of the level of premium that you catered like 5 years ago, are you higher now than you used to be? Or are we back to where you were? Or how does it compare? Hermann Haraldsson: I would say that we're higher now than we were in 5 years back. And we will be higher going at least when we exit 2026. So I think that we're in a good part. But again, you have to be careful because we're not going to be a luxury brand. We like kind of a position of the mid- to premium, as you know, where we get the good basket size, but we want to stay out of the luxury segment because that's not very profitable to be. Daniel Schmidt: But do you feel that it has been sort of a trend in the market where maybe players like Zalando and yourself have become too much -- too similar basically? Hermann Haraldsson: I still think that we have a more premium experience. We have higher price points. And I think you can read it directly through the difference in basket size. I believe that our basket size is some 70% higher than our German friends. But of course, there's a considerable overlap between the 2 shops, but we're still kind of focusing on the Nordic consumers having -- being regarded as a more curated and probably a more premium experience than other in our market. Daniel Schmidt: And then just you touched upon Norway. And I didn't see any numbers specifically for Norway, but you do sort of give the numbers of Sweden and Denmark and then the Nordics. But it looks like Norway, I don't know what Finland did, of course, but I guess Finland was still quite weak. Did Norway grow double digit in the quarter in local currency? Hermann Haraldsson: Yes, it did and more than 10%. So it was actually quite a good quarter for Norway, and we are seeing strong growth. We are investing in Norway and not -- of course, we are investing in profitable growth in Norway, but actually Norway was a very good market for us in Q4 and Finland was quite weak, actually, almost very weak. So yes, high growth environment. Daniel Schmidt: And it sounds like that comes back to you being liberated of the import duties maybe and you're in a better position now to push ahead in Norway rather than the market being much stronger than a year ago. Is that correct? Hermann Haraldsson: That is correct. We have reinvested some of the savings that we have gotten from the customs for the duties. So we've put that back to the market and investing in marketing, and we'll continue to do that. Daniel Schmidt: And could you sort of give us a guesstimate of what your sort of fair share should be in Norway given where you are in Sweden and Denmark compared to where you are now in Norway? Hermann Haraldsson: It's difficult, but Norway should be twice the size as it is today. Because Norway is -- the assortment that we have on Boozt is very well suited for the Norwegian market. And I think we have good consumer insight. So it's like -- it's all to double and do that within the next 3 to 5 years. Daniel Schmidt: And today, it's 12% of sales or something like that? Hermann Haraldsson: Yes. You're not far off, I think. Michael said, we don't disclose. So I can't say anything. Daniel Schmidt: Okay. And then just lastly, you scrapped the CapEx expansion plan a year ago. You are more optimistic today. You talk about ambitions to grow double digit towards the end of '26. You have guided for CapEx for '26, but it sounds -- looks a little bit like any sort of normal CapEx year. What are you sort of thinking when it comes to that plan you had? Michael Bjergby: Yes, I agree. It is more of a normal CapEx. I would say the SEK 40 million that we are doing for insurance compliance reasons is a bit of an extraordinary. But other than that, it is a normal year. With the growth that we have, we still expect that we will have to expand, but it will probably be a project that is required during '27, '28 with also CapEx split between the 2 years. So there's no sort of a big amount coming, which is far from what we have today in 2027. You shouldn't expect that. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Hermann Haraldsson: Okay. Thank you for listening in and for some very good questions. And I guess that we will see you over the next weeks and wish you all a good day. Thank you.
Hong Sung Han: Good afternoon. I am Han Hong Sung, the Head of IR at Woori Financial Group. Let me first begin by thanking everyone for taking time to participate on this earnings call for the Woori Financial Group. On today's call, we have the Group CFO, Kwak Seong-Min; the Group CTO, Oak Il-Jin; and the Group CRO, Park Jang-Geun. We will first start with the Group CFO, Kwak Seong-Min's presentation on the earnings performance and then also present the corporate value enhancement plan, after which we will have a Q&A session. Please note that the call is being conducted with simultaneous interpretation for our overseas investors. Now let us start our presentation on the earnings for the full year of 2025. Seong-Min Kwak: Good afternoon. This is Kwak Seong-Min, the CFO of Woori Financial Group. Let me go over the 2025 full year performance. Please turn to Page 2 of the material, which is available on our website. The group's 2025 net income was KRW 3,141.3 billion, representing a Y-o-Y increase of 1.8%. The ROE was similar to last year at 9.1%. Amid uncertainties in the financial market regarding interest rates and FX rates and concern about a slowdown, balanced top line growth and the insurance acquisition enabled the group to achieve a high -- record a -- record high net operating revenue and stable profits. In particular, we set sizable reserves for future loss factors, including payoff projects with completion guarantee of trust company and adjust uncertainties such as fully provisioning against LTV-related fines, further solidifying the group fundamentals. In addition, we completed the insurance acquisition without any negative impact on our capital ratios and established a growth foundation for the securities business by acquiring the final license and launching MTS Group, completing the portfolio as a comprehensive financial group. Using this, we are starting to generate group synergies such as investment banking joint underwriting, open integrated wealth management branches and expanding bancassurance operations. Another noteworthy achievement of 2025 is the significant improvement in our capital ratios. As of 2025 end, the tentative group CET1 ratio is 12.9%, up 77 basis points versus 2024 and exceeding the 2025 target of 12.5%. Across higher macro volatility, the insurance acquisition and the higher year-end dividends, the group will still be able to improve its capital ratio through asset rebalancing to stabilize our financial structure, and we are able to show our strong capital management capabilities to the market. Based on this, the BOD today has decided on year-end dividends of KRW 760 and share buybacks and cancellations of KRW 200 billion. Next, let me provide more detail about specific areas. Please turn to Page 3 of the material. First, let me go over net operating revenue and NIM. The 2025 net operating revenue was 5% year-over-year at KRW 10,957.4 billion. Due to stable profit generation from more diversified revenue sources and the inclusion of the insurance business, we posted a record high performance. Interest income for the year was KRW 9,030.8 billion, and top line growth was moderate, but NIM improved quarter-over-quarter throughout the year, which led to better asset quality and growth. On noninterest income, we recorded a record level of fee income and balanced growth across securities, FX trading and insurance income, which led to a jump of 24% year-over-year at KRW 1,926.6 billion. In addition, Woori Bank's 2025 NIM was 1.46% and the group NIM, including the credit card business, was 1.73%, each representing an increase of 2 and 3 basis points, respectively. Though there were 2 base cut rates during the year, NIM grew on the back of asset origination focused on profitability and asset quality and funding cost efficiencies. The recent movement in the equity market has led to money movements and market rates are rising, which is creating a more challenging funding environment. But the group will continue to expand its core deposit base, rebalance its portfolio to focus on profitable, high-quality assets and actively manage ALM to secure stable margins in the future. Next, let me go over the loan book. As of 2025 end, the bank's loans totaled KRW 334 trillion, flat year-over-year and around 1% higher quarter-over-quarter. In terms of corporate loans, they were slightly declined versus 2024 end at KRW 180 trillion. Loan demand from large corporates was strong throughout the year, but the decrease came from the efforts to decrease SME sector business exposures and actively rebalancing assets to focus on new growth and high-quality companies. On the retail side, the portfolio grew around 0.5% quarter-over-quarter or 4% year-over-year to KRW 150 trillion, mainly driven by real demand such as policy mortgages. Last year, against an uncertain business environment, including a weak one, the group was able to achieve profitable growth via prudent RWA management with a focus on capital adequacy. This year, as discussed in our future core growth project planned last September, we will leverage the group's corporate finance competitiveness to increase financial support for more productive areas of the economy. In addition, for retail loans, fully reflecting the government's policy stance, we will focus on the real demand to manage our assets in a stable manner. Next, let me talk about the group's noninterest income area. In 2025, noninterest income was KRW 1,926.6 billion, a record high level and a large increase of 24% year-over-year. In particular, core fee income showed balanced growth across bank and nonbank businesses, totaling more than KRW 500 billion each quarter. In addition, against market -- increased market volatility in interest rates and FX rates, the insurance income contribution from the comprehensive financial group portfolio provided more stability to our noninterest income profile. Leveraging this portfolio, we will strengthen the core competitiveness of our nonbank subsidiaries, such as our securities and insurance business and generate stronger synergies across businesses in areas like wealth management, investment banking and also asset management to gradually expand our noninterest income contribution. Next, let me go over expenses and costs. Please turn to Page 4 of the presentation. So to discuss SG&A, in 2025, SG&A totaled KRW 5,180.5 billion. When excluding the ERP and the insurance business, it grew 10.8% year-over-year, representing a cost/income ratio of 45.7%. During the year, the group spent to strengthen its business portfolio by building out the securities infrastructure and acquiring the insurance business. In addition, there were other upfront costs such as ordinary wage labor costs. We believe these investments for portfolio expansion were essential for sustainable future growth, and we will look at the cost increase from ordinary wage as a one-off expense, which we will try to minimize the impact by increasing future productivity. In addition, going forward, we will continue to engage in general cost-saving efforts like leveraging AI-based operation efficiencies to lower cost and achieve our mid- to long-term CI ratio target of below 40%. Next, let me move on to credit cost and asset quality. In 2025, the credit cost was KRW 2,086.2 billion, and the credit cost ratio was 0.53%. Although the base rate was cut place, market rates have remained high and any concern about a slower economy continues. The group recognized around KRW 430 billion in one-off credit cost, including preemptive provisioning related to completion guarantee of trust company projects and strengthened its loss absorption capabilities. So when excluding these one-off factors, the group's credit cost ratio was 0.42%. For the past 2 to 3 years, we have preemptively managed weak assets such as real estate project finance and completed an asset cleanup of the nonbank side, including the previous merchant banking business, savings bank and asset trust. Thus, we expect any additional costs to be limited. And this year, we are targeting a credit cost that is 20% or around KRW 420 billion lower on a year-over-year basis. In addition, for Woori Bank, the corporate prime asset ratio stands at 84.1%. It is increasing loans to new growth sector manufacturing companies and continues to rebalance assets with a focus on asset quality. Quality indicators are recently improved, but since uncertainties still persist, we will focus more on asset quality management based on preemptive buffers created last year to maintain the credit cost ratio within the 40 basis point range. Next, let me go over capital adequacy and shareholder return. Please turn to Page 5. The 2025 year-end tentative group CET1 ratio is 12.9%. When we launched in 2019, the group started with a CET1 ratio of 8.4%, and it has improved it each and every year. In 2025, even though we had a large M&A, i.e., the insurance acquisition, solid profit growth and asset rebalancing, a reduction in FX-sensitive assets and RoRWA linked KPI systems, we -- this all resulted in a significant reduction of 80 basis points year-over-year. Thus, we have been able to achieve our promise of reaching a CET1 ratio of 12.5% and prove our commitment to enhance our corporate value. At the BOD today, in light of the 2025 financial performance and our shareholder return policy, the Board decided on a year-end dividend of KRW 760 per share and a KRW 200 billion share buyback and cancellation. The full year total dividend per share increased 13.3% year-over-year to KRW 1,361, which meets the qualifications of a high dividend company. In particular, the year-end dividend will also be in the form of a nontaxable dividend, the first of its kind from a bank-led financial holding company. The KRW 200 billion share buyback and cancellation also increases a 33.3% increase year-over-year and the group's total TSR ratio, including the nontaxable dividends will stand at 39.8%. Other details of our shareholder return will be discussed when we present our 2026 corporate value enhancement plan in more detail. Next, I will go over the productive finance strategies of the future co-growth project announced in September. For the next 5 years, we plan to provide support of about KRW 73 trillion, excluding inclusive finance of KRW 7 trillion. KRW 17 trillion will be allocated to investments, including the National Growth Fund, KRW 56 trillion will be supplied as loans to advanced strategic industries such as AI, semiconductors and defense. To secure growth momentum, we are operating the Advanced Strategic Industry Financial Committee as a task force. And recently, with Hanwha Group, we signed a financial support agreement for building an advanced strategic industry ecosystem, which shows that we are already delivering meaningful results. We are also leveraging our competitiveness in corporate finance and network to preempt high-quality clients and efficiently expand funding support. To this end, with the financial authorities capital regulation rationalization policy and by promoting the group's internal efforts such as asset rebalancing, we plan to secure sufficient capital headroom. Also, we will establish an AI-based risk management system that encompasses the entire process from loan review to post-loan management to build a strong growth foundation without undermining capital ratios and asset quality. That was the end of the 2025 annual earnings presentation. We will now move on to the next section. Hong Sung Han: Today, Woori Financial Group disclosed the 2026 corporate value enhancement plan on KRX. Kwak Seong-Min, CFO, will continue to go over the main elements of the 2026 corporate value enhancement plan. Seong-Min Kwak: Today, we announced the corporate value enhancement plan to review the progress made in 2025 and share with the market our new strategies for 2026. The value enhancement plan has incorporated feedback from the market and shareholders. And after thorough discussion, it has been reported to the Board of Directors to be announced today. We especially thought long and hard about how to effectively use the significantly improved capital ratios as basis for growth and shareholder return. So let me go through the material on our corporate value enhancement program, which has also been distributed today through the disclosure. I will first go over the financial indicators for 2025. Please refer to Page 4. ROE, thanks to balanced top line growth and the acquisition of the insurance company was maintained at above 9%. However, as the cleanup at nonbank subsidiaries caused ROE to slightly decline. The CET1 ratio despite the acquisition of insurance, LTV penalties and higher shareholder return is expected to annually improve by 77 bps to 12.9% to comfortably exceed the 2025 target of 12.5%. Annual DPS for this year should increase by 13.3% Y-o-Y to KRW 1,361, which is similar to high dividend company levels. Of this amount, the year-end dividend of KRW 760 is nontaxable. When considered, dividend payout reaches 35%, which is top notch in the industry. The size of share buyback and cancellation have also increased by 9.7% since 2024 to KRW 150 billion. The 2025 TSR of Woori Financial Group when considering nontaxable dividends reaches 39.8%. Page 5 is on nonfinancial indicators. In 2024, we launched the securities companies. And in 2025, we successfully incorporated the insurance company, thereby completing the group business portfolio. Synergy is the fundamental reason why we exist as a financial group. Based on the completed portfolio, wealth management, CIB, capital markets and other key areas will be the focus as we concentrate our efforts to create synergies. Meanwhile, for financial consumer protection, we are the first financial group in Korea to appoint a dedicated Chief Consumer Officer to take the lead in delivering social value. Also advancing the CEO succession program and establishing a new decision-making support process for the Board of Directors to protect shareholder interest are some examples of our efforts to improve corporate governance, which is the key focus in today's capital markets. I'll now move on to the 2026 corporate value enhancement plan on Page 6. In 2026, we plan to achieve a CET1 ratio of 13% ahead of schedule and then maintain it stably at around 13.2% or higher. While continuing the RoRWA-based asset rebalancing efforts, quarterly flexible RWA management and selective resource allocation across sectors and businesses, these are some sophisticated and strategic efforts we are making to manage the CET1 ratio. In addition, we will be disposing idle real estate held by the bank and insurance company to reduce RWA. We will also be deploying diverse methods to efficiently manage and use real estate from a financial perspective to enhance capital ratios. Regarding the pioneering future co-growth project, assuming approximately KRW 80 trillion of productive and inclusive financial support across 5 years, we expect about 40 bps annual impact on our capital ratios. We believe this impact is fully manageable by strengthening the RWA management process, quality enhancement of investment and loan portfolios and utilizing the lending capacity secured from the rationalization of capital regulations. By executing the future co-growth project in a balanced manner within the scope of rigorous capital management, we will work to achieve harmony between capital stability and mid-long-term growth. I will move on to Page 7 on the group's sustainable ROE enhancement strategy. As repeatedly mentioned, for this year, based on the group's complete portfolio, we will focus on cementing the competitiveness of each subsidiary within their respective sectors. And the 3 pillars: Bank, securities and insurance, will start to generate synergy in earnest, which should boost nonbank profit contribution to about 20%. With the continuous capital injection plan, the securities firm will elevate its position in the industry. For insurance, given the business environment, we will prioritize financial stability and focus on laying the foundation for mid- long-term profit. The asset management arm will launch a productive finance-related fund and with the transfer of LDI insurance funds should realize economies of scale and climb the industry rankings. Also on top of traditional methods such as cross-selling and client referral, we are planning to implement diverse synergy strategies such as CIB joint underwriting, wealth management integrated centers and strengthening LDI. In addition, by transforming into productive finance centered around advanced strategic industries, we aim to secure growth momentum. We will move beyond the traditional interest income-driven profit structure and invest in innovative companies to share its profits. Also, we will move the pillar of financial support from household and real estate to corporate finance in order to contribute to the recovery of dynamism in the Korean economy. Also with large-scale transformation into an AI-based management system, corporate loans, wealth management, customer consultations, internal control and other key areas will experience elevated productivity, thereby structurally improving ROE and achieving quality growth at the same time. Lastly, I'll go over the shareholder return policy on Page 8. Traditionally, Woori Financial Group has shown a high dividend payout and a competitive dividend yield, making us one of the leading financial dividend stocks. We will solidify our competitiveness as a dividend stock while diversifying shareholder return methods to lead the expansion of the investor base in the Korea's capital market. First, we will introduce nontaxable dividends from year-end 2025. The related resources as of year-end 2025 is around KRW 6.3 trillion, which we expect to use across 5 years. The nontaxable dividends will boost dividend payout by around 6 percentage points. For retail individual shareholders, the real impact will be an 18.2% increase of dividend income. In both 2024 and 2025, dividend payout was at least 25% and total dividend payment increased by more than 10%. As such, the company effectively satisfies high dividend stock requirements pursuant to the act and restriction on special cases concerning taxation. We will continue to increase EPS every year by at least 10%. The share buyback and cancellation policy has been gradually expanding since its first introduction in 2023. However, it was still about mid-4% of profits. We fully understand that the impact of treasury stock policy is maximized when the PBR is below 1x. Therefore, we will increase the buyback and cancellation portion to about 10% in a speedy manner. Today, we announced share buyback and cancellation of KRW 200 billion, which is a 33.3% increase from the previous year. If we expect the CET1 ratio to exceed 13% this year, we are planning to implement additional buyback and cancellation in the second half. In the future, if the CET1 is maintained stably at over 13.2%, we will review exercising a balanced shareholder buyback and cancellation program twice a year once each half. To ensure that we remain a flagship financial dividend stock, we will stay one step ahead of competitors and implement diverse measures to strengthen shareholder return in a sincere manner. Lastly, in 2025, we acquired an insurance company to complete our nonbank portfolio to become a comprehensive financial group. Company-wide efforts, including all of our employees have led to the highest improvement of the CET1 ratio in the industry to reach almost 13%. Thanks to these achievements, we have received strong interest from investors from home and abroad and have been positively recognized by the market. Our share prices outperformed the KOSPI and market cap has more than doubled since early 2025. In 2026, Woori Financial Group will move beyond the period of management and maintenance to take a leap forward to enter a period of great transformation. While combining core competitiveness and group synergy to advance as a complete comprehensive financial group, we will leverage our key strength, which is corporate finance to deliver the great transformation towards productive finance. In addition, we will continue to communicate with the market and carry on differentiated efforts as a leading financial dividend stock. This will conclude the earnings presentation of Woori Financial Group for 2025. Thank you. Hong Sung Han: Yes. Thank you very much. Now we will start the Q&A session. [Operator Instructions]. So today, the first question will come from Hanwha Investment Securities, Kim Do Ha. Do Ha Kim: So for 2026, for this year in terms of your margin and growth in terms of your profits, if you could provide some guidance on that and in terms of the overall direction and why you believe that this would be possible, that would be appreciated. And in addition, for the dividend, I do believe it's larger than market expectations. And I do think that the competitive outlook is also good. However, I don't think I can fully understand your dividend policy. So going forward, with regards to your corporate value up plan. If you look at Page 8 of the presentation, right now for 2026, is the target to increase your DPS by 10%. If that is so, then in terms of your quarterly dividend for each quarter and also in terms of the year-end dividend, what would be the breakdown? Would it be similar to what you have done to date? Or do you actually believe that there will be any changes? If you could explain that in more detail, that would be appreciated also. Hong Sung Han: Yes. Thank you for your question. And if you give us a minute, then we will try to prepare your answer. Seong-Min Kwak: Yes, this is Kwak Seong-Min, the CFO, and maybe I can address your question. So if we look at 2025, as mentioned before, in terms of our CET1 ratio, there was a significant improvement. And as a result of that, we did have a stance to try to have more moderate growth. In addition to that, according to the overall government household debt policy, there was a lower household growth that we also see. But on the Korean won side, there was only a 0.2% growth in that area. In 2026, on the Korean won loans, in terms of the risk-weighted assets, we want to have it at around 0.5%. So that would be the business plan for this year. In addition, if we look at the nominal GDP growth rate and then also take into consideration the factor of the inclusive financing that we will have, we do think that there will be around 5% growth. And even in 2024 there was around 3% in terms of the plans that we had for the year. But on the corporate side, because there was asset rebalancing and other effects, in terms of the corporate loan growth as a whole, it was a bit more sluggish and retail was a bit more sluggish. So as a result of that, in 2026 as a whole, we want to secure growth potential. So on a Y-o-Y basis, we want to have around 5% growth in total for our assets. If we look at our margins, I think that the stance would be is that for 4 quarters consecutively, we will actually be able to see a NIM increase. And for the full year, it was around 2 basis points. So on the margin side, we do think that we have defended ourselves very adequately. And at the Research Institute side, if you look at the forecast that they have set out for this year, we do actually think that the BOK will cut rates at least this year. So that was one of the assumptions. And also in 2026, we think that our margins will, on a Y-o-Y basis, be slightly weaker in terms of the business plan assumptions. However, then thereafter, if you look at the recent side, market rates are being maintained at a high level. The BOK also might cut rates in the second half rather than the first half. So it's going to be pushed back in terms of the timing. And there's also, I think, that conflicting views about rate cut possibilities going forward. So if market rates were not to fall, then we do believe that on a Y-o-Y basis, that NIM will be maintained at, at least this year's level. And in terms of our profitability and asset rebalancing that we're taking, also increasing our core deposits, if this all comes into play, then we do think that there is a possibility that there could be a slight upside to what we're planning and seeing today. In terms of our noninterest income, this is an area that we were very focused on. There was a lot of growth that we had achieved. And we do think that this year, the growth will be similar so that on the noninterest income side, we think that we will be able to see around 20% growth. The insurance company being acquired also. On the security side, we have a final license, and we started business in March of 2025. So we do think that we will actually have a higher contribution coming from the nonbank side. So going forward, in 2026, we think that we can actually see an increase at around 18% on the noninterest income side also. On the SG&A side, in 2025, this was an area in which I do think that we left a bit. However, SG&A, as mentioned before, is also reflecting the insurance acquisition and also the securities firm, we did beef up the IT investments and also increase the headcount there. So on the nonbanking side, there was some concentration of cost increase factors that did take into play. So for this year, again, this is another factor that we will have to take in consideration. So we do think a dramatic decrease on a Y-o-Y basis will not be possible. However, if we look at the other areas outside of these business areas, we are going to be more prudent in terms of management, whether it be the number of branches, the headcount and also other SG&A-related items. I do think that this year, again, not only for the 2026 business plan, but also according to our mid- to long-term plan. In formulating those plans, we will take a fundamental rereview. So in terms of our mid- to long-term target of reaching a CI ratio of 40%, we will try to look at initiatives to enable us to achieve that and actually execute that in 2026 so that at least in terms of the SG&A side that there could be a decrease on a Y-o-Y basis. In terms of our credit cost in 2026, in actuality for 2026, the target would be to maintain a normalized CCR of around 40%. And therefore, that would mean that around -- we have decreased the overall credit cost by around KRW 420 billion or around 20%. So this is the business cost that we will execute and also maintain our CI ratio at 40%. And in terms of the outlook, maybe that could be the overall answer to the question. And then I think that you talked about our capital adequacy ratio and capital policy. In '24 and '25, again, in terms of the total dividends, it did increase by a total of 10% year-over-year in terms of the total amount. And so for this year, if you look at the high-growth qualifications that the actual government has laid out, we would be qualified. However, because our dividends are nontaxable, there are more benefits that we give to our shareholders. But with regards to the DPS target, we do want to have 10% targets going forward. So this is something that we will apply for 2026 and also continuously target going forward. However, that have been said, in terms of the 10% DPS in order to reach that level, if we do a simulation about how we can achieve that, on the net income side, if we increase it by 10%, that itself would enable us to reach a 10% DPS target. So therefore, I think that for the target of having a DPS of 10%, it's not going to be a difficult target to achieve. And therefore, that's why we have set the target at that level. And in addition to that, if we look at our dividend policy, I think that when we talked about this before, we did say that in terms of the quarterly dividend, we would equally distribute it across the first, second, third quarter. And then for the year-end, we would look at our capital ratio and then set the year-end dividend. That's what we did this year. And then for 2026, I think that, that approach will remain the same. As of now, that would be our stance. And in terms of the year-end dividend, I do think that it will be KRW 1,361 per share. So if we look at the same situation, I think that for Q1, Q2 and Q3, you can expect in general, where the dividends will sit. And then in terms of the year-end dividends for 2026, again, we would look at whether the CET1 ratio is above 13% as our general target is. And assuming that is the situation, we would determine what the year-end dividends are. So in terms of our quarterly dividends and our year-end dividends in terms of the approach that we take, that will not in itself change. So for this year, if our CET1 ratio does maintain a level that is comfortably above 13%, then based upon that, then from 2027, I do think that we will be able to see equal contributions across the first to fourth quarter or each and every quarter, similar to our competitors. However, rather than splitting it out across all quarters, we don't necessarily believe that, that is the most efficient manner. We do believe it's more important to satisfy the commitments that we had made to the market. And in terms of the CET1 ratio that we have, being able to satisfy the needs that our customers have in light of where our capital ratios sit. So up until 2026, we're going to maintain the stance that we currently have. Hong Sung Han: And we'll move on to the next question from KIS, Baek Doosan. Doosan Baek: I am Baek Doosan from KIS, and I also have a question regarding dividends. You talked about the nontaxable dividends and the relevant resources amount to KRW 6.3 trillion. Last year, we brought in around KRW 3 trillion. So I would like to know how the size of the resources increased. Seong-Min Kwak: Thank you for the question. I'm Kwak Seong-Min, CFO. And let me answer your question. In 2025, in our corporate value up plan at the shareholder meeting in 2025 March, we transferred KRW 3 trillion of capital surplus to retained earnings. So that is all publicly available information. But lesser known is that is another aspect of the shareholder meeting agenda. So 4 years ago, in 2021, we transferred KRW 4 trillion from capital surplus to retained earnings. And the reason we did that back then was because in 2019, the financial group was relaunched. And according to the IFRS accounting standards, we relaunched the financial group with share exchange. And so the separate and consolidated financial statements need to be integrated. And unlike the competitors, the capital structure of the separate and consolidated financial structure was there. But in reality, there was no reason for it to be different. It was only because of accounting standards. And as you know, the resources will come from the separate financial statements according to commercial code, not the consolidated financial statements. So in conclusion, so we had an unreasonable situation at that time where we needed to normalize the situation. So in 2021, KRW 4 trillion of capital surplus was transferred to retained earnings, and then we increased the payable resources. And then from 3 years ago, since we have been making efforts to increase the dividends. So out of the KRW 4 trillion, KRW 700 billion we already used. So we have about KRW 3.3 trillion as outstanding balance. So to make sure we satisfy all of the legal requirements and the tax requirements to ensure that we do not have any issues that pop up in the future, this we received legal interpretation and tax interpretation that we can use this resource for nontaxable dividends. So out of the KRW 4 trillion, we still have KRW 3.3 trillion. And then in 2025 March, we put in KRW 3 trillion. So total KRW 6.3 trillion is the available resources. So after KRW 5,580 dividends, we believe that around KRW 5.7 trillion will remain. In 2026, we will be using the KRW 5.7 trillion for the quarterly dividends and all of the dividends. So it will all be nontaxable. So in 2025, nontaxable dividend was only for the year-end dividend. So the impact would have been relatively small. But from 2026 onwards, the quarterly dividend will also be nontaxable. So the actual impact will increase in 2026. Hong Sung Han: Yes. The next question will come from Daishin Securities, Park Hye-jin. Hye-jin Park: This is Park Hye-jin from Daishin Securities. And I would like to ask about the KRW 189 billion nonoperating loss that you have, if you could break it down for this. And also in your corporate enhancement -- value enhancement plan, I do think that the nonbank side contribution is around 20%. What do you look about -- how do you see the outlook going forward? Because it does seem to be that on the brokerage side that there is a more favorable environment. So maybe in terms of your mid- to long-term plan, there could be an acceleration of the realization of that. So in general, if you look at the overall business outlook, including your nonbanking business, if you could discuss that, that would be appreciated. Hong Sung Han: Yes. Thank you for your question. If you give us some time, we will answer. Seong-Min Kwak: Yes, talking about the nonoperating income side and the overall line item there. So for the competitors, I do think that this was mentioned already. With regards to the bad bank, there was a KRW 50 billion contribution. And in addition to that, on the LTV fine, we have around KRW 52 billion, another minus or deducting side there. So in terms of the KRW 52 billion, this is fully provisioned against, and we do set aside at other provisions. So it's fully provisioned against already. And our competitors, we understand there could be various legal views. We didn't do a partial recognition. We fully provisioned. So I think that if we do take in consideration what their view would be in terms of the fines on this side and also according to how the litigation plays out, we actually believe that there could be a reversal. So we do think that there's a possibility that we would be able to see some upside from that taking place. And in addition to that, on the security side, to talk about any rights offerings, I do think that, that was something that was mentioned, and I did see the press reports. So if you look at the situation right now, the overall total capital base is around KRW 2.2 trillion. And so for the securities side, according -- different from the insurance business strategy, we do want to grow this business ourselves. So over the mid- to long term, to be a mega IB and also to be mega securities, we do think that it's inevitable that there will have to be capital increases that take place. For the license periods and taking all things into consideration, we do think that it is inevitable. So this is something that is under review. But for the company as a whole, we are going to look at the mid- to long-term capital management plan and then gradually implement any increases that are necessary. So over the mid- to long term to become a mega IB, we do understand that we will have to make more contributions. So in terms of the application, in terms of the licensing itself, this is all something that takes time. So again, it will be a gradual process. And according to that process, we will take gradual action. So we don't have any specific size or timing that we're thinking about as of now. But in terms of becoming a mega IB, according to that schedule, it is under review as of now. So on the securities side, if there is a capital increase, Then, of course, in light with the support for productive financing and also in terms of the future co-growth program, we do want to have more support for venture capital. So even if we do make capital increases; on the security side, it will not have an impact on our CET1 ratio. And we also believe that we have more room to put in more capital versus our competitors. There's no legal restrictions. So through doing so, we will try to pursue the top line growth of the securities firms so that we can have a contribution on our top line from the nonbank side. So over the midterm horizon, we will set a business plan forth to this aim and try to achieve it. Hong Sung Han: We will move on to the next question from NH Investment Securities, Jung Jun-Sup. Jun-Sup Jung: I am Jung Jun-Sup Jun from NH Securities. I have a question regarding CET1 ratio, and it improved significantly this year. 2026, you are working to achieve 13% ahead of schedule. So you talked about the shareholder buyback, and I think it's up to June. So I think you are looking to conduct the share buyback program in the second half. When do you think that will actually happen? When do you think you can actually achieve 13%? If you have the guidance for CET1 in the second half, I think I'll get a better idea of the size of the share buyback. And can you also give us more color on the different strategies that you have? For example, you'll be disposing the marketable securities? Or are there plans to have a paid-in capital increase and so on? Hong Sung Han: Thank you for the question. And just give us 1 minute while we prepare the answer. Seong-Min Kwak: I am CFO, Kwak Seong-Min. Regarding the CET1 ratio, we mentioned earlier today, as of 2025 year-end, it was 12.9%. Those are preliminary numbers. So we are close to 13% at the moment. So in 2026, we feel that like mentioned earlier, I think I was a little bit more cautious, but we do believe we can comfortably achieve 13% in 2026. In terms of the timing, probably we will be able to achieve that in the first half, and our financial business plan is based on that assumption. The government is improving the overall institutional framework to encourage productive finance. And I think that can contribute to our own efforts as well. On top of that, we have internal efforts that we are making. We are developing those plans for 2026. So it's a little bit too early to share that with you today, but we are currently developing the plans. For example, you have the idle real estate disposal that was included in the corporate value enhancement plan, but we are making multifaceted efforts to ensure that we can reach early 13%. And if we progress as expected, we are quite confident that we can reach and go over 13% in the first half. That is why, like you said, the KRW 200 billion that we announced is a 4-month trust contract. So it's from February to June, the purchasing will happen during that period. And by the end of June, we plan to cancel those shares. And the details are in the disclosure. Then if -- we mentioned that if we expect CET1 to go over 13%, we can review additional shareholder buyback in the second half. So I think that is quite a realistic plan that we have. So in Q1 or in first half earnings call, I think we may be able to share some positive news regarding that topic. Hong Sung Han: So the next question will be from HSBC, Won Jaewoong. Jaewoong Won: Thank you for your strong performance amidst a challenging environment. And with regards to TSR, also, it does seem that you have given a lot of thought about this and have come up with a detailed plan. So thank you for that. However, in terms of the news reports, because it's already out and also because there's a question, this is a question that inevitably, I think I have to ask. If you look at the news reports; on the security side, right now, there is talk about a KRW 1 trillion capital increase each and every year so that you would be able to fill in your capital base. So in terms of the CET1 ratio, you said that it would not have an impact there. However, if you do make a KRW 1 trillion contribution in terms of the CET1 ratio targets that you have, is it possible to do so without impacting your CET1? So how should we look at these 2 numbers because I think that we would need a bit more comfort about this issue? And second, I think that if you look at ABL, if you look at their core capital ratio, maybe it's around 30% or 40% right now. And in the case of Tongyang also, it's being maintained at around 53%. So for Tier 1, if this is something that is introduced, then I do think that you will actually have to take more additional action. So this also would it not have an impact on your CET1 ratio? If you could elaborate a bit more about that, that would also be appreciated. Hong Sung Han: Yes, thank you very much. And while we prepare, if you could just wait for a minute. Seong-Min Kwak: Yes. On the security side and the capital increases, I do understand that there was an article by a press outlet. So we did talk to them about that. But I do think that it was over exaggerated somewhat. So in terms of the article in itself, I think that you should just understand it's a news article. And in terms of our organic growth, we want to grow our overall securities firm. And according to that strategy, on a step-by-step basis, of course, there will be a capital increase. In terms of that, that's the principle that we have. So from this year, whether it will start this year or whether it will start next year is something that we're still reviewing. Once we have made a determination and according to the size, then it could be subject to disclosure, maybe not. But we will fluidly communicate with the market, so the market can recognize the situation and be aware of it. And as mentioned before, right now, it's not only being designated as a mega IB because, of course, that would be something that we would be pursuing under the process that we want. There is a preliminary license that is required. There's a 2-year grace period. So as mentioned before, it's KRW 1.2 trillion. So even if it goes to KRW 2 trillion, KRW 3 trillion, going step by step, there are time requirements that you need to fulfill. So according to that and according to the government's overall rules, we need to follow that process. So it's not a short-term situation. It's more of a midterm type of situation and the capital increases cannot help but take place in a gradual manner because of that. And therefore, once the capital increases are decided, then through our IR department or through other outlets, we will try to communicate as much as possible. And I did mention that it would not hit the CET1 ratio. And what that's making is that the action in itself does not have an impact on our CET1 ratio at the holding company level. However, if the securities company does engage in S&T businesses or investment banking businesses, as they utilize that capital, of course, there will be asset growth that will take place. And because the asset growth would increase our RWA, we do think that the impact of that from the capital increase that they do enjoy, we do think that they would be able to engage in activities that would offset the increase in the RWA from the profitability that they enjoy from doing so. So at the end of the day, we do think that there would not be an impact on the CET1 ratio in itself. And I think that if they are able to generate an ROE, then that should not be a situation that would be negative at the group level. And on the insurance side, it's not the K-ICS ratio, but there is going to be a core capital ratio or maybe Tier 1 ratio that's going to be introduced. In terms of the timing of that, it's not '26, but it's 2027. And at the government level also, they are trying to look into avenues that giving maybe a brief period until 2030, so that it would not impact the insurance company's operations. So because it's not a disclosure factor yet, I can't go into the details because the K-ICS ratio in itself is official while other numbers are not. But I think that internally, if you look at the situation, we are preparing for this. And at the insurance company level also, of course, from 2027, they will be managing their core capital ratio. So for the 50% ratio in itself, we do think that as of now, as of the end of '25, if we do our own calculations, we actually are comfortably above that in our insurance businesses. So in terms of this core capital ratio, as of now, I don't think that there would be any request that we would have to make for an exemption or a delay. Even with what we have right now in terms of the operations, both companies, we do believe we'll be able to maintain a ratio that would be above the required amount. Hong Sung Han: Thank you for that. We do not have any further questions at the moment. For this quarter, we have also received questions on our website, especially regarding shareholder return. But I think our presentation today regarding our corporate value enhancement plan and the Q&A session have supplied sufficient information on that topic. So we will not go through the individual questions right now. If there are no further questions, we will end the Q&A session here. This will conclude the annual earnings call for 2025 of Woori Financial Group. Thank you for your time today.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the FinecoBank 4Q 2025 Results Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO and General Manager of FinecoBank. Alessandro Foti: Thank you. Good morning, everyone, and thank you for joining our fourth quarter 2025 results conference call. In 2025, net profit was flat year-on-year at EUR 647 million and revenues at around EUR 1,317 million, supported by our nonfinancial income, investing up by around 10% year-on-year, thanks to the volume effect and the higher control of the value chain by Fineco Asset Management and brokerage is up by around 18% year-on-year, thanks to the enlargement of our active investors and stock of assets under custody. Operating costs well under control at around EUR 356 million, increasing by around 6% year-on-year by excluding costs related to the growth of the business. Cost/income ratio was equal to 27.1%, confirming operating leverage as a key strength of the bank. Moving to our commercial results. The underlying step-up in our growth dynamics gets crystal clear month by month. This is underpinned by the positive tailwinds from structural trends, and we are leveraging on this solid momentum through and more efficient marketing. The results of this acceleration has been clearly visible in our most recent numbers. First of all, recorded our third record year in a row for new clients at around 194,000 new clients, up by 27% year-on-year. In January, new clients were 22,000, hitting the best month on record, up more than 70% year-on-year. Second, our net sales recorded a new high at EUR 13.4 billion in the year, up by a strong 33% year-on-year. In January, total net sales saw a further continuation of this trend at around EUR 1.1 billion, up by 21% year-on-year. The mix was, as usual, characterized by the monthly seasonality for assets under management with around EUR 260 million, net sales up by 16% year-on-year, assets under custody at EUR 1.1 billion and deposits at around minus EUR 207 million as our brokerage clients were active on the platform, given market volatility, thus resulting in solid brokerage revenues estimated at around EUR 22 million, up by 7% year-on-year. Our capital position confirmed to be strong and safe with a common equity Tier 1 ratio at 23.3% and the leverage ratio at 5.07%. We are very pleased to propose to the next Annual General Meeting a dividend per share of EUR 0.69, increasing by 7% year-on-year. On our 2026 guidance, this year, we expect all the businesses areas to contribute to the revenues growth, thanks to the acceleration of structural growth underlying our business. We expect a further acceleration in both total net sales and new clients, another record year for brokerage revenues, a cost income comfortably below 30%. More details will be provided during the Capital Market Day on March 4, 2026, together with the multiyear plan 2026-2029. Let's now move to Slide 5. Before moving in the details of the presentation, let me stress that month after month, Fineco is recording a continuous acceleration of its growth dynamics, supported by very sound underlying quality. As you know, our business model relies on a diversified and quality revenue stream, allowing the bank to deal with any market environment. the banking revenues, our net financial income is a capital-light one with lending being only an ancillary business, and it's driven by our clients' valuable and sticky transactional liquidity. Let me remind that deposits are joining our platform for the quality of our banking services and not due to aggressive commercial campaign on short-term rates. That's why our deposits are so valuable and our cost of funding is close to 0. Our investing revenues are recording a sound and future-proof expansion as they are already aligned with clients' rising demand for transparency, efficiency and convenience. This approach is mirrored in the quality of our revenues mix, which is almost entirely recurring with a very low percentage of upfront fees and no performance fees at all. Finally, our brokerage is clearly experiencing a step-up in the floor of the business, thanks to the capability of our platform to structurally have a higher number of active investors, leading to structurally higher stock of assets under custody. This is driven by an increase in clients' interest to be more active on the financial market and is building a bridge between the brokerage and investing, which we are the only platform able to scope given our market position. The net financial income was up 3.1% quarter-on-quarter, led by our valuable positive deposit net sales and the higher reinvestment yield of our bonds running off. Let me quickly remind you that the quality of our net interest income, which is capital-light and driven by our clients' sticky transactional liquidity. That's why our deposits are so valuable and will be the driver going forward for the growth of our net financial income. Let's now move to Slide 8. Investing revenues increased by around 10% year-on-year on the back both of growing volumes, thanks to our best-in-class market positioning and of the higher efficiency of the value chain through Fineco Asset Management. Let me remind you the great quality of our investing revenues, mirroring our transparent and fair approach towards clients. Our revenues are mostly driven by recurring management fees with very low upfront and no performance fees at all. Let's now move to Slide 9. In this slide, we are representing the 2 main sources of growth for our investing business going forward. On one hand, Fineco Asset Management is progressively increasing the control of the investing value chain. Its contribution to the group net sales has been consistent over the cycle, thanks to its incredible time to market in delivering new investment solutions aligned with clients' needs. The contribution of Fineco assets under management out of the total stock of assets under management has been steadily growing, and it's now equal to 39.3%. On the other hand, being a platform, Fineco is the best place to catch the latest trends in terms of clients' investment behaviors. There is a clear change underway in the structure of the market with clients increasingly looking for efficient, transparent and convenient solutions. All of this is channeling a strong demand towards advanced advisory services with an explicit fee, where Fineco is by far the best positioned in Italy, as you can see down in the slide. Let's now move on Slide 10 for a focus on brokerage. Brokerage registered a record year with around EUR 256 million revenues, driven by our larger active investor base and growing stock of assets under custody. January further builds on this with EUR 22 million estimated revenues. Let me stress that the revenues of our assets under custody are expected to grow as we roll out our new initiatives on securities lending, out FX, ETFs and systematic internalizers. Average revenues in the year are around 10% higher versus 2020, with much healthier underlying dynamics. This is driven by the structural increase in clients' interest to be more active on the financial market and building on a clear bridge between the brokerage and the investing world. The brokerage business represents the best sign of how fast the structure of financial market is evolving as technology is driving a swift change in clients' behaviors, thanks to higher transparency. For these reasons, we consider the brokerage Italian market still very underpenetrated, and we see a strong opportunity to grow despite already being the market leader. Let's now move to Slide 12 for a focus on our capital ratios. Fineco confirmed once again a capital position well above requirements on the wave of a safe balance sheet. Common equity Tier 1 ratio at 23.3% and leverage ratio at a very sound 5.07% while risk-weighted assets were equal to EUR 6.2 billion, total capital ratio at 31.37%. As for liquidity ratios, the coverage ratio is over 950% and net stable funding ratio over 400%, while the ratio of high-quality liquid assets and deposits is at 80%. Going forward, we confirm that we will continue to generate capital structurally and organically, thanks to our capital-light business model. Given the strong acceleration in our growth, we are taking more time to have a clear view on deposit net sales going forward as the underlying dynamics are strongly improving. If despite the strong acceleration of our growth, there will remain excess capital, we will decide on the best way to return it back to the market. Let's now move to Slide 18. Fineco enjoys a unique market positioning to catch the long-term growth opportunity resulting by the huge Italian household wealth and the fast-changing client behaviors. The graph that we are now representing our market share on the addressable market on the stock of financial wealth of Italia households. As you can see, our market share is still small and the room to grow is huge. We are very positive on our future outlook as we have no competition on our market positioning. Fineco is the only big player with a service model truly based on efficiency, transparency and convenience. Moving now to Slide 19. The step-up of our growth trajectory is clearly materializing as you can easily see in our recent clients' acquisition. On top of the slide, you can see the impressive acceleration of new clients, which in 2025 recorded a third record year in a row and saw a record month in January just before the launch of our most recent marketing campaign. This acceleration is very sound because it's based on the quality of our offer and not on aggressive marketing campaign with short-term rates remuneration. As a result, all our new clients are improving the metrics of the bank by bringing more deposits or more business for brokerage and investing. This value is recognized by our clients as shown by our client satisfaction of 96% and on our Net Promoter Score way above the industry average. Let's now move to Slide 22. Let's now focus on our assets under custody, a component of our business that is sometimes undervalued by the market, but that is the real cornerstone of our fee-driven growth. This is true for investing as assets under custody remains the main source fueling our assets under management net sales. As you know, around 90% of our growth is organically driven. As a consequence, new clients tends to show in asset allocation more skewed towards assets under custody and the job of our financial adviser is to improve the mix into assets under management. For brokerage, the expansion of assets under custody and the growing base of active investors are key factors leading to a structurally higher flow in our revenues, which we expect to grow as we roll out our new initiatives on securities lending, out FX, ETFs and systematic internalizers. Finally, the fast-growing ETF space, we are exploring new revenues opportunity, which we explain moving on the Slide 23. Fineco is uniquely positioned to capture the strong client-driven shift towards more efficient investment solutions such as ETFs. The stock is quickly on the rise and now exceeds EUR 16 billion with ETFs accounting for half of the assets under custody fees. Thanks to our focus on efficiency, transparency and convenience, we are the only player capable of fully recognizing and monetize the structural trends with no harm on our profitability. First of all, the growing interest in ETFs is generating a positive volume effect for our investing business. Thanks to our advanced advisory wrappers made of ETFs, we can move in the investing world clients that are not interested in traditional mutual funds with no cannibalization risk on the existing fund business. At the same time, our leadership in ETF retail flows make us the main gateway for issuers in the Italian retail market. While we currently manage all costs to handle clients without recurring fees -- recurring revenue for ETFs, talks are underway with our partners to find a fair balance. Finally, Fineco's management is going to play a big role in ETFs world. Our Irish firm already launched active ETFs and more are going to be introduced. Thank you for your time. We can now open the call to questions. Operator: [Operator Instructions] The first question comes from Enrico Bolzoni with JPMorgan. Enrico Bolzoni: I wanted to start with Private Banking, if possible. You're clearly growing very nicely. I noticed, however, that the average asset per private banking client is at EUR 1 million, which is roughly the same level it was 1 year ago, even if clearly 2025 was a period of very strong market rally. So in a way, I would have expected maybe a growth in the average asset balance per private banking client. Can you please maybe explain a bit the dynamics there? There's a bit of dilution, maybe new private banking clients that are coming in that are a bit less wealthy offsetting the growth in assets of the others or anything else that would be helpful. And also related to Private Banking, would you be able to give us an indication of how much of the growth is coming from recruiting. So the new adviser you're bringing in, how many of them are particularly strong in the Private Banking segment. And then if I may go on the other end of the spectrum. So can you just give us an update on the trading-only platform, how many clients you have? And perhaps if you can attribute the very strong growth in customer this month to this feature, to this offering? Alessandro Foti: So let me start by the Private Banking average assets per clients. This is clearly -- it's perfectly current with the distribution of the Italian wealth because Italy is characterized by a significantly high median wealth. So this means that the most part of the wealth is extremely -- is much more broadly distributed than with respect to what we have in other regions. And so this is absolutely consistent with that. So there is no dilution, it's absolutely [indiscernible]. So this is the main reason. And so we don't expect any significant change in the short term in terms of average assets per client exactly driven by this because this is -- the juice of the Private Banking business is in an area of probably between EUR 0.5 million up to, let me say, EUR 5 million, EUR 10 million, but clearly, this is bringing to an average portfolio for clients that is this. And as probably is very well known, our growth is mostly organically driven. So for us, recruiting is playing a small role because during 2025, recruiting in terms of gathering new assets has accounted for not more than 10% overall and this is absolutely current with our long-term strategy. So our strategy is to keep on getting more clients that are interested in our services instead of buying clients throughout recruiting. We think that is a much more healthy approach. And so this is going to continue. On the trading-only clients, the growth is keeping on accelerating, is extremely robust. I don't know if Paolo wants to make a few comments on this point. Paolo Grazia: Yes. Brokerage-only account is a great product. So we have a large amount of clients that are entering. And so it gives us a good contribution to the revenues of the brokerage. We don't give usually the number of brokerage-only account, but it's a very strong inflow of new clients. Enrico Bolzoni: And sorry, if I might go back once again to the private banking aspect in terms of the recruiting because recruiting is growing nicely 88%, I think, adviser experience over this year. Do you see any change in the quality of advisers that are coming to Fineco? I appreciate that you don't pay them to join, they join because they like the proposition. I was just keen to know if you see maybe more private banking adviser that are joining Fineco or if the mix remains roughly the same? Alessandro Foti: So in terms of -- which are the financial -- the new financial planners joining Fineco, we have 2 clusters. There is a cluster -- so the cluster for which we have preference is, number one is regarding the senior financial planner is represented by experienced financial planners, but characterized by an evident and significant room for keeping on increasing their productivity. So we are not interested in taking on board financial planners that are not giving any interesting future evolution in terms of growing productivity. So we -- because, again, we don't need to recruit the financial planners just for sustaining the net sales because the net sales are building up incredibly strongly, thanks to the positioning of the bank. And so clearly, the reason -- the senior financial planners has to be clearly senior financial planners that they are truly interested in the business model of Fineco. And so this means that they are really interested -- that they are interested in keeping on their business for still many years to come and also they have the ambition to grow. So this is the driver. If there is a large big financial planner that is only interested in getting an upfront premium and moving, we are not interested in hiring that kind of financial planner. The second cluster is represented by the young people that we are onboarding in the bank. We are preparing for the future activity. This is an investment initially because before any young person becomes productive, it takes usually 4, 5 years, but it's paying off because the new generation of financial planners that we brought in the bank in the past years is now performing incredibly well. Also because these young people are incredibly perfectly aligned with the values of the bank that, again, characterized by efficiency, transparency and convenience. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: The first question is about your leverage ratio because, yes, it is well above the 3% requirement, but it is slightly down versus previous periods. So I would like you to elaborate a bit more on it. And then I have another question about your direct deposit outflow in January. Probably it is linked to negative month seasonality, which is quite common at the beginning of the year. But I would like just you to confirm it. And if you can say something about your expectations for direct deposits trend this year? And finally, a question on systemic charges. Would you expect an increase in systemic charges probably relating to some specific case within the banking sector? Alessandro Foti: Yes. Thank you. On the leverage ratio, clearly, this has gone slightly down, driven by the increase of deposits because the increase of deposits by the year-end has been very strong. And so this is the reason why we are maintaining the same wording on the evolution of our capital position because on one hand, we are expected to keep on generating additional organic capital, thanks to this incredibly capital-light business model. At the same time, clearly, the bank is more and more entering a new dimension of growth. We are more and more moving throughout, let me say, very positive unchartered waters, thanks to the positioning. And so clearly, we prefer to keep on waiting in order to look how it's going to evolve the growth that we expect as we were reiterating during the guidance, we expect to keep on accelerating. And so we prefer to take our time. So it's -- so this is our thought on that. So it's -- regarding the deposit outflows in January, this is absolutely perfectly aligned with the seasonality of the month because just consider that during the month of January, you have all the expenses made by the clients through the credit cards during the month of December, it is a month of expenditures, are clearly charged on January. So we are not -- it is even better with respect, for example, last year because last year, the seasonality has been definitely stronger than this year. So we are not absolutely surprised by this. It's perfectly aligned with the seasonality. And our expectation for deposits during the full year is clearly they are going to keep on growing. This is going to be clearly driven by the continuous client acquisitions because as we explained during the presentation, the clients that are entering the bank are clients that are not attracted throughout aggressive campaign and short-term proposal are clients that they are truly interested in using the platform. So this means that every single additional client we are adding to the platform, also a small client is contributing and increasing the transactional liquidity of the bank. So the liquidity that is there for functional reasons. And so for this reason, deposits are going to keep on growing throughout 2026, clearly, according with the usual seasonality that I characterized. And clearly, you can have also temporary effect caused by the activity of clients on the brokerage platforms. So this is -- but overall, the trend is up. On the systemic charges, I'm leaving the floor to Lorena, our CFO, for a little bit more color there. Lorena Pelliciari: Thank you, Alessandro. Good morning to everybody. So on 2026, our expectation regarding the systemic charges that we are estimating a contribution around in the region of EUR 10 million, EUR 15 million because we have to consider possible additional contribution in case of the increase of guaranteed protected deposits or in the event of bank's failure. We have to take into consideration that based on the most recent news flow regarding one small Italian bank under special administration, we have to take a prudent approach on that. Elena Perini: Just a follow-up on this. We expect this to occur only in 2026 or to go on in the next years, too? Lorena Pelliciari: We have to expect the final decision elaborated by the [indiscernible], but we expect a distribution along 5 years, distribution of the contribution in 5 years. Operator: The next question is from Luigi De Bellis with Equita. Luigi De Bellis: Just one question for me. On the AI that is rapidly reshaping operating models across the financial sector. So from your point of view, what do you see as the most material opportunities AI will create for models like Fineco in terms of productivity, client engagement, advisory and risk management? And what are the key risks you are monitoring? And how do you expect the AI to reshape the competitive scenario in Italian wealth management and brokerage over the next 3, 5 years? Alessandro Foti: AI is going to be an absolutely game changer in what's going on in our industry. Fineco, as we explained, is by far the best positioned player for exploiting the huge advantage by artificial intelligence for a very simple reason because I don't want to spend too much time because this is going to be a section that is going to be extremely very well in-depth treated during the Capital Market Day because this is a very important chapter. But Fineco is -- because in AI world, what is key are 2 components. One, you have to be able to get easily access to a high-quality base of data. Second, you have to be in the position to really build up your hedges in order to create something that makes sense. And clearly, this is much, much easier for -- and less and less expensive for an organization that is a tech company in full control of the technology. It's a different story, for example, if you are relying on outsourced services or your processes managed by external system integrators. But we are asking you to be a little bit patient because on the AI space, we are going to bring something very interesting presentation during the Capital Market Day. Operator: Mr. Foti, there are no further questions registered at this time. Back to you for any closing remarks. Alessandro Foti: Thank you, everybody, for attending to our financial presentation. So as usual, if you have some more interest or you want to deep dive in some numbers and concepts, please call us any time for a follow-up. Thank you again, and see you on March 4 for the Capital Market Day. Thank you again. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Antonia Junelind: Good morning, and a warm welcome to the presentation of Skanska's Fourth Quarter and Year-End Report. I'm Antonia Junelind. I'm the Senior Vice President for Skanska's Investor Relations. And joining me on stage here in our studio today is our President and CEO, Anders Danielsson; and EVP and CFO, Pontus Winqvist. Shortly, they will take you through an update as of the last quarter, provide you with some further insights on the business operations, financial performance and our market outlook. And after their initial presentation, we will open up for questions. And there is an opportunity for you to ask questions either if you're joining us here in the room or you can use the telephone conference number provided, and then the operator will put you through to us here in the studio. But more information on that will follow later. So with that brief introduction, let's take a look at the fourth quarter performance. Anders, please take it away. Anders Danielsson: Thank you, Antonia. And good to see everyone here in the room, and welcome to you on the web as well. Before we start the presentation, I wanted to look at the picture here on the slide to the right. We had a very successful divestment quarter when it comes to commercial property development. And one of the deals was in Port 7, as you can see here on this slide in Prague, Czechia. That was 3-office building that was divested in deal. If you look at the fourth quarter report, so we had a very good construction margin in the quarter and also the full year. It is on all-time high levels. So very good performance by the whole organization, and we will come back to that. But all geographies, all units are performing on a very high level. So that's very encouraging and good. Mixed performance in Residential Development. We continue to have a strong market in Central Europe, weaker in the Nordic. So we have divested some unsold completed in the quarter with lower -- that was started before the market went down. And by that, we also have a lower profitability on those. But it's good that we are able to divest completed homes. Good divestment activity in Commercial Property Development. We managed to divest 8 real estate in the quarter and also solid performance in investment properties. Operating margin in Construction, 5.6% in the quarter, very, very high, strong. And for the full year, we managed to beat our new targets in Construction of 4%. So we managed to deliver 4.1% for the full year. Return on capital employed in Project Development, lower 1.8% due to the weaker market, rolling 12. And return on capital employed in Investment Properties is stable, stable result, 4.7% on the rolling 12 and slightly up from last year here. Return on equity, 10.2%, rolling 12, and we continue to have a robust financial position. So we are able to maintain that. The Board has proposed a dividend of in total SEK 14 per share, which is SEK 8.5 in ordinary dividend and SEK 5.5 in extra dividend. And we also managed to reduce the carbon emission in our own operations, Scope 1 and 2 with 65% since the baseline year 2015. Here, we have a target of 70% reduction in 2030. I will go into each and every stream now, start with Construction. Revenue close to SEK 44 billion, and we have some slightly up from last year, if you look at local currencies. Order bookings, SEK 43.5 billion, and we have a good order intake. And you can see that we have a book-to-build of 105% for the rolling 12 months, which means we are able to fill up the order backlog compared to how much we produce here. And the order backlog is continued to be on a high level, historically high level, close to SEK 258 billion. Operating income, SEK 2.5 billion, and we have an operating margin, as I said earlier, 5.6% in the quarter. So strong quarter result and all markets, all geographies are delivering very good results. So great work by the whole organization and being consistent with the strategy and also able to execute the projects in a very good way. We -- as you know, we have raised our target. We did that -- communicated that in the Capital Markets Day in Q4. The target is at or above 4% operating margin, and we have beaten that for the full year. Order intake was good and remains on a high level. Going to the Residential Development. The homes -- sold homes has been lower than last year. We have a revenue of SEK 1.7 billion. And you can also see that we started fewer homes compared to the same period last year. And you can see that we started -- the project we have started is in the Nordic countries. We haven't -- in the quarter, we haven't started any project in Central Europe. But that's a single quarter. You should look at the full year or rolling 12, and it's still a good market in Central Europe. And also, it's very encouraging to see that we are managing to sell the unsold completed and reducing that inventory to 358 homes. Commercial Property Development. Operating income of SEK 670 million gain on sale, SEK 758 million, and that includes the divestment, of course, of the 8 properties, but it's also some release of provisions of already completed project. Return is on a low level, far below our targets on a rolling 12-month basis. So we are working hard with that and both to increase the capital turnover and also to divest the completed assets we have. We have 16 ongoing projects, which corresponds to SEK 14.4 billion in total investment upon completion. And we have 21 completed projects, which correspond to SEK 19 billion in total investment. Of those, we have a reasonably high leasing ratio of 72%, which means we are -- we can see that we have a positive cash flow from those assets. It's good asset, high quality in good location. So I'm confident that when the investor market comes back in U.S., we can see -- we have a good product to offer the investors. Again, 8 projects divested in Q4, 12 during the year, 2 projects handed over and 2 projects started in the quarter. We started the projects in Central Europe and the Nordics. And we can see a good leasing activity and strong average leasing ratio in the portfolio of both ongoing projects and the completed projects. Moving on to Investment Properties. Stable result, SEK 83 million operating income. We have increased the occupancy rate to 85% compared to 83% in the Q3. And portfolio consists of 7 high-quality office buildings properties with a total property value of SEK 8.3 billion. Very solid performance in Q4 and for the full year. We go back to the Construction and show you some order bookings here and the order backlog. Here, you can see the blue bars are the order backlog development 5 years back, and you can see the lines rolling 12 on the book-to-build, the yellow revenue, development on the green and order bookings on rolling 12, the gray one here. So you can see that we have a historically high level of the order backlog, and there's also some currency effect there. So if you compare Q4 2025 to the same quarter the year before, it's actually increasing somewhat in local currencies, around 3% increase. So we have a good position here, 19 months of production. So you can see that on -- if you look at the different geographies as well. All geographies has over 100% book-to-build, and that's also encouraging for the future. We have 19 months of production. So a solid position here when it comes to our order backlog. And we can continue to follow our strategy to be selective in the market and go for projects where we can see competitive advantage and a good track record as well. With that, I hand over to Pontus. Pontus Winqvist: Thank you, Anders. So let's dig in a little bit deeper into the numbers. And you can see that we had a revenue of SEK 43.9 billion here in the fourth quarter. That's actually an increase with 1% if you take local currencies. If you then, at the same time, look to the revenue for the full year of SEK 171.1 billion, that's an increase of 7% year-on-year. The operating income in the quarter increased from SEK 2.1 billion to SEK 2.5 billion. That's an increase of 25% in local currencies. So quite a good increase here in Construction. And as you heard earlier, we had an operating margin of 5.6% in the quarter, which is good. But even better, I would say, is the margin for the full year of 4.1%, in line with our just raised targets. And if you look into the different geographies here, you can see that we are actually delivering a higher profit in all of the geographies and also a higher margin if we compare to the quarter -- or to the fourth quarter last year. Worth to mention is that there is a release of a claim provision in the U.S. impacting with around SEK 400 million. But you should also remember that this is how we are recognizing our claims. We are very conservative, and we are releasing them when we are sure that there are no outstanding risks. So in total, I think what you see here is a very strong delivery from our Construction business in the fourth quarter and for the full year. Going then into Residential Development, is maybe not as good as Construction, impacted by the market. You can see also that the revenue in the fourth quarter is quite much lower than it was the fourth quarter last year. That's because we are selling less than we have done the fourth quarter last year. And that is, of course, some reflection of the market and also it comes a little bit different when we are starting projects. What you can see is though that the S&A costs has went down in the quarter from SEK 138 million to SEK 122 million, but even more for the full year from SEK 605 million to SEK 460 million. So I think that is a sign that we gradually has, what you say, adjusted the organization according to the current market standards. We have also sold quite many of the previously unsold completed properties, and that has an impact of the gross margin because we -- it's good to be out of that stock of unsold residentials, but of course, impacting the gross margin and then the operating profit. So you see in the quarter, 1.8% in operating margin. That's, of course, not where we want to be. For the full year, 6.5%. That's better. But as you know, we have a target for this business to reach 10% or better. Then if you look into different geographies within Residential Development, you can see that the Nordic operations is where we have a weak quarter. And the European operation is delivering a solid quarter, but we have a lower sales rate than we have been used to during the previous quarter. And that's not dependent on the market. That's dependent because we haven't had any projects actually to launch during this quarter, which means that we cannot have any new sales start, which then takes down the number of sold units and impacting the profit somewhat also in the European part of the residential business. And here, you can see how this -- that started, then is 376 compared to 620 last year. And that's a result then also of -- sorry, now I mixed, but it's around the same. You see that we sold 379, and we started 376 units here in the quarter. And if you look then into the homes in production, you can see that the top of the bar here in the fourth quarter, the unsold completed, as I explained, has reduced. So we reduced from the end of last year from 477 to 358, and we have also decreased that during the fourth quarter as such. And as I said, when we are selling those residential units, that is impacting the gross margin for the quarter for the Residential business. Going then into the Commercial Development business. As you heard earlier here, we divested 8 different projects, representing a revenue -- or a divestment of SEK 4.6 billion. And here, it's also worth to mention that these divestments is positively impacted from release of previous -- release of provisions from previous projects. So if you are looking into the Commercial Development portfolio, I would say a more representative profit content is looking into our unrealized values that we have than to take what we actually delivered this quarter. So it's good, but it's also very good to see, I would say, that we were able to divest in such a good manner in the fourth quarter. So it's the highest number of divestments in a single quarter for quite a long time. If you're then looking into the unrealized gains, you can see here that what I just explained regarding how you should forecast the coming gains from this business that the top of the bar here has decreased, which means that the unrealized gain within the completed properties is quite low right now. Then if you look into the completion profile of when our properties in Commercial Development will be completed, and you see that in the different bars here. And at the same time, you see the leasing ratio on the green dots. You can see that then we have around SEK 17 billion of completed properties with a 72% occupancy rate. It's one quite big property that has been ready in the fourth quarter. So it's taking down the total leasing ratio in the completed properties somewhat. But if you're looking into the total profile here and if you would -- are interested and compare it with earlier Qs, you can see that it's actually quite a positive development in many of these different assets. So do that. That's quite fun. And then here, you can see that we had a leasing in the quarter of 46,000 square meters. And you can also see that we have a higher leasing ratio in the ongoing projects than the completion ratio, which is always a good sign that we have -- we are leasing in the same tempo as we are continuing our projects. So that is good, I would say. IP, Investment Properties, I would say, quite a calm quarter. We have a representative operating net here. We haven't added any properties. We haven't done anything with the values. So SEK 83 million is very representative for, I would say, that portfolio that we currently hold here. What is good, though, is that we increased the occupancy rate from 83% by the end of quarter 3 to now when we have 85% leased. So a good development there. And then if we are going into the total group and the income statement here, you can see that we had an operating income of SEK 3.3 billion. Then we have central costs of SEK 281 million. Those are impacted of that we have a little bit less of income from our combined portfolio of asset management and BoKlok UK. And we also have a negative impact of periodization effect from insurances, that actually was positive in the same quarter last year. I would say, though, that the full number of central costs of SEK 712 million is quite representative for what you could expect going forward if there is no special things that is happening. Going a little bit further down, you see a financial net of SEK 141 million for the quarter and a tax of SEK 653 million. That's a tax rate of 21%, same tax rate that we are showing for the full year. And I will also say that this is reasonable, representative with the current business mix that we see right now. Of course, if we have 1 quarter where we have more divestments of properties, that could impact. And if we have more -- another geographical composition of the profit, that could impact somewhat. But I would say that this is representative. Going then into the cash flow. Here, you can see that we had a strong cash flow here in the fourth quarter, SEK 2.5 billion, actually the same as we delivered in net profit. So I would say, a continued good and stable cash flow generation from the business. And an important part of that cash flow is, of course, coming from our working capital development within the Construction. And here, you can see that the working capital came up from SEK 30.1 billion in September to SEK 31.7 billion here for the full year. And even though it looks like it's a decrease compared to the fourth quarter last year, if you were looking into real cash flow, it was actually an increase with SEK 1.4 billion. But then we have a currency effect, a negative currency effect of SEK 4 billion for the working capital. So you can also see if you're looking to the average free working capital compared to the revenue that, that is stable with a slight increase. So solid cash flow generation from our Construction operations. Looking into investments and divestments, you can see that we are actually now in some net investments territory. We have, for a couple of quarters, been in net divestments, but it's also so that we divested a couple of those Commercial Development properties here in the fourth quarter, but they will be transferred to the buyer and paid of the buyer during the first half of this year. So that will improve then the cash flow from divestments during Q1 or Q2. If you look into the capital employed, you can see that, that has decreased somewhat from SEK 66 billion to SEK 63.8 billion. Also here, you have, of course, a currency effect. So I would say, without currency, it's relatively stable. And this cash flow then takes us into, I would say, a very stable situation when it comes to our ability to use funds. We have available funds of SEK 28.6 billion. And here, you can also see that we have a quite balanced maturity profile of our outstanding debt. And this takes us then to the financial position, where you can see that we have our adjusted net cash position of SEK 11.5 billion. And you also remember that here, we have a target to below -- to be above the net debt position of minus SEK 10 million. So the delta there is SEK 21.5 billion. And you can also see that we have had quite a stable development of the financial position here during more than a year. We ended last year with SEK 12 billion. We have now SEK 11.5 billion. And it's also then actually taking up our equity to asset ratio from 36.6% to 39.9% by the end of the fourth quarter. So by that, Anders, some comments regarding the markets? Anders Danielsson: Sure. So if we look at the overall market outlook, it's unchanged overall compared to the last quarter. But if I comment on the different streams here. Construction, the civil market in U.S. and Sweden is -- we expect it to continue to be strong. On the building sector -- in the building, its -- the market outlook is stable. We could see a good inflow of data centers in the fourth quarter, close to SEK 10 billion, which is encouraging, and we expect that market to continue to be stable. The civil market in the rest of Europe is pretty much stable, which is good, driven by infrastructure, defense, investment and so on. So weaker in U.K., however. And the building market in Nordics are weaker due to the less residential construction and commercial property construction, but stable in Central Europe. Residential Development, very good activity in the Central Europe. We believe it's going to continue to be a strong market and weaker in the Nordics. And we can see some improvement when it comes to interest rates decrease. We can see amortization rules are easing up in Sweden. But I believe it will take some time. And we -- even though it's underlying need for homes in the market we are operating in, it will take some time. It requires economic growth. So the consumer confidence increases. But we are ready to start. We already start project today where we see that we can deliver according to our targets. And Commercial Property Development, stable in Central Europe and in the Nordics. You have seen the divestment activities here. We also have a good leasing activity. Weaker -- continues to be weaker in the U.S. market. Recovery is lagging compared to Europe. But there is a clear trend that flight to quality, so to say, in all markets. And we have very attractive building to offer the market. And we can see that we have a healthy leasing ratio. But the investors in the U.S. are still hesitating before they go on and invest in properties. Investment Properties, polarized occupier market. We have a healthy leasing ratio. And also here, we can see a polarized market. You have to offer Class A building in a very good location, high quality, and that's exactly what we can offer. So I'm confident in that. But it's a competitive market, but we believe that the rents will remain mostly stable. So if I ending up this presentation, we're looking into how we're doing compared to our targets and limits here. 4.1% in Construction margin, above our recently increased target, very encouraging to see. Return on capital employed, 1.8%. We were not satisfied with that, obviously. So we are working hard to increase that return for the project development. Investment Properties, 4.7% is on a good level to reach. Be able to reach the 6%, we need to see some market increase -- market value increase in the properties we have. So that's an ambitious target for the future. Return on equity, 10.2%, also below our target. And we have a very strong financial position of net cash -- adjusted net cash of SEK 11.5 billion. And the payout ratio, as you can see, we have 40% to 70%, but that goes for the ordinary dividend. And we have proposal, is SEK 8.5 in ordinary dividend, increase from last year, before was SEK 8. And then we have this extra dividend, which gives us an outcome if the AGM approves that of 93%. With that, I hand over to Antonia to open up the Q&A. Antonia Junelind: Very good. Thank you for that. So yes, now it's time for your questions. If you are joining us online, please use the telephone conference number provided and follow the instructions by the operator, and he will put you through to us here in the studio, and you will be able to ask your questions to us. If you are here in the room with us, then you can just raise your hand. We will bring a microphone, and I will ask you to start by stating your name and organization. So looking out into the room and checking with our external guests here, it doesn't seem like there are any raised hands at the moment. Or yes, we have one over here. Yes. Thank you. Unknown Attendee: Yes. [ Oscar Sandstrom ], entrepreneur. Regarding Construction, you're growing in the Nordics, but do you see any bottlenecks that could hinder further growth? Anders Danielsson: I see good opportunities when it comes to the civil market, if you're asking about the Swedish market. So we see increasing investment in infrastructure. The need is very high on that. And we also see increasing investment in defense. So that's -- I'm encouraged by that. Then on the lower side in Sweden is Residential construction. It's not only our development that is on the low side here. It's all, very few new homes that are coming out in the market, and that goes for the Commercial Property Development. So we are dependent on economic growth as an industry. So I would like to see some GDP growth, and that will absolutely help us. But we are in a good position. Antonia Junelind: Excellent. So I will then move over to the online audience, and I will ask you to please introduce the first caller. Operator: The first question comes from the line of Keivan Shirvanpour with SEB. Keivan Shirvanpour: I have just 2 questions. And the first question is on capital allocation. So you have about SEK 11 billion in net cash, and you expect nearly SEK 6 billion in cash flow in the first half of the year from -- transfer from property projects. So that equates to the size of the dividend that you are proposing. Given that, what can you say about opportunities here in terms of capital allocation? How should you allocate your capital in 2026? Anders Danielsson: Yes. We don't give any forecast of that. We have a dividend policy to 40% to 70%. Our ambition is, of course, to continue to deliver good results and be able to be a predictable dividend provider for shareholders. But we don't give any forecast for this year, obviously. Keivan Shirvanpour: But would you consider increasing investments in CD projects or potentially evaluate buybacks would be an alternative? Anders Danielsson: We said in the Capital Market Day that we have -- right now, we have enough capital for the project development operation, and that, we have the same view right now. Keivan Shirvanpour: Okay. Good. And the second question is then related to commercial property development and the completed portfolio that you have. So you made quite a lot of divestments in Q4, but you also have this completion in the U.S. So if I'm not mistaken, your completed property portfolio should be about 80% to 90% in the U.S., including some residentials. What can you say about the prospects for divestment of these assets? And do you consider residentials to be potentially easier to divest than the commercial buildings in the U.S. Pontus Winqvist: First, I would say, regarding our portfolio in the U.S., you are right. It's reasonably big, and it's both commercial offices and some rental residentials. But you can say we are evaluating each and every project as such, working with leasing the properties in order to receive a decent operating income from those. Then if we think that we get the price that they actually are worth, we are absolutely ready for divestments. But because we have a very solid financial situation, we are not interested in any kinds of fire sales, but we are interested in reasonably good deals. Keivan Shirvanpour: Okay. And you have previously mentioned that when the bond -- 10-year bond yield is about 4%, you see that divestment prospect is quite weak. Do you continue to have that view? Pontus Winqvist: We continue to have the view that we are following the market. And if someone, as I said, is interesting to buy and pay a decent price, we are interested to negotiate. Antonia Junelind: Thank you very much. And we will move to our next person in line here to ask questions. I think it is from Jefferies. Operator: [Operator Instructions] Our next question comes from Graham Hunt in Jefferies. Graham Hunt: I'll ask 2. Maybe I'll just come back to the capital allocation and try in a different way. Just on the special that you have announced, would you be able to just provide some color on the thinking around why you felt that was appropriate to propose? And should we take it as a signal that you're relatively comfortable with now the level of net cash that you have on the balance sheet and this is a signal that you're limiting any further buildup there? And then the second question, I think just back on Construction. I wondered if you could comment on sort of what you're seeing in the early stages of Q1, how you're seeing particularly on the data center segment where, as you mentioned, you had a flurry of good orders in Q4. We've seen some enormous CapEx numbers from some of the hyperscalers this week. I just wondered if you could comment a little bit on how the outlook for those types of projects in the U.S. is looking and whether we could expect -- if you're seeing anything in the pipe already for 2026 on that front? Pontus Winqvist: Okay. Thank you, Graham. I'll start with the first one, and I think Anders take the second question. And regarding the capital allocation, and as I understand your question, it's about our reasoning -- or actually the Board's reasoning when it comes to the special dividend and the ordinary dividend. I think it's clear, as you see, we rose the ordinary dividend from SEK 8 to SEK 8.50. And then we think that, yes, we have a stable financial position, which allows us to also distribute some extra dividend. And having said that, that is, of course, taking in consideration to be able to be active in our market and take the opportunity for potential deals that may occur both in CD and RD. So I think it's a balanced adjustment of where we are and what we know right now. Anders Danielsson: Graham, I will take the last question on the data center. We have been talking about the data center market for quite some -- few quarters now. And it's a good opportunity, important part of our operation as well, especially in the U.S., but we also see some investment in data center here in Europe. We believe it will continue. So we have a good pipeline. We have repeat customers, and we saw that the order intake in Q4 was really good, close to SEK 10 billion. So I'm confident in that, and we are well positioned to take advantage of that market going forward as well. Graham Hunt: And maybe just one quick follow-up on the capital allocation. Are you considering any other investment opportunities given your flexibility on the balance sheet beyond your core business lines around Commercial and Residential Property, whether that's in -- you have been in the past in PPPs or some of your peers are looking at data center development itself. I just wondered what your thinking was around that. Anders Danielsson: Yes, I wouldn't rule it out, but our main focus is on the core operation, Residential and Commercial Property Development and also that we will continue to invest in the -- our own portfolio within Investment Properties. That's for sure, to build that portfolio just above SEK 8 billion today, and the target is between SEK 12 billion to SEK 18 billion over time. So that's the focus. Antonia Junelind: Thank you, Graham. So we will now continue with the next caller. Operator: The next question comes from Albin Sandberg with SB Land Markets (sic) [ SB1 Markets ]. Albin Sandberg: Sorry, SB1 Markets that would be. But a question on the reversal of the U.S. provision. Pontus, you mentioned that -- you said it was business as usual when you reverse this kind of provisions when you feel sure enough about it. So the question is if you could quantify if there are substantial left of these provisions? And how long are they dated? Are we going back to the 2017, 2018 issues? Or that is too long to go back? That would be my first question. Pontus Winqvist: Okay, Albin. So I'll try to answer. When it comes to provisions or potential, this was actually a claim settlement. And you -- what is happening here is that we were not taking any kind of profits when there were claims there that was connected with some uncertainty. Then when this was solved, this situation, then we released that part of the claim. And there are, of course, other potential claims out in the project portfolio, but it's nothing that we can comment also for the future. They can happen, and they will probably happen from time to time when we have some kind of issues with our clients. So I would say it's a part of the regular business. But this was, of course, quite big. Normally, they are smaller amounts, and then we don't think that there are any reasons to comments on those. But when we have this $43 million, it's substantial, and therefore, we think it's worth for you to know. Albin Sandberg: Great. And any comment about how old project this was related to? Was it a new one or older one? Pontus Winqvist: It's completed, I can say. Albin Sandberg: Okay. And my second and final question was on the starts in Residential. And you mentioned that we should look upon it on a rolling 12-month basis, still see you have a quite positive market outlook for that business. So I just wondered were there any specific reasons for no starts in Q4? I don't know what that could have been or -- because maybe I would have expected a little bit higher number for starts. And whether there's a sort of, I don't know, if you can call it, a catch-up effect heading into 2026 because of the fact that there were no starts in Q4? Anders Danielsson: Yes. I would say that the lack of start in Central Europe in Q4 is not any signs of lower market outlook. We believe, in that market, we have a good pipeline, but it's -- if you look at a single quarter, we didn't have any project, was ready to start in the fourth quarter, but we are working with the pipeline, and I'm confident in our position going forward. Antonia Junelind: Thank you, Albin. And I will just check now with the operator here. It looks like we've come to the end of the list of people that want to ask questions for us here. Can you please confirm that? Operator: There are no more questions over the phone. Antonia Junelind: Perfect. Thank you very much. So that means that we have answered all the questions that were here for us today. So I would like to first say thank you, Anders and Pontus, for your presentations here. And I would like to say thank you for all of those that joined us here in the studio in Stockholm. And lastly, thank you to those of you that watched us online. A recorded version of this webcast will be available on our web page shortly after this. And we will be back with more comments and presentations when we release our first quarter report in May. Thank you very much, and have a lovely day.
Essi Nikitin: Hi, everyone. Welcome to YIT's Financial Statements Bulletin 2025 Webcast. My name is Essi Nikitin, and I'm heading the Investor Relations at YIT. The results will be presented to you by our CEO, Heikki Vuorenmaa; and Interim CFO, Markus Pietikainen. Without further ado, I will hand over to Heikki to go through the latest developments in the company. Please go ahead, Heikki. Heikki Vuorenmaa: Thank you very much, Essi, and welcome, everyone, to today's webcast. Today, we will have a comprehensive agenda ahead of us. First, we review our full year '25 performance. Then we will take the deep dive into the fourth quarter and following up on providing some additional details regarding the news related to earlier today. But let's begin with the overview of the full year. So the first year of our strategy that we introduced 2024 is now behind. We made progress across the several targets, areas, including our adjusted operating profit margin, return on capital employed, gearing and the customer and employee NPS levels. Our financial position continued to strengthen. It was supported by improved financing terms and EUR 120 million reduction in the net debt. The business segments delivered different types of performance throughout the year. In the Residential Finland, the inventory of unsold completed apartments declined, and we initiated new consumer projects in response to market demand. However, the activity in the primary market remained limited. Within the Residential CEE, our apartment sales grew by over 30% as the market conditions strengthened. We launched a record level of new project starts. Both of these will further establish this region as our principal residential market within the company. The Infrastructure segment achieved robust results. Revenue increased by more than 30% and the positive trend across all the key performance indicators continued throughout the year. In the Building Construction, we secured multiple new contracts with both public and private sectors and continue to focus on capital release from non-strategic assets. For the full year of '25, our revenue decreased, while the adjusted operating profit increased. Full year revenue amounted at close to EUR 1.8 billion, and adjusted operating profit increased to EUR 54 million, representing 3.1% of the total revenue. The profitability continues to improve. However, as our strategic objective is to exceed 7%, further progress and actions are required. Our full year operating profit improved to EUR 45 million. That is approximately EUR 100 million more than in 2024. This improvement was primarily driven by improved operational performance and significantly reduced adjusting items compared to the previous year. Adjusting items in 2025 amounted to EUR 9 million, which were associated, for example, to our operations in Sweden. In contrast, transformation-related adjusting items in '24 were substantially higher at EUR 86 million, even including the gains from selling of our equipment at the beginning of 2024. But let's close the full year results now and move to the Q4 '25 overview. And we start with some key highlights from the quarter. Revenue and adjusted operating profit both increased. The net debt and gearing continued to decline, and it's reflecting the good progress in the capital efficiency initiatives as well as the strong operational cash flow during the quarter. Our order books increased in both contracting segments, supported by a robust industrial construction activity. Residential CEE delivered a solid quarter with a higher revenue and profits. Market conditions remains favorable for us. The revenue growth for the quarter was driven by the Residential CEE and Infrastructure segments, while the revenue from Building Construction and Residential Finland declined year-over-year. This was actually a first quarter since second quarter 2023 in which the group's revenue increased. Adjusted operating profit increased from EUR 13 million to EUR 25 million during the period, resulting in adjusted operating profit margin of 4.5%. Overall, quarterly performance aligned with our internal expectations. But now it's the time to double-click on the segment performance, and we start from the Residential Finland. Market conditions continue to influence the performance of this segment. And that is, of course, reflected across all the key performance indicators. Also, there has been improvements in the segment performance during '25, it is evident that the additional measures are necessary given the financial results relative to our established strategic targets. I will discuss some of these actions in more detail later. During the quarter, our unsold completed apartments inventory continued to decline in the Helsinki Metropolitan Area. Several projects reached the full occupancy. However, overall inventory in the capital region remains higher than we prefer. We achieved a total of 211 completions during the quarter, primarily outside of the capital area. While the inventory levels in those regions have increased slightly, they continue to be within normal or low ranges. On the full year comparison, our unsold apartment inventory declined approximately 25%. It is again important to note that there are no scheduled completions in the Residential Finland business over the next 6 months. And when we look at our starts, sales and the inventory levels, we have now achieved balance between those three different elements. We have been reducing approximately 50% of the unsold inventory what we observed in 2024 from those levels. Initiation of a new project is guided by the consumer demand and the current product portfolio has also experienced a significant transformation in the past year. We remain to commit to launch new developments in accordance with the evolving market requirements. Completions in '26 will be again back-end loaded, mostly focused on fourth quarter. Overall, there is a moderate increase in projected completions from 2025. However, it is important to highlight that the 450 units that we are expected to complete during 2026 still falls significantly below the typical levels what we have had in this business on historical terms. But leaving the Residential Finland behind and moving to our business here at the Central Eastern European countries. We achieved a significant number of project completions in the fourth quarter, and that resulted increase in revenue and profit compared to the same period last year. The profitability margin for the full year was temporarily affected by the upfront investments and our ongoing regional expansion, which are part of our strategic initiatives. Project gross margins have remained at targeted level and the market conditions continue to be favorable. And also despite increased investments in the new project starts and plots in '25, capital employed remains well managed and under control. In the fourth quarter, we sold a total of 873 homes within the Residential CEE market. Out of these, 286 were sold directly to consumers, while the remainder were sold to investors or cooperative housing companies. The sales performance remained strong across all operating countries. So following of that, there has been a significant acceleration in the project starts last year, and we started construction on a total of 1,600 apartments in '25. Our current plot inventory is sufficient to support the development of approximately 15,000 additional homes. However, in selected cities, we are seeking opportunities to accelerate growth and further invest in the plot reserves to secure our future development pipeline. For the 2026, we are anticipating an approximately 50% increase in completion compared to 2025. The business continues to demonstrate significant seasonality, as you can observe from the slides. The residential completions are expected primarily in the fourth quarter. And as our financial reporting adheres to IFRS standards, both revenue and profits are recognized exclusively upon completion. Sales from our joint venture projects are also progressing well. During the quarter, we sold a total of 220 YIT homes and are particularly pleased with the launch of sales in our new KALEVALA project in Czech. This year, the completion targets with the joint venture business model is set to increase to 650 units, which then will bring additional 40% volume next to our stand-alone project. We will continue to utilize these SPV structures for selected projects in the residential CEE region. It provides us a flexibility on the project starts and minimizes our own equity investment requirements for those selected projects. And as always, all equity commitments are fully disclosed in our annual reports. But leaving the Residential segments now behind and moving to Infrastructure. Our Infrastructure segment delivered a revenue increase of over 30% in 2025, exceeding EUR 500 million for the full year. The growth was primarily driven by the successful tendering across the various Infrastructure Construction segments and higher volumes within the industrial construction. The profitability remained consistently above the 4% throughout the year, and the team continues to seek further internal efficiencies to achieve the strategic targets established for the segment. The improvement in the capital employed during the fourth quarter was largely connected to our operations in Sweden, where several projects were successfully completed at the year-end. Our order book also is strong and has grown compared to the previous quarter. It is on a robust level of 20 months work and level is nearly EUR 900 million. When we look at the infra market here in Finland, so the market remains dynamic, both in private as well as in the public sector. In early 2026, we announced strategic investments to acquire rail construction capabilities, further strengthening our position within the Finnish Infrastructure market. Notable highlights from Q4 include the order of excavation works for the Vantaa Energy project and the data center development in Kouvola, both which are already now under production. Moving on to the Building Construction. Then the main news from this segment during the Q4 was the capital release from Tripla Mall, totaling of EUR 51 million. It reduced the capital employed on this segment significantly. For the full year, the profitability increased despite the decline in the revenue. The adjusted operating profit over the past 12 months stands at 2.5%, indicating that the additional efficiency improvements are necessary to achieve the segment strategic targets. The order book has increased compared to the previous quarter, with the team achieving notable success in tendering activities, particularly during the fourth quarter. The order book represents approximately 18 months of work and approaches EUR 1 billion in value. Few highlights from the quarter include the school project in Espoon, swimming and sports hall in Helsinki, and the implementation phase of the Kupittaa project in Turku. It is important to note that the certain project value is added to the order book in full only after the development phase is completed. Then when we look at our key operational metrics, we can say that the homes currently under the production is about 3,700 units. 80% of the production is concentrated within the Residential CEE area. Project margin deviations remained well managed and implemented measures to enhance the productivity are evident throughout the project portfolio. The status of the overall supply chain remains robust. Then when we look at the overall market and our assessment of the market situation, it remains unchanged. The Central Eastern Europe, residential sector continues to demonstrate favorable conditions, whereas in Finland, primary market sales volumes are not expected to increase in 2026. The Infrastructure market is performing well and Building Construction, which includes several types of construction activities, remains stable. This concludes my remarks for now, and I will hand over to Markus to you to provide more detailed overview of our financial performance. Markus Pietikainen: Thank you, Heikki. I will walk you through the financials. This is a Q4 2025 summary slide. Return on capital employed was at 3.9% at the end of Q4, up year-on-year from 2.1%. Operating cash flow after investment was in line with Q4 2024 at EUR 111 million. Gearing at 71%, which is close to the strategic target of between 30% to 70%. Net debt, down EUR 120 million year-on-year at EUR 560 million. Guidance, EUR 70 million to EUR 100 million adjusted operating profit for continuing operations in 2026. Let's look at each of these topics in more detail in the following slides. Capital release and capital efficiency in the business operations are top priorities for us. And during the Q4, we released almost EUR 100 million of capital. This was especially supported by the successful refinancing of Tripla, which enabled Tripla to pay us EUR 51 million as return on capital and profit distributions. Our return on capital employed improved by 1.8 percentage points from 2024 to 3.9%. We will continue to drive profits and capital turnover to reach our financial target of at least 15% by end of 2029. Some highlights regarding capital employed from the segments. In Residential CEE, we were able to release EUR 30 million of capital during the year, even though at the same time, our apartments under production have increased by over 60%. This is mainly thanks to our apartment sales and strong portfolio. The Infrastructure segment continues to operate with negative capital employed, supporting the whole group's financial performance. Let's move on to the cash flow development. The operating cash flow after investment has been positive for the last 2 years. Here, we can see strong seasonality with most of the positive cash flow being realized in Q4, just like in 2024. The seasonality reflects the timing of the residential completions. The operating cash flow after investment was EUR 65 million for 2025. We will continue the work to improve cash generation. Gearing decreased to 71%, down by 17 percentage points year-on-year, supported by positive operating cash flow and hybrid bond issuance in Q2 2025. Net interest-bearing debt was EUR 560 million at the end of Q4. This is a decrease of EUR 120 million from the end of 2024 and EUR 235 million from the end of 2023. The net interest-bearing debt include IFRS 16 lease liabilities of EUR 258 million as well as housing company loans of EUR 130 million. The housing company loans decreased by some EUR 50 million year-on-year. This is an overview of the main components of assets and liabilities. YIT had EUR 712 million worth of plots, enabling a pipeline of some 15,000 apartments, both in Finland and CEE countries. This is down by EUR 81 million year-on-year. The book value of the completed inventory amounted to EUR 322 million. This is down by EUR 72 million year-on-year. Production has increased by around EUR 60 million as we have accelerated our production, especially in the favorable residential markets of the CEE countries. The book value of Tripla is now EUR 136 million, reflecting the EUR 51 million capital return received during the quarter. The adjusted net debt was EUR 173 million, and this excludes the operational IFRS 16 lease liabilities and housing loans. The maturity structure remains also in balance. When comparing interest-bearing debt to our key assets, we can see that our underlying asset base is 2x the gross debt number. When we announced our strategy in November 2024 for the next 5 years, we said that our strategic focus in capital allocation is to only employ capital to our residential projects during the construction period. Today, we announced that we have defined non-strategic items that are not part of the company's strategic core operations in line with our strategy and which we intend to dispose during the strategy period. These non-strategic items are in the Residential Finland and Building Construction segments and include, for example, our investment in the Mall of Tripla, equity investments in long-term property development and completed self-developed commercial projects with sales risk. The total value of these non-strategic items was EUR 340 million at the end of 2025, which is 2x our adjusted net debt. This also brings changes to our financial reporting. Going forward, the profit impact from non-strategic items is excluded from the adjusted operating profit. Also, capital employed will be presented as operative capital employed, which includes assets and businesses aligned with the company's strategy. Return on capital employed will be calculated based on the operative capital employed. As a result of the change, the reported adjusted operating profit and operating capital employed will more clearly reflect the profitability, capital usage and capital efficiency of the company's strategic business operations. The changes will take place starting from the beginning of 2026. The changes do not have any impact on the company's financial targets. Then on to the guidance. We expect the group adjusted operating profit for continuing operations to be between EUR 70 million and EUR 100 million in 2026. The guidance is aligned with the new adjusted operating profit definition, which was discussed in the previous slide. The residential market in the Baltic countries and Central Eastern Europe is expected to continue favorably, contributing positively to Residential CEE segment's capability to generate profit. In Finland, the primary apartment market volumes are not expected to increase in 2026. In Residential Finland segment, low amount of completions during 2026 will limit the segment's capability to generate profit. In Building Construction, the operational performance is expected to improve. In Infrastructure, the operational performance is expected to remain stable. Heikki Vuorenmaa: Thank you very much, Markus. And there are also several important topics remaining, like I said in the beginning of the webcast that we need to address. And those are primarily regarding the news released earlier today. But before going there, so let's take a look on how did we do the progress against our strategic targets now on the full year basis. We achieved improvements in our adjusted operating profit margin and return on the capital employed despite the ongoing revenue decline still in 2025. Each segment advanced in line with its respective plans given the prevailing market conditions and the internal performance and efficiency indicators are trending positively. This gives us a good foundation to enter second year of our strategy execution. And as a result of the progress, we are increasing the growth targets previously communicated for our contracting segments. The Industrial Construction business pipeline has exceeded the expectations, supporting us to double the revenue growth targets for both the Infrastructure and Building Construction segments throughout the strategy period. Accordingly, we will -- we intend to reorganize our Energy and Industrial Construction operations into a new Digital Infrastructure business unit. In external reporting, we continue to share both revenue and profits under both contracting segments for now. Over the past 12 months, we have strengthened our team by recruiting additional talent, and we will continue to do so to enhance our capability to deliver the comprehensive turnkey solutions for our customers in the Digital Infrastructure space. But while we are witnessing a faster-than-expected progress in the Digital Infrastructure business, it remains essential to pursue additional operational efficiencies to align our operations with the current market conditions, both in Residential Finland and Building Construction segments. We intend to transition from a regional line management structure to function-based organization. And this shift will enhance our focus on core capabilities and provide greater flexibility to scale the business in response to the market demand. In connection to this change, we are also evaluating our internal management processes, how we are following up the performance and evaluating if we would move to percent of completion management system. This could also then impact on the external segment reporting principles as well. Today, we have initiated change negotiations in Finland to plan for these needed changes. The estimated cost savings are projected at EUR 15 million with full realization expected by end of '27. Our forthcoming quarterly reports will include updates on the progress towards these targets. But this is all for now. And operator, it is time for the questions. Operator: [Operator Instructions] The next question comes from Svante Krokfors from Nordea. Svante Krokfors: A couple of questions. First one regarding the slow apartment sales in Finland. What kind of measures are you taking to continue to reduce the number of unsold apartments going forward? Heikki Vuorenmaa: Thank you, Svante. And of course, when we look at the demand picture and the activities are taken. So we have been applying different type of campaigns during the past couple of years to significantly reduce the inventory levels from, let's say, the highest level that what we had in 2024. Those have been quite effective when we look at certain cities outside of the capital area, where we see that we are actually operating in a relatively normal levels and achieving our fair share of the market. The inventory level remains elevated here in the capital region, and we need to look then project-by-project selectively what type of actions are needed in order to boost the sales there. Svante Krokfors: Okay. That's quite clear. Then a question regarding the EBIT guidance for 2026. What kind of assumptions do you have for the high end and low end of the guidance? I guess you mentioned that Residential Finland will have difficulties to generate positive results this year. So, where will the EUR 30 million to EUR 50 million -- sorry, EUR 20 million to EUR 50 million increase from the EUR 50 million baseline come from? Heikki Vuorenmaa: If you look at the overall different segments, so what is quite notable is amount of completions that will take place in our Residential CEE business this year compared to the previous year. So we expect the completions to increase by 50% compared to 2025. We also, like I said, so we expect our operative performance in the contracting -- both contracting segments to improve while we do not expect the market conditions in the Residential Finland to improve in 2026. As usual, so there is -- at this point in time, so there are uncertainties in the market picture, which is then reflecting the range of our guidance that we have given today. Svante Krokfors: Okay. And could you tell something about the timing of the EUR 50 million cost savings announced by the end of '27. Will that have an impact on '26? Heikki Vuorenmaa: So we have initiated the change negotiations or kind of communicated that we will initiate the change negotiations today. So we will come back to the further details as well as the specific outcomes then on the following quarterly results as we have made a progress against the target. Operator: The next question comes from Anssi Raussi from SEB. Anssi Raussi: Just one question from me, and it's regarding your financing expenses. So how should we think about financing items in 2026, like, let's say, if we compare it to Q4 run rate or what kind of impacts or factors you see here? Heikki Vuorenmaa: Thank you, Anssi, for the question. We do not specifically provide a guidance on that specific element. But Markus, if you want to maybe give a bit flavor on that topic. Markus Pietikainen: Sure. Thank you, Anssi, for the question. I think it will be an equation of part our capital release program, how that will progress. As you've seen, we've now announced that the EUR 340 million is non-strategic in the balance sheet. And obviously, this will be disposed by the end of the strategy period 2029. So very much that depends the financing cost based on the timing of those disposals. Otherwise, I think that that's the biggest delta, if you will, for that item. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Essi Nikitin: As there are no more questions, we thank you all for participating and wish you a great rest of the day. Heikki Vuorenmaa: Thank you. Markus Pietikainen: Thank you.